RIA BHANDARKAR – APRIL 12TH, 2021
Professor Derenoncourt is an Assistant Professor at the Department of Economics and the Goldman School of Public Policy at the University of California, Berkeley. Her work focuses on the role of the federal minimum wage policy on racial disparities in earnings and Black mobility during the Great Migration.
Thanks so much for agreeing to meet with me. My first question is what made you decide to study economics? Why does the intersection between economics and public policy interest you?
Great question. I got interested in studying economics from being involved in the labor movement and labor organizing. I was involved in college in these student labor solidarity groups. I got very interested in the distribution of resources and power between workers and their employers. I didn’t know that that was economics. I didn’t know that economics could be used to study inequality so it took my many years of finding the right mentors and reading the literature to realize that.
How did labor organizing influence your research today?
It gave me an insight into low-wage work and all of the ways that power determines people’s experience of their jobs. The vast majority of people don’t have a lot of power in their workplace and that actually feeds into wages, benefits and the quality of jobs people have. If you just study economics in the Econ 101 sense of supply and demand you might miss that because there, the wage is just set based on supply and demand and there isn’t any room for power. But now we see more and more that labor economics recognizes that role that employers can have in wage-setting power over their workers so I feel like I got an early start to understanding that just through organizing.
A lot of your research is specifically about racial wage inequality and the federal minimum wage. In Econ 1, students learn the very basics about the minimum wage and are assigned to read your work to go deeper into the issue. Minimum wage policy has become a very politically controversial issue in recent times. Are there any key aspects of it that citizens and young economic students should know more about?
Yeah, that’s a very timely topic. It was funny to hear you say that it’s become politically controversial whereas I would actually say that it’s actually become a lot less controversial. You used to have economists say maybe 60 years ago or so that it is defying the law of gravity to suggest that a minimum wage wouldn’t destroy jobs and wouldn’t result in massive job loss, that that is a scientific law that would have to be overturned to have a minimum wage not be catastrophic. That is based on economic theory but then we’ve had this empirical revolution in economics where people went and tried to look at actual experiments and used data to answer the question: when a minimum wage comes in is there job loss? Time and time again the answer seems to be if anything not much. The effects of the minimum wage on employment are small. That means we have to rethink our basic models of the labor market.
Do you believe that the COVID-19 pandemic, since you talk about the minimum wage becoming less controversial, has further highlighted racial disparities in wages and employment?
I think that that came up in the policy conversations around the relief bill where even Democratic senators did not want to see the minimum wage in the relief bill saying how can you do that if there’s job loss. Of course there was a massive reduction in employment during the pandemic at the same time. Another component of my research studies minimum wages that companies set in their own firms and that apply across the entire country wherever their companies operate. Amazon is a big example of this, as well as Target and Walmart. Those companies have their own minimum wages and many of them continue to increase the minimum wage during the pandemic. Best Buy and Target, they both moved to a $15 minimum wage in the last year or so. So it kind of suggests that there’s probably room to go in terms of increasing the wage if these companies that are always sort of saying Amazon is for minimum wage but other companies have been against it and yet they’re also increasing their own minimum wages to way above the federal.
What research are you working on now? How are you collecting data?
One research product that I’m doing right now that I’m very excited about but has a very painful collection process is a question on the racial wealth gap going back to 1860. A lot of people talk about the racial wealth gap. It’s many times bigger than the income gap. So the median white to Black wealth ratio is 10 to 1. The typical white person has ten times the wealth of the typical Black person. But a lot of studies of the racial wealth gap have only looked at it in the last few decades. In this study we’re going all the way back to before the start of the civil war when you still had slavery in the United States and we’re trying to create a survey over that full-time frame. The purpose is we can already show with the data collected so far is when you start with one group with 0, which is how Black Americans were. They didn’t have a right to accumulate property when they were enslaved and you compare them to a group that has had decades and decades to accumulate wealth. That starting difference, it’s like a wealth ratio to infinity. Even under ideal conditions where both groups have equal opportunities to accumulate after emancipation and freedom, you would still have a 3 to 1 wealth ratio today meaning like it would still be really really big. What does that mean that means that you, actually we, can tinker around with all kinds of policies and say there’s a savings rate difference so how can we incentivize better savings among Black Americans or how can we incentivize more of them to invest in stocks or how can we close the homeownership gap. You can do all that and you still won’t come close to closing the racial wealth gap. It’s almost a law of growth that under those conditions we won’t see convergence for 100 plus years more. That actually gives motivation for thinking about reparations. That’s one policy that tries to address the vast differences in starting conditions. For this project, we are going back to tax records from individual states and digitizing these. In many states in the South during the Jim Crow period when everything was segregated, they actually collected statistics separately on Black and white populations so you have wealth statistics for Black populations in the South and white population in the South in the 1890s and early 1900s, and we’re actually going and digitizing all of that. It’s kind of an amazing resource coming out of very bad practices and institutions, but it’s data we can use and think about what we can do in terms of reparations.
So you talk about reparations and certain incentives as policies. Do you think some bigger institutional policies relating to education or healthcare would also be useful for closing the racial wealth gap?
Absolutely. Health disparities are also one of the most striking. I think the way I would frame it is it’s useful to think about a set of policies that close inequality in general. Those policies are going to close racial gaps because of where Black people are in the distribution. So Black people occupy the lower part of the income distribution, health outcome, and education so anything you do that brings up people who are disadvantaged and at the bottom of these statistics is also going to disproportionately benefit Black people. So there are examples of these policies like the minimum wage or greater accessibility of health care or things like a wealth tax that would work on the opposite end where you have mostly the top part of the distribution as all white. Their returns to wealth are extraordinarily high and that would help with the racial distribution as well.
Thanks so much for your time and insights. What resources do you recommend for students who want to learn more about economics and inequality?
There are various groups that highlight research on inequality so I would look into those resources. One way is through social media because a lot of these organizations have social media like Twitter for example but I would mention the Economic Policy Institute. They are a group that highlight research on inequality, as well as the Washington Center for Equitable Growth and this new group that is called Economists for Inclusive Prosperity. They’re a group that is also connected to this awesome open-source textbook called Core and hopefully they will replace the standard Econ 1 textbook because it would talk about things like wage-setting power of employers and why a minimum wage wouldn’t actually cause unemployment.
Thanks again for your advice!
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