Title

Another Look at Whether a Rising Tide Lifts All Boats

Author(s)

James R. Hines James Hines (University of Michigan and NBER)

Hilary Hoynes Hilary Hoynes (University of California Davis and NBER)

Alan B. Krueger Alan Krueger (Princeton University and NBER)

Abstract

Periods of rapid U.S. economic growth during the 1960s and 1970s coincided with improved living standards for many segments of the population, including the disadvantaged as well as the affluent, suggesting to some that a rising economic tide lifts all demographic boats. This paper investigates the impact of U.S. business cycle conditions on population well-being since the 1970s. Aggregate employment and hours worked in this period are strongly procyclical, particularly for low-skilled workers, while aggregate real wages are only mildly procyclical. Similar patterns appear in a balanced panel of PSID respondents that removes the effects of changing workforce composition, though the magnitude of the responsiveness of real wages to unemployment appears to have declined in the last 20 years. Economic upturns increase the likelihood that workers acquire jobs in sectors with positively sloped career ladders. Spending by state and local governments in all categories rises during economic expansions, including welfare spending, for which needs vary countercyclically. Since the disadvantaged are likely to benefit disproportionately from such government spending, it follows that the public finances also contribute to conveying the benefits of a strong economy to diverse population groups.

Creation Date

2001-07

Section URL ID

IRS

Paper Number

454

URL

https://dataspace.princeton.edu/bitstream/88435/dsp01jm214p131/1/454revised2.pdf

File Function

Jel

P13, P14, P16, P17, P19

Keyword(s)

wages, rising tide, PSID, Panel Study of Income Dynamics

Suppress

false

Series

1