Hello and thank you. It’s a pleasure to be here. I would like to use my time today to answer the question posed by the title of this session: What can the Fed learn from research on opportunities and inclusive growth? But, first, let me remind you that the views expressed are my own and do not necessarily reflect those of anyone on the Federal Open Market Committee or the Federal Reserve System.
Some of the Fed’s jurisdictions, including consumer protection, community development, and financial stability, can help support inclusive growth. But monetary policy cannot solve these problems directly. However, I see a direct line between research on opportunities and inclusive growth and our dual mandate of maximum employment and price stability. The execution of our mandate is probably easier if certain other conditions are present. For example, if channels of upward social mobility are open and working for all, we are likely to see both higher labor market participation and productivity, making it easier to achieve maximum employment in a context of economic hardship. low and stable inflation. The better we understand the channels that affect the health and functioning of the global economy, the better we can calibrate our policy decisions to fulfill our dual mandate.
These channels consist of several areas that, for the most part, are not ours to make policy, but which are important for our policies to be effective in promoting the conditions for prosperity. They include health, housing, transportation, childcare, disability services, education, access to the financial system and access to capital.
First, I would like to address monetary policy. In pursuit of its dual mandate, the Federal Reserve essentially tries to foster and maintain the conditions in which the economy and all of its participants can thrive. Research has shown that the benefits of a strong economy, with high employment and stable prices, are particularly important for less advantaged groups.1 These groups also tend to see the biggest gains later in an expansion, which means they benefit the most from periods of sustained growth, like the expansion we had before the pandemic, which was the longest. never recorded.2 For example, during the pre-pandemic expansion, the long-standing disparity between the unemployment rates of prime-age African Americans and Hispanics and their white counterparts began to close. In fact, disparities in labor market outcomes just before the start of the pandemic were the lowest in at least 50 years. At the same time, inflation has remained subdued – below, in fact, our 2% target for most of this period – and has shown few signs of picking up despite the strength in the labor market.
Unfortunately, the pandemic has resulted in the fastest and most severe labor market contraction in the past 80 years. It also had a significantly larger effect on unemployment rates for women and black and Hispanic people than for most other demographic groups. And while job losses were widespread across all sectors of the economy, less-educated workers were particularly hard hit. This was especially true for people unable to work remotely or in jobs requiring in-person interactions.
As the economy reopened and began to recover, unemployment rates for the groups initially hardest hit — black and Hispanic workers — also fell more sharply. Today, as material disparities in unemployment rates along racial lines persist, those disparities have nearly returned to the narrower ranges we saw just before the pandemic.
However, as the economy recovered, strong demand and various supply constraints contributed to the fastest increases in consumer prices since the early 1980s. disproportionate effects on those who can least afford it and feel it the hardest. Price increases have been particularly strong for basic necessities like food, transportation and housing, which make up a substantial portion of household budgets for people at the bottom of the wage scale. Low-income households also have less savings to cushion price increases, which means they not only feel the effects more strongly, but also feel them immediately. The savings they have are more likely to be in cash or in non-interest bearing accounts, which means that inflation directly erodes the purchasing power of their savings.
Monetary policy cannot address the specific reasons why low-income households suffer most from high inflation. But these reasons help illustrate the importance of low inflation: Low inflation is essential to achieving a long and sustained expansion, an economy that works for everyone. Pursuing our dual mandate is the best way for the Federal Reserve to promote widely shared prosperity. At the same time, it is essential that monetary policy makers understand the many and varied conditions that can make our policies more effective in fostering prosperity.
Let me now turn to these co-occurring conditions for prosperity outside the Fed’s mandate, which nonetheless should be carefully considered. Many of them are simple, such as housing, transportation and childcare. Even though remote work has increased, many jobs remain in-person and on-site. If people cannot live close to where they work, either because of cost or because the jobs are located in non-residential areas, they have to move. Commuting depends on public or personal transport, which in turn depends on infrastructure such as roads and highways. And time spent commuting affects childcare decisions. Overall, family responsibilities – for children or for other family members – can keep people away from the labor market, and the burden falls disproportionately on women. This was especially evident during the pandemic, and especially true for black and Hispanic mothers.3
Financial participation is also clearly linked to prosperity. Being unbanked means less financial security. Less access to credit means a smaller, if any, safety net, but it also means fewer opportunities, whether it’s buying a home to build capital, fund education, or start a business. .
But there are other problems that are less obvious, even less quantifiable. Beyond location, a home provides both basic needs, like shelter, and invaluable benefits, like a sense of personal security and dignity. It is a haven in which our minds and bodies can recuperate and rejuvenate so that we are ready to participate in all aspects of life, including tomorrow’s work. The costs of living in disadvantaged areas or dealing with financial hardship can be seen in all walks of life. Higher stress, the frequent need to work more than one job, the lack of benefits, and the time and money spent on travel – all of this comes at a financial and psychological cost. There is a fundamental aspect of our humanity, which is to live a more fulfilling existence, to enjoy the richness of life. In an economy that works for all, we should not live to work, but work to live. These are the factors that will allow people to prosper.
Of course, the policies that can address these important issues are not crafted by Fed policymakers. But the research agenda we are discussing today helps us better understand the aspects of well-being that enable people to thrive and enrich their lives more broadly. Thanks.
1. See Tomaz Cajner, Tyler Radler, David Ratner and Ivan Vidangos (2017), “Racial Gaps in Labor Market Outcomes in the Last Four Decades and over the Business Cycle”, Finance and Economics Discussion Series 2017-071 (Washington: Board of Governors of the Federal Reserve System, June). Return to text
2. See, for example, Stephanie R. Aaronson, Mary C. Daly, William L. Wascher and David W. Wilcox (2019), “Okun Revisited: Who Benefits Most from a Strong Economy? (PDF)” Brookings Papers on Economic Activity, Spring, pp. 333–75. Return to text
3. See Joshua Montes, Christopher Smith and Isabel Leigh (2021), “Caregiving for Children and Parental Labor Force Participation during the Pandemic”, FEDS Notes (Washington: Board of Governors of the Federal Reserve System, November 5). Return to text