Stanley Fischer: Why study economics?
Speech by Mr Stanley Fischer, Vice Chair of the Board of Governors of the Federal Reserve
System, at the Convocation for the Department of Economics, Howard University,
Washington DC, 27 September 2016.
* * *
I am very pleased to visit today with the students and faculty of the Howard University
Economics Department. First, a fact that you know but others may not: The Howard
University Economics Department is the only producer of economics Ph.D.'s among the
nation's historically black colleges and universities, and it has been teaching economics to
undergraduates for nearly a century.1
Speaking as one economist to a group among whom I hope will be many future economists,
let me start by saying that pursuing a degree in economics can bring many rewards. First, an
economics degree provides many possible career paths. The discipline's logical, structured
approach to problem solving is valued in many settings, including academia, banking,
business, consulting, government, and law. Economics majors typically receive salaries that
represent a good return on their educational investment. Second, in addition to career
prospects and financial rewards, economics offers a means of engaging in many of society's
most pressing issues. The study of economics provides a rigorous, analytic perspective on
human behavior. It commands respect and has the ability to influence policies that address
important issues. A degree in economics will help you understand and participate in these
policy debates, putting you in a good position to change the world for the better.
Next, I would like to discuss two current questions that economists are actively debating:
First, why is participation in our nation's labor force declining? And, second, what can be
done to improve economic mobility (the ability to climb the economic ladder) for children from
all groups and from all areas of the country? By doing so, I hope to illustrate the relevance of
economics to important, real-life issues.
The proportion of adults participating in the labor force - that is, either holding jobs or actively
searching for employment - has declined substantially over the past decade. The decline
has reflected, in part, the severe economic recession. Millions of people lost their jobs, and
many of them experienced great difficulty finding new employment. Some of these people
became discouraged and stopped looking for work. In other words, they dropped out of the
labor force. However, much of the decline in labor force participation reflects factors that
precede the recession.2 Most significantly, our population is aging, and older people
participate in the labor market at lower rates than younger adults. In addition, the labor force
participation of prime-age males - that is, individuals aged 25 through 54 - has been
declining since the mid-1960s, particularly among those with only a high school degree or
less education, and has continued to decline in the years since the last recession.
Economists are examining a number of reasons why prime-age males are falling out of the
labor force. Here there are differences among economists. Some economists have
emphasized the role of public assistance programs, such as disability insurance. Some
evidence suggests that public assistance income has likely played a role. Other economists
have put more emphasis on the effects of the reduction over time in the demand for lower-
skilled labor.3 Indeed, the wages of high school graduates have fallen sharply in comparison
with the wages of college graduates over the past 40 years. Many economists believe that
the decline in demand for lower-skilled workers reflects technological changes.4 For instance,
the introduction of information technology such as desktop computers may have boosted the
wages of highly skilled workers by more than the wages of workers with fewer skills. The
slump in demand for lower-skilled labor likely also reflects the effects of globalization,
including competition from goods produced and imported from abroad.5
My second current question concerns economic mobility: How likely is a child from a
lowincome family to move up to a higher income level as an adult? Over the past few years,
economists have made important findings using newly available data. First, economic
mobility varies substantially across the United States. For example, the odds of a child from
the bottom quintile of the income distribution reaching the top quintile of income as an adult
are 11 percent here in the Washington, D.C., area but only 4 percent in the Charlotte, North
Carolina, region. Second, mobility is significantly lower in areas with greater residential
segregation in terms of both race and income. Mobility is also lower in areas with greater
income inequality, less family stability, and lower-quality schools.6 However, we need further
study and analysis to understand whether these factors cause lower mobility or are merely
correlated with it. Thus, despite the gains in our knowledge in recent years, significant gaps
remain in our understanding of what factors help and hinder economic mobility.
I will conclude by discussing diversity in the economics profession. Our profession currently
is not very diverse, but it needs to be. Only about one-fourth of tenured and tenure-track
faculty members in U.S. academic economics departments are women, and only around 5
percent are African American or Hispanic. Yet research conducted by economists as well as
other social scientists suggests that a diversity of perspectives and ideas lead to better
decisions and increased productivity.7 In my own experience, economic policy decisions are
better when informed by a wide range of views and experiences. You all here today are
crucial to the future of our profession.
Indeed, I hope that by obtaining your degrees and working on economic problems, you will
help change the field of economics itself. As in many other fields, economics undergoes
continual redesign by its practitioners. We need - and by that I mean society as a whole
needs - a more diverse set of practitioners in economics, practitioners who may perceive
different questions to be important and different answers to be more persuasive. And so, by
joining the profession you can acquire the power to change not only the field, but also the
broad set of societal institutions that are influenced by the work of economists.
3
See John Bound, Stephan Lindner, and Timothy Waidmann (2014), "Reconciling Findings on the
Employment Effect of Disability Insurance ," IZA Journal of Labor Policy, vol. 3 (11), pp. 1-23. For an
opposing view that concludes that disability insurance has significantly suppressed the labor force
participation of the less skilled, see David H. Autor and Mark G. Duggan (2003), "The Rise in the Disability
Rolls and the Decline in Unemployment," Quarterly Journal of Economics, vol. 118 (February), pp. 157-205.
4
See Daron Acemoglu (2002), "Technical Change, Inequality, and the Labor Market," Journal of Economic
Literature, vol. 40 (March), pp. 7-72.
5
See David H. Autor, David Dorn, and Gordon H. Hanson (2013), "The China Syndrome: Local Labor Market
See, for example, Amanda Bayer and Cecilia Elena Rouse (forthcoming), "Diversity in the Economics
Profession: A New Attack on an Old Problem," Journal of Economic Perspectives.Effects of Import
Competition in the United States," American Economic Review, vol. 103 (October), pp. 2121-68.
6
See Raj Chetty, Nathaniel Hendren, Patrick Kline, and Emmanuel Saez (2014), "Where Is the Land of
Opportunity? The Geography of Intergenerational Mobility in the United States ," Quarterly Journal of
Economics, vol. 129 (November), pp. 1553-1623.
7
See, for example, Amanda Bayer and Cecilia Elena Rouse (forthcoming), "Diversity in the Economics
Profession: A New Attack on an Old Problem," Journal of Economic Perspectives.
Economists tend to respond to the results of research. And the research shows the
importance of diversity in decisionmaking. As a result, many organizations are working very
seriously to become more diverse. At the Federal Reserve Board, these efforts include
developing connections with the Economics Department here at Howard. Our economists
have recently served as visiting faculty at Howard or have given guest lectures here. During
the past spring semester, Board economists served as mentors to Howard master's degree
and Ph.D. students. This fall, we are offering a class on statistical programming methods
through the university. On October 25th, we will host an open house with the undergraduate
economics association here at Howard for students who are interested in learning more
about the Federal Reserve. I encourage you to attend. I would also like to make you aware
that the Board offers internships to qualified students, including Howard students studying
economics. Moreover, the Federal Reserve Board's Office of Diversity and Inclusion is
coordinating an effort to increase the diversity of our staff.8 Everyone at the Board with
responsibility for recruiting, hiring, management, and promotion is involved. But I want to
emphasize that these are steps on what will be a long road.
Finally, Board economists are also working to increase our understanding of the diverse
economic experiences of different groups in the economy. For example, staff economists
have recently been examining the disparities in wealth across families using our Survey of
Consumer Finances. Wealth is an important measure of household well-being; it can be used
to start a new business, cover expenses when household income unexpectedly falls, and
provide an inheritance to children - all factors that influence opportunities for economic
advancement. One study finds that factors such as educational attainment and inheritances
almost entirely explain the gap between the wealth of white families and that of Hispanic
families. Although these factors also explain most of the gap in wealth between white families
and black families, a substantial portion of this gap cannot be explained by such factors.9
Additional research is required to fully explain the difference in wealth across white and
African American households.
Thank you for inviting me to speak to you. It would be great to see some of you who are here
today going on to influence the direction of the country on any number of issues. To put it in
a nutshell, I firmly believe that a degree in economics will equip you for a personally
productive and rewarding career, will position you to help make progress on some of
society's toughest issues, and will change the field of economics itself.
Thank you for listening - and may you all both enjoy and succeed in your future careers,
especially in economics.