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Duration: 01:11:35



Kal Raustiala 0:04

Good afternoon, everyone. Welcome to the Spring 2022 Arnold Harberger Lecture. I'm Kal Raustiala, Director of the UCLA Burkle Center for International Relations. And it's a great pleasure to welcome you back to one of our big Zoom lectures we've done for many, many years. And I'm very excited today to have as our special guest, Betsey Stevenson, I'm going to introduce Betsey properly in a moment. But I just want to make clear that we are recording the webinar, but only the speakers will be visible and audible. But we do invite you to submit questions for Betsey through the q&a feature, which will pop up at some point maybe already, and will prompt you to do that when you send those questions in once. Betsey gives her presentation, she and I have a brief conversation. We'll then open it up to questions from all of you. And we, we hope to see your questions there. So with that, I'm going to introduce our special guest. Betsey Stevenson is a Professor of Public Policy and Economics at the University of Michigan. She's a faculty research associate at the National Bureau of Economic Research, she has many other positions, but maybe most importantly, she was a member of the Council of Economic Advisers, from 2013 to 2015, during the Obama Administration, also served as chief economist of the US Department of Labor, and served on the Biden-Harris transition team for various matters related to Treasury, she's widely read cited, quoted as an academic economist as well as a policymaker. She's co host of the podcast, Think Like an Economist, which we will post a link to in the chat as well. And I urge you to tune in if you're interested in more econ. So she's really an excellent person to have here. And I'm very excited to welcome Professor Betsey Stevenson. So Betsey, please take it away.

Betsey Stevenson 2:00

Thank you so much. It's my pleasure to be here today. And to talk to you and I, I love the format of today. So I'm going to talk for about 25 minutes, and I think we're going to open it up for a broader conversation. What I want to talk to you about today is the labor market in the pandemic recession and recovery. So what has been going on, in particular for workers, and, and to the way I want to sort of outline what I'm going to share with you today is a gendered shutdown. So why was this recession so different from every other recession that we've experienced in the US and I should say that this is also true in advanced economies. So I want to talk a little bit about what we're seeing across advanced economies, and how that relates to what we're seeing in the US. how imperfect is the labor market recovery, and to really dig into that I want us to look into different types of people, different types of workers. And then as we want to think about what I call a tale of two sectors, advanced economies have moved away from producing goods to producing services. As we become richer we and as tech as technology has improved, we've been able to make goods more efficiently, we've expanded making services. And then of course, globalization has also led to really thriving service industries, and a lot of advanced economies, with developing economies having a bigger role for manufacturing. And I want to end by talking about sort of, where are we? have we really changed the way we think about working? Is it new preferences, or are we in a transition? So I want to start by just showing you what happened in the first four months of the pandemic. And in the first four months of the pandemic, a lot of people lost jobs. So what this table is showing you is, if you were employed in February, what fraction of people who are employed in February of 2020, stayed employed for March, April and May of 2020. Remember, the recession was sort of at its worst in April, we've actually started to recover by May. So who manage how many people manage to stay employed through that whole four month period, what you can see is men were significantly more likely to stay employed than women. So about one in four men who had been employed in February experienced some time out of the labor force are out of work or unemployed, compared to a third of women. And if we look by race, you can see that it also disproportionately hit more vulnerable groups Black and Hispanic workers compared to white, non Hispanic Workers, it was, if you were, if you had a bachelor's degree, it was only an 18% of people with a bachelor's degree who had been employed in February of 2020, who experienced a month out of work in the ensuing three months, but it was 35% of people with less than a bachelor's degree. So really big division, based on education based on race based on gender. A lot of people focused on what happened to the pandemic, with with children, and the lack of childcare. But the primary thing that happened here was that it was people with less education, more vulnerable workers. And that's what really impacted women in terms of job loss early on. And you can see that because you can see women with a child were actually more likely to stay continuously employed. In those first four months of the pandemic, than we're women without a child, or sorry, yeah, so women without a child were more likely to have experienced at least a month of unemployment or a month not in the labor force. So that's the setting the stage, that's what sort of happened in what we call the the recession. The recession only lasted two months. And then in May 2020, we were entering the economic recovery, even though the pandemic had a lot more, had a lot further to go and perhaps still does. So let's compare this to previous recessions. In previous recessions, men's employment falls much more than women. So what this shows you on the right hand side is employment of women relative to the pre recession peak, and on the left hand side employment of men relative to the pre recession peak. And each of these lines shows you a different recession, that black line is our pandemic recession, the 2020 recession, and it falls by more than 15% for women on the right, and by around 13% for men. But look at every other recession. In fact, if you look at the 1990, that's your green line, the 2001, that's your blue line, the 1981-82 and other green line, different green, what you can see is women's employment barely falls and men fall substantially. In the 2007 recession, women's employment fell more than it had historically in previous recessions, but nowhere near as much as it fell for men. And we're going to come back to sort of understanding why. So the first thing is, it's an anomaly for women to really lose a lot of jobs in a recession. And that's not just true for the US even though this data is true in the US. This really has to do with what kind of industries women tend to work in, versus the kind of industries men tend to work and men work in more cyclical industries than women do. It also has to do with the fact that women's labor force participation across the United States and the OECD was is really rising in the 80s. And in the 90s. And not so in the US in the early 2000s, but actually was in many other industrialized OECD countries. And it's that growth in women's labor force participation that's actually really pulled us out of every previous recession, besides this one. Women's labor force grows more and recovers well beyond where it was prior to the recession, as we come out of the recession, and it's what pulls the overall employment back to the pre recession, employment level, even though it takes men much, much longer to eventually catch up in return. And this marks, you know, a fundamental fact about where we are with male and female labor force participation, which is in the past, recessions have hit men hard, and many of those men do not go back to jobs, they don't go back to work. So the employment rate eventually recovers, but many men get left behind. And that has not been true for women in the past, women tend to get pulled back in and they don't tend to lose as much jobs. So recessions have marked pauses in the growth of women's labor force participation, where they've marked where they have been periods of decline, right sort of rapidly declining labor force participation for men, and that is a very huge that fact, the long run decline in male labor force participation is very particular to the US. So what are our cross country commonalities? In almost all advanced economies, vacancy levels are high relative to before the pandemic, meaning employers are really trying to hire a lot of people, we're seeing more jobs available in the UK and Canada, in Australia, and the United States, relative to the number of unemployed people. And this is particularly true in in countries that reduced their foreign born workforce during the pandemic. That wasn't really true across the globe. As I'm sure many of you know, countries like New Zealand and Australia really shut their borders. And that meant they shut their borders to foreign born workers, immigrants coming in, and not a lot of immigrants who exited so their net migration was negative. The United States, we didn't completely shut our border, but there was more Border restrictions. That meant that we had fewer immigrant workers. Same thing in Canada and the UK. And of course, this stuff's coinciding, like in the UK with Brexit, which was purposefully and, and with Trump era policies in the US to try to purposely limit immigration. So our number of foreign born workers was already down going into the pandemic. Vacancies are high across many sectors, but they're particularly high in sectors that lost the most jobs during the pandemic. So how does the US differ, the US has had a slower return to employment compared to other countries, even though hours worked have recovered, and so has GDP. So here is a chart from a paper, an IMF staff discussion paper called labor market tightness in advanced economies. And what it shows is if you look at the deviation from a 2021 trend projection, in terms of employment and labor force participation rate, so the red dots are labor force participation, the blue is the employment rate. And what you can see is in countries like Norway, they're actually exceeding the trend. In the United States, we're very far below that trend projection more so than in any of these other countries. And that's true for employment, as well as for labor force participation. So most of the missing workers are workers who are not unemployed, we've seen our unemployment rate plummet, but who are have left the labor force and have yet to come back in. I should know that right now we're seeing employers being able to successfully add 500,000 new jobs, so grow the total number of jobs by 500,000. That means that they're able to pull in 500,000 new workers. So that tells us that even though people are outside of the labor force, they're really close to being on, we might want to think about them as on the sidelines and willing to come back in for the right job. So let's zoom in a little bit more on the US in the year, what you can see is our GDP, not only having recovered to pre pandemic levels, but very close to a 2012 to 2019 trend. Whereas if we look at employment, it looks like our employment to population ratio is still about, it's still 1.6 percentage points below the trend line from 2012 to 2019. So if you know that, if we know that it had declined by 10 percentage points, it's still down by 1.6. So shows you that there's still a pretty remarkable gap on employment. And that's why you hear so much debate right now about are we at full employment or not? Meaning will the rest of these workers comeback and we close this gap? So how imperfect is the labor market recovery? Ultimately, the question depends on an unknowable counterfactual, which is what would have happened without the pandemic? That's a really, really annoying question, because we would like to be able to answer that question about all sorts of aspects of our lives, and we cannot, and maybe it doesn't even really matter. But what we want to be able to do is predict where we think is a reasonable expectation for people to come back to, to work. And in order to do that, we have to really understand what those underlying trends were and what was driving them. So what I want to do is break that down into thinking about women, men, older workers, and immigrants. So let's start with women, I think with women, which is where most of my research has been, and where I think there are sort of the biggest unknown or, you know, biggest puzzles today. For women, what we saw is rising labor force participation, particularly prime age, I'm showing you figure which shows women who are 25 to 54, which economists call prime age, because it seems like you should be mostly done with your education by then and not yet retired, right. So for most folks in there, working is a real possibility. And what we saw was in the 1970s 1980s, and the 1990s, women's labor force participation rose and rose quite strongly. Then we hit 2000, and it starts coming down. As we approach the sort of mid 2000, it starts to turn around again a little bit, maybe, um, and we hit 2008. And the recession, ends up driving down labor force participation of women. Now, I said recessions don't normally hit women. We saw this recession, the 2008, recession hit women harder than previous recessions, and also hit women later, because women lost a lot of jobs in the resulting state and local government layoffs that happened after such a long period of downturn, led state and local governments to start slashing the number of people they had on payrolls, and sort of the worst parts of that state and local government employment slashing, the US had lost a quarter of a million teachers, compared to the sort of 2008 before the state started cutting employment. So that we get this downward decline that happens through 2015. And in 2015, it really turns around, and we see strong increases in female labor force participation, from from 2015 to 2019. And this is where we have, that's why we have these real questions about what are we trying to get back to? So here's we see women's labor and labor force participation plummets, and then it starts to recover. But what is it recovering to? Should it be recovered in 2018? That's what some people who believe that 2019 was kind of a super hot labor market year. And maybe, you know, we don't really need to be we don't, that's not realistic to get back to 2019, labor force participation rates for prime age women. Should we be getting back to 2019? Like, okay, that's it was hot, and we can get back to that kind of hot, but it was not going to keep growing? Or would that trend that upward trend between 2015 and 2019? have continued? Answering this question tells you a lot about how incomplete the labor market recovery is. So if we think that that we would have continued to see women's labor force participation grow, then we're missing 1.1 percentage points worth of women, which has a lot of women relative to that 2015-2019 trend. If and, you know, if you think that we should be recovering to 2018, we're there. Early 2019. We're there. We're not there to late 2019. So where should women be going to? And I think a lot of this has to do with trying to understand what led to that growth between 2015 and 2019? And answer that it's worth putting women's labor force participation in the historical context of what had been happening throughout the rest of the OECD. So women's prime age, women's labor force participation in the US had been sliding down, going from being about fifth in the OECD to about 15th in the OECD. Why? Because other OECD countries had expanded things like paid maternity leave, paid paternity leave, right to request a flexible schedule laws, more parental leave more flexible work, shorter work weeks, a lot of affordable childcare subsidies for childcare. So a lot of other countries had introduced policies that made it easier for for parents to work, and then it meant the US had really fallen behind. So what we didn't get any good policies to push moms into the labor force between 2015 to 2019. So what could have done that? Well, one thing is that women's life patterns have changed compared to previous generations. So if we want to compare the 2020 recession with the 2008 recession, we want to realize that the moms in 2020, we're very different from the moms in 2008. So moms in 2020 were older, because there's been an increasingly rising age of first birth. Meaning that conditional on having kids in the home under the age of 18, the moms were bit average, a bit older and 2020, than moms in that situation in 2008. The moms in the cohort of mom age women, and you know, you can judge for yourself, what's sort of the upper limit of mom age, but sort of thinking about women around 45. In 2020, we're more likely to have become moms than the women who were 45 in the 2008 recession. What that means is that we just had a lot more of the women who were experiencing a recession, were doing it as moms, and not just as moms but moms with kids under the age of 18 at home. 2020 moms had more work experience, because they were older. And because women have also been narrowing the work experience gap with men over time, so that you go into 2021, we're looking at 30 and 40 year old moms, they have more work experience, they had more education, because women have been outpacing men in education for several decades now. So looking across the 20s 30s 40s, and 50s. Those women in those age brackets have more education than men. So those 2020 moms had more education than moms in the past, or than a lot of the men that they were working with in the workforce. And then we put this all together, what we had seen was that moms had had their highest historic labor force participation in 2019. And so when I say with that trend have continued or not well, it really depends on what we think was driving the trend. So we're all these facets of the ways moms have changed, led more moms to want to participate in the labor force. If we had been able to continue, perhaps by improving access to policies, some of which were changing at the state level, to grip give things like paid sick leave, would we have continued to see mom's labor force participation rise, should we expect moms to go back to either either the pre existing trend, or to the 2019 level? Now let's turn to men, male labor force participation in the United States has been trending down for half a century, just like with women, male labor force participation has been slipping in the rankings among OECD countries. What you can see I'm showing you the decline since 1990, or you can take it all the way back to 1950. And see the decline and what you can I don't have the recession bars on this figure, but you can sort of see, have you pinpoint the recessions that recessions sort of accelerate the decline for men, like you see in 2008, and then it sort of stabilizes until a new recession comes along. Men, like women did see a speed up an increase a tiny increase in their labor force participation between 2015 and 2019, nowhere near as great as women, but there was an upward trend. So the same question, would men's labor force participation, prime age men's labor force participation continue to have trended up, I think really applies to thinking about men. What about older workers? So labor force participation, I started this in figure in 1990, because I want you to see that labor force participation for people 55+ had really been coming down in the 80s and the 90s, people were really enjoying retirement. But it started to increase starting in the mid 90s. And I think a lot of people think that that that might be because, you know, people have to work because they can't afford it. There's just an article in The New York Times today about older people going back to work because they can't afford to stay home. But the research in this period between sort of the mid 90s and in the 2008 recession, showed that labor force participation was primarily growing for older men and women because of higher education that made it easier physically for them to work to older ages. So it was more about the disamenities of work, construction or physical labor being too hard for people as they got older, and as fewer and fewer people worked in those industries that made it easier for older men and women to work. So not surprisingly, the pandemic was a real shock which people became sicker, more much greater risk of being in the workforce. So we saw big drops in the labor force participation of older workers. But now these are not my best figures. So I apologize. But what I want you to see is for men, this is white men, ages 55 to 64, we saw a large decline that is not fully recovered, that is bigger than when we see for men overall. for white women, they have more than recovered white women ages 55 to 64. For women overall, they basically come exactly back to where they were before. So for older workers, there's very different story going on, where what we see is that women have completely closed the pandemic gaps for older workers, men not so much. What I'm not showing on these slides is people 65 And up, where we still see very low labor force participation, and it's something that really declined. Over the course of the pandemic, it didn't really recover. So now, let's turn to the foreign born population. And here, what you can see is compared to a trend from 2010 to 2019, we have roughly 800,000 fewer foreign born people relative to the prior trend. Now you can see that this has been closing this gap has been narrowing quite rapidly recently. And if you were to to have gone back to sort of mid 2021, what you would have seen is a gap that was nearly 2 million. So we're seeing in this is just the last couple months really big increases in foreign born workers returning to the US. And now what you can see in this is that it's mostly foreign born men that have returned, and the gap that remains is foreign born women. And this, I think it makes a lot of sense, when we take a look at where we've seen recoveries in the labor market and where we're still sort of missing, where we still have failed to recover. So we have 600,000 fewer foreign born women relative to the trend 200,000 fewer foreign born men, relative to the trend. And you can see that, you know, typically there's not like a, you wouldn't expect there to be a lot more men than there there are women. So, um, now let me shift gears and explain a little bit of what I think is causing the recovery from this recession to be so unusual and so different. And it's really, that the service sector is the source of modern job growth. I think that that's true globally. But is primarily true in advanced economies. So think of the service sector, not as you know, someone who's serving you a cup of coffee, or a meal, you know, that that part of the service sector got really hammered. That sort of we call leisure and hospitality services, but realize like what I'm doing right now, giving a talk when I teach, that's a service, when we if you are a iPhone, app developer, that's a service with you, you know, the people who create Hollywood movies, those are all services. And so all of our modern growth is really in the service sector. And to you can I show you this graph starting in 1940. So you can see how profound This is. We always hear policymakers who tell us they're going to take us back to the good old days of manufacturing. And it's, I want you to see how hard that would be to do. Because if you go back to the 1940s, more of the jobs were in the goods producing sector than the service sector. That though, was at a time when you know, we had 40 million or fewer than 40 million jobs. We're now in a world where we have 130 million jobs, and most of them come from the service sector. So if you go between January 1970. I want to pick a 50 year period to January 2020. And that 50 year period, the goods producing sector shrank by 2 million jobs. The service sector grew by 74 million jobs. So this is where all of our job growth occurs. This is also the service sector is usually not very cyclical. People still got health care and a recession. People still, you know, get all those sorts of kinds of services that that makeup that sector, what they tend to do is cut back buying big, particularly durable goods. And that's what's made manufacturing so cyclical. So if we take a look here, you can see, we lost a lot of jobs. Most of those jobs are in the private service providing part of the government, a lot of them are in leisure and hospitality. There's also a lot in professional and business services. And a lot, particularly for women in education and health services. So one in four women works in education and health services, and they lost most of the jobs. roughly 80% of the jobs that were lost in education and health services, were jobs held by women, that you can see that we've had jobs, job growth has been stronger for women than for men. That's because women lost more jobs than men. So what I want to do is take a look at the trends. So one of the things I said is I want you to thinking about what are we trying to recover to. So when we look at the number of jobs we had, you know, if we're looking at the overall trend in job growth, we're sort of understating the trend in the service sector, because the trend, and the goods producing sector is roughly flat. So it as of April 2022, there were 5 million fewer service sector jobs relative to the trend between 2010 and 2019. And frankly, I mean, we could take that trend back even farther, you'd still see something like four to 5 million fewer service sector jobs, you know, between the 2008 recession, and the beginning, that February of 2020, we have not recovered all the goods producing jobs, we lost in the 2008 recession. And we had added nearly 15 million service sector jobs. So it's where all of our job growth typically comes from. And yet this was the sector that got hammered by the pandemic, not just in terms of, of leisure and hospitality. But let's take a look at education and health services, education and health services have never seen a net decline in jobs during a recession before. And yet, they had a huge decline of 2.8 million jobs between February 2020 and April 2020. And it compared to the trend, we're still missing 1.2 million jobs, we're 1.2 million jobs below trend in education and health services. These are not government jobs. This is private sector jobs. So this is who's working in the hospital, who's working in child care who's working in nursing homes, who's working at your dentist's office. And what we really see is that it's the care industries that have been languishing, you can see that we've had a decline since the pandemic began in nursing and residential care facilities that has not really even begun to recover, you can see a tiny notch there that shows that between March and April of 2022, it looks like maybe it's starting to point up. But you know, we still wouldn't, I wouldn't call that even a sector in recovery. childcare services has recovered, but we're still missing about one in 10 child care workers relative to the level in 2019. You can see here that, you know, if we put the trend between 2015 and 2019, there, we're below even further. And one of the things you might notice is that as women's labor force participation, and particularly that of mothers rose so strongly between 2015 and 2019. So did the number of child daycare service employees. So these two things tend to move together in tandem. But it's also the case that child daycare services can be some slow sector to recover. In this case, it's a very slow sector to recover. So let's pan back. I started by saying across advanced economies, we see very high rates of vacancies. We see that in the US record job openings that may start to wane. But you know, we've got sort of a extra four to 5 million job openings right now compared to pre pandemic levels. So it's got a lot of room to to wane before we would be at all worried. We also have record quits. That makes a lot of sense when there's record openings, record openings says there's a lot of opportunities. Record quit says people are taking those opportunities in a high inflationary environment. People want to move to a job where they might get paid a bit more and then In fact, that's exactly what we see, the people who are changing jobs are either getting higher wages or in something that's been very important. And we're seeing a lot of people saying they moved to get more workplace flexibility or better fit for their work-family balance. So people are moving to opportunities. There is still some room to bring people back into the labor force, the number of people who are outside the labor force who say they want a job now remains very elevated, nowhere near as elevated as it was at the beginning of the pandemic, when nearly 10 million people outside of the labor force said they wanted a job now, but it's certainly well above what we saw in 2019. And you can see this number, it might explain why we were able to have such robust job growth between 2015 and 2019, even though we have low unemployment, and a lot of people thought that maybe, you know, the economy was overheating that we couldn't bring more workers in. And yet month after month after month, we were able to see job growth. Here you can see that number of people who want a job now was still it elevated in 2019, compared to what we had seen in the sort of 2000s, prior to the 2008 recession. And so maybe there was even room to run, meaning that maybe we had what economists refer to as labor market slack still in 2019, it's clear, we have some now, there's roughly a million people here more than there were in 2019. So I want to end by talking a little bit about parents and lifestyle issues. So a lot of people have talked about how moms struggled during the recession. But I'd like to talk about how parents struggled during I should say, not just the recession during the pandemic, particularly when there were childcare issues and schools closed. And I don't know about the rest of you. But that's still happening in my household. We just had a COVID scare a week ago. So that shut the school down. So we've got these childcare issues that are very abnormal, we didn't have those in the 2008 recession. And what we see is that roughly two thirds of parents say they're unable to work as usual. And fathers were less likely to say they were able to work as usual, the mother, so I conducted this survey in the summer, last summer. And what you can see is that both fathers and mothers, so they're in trouble working as usual, what we know from this survey and from other surveys is that women are more likely to quit their job. And I've actually validated this survey against a bunch of other surveys by other by Pew by other companies. And the results are really remarkably similar. Fathers were more likely to decline promotions, fathers were more likely to change to more flexible work, or pause upskilling. So we saw a lot of fathers make sacrifices. They're not the sacrifices that show up in the unemployment data. But they're absolutely the sacrifices that drive desire to change your job, and impact how hard you can work and what kind of job you're doing. What the result is that fathers were even more more likely than women to say that they were currently looking to pursue a less demanding job or one that where they could work fewer hours, fathers, all some, many fathers and mothers said that they were wanting to increase their work hours or pursue a better job. But only three out of four, three out of four dads wanted to change. And two thirds of women wanted a change. So parents were looking for some kind of change. And I just like to point out that, again, this matches other data that showed that fathers really felt an increase that they benefited from the increased time they got with their kids during the pandemic and that fathers moreso than mothers did not want to give that time back didn't want to give that time up. And the pandemic is very different from other recessions, in that we saw the biggest decrease in happiness I've ever seen in the happiness data. So this is 50 years of happiness data. And you can see that happiness data. You're not very happy when you're in unemployed, but we don't see big aggregate moves that often. And the pandemic was very unusual, in that we saw a 10 percentage point increase in the people saying they're not too happy. And you know, a 10 percentage point decrease in the people saying they're very happy. So there was a big hit on people's well being that may be driving some of the attitudes people have about not wanting to return to the office wanting to be able to at least work from home part of the time. But you know, the office is not dead. About half of workers don't work in jobs where remote work is feasible. A lot of companies say that they're keeping their the same square footage in the next 12 months. But we does seem like there is a feeling that people want some kind of change. But I wanted to end by saying, if you go back to 1930, there's a beautiful piece by Keynes, who says that, you know, he thought his hypothetical grandchildren would work less. Well, we do work less than in the 1930s. But it's through childhood and young adulthood, which is spent mostly not doing work, but investing in our future through education, and then extended retirement, the prime of our life is still spent working as many and in some cases, more hours than our grandparents did. What's the future of work? Will it be jobs for some and not others? Will we have more gaps out of work when we work fewer hours? Is this the start of figuring out how to spend some of our wealth on leisure or on more life satisfaction, one of the things we definitely saw was a shift to people doing more home production, and they haven't stopped that yet. And so the question is, is that a new way of thinking about life, we'll do a little bit more for ourselves, we'll buy a little bit less childcare, we'll buy a little bit less elder care, we'll look a little bit more after our families ourself, or you know it, at the end of the day, we shift back to the way we were behaving before, I think the one sort of, you know, caveat I would give to all of that is, in the past, many companies have experimented with four day workweeks with shorter, shorter hours than 40 hours, you cut to 32 hours. And what every every single time companies have found is their best workers leave them even though the job that they take is going to require 30% more hours worked, it's going to come with a 20 or 25% wage gap. Notice it's not even a good enough gap to make up for those extra hours. But at the end of the day, people choose the money. I think there's a real question as to are we going to see that in, you know, the next few years, will people return to chasing the money? Or, you know, have we sort of settled into a routine where we want we actually value our time out of work? So has there been a permanent increase in home production? Does women's employment depend on the care jobs fully recovering? And will the shake up in the service sector leave it healthier and more productive? Or is that ultimately what's going to slow overall job growth and lead to higher inflation in coming months? So I will end there.

Kal Raustiala 42:51

Okay, terrific. Thank you so much, Betsey. So we'll start off with just kind of brief conversation, and then I'm going to go to questions from from all of you tuning in. And I guess I just wanted to start off with you. It was really interesting seeing the effects of this pandemic slash recession and how different it was, do you from an economic point of view is the pandemic over? In other words, you know, we we can obviously debate whether the pandemic pandemic is over politically, socially. It's not obviously, as a kind of epidemiological matter. But are the economic effects mostly run through?

Betsey Stevenson 43:27

So I think it's actually so the short answer is no, because China still has factories shut down. And so, you know, when you're there, the big debate about inflation is do we have inflation because of supply shock? Or do we have inflation because easy monetary policy and a lot of government spending put a lot of money in people's hands. But the truth is, it's got to be a little bit, you know, a both. And I fundamentally believe that if the pandemic was completely over supply would be expanding much faster, to meet the increase in demand, and we wouldn't see as much of a response of rising prices. So, you know, as long as there are factories shutting down, and, you know, sort of supply chain bottlenecks that are related to the pandemic, I wouldn't say that the economic effects of the pandemic are over. It's gotten really muddled, though, because there's also the pandemic, there's also the effects of the Russian invasion of Ukraine, which is, you know, causing shortages and the rise in fuel costs and shortages and therefore rise in food globally. We're gonna see, you know, very high prices, because there's just we're not getting we're not able to get the stuff that was grown in Ukraine to market and that's going to, I think Right now those seem to be very big and maybe even bigger than what's going on from the pandemic. But you know, some of the pandemic problem. The pandemic caused two kinds of economic problems. One is when people themselves do not engage in sort of normal economic behavior, because they're afraid of of getting COVID. And then there's also government responses. So, you know, China right now has everything shut down, will China change its ways that that, you know, until they sort of allow factories to run regularly, it's not over. Also, if you look at data, there's beautiful data by Morning Console called tracking the return to normal, and it's roughly a third of people still say they're not comfortable going on a vacation, and roughly 25% of people who say they're not comfortable going out to dinner, those numbers are definitely higher than then, you know, what we would have had in 2019? Unfortunately, we don't have a baseline to that exact question. But surely, it's higher. And I think until we get, we see those numbers improve a little bit more, I don't think that I think we're still in a recovery from the pandemic mode. And, and so I think this summer is going to be a bit of a big test, which is a lot of people probably going to travel, will workers take the jobs necessary to staff, the hotels, the airlines, the campgrounds, the kids camps, all of the stuff that people want to consume or not. If they if the workers don't come, then prices will go up. And the prices will go up to allocate scarce resources. And the wages have go up to try to pull work workers in. I mean, I actually saw a signing bonus for for kids, summer camp counselors today, right? So you can be 18 year old signed on to be a camp counselor, and you're gonna get a signing bonus like that. That tells you that we got we're not fully recovered.

Kal Raustiala 47:14

Yeah, yeah. I mean, I can say anecdotally, here at UCLA, we are really struggling to hire people, and at all levels. And so that seems pretty, pretty clear. Let me ask you about inflation. So you mentioned inflation just now. And obviously, that is the number one issue. I've seen so many polls in which are asked about what their most important political issue is, and inflation just dominates. Absolutely. What are the implications for some of the dynamics you talked about of a higher inflation setting? So on the one hand, you just mentioned kind of a wage spiral aspect. On the other. I'd also think inflation on its own, even without higher wages would pull people into the workforce, because they are just stretched, but spin out that dynamic a little bit.

Betsey Stevenson 47:56

Yeah, well, let me start by saying that people really hate inflation. It's a even though honestly, unemployment makes them more miserable. The idea of inflation, it sort of feels unfair, like I had all these dollars, and now I can't buy as much with them. But of course, when we get inflation is a generalized rise in prices. And that can lead to higher wages. People lament the higher prices and love the, the, the higher wages. I think I started with that, because one of the things that is just really stunning to me is how much people hate rising gas prices. So I think what's made this inflationary environment even more difficult, is again, going back to that Russian invasion of Ukraine pushing up oil prices, people hate gas prices. So if you go get the head, gas prices rising, you go to 2013. Pew had a survey, which asked people what the number one problem was, and more than 50% of people chose the number one problem was inflation. And that was 2013. When inflation was below the Feds target, and most economists were saying the Fed needs to let inflation run a little hotter. But gas prices were going up at that point. And so you go to today, and you can see, you know, Pew's recent study, I think says 80% of people think inflation is the number one problem. But I just want you to realize that like in a period where inflation is not a problem, more than half the people say it's a big problem. I don't think any of it.

Kal Raustiala 49:30

So you said you felt like inflation is partly worrisome to people because it feels unfair. I guess I've always had the instinct that it's the uncertainty of inflation that you just don't know what's going to happen, and that it can get out of control. Versus like when you lose your job, obviously, that's terrible. And you're totally right. But it also feels like it's done you've lost it. It's now it's clear, you can get it back or you can stay but there's a there's only a bimodal distribution at that point.

Betsey Stevenson 49:57

Well, if we look at happiness data, um, people who are unemployed are very, very, very unhappy. And the hit to your happiness is much greater from unemployment than high inflation. And, you know, I think I think the research shows that it's not really the reason that the reason economists worry about inflation is different from the reason the sort of typical person does, the typical person has money illusion. So they think that their raises coming from their hard work, and they think that the rise in the prices is coming from something bad called inflation. But of course, you know, if inflation is 8.3%, that means everything's going up 8.3%, including wages. And so I wasn't really describing yet. So a wage price spiral is a little bit different wage price spiral is when you see that inflation was 8.3% last year, so you go and negotiate and 8.3% raise with your boss, everybody does that. Your boss gives you 8.3% and has no choice but to raise prices, which then leads the next year for you to see once again, inflation was high. So you once again try to negotiate a higher a higher raise, I think what happens, what's what's really terrible about inflation is it redistributes a lot. There are a bunch of people out there that are benefiting from inflation. Right now, if you owned you bought a house, let's say anytime, you know, 2019 or earlier, if you refinance that mortgage, at some rate that was below, say three and a half percent, you're doing great, like inflation is got nothing on you. So the who's getting hurt by inflation? Well, you're you are a renter, your rent is coming up for renegotiation, or you have to move and you have to find a new house, or you've got a lot of savings, but you don't have them, you have those savings and sort of standard interest bearing accounts, where their money the savings is being eroded due to inflation. And so we see a lot of redistribution. I mean, it right now, like inflation is doing a lot to solve the student loan problem. Because it's whittling away the real value of those student loans. And meaning that, you know, for people on fixed interest rates on them, they're paying, they're gonna be paying less in a couple years than what they had expected to pay. So inflation is problem, I agree with you that there's there's a problem because of the uncertainty, but I don't know that. You know, one problem is people want to buy things now before the prices go up. And that can cause the economy to overheat even more. And so if you are thinking to yourself, whoa, the price of cars just went up, the price of a used car just went up 40%. Next year, it's gonna go up 80%, I better buy a used car now, even though I don't want them for another year. That's when we start to get into I think, a lot of problems. But I, I think people I think people feel really uncomfortable about inflation, because I mean, it is hard, you have a budget, you're trying to stick to your budget, and now you can't buy as many things as you could buy. And your boss may not be giving you a raise right now. So you really can buy fewer things. And there's some other person out there that just got a brand new job with a 20% raise, and they're able to buy more than they were able to buy prior to inflation. So inflation. The problem with inflation is it's not even. Is that some people get hurt, and some people don't, and some people benefit, and there's a lot of redistribution that happens.

Kal Raustiala 54:03

No, I totally agree. And, you know, I'm speaking as a political scientist, not as a an economist, but it is striking that you're totally right, of course, that it has differential effects yet. You think you quoted 80% of people view this as the number one problem. So clearly, that's not penetrating and your example of 2013 is even more arresting that so many people thought it was a problem when there literally was no actual real inflation. So the perception is wildly but we know you know, people don't perceive things necessarily the way they really are. Anyway, just an interesting issue. So. So it sounds like what Well, let me there's so many questions. So I just want to move on to, to the audience questions, and only about 15 minutes left. So I'm going to, I'm going to ask one very brief question of you just because it was central to your discussion of services and goods, and just and then go to the other questions, but just to press you on the difference conceptually. At one point you said a Hollywood movie, working on a Hollywood movie, that's services. So why is the movie not a good?

Betsey Stevenson 55:07

Um, so goods production really is think about is really about making something tangible. And so

Kal Raustiala 55:18

I can pick it up as a, as a DVD.

Betsey Stevenson 55:22

Ah manufacturing the DVD, yes. It's the intellectual content that is not. And so if we think about here, I've got an iPhone, the US what is the US who came up with the idea of the iPhone, it develops the apps, it runs the marketing. Those are, you know, those are all services assembling the iPhone is is goods production. And, you know, I like why does this distinction matter? Um, is a is a great question. I think it matters because men have traditionally been in the making stuff business. And women have been more likely to be in the, in the services, even when services are around coming up with ideas, we've seen. The shift to services also explains some of the reason why the returns to higher education have gotten so much higher over time. Because demand is for ideas, whose demand the growth in employment has been in people who do things with thinking. And so that's been a growth in demand for college educated workers versus high school educated workers. And that really has pretty profound effects on inequality, and on the gap in the wages between people with more and less education. So I think that that the, that idea of the service sector, broadly matters, but there's also like, a lot of caregiving in there. And the other, you know, when I said there's this male female difference, I think what really what really matters is men are have not been as interested in going into the caregiving jobs. And that's where a lot of the job growth has been. So I said, one in four women work in education and health services, it's also been the source of all of most of the job growth for women in the 21st century. So why is it that male labor force participation, male employment is languishing, that won't take the jobs that are being created. And I want to tie this right back to inflation for a minute and say, like, almost all the inflation we've seen, in the past year has been in the goods producing sector, it's been hard to get stuff. And that's because we buy a lot of that stuff from internationally. And a lot of that what has made good, so cheap and plentiful, is that we buy the parts from around the globe. But all of a sudden, you know, I'm waiting a year still on a dishwasher. There's one chip that's missing, to assemble that dishwasher. And so we don't have, we don't have access to it. That's where we're seeing most of the inflation. So far, we haven't seen much inflation in medical services and caregiving jobs and education services, even in leisure and hospitality, even though those are the places where we It looks like they're trying to hire workers the fastest without that much luck.

Kal Raustiala 58:37

Can I just ask that so interesting, what you said about the role of higher ed and so forth, and one of the things that many people as you will know it, Michigan, I'm sure it's true as well, we're seeing an increasing gender gap in higher ed, how does that play into everything that you discussed today?

Betsey Stevenson 58:52

Well, I mean, it that increasing gender gap is why I think women's labor force participation was continuing to rise between 2015 and 2019. And why I believe that if we hadn't had the pandemic, it would have continued to go up. Because what was driving it was demand for workers with more education and women responding to that increasing demand for more education by getting more education. Men have not been responding. Employers want people with a college degree, women have been responding to that by enrolling in college. Men have not been responding as rapidly. And this is creating a bifurcation where which makes it easier for women to enter the jobs to have the qualifications that are in demand than for men. And so I you know, I think that that problem, and I do think it's a problem also explains, you know, is related to the declining male labor force participation.

Kal Raustiala 59:57

Great. Okay, so I'm gonna go to some of our, in the remaining time we have, not that much. I'm going to go to our questions from all the listeners. So first one is what are the long term impacts of the pandemic? Baby boom or baby bust?

Betsey Stevenson 1:00:12

I'm sorry, can you repeat that?

Kal Raustiala 1:00:18

What are the long term impacts of the pandemic baby boom or baby bust? So I guess the question is agnostic as to whether there was a boom or bust. But are there long term dynamics? I guess read it as?

Betsey Stevenson 1:00:30

Yeah, I think the thing is, I just don't know what's going to ultimately happen to fertility. And I think the thing that's really tricky about fertility these days, is that there's a long window in which women can have babies. And, you know, we used to be able to sort of look at what you did in your 20s. And then have a pretty good idea of what your cohorts ultimate fertility was going to be. That was the mistake people made looking at, you know, sort of women who are, you know, where I was saying women who hit sort of age 45. In, in 2020, is that cohort actually had more children, they just had them really late in life, they had them at older ages. So the you know, the pandemic did not lead to a baby boom, that we know, we weren't like a lot. It wasn't like everybody stuck at home and thought now's the time to have a baby. You know, will people ultimately ended up having babies? I think that the pandemic is not necessarily what's shaping that I think, concerns about climate change, concerns about support for children concerned about student loan debt, there's like a whole wide range of concerns that younger women have that maybe shaping when, where and how many kids they end up having.

Kal Raustiala 1:01:57

Right, okay, next question. Do you think that with technology being advanced at such a rapid pace, that the service providing jobs sector will also shrink? So I guess, is technology undermining that track?

Betsey Stevenson 1:02:09

This is a great question. So in because we've never really seen a decline in jobs and as much of a decline in jobs in the service sector, particularly in sectors like education and health services. It, it may be that this has fully disrupted the trend upward, right. That it's not just about technology, it's about you had to let a bunch of people go, and then you figured out how to do without them. You reorganized your business, why hire them back, if you're able to roughly produce the same amount, what we saw was business fixed investment, which includes investment in technology actually declined, and was pretty low in 2021. It's starting to recover. And we're certainly seeing at least some anecdotal evidence, when I walk into a grocery store, there are more self checkout kiosks than there were prior to the pandemic, my doctors doing more to do virtual visits, all follow ups, at my doctor's offices now virtual, and those really increase efficiency. So you really do you know, those are technological changes that can shrink the labor market. You know, the thing is, technological change that allows you to be more productive, is ultimately good. It's not like there's a fixed number of jobs to do. And then, you know, and then once we've done them, we're all done. I mean, in some sense, Keynes thought that was what would happen was like, oh, yeah, we won't want really much more stuff. So you know, by by 2020, we will all work 10 hours a week, because we'll have filled our hearts to play, you know, a plenty with our 10 hours a week worth of income, he did not get the prediction of what we could buy with those 10 hours wrong. He was right about how rich we would be. What he was wrong about was how insatiable our wants would be. And most people want to keep getting stuff. So if we become more productive, if I can do you know, if I can produce twice as much, you know, if I can do what I've been doing, and 50 hours a week, all of a sudden in 30 hours a week, will I will I take 20 hours for leisure or will I do more work? Right and that? That's the if people ended up doing more if people ended up doing more work, that I'm not worried that the service providing jobs sector will shrink, we'll just have to look at where the job growth comes. And I do think we have to think really hard about the allocation of jobs because I am very worried that some people are going to be shut out of jobs, because they don't have the right skills, or they haven't been trained, or they don't have the you know that they have some bad luck that sort of isolates them from the labor market. So I think the question with technology shrinking, it's not shrinking work, it's how does it change the allocation of work and who gets the jobs and who gets the rewards? You know, the example I always like to give is, you know, maybe we're gonna have self driving cars. And that's going to get that's going to be we no longer need Uber drivers or truck drivers, let's say truck drivers. Truck Driving is the number one job for men with a high school degree with only a high school degree in every state of the United States. If we get self driving trucks, what happens to those men? Well, they own the trucks, they probably love it, right? They send the truck to do their job, they stay at home, they program, the truck, the sounds great, they get paid as much as they get paid before, and they're doing less work. The problem is some big companies more likely to own all the self driving trucks lay off all those workers. And it's not about the job being different. It's about who owns the capital, who owns the technology.

Kal Raustiala 1:06:16

I mean, it also that's really interesting, it seems like partly, to go back to your point about Keynes, it seems like technology makes it easier to take on additional work, like works kind of lumpy. Jobs are pretty lumpy. But with technology, like Uber is really good example, a lot of people can say, hey, I've got an extra 10 hours, I'm going to fire up this app and go drive around, or I'm going to do even you and I can you know, in our kinds of jobs, there are things that we can do now remotely for small chunks, that otherwise you can't take on a full job. So does technology just feed that process you talked about?

Betsey Stevenson 1:06:51

Yeah, so I do think, you know, it's funny when now I remember studying labor markets when I was in college in the 90s. And being told, you know, think about, should you work one more hour or not work one more hour? What will the wage be? What's the opportunity cost of that hour, and you know, every student in the rooms, like who chooses to work one more hour, but now that's actually a choice that's closer to something as it's a real choice. And I think what changed the rideshare taxi industry so much was that people were able to drive in in hours that didn't actually have a lot of opportunity cost to them. In other words, they wouldn't have been doing something that they really valued. Instead, I had, you know, the example I'd love to give is, I've met an Uber driver once. And I said to him, you know, why did why do you drive Uber? And how much do you drive and he said, Oh, I drive one hour a day, I drive between five o'clock and six o'clock. And I do it because I get off of work at 430. And my wife doesn't get off till six. And she used to come home at six, and I'd be two beers down and she'd be pissed. And we'd get in a fight. And now I drive Uber for an hour. And once a week, I take her out to dinner. And we my marriage is so much better. I was like, you know this, that that anecdote, though, helps you understand like, of course, she's taking the job from a real taxi driver, that real taxi drivers using hours that are really important to him. This guy barely cares what he's getting paid, because he's looking to occupy some time that's not that valuable to him. So it really does change the industry. But it also does allow people to work that little bit more or a little bit less, if that's what they want to do.

Kal Raustiala 1:08:40

Yeah. Okay. Next question. How big of a factor is corporate consolidation in rising inflation?

Betsey Stevenson 1:08:46

So I do not think corporate consolidation is contributing to rising inflation. This is sort of the idea of greedy corporations have just pushed up prices, because why not? And my answer to that is corporations have always been greedy. Why now? Right? They could push prices up anytime we do face higher prices, because of, you know, because of companies with monopoly powers. But I don't think that the pandemic led to a huge increase in consolidation, that would be driving the kind of inflation that we're currently seeing. I absolutely believe that the government should be, you know, looking at competition policy and forcing all of its antitrust policies as hard as it can, not just because of rising inflation, but because an economy that's full of competition is a good for workers, it's good for businesses, it's good for economic growth. So I think that it's very important we addressed that problem. But I don't think that's going to solve inflation, that the problem with inflation and I think I saw a question and there were somebody I could feels. So I'm being a little bit frustrated that it felt like I was a little dismissive of inflation. And I'm not at all I know it really hurts people and they don't like it. The problem is the way we solve inflation is we have to reduce demand. And people don't really like that either. What they really wish is we could expand supply and they could all get what they want. What they don't want is for someone to be giving them less money so that there's less demand for food pushing food prices down, or you know, what the Feds gonna do raise interest rates, which then make that mortgage, very expensive with high interest rates, which is going to tamp down demand for housing. Oh, look, now we no longer have housing inflation. Housing inflation is a big part of what's going on right now. I'd like us to be able to actually expand housing supply so that we make housing more affordable by making it more available rather than just raising rates so that people give up and don't want to buy housing anymore.

Kal Raustiala 1:10:55

Agreed. Agreed. Okay, final question. Very specific question. Could we be provided with the slides Professor Stevenson used?

Betsey Stevenson 1:11:03

I would be happy to share the slides.

Kal Raustiala 1:11:05

Great, ok, we'll find a way to distribute in some manner. Thank you so much for joining us today. And we really appreciate having you. We hope we can have you back.

Betsey Stevenson 1:11:16

Well, thank you for inviting me. It was really fun to talk with you.

Kal Raustiala 1:11:20

Fantastic. Okay, thanks, everyone. The entire video will be posted at some point and available on YouTube and virtually join me in thanking Professor Betsey Stevenson. Take care of Betsey.

Betsey Stevenson 1:11:32

Thank you.

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