A Look at Yellen’s Research: Unemployment, Advertising and Out-of-Wedlock Births

Before and in-between her stints as a policy maker, Janet Yellen was an accomplished academic economist with scores of published articles to her name on a wide range of topics, some of which aren’t what the lay person might expect. Now that President Barack Obama has picked her as his nominee to lead the Federal Reserve, a sample her work provides a window into the kinds of issues that have interested her in the past:

–“What Makes Advertising Profitable?” While a staff researcher at the Federal Reserve, Ms. Yellen published a paper on the economics of advertising. Written with William Adams of the University of Michigan, the paper explores, for instance, how a firm could boost profits by targeting advertising to consumers that meet certain socio-economic criteria. The paper also warns that advertising can hurt social welfare, and raises public policy implications. “Advertising can be used to make the poor desire, and the rich disdain, what the poor ultimately consume, and to make the rich covet what the poor cannot afford,” the authors wrote in the conclusion. “The social consequences of living in such a socially stratified, conspicuous consumption society have not been accounted for in our model.”

–Ms. Yellen has done a lot of work on so-called efficiency wage theory, much of it with her husband, Nobel-prize-winning economist George Akerlof. Efficiency wage theory seeks to answer the question of why involuntary unemployment sometimes persists for long periods – that is, why the labor market doesn’t work like other markets, with wages falling when the supply of labor exceeds the demand, leaving everyone who wants a job employed but paid less. Broadly, the theory contends that firms might pay workers higher wages than the market requires, causing employees to work harder and boost their productivity. Paying higher wages also may benefit the employer by reducing turnover and training costs. While those employees also benefit, the higher wages mean fewer job seekers are hired overall, causing unemployment to persist. Former Treasury Secretary Lawrence Summers, who in September withdrew his name from consideration for the Fed chairman nomination, also helped develop the theory.

Ms. Yellen and Mr. Akerlof looked at the issue through a sociological lens, building on Mr. Akerlof’s earlier work, as described in this 1985 Wall Street Journal article.

Here’s an article on the topic by Ms. Yellen published in 1984.

–The couple turned their economic minds to social problems beyond unemployment as well. In the mid-1990s, for instance, they explored the causes for the rising rate of out-of-wedlock births in the United States. Their research led them to a theory they called “reproductive technology shock,” arguing that the increased availability of both abortion and contraception in the late 1960s and early 1970s eroded the social norms surrounding sex, pregnancy and marriage, leading to a sharp decline in the stigma of unwed motherhood. They used their findings to push back on the argument being made by some policy makers that welfare was to blame for encouraging unmarried women to have children. Welfare cuts “would have little impact on the number of out-of-wedlock children while impoverishing those already on welfare yet further,” they wrote in their 1996 scholarly paper. Here is a version the couple wrote for online magazine Slate in 1996, when Ms. Yellen was a Fed governor.

Other research into gangs led them to develop an intricate economic model of “crime and punishment” that takes into account the role of community values and the willingness of community members to cooperate with the police. They argue that finding ways to reduce a community’s willingness to tolerate crime can be more effective than harsher prison sentences and bigger police budgets. Fairness also comes into play, they said. “I would go pretty far in saying that people’s perceptions of the fairness of the justice system can have really big effects on the crime rate,” Mr. Akerlof told the Wall Street Journal in 1994. “In our model, if people think that the legal system is not fair, then (they stop cooperating with the authorities and) the crime rate is going to go way up.”