By virtually every economic measure, most people in the U.S. today are better off than most were in 1935. That year marked a pinnacle of legislative activity in response to the Great Depression. These enactments represented a new era of economic and domestic social policy in the U.S. The most fundamental change was the role of the federal government in stabilizing the economy and promoting individual economic security.16Often these structural and individual interventions went hand in hand. The Banking Act of 1933, for example, created the Federal Deposit Insurance Corporation (FDIC), which both stabilized the banking industry through stricter regulation but also insured individual deposits up to an amount, which greatly reduced the risk depositors were exposed to. Similarly, the National Housing Act of 1934 created the Federal Housing Administration (FHA), which both stabilized the housing market through insuring mortgages but also created a broader mortgage market for consumers with better, regulated terms. You can find an overview of all New Deal legislation here.While these new laws reduced precarity and improved well-being for many working households, Black people were directly excluded from these gains. Rothstein writes, “The Federal Home Loan Bank Board, for example, chartered, insured, and regulated savings and loan associations from the early years of the New Deal but did not oppose the denial of mortgages to African Americans until 1961. It did not enforce the new race-blind policy, however—perhaps because it was in conflict with the board’s insistence that mortgage eligibility account for ‘economic’ factors. Like the FHA, it claimed that judging African Americans to be poor credit risks because they were Black was not a racial judgment but an economic one. As a result, its staff failed to remedy the industry’s consistent support for segregation” (The Color of Law 2017, p. 108).
The latter change—the promotion of individual economic security—was a recognition of new forms of risk that many faced. Economic insecurity is the risk that an individual cannot maintain adequate income in the face of a shock. The time period leading up to the Great Depression saw more individuals’ primary source of income come from the labor market. Selling labor presents numerous risks—the risk of not being able to find work at all, work at sufficient wages, or work in safe environments. By working for an employer, like a manufacturer, workers were exposed to economic risks that were different from the risks facing a rancher or small farmer. Critically, labor market risks stem not solely from individual behavior but also from larger changes in the economy outside of an individual’s control, such as the strength of certain industrial sectors.
The New Deal programs cemented a dual responsibility. The government’s responsibility was to reduce overall risk through stabilizing the macroeconomy, reduce labor market risk through regulation, and provide support to individuals who were not able to work. These benefits took two forms: 1) insurance benefits to workers who were out of work, either because they could not find a job (Unemployment Insurance) or could no longer work (Old Age Insurance); and 2) cash benefits to individuals who were not expected to work. At the time, this group was mothers with young children, and the program was titled Aid to Families with Dependent Children. The individual’s responsibility was personal—to seek work if they were able and to be productive at work. In those two responsibilities lies a difficult balance in adequately insuring and reducing risk to the individual while not disincentivizing the individual from seeking labor income.
The tension between risk and incentive is accompanied by the challenge of an ever-changing economy. Economic risks in general, and economic risk to labor income in particular, persist and evolve over time. The U.S. has transitioned from an exporting production economy with a broad manufacturing base to a globally integrated service economy. Alongside that transition, the average unemployment duration has increased significantly. From 1948 to 1982, the average unemployment spell in a given year ranged from 7.9 to 15.8 weeks. Average unemployment stints have exceeded 15.8 weeks in twenty-six of the thirty-eight years since then, peaking at 39.4 weeks in 2011 and 2012.
17Bureau of Labor Statistics. Labor Force Statistics from the Current Population Survey. Series: (Seas) Average Weeks Unemployed – LNS13008275. Another more recent trend has taken place in U.S. labor force participation (LFP) rates, which have consistently declined since peaking in 1997 and 1998. Even prior to the pandemic, the share of the population aged 25–54 years old in the labor force was 83.1 percent, 1.4 percentage points less than a peak in LFP in the late 1990s.18On aggregate, LFP rates for the sixteen and older population were down 4 percentage points between 1999 and 2019. This may not be too problematic, however, as the aged 16–24 population has seen LFP rates decline by almost 10 percentage points. These declines are nearly seventeen percentage points for the aged 16 to 19 population. In other words, if young people are receiving more education and therefore not participating in the labor force, that is not a problem. If fewer young people are participating in the labor force during the period of their education, that is also not a problem. On the other end of the spectrum, the fifty-five and older population increased its LFP by 8.4 percentage points over the same time period. This includes a 9.5 percentage point increase for the 65–74 population, and a 4 percentage point increase for the seventy-five and older population. To the extent that these increases are related to more accessible and less physically burdensome work, they are not a problem. To the extent that they are related to retirement insecurity, they are more problematic (Bureau of Labor Statistics 2020).
U.S. Bureau of Labor Statistics, Labor Force Participation Rate: 25–54 Yrs. [LNU01300060], retrieved from FRED, Federal Reserve Bank of St. Louis.
The Study Panel was convened to explore a portfolio of policy options aimed at producing assured income. First, we explain in some detail the fundamental problem the policies seek to address—economic insecurity.
- 16Often these structural and individual interventions went hand in hand. The Banking Act of 1933, for example, created the Federal Deposit Insurance Corporation (FDIC), which both stabilized the banking industry through stricter regulation but also insured individual deposits up to an amount, which greatly reduced the risk depositors were exposed to. Similarly, the National Housing Act of 1934 created the Federal Housing Administration (FHA), which both stabilized the housing market through insuring mortgages but also created a broader mortgage market for consumers with better, regulated terms. You can find an overview of all New Deal legislation here.While these new laws reduced precarity and improved well-being for many working households, Black people were directly excluded from these gains. Rothstein writes, “The Federal Home Loan Bank Board, for example, chartered, insured, and regulated savings and loan associations from the early years of the New Deal but did not oppose the denial of mortgages to African Americans until 1961. It did not enforce the new race-blind policy, however—perhaps because it was in conflict with the board’s insistence that mortgage eligibility account for ‘economic’ factors. Like the FHA, it claimed that judging African Americans to be poor credit risks because they were Black was not a racial judgment but an economic one. As a result, its staff failed to remedy the industry’s consistent support for segregation” (The Color of Law 2017, p. 108).
- 17Bureau of Labor Statistics. Labor Force Statistics from the Current Population Survey. Series: (Seas) Average Weeks Unemployed – LNS13008275.
- 18On aggregate, LFP rates for the sixteen and older population were down 4 percentage points between 1999 and 2019. This may not be too problematic, however, as the aged 16–24 population has seen LFP rates decline by almost 10 percentage points. These declines are nearly seventeen percentage points for the aged 16 to 19 population. In other words, if young people are receiving more education and therefore not participating in the labor force, that is not a problem. If fewer young people are participating in the labor force during the period of their education, that is also not a problem. On the other end of the spectrum, the fifty-five and older population increased its LFP by 8.4 percentage points over the same time period. This includes a 9.5 percentage point increase for the 65–74 population, and a 4 percentage point increase for the seventy-five and older population. To the extent that these increases are related to more accessible and less physically burdensome work, they are not a problem. To the extent that they are related to retirement insecurity, they are more problematic (Bureau of Labor Statistics 2020).
U.S. Bureau of Labor Statistics, Labor Force Participation Rate: 25–54 Yrs. [LNU01300060], retrieved from FRED, Federal Reserve Bank of St. Louis.
By virtually every economic measure, most people in the U.S. today are better off than most were in 1935. That year marked a pinnacle of legislative activity in response to the Great Depression. These enactments represented a new era of economic and domestic social policy in the U.S. The most fundamental change was the role of the federal government in stabilizing the economy and promoting individual economic security.16Often these structural and individual interventions went hand in hand. The Banking Act of 1933, for example, created the Federal Deposit Insurance Corporation (FDIC), which both stabilized the banking industry through stricter regulation but also insured individual deposits up to an amount, which greatly reduced the risk depositors were exposed to. Similarly, the National Housing Act of 1934 created the Federal Housing Administration (FHA), which both stabilized the housing market through insuring mortgages but also created a broader mortgage market for consumers with better, regulated terms. You can find an overview of all New Deal legislation here.While these new laws reduced precarity and improved well-being for many working households, Black people were directly excluded from these gains. Rothstein writes, “The Federal Home Loan Bank Board, for example, chartered, insured, and regulated savings and loan associations from the early years of the New Deal but did not oppose the denial of mortgages to African Americans until 1961. It did not enforce the new race-blind policy, however—perhaps because it was in conflict with the board’s insistence that mortgage eligibility account for ‘economic’ factors. Like the FHA, it claimed that judging African Americans to be poor credit risks because they were Black was not a racial judgment but an economic one. As a result, its staff failed to remedy the industry’s consistent support for segregation” (The Color of Law 2017, p. 108).
The latter change—the promotion of individual economic security—was a recognition of new forms of risk that many faced. Economic insecurity is the risk that an individual cannot maintain adequate income in the face of a shock. The time period leading up to the Great Depression saw more individuals’ primary source of income come from the labor market. Selling labor presents numerous risks—the risk of not being able to find work at all, work at sufficient wages, or work in safe environments. By working for an employer, like a manufacturer, workers were exposed to economic risks that were different from the risks facing a rancher or small farmer. Critically, labor market risks stem not solely from individual behavior but also from larger changes in the economy outside of an individual’s control, such as the strength of certain industrial sectors.
The New Deal programs cemented a dual responsibility. The government’s responsibility was to reduce overall risk through stabilizing the macroeconomy, reduce labor market risk through regulation, and provide support to individuals who were not able to work. These benefits took two forms: 1) insurance benefits to workers who were out of work, either because they could not find a job (Unemployment Insurance) or could no longer work (Old Age Insurance); and 2) cash benefits to individuals who were not expected to work. At the time, this group was mothers with young children, and the program was titled Aid to Families with Dependent Children. The individual’s responsibility was personal—to seek work if they were able and to be productive at work. In those two responsibilities lies a difficult balance in adequately insuring and reducing risk to the individual while not disincentivizing the individual from seeking labor income.
The tension between risk and incentive is accompanied by the challenge of an ever-changing economy. Economic risks in general, and economic risk to labor income in particular, persist and evolve over time. The U.S. has transitioned from an exporting production economy with a broad manufacturing base to a globally integrated service economy. Alongside that transition, the average unemployment duration has increased significantly. From 1948 to 1982, the average unemployment spell in a given year ranged from 7.9 to 15.8 weeks. Average unemployment stints have exceeded 15.8 weeks in twenty-six of the thirty-eight years since then, peaking at 39.4 weeks in 2011 and 2012.
17Bureau of Labor Statistics. Labor Force Statistics from the Current Population Survey. Series: (Seas) Average Weeks Unemployed – LNS13008275. Another more recent trend has taken place in U.S. labor force participation (LFP) rates, which have consistently declined since peaking in 1997 and 1998. Even prior to the pandemic, the share of the population aged 25–54 years old in the labor force was 83.1 percent, 1.4 percentage points less than a peak in LFP in the late 1990s.18On aggregate, LFP rates for the sixteen and older population were down 4 percentage points between 1999 and 2019. This may not be too problematic, however, as the aged 16–24 population has seen LFP rates decline by almost 10 percentage points. These declines are nearly seventeen percentage points for the aged 16 to 19 population. In other words, if young people are receiving more education and therefore not participating in the labor force, that is not a problem. If fewer young people are participating in the labor force during the period of their education, that is also not a problem. On the other end of the spectrum, the fifty-five and older population increased its LFP by 8.4 percentage points over the same time period. This includes a 9.5 percentage point increase for the 65–74 population, and a 4 percentage point increase for the seventy-five and older population. To the extent that these increases are related to more accessible and less physically burdensome work, they are not a problem. To the extent that they are related to retirement insecurity, they are more problematic (Bureau of Labor Statistics 2020).
U.S. Bureau of Labor Statistics, Labor Force Participation Rate: 25–54 Yrs. [LNU01300060], retrieved from FRED, Federal Reserve Bank of St. Louis.
The Study Panel was convened to explore a portfolio of policy options aimed at producing assured income. First, we explain in some detail the fundamental problem the policies seek to address—economic insecurity.
- 16Often these structural and individual interventions went hand in hand. The Banking Act of 1933, for example, created the Federal Deposit Insurance Corporation (FDIC), which both stabilized the banking industry through stricter regulation but also insured individual deposits up to an amount, which greatly reduced the risk depositors were exposed to. Similarly, the National Housing Act of 1934 created the Federal Housing Administration (FHA), which both stabilized the housing market through insuring mortgages but also created a broader mortgage market for consumers with better, regulated terms. You can find an overview of all New Deal legislation here.While these new laws reduced precarity and improved well-being for many working households, Black people were directly excluded from these gains. Rothstein writes, “The Federal Home Loan Bank Board, for example, chartered, insured, and regulated savings and loan associations from the early years of the New Deal but did not oppose the denial of mortgages to African Americans until 1961. It did not enforce the new race-blind policy, however—perhaps because it was in conflict with the board’s insistence that mortgage eligibility account for ‘economic’ factors. Like the FHA, it claimed that judging African Americans to be poor credit risks because they were Black was not a racial judgment but an economic one. As a result, its staff failed to remedy the industry’s consistent support for segregation” (The Color of Law 2017, p. 108).
- 17Bureau of Labor Statistics. Labor Force Statistics from the Current Population Survey. Series: (Seas) Average Weeks Unemployed – LNS13008275.
- 18On aggregate, LFP rates for the sixteen and older population were down 4 percentage points between 1999 and 2019. This may not be too problematic, however, as the aged 16–24 population has seen LFP rates decline by almost 10 percentage points. These declines are nearly seventeen percentage points for the aged 16 to 19 population. In other words, if young people are receiving more education and therefore not participating in the labor force, that is not a problem. If fewer young people are participating in the labor force during the period of their education, that is also not a problem. On the other end of the spectrum, the fifty-five and older population increased its LFP by 8.4 percentage points over the same time period. This includes a 9.5 percentage point increase for the 65–74 population, and a 4 percentage point increase for the seventy-five and older population. To the extent that these increases are related to more accessible and less physically burdensome work, they are not a problem. To the extent that they are related to retirement insecurity, they are more problematic (Bureau of Labor Statistics 2020).
U.S. Bureau of Labor Statistics, Labor Force Participation Rate: 25–54 Yrs. [LNU01300060], retrieved from FRED, Federal Reserve Bank of St. Louis.
- 16Often these structural and individual interventions went hand in hand. The Banking Act of 1933, for example, created the Federal Deposit Insurance Corporation (FDIC), which both stabilized the banking industry through stricter regulation but also insured individual deposits up to an amount, which greatly reduced the risk depositors were exposed to. Similarly, the National Housing Act of 1934 created the Federal Housing Administration (FHA), which both stabilized the housing market through insuring mortgages but also created a broader mortgage market for consumers with better, regulated terms. You can find an overview of all New Deal legislation here.While these new laws reduced precarity and improved well-being for many working households, Black people were directly excluded from these gains. Rothstein writes, “The Federal Home Loan Bank Board, for example, chartered, insured, and regulated savings and loan associations from the early years of the New Deal but did not oppose the denial of mortgages to African Americans until 1961. It did not enforce the new race-blind policy, however—perhaps because it was in conflict with the board’s insistence that mortgage eligibility account for ‘economic’ factors. Like the FHA, it claimed that judging African Americans to be poor credit risks because they were Black was not a racial judgment but an economic one. As a result, its staff failed to remedy the industry’s consistent support for segregation” (The Color of Law 2017, p. 108).
- 17Bureau of Labor Statistics. Labor Force Statistics from the Current Population Survey. Series: (Seas) Average Weeks Unemployed – LNS13008275.
- 18On aggregate, LFP rates for the sixteen and older population were down 4 percentage points between 1999 and 2019. This may not be too problematic, however, as the aged 16–24 population has seen LFP rates decline by almost 10 percentage points. These declines are nearly seventeen percentage points for the aged 16 to 19 population. In other words, if young people are receiving more education and therefore not participating in the labor force, that is not a problem. If fewer young people are participating in the labor force during the period of their education, that is also not a problem. On the other end of the spectrum, the fifty-five and older population increased its LFP by 8.4 percentage points over the same time period. This includes a 9.5 percentage point increase for the 65–74 population, and a 4 percentage point increase for the seventy-five and older population. To the extent that these increases are related to more accessible and less physically burdensome work, they are not a problem. To the extent that they are related to retirement insecurity, they are more problematic (Bureau of Labor Statistics 2020).
U.S. Bureau of Labor Statistics, Labor Force Participation Rate: 25–54 Yrs. [LNU01300060], retrieved from FRED, Federal Reserve Bank of St. Louis.