Good Economics for Hard Times

by Abhijit V. Banerjee

  Inadequate access to childcare is also one of the most severe disadvantages faced by both married and single low-income women in the United States. The lack of subsidized high-quality full-day care means they either do not work (since childcare often costs almost as much as they would make) or have to take the best available job close to family (close to their mothers, in particular) to get help with childcare. Women bear a substantial “child penalty” in the labor market, which is responsible for a large fraction of the remaining gender gap in earnings in advanced economies.77 Even in progressive Denmark, while there is almost no difference in the earnings of men and women before childbirth, the arrival of a child creates a gender gap in earnings of around 20 percent in the long run. Women start falling behind men in terms of their occupational rank and their probability of becoming managers right after the birth of their first child. Moreover, new mothers switch jobs to join companies that are more “family friendly,” as measured by the share of women with young children in the firm’s workforce. About 13 percent permanently drop out of the labor force.78 Expanding highly subsidized quality whole-day care is one very effective way to raise incomes among low-income women by, quite simply, making work pay.

  Elder care is another area with tremendous scope for expansion, since the United States has very little in-home care of the elderly and very few publicly funded old-people’s homes. Denmark and Sweden, in contrast, spend 2 percent of GDP on elder care.79 A centralized e-health database where patient records are stored electronically helps hospitals and local authorities collaborate. All eighty-year-olds (not just the poor) are entitled to home visits and home help, and all widowed over-sixty-fives are monitored to see if they need help. Older people also get money for necessary improvements to make their homes safer. Those who need continuous care usually end up in publicly run nursing homes, paid for out of the public pension they are entitled to.

  Working with the elderly can be challenging, and in the United States these jobs pay very little; in other words, they are not very attractive. But that again could change. We need to provide the money to hire enough people, train them adequately, ensure they have enough time to spend with each person, and pay them well enough to make them proud of the work they do.

  HELP MOVING

  Given the important role neighborhoods play, both for finding good jobs and for raising children, helping people to move is another important policy.

  In the United States, scaling up Moving to Opportunity for the entire nation (making it possible for everyone to move to a good neighborhood) is not really possible, but supporting workers to change regions or jobs should be. There are actually several programs aimed at this, but many of them do little more than point workers to jobs and help them with the application process. The experience with these “active labor market” policies is fairly disappointing, both in Europe and the US. Their effects are positive but small, and they come largely at the expense of similar workers who are not helped.80

  A more ambitious (and expensive) program would give displaced workers automatic access to a much longer period of unemployment insurance. They would have time to train and look for good jobs, and therefore not need to accept the first available low-paid job or go on disability. Such a program would give them access not just to short-term training options, but also to more advanced programs, perhaps in colleges or community colleges, with full scholarships. We need to start thinking of the challenge as not just of finding a job but rather of finding a career. An RCT in the United States recently evaluated three programs that tried to do just this. The core idea was to extend the training of unemployed workers to several months, to develop specialized skills in sectors where workers were in short supply (such as healthcare and computer maintenance), then match the workers with sectors that needed them. The results after two years are very promising. During the second year of the evaluation, after they had completed their training, participants were more likely to be employed, and when employed, in better jobs than comparable workers who did not participate in the programs. Overall, participants earned 29 percent more than nonparticipants.81

  Importantly, these programs also helped with relocation. For disadvantaged job seekers and workers, they provided help with childcare or transportation or a referral for housing or legal services, either during training or at the beginning of the new job. Such help could be expanded to provide short-term housing, and finding schools and daycare for the children. Housing vouchers, smaller than those provided by Moving to Opportunity, could help make good neighborhoods more affordable.

  It may also be important to help companies that need workers to look outside the immediate neighborhood and local referral networks. Most programs seeking to help facilitate the process of pairing workers and jobs focus on the workers. But for an employer the process of finding the right worker is also time consuming and costly. A survey suggests that recruitment costs (vacancy posting, screening, and training new workers) range between 1.5 percent and 11 percent of the yearly wage of a worker. Large companies often have a human resources department, but for small businesses those recruitment costs could be a real barrier. A recent study in France showed recruiting costs are big enough to slow down hiring. Researchers teamed up with the national unemployment agency to offer recruiting assistance to firms. They posted vacancies on behalf of the firm and generated and screened promising job applications; they found that companies offered these services posted more vacancies and hired 9 percent more permanent workers than those that were not.82 Services like this could allow employers to move beyond the purely informal referral channel to an expanded pool of candidates.

  Programs like these might pay for themselves—new skills and better matching between workers and employers are valuable to any economy—but even if they don’t, the gains in terms of reducing anxiety and restoring dignity in our society would be profound. For it is not just the unemployed workers who would be touched by such a program, but all those who think their jobs may one day be at risk, or those who know someone who has been affected. Equally importantly, by shifting the narrative of such programs from “you are being bailed out” to “sorry this happened to you, but by acquiring new skills and/or moving you are helping the economy stay robust” we might alter the sense many blue-collar workers have that they are victims of a war waged by the rest of us against them.

  For example, the Obama administration’s supposed “war on coal” was seen as a war against the coal workers. It may be that coal workers are particularly proud of their specific line of work and believe nothing could replace it, but it is worth remembering that until relatively recently coal workers fought against their employers, not alongside them as they do today. They have precisely the kind of physically dangerous and hazardous jobs most Americans think should be done by machines. The same goes for steelworkers; it must be possible to conceive of jobs less dangerous that carry the same level of pride.

  Despite that, when, in March of 2016, Hillary Clinton icily announced that “we are going to put a lot of coal miners and coal companies out of business,” coal workers perhaps not unreasonably felt this was callously undercutting their way of life without ever feeling the need to apologize or compensate them for the loss. Clinton immediately followed by talking about the need to take care of the miners, but the “we” opening this sentence clearly framed the debate as an “us” versus “them” issue. That sentence was aired in political ads for months afterward.

  In fact, each and every transition can and should be a chance for government to signal its empathy for the workers who have to suffer it. Changing careers and moving are both difficult, but they are also an opportunity for the economy and for individuals to find the best match between talent and occupation. Everyone should be able, just as four out of five Americans do, to find meaning in their jobs. A program for better job transitions would be a universal right. But unlike UBI, which is just a universal right to an income, the program would link to what seems to be an integral part of s
ocial identity. We each should have a universal right to a productive life within society.

  Many European countries invest much more in their job transition programs than the United States. For the 2 percent of GDP Denmark spends on active labor market policies (training, job finding assistance, etc.), it gets high job-to-job mobility (going straight from one job to another) as well as lots of transitions in and out of employment. The rate of involuntary displacement is similar to that in other OECD countries, but the rate at which displaced workers find a job is much more rapid: three in four displaced workers find a new job within one year. Importantly, the Danish model survived the 2008 crisis and recession, with no large increase in involuntary unemployment at that time. Germany spends 1.45 percent of its GDP on active labor market policies, and this went up to 2.45 percent during the crisis, when unemployment was much higher than usual.83 In France, on the other hand, notwithstanding claims about how it wants to do more for the unemployed, expenditure on active labor market policies has been stuck at 1 percent of GDP for more than a decade. The corresponding measure for the United States is just 0.11 percent.84

  In fact, the United States also has its own model it could follow. The Trade Adjustment Assistance program, discussed in chapter 3, provides workers at approved firms money to pay for training and extended unemployment insurance while they get the training. This program is quite effective, and furthermore it did exactly what a program of this type should do: it helped workers in the most disadvantaged places move. Its effect on future earnings was twice as large for workers whose original employer was located in a distressed region. And workers who received TAA assistance were also much more likely to change region and industry.85 But instead of becoming a template of what could be done to help workers manage various kinds of difficult transitions, the TAA has remained tiny. How could that make sense?

  TOGETHER IN DIGNITY

  The reluctance to make use of available government programs, even when they work well, may be related to the fact that a majority of Republicans and a substantial fraction of Democrats are against the government starting a universal income program or a national job program to support those who lose their jobs to automation, even though many more are in favor of limiting the right of companies to replace people with robots.86 Behind this is partly suspicion about the government’s motives (they only want to help “those people”) and partly exaggerated skepticism about the government’s ability to deliver. But there is also something else that even people and organizations on the left share: a suspicion of handouts, of charity without empathy or understanding. In other words, they don’t want to be patronized by the government.

  When Abhijit was serving on a UN Panel of Eminent Persons to come up with what were to be new millennium development goals, he was often subjected to low-key lobbying by prominent international NGOs with views on what some of those goals should be. This was often a very pleasant way to learn about interesting initiatives, and Abhijit enjoyed the encounters. But the one meeting he remembers most vividly was with an organization called ATD Fourth World.

  When he walked into the cavernous room in the EU headquarters where the meeting was held, he immediately noticed it was a very different crowd. No suits, no ties, no high heels; lined faces, scruffy winter jackets, and also an eagerness he associated with college freshmen in their first week. These were people, he was told, who had experienced extreme poverty and were still very poor. They wanted to participate in a conversation about what the poor wanted.

  It turned out to be nothing like anything he had ever encountered before. People quickly intervened and talked about their lives and about the nature of poverty and the failings of policy, drawing on their own experiences. Abhijit tried to respond, trying at first to be as delicate as possible when he disagreed. He soon realized he was being patronizing; they were in no way less sophisticated or less able to argue back than he was.

  He left with enormous respect for ATD Fourth World, and an understanding of why its slogan is “All Together in Dignity to Overcome Poverty.” It was an organization that put dignity first, if necessary even before basic needs. It had built an internal culture where everyone was taken seriously as a thinking human being, which is what gave the members the confidence Abhijit had not expected.

  Travailler et Apprendre Ensemble (“Work and Learn Together”), or TAE, is a small business started by ATD Fourth World to provide people in extreme poverty with permanent jobs. One winter morning, we went to Noisy-le-Grand in the east of Paris to observe one of their team meetings. When we arrived, the group was preparing the schedule for the workweek across their different activities, assigning people to tasks and drawing up their plan on a whiteboard. When they were done with scheduling the work, they started discussing a company event. The atmosphere was relaxed but engaged, problems were discussed with seriousness, and everyone then went off to start their tasks. It could have been the weekly meeting of a small start-up in Silicon Valley.

  What was different was the activities they were scheduling (cleaning services, construction, and computer maintenance) and the people around the table. After the meeting, we continued talking to Chantal, Gilles, and Jean-François. Chantal had been a nurse, but after an accident found herself seriously disabled. Unable to work for many years, she ended up homeless. This is when she reached out to ATD for help. ATD gave her housing and directed her to TAE when she was ready to work. She had been working there for ten years when we met her, first on the cleaning team and then on the software team, and had become a leader. She was now contemplating leaving to start a small NGO to help disabled people find work.

  Gilles had also worked at TAE for ten years. After a period of severe depression, he found himself incapable of working in a stressful environment. TAE allowed him to work at his own rhythm and he progressively got better.

  Jean-François and his wife had lost custody of their son, Florian, who suffered from ADHD, and Jean-Francois himself, who had temper issues, was placed under administrative custody of the state. They reached out to ATD, which was allowed to take Florian on a supervised basis in one of their centers, where he learned about TAE.

  The CEO, Didier, had been the CEO of a “traditional” firm before joining TAE. Pierre-Antoine, his aide, had been a social worker in a job placement office. Pierre-Antoine explained the limits of the traditional job-placement model. When people have one difficulty, it is possible to help. When people accumulate problems, they don’t conform to what regular jobs expect from them, and they often quickly give up or get rejected. What is different at TAE is that the business is designed around them.

  The key, according to what Bruno Tardieu, an ATD leader who accompanied us to the meeting, told us, is that “all their lives people have given them things. No one has even asked them to contribute.” In TAE, they are asked to contribute. They make decisions together, train each other, eat together every day, and take care of each other. When someone is missing, they are checked on. When someone needs time to deal with a personal crisis, they receive help getting it.

  The spirit of TAE reflects well that of its mother organization. ATD Fourth World was founded by Joseph Wresinski, a Catholic priest, in France in the 1950s, out of the conviction that extreme poverty is not the result of the inferiority or inadequacy of a group of people, but of systematic exclusion. Exclusion and misunderstanding build on each other. The extreme poor are robbed of their dignity and their agency. They are made to understand that they should be grateful for help, even when they don’t particularly want it. Robbed of their dignity, they easily become suspicious, and this suspicion is taken for ingratitude and obstinacy, which further deepens the trap in which they are stuck.87

  What does a small business in France, employing less than a dozen ultra poor people and struggling to get by, teach us about social policy more generally?

  First, given the right conditions, everyone can hold a job and be productive. This faith gave rise to a French experiment trying to create “zero long
-term unemployed territories” where the government and civil society organizations commit to finding a job for everyone within a short period of time. To get there, the government is offering a subsidy of up to €18,000 per employee to any organization that agrees to hire any long-term unemployed who wants a job. At the same time, NGOs are being engaged to find the long-term unemployed (including those who face multiple difficulties: mental or physical handicaps, prior convictions, etc.), match them to jobs, and offer them the assistance they need to be able to take the jobs.

  Second, work is not necessarily what follows after all the other problems have been solved and people are “ready,” but is part of the recovery process itself. Jean-François was able to take back custody of his son after he found a job and is inspired by the pride his son takes in him now that he is working.

  Very far from Noisy-le-Grand, in Bangladesh, the enormous NGO BRAC arrived at the same conclusion. They noticed that the poorest of the poor in the villages where they worked were excluded (or self-excluded) from many of their programs. To solve this problem, they came up with the idea of the “graduation approach.” After identifying the poorest people in the village with the help of the community, BRAC workers provided them with a productive asset (such as a pair of cows or a few goats) and for eighteen months, supported them emotionally, socially, and financially, and trained them to make best use of their assets. RCTs of this program in seven countries found a large impact.88 In India, we have been able to follow the evaluation sample for ten years. Despite economic progress in the area, which lifted all households, we still find very large and persistent differences in how the beneficiaries live compared to the comparison group that did not get the program. They consume more, have more assets, and are healthier and happier; they have “graduated” from being the outliers to being the “normal poor.”89 This is quite different from the long-term follow-ups of pure cash transfer programs, which have so far been disappointing.90 Putting these families squarely on track toward productive work required more than money. It required treating them as human beings with a respect they were not used to, recognizing both their potential and the damage done to them by years of deprivation.