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August 10, 2010

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"The High Price of Motherhood"

Posted: 10 Aug 2010 12:42 AM PDT

Maxine Udall wants to know why the "price" of motherhood is so high:

Protecting Our Grandchildren: The High Price of Motherhood, by Maxine Udall: David Leonhardt at the New York Times provides a comprehensive look at the price of motherhood. It appears to be pretty high. Despite advances  over the last several decades in equalizing gender roles and pay, women still make roughly 80 cents to every male dollar. ... Much of that difference appears to be the result of women's commitment to child bearing and rearing. Despite large gains in gender equality in the US, the wage gap while somewhat narrowed, still persists and women still spend more time in child care and housework than men (and here). This translates into preferences for more time off from paid employment (what economists call "labor force participation) to bear children and a preference for jobs with shorter or more flexible work hours to accommodate the demands of child rearing. 
"But, wait!" you say. Surely the market has valued women's productivity correctly. Women are less productive because they take time out to bear and raise children. For this reason, their skills and knowledge do not keep pace with someone who is continuously gainfully employed. They show up late and leave early to pick the kids up at day care. Clearly this must lower their workplace productivity. They should receive a lower wage.
To which I reply, "Well....that's one way of looking at it and you'll do very well in your graduate studies in economics."
But let's step back and think about this. The wage rates received by individuals (and many of you will rightly dispute that they provide reliable indicators of either absolute or relative productivity) are taken to approximate the value of the incremental product they add to total output. Our national accounting methods value ... GDP by tabulating ... the value of all goods and services produced in markets [in a given time period]. GDP has long been used as an indicator of a nation's economic growth and well-being.
But what about all that non-market work women are cranking out? The stuff for which they don't get paid? Child care, child birth (production of the future units of economic production for those of you who like to think of children as durable goods)....how about mother's milk that builds bodies and immune systems 40 different ways? None of that shows up in GDP.  The purchased inputs to it will (for example, the food women eat and  the milk they drink to produce milk), but to take inputs as the sole measure of women's non-market productive activities forces us to assume that women add no value to those inputs, either by virtue of their managerial acumen (which will influence the mix and amounts in which they combine them, i.e., their efficiency) or by virtue of differences in production "technology."
Just pretend for a moment that you are an economist and imagine women as owner-managers of little child production and child rearing factories. Remember, the "output" here is healthy, educated kids who grow up to contribute to society, from which we all benefit. The extent to which they are healthy and educated depends greatly on decisions made by parents, but especially by mothers who spend more time with them and have primary responsibility for their prenatal health and development. Mom's matter. In single parent homes, which tend to be headed by mothers, they may matter even more. Much of what they do to produce healthy, educated kids is not captured in GDP because it isn't traded in a market.
Research by Kathleen Garrett and Nancy Cloud suggests that the contribution of women's nonmarket productive output to total societal output (and therefore to a global measure of societal well-being) is considerable, ranging from 21% to over 50% of GDP across 132 countries. None of it is captured by traditional estimates of GDP.
So far, I've been describing "sins of omission," the omission of a large portion of non-market productive endeavor by a single group from our national accounts. There are further distortions induced by the omission. For example, when women move into the labor force and purchase child care in the market in order to enable the move, both their market output and the purchased child care will be captured by traditional estimates of GDP. It looks like GDP has grown, because now child care is being delivered (and paid for) in a market. But has output really grown? After all, the same work effort and output (and perhaps more) was being produced by the woman without compensation  before she entered the labor market. All that has happened is that it has shifted to someone else and is now captured in our national accounting. Has total output really grown by the amount produced by a paid child care worker? ...
And there is another possible distortion from the omission of women's unpaid work from our national accounts. The untallied and unmeasured often becomes the unvalued. When non-market work is undervalued or unvalued, the "stuff" that is counted and valued appears that much more valuable. The result will be to shift national output away from non-market activities and their product and toward market-based activities. This was a point  made in the Report by the Commission on the Measurement of Economic Performance and Social Progress, authored by Joe Stiglitz, Amartya Sen, and Jean-Paul Fittousi. The result could be an actual decline in national well-being even as traditional indicators such as GDP are rising.
Leonhardt concludes with the hardly reassuring information that as long as women don't have children, they appear to do just as well as men wage and career-wise (assuming they manage to break through the pesky glass ceiling that still leaves women under-represented in board rooms and executive suites).
The irony here, at least from my perspective, is that we're surrounded by men (and some women) obsessing about the welfare of our grandchildren, especially the possibility that we will saddle them with an unbearable tax burden that can only (apparently) be relieved by increasing income inequality and decreasing taxes on the rich. Yet the people most likely to have a profound and lasting positive effect on the parents of those grandchildren and, by virtue of it, a profound and lasting positive effect on the endangered grandchildren, are forced to accept a 20% reduction in market wages, to struggle to find affordable, high quality child care, to be penalized for requiring flexibility in work hours, to (until 2014) face lack of health insurance if they work part-time.
So next time you hear someone arguing for cutting the safety net to protect our grandchildren from an undue tax burden, ask them what they've done lately for the grandmothers of those grandchildren. Ask them why, if we are so worried about our grandchildren, do we undervalue and penalize their mothers and grandmothers in labor markets? Why is the "price" of motherhood in foregone wages so high?

links for 2010-08-09

Posted: 09 Aug 2010 11:02 PM PDT

"Future Recession Risks"

Posted: 09 Aug 2010 10:37 AM PDT

Here's part of the introduction and conclusion from the latest SF Fed Economic Letter by Travis J. Berge and Òscar Jordà. They find that "the macroeconomic outlook is likely to deteriorate progressively starting sometime next summer":

Future Recession Risks, by Travis J. Berge and Òscar Jordà, Economic Letter, SF Fed: By now, there is little disagreement that the Great Recession, as the last recession is often called, ended sometime in the summer of 2009 (see Jordà 2010), even though the National Bureau of Economic Research (NBER) has yet to formally announce the date of the trough in economic activity that marks the beginning of the current expansion phase. Intriguingly, just as we seemed to be leaving the recession behind, talk of a double dip became increasingly loud. ... A quick look at the number of Google searches and news items for the term "double-dip recession" reveals no activity prior to August 29, 2009, but a dramatic increase in search volume since then, especially in the past two months. Such concern is likely motivated by a string of poor economic news. ... It is understandable that the NBER has hesitated to call the end of the recession.
This spate of bad news has prompted a heated policy debate pitting those eager to mop up the gush of public debt generated by the recession and the fiscal stimulus package designed to counter it against those who would prefer to douse the glowing recession embers with another round of stimulus. ... In this Economic Letter, we calculate the likelihood that the economy will fall back into recession during the next two years. ...
Conclusion Any forecast 24 months into the future is very uncertain. ... Nevertheless, [Leading Economic Indicator] LEI forecast trends indicate that the macroeconomic outlook is likely to deteriorate progressively starting sometime next summer, even if the data suggest that a renewed recession is unlikely over the next several months. Of course, economic policy can strongly influence the outcome. The policies that are adopted today could play a decisive role in shaping the pace of growth.

We shall see what policies are adopted by the Fed today that "could play a decisive role in shaping the pace of growth," or at least we'll find out on Wednesday when the Fed announces the outcome if its latest FOMC meeting. But it sounds like, as Tim Duy said, opinion within the Fed is that the Fed needs to be more aggressive.

"Economic Growth and the Bush Tax Cuts"

Posted: 09 Aug 2010 10:37 AM PDT

Did the Bush tax cuts generate economic growth?:

Economic Growth and the Bush Tax Cuts, by David Leonhardt, Economix: In a detailed look at the Bush tax cuts in the current issue of Bloomberg Businessweek, Peter Coy writes:

They were supposed to promote long-term growth by realigning incentives. On that score their legacy is hard to measure because there's no way to know how the economy would have fared without them. Many companies instituted dividends to take advantage of the tax break, but whether that induced more investment is unclear. What's indisputable is that deficits grew while the U.S. economy rumbled along in slow gear: Growth averaged 2.3 percent a year from the end of the 2001 recession through December 2007, at which point the economy tumbled into the worst downturn since the Great Depression.

I agree there is no way to know for sure how the economy would have fared without the tax cuts. But the evidence we have does not suggest the cuts were especially good for growth. The expansion that began in 2001 and ended in 2007 had average annual economic growth of 2.7 percent. That was the slowest of any expansion since World War II.

Some of this is a reflection of slowing growth in the working-age population. If you control for these demographic changes, the 2001-7 expansion compares favorably with the 1970s, but that's not exactly high praise. No matter how you examine the numbers, the Bush expansion was significantly weaker than the expansions of the 1990s and 1980s. It's hard to see how the cuts induced a lot of additional investment or persuaded a lot of people to enter the work force.

Of course, the stronger expansions of the 1980s and 1990s were also not followed by terribly deep recessions. Looking at the full business cycle makes the past decade appear even worse. Might it have been even worse without tax cuts? Sure. But the burden of proof certainly seems to rest with anybody who tries to make that case.

Much of the growth that was observed during the Bush years was due to the housing bubble. That growth was illusory, and if we were to adjust for the illusory component of the growth that shows up in the measurements cited above, the Bush years would look even worse.

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