Studies in this week’s Hutchins Roundup find extra unemployment benefits during COVID didn’t lower employment, artificial intelligence may worsen international inequality, and more.
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The expiration of the CARES Act’s extra $600 a week in unemployment benefits didn’t send recipients back to work, finds Arindrajit Dube of UMass Amherst. Dube uses the variation across states in the share of recipients’ pre-unemployment earnings replaced by benefits—earnings levels vary across states, and the CARES Act uniformly increased weekly benefits by $600—to compare overall employment before and after the expiration. Contrary to economic theory that suggests more generous unemployment benefits will disincentivize the unemployed to find new jobs, Dube finds little to no impact of the expiration on overall employment levels; this is particularly true for low and middle income recipients and non-college graduates, who represent the majority of UI recipients. During significant economic downturns, says Dube, the government likely has room to provide higher benefits to unemployed workers without limiting labor supply.
Increased use of artificial intelligence (AI) and automation has the potential to increase inequality both within and across countries. Anton Korinek of University of Virginia and Joseph E. Stiglitz from Columbia note that these worries are intensified for developing economies and emerging markets because increasing automation threatens the manufacturing-dependent, export-led model of development that has been so successful for them. The authors argue that because AI diminishes the comparative advantage of many developing countries—cheap labor and abundant natural resources—it may reverse the convergence toward higher living standards developing countries have experienced in much of the past century, though the authors caution that there is still great uncertainty about the future impact of AI. While national policies such as progressive taxation and redistribution can ensure broader shared prosperity in some countries, the impact of these policies is limited in developing countries. Korinek and Stiglitz argue that policies at the supra-national level reforming the global system of governance will enable developing countries to benefit more from advances in AI. Such policies could include a global tax regime where worldwide profits of a corporation are apportioned to different countries and a global minimum multinational corporate tax rate.
Only half of workers in the U.S. private sector have employment-sponsored retirement plans, and the majority of workers without one do not open their own Individual Retirement Account. Government-mandated automatic enrollment plans for workers without employer alternatives have been proposed as a way to lift personal retirement savings and decrease reliance on programs like Social Security. In Oregon, such a program increased employee savings, find John Chalmers of the University of Oregon and co-authors. More than 67,700 employees accumulated over $51 million dollars in retirement accounts between August 2018 and April 2020. The participation rate was significantly lower than those typical of employer-sponsored 401(k)s, however, likely reflecting the constraints of workers in the low-wage industries with high turnover served by OregonSaves. Although OregonSaves increased participation by reducing workers’ need to search for their own plan, 30% of employees who opted out said they couldn’t afford to save, and this was more likely to be the explanation for those in industries with lower average wages. For low-wage workers, meeting current needs before contributing to an IRA may have been the rational choice, the authors say.
Chart of the week: Credit and debit card spending jumped after the second round of stimulus checks, particularly for low income households
“If the public does want a digital cash-like currency… a central bank—a trusted public institution—should issue it… It has been said that in the digital economy, data is the new oil. Many technology companies follow a business model in which they use their customers’ data to refine and expand the range of products and services they offer to the public. This, in turn, pulls more and more business onto their platform, which generates more data, and so on. If that business model were used as a foundation for the dominant method of payment in the economy, the issuer would gain control over an enormous range of data—bringing with it overwhelming market power. In effect, a technology company could become the gatekeeper of the entire economy, with concerning implications for privacy, competition and inclusion,” says Timothy Lane, Deputy Governor of the Bank of Canada.
“Let’s compare this with a central bank digital currency. A central bank—with no commercial motivation to harvest data—is uniquely positioned to build in safeguards for privacy, while at the same time defending against criminal uses… Universal access would need to be another key feature of a central bank digital currency. That means ensuring that remote and marginalized communities— including but not limited to the underbanked and unbanked—are not left out of this new way to pay for goods and services.”