About the author: Raphael W. Bostic is president and CEO of the Federal Reserve Bank of Atlanta. He is a participant on the Federal Open Market Committee, the monetary policy-making body of the Federal Reserve System. The views expressed here are the author’s and do not necessarily reflect the views of his colleagues on the FOMC.
The pandemic triggered job losses and economic upheaval, much of it hitting the least economically resilient, including families with lower incomes and little wealth, ethnic minorities, and women. This heightened the focus on the Federal Reserve’s efforts to satisfy the maximum employment portion of its congressionally established dual mandate. The other mandate is to promote stable prices.
Many are familiar with what I view as short-term maximum employment—a state in which all Americans who want a job can find one commensurate with their current skills and information networks. Indeed, many who track employment use this notion to determine appropriate benchmarks and, in turn, monetary-policy approaches.
Another notion of maximum employment takes a longer view that doesn’t assume one’s skills and networks are fixed in place. Attaining this longer-term maximum employment means that all Americans who want a job can find one commensurate with their full potential. Reaching this goal will result in more employed and productive Americans and a more robust economy.
Progress toward that admittedly lofty standard demands that we focus on people and communities who lack employment opportunities consistent with their potential. Dismantling barriers to their prospects would expand the ranks of those earning family-supporting wages, narrow inequality of income and wealth, and enhance the productive capacity of the macro economy. It would represent a critical step toward longer-term maximum employment. Therefore, identifying those structural barriers and highlighting solutions to overcoming them are clearly in the Fed’s interest.
The Federal Reserve wields tools to advance both concepts of maximum employment. Monetary policy certainly plays a part. Our new strategic framework, which keeps interest rates lower for longer, should create conditions in which many who have been tenuously attached to work can find and keep jobs.
The Atlanta Fed also uses other tools to help foster an economy that works for everyone. First, we advise organizations doing grass-roots work. The Federal Reserve is neither legally nor practically structured to directly conduct the types of programs that these organizations offer. For example, an initiative we call Advancing Careers for Low-Income Families develops tools to help partnering organizations lessen the harm from benefits cliffs that undercut millions of low-wage workers trying to gain new skills.
Many public benefits have an income-eligibility threshold, so increases in income above the threshold result in lost benefits—a “benefits cliff” that can occur when a worker receives multiple sources of assistance. If they earn an extra dollar an hour, they may lose $1 from each source of assistance. An additional dollar in earnings can mean a benefit loss of $2, $3, or more.
Our team joined the state of Alabama, for example, to create a dashboard for users to calculate how much take-home pay they need to cover basic expenses without public assistance.
Refining benefits programs to limit the negative incentives of cliffs helps economically vulnerable Americans and governments. Their citizens will earn more, pay more income taxes, and require less public assistance.
Second, Fed research can highlight ways that disparities persist and widen, and spark efforts to address those disparities. Atlanta Fed economist Kris Gerardi and co-authors found that African-Americans are not building equity in their homes as fast as non-Hispanic white borrowers, in part because they don’t refinance as aggressively when mortgage rates fall. By illuminating this, we hope to focus lenders, financial-education practitioners, and Black mortgage borrowers on solutions to help Black homeowners build equity and wealth more quickly.
Third, Federal Reserve Banks gather people for discussion. The Fed’s Racism and the Economy webinars examine lesser-known facets of our history, show how that history has implications today, and allow experts to propose remedies. Solutions can be as simple as not automatically disqualifying millions of potential workers by asking them to have a college degree for jobs that do not truly require one.
Fourth, we bring attention to what works. We know, for instance, that an understanding of which skills are in demand and will remain so helps workers secure and keep better jobs and build careers even without a degree. Our Rework America Alliance partnership is establishing programs to help workers connect with good jobs using current, localized data.
Finally, we are active in the regulatory arena. The Fed is collaborating with other regulators to update the Community Reinvestment Act to ensure that financial institutions serve their entire communities, particularly low- to moderate-income and minority neighborhoods with histories of disinvestment and lending discrimination.
The CRA provides for access to mortgages, small-business loans, and other funding to ensure these neighborhoods can build economic sustainability. A few years ago, I co-wrote a paper showing that the CRA promotes small-business lending by banks in lower-income neighborhoods.
The Atlanta Fed and the Federal Reserve System are working toward both the long-term and shorter-term maximum employment goals. While I’ve highlighted mostly recent efforts, we’ve pursued this work for many years and appreciate the importance of this undertaking.
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