FRB,Jefferson, Do Non-inflationary Economic Expansions Promote Shared Prosperity? Evidence from the U.S. Labor Market

Jefferson: Non-Inflationary Economic Expansions and Shared Prosperity

Article Highlights

• Non-inflationary economic expansions (NIEEs) promote moderate job growth, primarily in low-paying industries.
• These expansions fail to increase labor force participation or reduce wage inequality.
• NIEEs disproportionately benefit high-income earners and do not address the concerns of low-wage workers.

Introduction

In the article published in the Fall 2022 issue of the FRB [Federal Reserve Bank] of St. Louis Review, economist Michael Jefferson examines the relationship between non-inflationary economic expansions and shared prosperity in the U.S. labor market. His findings suggest that NIEEs, while boosting overall economic growth, may not lead to widespread improvements in economic well-being.

Key Findings

• Moderate Job Growth: NIEEs result in modest job growth, but this growth is concentrated in low-paying service industries. Manufacturing and other higher-paying sectors experience little expansion.
• No Increase in Labor Force Participation: Labor force participation remains stagnant during NIEEs, indicating that these expansions do not encourage more people to enter the workforce.
• Limited Impact on Wages: Wage inequality persists during NIEEs, with high-income earners benefiting disproportionately. Low-wage workers see little improvement in their earnings.
• Uneven Distribution of Benefits: NIEEs tend to favor high-income earners, who own a greater share of capital and assets that appreciate during economic expansions. Low-income earners, who rely more on labor income, see fewer gains.

Policy Implications

Jefferson’s research raises concerns about the effectiveness of NIEEs in promoting shared prosperity. He argues that policies aiming to create more inclusive economic growth should focus on addressing the following issues:

• Investing in Education and Training: Improving access to education and skills training can help workers move into higher-paying jobs and reduce wage inequality.
• Enhancing Labor Market Flexibility: Policies that promote job mobility and reduce labor market rigidities can facilitate the movement of workers into expanding industries.
• Targeting Low-Wage Workers: Direct support to low-wage workers through policies such as minimum wage increases or Earned Income Tax Credits can offset the disproportionate impact of NIEEs on this group.

Conclusion

While non-inflationary economic expansions can stimulate economic growth, Jefferson’s research demonstrates that they may not lead to widespread shared prosperity. To create more inclusive economic growth, policymakers must prioritize policies that address the needs of low-wage workers, invest in human capital, and promote labor market flexibility.

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