Economic context
Changemaker Q&A

A Q&A with Michael Strain

Elisabeth JacobsNovember 20, 2020

 

Michael Strain

Michael R. Strain is a member of the WorkRise Leadership Board. Strain is the director of economic policy studies and Arthur F. Burns scholar in political economy at the American Enterprise Institute. He is the author of the recent book, The American Dream Is Not Dead: (But Populism Could Kill It, which examines longer-term economic outcomes for workers and households. An economist, his research has been published in peer-reviewed academic journals and in policy journals, and he has edited two books on economics and public policy. Strain also writes frequently for popular audiences. His essays and op-eds have been published by the Wall Street Journal, the New York Times, and the Washington Post, among others, and he is a columnist for Bloomberg Opinion.

In this interview with Elisabeth Jacobs, WorkRise’s acting executive director, Strain shares his views on incentives and disincentives created by expanded unemployment benefits, the reasons understanding both intra- and intergenerational mobility is critical, and the need for more research on effective work-based, skill development and learning programs.

Elisabeth Jacobs: Let’s start with talking about measures projected president-elect Joe Biden and Congress could take to rebuild the labor market, which is showing signs of improvement but still has a long way to go in terms of recovery. Tens of millions are unemployed, and about 3.6 million have been unemployed for six months or longer. You have been critical of extending the $600 supplemental unemployment insurance that expired in July. Can you say more about your perspective on UI benefits?

Michael Strain: If we are going to increase the generosity of UI benefits again, ideally, we could allow the generosity of the federal supplement to vary by state, depending on the state unemployment rate. It would also be an improvement if we could convert it from a fixed dollar amount to a share of a worker’s previous wage.

I certainly don’t think we should reinstate the full $600 federal supplement at this point. My position on this is directly tied to my concern about longer-run outcomes. There’s no question the $600 supplemental benefits did more good than harm for the economy overall, and for the unemployed workers who are receiving them, from March until their expiration in July. They certainly helped to maintain consumer spending. But the policy question is not whether we should have had this generous of a federal supplement this past spring and summer, but rather, what should be done over the next 6 to 12 months for those who are unemployed or underemployed?

The economy and labor market both continue to improve, so my concern is about unemployment benefits that are generous to the point of keeping people out of paid employment. If you have people who are unemployed for months upon months, that has serious long-term implications for their careers: their professional networks decay, their skills atrophy, and it’s much harder for them to get back into the labor force.

Precisely out of concern over these longer-term outcomes, we should rely less on extremely generous unemployment insurance and more on other ways to support consumer spending and make sure that vulnerable workers and families have the income support they need during the weak economy. In my view, the debate over unemployment benefits is premised on a false choice, as if the only way to support consumer spending among vulnerable households is to couple it with a significant labor supply disincentive. We can avoid offering unemployment benefits that increase income above what unemployed workers would be making in jobs, as the way to not heavily discourage unemployed workers from getting new jobs, while also finding other ways to support households that really need help right now.

Elisabeth: What are the other investments or supports we should consider to achieve the outcomes you’re talking about, without the potential downside consequence of longer-term unemployment?

MS: One way to do this would be expanded generosity in the Supplemental Nutrition Assistance Program (SNAP), previously known as food stamps, which Speaker of the House Nancy Pelosi and House Democrats are insistent on including in any stimulus package. In my view, that would be much preferable to relying on unemployment insurance benefits as a way to support lower-income households.  SNAP benefits aren’t cash, but they’re pretty close to cash. If we expanded the generosity of SNAP benefits, we’re targeting lower-income and vulnerable households in ways that unemployment benefits don’t.

We are going to have a weak economy for some time, so an expansion of the child tax credit, both the refundable and nonrefundable components, would do a lot of good. If we want to get money into people’s hands earlier, we could expand the earned income tax credit. We could make that partially advanceable as well, to get money into people’s pockets earlier. I fully support targeting assistance on low-income households and vulnerable households.

I think decades of federal job training programs have largely been disappointing. But that doesn’t mean we’re done. And it doesn’t mean that job training can’t work. It just means we have to figure out how to do it better and differently.

EJ: Some research on UI as a work disincentive says that the program contributes to better matches between jobseekers and jobs by affording people more time to look for a job that, in some cases, could enhance their upward mobility. Does that idea resonate with you, or is this still an open question?

MS: I’m convinced unemployment benefits help workers by facilitating better matches and that that increases their wages, leading to better labor market outcomes for them. It also helps the economy overall by increasing economy-wide productivity.

The question is, should we pay a $600 supplement to standard, state-provided benefits? The question is not whether we should eliminate standard, state-provide benefits. That $600 supplement takes the average unemployment benefit check up to roughly $950 per week, which is annually, a salary of $50,000. Two-thirds of recipients had a higher income on unemployment benefits than they had while they were working. The Congressional Budget Office forecasted that if we were to extend the $600 for six more months, five out of every six workers would have a higher income on unemployment benefits than they would receive from working in the labor market. So the $600 really does change the program quite a bit, and it increases the replacement rate from about 50 percent to well over 100 percent for the majority of recipients.

I’m not saying we should take unemployment benefits to zero or that we should eliminate them. I’m saying that we should get back to a world where unemployment benefits are not raising people’s incomes above what they could earn while they were working.

EJ: Let’s turn to some of the ideas in your book, The American Dream Is Not Dead: But Populism Could Kill It. What data have you been looking at, and what is your assessment of what the American Dream is for workers in low-wage jobs?

MS: There’s always more work to do, but longer-term trends appear to be going in the right direction, whether you’re talking about wages or income growth or economic mobility or what’s happening in the middle of the labor market. I think, for most workers in most households, are at least trending in the right direction over the longer term. The popular narrative about economic decline is at odds with the facts.

EJ: Can you walk us through the evidence that suggests trends were moving in the right direction, at least before the pandemic?

MS: On wages, there’s a commonly held view by people on the political right and left that wages have been stagnant for decades, but it’s a more complicated claim than it seems. You have to first ask yourself, whose wages we are talking about? And then, how we define wages? And, what decades are we talking about?

I looked at the wages of production and nonsupervisory employees, or people who are workers but not managers, who are about 80 percent of all workers, from the postwar period to the present day. And if you look at their wages going back to the end of World War II, you see three distinct periods. First, you see a period that lasts throughout the 1960s and into the early 1970s, where there’s pretty robust wage growth. Then, a period that lasts from roughly 1973 to the early- to mid-1990s, a two-decade and significant period where wages were stagnant or declining.

But during the 30 years from 1990 to 2020, wages grew about one-third for that group of workers. My argument is that a 33 percent increase in purchasing power and a 33 percent increase in wages is not properly defined as stagnant. That’s a real significant increase in wages and a real significant increase in purchasing power. It’s not spectacular; it’s not what we would hope for. Public policy should not be satisfied with wages that are growing at that pace. We should have programs that are effective at building worker skills so they can command higher wages. We should continue to have earnings subsidy programs. We should continue to find ways to make the labor market more competitive and more dynamic so workers can have better outcomes. The point is not to say, “mission accomplished,” but rather to say that that’s real growth, not stagnation.

EJ: What are your thoughts on how we should think about intra- versus intergenerational mobility since both are important concepts in thinking about how people’s economic lives develop over time?

MS: The intergenerational mobility question really speaks to more of what kind of society is American society. If you’re interested in whether or not America is a class society, and the question of the class into which you are born having an important effect on where you end up, then you need to look at intergenerational mobility. With intragenerational mobility, you want to see if people can improve their outcomes, and that’s different. It’s related, of course. Within intragenerational mobility, there are important distinctions to make.

If you’re a high school graduate and you never went to college and you started in the labor market at age 18, 10 years later, you’re 28 years old, the question is: have you improved your outcomes? By the time you’re 48, have you improved your outcomes over what they were when you were 18? If we think the labor market experience should make people better workers, then we want to see evidence of that. If that’s not happening, there’s something off in the labor market.

That’s a different question about whether or not we see a lot of relative mobility within the same generation. If we ranked everybody on a scale of 1 to a 100, is the 20th percentile person in the year 2010 still the 20th percentile person in the year 2020? That would be more of a zero-sum or absolute metric of mobility, and it tells you a different story than relative mobility metrics. I think a lot of people zero in on what they really think is the best between on absolute versus relative mobility metrics. But for an initiative such as WorkRise, both relative and absolute mobility are important.

EJ: In your view, what role do worker power and voice play in expanding opportunity and mobility for workers?  

MS: Worker power is a big part of the conversation, but I’m not optimistic about it being a productive path forward in the United States given the decline of union participation and organizing. I have no doubt that if we increased the share of the labor force that's unionized that workers would then have more voice and more power. But there would also be fewer workers. Unions reduce employment and the costs of greater unionization would be borne by the most vulnerable, least-skilled workers in the labor market. You'd be helping out middle-class and lower middle-class workers and really hurting workers at the very bottom. This isn’t a tradeoff I would make. Mechanisms to strengthen worker power do not seem to me to be the most promising path forward.

EJ: What are your thoughts on the role of skills and training and how they facilitate mobility? And what do you think we need to know that we don’t know now?

MS: Skills and training are absolutely critical. I hold the view that the most important determinant of workers’ wages is their productivity. And the most important determinant in the productivity is skills. We don’t know all that much about how to build skills. I think decades of federal job training programs have largely been disappointing. But that doesn’t mean we’re done. And it doesn’t mean that job training can’t work. It just means we have to figure out how to do it better and differently.

Work-based learning models seem more promising. Knowing why some work-based learning models work better than others would be really important. I would also include things like high school curriculum and changing cultural views on job and vocational training versus a four-year degree. There is real opportunity to replicate training programs that are working and for those that are not, figuring out why. There’s real opportunity for deep research and evidence to have a big impact on policy and gain bipartisan support. Both conservatives and progressives could be convinced by quality evidence in that space.

 

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