Austan Goolsbee and Alan Krueger’s new working paper for the National Bureau of Economic Research, “A Retrospective Look at Rescuing and Restructuring General Motors and Chrysler,” provides an excellent analysis of the auto bailouts. However, it focuses mostly on the impact of bailouts on auto production and jobs for current workers. Unfortunately, for the most part it fails to discuss the impact on retirees, which had major ramifications for the federal government and the country as a whole.

The issue of the retirees was of critical importance to the auto companies’ passage through the bankruptcy process. At the time General Motors filed for bankruptcy, it had 10 retirees for every active employee. Chrysler’s retiree-to-active worker ratio was similarly skewed. Overall, there were about 870,000 UAW retirees and dependents in the pension and health care plans at GM, Chrysler, and Ford at the time of the federal bailout. The alternative to the auto bailouts—uncontrolled bankruptcies at GM and Chrysler, and the likely demise of Ford as well—would have had devastating consequences for the huge numbers of retirees and their families.

Goolsbee and Krueger do note that if the companies had not received the federal bailouts, and instead had undergone uncontrolled bankruptcies, their pension plans would have been terminated and billions of dollars in unfunded pension liabilities would have been transferred to the Pension Benefit Guaranty Corporation (PBGC), threatening the financial stability of that agency. However, the authors fail to mention that the termination of the pension plans would also have made retirees aged 55 to 64 eligible for the federal health care tax credit. This would have put the federal government on the hook for billions of dollars in retiree health care liabilities.

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Hidden amid all the discussion of when falling unemployment will lead to rising wages are the expectations shared in the media and among economic analysts that we can only expect wages to rise when unemployment is low. There is confusion here. Yes, we certainly expect wages to rise more quickly as unemployment falls. But why is there a widespread acceptance that real wages will not rise (i.e., that wages will not rise faster than inflation) at all when there is 5.5 or 6.5 percent unemployment? Why not expect real wages to rise every year as they used to in the United States and in other advanced nations? After all, output per hour has been steadily rising, profits have been historically high, and the stock market has soared. There are certainly no economic fundamentals that only allow real wages (on average or at the median) to rise during the few short years of each business cycle when unemployment is relatively low.

These lowered expectations reflect how poorly wages have performed over the last four decades. These low expectations constitute an unstated acceptance of an unacceptable normal that real wages will rarely rise. Reflecting this, analysts claim to be “puzzled” that wages have yet to accelerate as the recovery gains momentum, but seemingly are not puzzled at all when real wages fail to grow on a regular basis. So, I am calling on analysts and the journalists who cover them to examine, or at least explain, their unstated assumptions about wage growth. My view is that the failure of white-collar and blue-collar real wages to rise for well over a decade (through the last recovery and not only the recent recession but also this recovery) reflects a policy regime that makes employers dominant in the labor market, enabling them to suppress wage growth.

Republicans in Congress are trying to pass a joint resolution of disapproval to prevent the National Labor Relations Board (NLRB) from updating the rules that govern union elections. Republicans used fast track procedures to pass the resolution in the Senate, and held a hearing on Wednesday to begin moving the resolution through the House. If it were to pass, it would repeal the NLRB’s updates and prevent the agency from ever issuing a similar rule.

The House Education and Workforce Committee hearing was a painful experience. The NLRB is updating obsolete election rules that fail to recognize modern developments like e-mail, and which encourage excessive litigation and delay. Yet a panel stacked with anti-union lawyers attacked the rules as if they were ending American democracy. Meanwhile one witness, a registered nurse from California, offered an opposing view.

What do the new NLRB rules do? First, they require employers to share e-mail addresses and phone numbers with the union seeking an election, so that the union will have more equal access to voters. For many decades the law has required employers to share home addresses, and the NLRB sensibly thinks it is less intrusive to have union supporters call or email than to have them visit you at home. But the panel and the Republican members treated this as if it were the end of privacy as we know it (has even one of them complained about NSA spying on Americans’ phone records or calls?). Brenda Crawford, the registered nurse who testified, said her employer bombarded employees with e-mails and texts in the weeks before the election, in addition to daily anti-union messages at work, including captive audience meetings where nurses were called away from patient care to hear anti-union harangues. When she tried to put out union literature in the employee break room, it was removed. She testified that the company’s ability to campaign throughout the workday, and electronically when the workday ended, overwhelmed the nurses and their union, who had no way to respond.

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Update: Binyamin Appelbaum has made a useful change to his article that I comment on below, noting that Black workers do indeed stand to benefit disproportionately from any demand boost that keeps overall unemployment rates falling in coming years. Again, however, I think that while he makes an important point, it still doesn’t strike me as right to frame it as about the limits of monetary policy. His point (as I read it) is that the gap in unemployment rates between Black and White workers is an economic problem that policymakers should seek to end, but this end-goal of no racial unemployment gap at all cannot be achieved with any single policy lever. 

But while an expansionary monetary policy is not a sufficient condition to erase the racial unemployment gap, it is a necessary condition. That is, the first step towards tearing down racial bias in hiring is to rob employers of the economic power they can use to indulge this bias. And the best way to rob them of this economic power is to have tight labor markets that force employers to compete to hire workers. So, macroeconomic policy (which is dominated by the Federal Reserve) is just crucial to meeting the long-run goal of ending racial unemployment gaps. 

Finally, while the existence of a racial unemployment gap in both good and bad times is a terrible problem, it’s an even bigger problem when the respective White and Black unemployment rates are 5.3 and 11.3 percent (like they were in 2014) than when they are 3.5 and 7.6 percent (like they were in 2000). So while ending the racial unemployment gap entirely should be the long-game, we also need to be keenly aware of what can alleviate economic pain in the short run. And that short-run is just dominated by what the Fed decides to do. 

Simply put, the most effective policy lever to reduce the black unemployment rate in the next few years is for the Fed to keep its foot off the economic brakes by keeping short-term interest rates low until we see real signs of healthy wage growth for American workers.

Binyamin Appelbaum gets one deeply wrong in the New York Times, riffing off a report released by the Center for Popular Democracy with (full disclosure) data assistance from EPI and concludes with a version of the old saying that the Fed’s “hammer” can’t effectively address non-nail problems like excessive unemployment.

Appelbaum notes that the report shows that Black unemployment rates are significantly higher than White (or overall) unemployment rates in both recessions and recoveries. Fair enough. And if his conclusions had simply been that because the gap persists in both booms and busts that monetary policy alone cannot completely erase these unemployment gaps, that would also have been fair enough.

But instead he pushed this idea way too far, and ended getting something completely wrong. In his words (brackets and emphasis added by me):

“The same factors [that keep unemployment rates higher for Black workers in both good times and bad] help to explain why black workers are quicker to lose jobs and slower to return to work. Any given level of economic stimulus, as a result, helps black workers less than it helps white workers.”

This is totally backwards. Because Black unemployment is almost exactly double White unemployment in both recessions and booms, this means that Black workers are indeed “quicker to lose jobs” during recoveries, but they are actually faster, not “slower” to return to work. And any given level of economic stimulus reduces Black unemployment by twice as many percentage points as it reduces White unemployment, helping Black workers more than it helps White workers. In short, as the CPD report shows, the stakes regarding at what pace the economy improves and overall unemployment falls are highest for Black workers. And this means that the stakes regarding Fed decisions are highest for Black workers.

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