Moody's Talks - Inside Economics - Inequality, Interest Rates, Immigration,…

Episode Date: March 22, 2024

Heidi Shierholz, President of the Economic Policy Institute, joins the podcast to discuss the ongoing skewing of the income distribution. There’s a lengthy list of reasons why more of the economic pie is going to those in the top of the distribution, from less unionization and lax enforcement of labor laws, but you would be surprised to hear what’s not on the list. You may also be surprised that the conversation ends on an upbeat note. Special guest Heidi Shierholz is the president of the Economic Policy Institute (EPI) in Washington, D.C. Prior to joining EPI, she was the Chief Economist at the U.S. Department of Labor during the Obama administration. Throughout her career, Shierholz has provided policymakers and economic commentators with research and analysis on labor market dynamics, labor and employment policy, and the effects of economic policies on low- and middle-income families. She is regularly called upon to testify in congress and her research and commentary on labor and employment policy, inequality, racial and gender disparities in the labor market, worker bargaining power, and other topics have been cited in top broadcast, radio, print, and online news outlets. After receiving her Ph.D. in economics from the University of Michigan, she was an Assistant Professor of Economics at the University of Toronto in Toronto, Ontario. She has an M.S. in statistics from Iowa State University, and a B.A. in mathematics from Grinnell College in Iowa. Check out some of Heidi Shierholz’s recent write-ups:Workers want unions, but the latest data point to obstacles in their pathImmigrants are not hurting U.S.-born workersMiddle-out economics is good for workers, their families, and the broader economy Follow Mark Zandi @MarkZandi, Cris deRitis @MiddleWayEcon, and Marisa DiNatale on LinkedIn for additional insight.  Questions or Comments, please email us at [e-mail]. We would love to hear from you.  To stay informed and follow the insights of Moody's Analytics economists, visit Economic View. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Inside Economics. I'm Mark Sandy, the chief economist of Moody's Analytics, and I'm joined by my two trusty co-host, Chris DeRides and Merced Zinatali. Hi, guys. Hey, Mark. Good morning. Happy Friday. Happy Friday to you. Yeah, what's going on? Anything interesting? It's a cold in Philadelphia. I know. I'm looking out the window. I made my way back to Philly. You'll be happy to know. Did the 15-hour trek with my, my, uh, my wife and two dogs. We made our way up. Got caught in Washington, D.C. traffic, or otherwise, I would have record, record time. But alas, you know, Washington nuts me up.

Relat to that. Yes. Yeah, yeah, yeah, exactly. Okay. And I heard, Mercy, you're headed off to Whistler. Is that like a ski vacation or what? Well, it is a business trip, but it's at the four seasons in Whistler. So I'm turning it into a little bit of a personal trip on the front end.

That sounds nice. Yeah. Very good. Yeah. Somebody had to go. So I volunteered. You know, someone had to fall on the sword. You're the short straw.

Right. What, you fly into Vancouver and you drive up to Whistler? Yeah. And then it's like a two hour drive north to Whistler. Oh, is that right? Yeah. I don't ski, though. So this is sort of wasted on me.

I hope they have snow. You can report back next week. They do. They do apparently. Good. Well, we have a guest. We already kind of teased her, Heidi Scherholz. Heidi, good to see you. Thank you so much for having me. I'm excited for this conversation. Well, do you say that now? We'll see how this goes. Heidi's the president of the Economic Policy Institute, EPA. Welcome. I knew your predecessor, Larry, Michelle, quite well. Larry, is he retired or is he still? I see his tweets, actually. He's still. He's retired, but he's not.

never, he's technically retired, but is just, you know, staying in the game, doing as much as he can. He's a force to be reckoned with. Yeah, I remember I got to know him pretty well in the financial crisis back because he held a lot of meetings and informational, there were no webinars back then, but we had different convenings and that kind of thing to try to get a grip on what was going on. But very, very, very. a good guy. And when did you become president of EPA? When did you take over from Larry?

Well, you know what? There was a person in between. Oh, there was. He was president for three and a half years, but then between Larry and me, but then she went into the Biden administration. She runs the international unit at the Department of Labor now. Got it. And so I took over at EPA in the summer of 2020.

So it's going, it's coming up on three years, two and a half years, I guess. But I'm a longtime EPIer. I first joined EPI in 2007. So I have a rich history at the organization, but just have been running it for the last couple years. And would you characterize yourself as a labor economist? Yeah. Yeah.

Yeah. Yeah. Okay. Labor economists by training. Yep. Yeah. Right. And so you've been an EPI all in for how long, did you say?

Well, I first came in 2007. And then I took what I always call like the most stressful sabbatical in the world. After in, not in the world, but in 2014, I went to be chief economist at the Department of Labor for two and a half years. And then came back to EPA. Very cool. And then, you know, became the president after that. Got it, got it. And you want to tell us a little bit about EPA?

You know, what the, is a think tank? Is that, is that okay to say? You're a thing? Totally. Yes. I think I don't feel like anyone quite knows what a think tank is, but it's a reasonable description. We were formed in 1986, so we're a long-running think tank. And the core mission is to really bring the interests of low and middle-income people into economic policy discussions.

Like just to make sure that those voices are heard and that we understand just sort of shedding light on what really will create an economy that's both strong and agile and fast-growing and fair, where productivity growth is broadly shared. That's sort of our core mission. And I don't know if you appreciate this, but, or maybe I'm saying something I shouldn't be saying, but I kind of think of think of think tanks kind of along the political spectrum. Do you do that as well? Is that fair to do? You know, like I think of like a Brookings kind of a little bit left of center. I think of American Enterprise Institute, AEI, a little right of center. Is that fair? And where would

you put yourself relative to those folks? I think it is fair. I, you know, I always just think we look at the data. One thing that people will say about EPA is no matter what you think. think about our last paragraph and the conclusions that we draw from the data that we analyze, no one's taking issue with our analysis, right? Like, we do really rigorous work. But then the conclusions will line up with a more progressive view of, you know, what do we need to do to solve whatever problems have been that we've underlined with an analysis. Got it. And I know Josh, Josh Bivens pretty well. He's really good. And talk about data dependent or oriented. He's very data dependent. Actually, in preparation for our conversation, I was reading a number of your

blogs and other pieces. And chock full of data, you're going to be really good at this stats game later in the conversation. We've got a lot of stats. How many people, let's say, how many scholars are there, if that's the right word, economists, scholars at EPA? We have, that's a, I shouldn't have this off the top of my head. We have roughly 50 people total and maybe a total of eight economists. Got it. PhD economists. And then there's others who are aster's level analysts and those kinds of things who I would also say are scholar. I mean, I'm sure you will agree with me that a PhD in economics is neither necessary nor sufficient for doing good, high quality economic analysis. But we do have that stable of PhD economists. Got it. Well, it's great to have you. And there's a lot of

topics to talk about. I want to talk about the immigrate, this is no order of importance, but immigration, because I know you've been writing about that, a lot. That's been in the news, obviously, recently given the surge in immigration and it's the consequences for lots of different things. Artificial intelligence, AI, and what implications that might have for the labor market, income inequality, unionization. But I want to begin with the Fed in, because this is top of mind. the Fed met this week, had a meeting, reaffirmed the federal funds rate targeted five and a half percent. And I thought maybe I'd just quickly turn to Chris. And Chris, maybe just give us a sense of just quick summary of what they did and your interpretation of the outcome of the meeting.

The market certainly liked it. The stock market certainly liked it. Yeah, they met. They did not change the Fed funds rate. That's the direct actionable piece of things. And then there was the press conference that Chairman Powell held that I think provided that support for the market. My interpretation is kind of looking through the inflation data and suggesting that three cuts are still on the table or cuts certainly this year are still on the table. There had been some analysts suggesting that that was no longer.

the case because of the inflation. So I think that was supportive to the market outlook. You feel any better after all this? I mean, about meaning where the, because we've been kind of hand-wringing a bit about the Fed waiting too long here and something breaking and that's a potential risk to the economic expansion. Do you feel better after all this? feel a bit better. Bit better. Their outlook is similar to ours, right, with what we have in our forecast. But I am still concerned.

This is, you know, he's the chairman, set the door open or left the door open to additional cuts this year. But also suggesting you need to be data dependent. So I worry that the data can be misleading when we, as we've talked about on our previous podcast, the inflation may not be quite as strong once you, you, you know, once you take out the owner's equivalent rent issue, and therefore, we could have still, when the rubber hits the road, will they be willing to make the cut if the official inflation report is still suggesting something around 3%, for example? Yeah, how you just, FYI, we've been, it feels like every podcast for the last four, five,

six podcast, each time we dig deeper into the CPI, the consumer price index, and particularly the owner's equivalent rent, the cost of house. which is, you know, I'm sure you know, quite problematic in terms of how it's measured and, you know, what kind of impact that's having. Let me turn it back to you, Heidi. What's kind of your take on what the Fed's been doing, what it did at the meeting, any, and how are you feeling about things broadly? One thing that I think is potentially useful to just mention, I'm sure you've talked about

this, but there are just a lot of different. debates amongst economists about the correct neutral level of interest rates in the economy. But I think no one thinks that current rates are anywhere near neutral. So that's that we just know that to be true. But I think, and you're sort of hinting at this, the rate of inflation really is very close to neutral, a neutral rate right now, if not actually at it. So there's this real imbalance between the two. And I think that's, that if it lasts much longer, it could get to be a real problem.

It just puts a really stiff drag on growth. One of the things I think about a sort of impact that we really all have to worry about right now is I think the high interest rates are tough on the renewable energy build out. So like that's a big problem. And then to your point, like, if they wait too long to raise, right now we have a very, very, very strong economy. But if they wait too long to raise, it could start creating real weakness, even cause a recession. And that then has enormous problem. Like, you know, those are the kinds of things. That's what we want to avoid at really at all costs.

And I think about, you know, I talked in the beginning that the mission of EPA is really to bring the interest. of low and middle income people into economic policy discussions. And when you talk about a weak economy, like if they wait too long to reduce rates and that really does cause real weakness in the economy, that churns out inequity. Like weak economies churn out inequity. They churn out racial inequity, they churn out inequity between low and low and middle income workers and higher income workers. And that's because weak economies, high unemployment, it really hits people across the board. Like all across the wage distribution, wage growth is slower when the unemployment rate is higher, but it's worse the farther down the wage distribution you go.

high unemployment rates are worse for middle income people than for high income people. They're worse for low income people than middle income people. And so you really see weak economies, high unemployment, pulling apart economic outcomes and creating and generating real inequity. So there's this real sort of distributional problem that goes along with waiting too long to lower rates as well. Yeah, I guess, and I'm very sympathetic to what you said, but I guess if, you know, Fed officials probably wouldn't disagree with you. They would argue, though, that they want to make sure that the unemployment rate is low for as long as possible. You don't want to get the unemployment rate too low. Inflation becomes a real problem. They've got to jack up rates and then you get a recession. That's not the kind of world we want. We want steady, low unemployment, like we've been getting for the last two years. Solid point. Yes, I absolutely agree with that. And so, The fact that we are seeing inflation just coming down, looking very close to a sort of quote-unquote neutral rate right now is the flip side of that.

Like there's we're not, we are seeing this steady decline in inflation. And one thing that I think is potentially important, there was a pretty hot inflation print in January. And then we don't have the February PCE numbers. out yet. They should be coming out soon, but what we have the February CPI numbers that, you know, it's showing, you know, it came in better. There's a lot of reasons to believe that the January number was kind of a fluke. And I think the steady, the pretty steady decline in inflation that we're seeing does, and this big imbalance between the feds, you know, just with how high the interest, rates are right now, it does make me think that we're kind of moving to, if we are not at the point

where the evidence is strong enough that inflation is normalizing, that the Fed needs to kind of start ignoring one month hops of hot inflation data, like not change course because you get one hot January. Like, I think we, that's one key thing that I think the broader trends are showing us. Totally. Totally. And I think, you know, I got the sense listening to Powell that he thought that the January and to a lesser degree the February consumer price inflation numbers, they were, as you said, hot, they came in strong, probably were affected by data issues, seasonal adjustment, that kind of thing. So I took some solace in that. Hey, Marissa, anything you want to add on the conversation on the Fed before we move on? I, you know, he kept reiterating that they're committed to bringing inflation back down to 2%, but he seemed to acknowledge, he was asked a question about shelter inflation, for example, and he acknowledged that they're looking at that data. They know there's a lag in it, that inflation is on the right trajectory. It's been a bumpy few months, so they're being cautious. So he seems to, I don't know, I interpreted it is that he's kind of, he is looking through some of that noise, you know, and they are acknowledging. some of these quirks in the data. So I don't think that they necessarily need to see inflation at 2% before they do anything. I think he just wants to know that, you know, we need another couple readings on inflation. As long as it's moving lower or it's not moving

higher, you know, I think then they're ready to go. Yeah. Yeah. One thing I did notice, which I found interesting going back to your point, Heidi, about the neutral rate, the so-called equilibrium rate, that rate, which were monetary policies neither supporting nor restraining growth, they raised it just to, I don't know if you noticed. In the summary of economic projections, the so-called CEP, they released that every quarter. These are their forecasts. And in that, they have a long-run forecast and for the federal funds rate target. And they raised it just a tick from 2.5 percent to 2.6, which is their estimate of the neutral rate, which seems very low to me, you know, in the current context.

feels like in our forecast, we have it at somewhere around three, and that even feels low. I've talked to a number of economists who think it's even higher than that. But to your earlier point, regardless of where you think that is, it's not five and a half. Five and a half is a lot higher than three. And anyone's estimate. Anyone's estimate, right. Yeah. So, okay. Okay, let's move on. And Heidi, I want to just kind frame it this way. I'm just really curious. So when I read your work and the work that comes out of EPA, you know, I get the sense and feel free to push back, you know, because I'm just, this is,

this is in Zandi's mind, you know, how I think about it. You kind of frame things, all the research you do and the work you do, you kind of frame it in this, I don't have battles the right word, but this tension that exists between workers and employers. And here's some data that I'm just curious how you think about this. So when I think about this tension between workers and employers, I go to national income, and I look at where the national income is going. National income is the economic pie. You know, GDP is the valuable things that we produce that generates income.

wages and profits and other sources of income. And we divide that pie up. And labor share of that. And you can see the amount that goes towards compensation, which is wages, salaries, and benefits is, you know, you can look at the data back to 1947 right after World War II. The average share is, I was going to use this for my stat game, but I just can't wait to say it. So I've got to use it. 33.8%. That is the average through time back to 1947. The last data point we have is for the fourth quarter of 2023, and the share is 63.8%. It goes up, it goes down. It has obviously been higher.

Back in the 80s, early 90s, it was close to two-thirds, maybe even a little higher than that at points in time, because it is cyclical, goes up and down based on what's going on the business cycle, to your point about unemployment. But, you know, it's kind of roughly where it's always been. So is that, is that, what do you think of that data? What do you think about what I just said? Do I have this right? I mean, if you look at that, take it at face value, you'd say, you know, it's a draw between this, this, this, this battle or this tension that exists between workers and, and their employers.

No? So one thing that the labor share sidesteps entirely is inequality within income. Like that's, I think, if you look at rising inequality over the last four and a half decades, the lion's share of it has not come from decreasing labor share. although if you look like since 2000, you do see decreasing labor share over that period. But the lion's share of it has been very strong rising inequality within wages, for example, within income. So that's really the source of it. That's where it's coming from. And so that is masked entirely when you look just at the overall labor share. those are the things where you see, you know, that if you just look at inequality within earnings,

that the top 1% just skyrocketing, the top 5% skyrocketing, but a little bit less the top temperate, you know, like just that kind of fractal kind of inequality. Though one interesting thing is that was, that's been true basically from, you know, 1970, I think of the sort of the real spurt of this rise in inequality starting with the, you know, the early 80s. If you look from 79 to 2019, you see this rise in inequality within income. That's not been true over the last four years. If you look from 2019 to 2023, the pattern is the opposite of what we had been seeing over that period where you saw the strongest real wage growth in the bottom.

Like it's exactly the opposite graph. You see the strongest real wage growth at the very bottom, the next strongest real wage growth at the lower middle and on and on and on and the lowest real wage growth at the very top. So we have seen a little bit of a reversal in the last, you know, over the pandemic period. And we can talk about, you know, there's lots of reasons for that. But there's it in no way has unquestionable. undone the massive amounts of rising inequality that happened in the 40 years prior to that. But that's where the meat of the rising inequality is.

Okay, I got it. So it's not really a worker versus employer. It's that, you know, if you look at the income of workers of individuals, it's become more skewed over time, that the folks in the top part of the distribution are taking a higher share of that income, of that, of that, their, workers are getting their share of the national, of national income. That, that goes up and down all around, but it hasn't really changed much. But the distribution of where that share is going has become more skewed. That's what you're focused on.

That is absolutely right. And when you think of, I do think that this question of power in the, I mean, your point about tension, I think, you know, economists might not have used the word, well, economists definitely use the word power. But that's been the focus of, you know, who has leverage and has, is the focus of a huge amount of economic research and theory. But it is, in this case, it's, instead of the, sort of fruits of productivity growth going to capital is the shift has been less to capital and more to, like, executive pay and pay of and other highly paid professionals. Like, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's,

okay, okay, got it. Um, and, uh, uh, I was gonna say one on the thing. Oh, uh, when I look at, uh, trying to quickly measure income inequality, I immediately go to the genie coefficient in the, you know, that's a way of measuring what percent of the of income is going to, uh, to, to, to, to, to, to, to, to, to, to, to, to, to, to, uh, just for context, uh, if the genie coefficient is, uh, zero, then that's, uh, that's, uh, perfect equality. And if it's, it's, uh, perfect inequality. And right now, in the census publishes this every year with a bit of a lag. right now it's sitting 0.49, something like that, you know, kind of halfway in between. That is well up from, say, 1980.

So from 1980 through 1990, 1995, it rose very sharply. 0.40 in 1980, I'm speaking from memory, so I don't have it exactly right, but this is roughly right. Point 40 in 1980 to say 0.45, 0.46 by the early 1990s. it's kind of meandered up a little bit through the financial crisis. And since the financial crisis, more or less, it has not changed. And as you said, most recently, it feels like it's come in a little bit, although I'm not sure whether that's just cyclical because the economy is strong or whether there's something more fundamental going.

But the broader point is most of the, by that measure, and the question is going to be, is that a good measure? But by that measure, most of the skewing of the income and wealth distribution occurred in the 80s, kind of the first part. of the 1990s since then it's been pretty modest in the last decade, not so much. Is that, is that fair characterization? So that's this is a really interesting point. I almost never look at the genie coefficient, but not that it's bad. I just feel like I don't, I don't feel like people have a benchmark in their head for what it, quote unquote, should be. And the,

it doesn't give you information about how, as you see, changes. in inequality, it doesn't tell you the nature of that. So I like to look at like the 50-10 ratio, which would just be like the ratio of the median, the person at the middle, their wages to the 10th percentile wages. So you get a sense of what's going on with inequality at the bottom and then look at the 90-50 to get a sense of what's going on with inequality at the top. I like to look at those because I just feel like they they provide more texture. But I think that this, I, uh, So is the data the way I characterize it consistent with kind of the way you think about it,

using it, these other measures of income and quality that, you know, it's really the skewing really was most pronounced in the 80s, early 90s since then somewhat, but not nearly to the same degree. In the last decade or so, not so much. Is that fair? Is that in your mind's kind of how you see things? That is, oh my gosh. Now, this is the minute I get off of this podcast, I'm going to run to look at the sort of decade by decade. Because I don't have them in my head.

Okay, so one thing we know is there has been a reversal since, you know, since the business cycle that started in 2019. And your point is we're still in that. We have to see how that is going to play out. So, but if you look before that, we still saw like the, the business cycle from 2007 to 2019 was just it had the weakest, one of the weakest recoveries, if not the weakest, slowest recovery on record. There's a, you know, there's a lot of, that was separately.

That was a policy choice. It didn't have to be that way. We did not do the fiscal policy that would have created a strong recovery in that following a great recession like we have following the COVID recession. But so I just, I know that what that does, what that kind of weak recovery does is really increase in equality. So it's, I have to look back, but I think we have seen pretty steady rising inequality in the measures that I focus on the most over that period, but I'm definitely going to look. And we did see like in the late 90s, we saw improvements with the very strong labor. market of the late 90s. So it definitely isn't, it isn't some kind of monotonically rising

inequality over that period. But you maybe want to go look. Let's stipulate that the income, and we haven't talked about wealth, but certainly wealth is much more skewed today than it was 40 to 50 years ago. And much of that happened early on in the period, but it's still happening to some degree, but less so. You know, debate as to what degree. Before we move on, Because what I want to do is kind of dig into the reasons for this and what that means about things as we look forward. And we're going to talk about immigration, you know, AI, technology more broadly, unionization, you know, forces. And I've got a couple of other theories. I'd like to bounce off you if we've got time too in terms of income and wealth inequality that I think might be interesting.

Before we do that, let me turn back to Marissa and Chris. You've been hearing this discussion around how to measure income inequality and the way things have been framed so far. What do you think? Anything to add there? Marissa, anything to add or anything you want to say? No, I mean, I'm interested in when, Heidi, when you were talking about the late 1990s, early 2000s, right? I mean, that was arguably the best run in the labor market we've had in recent history and was in part spur. by the internet, right? So now we're facing down the possibility of AI, which I know we're

going to talk about. So I am very curious to hear your thoughts on what that might mean for all of these things we're talking about. First, anything? I guess a question I'll ask, I think this is probably on the minds of some of the listeners right now is when you're running down the income inequality statistics is that gross income or net of transfers, that's always a subject of debate. Are you just talking about income, earned wage income and what that distribution looks like, or are you accounting for taxes as well as transfer payments? Yeah. Go ahead. Go ahead. Oh, I was just going to say, I tend to focus, just there's so much to focus on, like, just making a choice of, I tend to focus on pre-tax and transfer income just

because I'm interested in what the market is delivering for working people as a as a sort of a core interest. But the trends aren't massively different if you look at. We just, we have a very well targeted like transfer system in the sense that it's, you know, it does, it, it helps the people that it gets to, but it's very small. And so it doesn't have a huge impact on the overall trends, but it's not nothing. And that's a really good question. It's a really good point, I mean. Okay. Well, like most everything, it boils down to how you measure it. Yes. Yeah. In this case, I'm pretty sure, no matter how you measure it, income and wealth has become more unequal over the last 40, 50 years. I don't, I don't know that there's certainly wealth. Yeah. Certainly. It's certainly a question of degree, right? The question of degree.

And also more recently, to what degree has the skewing become less pronounced or has not increased to the same degree, you know, that kind of thing. Okay, why don't we do this before we dive into immigration, AI, unionization? Let's play the game because this is pretty dense already. The conversation was pretty dense. And the stats game is we each put forward a stat. The rest of the group tries to figure that out with clues and questions, deductive reasoning. the best stat is one that's not so easy. We get it immediately.

One that's not so hard. We never get it. And if it's apropos to the topic at hand, income and wealth inequality and those issues, the better. So, Heidi, we always start with Marissa. It's tradition. So we're going to start with Marissa. We don't know why, but we do. And Marissa is pretty good at this game.

I'd say really good at this game. So watch out for her. Okay. I really, Heidi, in honor of you, I really wanted to pick a labor market statistic because I also am a labor economist and worked at the Bureau of Labor Statistics before I came to. Was Heidi your boss, Marissa? Is that possible? I don't know. No, no. No. Oh, okay. I was there a long, long time ago. But I, but I want, but then I thought if I picked a labor statistic, I wouldn't have any chance of stumping you. So I'm going in a different direction.

Okay, my statistic is 17 years and one month. 17 years and one month. Does it have to do with income and wealth inequality? No, it doesn't. Oh, so totally unrelated. It is, yeah. Is it labor market related at all? No.

No. Okay. And is it a stat that just came out this week? Yes. Why do you say it that way? Either it did or it didn't. It, yes, it did. Okay.

This calculation. See how she does this? Yes, she's good at it. I'm really good at this. Yeah. The intonation, like she puts doubt in your mind. Okay. Okay, this week.

Is it a record high of something? It is a, no, it's not. Let me give you. I thought you guys were going to get this right away. I'm going to give you. Is it something to do with housing and being able to afford a home? No.

Okay. All right, go ahead. It is related to, it is related to monetary policy. So back to our original discussion. Oh. Oh. Monetary policy. 17. What did you say 17 years and what?

And one month. Uh, is, uh, do I have to do, is it something that happened 17 years ago, 17 point, 17 years and one month ago? Yes. Oh, the last, yeah. So it's the last time the Fed did something.

The last time this happened was 17 years and one month ago. Okay, I'm doing the. Yeah, the arithmetic. That would be 2007. 2007. And the last time the Fed kept the funds rate at its terminal rate. No, okay. Because 2007, no, that's right before the financial crisis, right?

Is it 2007? Yeah, it has to be. Right. Yeah. Yes. What happened? 2007 was right before the crisis. The fund's rate was sitting at, was it sitting at 5.5%?

Yeah. No. Come on, Chris. You got to chime in, man. So wait, this is March 2007. Is March 2007 the benchmark? February. February, okay, one month.

Okay. Okay. Okay, this is great. So what happened? February of 2007. February 2007. Okay. February 2007,

something the Fed did in February of 2007. Is that right, Marissa? No. Not the Fed. Oh, not the Fed. I thought she said the Fed. Something Congress did in February 2007. I didn't say the Fed.

I said it has something to do with monetary policy. Oh, right. Oh, right. Oh, geez. Oh, wow. I don't, Heidi, I give.

What do you? I don't know. I want to like call a friend. I don't know. Yeah, right. It's going to be something we should have said, oh, we, you know,

we should have known that. Yeah. Go ahead, Mercia. What is it? This was the last time the Bank of Japan raised interest rates. Of course.

The Bank of Japan just ended its 17-year policy of negative interest rates this week. Yeah, that's a big deal. That's a good one, but totally unrelated to anything, Marissa. I'm just saying. We had some discussion about it. You had that Fed comment in there? Yeah, yeah.

See how she does that? Yeah. We talked about interest rates and monetary policy. It's not unrelated. No, that's a good one, though. That's actually a very good one. It is related. Quickly explain what happened?

What did B.J do? The Bank of Japan raised its short-term, basically overnight deposit rate earlier this week to just above zero, a range that's just above zero. The Bank of Japan had had a policy of negative interest rates on deposits for the past 17 years. So they've been trying to stimulate the economy by actually making depositors pay banks to keep money in accounts and banks. And they also, with this announcement, ended a bunch of other things, control over the bond. They still have control over the Japanese bond market, but they ended investment in things like reits and exchange traded funds and a bunch of other things to try to stimulate the Japanese economy. I mean, it's interesting because Japan, the reason that they did this is because, of course, Japan had been in mired in extremely slow growth. slow productivity growth, deflation for years.

But now the Japanese economy is actually inflating, even a little bit above the BOJ's target. It's inflating at over 2% year over year. And the sort of catalyst for this is that there was a very large negotiation of Japan's largest labor union that affects millions and millions of workers. They got the largest wage increase of over 5% that they've, okay, I can bring this back to the topic at hand to hide.

They got the largest wage increase that they've gotten since 1991. And so the bank believes this will be inflationary for the economy. The economy is weak, though. You know, so this is a bit of a controversial move because it's not as if the Japanese economy is growing quickly or even, you know, inflating that much, right? So they did this, but they also cautioned that we're not so keen to keep raising policy rates. We're going to be really cautious and we're going to go really slow with this because we recognize the economy's sort of teetering on the brink of recession. And like the Fed and many other central banks around the world, they're kind of treading this line between taming inflation but not wanting to stall the economy's growth.

Yeah, that's a really good one. I mean, it's the only major central bank, maybe the only central bank that's raising interest rates. Yeah. Everyone else is getting ready to cut. But that's a great one. Heidi, you want to go next? Well, I was going to do something that is a topic that we'll discuss after this. But should I still go for it?

Yeah, go for it. Yeah, yeah. Okay. I have, I'm debating between two different ones, but I will just go with because it's round number, 75%. and it has to do with unions. I'll just... 75% It has to do with unions.

Well... Think of... Well, I'll let you ask questions before I can give hints. Okay, that's a percent of some group that is unionized? No. No. That would be really high. No, right?

That would be high, right? Is it a percent of a group that... wants to be unionized? No. Oh, but is that closer? It is getting closer as far as like people's right. Thoughts about something.

Right, right. It's people's thoughts about something, not actual. Right. People who approve percent of the population that approve of unions. Okay, that is very, very close. Okay, so that is very, very close. But you could say, Mark, you got it right, you could say that.

No. That is very, very close. It is, and that's the other one I was going to do. But it is, think of, stick with that thinking, but then think of major union actions that got a lot of coverage. Oh, you mean the UAW? Oh, or the writer strike. First one. Oh, the UAW strike.

Yeah. Yeah. Oh, so 75% of people. felt positively about what the UAW did when they struck the automakers. That's right, right. The share of people, the share of Americans who like sided with the UAW in their labor dispute with the U.S. auto companies. Right.

Is that like a Gallup? Gallup. Gallup poll? Yeah. Okay. Oh, that's good. So is your, what's your broader point? Is it that people are, is it my, again, this is just in my minds.

I people have historically kind of looked at in recent history, not all time history, but in recent history, have looked with a jaundiced eye on unions, but that may be changing? That is exactly my point, that we are in this period of just incredibly broad support for unions, people reporting that they think that, reporting that unions are good for the economy, that unions should be strong. that, you know, like we're at near record highs for union approval, the broad union approval that I didn't go with, but it's very close to these numbers. It's just a very, very different environment than where we, you know, those numbers weren't anything like that in the more recent past. So it's a big, it's a big shift. Let's just dwell on that for a second.

We'll come back. But why do you think this perception is changing? What's going on? Yeah, I, it's a, that is, I feel like there'll be lots of dissertations written about that. I think one of the things that is like the, like the incredibly large support for the striking UAW workers. I just, nothing is polling in the U.S. at 75% now. Like, nothing. It is just remarkable that this is, that there is this, this sort of unity around unions.

I think it, working people, even though we have a very strong economy, growing real wages, you know, unemployment at less than 4% for more than two years now. All of those things are remarkable, but we still have a huge share of people that are, you know, living paycheck to paycheck. They're really struggling. And I think what we have seen in the recession in particular, in post-COVID in particular, is that unions were kind of standing up and demanding things and people have seen unions get wins for their workers.

And I think it's really struck a chord. I think that it's a good question. I think the very tight labor markets were one of the things that sort of spurred that process. And then it has been something of momentum building upon itself where there have been some important wins and people have seen that there is, you know, I feel like there's been some of the relearning of the lessons of, you know, joining together with your co-workers actually

gives you power to secure some demands that I think had been kind of, those lessons had been kind of unlearned in the prior 40 years. And sorry, I'll just, oh, I'll just say one more thing. Sure. We do have such low unionization rates in this country after four decades of relentless attacks on unions that there's a very small share of people in our economy that actually grew up in a union household or have any direct experience with unionization. And I think that's one of the things that that facilitated those lessons of the power in joining together with your coworkers that facilitated those lessons being lost.

that the tight labor markets leading to worker actions and some wins and generating momentum has sort of shifted in this, in the post-pandemic, not that we're post-pandemic, but in the since the COVID era began. Interesting. I wonder just throwing it out there, the high inflation may also be playing a role because people view the inflation as a rip-off. And to some degree, you know, if you look at profit margins of companies, they've gapped out during the pandemic, meaning they've raised their prices much more significantly

than the cost of labor and other input. And the margins are no longer rising. They're starting to come in, as you would expect, as competition kicks in in lots of different industries. But people are paying higher prices for everything. They're saying, and they haven't seen this before, you know, many of them in their lifetime. And they view this as just unfair. It's just a rip off.

And maybe a union is a way to get, you know, the higher wage is necessary to, you know, fight back and maintain purchasing power. Just a thought. No, I am sure that that has a part of it. It's really hard to parse out like what are the different, what are different causes of it. But that has to be playing a role. It just has to be playing a role.

While we're on the topic before we move on to Chris and his stat, while we're on unionization, we might as well play this out. The one, I've done a lot of, you know, a fair amount of modeling of trying to understand, which has been dry, what has driven the skewing of the income and wealth distribution. And, you know, there's a lot of measurement issues that Chris brought up and lots of other things that go on. But the one thing that in every model I built, I mean, every single one of them is sure of the labor force that's unionized. That is like critical to explaining, you know,

what's going on. And it's been steadily declining. I think it kind of the, the symbolic event was when Ronald Reagan broke the air traffic union. I think that was 1979 or 1980, wasn't it, somewhere in there. But it might have been in 79 or something because wasn't Carter. No, was it? Yeah, it would have had to have been in 80, right? Because he came in. Was it, was it? Was it? Oh, it was 80. Yeah, 1980. 80. This is no. Yeah. 1980. Sorry. Yeah, 1980. And since then, that's when the skewing of income and wealth inequality became, you know, much more pronounced. So when the, when unions really started to fall off as a share of the labor force. But I'm sure that conforms with your thinking that the unionization is.

One of the key critical reasons why income and wealth inequality has become more skewed is the decline in the labor force that's unionized. Yep. It's absolutely. I mean, unions, people who are in unions get higher wages, better benefits than similar workers who aren't in unions. like if you take into account age, experience, education, occupation, blah, all the things, there is a union premium. You get paid more if you're in a union. But then at least as big of an effect is the union spillover effect that when unions are strong, they actually help set standards more broadly in the economy. And as union density goes down, that spillover effect just weakens because there's less, you know, your employer, there's sort of less, if you're, if you're, If that spillover effect is because non-union employers are like, well, I better pay decent wages or my company might unionize and I don't really want that to happen.

If the union density is really low, that threat becomes a lot less real. But we did. Like with the UAW strikes, we saw that spillover effect just playing out in real time. the wages of Hyundai, Honda, oh my gosh, there's Toyota, and now there's more, but got raises. The workers at those unions got raises. They did not strike, they are not even unionized,

but they got raises like five minutes after the successful strikes at GM Ford and Stalantis. And that's just like, that's the union spillover effect just right there. So that, both of those dynamics, contribute together to the decline of unionization having played a real role in the increase in inequality. And then I will also just say the other big thing that when we look at the, at what has driven the rise in inequality, the two big, there's others, but two big ones are the

decline of unionization and too high unemployment. Like too high unemployment for much of that period just causes inequality. And can I just say one more thing on this because we haven't talked about race much in this discussion, but one thing that I think is not well understood is like I think most people think, oh, well, the black, white wage gap, it may not be improving as quickly as we'd like it to, but it must be better now than it was 45 years ago, right? It is not. The black white wage gap has, is worse now than it was in 1979. And one of the, it has improved over this, you know, the 19, or 2019 to 2023 period when things have gotten better, but it is still worse than it was in 1979.

And I think the decline of unionizations is a core part of that because the union premium is higher for black workers than it is for white workers. And there's lots of reasons for that. but black workers are more likely to be in unions than white workers. So unions actually are a key force to reduce the black-white wage gap. And so as unions' density has gone down, it's coincided with black-white wage gap rising. Interesting. Well, I do want to move on to Chris, but since we're kind of on the topic of reasons for the skewing

of the income and wealth inequality, and you kind of sort of mentioned it was like the persistently high unemployment that existed in periods. Here's a theory I want to throw out and get your take on. And this goes back to monetary policy. And that is, you know, from the late 70s, really when Paul Volcker became chair of the Fed, through Allen Greenspan, up until Bernanke, inflation was high. And the Fed's goal in life was to get that back down, to get inflation back down, get inflation expectations back down, tethered.

And the way the Fed did that was by running a policy that Alan Greenspan dubbed as opportunistic disinflation, which meant run a soft economy, run an economy with, you know, persistently higher unemployment that's higher than the full employment unemployment rate so that you get wage growth moderating and get inflation back in the bottle. And it, you know, it worked. But one of the casualties of that policy, and I'm not saying I had a better idea how I would do that. But I'm just trying to explain why in the 80s and particularly in the 90s we saw this very

significant skewing is because we had this policy of persistently high unemployment, opportunistic disinflation to get inflation back in the bottle. Does that, does that resonate with you, that theory, Heidi? Yes. Yeah, I know. I think that's right. Although when you look, if you look at inflation and the Fed's target, it you see a big, it used to be like pre-79, you saw, you know, sometimes they'd miss it on the high side, sometimes they'd miss it on the low side, so it really looked like a target. And then you move into an era where they're just consistently missing it on the low side, like inflation actually lower than their target. And this is, I think this is kind of what you're like that's, in other words, having full employment be the casualty

there and working people really pay the price for that. Interesting. Okay, Chris, and we'll come back because we've got to go through all the different other factors driving all this. But Chris, what's your stat? Okay, I'm going to go a little off of the topic here. I guess it indirectly relates to inflation, monetary policy, but very indirectly. The stat is $644,000. The housing stat? It is.

There's a lot of good housing data this week. Yeah. She is good at this game. It's not new home sales, is it? Because that's around that number, but that would be too easy. I think. No. Is it a sales number?

Nope. Is it a construction? It is a construction number? Yeah. It is a construction number. Okay. Single family or multi-family? Single family?

Nope. Multi-family. Yes. It can't be, it's not complete, it's not in the pipeline because that's about a million units. Permits? You almost said it, Mark. It's not, it's not in the pipeline.

Not at the start of the pipeline. Completed. Oh, somewhere in the pipeline is going to completion. It's at the end of the pipeline. Oh, it's completion. It's 644. Okay. It's completion.

Okay. Got it. Got it. Which is a high number. It's a very high number. It's a 21% increase over the month, right? 19% increase over the year, right? So it's a very high number.

It's actually I looked at the highest single month level of multifamily completion. completion since 1986, right? So it's really high. Can we tell Chris high-end, low-end, affordable, what is it? Can we tell? You can't tell in this release specifically, but other data still suggests that most of the construction continues to be at the high end.

Right. Right. These are luxury apartments in the big towers going up in D.C. or Chicago or L.A. Yeah, or even in suburban areas, they'll get more geared towards the higher end of that market than the lower end, just because, no, we've talked about zoning and other things to death. That still is the skew. Go ahead. Go ahead. Chris. Go ahead. Sorry. I was going to say, in terms of, you know, it's still not great in terms of affordable, but you're not targeting the group that needs the housing the most.

but still there is a cascading effect, right? If you're providing more housing at that higher end, presumably you're going to have folks moving out of other properties into those units, bringing up, you know, if the cascade works, some additional housing throughout the spectrum. So another reason perhaps to expect that rank growth may not be accelerating anytime. We are adding a lot of units to the housing market. So that's certainly a positive when it comes to

keeping inflation down should support that that Fed rate cut in June. Yeah, one of the most fascinating things, and this just shows how weird I am because I think this is fascinating, but the level of housing construction is extraordinarily high. There's only been one other period in history in the kind of tax-juiced 1980s that the amount of homes were actually putting up has been higher. I mean, we've got this severe shortage of affordable homes. The vacancy rates are very low. But that's in the context of this really pretty impressive amount of supply coming into the market, right?

It's just pretty amazing. And that's one reason why the economy's held up as well as it has in the face of higher interest rates. Because the one sector that gets crushed when rates go up is single family, multifamily, multifamily construction. That has not happened. Just the opposite. Just the opposite. Yeah. They're pretty interesting.

It has been, you know, that also makes me think of like manufacturing construction has also gone through the roof. Like the thing that high interest rates usually hit is another version of that. The things that high interest rates usually hit just haven't taken the hit. I mean, the manufacturing construction is the result of the industrial policy bills coming out. But it is one of the reasons I think that the high interest rates just haven't hurt the economy as much as they otherwise would have. Right. Okay, so going back to income and wealth inequality, we've identified a number of some factors at work here that resulted in the skewing. We focused on unionization.

We talked a little bit about the high, I couch the kind of the perennially high unemployment to monetary policy and the effort to get inflation back in the bottle. The other two, and there are probably more, and I'm going to ask, but the other two explanations for the rise in income inequality. that you often hear is around technology and the fact that that kind of hollows out and takes a lot of jobs from low income folks and, you know, enhances the marketability and the pay and the compensation of folks that have the skills that can take advantage of technology. And the other is globalization. And that has a number of different facets to it, trade being part of it, but also immigration. question. Heidi, any other major factor that you would put forward? And then I want maybe two questions. One, any other

factor? And could you just rank or in your mind, rank order, you know, those factors in terms of driving the increase in income inequality over the past 40, 50 years? If that's a fair question. Yeah, it is definitely a fair question. The other sort of bucket of things I would add is the weakening of labor standards. So like, you know, the minimum wage hasn't been raised. minimum wage hasn't been raised since 2009. The enforcement of labor standards we do have, has gone down, down, down. So wage theft is a high, is a, you know, a billions of dollar game every year. So that sort of labor standards bucket is also a really key thing. And then maybe we'll just throw it into the labor standards bucket. There's this rising trend of workers

just being forced to sign away their rights as a condition. of employment with like widespread non-compete agreements and forced arbitration agreements and all of that is like a way to kind of shift power from workers to their employers or as we talked about to working people to very highly paid people within firms. So, okay, but ranking those things, I think the key ones are too high unemployment for much of this period and declining unionization. those and then I think the inequality being caused by technology is essentially zero. I actually can talk about why, but I do not think that that's a big part of this story at all and I could talk about why.

Globalization is a core part of it. And the way globalization itself isn't a problem. The way we have done globalization has. increased inequality in the U.S. And then this weakening of labor standards is also, and their enforcement is also, I think, a core part of it. So just to get summarized, top of the list would be unionization. Second would be kind of perennial, this period of high unemployment to get inflation back in the

model. Yeah, those might be reversed. Like maybe it's too high. But they're close. Those are, I would, yeah, I think our data actually show too high unemployment is the number one. And then unemployment. And then, sorry, declining unionization is the other real biggie in the game. Okay.

And then globalization kind of broadly defined, trade mostly. Yeah, yeah. And then followed by, well, labor standards and that kind of melange of stuff. Yeah. And then at the very bottom, not even on the list, you said, is technology. Really? Okay, explain that one to me. Okay, okay.

And I also think immigration just isn't really a, isn't really a player. And immigration is not either. So when you say globalization, you mean trade. Oh, yes, that's solid point. I do. I don't think immigration is a big contributor at all. It's not zero, but it's not a big contributor. Interesting.

The one reason for that is, you know, there's a lot of immigrants that come in on both sides, like very high wage, very low wage. So they may mechanically raise inequality because they come in. in very skewed, but it's, I don't think it's generating inequality within the, like, native-born population or U.S.-born population. Okay, but moving on to technology. So this, this, like, idea of skill-biased technological change has really, you know, captured the imagination of economists for a very long time as a key cause, as a key cause of rising inequality. But I don't think it, when you really dig in, it doesn't play out.

you don't see it in the data. And one, I'm going to just try to describe a scatterplot here, but it is simple one. Like the idea for how this would work is that you have technological change that creates high demand for some occupations and then low demand for other occupations. And so that will increase the wages of occupations that where demand grew as a result of technological change

and shrink the wages where demand dropped as a result of technological change. So you should see in a scatterplot, if this is a key driver of inequality, you should see that strong relationship where occupations that saw, you know, a big growth would also see higher wages, higher wage growth. That would be like an absolute, like, base level, does this theory pass the smell test kind of test? And that scatter plot looks like. like a cloud. You do not see a relationship between the size of growth by occupation and wage growth within that occupation. It's just a cloud. And so it just doesn't really hold the

what you see is that wages have, inequality has really, a ton of it has happened within the occupations. So it's just, it just doesn't, it just doesn't. It just doesn't. that just doesn't really hold up to the data. Is that consensus view what you just expressed? Or is that a Heidi view? It is a growing view because there's been empirical work coming out, showing that there's real problems with skill bias. Like David Card, you know, Nobel Prize winner, well, you know,

has said this theory just doesn't really hold up to the data. But it is such an entrenched view amongst economists that, except for the people who have really are really focused in on it. It had been conventional wisdom for so long. I think that the conventional wisdom piece of this is still being eaten away at. But it is, I truly believe that for those who look closely at the data, it just sort of disappears. And what's the explanation for that? How do you, why doesn't that work?

I think it is that it's these other forces that are really what's driving in a quality. Like when you see the increase in the, you know, the gap between college workers with a college degree and workers without a college degree, people will say, well, that's because of, you know, higher returns to college. I mean, the college wage premium has not been rising for a very long time now. But, you know, in the 80s, 90s, it was rising. it was the exact same time that unions were taking a big hit, right? And those hit, the same things that hit workers without a college degree. So it wasn't about them the technology creating the higher returns to college. It was about the institution of unionization declining that undermine the wages of workers without a college degree.

It was about globalization undermining the wages of workers without a college degree. not technological change that boosted the wages of workers with a college degree. First, do you have any view on this? Do you want to push back in any way? I would tend to disagree, I think. Well, I would agree. See, this is what Chris does. That's fair.

I would agree with this. He does this all the time, Heidi. Go ahead, go ahead. I would agree with the statement that there's a lot of things happening simultaneously, right? So all of these factors were occurring all at the same time, globalization. decline in utilization, you know, technological changes, taxes. I'm surprised we didn't include tax, but I guess we're focusing just on the gross. But I think, to my mind, taxes and transfers are at the top of the list.

Inequality, to some extent, is a choice. We could redesign our tax system, redesign our transfer system to eliminate or sharply reduce inequality if we wanted to. Which is if you go look in Europe where the tax code is more redistributed, of the inequality is lower, at least by the measures that we look at that we look at. To your point. Certainly if you want to, you know,

there's a, I'm not saying it's a simple way, but it's a very direct way if you. It's not a comment on whether it's good or bad. It's just, that's a fact. Mechanically, it's possible.

Yeah. Yeah. And there are tradeoffs. As a society, we've decided that the level of inequality, presumably, is consistent with the tradeoffs we're making for growth or other aspects. That's certainly debatable.

But I see that. as, you know, certainly an lever in our control. I do believe, though, that the technological change is certainly part of the equation. I wouldn't say it's a insignificant piece. My own work, one key aspect is that I find that there are long lags between technological innovations and how the labor market adjusts, right? You have to have businesses adopting technologies, figuring out the best way to use them. You need workers to adjust, you know, realize that there is this demand, that they need certain skills. So I think I think you'll see that cloud perhaps, but once you start to control or pick it apart, you can see certainly some aspects of it. I'm not saying that

technology is the only thing, but I wouldn't say it's irrelevant either. I think it certainly has that aspect. I think we could go through anecdotes, certainly, historically, of, you know, going from typing to use of computers. Clearly, there was a factor, a shift there in terms of the returns to certain skills that have to make a difference. In total agreement that technology changes the way work gets done. Like 100%, it will change the mix of jobs. I just don't see it as being a driving factor of it's kind of, it has happened in such a variety of ways in all different things. It's just not driving. I believe it's not driving. I believe

the data show it's not driving these core trends. What about AI, Heidi? Well, any, you feel the same way about AI. Artificial intelligence. There's a lot of hand-wringing about that. Yeah, there sure is. There's a lot of breathlessness. I, and my, I just want to say before I say anything about AI that I do not have any expertise on what I, you know, the impact of AI might be on national security or on democracy or on, you know, like there's a lot of potential. That never stopped us from talking about. I just, I'm just saying. But I don't have, I don't know, like those things do sound, you know, those potential problems in those areas sound a little, you know, I could, I could get myself worked up about those things without having a ton of expertise.

But I do have a ton of expertise on the impact of technology on the labor market. And one thing I think we all need to step back and realize is that technology is on net good for workers. Like technology led productivity growth actually is the thing that makes it possible for wages to grow. And even though over the last 40 years, you know, workers haven't gotten their quote unquote fair share productivity growth because of, you know, the things we're just talking about, too high unemployment and globalization and decline of unionization. They've gotten some. Like, that is, it is the thing that makes it possible for living standards to rise over time. So I am actually the idea of an AI-led productivity surge, I think it's, it's, you know, I don't

think we're going to get the massive increases that some are projecting at all, but I'm looking forward to that. Like, I think that that's, we want to, like, those, that kind of growth is a, is a really positive thing. And then you just, how it plays. plays out in individual workplaces, I think really is a matter of who holds the power. And you could see, like, one thing I always say, like, there is no way that policymakers can micromanage how AI plays out in individual workplaces. It's just too varied. It just is going to play out differently. And so the thing that will make it play out in a way that is that makes sure that workers as well as their employers reap some of the benefits of the productivity growth that happens as a result of AI will be, I think a core way to do it is make sure that workers actually have some leverage to be able to negotiate around AI on their own behalf.

And we mentioned this earlier, but the screenwriters, it's a perfect example of the Screenwriters Guild actually negotiated a contract last fall that has provisions that protect workers around. the use of AI. It allows the use of AI, but it makes sure that AI doesn't undermine workers' credit for the work that they do. So it's like, you know, they negotiated together how to have AI play out in their workplaces. And that's the way to make sure that it, that, you know, that we don't see the replay of the last 40 years, but instead we see workers actually getting some of their fair share of the, what I hope will be the, the, you know, AI-driven productivity boost. I hope we see that.

Well, let's, because we're, believe it or not, we've been going on here for more than an hour. But I do want to talk about immigration because that was also kind of a, feels like a non-conventional perspective that immigration, and of course, we've been getting a lot of immigrants coming into the country. I mean, the CBO came out with a study recently showing or estimating that the 3.3 million immigrants legal and undocumented came into the country in 2023 on top of, I think, 2.6 million in the year. Typically, it's about a million.

It's surge. A lot of that's what's happening at the border. And there's a lot of, again, hand-wringing about what that might mean for, you know, workers. The hand-wringing has been less pronounced just because the labor market's been so tight in that, you know, right? It's been more plus than a minus, at least with regard to what it means for the labor market and monetary policy.

But nonetheless, there's, I think the conventional wisdom is that. that immigration helps to skew income, the distribution of income. But you say no. It's like this. Mechanically, it can because, you know, we talked about this, but immigrants themselves enter the country in a very bimodal way. Like there's workers, immigrants come in with very high levels of education and with very low levels of education. And obviously, immigration happens all across the education distribution. But you do see this more bimodal entry than you do for the US-born population, and so that mechanically raises inequality.

But aside from that, it's not a big factor. As far as job growth go, I mean, right now, native, US-born, I keep saying native-born population because those are words that BLS uses. And I like to, I think US-born is a better term. Oh, okay. Yeah, that's why I always have to translate from what I'm reading in the data

to then what I actually wanna say when I start. speak it out loud. The, you know, the U.S. born unemployment rates are at near record lows. Like, we are just, this labor market is really strong. It's absorbing lots of immigrants and keeping just incredibly low unemployment rates for U.S. born workers at the same time. But then, but the question I think comes down to wages. And there is a lot of work on this. The most recent, like, comprehensive thing is the National Academy of Social Academy of Social. Sciences did a big study in 2017, like really going over all of the evidence on the impact of immigration on wages. And the biggest impact, the impacts aren't big, period. They're just,

it's not a big driver, but the biggest impacts are on earlier immigrants. So it is, immigrants come in and they are more likely to do the jobs that, that the people in them are all right, are immigrants themselves. And so the biggest negative impacts are on earlier immigrants. And there are some negative impacts on U.S.-born workers without a high school degree. And that is a, not that we should think about that obviously the economic outcomes of U.S. workers without a high school degree, but it is a very small share of our labor force. It's something like 6% right now. So it's just doesn't and and other than that there's just not a there's just not a big a big impact except on earlier immigrants.

Mercer, Chrissy, you want to push back on any of that? Mercer? No. Sorry. No. No.

I don't think so. Yeah, I was reading a paper that Brookings did the other day on this recent surge in immigration. And one thing I was really interested to see is they looked at different cohorts of immigrants into the country and what their labor force participation is like two years on after arriving. And the most recent cohorts of immigrants have a much higher participation rate than any immigrants that have come in in like the past 10 years. So there was sort of this dip. and then the immigrants that are coming in now are much more likely to participate in the labor force.

So it is interesting when we talk about labor force growth, right? Mark, we talk about this a lot when we see the BLS numbers and how is there all this labor supply? There's way more labor supply out there than we would have thought and this goes to that explanation and they're also more likely to participate. Which is doing a service to the economy. Totally.

Right. I mean, this has actually been a benefit. It sure has. Heidi, not taking away jobs, but just adding to the supply of labor in a very tight market where employers are scraping in some industries to find people. Right. Like, immigrants obviously add to both the supply side and the demand side. Sometimes I think when people say immigrants are taking all our job, that there's this

for getting there. Also, come in and buy stuff and create more jobs as a result. But they add more to the supply side because they're relatively more like. to work than the U.S. born population. And so it really has helped with our supply side issues. The other thing that people forget

is that immigrants, they're risk takers by definition, right? You don't pick up and leave one place with your family and go to another place and have no idea where you're going unless you're a risk taker. So you start companies at a higher rate. You're more entrepreneurial, more innovative.

And there's evidence. evidence that strong statistical evidence that immigration leads to higher rates of productivity. So it's not just about the people, the workers. It's about, and go take a look at, you know, these tech companies that are driving a lot of the productivity gains. You know, they are, many of them have many immigrants and are led by immigrants, you know, the CEOs and the C-suite of these companies are immigrants. So, interesting point. So I kind of created, a frame for thinking about how income inequality was create, you know, how we got here and why the, the distribution become more, become more skewed. Okay, very quickly, because I know we're going

to lose Marissa in just a few minutes. She's off to her skiing vacation. My flight's delayed like 45 minutes. Oh, there you go. Okay. Probably going to miss my connection, but, right. Okay. So we can keep going, switch. Right, might as well. I'm sure Heidi's going, saying what about lunch? Don't you guys eat lunch? What does it mean for the future? What do you think? I mean, because you put it number one, high unemployment. Well, problem solved. I mean, at least for the foreseeable future, no problem. Unionization feels like, you know, we've turned the corner there. Certainly with regard to the attitudes. I don't know that we're going to see a large increase in the share, but I don't think we're going to see declines here in the near future.

You said immigration doesn't really matter. You said technology really doesn't matter. Trade, you know, we're de-globalizing. So that's going to be less of an issue. And then I guess it leaves, you know, labor laws and regulation, but that's not changing fast. So I don't know that changes the dynamics here to significant degree. But I'm putting, I don't want to mean to put words in your mouth, but I'm just saying if I take the equation we just estimate it and put in right-hand side variables, it feels better to me going for. It feels like, okay.

Yep. It is weird in this world where so much feels difficult. This is one, it is an area of, I feel optimistic about the future. The one thing on unionization that is tricky is even with all of the momentum, it is going to take labor law reform to really halt and reverse those trends of declining unionization. Like the deck is so unbelievably stacked against unionization. And I can give you just one example as color around this. It is technically illegal under our labor law to fire somebody for union activity.

Like that is a core part of U.S. labor law. And it nevertheless happens all the time because the consequences to employers of firing somebody for union activity are like a slap on the wrist. if that the worst that can happen to them is that they will have to reinstate, if they go through the whole process and are found to have illegally fired a worker for union organizing or union activity, the worst that can happen to them is that they have to reinstate that worker, give them their back wages, minus any wages they earned at a different job in the meantime. It is just a nothing burger. And that is symbolic of how labor law is just relentless attacks have absolutely, it's just, it just doesn't.

I mean, this is the thing where, you know, there's this massive gap between the share of workers who are in a union and the share of workers who report that they want to be in a union. And that gap is policy, not actually truly protecting workers' rights to unionize. So there is, the momentum is incredibly important. I think it will make a difference, but it's going to take labor law reform, which is going to take a functional Congress to really do. So that is, we all know the sort of obstacles to that in the future. So that's one thing that we know, okay, we got work to do on that front. Well, I have to say, you're leading the charge in terms of making

getting Congress moving in the right direction. We're in good shape. So I feel even more optimistic that you're on the case. Okay. So that's good. Okay. I think we took our fair share of Heidi's time. Anything else, Marissa, Chris, do you want to say?

No. Okay. Hey, Heidi. Yeah, really, really fascinating, fascinating conversation. And really appreciate you coming on to Inside Economics. Thank you. It was really fun. Thank you so much for having me.

Thank you. And dear listener, that means this is the end of the podcast, and we'll talk to you next week. Take care now.