The pandemic productivity boost

The good news: GDP is now slightly higher than before the pandemic.  The not-so-good news: Employment remains 4.4 percent lower.  The intriguing news: labor productivity (which is simply the ratio of GDP to employment) has increased at the fastest rate in 20 years.  If this productivity spurt can be maintained, this would mean rising living standards for all of us.  

I must admit that I was at first surprised by these data.  Covid forced companies to invest more in cleanliness, which means more inputs to get the same output.  They also had to make massive adjustments in operations, and I expected that to be a mixed bag at best.

This recent NYT article provides some insight into why productivity has increased.  A key factor is that the pandemic accelerated the adaptation of some labor-saving technologies.  We see this in the food service business where more orders are placed online (even among customers sitting inside restaurants).  Also, people shifted more of their shopping from in person to online.  Amazon can deliver any consumer good to your door without having a bunch of people standing around to wait on customers.  

Another driver has been work from home.  It seems that workers and bosses have struck an implicit bargain in many workplaces to split the difference on saved commuting time: working more hours AND having more free time at home.  

How much should graduate students be allowed to borrow?

Last month WSJ did a study of the earnings of those who earned masters degrees at selective universities.  Those who studied business or engineering did extremely well, with annual earnings above student loan debt by a sizable margin.  

Labor market outcomes were less positive in other areas, especially degrees from elite universities in areas such as drama, education, film studies, and publishing.  Half of the graduates of Columbia's program in film studies earned less than $30k after two years in the job market.  Their median debt was $181k.  

Although this is an extreme case, borrowing for graduate programs has been growing and now represents half of student loan debt.  WP columnist Charles Lane pointed out that there are no limits on annual borrowing on Sallie Mae Grad Plus loans, whereas undergraduates cannot borrow more than $12.5k per year and $57.5k total.   It is quite possible that demand for graduate degrees would become more price sensitive if this issue were reexamined.  

Some have called for student loan relief.  For instance Sen. Warren of Massachusetts wants to forgive up to $50k of debt for all borrowers.  However a Brooking Institution study found that the bottom 60% of households would only receive 34% of the relief.  Why should MBAs earning over $100k get this form of relief?

I think there are two areas where borrowers could be better served.  First, one way to provide debt relief that makes economic sense as well is to reduce interest rates.  Currently the US government borrows money at close to a zero interest rate, but this year the Grad Plus interest rate is 6.25%.  Second, universities that participate in Grad Plus should be required to divulge to student borrowers data on labor market outcomes for graduates.  How many students would sign up for film studies at Columbia if they knew the likely prospects for graduates?

A new tool for investigating employer discrimination

Blacks earn less than whites and have higher unemployment rates.  This suggests that a critical mass of employers could be discriminating against Blacks, but how do you prove that?  

One way is to conduct research studies where employers are sent resumes of persons who are identical except for their names.  Studies have shown that there are some names where 90 percent or more of those with that name identify as Black (Darnell or Precious) or white (Brad or Claire).  If an employer tends to call back applicants at a vastly different rate based on the race-identification of their name, that would signal discrimination by race.  The same approach can be used for gender discrimination as well.  

A team of economists at Cal-Berkeley and Chicago used a brigade of undergraduate volunteers to apply to 108 of the largest employers in the US.  The odds of a callback were two percentage points lower for resumes with Black-sounding names as opposed to those with white-sounding names.  Overall the callback rate was around 25 percent, so this means that if 1000 Blacks applied they would get 240 callbacks and if 1000 whites applied they would get 240 callbacks.  This difference by itself is not likely to explain the gaps in wages and employment that we observe in the labor market, but it certainly can be a contributing factor.  

This finding was not uniform across all of the companies in the study; in fact it was concentrated among 23 of them.  The authors question whether these companies have intended to discriminate against Blacks; they may very well lack internal controls to ensure equal treatment.  

Did cutting unemployment benefits lead to more employment?

Under the covid relief bill passed last March, unemployment benefits were increased by $300 per week.  Although this improves the living standard for the unemployed, it does create an incentive to delay returning to work, especially for those who earn more from unemployment benefits than they would from working.  

Employers in many sectors of the economy faced labor shortages, so the supplemental benefits became a political hot potato.  In June 22 states dropped the $300 supplement. 

A new study by economists at four universities were able to get detailed data on 19 of those 22 states.  They found that 1.1m people had their benefits reduced and that by early August only 13% of them had found jobs.  Other recent studies cited in this NYT piece find similar conclusions.  

The $300 supplement ends on September 6.  Based on these studies, we should not expect a big drop in the number of vacant positions or a big increase in employment.