(More) Economic Lessons from the Great Recession of 2008

/ / Research, Rethinking Macroeconomics
Girl playing with bubbles

The global financial crisis that began in 2008 resulted in the widespread destruction of jobs. Effects were felt disproportionately among subordinate racial groups and women. While mainstream analyses emphasize regulatory lapses in the financial sector as the principal factor triggering the crisis, the root causes run much deeper. Feminist and stratification economists have enlarged the lens of economists to explore the role that growing inequality played leading up to the crisis. Furthermore, they have made important contributions to the analysis of the macro-level impact of crisis and, with this, to macroeconomic theory and policy (for a detailed discussion, see Seguino 2019).

  1. Cuts to social spending and economic instability have long-term negative effects on human development and productivity, in part through the gender effects of crisis and austerity.

Women tend to bear greater responsibility than men when it comes to ensuring children receive proper care. They are also among the hardest hit by crises and austerity because they control fewer resources and are more concentrated in low-wage jobs that are insecure and lack benefits (Karamessini & Rubery 2013). Because of women’s predominant responsibility for social reproduction, these effects subsequently are transmitted to children—and the impact can be long-lasting. Neuroscience research over the last 20 years details the mechanisms by which this occurs, but economists have yet to recognize its lessons and significance (Katsnelson 2015; Hair et. al., 2016). Children’s brains are especially susceptible to neurobiological changes, and the effects are harsher on poorer than on wealthier families. A recent study shows, for example, that the brains of children and adolescents with higher family income and more parental education have larger surface areas than their poorer, less-educated peers (Noble et. al., 2015). The regions of the brain most affected are those associated with language, executive functioning, motional control, and memory, negatively impacting the development of children’s cognitive skills. These effects last well into adult life.

This research suggests that economists must redefine their conception and scope of hysteresis, or path dependence.  Until now, hysteresis only has been applied to the current labor force, but neuroscience research demonstrates the long-term effects of deprivation on the human brain, especially in children. The economic vulnerability of women and people of color affects children and thus long-run productivity growth. Many macroeconomists have not yet integrated this channel of productivity growth into macro models. Were they to do this, the problem of gender and racial inequality and the shredding of the social safety net would receive the attention they deserve as determinants of long-run growth.

  1. Targeted public investment can reduce intergroup inequalities and stimulate growth.

Time-use research finds that women are responsible—through gender norms and stereotypes—for a disproportionate share of unpaid work, comprised of care of self and others, and maintenance of the household. Women’s unpaid care burden, crucial for supporting and expanding human capacities of the current and future labor force, inhibits their participation in paid work. Women’s limited access to income, as a result, redounds negatively on children, given evidence of their greater (than male) responsibility for children’s well-being (Doss 2013). This points to the centrality of public investment to reduce women’s care burden.

A number of scholars have explored the gender effects of physical infrastructure investment (in, for example, sanitation, roads, and electricity) [Agénor et. al., 2010]. They find that such investments reduce women’s care burden, particularly in low-income countries where women spend a significant amount of time on unpaid work such as fetching water and firewood. Because these investments help to reduce time poverty (due to time spent on unpaid work), they expand women’s ability to take on paid work, which in turn increases their bargaining power in the household to direct resources to children, promoting long-run productivity growth as a result.

Similarly, physical infrastructure investments can be used to address racial inequalities. In developed countries, for example, residential segregation combines with infrastructure inequality, as the recent case of contaminated water in Flint, Michigan has shown. In addition, lead, asbestos, and chemical toxins worsen the health of children in those communities with life-long effects on their cognitive development and thus productivity. These conditions represent a key aspect of intergroup inequality. But they also have macroeconomic implications as a result of the effect on labor productivity and thus growth.

  1. Social infrastructure spending promotes gender equality, productivity growth, and creates fiscal space.

Keynesian economists emphasize the effect of government spending on aggregate demand and growth. Feminist heterodox economists take this further, underscoring the importance of strategically targeting government spending to achieve a broader set of goals, including gender and racial equality, and productivity growth. They thus contribute to an understanding of both the demand- and supply-side effects of government spending.

Targeting government spending to social infrastructure (which includes such sectors as childcare, education, and health) expands human capacities. Qualities that make human beings economically effective, such as emotional maturity, patience, self-confidence, and the ability to work in teams have a public goods quality with positive spillover effects on economy-wide productivity (Braunstein, et. al. 2011). Because care work (both paid and unpaid) is a highly gendered activity, with women providing the bulk of the labor, social infrastructure investment can improve women’s access to paid work.

In a recent study, Dehenau & Himmelweit (2016) assess the impact of a public investment of 2% of GDP to either the care or construction sector. They find that in the short-term, government spending targeted to the care sector reduces women’s unpaid work and creates more paid jobs than spending in the construction sector. In the medium term, wages in care sector rise. Given that this sector is one that is female-dominated in employment, the gender wage gap narrows. In the long term, productivity rises due to improvements in human capacities. Antonopoulos et. al. (2011) obtain similar results, with the added outcome that in the US, social service jobs have stronger positive effects on disadvantaged and poor workers (that is, women and people of color).

This spending also has the salutary effect of creating fiscal space over the medium run. As a result, feminist research highlights that it is useful substitute the term social spending with social infrastructure spending, because targeted spending on social infrastructure produces a stream of financial returns into the future due to impact on productivity and incomes. As such, using fiscal policy to promote gender and racial equality creates fiscal space. It is time for economists to begin thinking of such spending as an investment rather than merely as a form of discretionary spending, or a target for cuts during hard economic times.

Macroeconomists, and for that matter economists and policymakers more generally, can benefit from a greater focus on intergroup inequalities by race and gender. This is because macro policy has differential race, gender and class effects. Policies (and models) that fail to incorporate the dynamic effects of intergroup inequality can lead to unintended and harmful outcomes. And intergroup inequality in turn affects important macroeconomic outcomes, including employment and productivity growth.

On the policy side, while explicitly targeted gender and race policies may be helpful, it should be noted that policies that may appear to be gender and race neutral can nevertheless close gaps. For example, sector-specific fiscal spending, full-employment policies, capital controls that reduce volatility, and labor market regulations to address insecure work may benefit all workers but be particularly effective in improving the lives of people of color and women, all with simultaneous economy wide-benefits on productivity growth.

The bottom line:

For some macroeconomists, gender and racial inequality and the impact of macro policies on children may appear to be outside their realm of focus. They are encouraged to resist the temptation to focus their sights too narrowly. Just as class dynamics have macroeconomic implications as demonstrated by Kaleckian economists, so too do gender and race. The effects are not only on the demand side, but also on the supply side of the economy with important implications for fiscal policies that that ensure a path to equity-led growth.

This blog was authored by Stephanie Seguino.

REFERENCES

Agénor, P.-R, Canuto, O., & da Silva, L. P. (2010). On Gender and Growth: The Role of Intergenerational Health Externalities and Women’s Occupational Constraints. World Bank Policy Research Working Paper No. 5492.

Antonopoulos, R., Masterson, T., & Zacharias, A. (2011). Investing in Care: A Strategy for Effective and Equitable Job Creation. In Antonopoulos, A. (ed), Gender Perspectives and Gender Impacts of the Global Economic Crisis, London: Routledge, pp. 47-72.

Braunstein, E., van Staveren, I., & Tavani, D. (2011). Embedding Care and Unpaid Work in Macroeconomic Modeling: A Structuralist Approach. Feminist Economics 17(4), 5-31.

De Henau, J. & Himmelweit, S. (2016). Developing a Macro-Micro Model for Analysis of Gender Impacts of Public Policy. Paper presented at Gender and Macroeconomics: Current State of Research and Future Directions, Levy Economics Institute, Bard College, New York City, March 9, 2016.

Doss, C. (2013): Bargaining and Resource Allocation in Developing Countries. World Bank Research Observer 28(1): 52–78.

Hair, N., J. Hanson, B. Wolfe, and S. Pollak. (2105). “Association of Child Poverty, Brain Development, and Academic Achievement. JAMA Pediatrics 169(9), 822-829.

Karamessini, M. & Rubery, J. (2013). Women and Austerity: The Economic Crisis and the Future for Gender Equality, Routledge IAFFE Advances in Feminist Economics.

Katsnelson, A. (2015). News Feature: The Neuroscience of Poverty. Proceedings of the National Academy of Sciences 112(51), 15530-15532.

Noble, K., S. Houston, N. Brito, H. Bartsch, E. Kan, J. Kuperman, N. Akshoomoff, D. Amaral, C. Bloss, O. Libiger, N. Schork, S. Murray, B. Casey, L. Chang, T. Ernst, J. Frazier, J. Gruen, D. Kennedy, P. Van Zijl, S. Mostoofsky, W. Kaufmann, T. Kenet, A. Dale, T. Jernigan, & E. Sowell. (2015). Family Income, Parental Education and Brain Structure in Children and Adolescents. Nature Neuroscience, 18, 773–778.

Seguino, S. 2019 (forthcoming). Feminist and Stratification Theories: Lessons from the Crisis and Their Relevance for Post-Keynesian Theory. European Journal of Economics and Economic Policies.

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