An earlier version of this post reported that large cities and counties had only budgeted 50% of their allocated funds. However, this number is misleading as only 50% of SLFRF funds for local governments were disbursed in 2021. This post has been edited to show that 83% of the received funds had been budgeted.

As most states wrap up their legislative sessions, we can assess expenditures of State and Local Fiscal Recovery Funds (SLFRF), appropriated by the American Rescue Plan Act (ARPA), so far this year. Many state and local governments have used ARPA funds to make transformative investments to support an equitable recovery, while others have used the funds in ways that will do much less to stimulate the economy, enhance racial equity, or support low-wage workers and their families. State and local governments still have considerable remaining ARPA resources to spend, and ample opportunity to use them effectively.

By now, nearly all of the $350 billion in ARPA funds has been disbursed by the federal government to the states; some entities got all their funds at one time in 2021, but most had half their funds withheld to 2022. According to the National Council of State Legislatures, states and territories have so far appropriated $133 billion of the $199.8 billion allocated to them for SLFRF. Below the state level, it’s not possible to know exactly how much of the approximately $150 billion allocated to cities, counties, and tribal governments has been spent, since those reports are not publicly available. However, the largest cities and counties are required to file reports on SLFRF funds, and as of the end of 2021, 83% of the money they received in the first tranche of funding has been budgeted, according to an analysis by the Treasury Department. (This does not mean all budgeted funds have already been spent.)

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The disappointing May data on consumer prices—showing continued strong growth of overall inflation and no real reduction of core inflation—seem to have been a turning point in how many influential policymakers and analysts view the U.S. inflation problem. In particular, it has inspired near-panic and damaging exhortations that the Federal Reserve should push the economy to the brink of recession in the name of fighting inflation. It has also led to preemptive absolutions of the Fed of any criticism that might come their way if a recession does result from steep interest rate increases.

This panic is unwarranted, and the Federal Reserve should not feel free to ratchet up interest rates without regard to the risk of recession. Years from now, a recession induced by the Fed raising rates too quickly will be seen clearly as a policy mistake that could have been avoided. This conclusion stems from several simple facts:

• Both real output and the economy’s underlying productive capacity (potential output) are essentially in line with what pre-pandemic forecasts projected by mid-2022. None of these pre-pandemic forecasts indicated this would imply economic overheating by now. Given this, the macroeconomic balance between demand and supply cannot be so out of alignment that it explains a large share of the acceleration of inflation in the past 15 months.
  • Crucially, potential gross domestic product (GDP) was clearly above actual GDP for most of 2021 when inflation started. This is very hard to square with macroeconomic imbalances driving the rise of inflation.
  • Finally, there is rich, existing literature on the degree of inflation to expect given an overshoot of aggregate demand over potential supply. These estimates imply substantially less inflation than we’ve seen to date, meaning that factors besides simple macroeconomic imbalances are likely at play.
• While the May price data were discouraging, there is reason to think that some of the drivers of inflation in recent months may be losing steam.
  • Profit margins are still at historically high levels but have come down significantly in 2022.
  • Wage growth has lagged inflation over the entire episode and has even decelerated in recent periods. This means that wages’ role as a dampener of inflation looks set to continue (and maybe even strengthen) in coming months.
• The main channel through which higher interest rates will put downward pressure on prices runs through a softer labor market (higher unemployment) reducing growth in labor incomes, which reduces demand and reduces pressure on prices from the cost side as well. But, labor income growth has not been a key driver of inflation so far; in fact, wage growth has significantly dampened the growth of inflation over the past 15 months. In the past six months, hourly wage growth is actually running at a pace entirely consistent with the Federal Reserve’s 2% long-run inflation target.

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With dwindling options on inflation and a mounting chorus of special interest business lobbies, the Biden-Harris administration is reportedly considering removing some Trump-era tariffs in an effort to moderate rising prices in the U.S. economy.

Tempting as such an action may seem, it is certain to have unnoticeable effects on overall prices—at best. And the action will ensure, moving forward, that our supply chains will be even more vulnerable to the kinds of disruption risks we are seeing play out right now. These tariffs offer a tangible policy response to a real-world economy rife with market failures that invalidate the predictions of canonical economic trade models used to argue against keeping the tariffs.

In the absence of a more comprehensive approach to U.S. industrial strategy, the tariffs are working to resuscitate America’s industrial base and have done so with no meaningful adverse impacts on prices. Pulling the rug from under this rebuild now, without first putting in place other policy solutions to address costly market failures, risks undoing this progress and jeopardizing the financial conditions in industries that are critical to building the infrastructure and renewable energy investments needed to power future economic growth.

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There has been a surge of action in cities and other localities across the country to advance workers’ rights.

A just released report, issued by EPI, the Harvard Labor and Worklife Program, and Local Progress, provides a comprehensive overview of this local government labor activity, highlighting what cities and other localities have been doing and offering a blueprint of what they can do.

Some examples:

• 52 localities have enacted their own higher local minimum wages, and 19 have passed paid sick leave laws. Some cities have passed cutting-edge laws requiring predictable scheduling, outlawing arbitrary firings in certain industries, securing pay for independent freelance workers, and protecting workers during the COVID-19 pandemic.
• At least 20 localities have created or are creating dedicated local labor agencies, including large coastal cities like New York, San Francisco, and Seattle, as well as cities like Chicago, Denver, Minneapolis, Saint Paul, and soon Tucson. 
• Some cities are requiring high-road or at least legally compliant practices among their contractors by setting prevailing or living wages, or passing responsible bidder ordinances. Others have set up systems under which permits or licenses can be revoked for labor violations.
• Although some cities are preempted by state law from passing laws, there’s still a lot they can do: educating workers about their rights, providing good jobs to their own municipal employees, setting high standards for contractors and vendors, reporting on local conditions, and showing public support to workers standing up for their labor rights. 

Although many local governments have embraced this new role of looking out for workers, there’s still tremendous untapped potential for more action. 

As young adults across the country graduate from high school and college, it’s an appropriate time to reexamine how the labor market is performing for young workers. Young workers, 16–24 years old, were among the hardest hit in the pandemic recession, given their vulnerability to labor market downturns in general and their specific exposure to economic weakness in the pandemic. For instance, a quarter of young workers had leisure and hospitality jobs, where employment declined 41% in the spring of 2020.

Fortunately, unlike the protracted recovery from the Great Recession, policymakers responded to the pandemic recession by enacting policies at the scale of the problem. As a result, the economy bounced back quickly, and employment is now within 1% of pre-recession levels. Mirroring the overall labor market recovery, young workers have also experienced a tremendous recovery from the depths of the pandemic recession.

In April 2020, the overall unemployment rate spiked to 14.7%. Over the last three months, the unemployment rate has leveled out at 3.6%—basically at pre-pandemic levels—while labor force participation continues to recover steadily. Figure A compares the unemployment rate of young adults, ages 16–24, with workers ages 25 and up through the last two recessions. There are two key factors to note from the figure. First, young workers tend to have much higher unemployment rates than older workers, on average about two and a half times higher. Second, both groups of workers saw a huge increase in unemployment in the spring of 2020 and both groups have experienced a tremendous bounce back, far faster than the recovery from the Great Recession.

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The U.S. Asian American and Pacific Islander (AAPI) community encompasses over 24 million people, with origins spanning countries in Central, East, and Southeast Asia, the Indian subcontinent, and the island nations in the Pacific.1 This diverse population has been growing rapidly in the United States: Between 2010 and 2020, there was a nearly 40% increase in the number of people who identified as Asian alone or in combination, and a 30% increase for Native Hawaiians and other Pacific Islanders.

Whether they have immigrated recently or lived in the United States for centuries, the AAPI community is a vital piece of American society and the workforce. It is important to note, however, that this group is not a monolith, and examining AAPIs as an aggregate can obscure the economic reality for many groups within the AAPI community. In this post, we examine this varied group in more detail and calculate their hourly wages at a disaggregated level to shed greater light on the actual economic circumstances of Asian Americans and Pacific Islanders, and the economic disparities they may face.

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The labor market is largely strong right now, but inflation continues to be a pressing economic concern.

The reasons for escalating inflation are hotly debated, but some theories gaining traction have not been grounded in the data. EPI research sets the record straight on the causes of inflation—and how policymakers can best restrain it. Below, we debunk 5 top inflation myths.

• Myth #1: Workers’ wage growth is driving inflation. Nominal wage growth—while faster relative to the recent past—has lagged far behind inflation, meaning that labor costs have been dampening, not amplifying, inflationary pressures all along.

• Myth #2: Corporate profits are not contributing to inflation. In fact, fatter corporate profit margins have driven over half of the increase in prices in the nonfinancial corporate sector between the second quarter of 2020 and the end of 2021. This is not normal. From 1979 to 2019, profits only contributed about 11% to price growth. Ignoring the role of profits makes inflation analyses a lot weaker.

• Myth #3: Federal relief and recovery measures overheated the economy and fed inflation. Evidence from the past 40 years suggests strongly that profit margins should shrink and the share of corporate income going to labor compensation should rise as unemployment falls and the economy heats up. But the exact opposite pattern has happened so far in the recovery—casting much doubt on inflation expectations rooted simply in claims of macroeconomic overheating. In short, the labor market is strong, but it’s not overheating.

• Myth #4: Removing import tariffs would be a major tool to fight inflation. Tariffs were put in place far before early 2021 when inflation began rising, and eliminating tariffs could not significantly restrain it. Further, removing tariffs would not be costless. Tariff removal could result in job losses, plant closures, cancellations of planned investments, and further destabilization of the domestic manufacturing base, which would increase domestic dependence on unstable import supply chains.

• Myth #5: Investments in child and elder care would accelerate inflation. In fact, investments in child and elder care could help restrain inflationary pressures. By subsidizing families’ use of child and elder care and providing direct investments to providers, such investments could boost future labor supply by allowing working-age parents or children who want to look for paid employment to do so while remaining confident their family members are receiving care.