As a senior news director for social sciences, I write about political science, religion (and their intersection), sociology, education, anthropology, philosophy and linguistics. I have a passion for storytelling and enjoy working with our world-renowned faculty and members of the media to bring research to life for the public. Prior to joining the Public Affairs team, I worked in public relations at SSM Health and covered academic medicine at Saint Louis University. I have a master’s degree in communication from SLU. Outside of work, I am most likely to be found at a dance studio or cheering from the sidelines of a soccer field. My family and I also love traveling, camping and visiting national parks.
President Joe Biden has expressed support for raising the federal minimum wage for federal contractors and employees to $15 per hour. On Jan. 26, House and Senate Democrats took it a step further— introducing legislation to increase the federal minimum wage to $15 per hour by 2025, more than doubling the current minimum wage of $7.25 per hour set in 2009.
Gopalan, who has used big data on multiple impact studies on minimum wage increases, recommends delaying any increase until 2022 to allow the economy and unemployment rates to rebound.
He also recommends increasing it in increments of $1 to $1.50 and, going forward, having a clause to automatically index the minimum wage rate.
In a forthcoming paper in the Journal of Labor Economics, Gopalan and Barton Hamilton, the Robert Brookings Smith Distinguished Professor of Economics, Management and Entrepreneurship, found positive and negative effects for U.S. workers over a two-year period in six states that enacted minimum wage increases between 75 cents and $1.25 per hour in the 2010-15 period.
On the positive side, their study shows that minimum wage hikes not only increase the wages of those workers, but also create a positive “spillover” effect on the wages of other workers earning up to $2.50 above the minimum wage. Additionally, these workers continue to retain their jobs as they are no more likely to be fired.
‘Make the increase more gradual’
However, raising the minimum wage hurt new entrants into the labor market. Researchers found that businesses, especially those making tradeable goods — such as the manufacturing sector — reduce the rate of hiring new workers at low wages following an increase to minimum wage rates. Read more about this research here.
Given the fact that unemployment remains at 6.7%, according to the U.S. Bureau of Labor Statistics, Gopalan warned that increasing the minimum wage would likely make a bad situation worse.
“There are two broad effects of a minimum wage increase. One, it reduces firm’s incentives to hire more minimum wage workers. This effect would be all the more enhanced when firms are hurting from the pandemic,” Gopalan said.
“On the flipside, minimum wage increases put money in the hands of people who are most likely to spend it. Thus, a wage increase is likely to give a boost to consumer demand.
“Having said that, the multiple stimulus packages have put a lot of money in people’s hands, so one is talking about demand in the economy possibly outstripping supply once the pandemic is brought under control. Some are already cautioning about the economy overheating.”
Going slow on the minimum wage increase is the best option, Gopalan said. “Not only is it better to wait for the pandemic to be brought under control, but it is also good to make the increase more gradual and not drastic from $7.25 to $15 in one fell swoop.
“Currently, small businesses are especially hurting from the pandemic. The restaurant sector, which employs a significant number of minimum wage workers, and the retail sector are struggling. Raising the minimum wage now would spell a death knell for many small restaurants.”
Being a “just” corporation means doing what’s morally right and fair for all stakeholders: employees, the community, customers, shareholders and the environment. But doing what’s “right” is rarely straightforward in our rapidly changing social environment.
Today’s corporations face intense pressure to implement socio-economic practices, fueled by an increase in social activism and the ease of promoting causes through the internet and social media. Yet, all too often, executives find themselves in a “damned if you do and damned if you don’t” situation when their response backfires.
In the paper “The Just Corporation,” Jackson Nickerson, Frahm Family Professor of Organization and Strategy at Olin, and co-author Sergio Lazzarini, an Olin graduate and the Chafi Haddad Professor of Management at Insper in Sao Paulo Brazil, argue that many corporations miss the mark because they fall into decision traps that lead them to misread the problems and stakeholder demands. The paper was originally published in Harvard Business Review Brasil in Portuguese. The decision traps include the following:
Blind spot traps arise when executives fail to see the big picture and anticipate how current just corporate demands will evolve.
Moral licensing traps occur when corporations attempt to paper over unjust actions in one domain by making socially welcome investments in another.
SCN traps (pronounced “sin”) occur when corporations have an “overly simplistic theory of change for what is in actuality a complex situation, a lack of competence for comprehensively assessing as well as delivering just outcomes and naivete in their thinking of how to help vulnerable stakeholders.” The result can be social welfare policies that fail to achieve the desired impact or, worse, produce negative ramifications, often for the most vulnerable.
The ‘Corporate Ladder of Justice’
Lazzarini and Nickerson a developed a decision-making model, which they call the “Corporate Ladder of Justice,” to guide just corporate strategies, while avoiding the common pitfalls other corporations face. The steps include:
Rung 1: Identify existing and emerging stakeholder demands. The world is continuously changing in myriad ways and so too are the demands of society. While these demands have always been in flux, they seem to be changing and multiplying at a quickening pace, which magnifies the potential number and kind of blind spot traps. To overcome the potential for blind spot traps, Lazzarini and Nickerson recommend that executives start by stepping into the shoes of each stakeholder to fully understand their needs and demands.
Next, executives should shift thinking from specific and narrow categories demanded by stakeholders to a higher and more abstract meta-category. Then, from this meta-category, reverse the process to identify all subcategories into which firm activities fall.
Finally, corporations should make corporate or industry association investments to measure both changing demands and desired outcomes.
“Overcoming the blind spot trap through activities that generate evenhandedness, overcome blind spots and focus attention through measurement of changing demand and desired outcomes can help executives climb the first rung of corporate justice,” they write.
Rung 2: Compete fairly. Even when strategic manipulations intended to limit competition are not illegal, they can be viewed as unjust when they undermine equal access to market opportunities.
“Corporations that engage in manipulative actions to soften competition, restrict entry, limit substitutes, and use investments in socio-environmental projects as a moral license to gain bargaining power create unfair and unjust competition,” they write in their paper.
“In contrast, those corporations that gain competitive advantage and profitability by developing difficult to imitate superior innovations and capabilities for delivering unique products and services are competing on merit, which mitigate moral licensing concerns that support unfair competition.”
Rung 3: Care for vulnerable stakeholders. To avoid the SCN trap, Lazzarini and Nickerson recommend that executives use two criteria to prioritize and respond to stakeholder demands.
“First, focus on stakeholders who are no more than one or two degrees of separation from the actions of the corporation, unless the supply chain keeps the most vulnerable ones (e.g., child and slave labor) distant from the corporation,” they write. Addressing peripheral demands and their causes limits deep understanding and can lead to moral licensing and SCN traps.
Second, follow an evidence-basedapproach to corporate socio-environmental projects. Start with a well-crafted and vetted theory of change to clearly indicate how corporate interventions can improve the lives of vulnerable stakeholders and achieve expected outcomes. Employing scientific research techniques and partnering with academic research centers that are well versed in designing these kinds of studies can help corporations assess and adjust its theory of and investments for change.”
Rung 4. Do or give efficiently. Should the corporation rely on or build its capabilities and competencies to take the action or should it provide resources to others to take just actions? It depends.
“The fourth rung recommends that executives make efficient organizational choices to care for vulnerable stakeholders. If sustainable actions are consistent with the corporation’s business strategy—as validated by its shareholders, especially when financial tradeoffs are involved—and require unique capabilities that other organizations do not already possess, then vertical integration typically is an efficient execution strategy,” Lazzarini and Nickerson write.
“Alternatively, if others, like NGOs and public sector agencies, already have made these unique investments or they can aggregate substantial economies of scale and scope beyond what the corporation can provide, then outsourcing is a superior way to support vulnerable stakeholders.”
Why climb the ladder?
By shifting the corporate mindset away from “socio-environmental projects as a way to mitigate risk or increase profits” and committing to the principles of action outlined in the Corporate Ladder of Justice, Lazzarini and Nickerson said corporations will be better equipped to cope with escalating uncertainty in their socio-environmental demands.
“The rapidly changing environment that is stimulating the call for just corporations also is creating conditions to destabilize business models that fail to adopt these standards, in ways that cannot be fully anticipated,” Lazzarini and Nickerson write. “In other words, corporations today face escalating pressures and adverse reactions from stakeholders that can’t be known beforehand.
“Failure to cope with these complex demands fuels public distrust in corporations, leading to escalating social media activism and exacerbated political and regulatory responses, all of which impose additional costs on corporations and society. By voluntarily committing to climb the corporate ladder of justice, companies demonstrate their willingness to contribute to the social contract and attenuate extreme responses to the inequalities that inescapably emerge when they grow and expand their corporate activities.”
Even before COVID-19 and resulting shutdowns created gridlock for some global supply chains, the assortment at many neighborhood supermarkets was dwindling. The cause was not a lack of supply, though, but rather a lack of demand created by a widening income gap in the United States, according to a new study involving an Olin researcher.
In a paper forthcoming in Management Science, Raphael Thomadsen, professor of marketing at Olin, along with the University of South Carolina’s Rafael Becerril-Arreola and UCLA’s Randolph E. Bucklin find that the amount of variety available in the market is highly sensitive to the income shares of the middle and upper-middle classes.
As the middle class has been hollowed out, the assortment on grocery store shelves has, too, as a result.
“We find that as we become a more unequal society, the total set of products we have to choose from is reduced, holding average level of income constant,” Thomadsen said.
“This happens largely because as income inequality grows, the people whose income is growing do not spend much more at supermarkets. But people whose incomes are cut reduce their spending quite a bit, leaving less total spending and, thus, less support for niche products.”
Income distribution disparity
The researchers looked at the level of income distribution disparity in more than 1,700 US counties between 2007 and 2013, using the Gini income index. A Gini index of zero expresses absolute equality, where everyone has the same income. An index of 1 represents maximum inequality.
Then they overlaid that with a look at the product range available in grocery stores within each county across nearly 950 categories of non-perishable household items.
Consumer packaged goods manufacturers consistently supplied many new products over the time of the study. More than two-thirds of the counties had a widening of income inequality. In those counties — and at individual stores in those counties — the available assortment of products tended to grow 18% slower than in the counties where income inequality narrowed.
By comparison, in the counties where income inequality narrowed, there was typically more product variety added to the shelves.
The researchers also established that the effects of higher inequality on assortment could be explained by changes in the incomes earned by households in the middle class, which they defined, according to US Census Bureau data, as the third and fourth income quintiles (the 40th to 60th income percentiles and the 60th to 80th percentiles, respectively). When the middle-class share of income rose, variety went up, but when it fell, variety went down.
“The conventional wisdom is that greater inequality means that we have greater diversity of desires, and that this should increase the number of product offerings in the store. Finding the opposite effect made us think harder about how assortment is driven by income inequality,” Thomadsen said.
“A large factor is that consumers spend a smaller percentage of their income at supermarkets as their income rises, since they fulfill their needs at some point, or even move to consumption at restaurants or other options. However, we also see that greater inequality comes from the hollowing out of the middle class, so greater income inequality does not necessarily lead to greater heterogeneity — it leads to a large group of consumers with lower incomes that become more similar to each other.”
The analysis sheds light on the potentially unintended consequences of policy interventions and impact on consumer welfare.
“For example, the US government recently increased the minimum number of offerings per category required for retailers to participate in the food stamp program,” Thomadsen said. “A long-term implication of our results is that consumers’ ability to use food stamps may decline in areas where falling average income and rising income dispersion leads retailers to reduce their assortments and possibly stop participating in the food stamp program.”
Additionally, the increase or decrease in assortment that arises from changes in income distribution can impact consumer welfare. “In particular, consumers who lose access to their preferred items may be most adversely affected,” he said.
Additionally, the findings can help manufacturers understand trends. In particular, adding Gini tracking to one’s operational dashboard may be a useful insight to drive marketing efforts.
“Our results show that markets with rising income inequality experience assortment pruning by the grocery channel and markets with falling inequality see expansion,” the researchers wrote. “With data on local changes in the Gini index, managers may be better able to guide either defensive actions to retain shelf space or offensive actions to acquire it.”
President-elect Joe Biden has signaled that fighting the COVID-19 pandemic will be an immediate priority for his administration. He recently announced a coronavirus advisory board of infectious disease researchers and former public health advisers along with an updated strategy that will include increases in testing and contact tracing, as well as transparent communication.
But Inauguration Day is still a month away. The number of confirmed COVID-19 cases is likely to increase to 20 million by the end of January, nearly doubling the levels around the time of his election, an Olin COVID-19 forecasting model predicts.
“One of the key reasons for the increased accuracy of this model over other COVID-19 forecasts is that this model accounts for the fact that people live in interconnected social networks rather than interacting mostly with random groups of strangers,” said Thomadsen, professor of marketing. “This allows the model to forecast that growth will not continue at exponential rates for long periods of time, as classic COVID-19 forecasts predict.”
An interactive online version of the model also allows users to observe the impact different levels of social distancing will have on the spread of COVID-19. The current social distancing reflects an approximate 60% return to normalcy, as compared with the level of social distancing before the pandemic. If we continue, as a nation, at the current level of social distancing, the model forecasts that we are likely to reach 20 million cases before the end of January 2021.
“Even small increases in social distancing can have a large effect on the number of cases we observe in the next two and a half months,” Thomadsen said. “Going back to a 50% return to normalcy, which was the average level of distancing in early August, would likely result in 5 million fewer cases by the end of January.
“We could effectively squash out the COVID growth within a few weeks if we went back to the levels of social distancing we experienced in April.”
“We could effectively squash out the COVID growth within a few weeks if we went back to the levels of social distancing we experienced in April,” he added.
However, the researchers caution that this is likely a conservative estimate due to increased testing and the upcoming holidays.
“In our model, we assume that only 10% of cases are ever diagnosed, meaning that we will start to hit saturation,” said Song Yao, associate professor of marketing and study co-author. “However, more recently, testing has increased, and probably more like 25% of cases are diagnosed. In that case, total COVID cases would increase beyond 20 million in the next few months unless we, as a society, engage in more social distancing.”
“The upcoming holiday seasons will present a great deal of uncertainty to the outlook of the pandemic as people travel more at the end of the year. This will likely make our forecast an optimistic one,” said Meng Liu, assistant professor of marketing and study co-author.
In communities where masks were mandated, consumer spending increased by 5% on average, showing that a safety rule can stimulate economic growth as well, according to a new study from the Olin Business School.
Researchers found the effect was greatest among non-essential businesses, including those in the retail and entertainment industries—such as restaurants and bars—that were hit hard by the pandemic.
“The findings exceeded our expectations and show that we can have a strong economy with strong, commonsense public-health measures. Mask mandates are a win-win,” said Raphael Thomadsen, professor of marketing and study co-author.
Thomadsen, along with Olin’s Song Yao, Nan Zhao and Chong Bo Wang, analyzed the impact of social distancing and mask mandates on both the spread of COVID-19 and consumer spending. They used cellphone location data to track the degree of social distancing in nearly every county in the U.S. and compared that with community voting patterns, coronavirus infection rates and consumer spending rates.
The researchers found social distancing has a large impact on reducing COVID-19 spread, while the evidence on mask mandates is mixed. But while social distancing reduces consumer spending, mask mandates has the opposite effect. They also found that social distancing decreased in communities with mask mandates, magnifying the positive effect on spending.
Feeling safer to spend
“Preventive measures such as social distancing and facial masks should be considered as pro-business,” said Yao, associate professor of marketing. “When people feel safer to spend, or more importantly, when the pandemic is kept at bay, the economy is more likely to have a quick recovery. Not to mention the lives that will be saved.”
Perhaps not surprising given the political lines drawn over masks, they also observed that political affiliation had a significant impact on social distancing. Even after controlling for local characteristics such as the population density, income and other demographics, counties that voted for President Donald Trump in 2016 engaged in significantly less social distancing than counties that voted for Hillary Clinton.
“If the entire country had followed low levels of social distancing seen in Trump-supporting areas, we estimate there would have been 83,000 more American deaths from COVID to date, which represents a 36% increase over the current death count of 225,000 Americans,” Thomadsen said.
They estimate the tradeoff would have been a relatively small boost in the economy. Consumer spending dropped $605.5 billion from April to the end of July, compared with the same time last year. The country would have recovered $55.4 billion, or approximately 9%, had all counties remained as open as the most pro-Trump areas.To put it in more dramatic terms, Thomadsen said this means that opening up is only a reasonable policy if one values lost lives at roughly $670,000 each or less. This value was determined by dividing the hypothetical $55.4 billion boost to the economy by the 83,000 lives lost in this scenario.
“The calls to open up the economy come with huge costs of COVID spread and only modest benefits of increased economic activity,” Thomadsen said. “Opening the economy before getting the virus under control only makes sense if you put a very low value on life.”