INSIDE ECONOMICS

Mark Zandi:                       Welcome to Inside Economics. I'm Mark Zandi, the chief economist of Moody's Analytics. And I'm joined by my two trusted co-hosts, Chris deRitis and Marisa DiNatale. Hi, guys.

Cris deRitis:                        Hey, Mark.

Marisa DiNatale:              Good morning.

Mark Zandi:                       Happy Friday.

Cris deRitis:                        Happy Friday to you.

Marisa DiNatale:              Happy Friday to you.

Mark Zandi:                       Yeah. What's going on? Anything interesting?

Cris deRitis:                        It's cold in Philadelphia.

Mark Zandi:                       I know. I'm looking out the window. I made my way back to Philly. You'll be happy to know.

Cris deRitis:                        Just in time.

Mark Zandi:                       15-hour trek with my wife and two dogs. We made our way up. Got caught in Washington DC traffic or otherwise I would've had record time, but alas-

Marisa DiNatale:              I'm sure Heidi can-

Mark Zandi:                       Washington messed me up.

Marisa DiNatale:              ... relate to that.

Heidi Shierholz:               Yes.

Mark Zandi:                       Yeah, yeah. Yeah, exactly. Okay. And I heard, Marisa, you're headed off to Whistler. Is that like a ski vacation-

Marisa DiNatale:              I am.

Mark Zandi:                       ... or what?

Marisa DiNatale:              Well, it is a business trip, but it's at the Four Seasons in Whistler. So I'm turning it into a little bit of a personal trip on the front end.

Mark Zandi:                       That sounds nice.

Marisa DiNatale:              Yeah.

Mark Zandi:                       Yeah, very good. Yeah. I've never been-

Marisa DiNatale:              Somebody had to go, so I volunteered. Someone had to fall on the sword.

Mark Zandi:                       You drew the short straw.

Marisa DiNatale:              Right.

Mark Zandi:                       What, do you fly into Vancouver and you drive up to Whistler?

Marisa DiNatale:              Yeah, and then it's like a two-hour drive north to Whistler.

Mark Zandi:                       Oh, is that right?

Marisa DiNatale:              Yeah. I don't ski though, so this is sort of wasted on me.

Mark Zandi:                       I hope they have snow. You can report back next week.

Marisa DiNatale:              They do. They do, apparently.

Mark Zandi:                       Good. Well, we have a guest. We already kind of teased her, Heidi Shierholz. Heidi, good to see you.

Heidi Shierholz:               Thank you so much for having me. I'm excited for this conversation.

Mark Zandi:                       Well, you say that now. We'll see how this goes. Yeah, we'll see how this goes. Heidi's the president of the Economic Policy Institute, EPI. Welcome. I knew your predecessor, Larry Michelle, quite well. Is he retired or is he still... I see his tweets actually. He's still-

Heidi Shierholz:               Yep. He's retired, but he's never... He's technically retired, but is just staying in the [inaudible 00:02:17] game, doing as much as he can. He's a force to be reckoned with.

Mark Zandi:                       Yeah. Yeah, I remember I got to know him pretty well in the financial crisis. Because he held a lot of meetings and informational... There were no webinars back then, but we had different convenings and that kind of thing to try to get a grip on what was going on. But very, very good guy. When did you become president of EPI? When did you take over from Larry?

Heidi Shierholz:               Well, you know what? There was a person in between.

Mark Zandi:                       Oh, there was?

Heidi Shierholz:               Sophia Lee was president for three and a half years between Larry and me, but then she went into the Biden administration. She runs the international unit at the Department of Labor now.

Mark Zandi:                       Got it.

Heidi Shierholz:               So I took over at EPI in the summer of 2021, so it's coming up on three years, two and a half years I guess. But I'm a long time EPIer. I first joined EPI in 2007. So I have a rich history at the organization, but just have been running it for the last couple of years.

Mark Zandi:                       And would you characterize yourself as a labor economist? Would that be fair?

Heidi Shierholz:               Yeah. Yep.

Mark Zandi:                       Okay.

Heidi Shierholz:               Labor economist by training. Yep.

Mark Zandi:                       Yeah. Right. So you've been at EPI, all in, for how long did you say?

Heidi Shierholz:               Well, I first came in 2007, and then I took what I always call the most stressful sabbatical in the world. Not in the world. But in 2014, I went to be chief economist at the Department of Labor for two and a half years and then came back to EPI.

Mark Zandi:                       Very cool.

Heidi Shierholz:               And then became the president after that.

Mark Zandi:                       Got it. Got it. And you want to tell us a little bit about EPI? It's a think tank... Is that okay to say, you're a think tank?

Heidi Shierholz:               Totally, yes. I don't feel like anyone quite knows what a think tank is, but it's a reasonable description. We were formed in 1986, so we're a long-running think tank. And the core mission is to really bring the interest of low and middle income people into economic policy discussions, just to make sure that those voices are heard and that we understand... just shedding light on what really will create an economy that's both strong and agile and fast-growing and fair, where productivity growth is broadly shared. That's our core mission.

Mark Zandi:                       I don't know if you appreciate this, or maybe I'm saying something I shouldn't be saying, but I kind of think of think tanks along the political spectrum. Do you do that as well? Is that fair to do? Like I think of a Brookings a little bit left of center, I think of American Enterprise Institute, AEI, a little right of center. Is that fair? And where would you put yourself relative to those folks?

Heidi Shierholz:               I think it is fair. I always just think we look at the data. One thing that people will say about EPI is no matter what you think about our last paragraph and the conclusions that we draw from the data that we analyze, no one's taking issue with our analysis. We do really rigorous work. But then the conclusions will line up with a more progressive view of what do we need to do to solve whatever problems have been... that we've underlined with an analysis.

Mark Zandi:                       Got it. And I know Josh Bivens pretty well. He's really good. And talk about data dependent oriented. He's very data dependent. Actually, in preparation for our conversation, I was reading a number of your blogs and other pieces and chock-full of data. You're going to be really good at this stats game later in the conversation. You got a lot of stats. Let's say how many scholars are there, if that's the right word, economists, scholars at EPI?

Heidi Shierholz:               I should have this off the top of my head. We have roughly 50 people total and maybe a total of eight economists.

Mark Zandi:                       Got it. Perfect.

Heidi Shierholz:               ... PhD economists. And then there's others who are master's level analysts and those kinds of things who I would also say are scholar. I mean, I'm sure you will agree with me that a PhD in economics is neither necessary nor sufficient for doing good, high quality economic analysis. But we do have that stable of PhD economists.

Mark Zandi:                       Got it. Well, it's great to have you and there's a lot of topics to talk about. I want to talk about... This is in no order of importance, but immigration because I know you've been writing about that a lot. That's been in the news obviously recently, given the surge in immigration and it's the consequences for lots of different things. Artificial intelligence, AI, and what implications that might have for the labor market. Income inequality, unionization. But I want to begin with the Fed, because this is top of mind. The Fed met this week, had a meeting, reaffirmed the federal funds rate target at 5.5%. And I thought maybe I'll just quickly turn to Chris. Chris, maybe just give us a sense of... just quick summary of what they did and your interpretation of the outcome of the meeting. The market certainly liked it. The stock market certainly liked it.

Cris deRitis:                        Yeah, they met. They did not change the Fed funds rate. That's the direct actionable piece of things. And then there was the press conference that Chairman Powell held that I think provided that support for the market. My interpretation is looking through the inflation data and suggesting that three cuts are still on the table or cuts certainly this year are still on the table. There had been some analysts suggesting that that was no longer the case because of the inflation. So I think that was supportive to the market outlook.

Mark Zandi:                       You feel any [inaudible 00:08:34] better after all this? Because we've been kind of hand-wringing a bit about the Fed waiting too long here and something breaking and that's a potential risk to the economic expansion. Do you feel better after all this?

Cris deRitis:                        I feel a bit better, a bit better. I mean, their outlook similar to ours, with what we have in our forecast. But I am still concerned. The chairman left the door open to additional cuts this year, but also suggesting we need to be data dependent. So I worry that the data can be misleading when we... As we've talked about in our previous podcast, the inflation may not be quite as strong once you take out the owner's equivalent rent issue and therefore we could have still... When the rubber hits the road, will they be willing to make the cut if the official inflation report is still suggesting something around 3%, for example.

Mark Zandi:                       Yeah, Heidi, just FYI. It feels like every podcast for the last four, five, six podcasts... Each time we dig deeper into the CPI, the consumer price index and particularly the owner's equivalent rent, the cost of housing, which is, I'm sure you know, quite problematic in terms of how it's measured and what kind of impact that's having. Let me turn it back to you, Heidi. What's your take on what the Fed's been doing, what it did at the meeting, and how are you feeling about things, broadly?

Heidi Shierholz:               One thing that I think is potentially useful to just mention, I'm sure you've talked about this, but there are just a lot of debates amongst economists about the correct neutral level of interest rates in the economy. But I think no one thinks that current rates are anywhere near neutral. We just know that to be true. But I think, and you're sort of hinting at this, the rate of inflation really is very close to neutral, a neutral rate right now, if not actually at it. So there's this real imbalance between the two. And I think that if it lasts much longer could get to be a real problem. It just puts a really stiff drag on growth. One of the things I think about, a sort of impact that we really all have to worry about right now, is I think the high interest rates are tough on the renewable energy build out.

                                                So that's a big problem. And then to your point, if they wait too long to... Right now, we have a very, very, very strong economy. But if they wait too long to raise, it could start creating real weakness, even cause a recession, and that then has enormous problem. Those are the kinds of things... That's what we want to avoid really at all costs. And I think about... I talked in the beginning that the mission of EPI is really to bring the interests of low and middle income people into economic policy discussions. And when you talk about a weak economy, if they wait too long to reduce rates and that really does cause real weakness in the economy, that churns out inequity. Weak economies churn out inequity. They churn out racial inequity. They churn out inequity between low and middle income workers and higher income workers.

                                                And that's because weak economies, high unemployment, it really hits people across the board. All across the wage distribution, wage growth is slower when the unemployment rate is higher. But it's worse the farther down the wage distribution you go. So high unemployment rates are worse for middle income people than for high income people. They're worse for low income people than middle income people. So you really see weak economies, high unemployment pulling apart economic outcomes and generating real inequity. So there's this real distributional problem that goes along with waiting too long to lower rates as well.

Mark Zandi:                       Yeah. I am very sympathetic to what you said, but I guess Fed officials probably wouldn't disagree with you. They would argue though that they want to make sure that the unemployment rate is low for as long as possible. You don't want to get the unemployment rate too low. Inflation becomes a real problem. They got to jack up rates and then you get a recession. That's not the kind of world we want. We want steady low unemployment, like we've been getting for the last two years.

Heidi Shierholz:               Solid point. Yes, I absolutely agree with that. So the fact that we are seeing inflation just coming down, looking very close to a "neutral rate" right now is the flip side of that. We are seeing this steady decline in inflation. And one thing that I think is potentially important. There was a pretty hot inflation print in January. And then we don't have the February PCE numbers out yet. They should be coming out soon. But what we have, the February CPI numbers, it came in better. There's a lot of reasons to believe that the January number was kind of a fluke.

                                                And I think the pretty steady decline in inflation that we're seeing does... and this big imbalance between the Fed's... Just with how high the interest rates are right now, it does make me think that we are moving to... if we are not at the point where the evidence is strong enough that inflation is normalizing, that the Fed needs to start ignoring one-month pops of hot inflation data. Not change course because you get one hot January. That's one key thing that I think the broader trends are showing us.

Mark Zandi:                       Totally, totally. I got the sense listening to Powell that he thought that the January, and to a lesser degree, the February consumer price inflation numbers, they were, as you said, hot, they came in strong. Probably were affected by data issues, seasonal adjustment, that kind of thing. So I took some solace in that. Hey,. Marisa, anything you want to add on the conversation on the Fed before we move on?

Marisa DiNatale:              He kept reiterating that they're committed to bringing inflation back down to 2%, but he seemed to acknowledge... He was asked a question about shelter inflation, for example, and he acknowledged that they're looking at that data, they know there's a lag in it, that inflation is on the right trajectory. It's been a bumpy few months, so they're being cautious. So he seems to... I don't know. I interpret it that he is looking through some of that noise and they are acknowledging some of these quirks in the data. So I don't think that they necessarily need to see inflation at 2% before they do anything. I think he just wants to know that we need another couple readings on inflation. As long as it's moving lower or it's not moving higher, I think then they're ready to go.

Mark Zandi:                       Yeah. Yeah. One thing I did notice, which I found interesting, going back to your point, Heidi, about the neutral rate, the so-called equilibrium rate. That rate, which were monetary policies neither supporting nor restraining growth. They raised it just to... I don't know if you noticed. In the summary of economic projections, so-called SEP. They released that every quarter. These are their forecasts. And in that, they have a long run forecast and for the federal funds rate target, and they raised it just a tick from 2.5% to 2.6, which is their estimate of the neutral rate. Which seems very low to me in the current context. In our forecast, we have it at somewhere around three, and that even feels low. I've talked to a number of economists who think it's even higher than that. But to your earlier point, regardless of where you think that is, it's not five and a half. Five and a half is a lot higher than 3.80.

Heidi Shierholz:               Than anyone's estimate.

Mark Zandi:                       Anyone's estimate, right. Okay. Okay, let's move on. Heidi, I want to just frame it this way. I'm just really curious. So when I read your work and the work that comes out of EPI, I get the sense... And feel free to push back because this is in Zandi's mind, how I think about it. All the research you do and the work you do, you kind of frame it in this... I don't know if battle is the right word, but this tension that exists between workers and employers. And here's some data that I'm just curious how you think about this. So when I think about this tension between workers and employers, I go to national income and I look at where the national income is going. National income is the economic pie. GDP is with the value of the things that we produce that generates income, wages and profits and other sources of income.

                                                And we divide that pie up and labor share of that. And you can see the amount that goes towards compensation, which is wages, salaries, and benefits is... You can look at the data back to 1947, right after World War II. The average share is... I was going to use this for my stat game, but I just can't wait to say it, so I've got to use it. 63.8%, that is the average through time back to 1947. The last data point we have is for the fourth quarter of 2023. And the share is 63.8%. It goes up, it goes down. It has obviously been higher. Back in the eighties, early nineties, it was close to two thirds, maybe even a little higher than that at points in time. Because it is cyclical. It goes up and down based on what's going on in the business cycle, to your point about unemployment. But it's roughly where it's always been.

                                                So what do you think of that data? What do you think about what I just said? Do I have this right? I mean, if you look at that and take it at face value, you'd say it's a draw between this battle or this tension that exists between workers and their employers. No?

Heidi Shierholz:               One thing that the labor share sidesteps entirely is inequality within income. I think of if you look at rising inequality over the last four and a half decades, the lion's share of it has not come from decreasing labor share. Although if you look since 2000, you do see decreasing labor share over that period. But the lion's share of it has been very strong rising inequality within wages, for example, within income. So that's really the source of it. That's where it's coming from. So that is masked entirely when you look just at the overall labor share. Those are the things where you see, that if you just look at inequality within earnings, that the top 1% just skyrocketing, the top 5% skyrocketing, but a little bit less the top 10%. Just that fractal kind of inequality. Though, one interesting thing is that's been true basically from 1970. I think of the real spurt of this rise in inequality starting with the early eighties.

                                                If you look from '79 to 2019, you see this rise in inequality within income. That's not been true over the last four years. If you look from 2019 to 2023, the pattern is the opposite of what we had been seeing over that period, where you saw the strongest real wage growth in the... It's exactly the opposite graph. You see the strongest real wage growth at the very bottom, the next strongest real wage growth at the lower middle and on and on and on, and the lowest real wage growth at the very top. So we have seen a little bit of a reversal over the pandemic period, and we can talk about... There's lots of reasons for that. But it in no way has undone the massive amounts of rising inequality that happened in the 40 years prior to that. But that's where the meat of the rising inequality is.

Mark Zandi:                       Okay, I got it. So it's not really a worker versus employer. It's that if you look at the income of workers of individuals, it's become more skewed over time. That the folks in the top part of the distribution are taking a higher share of that income, of that... Workers are getting their share of national income. That goes up and down all around, but it hasn't really changed much. But the distribution of where that share is going has become more skewed. That's what you're focused on.

Heidi Shierholz:               That is absolutely right. And when you think of... I do think that this question of power in the... I mean, your point about tension. I think economists might not have used the word... Well, economists definitely use the word power. But that's been the focus of who has leverage and is the focus of a huge amount of economic research and theory. But in this case, instead of the fruits of productivity growth going to capital, the shift has been less to capital and more to executive pay and pay and other highly paid professionals. That's where we're seeing the big increases.

Mark Zandi:                       Okay. Okay, got it. I was going to say one other thing. Oh, when I look at trying to quickly measure income inequality, I immediately go to the genie coefficient. That's a way of measuring what percent of income is going to low income groups up to high income groups. Just for context, if the genie coefficient is zero, then that's a perfect equality. And if it's one, it's perfect inequality. The census publishes this every year with a bit of a lag. Right now, it's sitting 0.49, something like that, kind of halfway in between. That is well up from, say, 1980. So from 1980 through 1990, 1995, it rose very sharply. 0.40 in 1980. I'm speaking from memory, so I don't have it exactly right, but this is roughly right. 0.40 in 1980 to, say, 0.45, 0.46 by the early 1990s. It's kind of meandered up a little bit through the financial crisis.

                                                And since the financial crisis more or less, it has not changed. As you said, most recently it feels like it's come in a little bit, although I'm not sure whether that's just cyclical because the economy's strong or whether there's something more fundamental going. But the broader point is most of the... By that measure, the question is going to be is that a good measure? But by that measure, most of the skewing of the income and wealth distribution occurred in the eighties, kind of the first part of the 1990s. Since then, it's been pretty modest. In the last decade, not so much. Is that fair characterization?

Heidi Shierholz:               That's a really interesting point. I almost never look at the genie coefficient. But not that it's bad. I don't feel like people have a benchmark in their head for what it "should be", and it doesn't give you information about how... As you see changes in inequality, it doesn't tell you the nature of that. So I like to look at the 50/10 ratio, which would just be the ratio of the median, the person at the middle, their wages, to the 10th percentile wages. So you get a sense of what's going on with inequality at the bottom. And then look at the 90/50 to get a sense of what's going on with inequality at the top. I like to look at those because I just feel like they provide more texture. But I think that this...

Mark Zandi:                       So is the data, the way I characterize it, consistent with the way you think about it using it, these other measures of income equality? That it's really the skewing really was most pronounced in the eighties, early nineties? Since then, somewhat, but not nearly to the same degree. And in the last decade or so, not so much. Is that fair or is that in your mind's eye how you see things?

Heidi Shierholz:               Oh my gosh, now... The minute I get off of this podcast I'm going to run to look at the decade by decade trend because I don't have them in my head. Okay, so one thing we know is there has been a reversal since the business cycle that started in 2019. And your point is we're still in that. We have to see how that is going to play out.

Mark Zandi:                       Plays out.

Heidi Shierholz:               But if you look before that, we still saw... The business cycle from 2007 to 2019, it had one of the weakest recoveries, if not the weakest, slowest recovery on record. Separately, that was a policy choice. It didn't have to be that way. We did not do the fiscal policy that would've created a strong recovery in that, following the great recession like we have following the COVID recession. I know that what that weak recovery does is really increase inequality. So I have to look back. But I think we have seen pretty steady rising inequality in the measures that I focus on the most over that period. But I'm definitely going to look. In the late nineties, we saw improvements with the very strong labor market of the late nineties. So it isn't some kind of monotonically rising inequality over that period. But you [inaudible 00:28:20] want to go look.

Mark Zandi:                       Let's stipulate that the income... And we haven't talked about wealth, but certainly wealth is much more skewed today than it was 40 to 50 years ago. Much of that happened early on in the period, but it is still happening to some degree, but less so. Debate as to what degree. But before we move on... Because what I want to do is dig into the reasons for this and what that means about things as we look forward. And we're going to talk about immigration, AI, technology more broadly, unionization, forces... And I've got a couple of other theories I'd like to bounce off you if we've got time too, in terms of income and wealth inequality that I think might be interesting. But before we do that, let me turn back to Marisa and Chris. You've been hearing this discussion around how to measure income inequality and the way things have been framed so far. What do you think? Anything to add there? Marisa, anything to add or anything you want to say?

Marisa DiNatale:              No. I mean, I'm interested in when... Heidi, when you were talking about the late 1990s, early 2000s. I mean, that was arguably the best run in the labor market we've had in recent history and was in part spurred by the internet. So now we're facing down the possibility of AI, which I know we're going to talk about. I am very curious to hear your thoughts on what that might mean for all of these things we're talking about.

Mark Zandi:                       Chris, anything?

Cris deRitis:                        I guess a question I'll ask... I think this is probably on the minds of some of the listeners right now, is when you're running down the income inequality statistics, is that gross income or net of transfers, that's always a subject of debate. Are you just talking about income, earned wage income and what that distribution looks like? Or are you accounting for taxes as well as transfer payments?

Mark Zandi:                       Yeah. Oh, go ahead. Go ahead, Heidi.

Heidi Shierholz:               Oh, I was just going to say there's so much to focus on, just making a choice of... I tend to focus on pre-tax and transfer income, just because I'm interested in what the market is delivering for working people as a core interest. But the trends aren't massively different if you look at... We have a very well-targeted transfer system in the sense that it helps the people that it gets to, but it's very small, and so it doesn't have a huge impact on the overall trends. But it's not nothing. And that's a really good question. It's a really good point, I mean.

Mark Zandi:                       Okay. Well, like most everything, it boils down to how you measure it. In this case, I'm pretty sure, no matter how you measure it, income and wealth has become more unequal over the last 40, 50 years. I don't know that there's much-

Marisa DiNatale:              Certainly wealth. Yeah.

Mark Zandi:                       Yeah, certainly.

Cris deRitis:                        And certainly a question of degree, right?

Mark Zandi:                       The question of degree. And also more recently, to what degree has the skewing become less pronounced or has not increased to the same degree, that kind of thing. Okay, why don't we do this? Before we dive into immigration, AI, unionization, let's play the game. Because this is pretty dense already. The conversation was pretty dense. And the stats game is we each put forward a stat. The rest of the group tries to figure that out with clues and questions, deductive reasoning. The best stat is one that's not so easy. We get it immediately. One that's not so hard, we never get it. And if it's apropo to the topic at hand, income and wealth inequality and those issues, the better. Heidi, we always start with Marisa. It's tradition. So we're going to start with Marisa [inaudible 00:32:22]-

Marisa DiNatale:              We don't know why, but we do.

Mark Zandi:                       Yeah. Marisa's pretty good at this game. I'd say really good at this game. So watch out for her.

Heidi Shierholz:               Okay.

Marisa DiNatale:              Heidi, in honor of you, I really wanted to pick a labor market statistic because I also am a labor economist and worked at the Bureau of Labor Statistics before I came to Moody's.

Heidi Shierholz:               Oh, wow. Okay.

Mark Zandi:                       Was Heidi your boss, Marisa? Is that possible?

Marisa DiNatale:              No, no, no.

Mark Zandi:                       Oh, okay.

Marisa DiNatale:              I was there a long, long time ago. But then I thought if I picked a labor statistic, I wouldn't have any chance of stumping you. So I'm going in a different direction. Okay. My statistic is 17 years and one month.

Mark Zandi:                       17 years and one month. Does it have to do with income and wealth inequality?

Marisa DiNatale:              No, it doesn't.

Mark Zandi:                       Oh, so it's totally unrelated.

Marisa DiNatale:              It is, yeah.

Cris deRitis:                        Is it labor market related at all?

Marisa DiNatale:              No.

Cris deRitis:                        No. Okay. Wow.

Mark Zandi:                       And is it a stat that just came out this week?

Marisa DiNatale:              Yes.

Mark Zandi:                       Why did you say it that way? Either it did or it didn't.

Marisa DiNatale:              Yes, it did. This calculation was made [inaudible 00:33:38]-

Mark Zandi:                       See how she does this, Heidi?

Heidi Shierholz:               Yes, she's good at it. I see this.

Mark Zandi:                       I'm not good at this. The intonation, like she puts doubt in your mind. Okay. Okay, this week.

Heidi Shierholz:               Is it a record high of something?

Marisa DiNatale:              No, it's not. I thought you guys were going to get this right away. I'm going to give you a [inaudible 00:33:59]-

Mark Zandi:                       Is it something to do with housing and being able to afford a home?

Marisa DiNatale:              No.

Mark Zandi:                       Okay. All right, go ahead. Here's a clue.

Marisa DiNatale:              It is related to monetary policy. So back to our original discussion.

Mark Zandi:                       Oh. Oh, monetary policy. What'd you say? 17 years and what?

Marisa DiNatale:              And one month.

Cris deRitis:                        One month.

Heidi Shierholz:               One month.

Mark Zandi:                       Is it something that happened 17 years ago, 17 years and one month ago?

Marisa DiNatale:              Yes.

Mark Zandi:                       Oh. Okay.

Marisa DiNatale:              Yeah. The last time this happened-

Mark Zandi:                       So it's the last time the Fed did something.

Marisa DiNatale:              The last time this happened was 17 years and one month ago.

Heidi Shierholz:               Okay. I'm doing the...

Mark Zandi:                       Yeah, the arithmetic. That would be...

Cris deRitis:                        2007.

Mark Zandi:                       ... 2007. And the last time the Fed kept the funds rate at its terminal rate? No. Okay. Because 2007, no, that's right before the financial crisis, right? Is it 2007? Yeah, it has to be. Right. Yeah.

Marisa DiNatale:              Yes.

Mark Zandi:                       2007 was right before the crisis. The funds rate was sitting at... Was it sitting at 5.5%? Yeah? No? Come on, Chris, you got to chime in, man.

Heidi Shierholz:               Wait, this is March 2007. Is March 2007 the benchmark?

Marisa DiNatale:              February.

Heidi Shierholz:               February.

Marisa DiNatale:              February 2007.

Cris deRitis:                        February, okay. One month, yeah.

Mark Zandi:                       Okay, this is great. So what happened February [inaudible 00:35:35] of 2007?

Heidi Shierholz:               February 2007.

Cris deRitis:                        Okay.

Mark Zandi:                       February 2007. Something the Fed did in February of 2007. Is that right, Marisa?

Marisa DiNatale:              No, it's not the Fed.

Mark Zandi:                       Oh, not the Fed.

Cris deRitis:                        Not the Fed.

Mark Zandi:                       I thought she said the Fed.

Heidi Shierholz:               Something congress did in February 2007.

Marisa DiNatale:              I didn't say the Fed. I said it has something to do with monetary policy.

Heidi Shierholz:               Oh, right.

Mark Zandi:                       Oh. Geez.

Cris deRitis:                        Oh, wow.

Mark Zandi:                       Heidi, I give. What do you... [Inaudible 00:36:10]-

Heidi Shierholz:               I don't know. I want to call a friend. I don't know.

Mark Zandi:                       Yeah, right. It is going to be something we should have said, "Oh, we should have known that." But go ahead, Marisa. What is it?

Marisa DiNatale:              This was the last time the Bank of Japan raised interest rates.

Mark Zandi:                       Ah, of course.

Marisa DiNatale:              So the Bank of Japan just ended its 17-year policy of negative interest rates this week.

Mark Zandi:                       Yeah, that's a big deal. That's a good one. But totally unrelated to anything, Marisa. I'm just saying.

Heidi Shierholz:               We had some discussion [inaudible 00:36:42]...

Cris deRitis:                        You had that Fed comment in there. It put us off the path.

Mark Zandi:                       Yeah, yes. See how she does that? Yeah, [inaudible 00:36:49]-

Marisa DiNatale:              We talked about interest rates and monetary policy. It's not unrelated.

Mark Zandi:                       No, that's a good one though. That's actually a very good one.

Cris deRitis:                        It is related.

Mark Zandi:                       Quickly explain what happened. What did BOJ do?

Marisa DiNatale:              The Bank of Japan raised its short term, basically overnight deposit rate earlier this week to just above zero, a range that's just above zero. The Bank of Japan had had a policy of negative interest rates on deposits for the past 17 years. So they've been trying to stimulate the economy by actually making depositors pay banks to keep money in accounts and banks. And they also, with this announcement, ended a bunch of other things. They still have control over the Japanese bond market, but they ended investment in things like REITs and exchange traded funds and a bunch of other things to try to stimulate the Japanese economy.

                                                I mean, it's interesting because Japan... The reason that they did this is because... Of course, Japan had been mired in extremely slow growth, slow productivity growth, deflation for years. But now, the Japanese economy is actually inflating, even a little bit above the BOJ's target. It's inflating at over 2% year-over-year. And the catalyst for this is that there was a very large negotiation of Japan's largest labor union that affects millions and millions of workers. They got the largest wage increase of over 5% that they've... Oh, okay. I can bring this back to the topic at hand, to Heidi.

Mark Zandi:                       Okay, good.

Marisa DiNatale:              They got the largest wage increase that they've gotten since 1991. So the bank believes this will be inflationary for the economy. The economy's weak, though. So this is a bit of a controversial move because it's not as if the Japanese economy is growing quickly or even inflating that much. They did this, but they also cautioned that, "We're not so keen to keep raising policy rates. We're going to be really cautious, and we're going to go really slow with this because we recognize the economy sort of teetering on the brink of recession." And like the Fed and many other central banks around the world, they're treading this line between taming inflation, but not wanting to stall the economy's growth.

Mark Zandi:                       Yeah, that's a really good one. I mean, it's the only major central bank, maybe the only central bank that's raising interest rates. Everyone else is getting ready to cut. But that's a great one. Heidi, you want to go next?

Heidi Shierholz:               Well, I was going to do something that is a topic that we'll discuss after this. But should I still go for it? Should I give you-

Mark Zandi:                       Yeah, go for it. Yeah.

Heidi Shierholz:               ... a rough topic?

Mark Zandi:                       Yeah, yeah, go ahead.

Heidi Shierholz:               Okay. I'm debating between two different ones-

Mark Zandi:                       Pick the best one.

Heidi Shierholz:               ... but I will just go with... Because it's round number 75%, and it has to do with unions.

Mark Zandi:                       75% it has to do with unions.

Heidi Shierholz:               Well, I'll let you ask questions before I can give hints.

Mark Zandi:                       Okay. That's a percent of some group that is unionized?

Heidi Shierholz:               No.

Marisa DiNatale:              That would be really high.

Heidi Shierholz:               No. Right.

Mark Zandi:                       That would be high because-

Marisa DiNatale:              Is it a percent of a group that wants to be unionized?

Heidi Shierholz:               No.

Mark Zandi:                       Oh. But is that closer? It's felt closer.

Heidi Shierholz:               It is getting closer as far as people's-

Marisa DiNatale:              The spirit of the [inaudible 00:40:30]-

Heidi Shierholz:               ... thoughts about something.

Mark Zandi:                       Right. Right.

Heidi Shierholz:               It's people's thoughts about something not actual.

Marisa DiNatale:              Oh.

Mark Zandi:                       Right. Percent of the population that approve of unions?

Heidi Shierholz:               Okay. That is very, very close. Okay, so that is very, very close-

Mark Zandi:                       But you could say, "Mark, you got it right." You could say that. No.

Heidi Shierholz:               That is very, very close. And that's the other one I was going to do. But stick with that thinking, but then think of major union actions that got a lot of coverage last fall.

Mark Zandi:                       Oh, you mean the UAW?

Marisa DiNatale:              The auto strike?

Mark Zandi:                       Or the writer strike.

Heidi Shierholz:               First one.

Marisa DiNatale:              Auto strike.

Mark Zandi:                       Oh, the UAW strike.

Heidi Shierholz:               Yeah.

Mark Zandi:                       Oh, so 75% of people felt positively about what the UAW did when they struck the automakers.

Heidi Shierholz:               That's right. Right.

Mark Zandi:                       Oh, cool.

Heidi Shierholz:               The share of Americans who-

Mark Zandi:                       That's interesting.

Heidi Shierholz:               ... sided with the UAW in their labor dispute with the US auto companies.

Mark Zandi:                       Right. Is that like a-

Heidi Shierholz:               Gallup.

Mark Zandi:                       ... Gallup poll.

Heidi Shierholz:               Yep. Yeah.

Mark Zandi:                       Okay. Oh, that's good. What's your broader point? Is it that people are... Again, this is just in my mind's eye. People have historically looked at... In recent history, not all-time history. But in recent history have looked with a jaundiced eye on unions, but that may be changing.

Heidi Shierholz:               Yes. That is exactly my point-

Mark Zandi:                       I see.

Heidi Shierholz:               ... that we are in this period of just incredibly broad support for unions. People reporting that they think... reporting that unions are good for the economy, that unions should be stronger, we're near record highs for union approval. The broad union approval that I didn't go with, but it's very close to these numbers. It's just a very, very different environment than where we... Those numbers weren't anything like that in the more recent past, so it's a big shift.

Mark Zandi:                       Let's just dwell on that for a second, and we'll come back, but why do you think this perception is changing? What's going on?

Heidi Shierholz:               Yeah. I feel like there'll be lots of dissertations written about that. I think one of the things that is... Like the incredibly large support for the striking UAW workers. Just nothing is polling in the US at 75% now. Nothing. It is just remarkable that there is this sort of unity around unions. Even though we have a very strong economy, growing real wages, unemployment at less than 4% for more than two years now. All of those things are remarkable. But we still have a huge share of people that are living paycheck to paycheck. They're really struggling. And I think what we have seen in the recession in particular, in post COVID in particular, is that unions were kind of standing up and demanding things, and people have seen unions get wins for their workers. And I think it's really struck a chord. It's a good question. I think the very tight labor markets were one of the things that sort of spurred that process.

                                                And then it has been something of momentum building upon itself where there've been some important wins and people have seen that there is... I feel like there's been some of the relearning of the lessons of joining together with your coworkers actually gives you power to secure some demands. Those lessons had been kind of unlearned in the prior 40 years. Sorry, I'll just say one more thing. We do have such low unionization rates in this country after four decades of relentless attacks on unions, that there's a very small share of people in our economy that actually grew up in a union household or have any direct experience with unionization. And I think that's one of the things that facilitated those lessons of the power in joining together with your coworkers that facilitated those lessons being lost. That the tight labor markets leading to worker actions and some wins and generating momentum has sort of shifted in the post pandemic. Not that we're post pandemic, but in the sense the COVID era began.

Mark Zandi:                       Interesting. I wonder, just throwing it out there, that the high inflation may also be playing a role because people view the inflation as a ripoff. And to some degree, if you look at profit margins of companies, they've gapped out during the pandemic, meaning they've raised their prices much more significantly than the cost of labor and other input. The margins are no longer rising. They're starting to come in, as you would expect, as competition kicks in in lots of different industries. But people are paying higher prices for everything and they're saying... And they haven't seen this before, and many of them in their lifetime, and they view this as just unfair. It's just a rip-off. And maybe a union is a way to get the higher wages necessary to fight back and maintain purchasing power. Just a thought.

Heidi Shierholz:               No. I am sure that that has a part of it. And it's really hard to parse out what are different causes of it. But that has to be playing a role. That just has to be playing a role.

Mark Zandi:                       While we're on the topic, before we move on to Chris and his stat. While we're on unionization, we might as well play this out. I've done a lot of fair amount of modeling, of trying to understand what has driven the skewing of income and wealth distribution. And there's a lot of measurement issues that Chris brought up and lots of other things that go on. But the one thing that in every model I've built, I mean every single one of them, is share of the labor force that's unionized. That is critical to explaining what's going on. And it's been steadily declining. I think the symbolic event was when Ronald Reagan broke the air traffic union. I think that was 1979 or 1980, wasn't it? Somewhere in there. But it might've been in '79 or something because wasn't Carter... No. Was it [inaudible 00:47:20]-

Heidi Shierholz:               It would've had to have been in '80, because he came in...

Cris deRitis:                        Office.

Mark Zandi:                       Oh, it was '80. Yeah, it was 1980.

Heidi Shierholz:               '80. This is knowable.

Mark Zandi:                       Yeah, 1980. Sorry. Yeah, 1980. And since then, that's when the skewing of income and wealth inequality became much more pronounced. So when unions really started to fall off as a share of the labor force. But I'm sure that conforms with your thinking, that the unionization is one of the key critical reasons why income and wealth inequality has become more skewed is the decline in the labor force that's unionized.

Heidi Shierholz:               Yep. I mean, people who are in unions get higher wages, better benefits than similar workers who aren't in unions. Like if you take into account age, experience, education, occupation, blah, blah, all the things, there is a union premium. You get paid more if you're in a union. But then at least as big of an effect is the union spillover effect, that when unions are strong, they actually help set standards more broadly in the economy. And as union density goes down, that spillover effect just weakens because there's less... If that spillover effect is because non-union employers are like, "Well, I better pay decent wages, or my company might unionize, and I don't really want that to happen." If the union density is really low, that threat becomes a lot less real. But with the UAW strikes, we saw that spillover effect just playing out in real time.

                                                The wages of Hyundai, Honda... Oh my gosh, there's Toyota, and now there's more, but got raises. The workers at those unions got raises. They did not strike. They are not even unionized. But they got raises like five minutes after the successful strikes at GM, Ford, and Stellantis. And that's the union spillover effect just right there. So both of those dynamics contribute together to the decline of unionization having played a real role in the increase in inequality. And then I will also just say the other big thing that when we look at what has driven the rise in inequality... There's others, but two big ones are the decline of unionization and too high unemployment. Too high unemployment for much of that period just causes inequality. Can I just say one more thing on this? Because we haven't talked about race much in this discussion. But one thing that I think is not well understood is... I think most people think, "Oh, well, the Black, white wage gap, it may not be improving as quickly as we'd like it to, but it must be better now than it was 45 years ago."

                                                It is not. The Black, white wage gap is worse now than it was in 1979. It has improved over the 2019 to 2023 period when things have gotten better, but it is still worse than it was in 1979. And I think the decline of unionizations is a core part of that because the union premium is higher for Black workers than it is for white workers. And there's lots of reasons for that. But Black workers are more likely to be in unions than white workers. So unions actually are a key force to reduce the Black, white wage gap. And so as unions, density has gone down. It's coincided with Black, white wage gap rising.

Mark Zandi:                       Interesting. Well, I do want to move on to Chris. But since we're on the topic of reasons for the skewing of the income and wealth inequality, and you sort of mentioned it was the persistently high unemployment that existed in periods. Here's a theory I want to throw out and get your take on. This goes back to monetary policy. And that is from the late seventies really when Paul Volcker became chair of the Fed, through Alan Greenspan, up until Bernanke inflation was high. And the Fed's goal in life was to get that back down, to get inflation back down, get inflation expectations back down tethered.

                                                And the way the Fed did that was by running a policy that Alan Greenspan dubbed as opportunistic disinflation. Which meant run a soft economy. Run an economy with persistently higher... unemployment that's higher than the full employment/unemployment rate so that you get wage growth moderating and get inflation back in the bottle. And it worked. But one of the casualties of that policy... And I'm not saying I had a better idea how I would do that, but I'm just trying to explain why in the eighties and particularly in the nineties, we saw this very significant skewing is because we had this policy of persistently high unemployment, opportunistic disinflation to get inflation back in the bottle. Does that resonate with you, that theory, Heidi?

Heidi Shierholz:               Yes. Yeah.

Mark Zandi:                       It does.

Heidi Shierholz:               No, I think that's right. Although, if you look at inflation and the Fed's target, you see a big... It used to be pre-'79, you saw sometimes they'd miss it on the high side, sometimes they'd miss it on the low side, so it really looked like a target. And then you move into an era where they're just consistently missing it on the low side. Inflation actually lower than their target. And I think this is kind of what you're... In other words, having full employment be the casualty there and working people really pay the price for that.

Mark Zandi:                       Interesting. Okay, Chris. And we'll come back because we've got to go through all the different other factors driving all this. But Chris, what's your stat?

Cris deRitis:                        Okay, I'm going to go a little off of the topic here. I guess it indirectly relates to inflation, monetary policy, but very indirectly. The stat is 644,000.

Marisa DiNatale:              The housing stat?

Cris deRitis:                        It is. There's a lot of good housing data this week.

Marisa DiNatale:              Yeah. [Inaudible 00:53:41]-

Cris deRitis:                        [Inaudible 00:53:42]-

Heidi Shierholz:               She is good at this game.

Mark Zandi:                       It's not new home sales, is it? Because it's around that number. But that would be too easy, I think.

Cris deRitis:                        No. No.

Mark Zandi:                       Is it a sales number?

Cris deRitis:                        Nope.

Marisa DiNatale:              Is it construction? Is it-

Mark Zandi:                       Is it construction number?

Marisa DiNatale:              Yeah.

Cris deRitis:                        It is a construction number.

Mark Zandi:                       Okay. Single family or... Single family?

Cris deRitis:                        Nope.

Mark Zandi:                       Multifamily?

Cris deRitis:                        Yes.

Mark Zandi:                       It's not in the pipeline because that's about a million years-

Marisa DiNatale:              Permits?

Cris deRitis:                        You almost said it, Mark. It's not in the pipeline.

Marisa DiNatale:              Completion.

Cris deRitis:                        It's not at the start of the pipeline.

Marisa DiNatale:              Completion.

Mark Zandi:                       Oh, somewhere in the pipeline? It's going to completion?

Cris deRitis:                        Completion. It's at the end of the pipeline.

Mark Zandi:                       Oh, it's completion. It's 644. Okay. It's completion. Okay. Got it. Got it. Which is a high number. Okay.

Cris deRitis:                        It's a very high number. It's a 21% increase over the month.

Marisa DiNatale:              Wow.

Cris deRitis:                        A 19% increase over the year. So it's a very high number. Actually, I looked. It's the highest single month level of multifamily completion since 1986, so it's really high.

Mark Zandi:                       Can we tell, Chris, high end, low end, affordable, what is it? Can we tell?

Cris deRitis:                        I can't tell in this release specifically, but other data still suggests that most of the construction-

Mark Zandi:                       High end.

Cris deRitis:                        ... continues to be at the high end.

Mark Zandi:                       Right. Right. Wait, so these are luxury apartments in the big towers going up in DC or Chicago or LA.

Cris deRitis:                        Yeah. Or even in suburban areas. They may be more geared towards the higher end of that market than the lower end, just because... Well, we've talked about zoning and other things to death. But that still is the skew. So not as-

Mark Zandi:                       Oh, go ahead. Go ahead, Chris. Go ahead. Sorry.

Cris deRitis:                        No, I was going to say in terms of... Not great in terms of affordable. You're not targeting the group that needs the housing the most, but still there is a cascading effect. If you're providing more housing at that higher end, presumably you're going to have folks moving out of other properties into those units, freeing up... If the cascade works, some additional housing throughout the spectrum. So another reason perhaps to expect that rent growth may not be accelerating anytime soon. We are adding a lot of units to the housing market. So that's certainly a positive when it comes to keeping inflation down. Should support that Fed rate cut in June.

Mark Zandi:                       Yeah. One of the most fascinating things... And this just shows weird I am because I think this is fascinating. But the level of housing construction is extraordinarily high. There's only been one other period in history, in the tax juiced 1980s that the amount of homes we're actually putting up has been higher. I mean, we've got this severe shortage of affordable homes. The vacancy rates are very low. But that's in the context of this really pretty impressive amount of supply coming into the market. It's just pretty amazing. And that's one reason why the economy's held up as well as it has in the face of higher interest rates. Because the one sector that gets crushed when rates go up is single family, multifamily construction. And that has not happened. Just the opposite. Just the opposite. They're pretty interesting.

Heidi Shierholz:               That also makes me think of manufacturing construction has also gone through the roof. The thing that high interest rates usually hit... And is another version of that.

Mark Zandi:                       Totally.

Heidi Shierholz:               The things that high interest rates usually hit just haven't taken the hit. I mean, the manufacturing construction is the result of the industrial policy bills coming out. But it is one of the reasons I think that the high interest rates just haven't hurt the economy as much as they otherwise would've.

Cris deRitis:                        Right.

Mark Zandi:                       Okay. So going back to income and wealth inequality. We've identified some factors that work here that have resulted in the skewing. We focused on unionization. We talked a little bit about the high... I couched that it's the perennially high unemployment to monetary policy and just the effort to get inflation back in the bottle. There are probably more and I'm going to ask, but the other two explanations for the rise in income inequality that you often hear is around technology and the fact that that kind of hollows out and takes a lot of jobs from low income folks and enhances the marketability and the pay and the compensation of folks that have the skills that can take advantage of the technology.

                                                And the other is globalization, and that has a number of different facets to it. Trade being part of it, but also immigration. Heidi, any other major factor that you would put forward? And then maybe two questions. One, any other factor. And could you just rank... Or in your mind, rank order those factors in terms of driving the increase in income inequality over the past 40, 50 years? If that's a fair question.

Heidi Shierholz:               Yeah, it is definitely a fair question. The other bucket of things I would add is the weakening of labor standards. So the minimum federal minimum wage hasn't been raised since 2009. The enforcement of labor standards we do have has gone down, down, down, so wage theft is a billions of dollar game every year. So that labor standards bucket is also a really key thing. And then, maybe we'll just throw it into the labor standards bucket. There's this rising trend of workers just being forced to sign away their rights as a condition of employment with widespread non-compete agreements and forced arbitration agreements. And all of that is a way to shift power from workers to their employers, or as we talked about, working people to very highly paid people within firms. But ranking those things, I think the key ones are too high unemployment for much of this period, and declining unionization. And then I think the inequality being caused by technology is essentially zero.

Mark Zandi:                       Oh, is that right?

Heidi Shierholz:               I can talk about why, but I do not think that that's a big-

Mark Zandi:                       Oh, interesting.

Heidi Shierholz:               ... a big part of this story at all. And I could talk about why. Globalization is a core part of it. Globalization itself isn't a problem. The way we have done globalization has increased inequality in the US. And then this weakening of labor standards is also... and their enforcement is also, I think, a core part of it.

Mark Zandi:                       So just to get it summarized. Top of the list would be unionization. Second would be this period of high unemployment to get inflation back in a bottle.

Heidi Shierholz:               Yeah, those might be reversed. Maybe it's too high-

Mark Zandi:                       It might be reversed. Okay.

Heidi Shierholz:               ... but they're close. I think our data actually show too high unemployment is the number one.

Mark Zandi:                       Okay. Okay.

Heidi Shierholz:               And then unemployment. Then, sorry, declining unionization is the other real biggie in the game.

Mark Zandi:                       Okay. And then globalization, kind of broadly defined, trade mostly.

Heidi Shierholz:               Yeah. Yeah.

Mark Zandi:                       And then followed by... Well, labor standards and that-

Heidi Shierholz:               That portfolio of things.

Mark Zandi:                       ... melange of stuff.

Heidi Shierholz:               Yeah.

Mark Zandi:                       And then at the very bottom, not even on the list you said, is technology.

Heidi Shierholz:               Not really. And I can-

Mark Zandi:                       Okay. Explain that one to me [inaudible 01:01:32]-

Heidi Shierholz:               Okay. Okay. And I also think immigration just isn't really a player in inequality.

Mark Zandi:                       Immigration is not either. So when you say globalization, you mean trade and [inaudible 01:01:39] trade-

Heidi Shierholz:               Oh, yes. Solid point. I do. I don't think immigration is a big contributor at all. It's not zero, but it's not a big contributor.

Mark Zandi:                       Oh, interesting.

Heidi Shierholz:               One reason for that is there's a lot of immigrants that come in on both sides, very high wage, very low wage. So they may mechanically raise inequality because they come in very skewed. But I don't think it's generating inequality within the native born population or US born population. But moving on to technology. So this idea of skill bias, technological change has really captured the imagination of economists for a very long time as a key cause of rising inequality. But I don't think it... When you really dig in, it doesn't play out. You don't see it in the data. I'm going to just try to describe a scatterplot here, but it is a simple one. The idea for how this would work is that you have technological change that creates high demand for some occupations, and then low demand for other occupations.

                                                And so that will increase the wages of occupations where demand grew as a result of technological change and shrink the wages where demand dropped as a result of technological change. So you should see in a scatterplot... If this is a key driver of inequality, you should see that strong relationship where occupations that saw a big growth would also see higher wages, higher wage growth. That would be an absolute base level, does this theory pass the smell test kind of test. And that scatterplot looks like a cloud. You do not see a relationship between the size of growth by occupation and wage growth within that occupation. It's just a cloud. So it just doesn't really hold the... What you see is that wages have... inequality has really... a ton of it has happened within occupations. That [inaudible 01:03:57], it doesn't really hold up to the data.

Mark Zandi:                       Can I ask you, is that a consensus view, what you just expressed? Or is that a Heidi view?

Heidi Shierholz:               It is a growing view because there's been-

Mark Zandi:                       Growing view.

Heidi Shierholz:               ... empirical work coming out showing that there's real problems with skill bias. Like David Card, Nobel Prize winner has said, "This theory just doesn't really hold up to the data." But it is such an entrenched view amongst economists that... Except for the people who are really focused in on it. It had been conventional wisdom for so long. I think that the conventional wisdom piece of this is still being eaten away at. But I truly believe that for those who look closely at the data, it just sort of disappears.

Mark Zandi:                       Not there.

Heidi Shierholz:               Yeah.

Marisa DiNatale:              And what's the explanation for that? Why doesn't that work?

Heidi Shierholz:               I think it's these other forces that are really what's driving... When you see the increase in the gap between workers with a college degree and workers without a college degree, people will say, "Well, that's because of higher returns to college." I mean, the college wage premium has not been rising for a very long time now. But in the eighties, nineties, it was rising. It was the exact same time that unions were taking a big hit. And those hit the same things that hit workers without a college degree. So it wasn't about them, the technology creating the higher returns to college. It was about the institution of unionization declining that undermine the wages of workers without a college degree. It was about globalization, undermining the wages of workers without a college degree. Not technological change that boosted the wages of workers with a college degree.

Mark Zandi:                       Chris, do you have any view on this? Do you want to push back in any way?

Cris deRitis:                        I would tend to disagree, I think. I would agree with-

Mark Zandi:                       You see, this is what Chris does.

Heidi Shierholz:               That's fair.

Cris deRitis:                        I would agree with this statement-

Mark Zandi:                       He does this all the time, Heidi. Go ahead. Go ahead.

Cris deRitis:                        I would agree with the statement that there's a lot of things happening simultaneously. So all of these factors were occurring all at the same time. Globalization, declining immunization, technological changes, taxes. I'm surprised we didn't include tax, but I guess we're focusing just on the gross. But I think to my mind, taxes and transfers are at the top of the list. Inequality, to some extent, is a choice. We could redesign our tax system, redesign our transfer system to eliminate or sharply reduce inequality if we wanted to.

Mark Zandi:                       If you go look in Europe where the tax code is more redistributive, the inequality is lower. At least by the measures that we look at.

Cris deRitis:                        Yeah. Yeah.

Mark Zandi:                       To your point. To your point.

Cris deRitis:                        Now certainly, if you want to... I'm not saying it's a simple way, but it's a very direct way if you really care about-

Mark Zandi:                       It's not a comment on whether it's good or bad. It's just it's a fact.

Cris deRitis:                        Right.

Mark Zandi:                       [Inaudible 01:07:07] choice.

Heidi Shierholz:               Mechanically, it's possible. Yeah.

Cris deRitis:                        Yeah. And there are trade-offs. As a society, we've decided that the level of inequality presumably is consistent with the trade-offs we're making for growth or other aspects. That's certainly debatable, but I see that as certainly a lever in our control. I do believe though, that the technological change is certainly part of the equation. And I wouldn't say it's a insignificant piece. One key aspect is that I find that there are long lags between technological innovations and how the labor market adjusts. You have to have businesses adopting technologies, figuring out the best way to use them.

                                                You need workers to adjust, realize that there is this demand that they need certain skills. So I think you'll see that cloud perhaps. But once you start to control or pick it apart, you can see certainly some aspects of it. I'm not saying that technology is the only thing, but I wouldn't say it's irrelevant either. I think it certainly has that aspect. I think we could go through anecdotes certainly, historically, of going from typing to use of computers. Clearly there was a factor, a shift there in terms of the returns to certain skills that have to make a difference.

Heidi Shierholz:               I'm in total agreement that technology changes the way work gets done. A hundred percent, it will change the mix of jobs. I just don't see it as being a driving factor of... It has happened in such variety of ways in all different things. It's just not driving. I believe it's not driving. I believe the data show it's not driving these core trends.

Mark Zandi:                       What about AI, Heidi? You feel the same way about... [Inaudible 01:09:06]. Artificial intelligence. There's a lot of hand-wringing about that [inaudible 01:09:09]-

Heidi Shierholz:               Yeah, there sure is. There's a lot of breathlessness. I just want to say before I say anything about AI that I do not have any expertise on the impact of AI might be on national security or on democracy or on... There's a lot of attention-

Mark Zandi:                       That never stopped us from talking about it. I'm just saying. So feel free.

Heidi Shierholz:               Those things do sound...

Mark Zandi:                       Yeah, they sound scary. Yeah.

Heidi Shierholz:               Those potential problems in those areas sound a little... I could get myself worked up about those things without having a ton of expertise. But I do have a ton of expertise on the impact of technology on the labor market. And one thing I think we all need to step back and realize is that technology is on net good for workers. Technology-led productivity growth actually is the thing that makes it possible for wages to grow. And even though over the last 40 years, workers haven't gotten their "fair share" productivity growth because of the things we were just talking about, too high unemployment and globalization and decline of unionization, they've gotten some. It is the thing that makes it possible for living standards to rise over time. So I am actually...

                                                The idea of AI-led productivity surge, I don't think we're going to get the massive increases that some are projecting at all. But I'm looking forward to that. I think that kind of growth is a really positive thing. And then, how it plays out in individual workplaces I think really is a matter of who holds the power. One thing I always say is there is no way that policy makers can micromanage how AI plays out in individual workplaces. It's just too varied. It just is going to play out differently. So the thing that will make it play out in a way that makes sure that workers as well as their employers reap some of the benefits of the productivity growth that happens as a result of AI will be... I think a core way to do it is make sure that workers actually have some leverage to be able to negotiate around AI on their own behalf.

                                                And we mentioned this earlier, but the screenwriters, it's a perfect example of the Screenwriters Guild actually negotiated a contract last fall that has provisions that protect workers around the use of AI. It allows the use of AI, but it makes sure that AI doesn't undermine workers' credit for the work that they do. So it's like they negotiated together how to have AI play out in their workplaces. And that's the way to make sure that we don't see the replay of the last 40 years, but instead we see workers actually getting some of their fair share of what I hope will be the AI driven productivity boost. I hope we see that.

Mark Zandi:                       Well, believe it or not, we've been-

Heidi Shierholz:               Oh, wow. Yeah.

Mark Zandi:                       ... going on here for more than an hour. But I do want to talk about immigration because that was also... Feels like a non-conventional perspective that immigration... And of course, we've been getting a lot of immigrants coming into the country. I mean, the CBO came out with a study recently showing or estimating that the 3.3 million immigrants, legal and undocumented, came into the country in 2023, on top of I think 2.6 million the year... Typically, it's about a million surge. A lot of that's what's happening at the border. And there's a lot of, again, hand-wringing about what that might mean for workers. The hand-wringing has been less pronounced just because the labor market's been so tight. In fact, it's been more plus than a minus, at least with regard to what it means for the labor market monetary policy. But nonetheless, I think the conventional wisdom is that immigration helps to skew income, the distribution of income. But you say no.

Heidi Shierholz:               Mechanically, it can. Because we talked about this, but immigrants themselves enter the country in a very bimodal way. Immigrants come in with very high levels of education and with very low levels of education. And obviously immigration happens all across the education distribution, but you do see this more bimodal entry than you do for the US born population. So that mechanically raises inequality. But aside from that, it's not a big factor. As far as job growth... I mean right now, Native... US born... I keep saying Native born population because those are words that BLS uses, and I think US born is a better term to use.

Mark Zandi:                       Oh, okay. I should say US born-

Heidi Shierholz:               Yeah. That's why I always have to translate from what I'm reading in the data to then what I actually want to say when I speak it out loud.

Mark Zandi:                       Oh, okay. Okay. Didn't know.

Heidi Shierholz:               The US born unemployment rates are at near record lows. This labor market is really strong. It's absorbing lots of immigrants and keeping just incredibly low unemployment rates for US born workers at the same time. But the question I think comes down to wages, and there is a lot of work on this. The most recently comprehensive thing is the National Academy of Sciences did a big study in 2017, really going over all of the evidence on the impact of immigration on wages. The impacts aren't big, period. It's not a big driver. But the biggest impacts are on earlier immigrants.

                                                So immigrants come in and they are more likely to do the jobs that the people in them are immigrants themselves. And so, the biggest negative impacts are on earlier immigrants. There are some negative impacts on US born workers without a high school degree. Not that we should think about that obviously, the economic outcomes of US workers without a high school degree, but it's a very small share of our labor force. It's something like 6% right now. So it's just doesn't... And other than that, there's just not a big impact, except on earlier immigrants.

Mark Zandi:                       Marisa, Chris, do you want to push back on any of that? Marisa? No?

Marisa DiNatale:              Sorry. No. No, I don't think so.

Mark Zandi:                       No, okay.

Marisa DiNatale:              I was reading a paper that Brookings did the other day on this recent surge in immigration. And one really-

Mark Zandi:                       [Inaudible 01:16:13] at the Hamilton Project.

Marisa DiNatale:              Yeah. One thing I was really interested to see is they looked at different cohorts of immigrants into the country and what their labor force participation is, like two years on after arriving. And the most recent cohorts of immigrants have a much higher participation rate than any immigrants that have come in in the past 10 years. So there was sort of this dip. And then the immigrants that are coming in now are much more likely to participate in the labor force. It is interesting when we talk about labor force growth, right? Mark, we talk about this a lot when we see the BLS numbers and how is there all this labor supply? There's way more labor supply out there than we would've thought. And this goes to that explanation. And they're also more likely to participate. Which is doing a service to the economy right now, right?

Heidi Shierholz:               Totally. Yes, it is.

Marisa DiNatale:              I mean, this has actually been a benefit.

Heidi Shierholz:               It sure has.

Marisa DiNatale:              To your point, Heidi, not taking away jobs, but just adding to the supply of labor in a very tight market where employers are scraping in some industries to find people.

Heidi Shierholz:               Right. Immigrants obviously add to both the supply side and the demand side. Sometimes I think when people say, "Immigrants are taking all our job," that there's this forgetting there. Also, come in and buy stuff and create more jobs as a result. But they add more to the supply side because they're relatively more likely to work than the US born population. So it really has helped with our supply side issues.

Mark Zandi:                       The other thing that people forget is that immigrants, they're risk-takers by definition. You don't pick up and leave one place with your family, go to another place and have no idea where you're going, unless you're a risk-taker. So you start companies at a higher rate. You're more entrepreneurial, more innovative. And there's evidence, strong statistical evidence that immigration leads to higher rates of productivity. So it's not just about the people, the workers, it's about... And go take a look at these tech companies that are driving a lot of the productivity gains. Many of them have many immigrants and are led by immigrants. The CEOs and the C-suite of these companies are immigrants. Interesting point. So I kind of created a frame for thinking about how income inequality was... how we got here, and why the distribution become more skewed. Okay, very quickly, because I know we're going to lose Marisa in just a few minutes. She's off to her skiing vacation in-

Marisa DiNatale:              My flight's delayed, like 45 minutes.

Mark Zandi:                       Oh, there you go. Okay. Okay.

Marisa DiNatale:              I'm probably going to miss my connection, but.

Mark Zandi:                       Okay. So we can keep going is what you're...

Marisa DiNatale:              Right. Might as well.

Mark Zandi:                       I'm sure Heidi's going to be saying, "What about lunch? Don't you guys eat lunch?" What does it mean for the future? What do you think? I mean, because you put it number one, high unemployment. Well, problem solved. I mean, at least for the foreseeable future, no problem. Unionization feels like we've turned the corner there, certainly with regard to the attitudes. I don't know that we're going to see a large increase in the share, but I don't think we're going to see declines here in the near future. You said immigration doesn't really matter. You said technology really doesn't matter. Trade, we're deglobalizing, so that's going to be less of an issue. And then I guess it leaves labor laws and regulation, but that's not changing fast. So I don't know if that changes the dynamics here to significant degree. I don't mean to put words in your mouth, but I'm just saying if I take the equation we just estimated and put in right-hand side variables, it feels better to me going forward. It feels like, "Okay."

Heidi Shierholz:               Yep. It is weird. In this world where so much feels difficult, it is an area of... I feel optimistic about the future.

Mark Zandi:                       Okay, great.

Heidi Shierholz:               The one thing on unionization that is tricky is even with all of the momentum, it is going to take labor law reform to really halt and reverse those trends of declining unionization. The deck is so unbelievably stacked against unionization. And I can give you just one example as color around this. It is technically illegal under our labor law to fire somebody for union activity. That is a core part of US labor law. And it nevertheless happens all the time. Because the consequences to employers of firing somebody for union activity are like a slap on the wrist, if that. The worst that can happen to them is that they will have to reinstate... If they go through the whole process and are found to have illegally fired a worker for union organizing or union activity, the worst that can happen to them is that they have to reinstate that worker, give them their back wages, minus any wages they earned at a different job in the meantime.

                                                It is just a nothing burger. And that is symbolic of how labor law is... just relentless attacks have absolutely... I mean, this is the thing where there's this massive gap between the share of workers who are in a union and the share of workers who report that they want to be in a union. And that gap is policy not actually truly protecting workers' rights to unionize. So the momentum is incredibly important. I think it will make a difference, but it's going to take labor law reform, which is going to take a functional Congress to really do so. We all know the sort of obstacles to that in the future. So that's one thing that we know, "Okay, we got work to do on that front."

Mark Zandi:                       Well, I have to say, you're leading the charge in terms of getting Congress moving in the right direction. We're in good shape. I feel even more optimistic that you're on the case. So that's good. Okay, I think we took our fair share of Heidi's time. Anything else, Marisa, Chris, that you want to say? No? Okay. Hey, Heidi-

Marisa DiNatale:              [Inaudible 01:22:48] conversation.

Mark Zandi:                       Yeah, really-

Cris deRitis:                        Yeah, thank you.

Mark Zandi:                       ... really fascinating conversation, and really appreciate you coming on to Inside Economics. Thank you.

Heidi Shierholz:               It was really fun. Thank you so much for having me.

Mark Zandi:                       Thank you. And dear listener, that means this is the end of the podcast and we'll talk to you next week. Take care now.