Another Look at Whether a Rising Tide Lifts All Boats

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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 pattems 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 govemments 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 govemment spending, it follows that the public finances
also contribute to conveying the benefits of a strong economy to diverse population groups.

Year of Publication
2001
Number
454
Date Published
07/2001
Publication Language
eng
Citation Key
7883
URL
Working Papers