A McMyth About the Minimum Wage, Robobankers, and How the ‘She-Cession’ Is Bad for Men Too

Beyond the Headlines: Personal finance news and research you may have missed

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Within the economic news of the last week, there was reason for either increased hope or increased fear, depending on your inclination.

The government’s February employment report showed the best month for job growth in four months, and we learned just how much cash might be burning holes in people’s pockets as we gear up for the economy to further re-open.

In fact, optimism is growing so much that the economy is showing some of the less-appealing signs of righting itself: mortgage rates rose for the fourth week in a row, and more small businesses told pollsters they plan to raise their prices in the near future. Even the increases in residential real estate prices may be starting to simmer down—good news for buyers, but not sellers.

Add to that another check from the new stimulus package moving its way through Congress, and to some economists, it all means one thing: problematic inflation. Will it actually materialize? Not according to Federal Reserve Chairman Jerome Powell, who continues to wave away such concerns

But with all those double-edged swords to process, here’s what you may not have read: Did you know that Big Mac fans should worry more than employers if the federal minimum wage ends up being raised? Or that loans are more profitable for lenders when they let computer programs do the underwriting, rather than people? 

To reach beyond the biggest headlines, we scoured the latest research, surveys, studies, and commentary to bring you the most interesting and relevant personal finance news you may have missed.

What We Found

McMyth Busted: Minimum Wage Hikes Don’t Kill Fast Food Jobs

The efforts by progressive lawmakers to raise the federal minimum wage to $15 an hour by 2025 may have run aground, at least for now, but the question of whether a higher minimum would end up costing jobs continues to be central to the debate. In other words, would such a move boost low-paid workers’ fortunes, or merely encourage employers like McDonald’s to replace cashiers with self-service touchscreens?

A recent study not only helped dispel this concern, but revealed something pretty interesting, given the recently heightened fears about inflation.

Researchers at Princeton University and an economics institute in Prague studied price and wage data from about 10,000 McDonald’s restaurants from 2016 to 2020, and found that local minimum wage increases did not cause the restaurants to adopt labor-saving technology, and in many cases, prompted them to pay more than the minimum to preserve a pay "premium.”

Still, someone did end up footing the bill for the higher-paid workers: the consumer.

More specifically, the study examined prices of McDonald’s Big Mac and said the data suggests that almost all of the additional cost of minimum wage increases were passed through in what people were paying for the famous hamburger.

Are Inflation Hawks Underestimating the U.S. Economy?

The specter of uncontrolled inflation being set off by too much government stimulus has begun to rattle some prominent economists’ chains, but their thinking stems from outdated fears that don’t acknowledge the extent of the current economic crisis, argues Claudia Sahm, a former Federal Reserve economist. 

Prominent thinkers such as John B. Taylor, a former undersecretary of the Treasury, have warned that government COVID-19 relief spending is introducing so much money into the economy that it will inevitably cause prices to rise and dollars to become less valuable. 

But inflation hawks like Taylor are making a crucial mistake, and shouldn’t underestimate the potential of the U.S. economy to pick up the slack, Sahm argues in an article published by the Institute for New Economic Thinking Tuesday.

When demand for goods and services outpaces the ability of the economy to supply them, we get inflation. But we need not worry too much about a $1.9 trillion stimulus package creating too much demand, because there are still almost 10 million fewer jobs than before the pandemic began, meaning plenty of unused capacity to meet that demand.

The inflation hawks are “out of touch with reality” and fear inflation too much because of their own experiences living through periods of inflation such as the 1970s, Sahm wrote.

“Inflation phobias are hard to quell, especially among economists who lived through the era of high inflation and high unemployment—referred to as ‘stagflation,’” she wrote. “They remember stagflation clearly like it was yesterday, but they forget the Federal Reserve’s decades of experience since then at keeping inflation under control.”

Rise of the Robobankers?

It turns out that robots are not only good at building cars, they’re good at underwriting the loans that finance the purchase of those cars—even more so than people, if profit is the gauge, according to a new study from business school researchers at the University of Utah and the Ohio State University. 

When human underwriters were pitted against algorithmic machine underwriting programs—each tackling half of a batch of 140,000 subprime auto loans from more than 4,000 U.S. car dealerships—the machines underwrote loans that were 10.2% more profitable, not only because the loans had higher interest rates, but also because there was a 6.8% lower incidence of default.

The reasons for the success of the artificial intelligence? Human underwriters were more likely to offer lower rates in order to win business and increase their monthly commissions. In addition, when loans were more complex and subjective because the borrower had a thin credit history, loans underwritten by people were less profitable.

Why the ‘She-Cession’ Isn’t Just a Women’s Issue

There have been some encouraging signs lately about the economic recovery. But women have been hit so hard by the pandemic that the country’s future economic growth prospects may be in jeopardy, particularly once government support subsides, according to economists at Wells Fargo Securities. And that’s bad news for men too. 

“Potential economic growth can be boiled down to growth in hours worked and labor productivity,” the economists wrote in a report Tuesday. “Both stand to be negatively affected by the unequal toll the COVID recession has taken on women in the workforce and women-owned businesses.”

The case around what even Federal Reserve bankers are calling the “she-cession” (rather than recession) goes like this: Not only have women lost more jobs than men during the latest recession, thanks to working disproportionately in industries harder-hit by COVID-19, but women in their prime working years (ages 25-54) have left the labor force at almost twice the rate of men, thanks to shouldering more of the childcare burden, Wells Fargo said.

The void left by all of those women no longer contributing to the workforce saps the economy of much-needed labor. Plus, before the pandemic, women-owned businesses had been growing faster than male-owned ventures, but that’s all likely changed, the economists said. 

And while government stimulus may prop up the economy temporarily, when it ends, real economic growth will require the contributions of all those female workers and business owners, just like it has in the past. Indeed, over the four decades between 1979 and 2018, a staggering 91% of the average income growth for a middle-class household came from women’s earnings and the increasing participation of women in the workforce, according to an analysis by the Brookings Institution. 

The Trust Recession

As scholars try to calculate not just the pandemic’s immediate harm, but its insidious long-term effects, one type of damage may surprise you: damage to trust.

According to the findings of a newly released study by a team of researchers from universities in Europe and Canada, previous unemployment experiences, or “unemployment scarring,” may be an important reason that Americans have trusted one another less and less over the last few decades. 

In fact, using data from the U.S. General Social Survey (GSS), a nationwide survey of U.S. adults’ attitudes and behaviors conducted since 1972, the researchers found that job loss together with declining confidence in political institutions and dissatisfaction with income accounted for about half of the decline in social trust in the country between 1973 and 2018. 

How bad has it gotten? According to GSS figures cited by the research, 46% of respondents in 1973 said they could trust most people. By 2018, that figure had declined to 32%. This decrease in “social trust” is worrisome to scholars, who consider trust to be a valuable “moral resource” in solving societal problems.