In this episode of the McKinsey Global Institute’s Forward Thinking podcast, host Michael Chui speaks with Laura Tyson, Distinguished Professor of the Graduate School at the Haas School of Business, University of California, Berkeley.
Tyson shares her journey in economics, from discovering Econ 1 in college to chairing the President’s Council of Economic Advisers. She also answers questions like:
- Are we in a “golden age” for women in economics?
- What impact has the pandemic had on gender equality?
- What can other countries learn from Germany’s apprenticeship and skills programs in preparing for the future of work?
- Why doesn’t she expect a slow recovery after the pandemic, as we experienced after the global financial crisis?
- Why aren’t predictions about the economy more accurate, like predicting the weather?
An edited transcript of this episode follows. Subscribe to the series on Apple Podcasts, Google Podcasts, Spotify, Stitcher, or wherever you get your podcasts.
Podcast transcript
Michael Chui (co-host): Hi, and welcome to Forward Thinking. I’m Michael Chui.
Anna Bernasek (co-host): And I’m Anna Bernasek.
Michael Chui: Anna, as a parent to two daughters, what do you try to tell them about the working world and their careers?
Anna Bernasek: That’s a good question, Michael. I’ve got two teenage girls, and it’s often on my mind. I don’t feel like I’ve got really good answers. I try to encourage them to learn and experience life as much as possible and really invest in developing themselves and their skills.
But regarding women in the workplace, I really don’t know what to tell them. And I also wonder about the impact of technology.
Michael Chui: Those are really important topics, and fortunately, something that today’s guest, Laura Tyson, gets into. For instance, where are jobs going from here, and what does that future mean for gender equality, diversity, and inclusion?
Anna Bernasek: And we should point out for our listeners that she’s the well-known economist who also chaired the President’s Council of Economic Advisers during the Clinton administration.
Michael Chui: Indeed, we had a great discussion covering the impacts of COVID-19 on jobs, and also what we can learn from a country like Germany about apprenticeship and the minimum wage. Let’s take a listen.
Michael Chui: Laura Tyson, welcome to the podcast.
Laura Tyson: Thank you. Michael. It’s a pleasure to be with you.
Michael Chui: Terrific. You know what? If you don’t mind, let’s start with your story. in addition to being a well-known academic and researcher, like lots of other prominent economists, you’ve also actually been in the arena as a policy maker, amongst your other duties. You chaired the President’s Council of Economic Advisers. How’d you end up where you are now?
Laura Tyson: I discovered economics in college. I wanted always to think about economics as applied to policy. I always felt that this was a tool, a discipline to address social challenges, economic challenges that I wanted to do something about. So I ended up getting a PhD in economics at MIT. There, I was able to work with a number of world-famous economists who also had, from the beginning, wanted to combine economics and policy. At MIT I found myself a pathway which led to the University of California at Berkeley, which I liked very, very much because it’s very interdisciplinary. This is a campus that allows for easy work with political scientists, sociologists, information technologists. I really liked that. It was not narrow. It was very broad.
I ended up teaching in a variety of different ways, from the most basic Econ 1 class to advanced graduate courses in analytics of economic planning. On the side, I was doing my academic research as well as doing policy research. I ended up doing things for Mario Cuomo when he was governor of New York, and even Ronald Reagan. I had a commission on competitiveness based in California. And I ended up working on that.
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I was always, politically speaking, a Democrat. But policy to me is more important than politics. So you can see, I was doing policy for both sides of the aisle. And it was really through that process that brought me to my next step. I ended up catching the attention of Harvard Business School. They have a really great course called BGIE: Business, Government, and the International Economy. It’s a required course. They wanted me to come and be a faculty member in that class. I went there.
A key part of this story is that I got to know Bob Reich and a number of people at the [Harvard] Kennedy School, right across the river. It was really through that set of connections that I ended up finding myself working for Bill Clinton. So the Bill Clinton connection came from economics, policy, Mario Cuomo, Bob Reich, Kennedy School, Harvard Business School, to the White House.
Michael Chui: That’s a remarkable story. In several points, you mentioned those who sponsored you, who created opportunities for you as well as being mentors for you. I’m curious—even going back to college, where you said your awakening to the interest in economics happened—how did that happen?
Laura Tyson: It was pretty much Econ 1! I have to say, in fact, I liked Econ 1 so much that I immediately enrolled for the next level, microeconomics and macroeconomics. And then the economics faculty member said, “Maybe you should take one before the other.” I said, “No, no. I want to take both. I want to take both.”
I went to Smith College. It’s important to say that at Smith College in my time, the late ’60s, early ’70s, economics was the second or third most popular discipline. It was not a male discipline. Because what’s a male discipline? You’re at a female institution. No one even thought of them. It was just the discipline. I didn’t think about it that way.
When I applied to MIT, MIT was so happy to find a woman. They had very few female applicants to their PhD program. I earned great scores on the GRE. I had really strong credentials to go into that program. But at MIT, every single moment when I felt like, “God, this is too hard for me. These guys in my class already have master’s degrees,” they would say, “No, no, no. You absolutely can do it. Just stick with it. It’s fine. It’s OK. You will be fine.” They were great.
Then it was the field that led me to getting my first academic job. I was then working in international and political economy. They were looking for someone in this field. I was from MIT, and I was a woman. I was, like, a three-fer. It was like, “Oh my God, we got an MIT female in the field we want. Oh my goodness.” I will say that, yes, at every moment of major transitions in my career, I have had a sponsor’s support. And it has been primarily male sponsor support.
However, I want to give you two examples where that’s not true. I had a lot of work while I was assistant professor on World Bank projects, many of which are still quoted in ResearchGate. That was a female economist named Irma Adelman, who was the chief economist at the World Bank at that time. Before they even had the title chief economist, she was it. She was a very well-known economist of her generation, and [one of] very, very few women at all.
Then, I really point out the support I received from Hillary Clinton. When President Clinton was putting together his cabinet, it mattered immensely to him. But it also mattered to his primary political and personal adviser, Hillary Clinton, that it be diverse, and that gender be significantly represented. So it really was absolutely a factor in those transitions, and very important in my lifetime.
Michael Chui: And we’re sort of at a unique moment in the profession, right? The current chief economist of the World Bank is a woman. Managing director of the IMF. You have Secretary Janet Yellen at the US Department of the Treasury. And Christine Lagarde at—
Laura Tyson: The European Central Bank. Yes. Absolutely right.
Michael Chui: But that said, the reason it’s remarkable is because it is a bit unusual. First of all, the person who has your old job, Cecilia Rouse, is a woman of color as well as chairing the Council of Economic Advisers. But there, largely, the field has been more male and pale during its history than anything else. And so how do you see the field evolving?
Laura Tyson: I tend to view the evidence as all very positive. I’ve done work on gender in my life. I’ve been involved since the beginning with the gender parity project at the World Economic Forum. I was an adviser on the gender parity project at McKinsey Global Institute, a terrific, terrific set of research, results, and analysis. I’ve seen the progress. And I’ve also seen that the progress is slow. But it’s not the pace that will close these gaps very quickly. That’s what I would say. You could say the positive is: right direction. It is occurring. It’s not reversing.
You can also say, “Yes, but there are significant gaps that remain.” And there are a number of websites and social networking sites where women in economics will complain about their treatment by their male faculty advisers, their colleagues, their peers, by the male graduate students that they are competing with for jobs. We still have a lot of things we must do to improve. Coming from academia—the Haas School, the economics department, the University of California more generally—and based on my participation on a number of corporate boards, my sense is that the commitment to diversity and inclusion is no longer just a verbal or feel-good commitment. Everybody is taking action. They are taking action. And they’re measuring their action. How are we doing in terms of diversity of the talent pool?
The McKinsey studies [The power of parity: How advancing women’s equality can add $12 trillion to global growth] and the World Economic Forum studies [Global gender gap report] show that what really matters is: what does the pipeline look like? Because we’ve made a lot of progress almost everywhere now—I’m talking about gender. We’ll get pretty good gender representation at the beginning of the pipeline. But then as you move up, the women tend to drop out. They tend to do something else. They tend to not get promoted forward. The pipeline gets narrower and narrower. There’s got to be a lot of work done on that, and a lot of organization. Now we’re looking exactly at that. Large organizations, universities, and businesses that I’ve been involved with are really working on that problem.
Michael Chui: We’ve certainly seen that globally in our MGI research as well. Laura, if I could continue that thread, you’ve said that there hasn’t been much backsliding within the field of economics. Although, if you look at the impact of the pandemic, I think some research would suggest it might have set back some of the gains that women have had in the workforce, perhaps by as much as a generation. And so I would love to get your reflections on that.
Laura Tyson: What I would say is, “Look, we always knew.” And around the world, including in the advanced industrial countries, the uneven distribution of the burden of care and the burden of child-rearing on women is a factor. It was a factor prepandemic. It was exposed, highlighted by the pandemic. Because once schools and childcare facilities and the normal way a woman would organize her life so that she could work and deal with those responsibilities were gone, many, many women chose to say, “I’m just going to have to cut back. I’m going to have to drop out. I’m going to have to deal with this other responsibility.” I hope it’s not the case that it is a setback of that amount of time. What I hope is that policy makers around the world recognize the childcare responsibilities that women shoulder disproportionately, to try to come up with social, public solutions to help that.
The good news interpretation would be that [the pandemic] becomes a prod to policy to improve things. And if you look at the Biden infrastructure plans, one of them, which is really social infrastructure and health infrastructure, it’s really also care infrastructure. So it’s noting that in order for people to be productive in the workplace, they also need to have supportive social care infrastructure.
Michael Chui: And if I might ask a naïve question: why does it matter? You can make an argument for equity. You can make an argument for equality from a moral standpoint. But from an economic standpoint, why does diversity and inclusion matter?
Laura Tyson: I think it’s a matter of human capital. It’s a matter of talent. It’s a matter of the evidence mounting over time. And again, the MGI study showed a lot of this evidence. The World Economic Forum showed a lot of this evidence. We know that there is a significant effect of the labor force participation rates of women and economic growth. We know that. When women’s labor force participation across sectors looks similar to men’s labor force distribution across the economy, there’s even higher growth. Because women’s productivity is going into the sectors of the economy where productivity returns are the highest. Simply from a growth and productivity point of view, there’s a very strong economic argument. For diversity as well, there is evidence that diversity of teams, diversity of input, diversity of perspective, diversity of education lead to better solutions and more effective solutions. And so I think you get the benefits of labor force participation growth, productivity, better decision making. Clearly, that’s all been documented. All the evidence keeps accumulating to demonstrate that.
Michael Chui: What gives you the most hope regarding diversity, inclusion, and perhaps privilege?
Laura Tyson: I would say role models and mentorship. I think in my own life—and I’ve also seen the research on this—I think about young girls because I have two granddaughters. Their notion that they can do anything, which is just a real notion, OK, it’s a real notion. My granddaughter says, “I want to be everything.” I said, “Well, you probably don’t want to be every—” “I want to be everything.” I think that’s because the messaging is coming through so clearly. And you start that at a very young age. And it’s going to lead people to creativity, to talent development, to thinking about their future in ways which they would not have been able to do before. So I’m very optimistic about role models and talent development and the messaging to diverse talent: you’re going to have a real opportunity. Go for it.
Michael Chui: If we could segue to a very related topic. You and I have had a dialogue for a while on the future of work.
Laura Tyson: Yes.
Michael Chui: I know that’s been an object of study for you in your research as well. I know that you spent some time in Germany, about a year and a half ago, for instance, to try to understand. And we have listeners in Germany, in the US, and around the world. I’d love to hear about what you learned there.
Laura Tyson: There’s a lot of thought and a lot of evidence that, for people who may not want the full four-year college experience, [they] can do apprenticeship organized training. The best of this is done by sectors. And the best of this is done by business involvement.
The German case has always had that. In Germany, the businesses [are] deeply involved in designing the curriculum. The curriculum changes over time. I was there when they were actually thinking about new kinds of accounting curriculum that would deal with digitization of accounting. So if you were going to train people for an accounting career through an apprenticeship approach as opposed to a college approach, what do you teach them? I would emphasize the importance of having the business employer engagement in the design of the curriculum. The businesses themselves provide apprenticeships for the students. Part of your study is to go work at a firm.
That has continued to be a strength of Germany. If you look at productivity numbers in Germany, you will see that they’re really quite comparable to US productivity numbers. And they have managed in manufacturing and in a couple of key sectors to really have productivity growth which is stronger than the US. The view of noted economists, including Martin Baily—another MGI economic adviser—is that the apprenticeship training approach in Germany is part of the reason why that is the case.
They also had a very serious minimum wage policy introduced in 2015. If you fast-forward, the evidence so far is it absolutely did not lead to a reduction in employment, did not lead to a reduction in growth, [it] led to a reduction in wage inequality. That’s what it led to: a reduction in wage inequality. Instead of having the minimum wage low and the productivity levels low, they basically said, “Here’s the minimum wage. This is now a federal policy.” And then the firms upped the productivity. It’s very, very interesting. It’s a real-world experiment from 2015 to today. And it worked. When we have debates in the United States about minimum wages, I always say, “Well, you might want to look at Germany. Because they had this debate. And they did it. And this is what happened.”
Michael Chui: One of the other things that people have said is, if wages go up, that creates more incentives to substitute capital for labor. And so we’ve talked about artificial intelligence. What have you learned, either in Germany or elsewhere, about how work will evolve given these technological advancements?
Laura Tyson: I do think that tax incentives matter. In Germany, in the US, in the other advanced industrial countries that I have looked at enough to be able to have an opinion, you see that taxation tends to add to the cost of labor and reduce the cost of capital. So we say, “What that will do over time is to encourage capital to substitute for labor wherever it can.” And I think that is a real consideration.
There are some people who say, “Well, if we just tax capital enough, we could discourage this technological change. And we could change the trajectory.” I personally don’t think that’s true. We have had a series of automation technologies which automate things that can be done by humans, OK. That’s the case: humans are displaced. On the other hand, new things that humans can do are created. And I tend to think the key challenges are transition challenges for those who have to move from one job to another. Training challenges either to skill for the new jobs or to upskill. Either skill at the apprenticeship level or upskill during work life.
We have to focus on that kind of transition. I’ll be a true macroeconomist here and say we have to focus on making sure there’s enough aggregate demand in the system. If not, you’re going to have all this technology creating these wonderful new things but not much demand for them, because people don’t have incomes to buy them. I do want to say that monetary and fiscal policy are important in the background here. Yes, we’ll get displacement. And I do worry about that. But we will end up with new jobs.
Over the past 30 years, if you look at all the advanced industrial countries, what you see is that there has been employment polarization. That means the middle-skill, middle-wage jobs as a share of total employment have declined. There’s been an increase in low-skill, lower-wage jobs. But there’s been a much bigger increase in upper-skill, upper-income jobs. The center has collapsed a little bit. But the top has been growing. That’s the upskill, new skill, reskill, new jobs. And that’s really great news.
Yes, we have stuff going on at the bottom. And we need to worry about that. We need to worry about what to do with those kinds of jobs. Maybe there will always be such jobs. But then the question is: what is the living wage? How do we make relatively low-skill and relatively low-wage jobs better?
Michael Chui: You described it as a positive story. It’s definitely a positive story for one side of the barbell. It’s a much more challenging story for the other side. What needs to happen?
Laura Tyson: I’m going to start with what I said happened in Germany with this. You need to actually say that there’s some wage or income security for those jobs. That’s part of it. I think there should also be, to the extent possible, career transitions.
For example, I know that Walmart has been working hard on this. They can bring in someone at a very low-level, low-wage, low-skill job. And train them in-house to move through more store management or operations management. So over time, they see a career path. They are not stuck forever in the entry level.
In the German system, it’s the apprenticeships that do that. Here’s an example. I am a woman. I go to hairdressers, OK. In Germany, hairdressing is a serious training program. They’re really good at it, by the way. The training program pays off in terms of the skills you get when you go in to get your hair done.
The guy that I ended up talking with a lot, he’d started in the simplest program. He ended up with a master’s degree. He now is developing curriculum. He’s running a salon. He’s got curriculum career development. It’s not just the basic living wage. But is there a way up, out, or through? I think that’s important.
I also think it’s really important that we have benefits associated with work. In the US we don’t have a universal healthcare system. We don’t have a universal time-off system. In Germany, there’s time off. Everybody knows they’re going to get time off. That is, part of the right of your employment is to have time off.
I think we have to think hard about what kinds of benefits to offer workers. And of course, as more and more workers become independent contractors, gig workers, that becomes even more of a challenge. Germany really is working hard on this. Europeans are working hard to try to figure this out. For work that is not a normal employment contract, the unions aren’t involved, the sector is not involved—how do we put together protections?
I think the United States may start to do that now because, almost by accident, we fell into it. During the pandemic, there was a decision to provide unemployment insurance to gig workers. Well, it wasn’t part of the system. There was no way to finance it, and yet we did it. I think there’s going to be ongoing development of: what are benefits that all workers should receive as a result of employment? And are they portable? If you carry your portable benefits from employer to employer, they should move with you as a gig worker, too.
Michael Chui: Got it. If I could pull on some of the threads that you just mentioned, I want to go back to a slightly wonky one that you’ve mentioned. For example, the dialogue going about aggregate demand. Could you unpack that for folks who aren’t necessarily as deeply immersed in the dialogue?
Laura Tyson: The concern significantly comes from the fact that the recovery from the global financial crisis, during the 2007–2009 period, was really slow. It was very slow and very painful. Employment levels only got back to pre–Great Recession highs right before the pandemic. Germany did a little better.
When people look at the slow, anemic recovery, they say, “The problem was that there wasn’t enough spending power.” Consumers did not have enough spending power. They didn’t have enough income. Investors, therefore, capital investment companies, would say, “Well, I don’t see the demand growing for my product. So I’m not going to invest a lot either.” Then you have consumption plus investment not growing at any rapid pace. So therefore, you just don’t get the demand for goods and services that lead to employment.
We have to think about funding consumption demand and funding investment demand. Monetary policy does both to some extent. The low-interest-rate environment is meant to be an environment which encourages interest-sensitive spending to occur because the interest rates are so low. We’re seeing that right now in the boom in the housing market in the United States.
Coming out of the pandemic, what’s really interesting is we had so much fiscal stimulus during the pandemic. Money just coming into households. But they did not have the normal ways to spend it. There was a lot of pent-up demand and a lot of savings. Now it’s almost like the end of a war—it’s like the end of the war on the pandemic. And [in the US] people are going out and spending. That’s why the [US] economy is, I think, in a very strong recovery period.
Michael Chui: And remarkable in some ways that in fact a lot of it was just direct fiscal transfers.
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Laura Tyson: Absolutely right. And the funny thing is, again, in the Great Recession, the Obama administration did some of that. But at that point, everybody was more, I’d say, unwilling to allow the government to run the kinds of deficits that need to occur during this kind of pandemic recession.
Deficits are not just the result of policy. They’re the result of the economy. If the economy slows down dramatically, then government revenues are going to slow down. And if government spending on things like unemployment insurance is not going to slow down, you’re going to get a deficit.
If you go back to 2009, 2010, 2011—God, there was all this discussion, “Oh, my goodness, we’re going to have a debt crisis. There’s going to be too much debt. Oh, the deficit is unsustainable. It’s going to cause capital markets to crash.” None of that was true. None of it happened. Those were theories. There was no measure.
I remember at the time, that was so frustrating. Because people would say, “If you pass the debt-to-GDP ratio of 75, somehow or other that’s going to run the risk of a capital market crash.” No, that’s just not true. That number came from nowhere, as far as I know.
The point is that that kind of theorizing led to trepidation about very dramatic fiscal infusions of stimulus. I think this time around, people were so unnerved by the ferocity and the suddenness of the pandemic that they just said, “We have to do this like a war. We’ve got to just do a major response.” And that was right. That was exactly right.
Michael Chui: And so now some people are worried about inflation. Others argue that it’s transitory. What do you think?
Laura Tyson: Well, one of the things the Council of Economic Advisers and Cecilia Rouse has to do—as I had to do [as chair]—is to never predict what the numbers are going to be. But you do have to talk about the numbers. You do have to run the underlying numbers, macro numbers, for the budget. And then you look at all the forecasts.
What you see is that, over time, economists are pretty good on output growth. They’re pretty good on predicting the direction and the magnitude of output growth. They’re decent on employment growth. They are really much weaker on inflation. And they’re impossibly bad on interest rates. Forget it. I mean, we know that some of the standard theories behind inflation, the Phillips curve theory relating wage growth to price inflation, that whole relationship has not held up. The parameters are all wrong. So we don’t know how much wage inflation leads to how much price inflation. We just need to be careful.
Michael Chui: We’ll have to come back to this at another time. But one of the things that I’m most curious about as someone who also studies models and analytics is: why hasn’t the profession gotten better at it? If you look at weather prediction, you can see these curves where our actual ability to predict gets better over time. And why isn’t economics getting better at it, I think, is a mystery I’d love to dive into.
Laura Tyson: Your point about the weather and prediction. John Maynard Keynes had many insights. And one was the importance of animal spirits. How do you predict the degree to which investors are willing to have a risk premium or are willing to forgo a risk premium altogether?
One of the things that was largely unexplained going into the global financial crisis is why there was just no evidence of any demand by investors for risk protection of any sort. Or they thought they were doing risk protection by credit default swaps which turned out to be not risk protection at all. So why? Why, why, why? I think it’s easier with the weather because the weather doesn’t involve human rationality or human irrationality or human-animal spirits. How do you model that? I leave that to you, Michael.
Michael Chui: Well, we’ll have to discuss this more. Laura Tyson, thank you for doing this.
Laura Tyson: Thank you, Michael. Pleasure to see you. Thank you.
