Economics Professor Ellora Derenoncourt discusses new center on inequality

After earning a Ph.D. in economics at Harvard, Ellora Derenoncourt joined Princeton for her postdoc in 2019, then joined the faculty at the University of California, Berkeley. This year, she joined the Princeton Department of Economics and the Industrial Relations section as an Assistant Professor of Economics. She is creating a research center within the department that will focus on economic inequality. Her research focuses on labor policy, with emphasis on the racial wealth gap and minimum wage policy.

The Daily Princetonian sat down with Professor Ellora Derenoncourt to discuss the new center on inequality, the racial wealth gap in America, and her research in labor economics.

This transcript has been edited for length and clarity.

The Daily Princetonian: We’re very excited to hear more about your work here and the new center on inequality in the economics department, but I actually wanted to start by asking you about your experience in labor organizing as an undergraduate.

Ellora Derenoncourt: I went to Harvard for my undergrad. I was there in the mid-2000s. And when I arrived on campus, I came from a relatively homogenous private school in Los Angeles. When I arrived at Harvard, I immediately sought more community, more diversity.

And one of the things I noticed right away as an undergraduate was that a lot of the people who looked like me were actually workers on campus. So I was kind of naturally drawn to going beyond student relationships and connecting with people who worked at the university, and pretty quickly got introduced and involved with some of the labor struggles that were going on on campus, which have quite a long history at Harvard. There are many different campus unions, including the security guards, the administrative staff, food service workers. And they had already gone through a pretty big struggle to make sure that workers who were hired by contractors, this kind of outsourcing phenomenon, were getting equal pay and working conditions to the workers who were directly hired by Harvard.

When I arrived, there were still many moments in time when the unions would be renegotiating their contracts and having a lot of difficulty having certain demands met by the university. And so one of the strategies was to try to garner student support, and I was part of an organization that coordinated with the unions on galvanizing students in support of workers. It was a group called Student Labor Action Movement, and it’s still one of the most important organizations for students to support workers, and now they’re supporting grad student workers, which is pretty great. So that really introduced me to a lot of the nitty-gritty of labor organizing.

Work is so much more than going to a job and getting paid. There are all these social relationships and power relationships with power dynamics between the employer, the workers, and the community could become involved in that. That was one thing that I learned through that, and it got me very interested in the process through which — to put it in kind of abstract terms — the economic gains from workers working with certain employers, how they were divided — what was the process behind that?

So my original interest in economics kind of came from that, seeing that conflict — really, a power dynamic — where it was not obvious how it was going to go, and we could really influence it. And then it was going to have material benefits for people if the organizing campaign was successful and workers could make sure their health benefits weren’t cut. That, in the end, mattered for people’s budgets and pocketbooks, all those things.

So I didn’t realize it at the time that this was economics ... Because what I saw was the majority of students who studied economics would go on to very specific jobs like consulting jobs or banking, etc. And that was never my interest. So I kind of just dismissed economics as a subject matter for me to pursue intellectually in school.

It took, really, my senior year, something really cool happened. I was still doing this labor organizing on campus and we would have various email threads and groups and stuff. And we talked about this economist who had arrived on campus, who was known for more left-wing ideas and working on social justice related topics, and we were all just like, “Who is this person?” So I looked them up, and I kind of made up, you know, some kind of excuse really, to go meet with this person because something was clearly drawing me to his work.

And I met with him, and my premise was that I was writing a model for a biology class. So I minored in molecular biology and specialized in mathematical biology there. The short story is that I liked quantitative approaches, but the questions I was interested in were questions around inequality and power in society. So I was taking models that were supposed to apply to proteins and viruses and their dynamic in the body in these repeated interactions, and applying them to workers and bosses in repeated interactions dividing a surplus. So I took this model to him and I said, “Do you have any feedback for me?”

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And he’s an economist at Columbia, Suresh Naidu, still producing really awesome work. And he said — he looked at it, he said, “Have you heard of economics? This is what we do.” And I said, “No, it’s not. Everyone who does econ, they do a certain kind of job, and I’m not interested in that.” And he said, “No, no, no. Economics is a tool kit. And you can apply it to whatever you want. And we have the best — I mean, you can argue this — the most rigorous tools in quantitative social science for answering questions. But as long as you use the tools right, people will respect you, no matter what the question is. And so you can kind of turn this around and ask questions that align with the needs of communities who are marginalized and use economics as a tool for social justice.” So that kind of blew my mind.

DP: That’s a good segue into hearing more about how you envision this new center on inequality here at Princeton and what work you hope to produce there.

ED: One of the reasons I was drawn to Princeton is that many of the people I admire most in the field are here and, you know, looking specifically at my group of labor economists. So these really important questions, they’re being worked on by people here at Princeton, whom I really admire, and I noticed that there wasn't necessarily any kind of center focused specifically on inequality within the economics department, despite there being all the people. The key ingredients are there, it’s just that there wasn’t an existing community. So I proposed trying to start something like that.

And I think the goal has two parts. One is to get us all talking to each other more and solidifying and kind of saying out loud that this is something that we all care about and that we’re working on, and how can we be a resource to each other and further our ideas? That’s one part, and that community is not just the faculty, but also graduate students and a lot of research assistants, and of course, there are the undergrads.

But then the other part of it is to really elevate that economists work on these topics, so that undergrads who may not even be considering econ, or even those who are but haven’t felt like they could really connect with the material, to know, like, you can study these questions in economics, and this is one of the most important things we can do as economists, is influence policy conversations using these tools, but with marginalized communities in the background as our main protagonists in the story. So I hope that by doing this, we can raise some of the visibility of these sorts of topics that economists work on and the way we work on it to undergrads who may not be aware.

DP: Will the center engage undergrads specifically?

ED: I [recently launched] a call for proposals for funding graduate student research on racial and ethnic disparities in the economy. And part of that funding also contains support for undergraduate research assistants. And so one of the things I'm hoping to do and to build this out over time is to actually connect undergrads, no matter what their major is, to some of the work that graduate students here are doing, which can sometimes be an easier bond to forge.

And of course, I'm going to plug my class next academic year and hope that undergrads enroll, and the course is going to focus on economic history of the U.S. from below. So really thinking about the economic history of slavery, of Jim Crow, indigenous economic history in the U.S., those kinds of things.

DP: So with your history in organizing on Harvard’s campus, I’m curious to hear if you have thoughts on labor on Princeton's campus and where there might be areas for improvement.

ED: So, I am new here. So I feel like the first thing one has to do when you enter a new community is just be all eyes and ears and try to listen to what’s going on. So I don’t know yet what the most important struggles are here, and I’m excited to learn about them and figure out how I can support.

DP: Last summer, hundreds of faculty released a long list of demands calling on the University to become anti-racist. One of those demands was to compensate faculty of color for doing invisible labor, like mentoring more students. I’m curious what you think about that idea.

ED: I think it’s so necessary. It’s so true. It’s always a tough thing because we do this — faculty of color, people from underrepresented backgrounds — in academia. It’s a labor of love to mentor others who have been shut out and are trying to find a path in it, and it’s so fulfilling to mentor those students. But, you know, we are evaluated on a certain set of things for our job security, and that’s not really one of the things. So, you know, I mentor students, not just at Princeton, but around the country because it's like, “Where are Black faculty who can mentor me?” Thinking from the perspective of some of the students who reach out to me, and they find my name, and they reach out, and I can’t turn them away. Because I was in their shoes once, where someone took a chance on me, spent time on me, invested in me, and that's really the only way that I got to where I am.

So recognizing that extra time that faculty of color, underrepresented faculty are spending does need to be institutionalized. And there are ways one could institutionalize it without maybe upsetting people as much, but just saying like, you know, “Here’s a mentorship program, and it gives you this many points that count in a very concrete way towards your service.” So I think that we should just figure out how to institutionalize that.

DP: And it may be stating the obvious, but could you talk about why it’s important to have all kinds of diversity within economics, which generally is not a very diverse field?

ED: I like to answer this kind of question in two parts. And first to say that, on the one hand, and maybe what’s most important to me, is that it’s an equity issue. Economists are well paid among academics. It’s a well-compensated field. If you get a Ph.D. in economics, you have many options in the labor market, not just in academia, but in government jobs and the public sector and the private sector. So when I think about students who are thinking like they want to do a Ph.D., they’re interested in social sciences, and they’re somehow dissuaded or feel like they're not cut out for economics. That to me is an equity issue. So those students are going to potentially go into fields where they have fewer options for jobs that are going to have lower lifetime earnings. And that’s an equity issue for me. We need to desegregate economics for that reason.

And then second, I think the other thing that a lot of people talk about is just that when you have more a diverse set of people working on questions, you expand the scope of questions being asked.

DP: What is one thing you think people misunderstand about the racial wealth gap in America?

ED: History is not always present in our minds when we’re thinking about some of these economic gaps. But I think people want to find a solution in terms of what end up being pretty marginal factors in terms of actually closing the gap. So you might hear talk of, you know, financial literacy. And it’s true when you look at things, at those kinds of statistics, you do see that Black Americans, on average, have less invested in stocks compared to the average white American, etc. So I can see how those policy ideas come up.

But I’ve recently been working on a project on specifically the racial wealth gap. But we take a very long-run view, and we realized that one of the holes in the literature was that no one had actually taken a long-run view of the racial wealth gap, going all the way back to before the Civil War, and saying “What was Black wealth at a time when 90 percent of Black Americans were enslaved and therefore legally could not accumulate wealth?” and “What was the wealth of white Americans then?” And we traced the ratio of white wealth to Black wealth over that full 160-year period.

And what comes out of it is a very striking shape. It’s super high, the gap, and then it converges quite rapidly. And then we reach this, like, slow-down period in the early-to-mid-20th century. So the gap today is six to one. On average, Black Americans have 17 cents of wealth compared to a white dollar of wealth. That’s the same as it was basically in the 1950s. So it’s like something is going on where this number isn’t changing.

And so my collaborators and I, we wrote down a really simple model, where you have one group that has a lot of wealth. One group has zero, basically. So we can say, “Let’s give them equal savings rates and equal capital gains,” meaning their wealth is appreciating each period at the same rate. So let’s just, you know, put all that out there and plug in the starting conditions — one group could have while the other couldn’t. It turns out that that shape comes directly out of a model like that.

And it’s just that because of these initial gaps that were directly a legacy of slavery, convergence is well over 100 years away. And of course, we didn’t have equal financial conditions for Black and white Americans, so it’s even slower. But what that tells us is the gap we’re living with today is the direct product of historical circumstances. So if you want to close the racial wealth gap, you have to address that initial gap. And so we talk about, “What are some of the proposals people have put out?” Well, reparations is one of those that tried to directly address this historical harm that prevented a group from participating in the economy as human beings, and we’re living with that today. If we don’t do that, then you can do all you want to the savings rates — we show that in our model, you’re not really going to speed up convergence. We’ll still have a huge wealth gap in 20 to 30 years if we don’t do something drastic.

DP: Is there any other research you’re working on that you would like to tell us about?

ED: Some of the work I do is looking at contemporary changes in wages and the low-wage labor market. Our federal minimum wage has been at $7.25 for over a decade, meaning it’s falling in real terms. And what can we do knowing with this growing awareness that the cards are stacked against workers in the economy in a lot of ways?

And so, one of my recent projects studies this phenomenon of large companies announcing wage increases, like the classic example where Amazon pays $15 an hour at a minimum. And many other large employers of low-wage workers did the same, like Walmart and Target. And so, we in this project, with some collaborators, we kind of turn back the clock because it turns out that Fight for $15, this big campaign that was spearheaded by [the Service Employees International Union] and which demanded a $15 minimum wage both nationally of state and local governments, and they would target big employers and continue to do so today. Labor advocates, worker advocates said, “Look, here’s the deal. You guys are big, famous companies. You make crazy amounts of profits. You can afford to do this, and if you lead, others will follow.”

And so that's what we were specifically interested in. And so we use the timing of these different minimum wage announcements by Amazon, Walmart, Target to see what happens to other employers of low wage workers. And lo and behold, right after these announcements, other employers start increasing their wages. Not only that, they also go to the wage that the big company announced. So we see a lot of spikes right at $15 at non-Amazon jobs right after Amazon’s announcement, and so that kind of validates that idea of like, “Oh, yeah, I guess people are kind of looking to these leaders.”

So if we kind of pay attention to what these big players are doing and try to influence their wage-setting policies, this can have much bigger effects. And just that ability to unilaterally say what I’m going to pay you is a very clear departure from neoclassical theories of the labor market. It’s encouraging because again, in this setting, targeting these big actors, pushing them, had a much bigger effect.

DP: Is there anything else you would like to say to the Princeton community?

ED: Thank you for welcoming me, and I’m so excited to get to know this community better and to connect with you. I know you’re out there. If you’re ever interested in economics, I’m going to be in touch. You know, I’m really here. I want to be a resource to students who care about people and care about inequality. And know that we’re out here trying to do work that can have a big impact on policy because economists do wield a lot of power in that area. And so it’s time to wield it for the benefit of marginalized communities, not for their detriment. And so, come find me.

Marissa Michaels is an associate news editor at the ‘Prince’ who often covers town affairs and campus events. She can be reached at marissam@princeton.edu or @mmichaels22.