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Pandemic had little effect on overall productivity growth

Productivity in the U.S. grew slowly before the pandemic but surged during its early stages. Using data on productivity by industry, John Fernald and Huiyu Li of the Federal Reserve Bank of San Francisco show that the early surge in productivity was the result of compositional changes in the labor force and capital deepening, which have already reversed in large part. Productivity is either a bit higher or a bit lower than it was before the pandemic, depending on whether output is measured using the stronger income-side measures or the weaker expenditure-sides measures. There is considerable variation across industries. After accounting for industry differences in cyclical utilization and work hour misreporting, the authors find unusually strong productivity growth in telework-capable industries, but very weak growth in low-telework industries, which suffered from supply chain and other disruptions without reaping the benefits of remote work. The authors speculate that pandemic developments like remote work may boost productivity in the future as companies figure out how to optimize which tasks get done at home and which in the office.

Growing endowments do not lead universities to expand access to underserved populations

Using data from 200 private universities and colleges, George Bulman of UC Santa Cruz finds that institutions experiencing larger increases in their endowments than other otherwise similar institutions do not increase total enrollment or reduce tuition. Although these schools modestly increase the generosity of financial aid packages, they don’t increase the proportion of students who are recipients of either financial aid or Pell grants, and the share of underrepresented minorities in the student body actually decreases. Schools with large increases in their endowments increase spending substantially, but this extra spending mainly funds core operational activities such as instruction and student services, which allows the schools to become more selective and increase their U.S. News and World Report rankings.  These findings suggest that the preferential tax treatment of endowments may not lead to increased access to elite postsecondary education for underserved populations.

Welfare work requirements reduce quality of parenting

In the 1990s, the U.S. imposed work requirements as a condition for receiving welfare. These changes are widely recognized to have increased employment among single mothers receiving welfare, but less is known about how the policy affects their children’s cognitive and emotional development. Using biennially administered, nationally representative survey data on over 11,000 mothers of preschool-aged children from 1990-2006, Ariel Kalil of the University of Chicago and co-authors found that the policy had no significant effect on the mothers’ investment in their children’s cognitive development (for example, by reading or playing with children), but lowered emotional support scores by 0.3-0.4 standard deviations. This unintended consequence is “substantially larger than the positive treatment impacts yielded by any existing intervention to improve the quality of low-income children’s home environments.” The authors speculate that the reduction in emotional support may be due to the stresses that the work requirement imposed on single mothers, such as having less time to spend with their children and struggling to schedule childcare and transportation around unpredictable work hours.

Chart of the week: The wide gap between number of job opening and number of unemployed persists

Line graph of number of job openings and number of unemployed but seeking work, in millions, from 2019 to present.Chart courtesy of the Wall Street Journal 

Quote of the week:

“When the degree of inflation persistence is uncertain, optimal policy prescribes a forceful response to a deviation of inflation from the target to reduce the risks of inflation remaining high for too long. In this case, it is largely irrelevant whether inflation is driven by supply or demand. If a central bank underestimates the persistence of inflation – as most of us have done over the past one-and-a-half years – and if it is slow to adapt its policies as a result, the costs may be substantial,” says Isabel Schnabel, Member of the European Central Bank’s Executive Board.

“In the current environment, these risks remain significant. Unprecedented pipeline pressures, tight labor markets and the remaining restrictions on aggregate supply threaten to feed an inflationary process that is becoming harder to control the more hesitantly we act on it.”

The Brookings Institution is financed through the support of a diverse array of foundations, corporations, governments, individuals, as well as an endowment. A list of donors can be found in our annual reports published online here. The findings, interpretations, and conclusions in this report are solely those of its author(s) and are not influenced by any donation.