Access to credit is an important means of providing people with the opportunity to make a better life for themselves. Loans are essential for most people who want to purchase a home, start a business, pay for college, or weather a spell of unemployment. Yet many people in poor and minority communities—regardless of their creditworthiness—find credit hard to come by, making the climb out of poverty extremely difficult. How dire are the lending markets in these communities and what can be done to improve access to credit for disadvantaged groups? In Credit Markets for the Poor, editors Patrick Bolton and Howard Rosenthal and an expert team of economists, political scientists, and legal and business scholars tackle these questions with shrewd analysis and a wealth of empirical data.

Credit Markets for the Poor opens by examining what credit options are available to poor households. Economist John Caskey profiles how weak credit options force many working families into a disastrous cycle of short-term, high interest loans in order to sustain themselves between paychecks. Löic Sadoulet explores the reasons that community lending organizations, which have been so successful in developing countries, have failed in more advanced economies. He argues the obstacles that have inhibited community lending groups in industrialized countries—such as a lack of institutional credibility and the high cost of establishing lending networks—can be overcome if banks facilitate the community lending process and establish a system of repayment insurance. Credit Markets for the Poor also examines how legal institutions affect the ability of the poor to borrow. Daniela Fabbri and Mario Padula argue that well-meaning provisions making it more difficult for lenders to collect on defaulted loans are actually doing a disservice to the poor in credit markets. They find that in areas with lax legal enforcement of debt agreements, credit markets for the poor are underdeveloped because lenders are unwilling to take risks on issuing credit or will do so only at exorbitant interest rates. Timothy Bates looks at programs that facilitate small-business development and finds that they have done little to reduce poverty. He argues that subsidized business creation programs may lure inexperienced households into entrepreneurship in areas where little profitable investment is possible, hence setting them up for failure.

With clarity and insightful analysis, Credit Markets for the Poor demonstrates how weak credit markets are impeding the social and economic mobility of the needy. By detailing the many disadvantages that impoverished people face when seeking to borrow, this important new volume highlights a significant national problem and offers solutions for the future.

PATRICK BOLTON is John H. Scully ’66 Professor of Finance and professor of economics in the Bendheim Center for Finance at Princeton University.

HOWARD ROSENTHAL is Roger Williams Straus Professor of Social Sciences and professor of politics at Princeton University and visiting professor in the Department of Economics at Brown University.

CONTRIBUTORS: Raisa Bahchieva, Timothy Bates, Patrick Bolton, John P. Caskey, Daniela Fabbri, Robert Kaestner, Malgosia Madajewicz, Mario Padula, Howard Rosenthal, Loic Sadoulet, Lisa J. Servon, Robert M. Townsend, Susan M. Wachter, Antwuan Wallace, and Elizabeth Warren.

Why do consumer prices and wages adjust so slowly to changes in market conditions? The rigidity or stickiness of price setting in business is central to Keynesian economic theory and a key to understanding how monetary policy works, yet economists have made little headway in determining why it occurs. Asking About Prices offers a groundbreaking empirical approach to a puzzle for which theories abound but facts are scarce. Leading economist Alan Blinder, along with co-authors Elie Canetti, David Lebow, and Jeremy B. Rudd, interviewed a national, multi-industry sample of 200 CEOs, company heads, and other corporate price setters to test the validity of twelve prominent theories of price stickiness. Using everyday language and pertinent scenarios, the carefully designed survey asked decisionmakers how prominently these theoretical concerns entered into their own attitudes and thought processes. Do businesses tend to view the costs of changing prices as prohibitive? Do they worry that lower prices will be equated with poorer quality goods? Are firms more likely to try alternate strategies to changing prices, such as warehousing excess inventory or improving their quality of service? To what extent are prices held in place by contractual agreements, or by invisible handshakes?

Asking About Prices offers a gold mine of previously unavailable information. It affirms the widespread presence of price stickiness in American industry, and offers the only available guide to such business details as what fraction of goods are sold by fixed price contract, how often transactions involve repeat customers, and how and when firms review their prices. Some results are surprising: contrary to popular wisdom, prices do not increase more easily than they decrease, and firms do not appear to practice anticipatory pricing, even when they can foresee cost increases. Asking About Prices also offers a chapter-by-chapter review of the survey findings for each of the twelve theories of price stickiness. The authors determine which theories are most popular with actual price setters, how practices vary within different business sectors, across firms of different sizes, and so on. They also direct economists' attention toward a rationale for price stickiness that does not stem from conventional theory, namely a strong reluctance by firms to antagonize or inconvenience their customers. By illuminating how company executives actually think about price setting, Asking About Prices provides an elegant model of a valuable new approach to conducting economic research.

ALAN S. BLINDER is Gordon S. Rentschler Memorial Professor of Economics at Princeton University, where he has taught since 1971. He also founded and directs Princeton’s Center for Economic Policy Studies. He has served as vice chairman of the Board of Governors of the Federal Reserve System and as a member of the president’s Council of Economic Advisers.

ELIE R. D. CANETTI is an economist for the International Monetary Fund. He previously worked at the World Bank and the United States Treasury.

DAVID E. LEBOW is an economist at the Board of Governors of the Federal Reserve System.

JEREMY B. RUDD is senior economist at the Council of Economic Advisers, Washington, D.C.

One in four American adults doesn’t have a bank account. Low-income families lack access to many of the basic financial services middle-class families take for granted and are particularly susceptible to financial emergencies, unemployment, loss of a home, and uninsured medical problems. Insufficient Funds explores how institutional constraints and individual decisions combine to produce this striking disparity and recommends policies to help alleviate the problem.

Mainstream financial services are both less available and more expensive for low-income households. High fees, minimum-balance policies, and the relative scarcity of banks in poor neighborhoods are key factors. Michael Barr reports the results of an in-depth study of financial behavior in 1,000 low- and moderate-income families in metropolitan Detroit. He finds that most poor households have bank accounts, but combine use of mainstream services with alternative options such as money orders, pawnshops, and payday lenders. Barr suggests that a tax credit for banks serving primarily disadvantaged customers could facilitate greater equality in the private financial sector.

Drawing on evidence from behavioral economics, Sendhil Mullainathan and Eldar Shafir show that low-income individuals exhibit many of the same patterns and weaknesses in financial decision making as middle-class individuals and could benefit from many of the same financial aids. They argue that savings programs that automatically enroll participants and require them to actively opt out in order to leave the program could drastically increase savings ability. Ronald Mann demonstrates that significant changes in the credit market over the past fifteen years have allowed companies to expand credit to a larger share of low-income families. Mann calls for regulations on credit card companies that would require greater disclosure of actual interest rates and fees. Raphael Bostic and Kwan Lee find that while home ownership has risen dramatically over the past twenty years, elevated risks for low-income families—such as foreclosure—may well outweigh the benefits of owning a home.

The authors ultimately argue that if we want to demand financial responsibility from low-income households, we have an obligation to assure that these families have access to the banking, credit, and savings institutions that are readily available to higher-income families. Insufficient Funds highlights where and how access is blocked and shows how government policy and individual decisions could combine to eliminate many of these barriers in the future.

REBECCA M. BLANK is the Robert S. Kerr Senior Fellow at the Brookings Institution.

MICHAEL S. BARR is professor of law at the University of Michigan Law School.

CONTRIBUTORS: Raphael W. Bostic, Daryl Collins, Kwan Ok Lee, Ronald J. Mann, Jonathan Morduch, Sendhil Mullainathan, Una Okonkwo Osili, Anna L. Paulson, Daniel Schneider, John Karl Scholz, Ananth Seshadri, Eldar Shafir, Michael Sherraden, Peter Tufano.

A Volume in the National Poverty Center Series on Poverty and Public Policy

A large central government providing numerous public services has long been a hallmark of Swedish society, which is also well-known for its pursuit of equality. Yet in the 1990s, Sweden moved away from this tradition in education, introducing market-oriented reforms that decentralized authority over public schools and encouraged competition between private and public schools. Many wondered if this approach would improve educational quality, or if it might expand inequality that Sweden has fought so hard to hold down. In The Market Comes to Education in Sweden, economists Anders Björklund, Melissa Clark, Per-Anders Edin, Peter Fredriksson, and Alan Krueger measure the impact of Sweden's bold experiment in governing and help answer the questions that societies across the globe have been debating as they try to improve their children's education.

The Market Comes to Education in Sweden injects some much-needed objectivity into the heavily politicized debate about the effectiveness of educational reform. While advocates for reform herald the effectiveness of competition in improving outcomes, others suggest that the reforms will grossly increase educational inequality for young people. The authors find that increased competition did help improve students' math and language skills, but only slightly, and with no effect on the performance of foreign-born students and those with low-educated parents. They also find some signs of increasing school segregation and wider inequality in student performance, but nothing near the doomsday scenarios many feared. In fact, the authors note that the relationship between family background and school performance has hardly budged since before the reforms were enacted. The authors conclude by providing valuable recommendations for school reform, such as strengthening school evaluation criteria, which are essential for parents, students, and governments to make competent decisions regarding education.

Whether or not the market-oriented reforms to Sweden's educational system succeed will have far reaching implications for other countries considering the same course of action. The Market Comes to Education in Sweden offers firm empirical answers to the questions raised by school reform and brings crucial facts to the debate over the future of schooling in countries across the world.

ANDERS BJÖRKLAND is professor of economics in the Swedish Institute for Social Research at Stockholm University.

MELISSA A. CLARK is Visiting Lecturer at Mathematica Policy Research, Inc. and teaches masters and doctoral students in the Woodrow Wilson School of Public and International Affairs at Princeton University.

PER-ANDERS EDIN is professor in the Department of Economics at Uppsala University.

PETER FREDRIKSSON is associate professor in the Department of Economics at Uppsala University.

ALAN B. KRUEGER is Bendheim Professor of Economics and Public Policy in the Economics Department and Woodrow Wilson School at Princeton University.

Winner of the 2001 Richard A. Lester prize for Outstanding Book in Labor Economics and Industrial Relations from Princeton University

Winner of the Cornell Center for the Study of Inequality Distinguished Book Award

The promise of upward mobility—the notion that everyone has the chance to get ahead—is one of this country's most cherished ideals, a hallmark of the American Dream. But in today's volatile labor market, the tradition of upward mobility for all may be a thing of the past. In a competitive world of deregulated markets and demanding shareholders, many firms that once offered the opportunity for advancement to workers have remade themselves as leaner enterprises with more flexible work forces. Divergent Paths examines the prospects for upward mobility of workers in this changed economic landscape. Based on an innovative comparison of the fortunes of two generations of young, white men over the course of their careers, Divergent Paths documents the divide between the upwardly mobile and the growing numbers of workers caught in the low-wage trap.

The first generation entered the labor market in the late 1960s, a time of prosperity and stability in the U.S. labor market, while the second generation started work in the early 1980s, just as the new labor market was being born amid recession, deregulation, and the weakening of organized labor. Tracking both sets of workers over time, the authors show that the new labor market is more volatile and less forgiving than the labor market of the 1960s and 1970s. Jobs are less stable, and the penalties for failing to find a steady employer are more severe for most workers. At the top of the job pyramid, the new nomads—highly credentialed, well-connected workers—regard each short-term project as a springboard to a better-paying position, while at the bottom, a growing number of retail workers, data entry clerks, and telemarketers, are consigned to a succession of low-paying, dead-end jobs.

While many commentators dismiss public anxieties about job insecurity as overblown, Divergent Paths carefully documents hidden trends in today's job market which confirm many of the public's fears. Despite the celebrated job market of recent years, the authors show that the old labor market of the 1960s and 1970s propelled more workers up the earnings ladder than does today's labor market. Divergent Paths concludes with a discussion of policy strategies, such as regional partnerships linking corporate, union, government, and community resources, which may help repair the career paths that once made upward mobility a realistic ambition for all American workers.

ANNETTE BERNHARDT is Senior Research Associate at the Center on Wisconsin Strategy, University of Wisconsin, Madison.

MARTINA MORRIS is the Blumstein-Jordan Professor of Sociology and Statistics at the University of Washington, Seattle.

MARK S. HANDCOCK is Professor of Statistics and Sociology in the Center for Statistics and the Social Sciences at the University of Washington, Seattle.

MARC A. SCOTT is Assistant Professor of Educational Statistics at the School of Education, New York University.

During the 1970s, a nationwide school finance reform movement—fueled by litigation challenging the constitutionality of state education funding laws—brought significant changes to the way many states finance their public elementary and secondary school systems. School finance reform poses difficult philosophical questions: what is the meaning of equality in educational opportunity and of equity in the distribution of tax burdens? But it also involves enormous financial complexity (for example, dividing resources among competing special programs) and political risk (such as balancing local control with the need for statewide parity).

For those states (like New York) that were slow to make changes a new decade has brought new constraints and complications. Sluggish economic growth, taxpayer revolts, reductions in federal aid, all affect education revenues. And the current concern with educational excellence may obscure the needs of the poor and educationally disadvantaged.

This book will provide New York’s policy makers and other concerned specialists with a better understanding of the political, economic, and equity issues underlying the school finance reform debate. It details existing inequities, evaluates current financing formulas, and presents options for change. Most important, for all those concerned with education and public policy in New York and elsewhere, it offers a masterful assessment of the trade-offs involved in developing reform programs that balance the conflicting demands of resource equalization, political feasibility, and fiscal responsibility.

"Synthesizes the political and fiscal research [on school finance reform] and applies it to the New York Context....A blueprint for how to redesign state school finance....A fine book." —Public Administration Review

"This is a book that lucidly discusses the issues in school finance and provides valuable reference material." —American Political Science Review

The late JOEL S. BERKE was director of the Education Policy Research Institute of Educational Testing
Service.

MARGARET E. GOERTZ is policy research scientist at Educational Testing Service.

RICHARD COLEY is research associate at Educational Testing Service.

The gap between the richest and poorest Americans has grown steadily over the last thirty years, and economic inequality is on the rise in many other industrialized democracies as well. But the magnitude and pace of the increase differs dramatically across nations. A country’s political system and its institutions play a critical role in determining levels of inequality in a society. Democracy, Inequality, and Representation argues that the reverse is also true—inequality itself shapes political systems and institutions in powerful and often overlooked ways.

In Democracy, Inequality, and Representation, distinguished political scientists and economists use a set of international databases to examine the political causes and consequences of income inequality. The volume opens with an examination of how differing systems of political representation contribute to cross-national variations in levels of inequality. Torben Iverson and David Soskice calculate that taxes and income transfers help reduce the poverty rate in Sweden by over 80 percent, while the comparable figure for the United States is only 13 percent. Noting that traditional economic models fail to account for this striking discrepancy, the authors show how variations in electoral systems lead to very different outcomes.

But political causes of disparity are only one part of the equation. The contributors also examine how inequality shapes the democratic process. Pablo Beramendi and Christopher Anderson show how disparity mutes political voices: at the individual level, citizens with the lowest incomes are the least likely to vote, while high levels of inequality in a society result in diminished electoral participation overall. Thomas Cusack, Iverson, and Philipp Rehm demonstrate that uncertainty in the economy changes voters’ attitudes; the mere risk of losing one’s job generates increased popular demand for income support policies almost as much as actual unemployment does. Ronald Rogowski and Duncan McRae illustrate how changes in levels of inequality can drive reforms in political institutions themselves. Increased demand for female labor participation during World War II led to greater equality between men and women, which in turn encouraged many European countries to extend voting rights to women for the first time.

The contributors to this important new volume skillfully disentangle a series of complex relationships between economics and politics to show how inequality both shapes and is shaped by policy. Democracy, Inequality, and Representation provides deeply nuanced insight into why some democracies are able to curtail inequality—while others continue to witness a division that grows ever deeper.

PABLO BERAMENDI is assistant professor of political science at Duke University.

CHRISTOPHER J. ANDERSON is professor of government at Cornell University.

CONTRIBUTORS: Christopher J. Anderson, Pablo Beramendi, Andrea Brandolini, Thomas R. Cusack, Robert J. Franzese Jr., Jude C. Hays, Torben Iversen, Duncan C. McRae, Jonas Pontusson, Philipp Rehm, Ronald Rogowski, David Rueda, Lyle Scruggs, Timothy M. Smeeding, and David Soskice.

Globalization, technological change, and deregulation have made the American marketplace increasingly competitive in recent decades, but for many workers this “new economy” has entailed heightened job insecurity, lower wages, and scarcer benefits. As the job market has grown more volatile, a variety of labor market intermediaries—organizations that help job seekers find employment—have sprung up, from private temporary agencies to government “One-Stop Career Centers.” In Staircases or Treadmills? Chris Benner, Laura Leete, and Manuel Pastor investigate what approaches are most effective in helping workers to secure jobs with decent wages and benefits, and they provide specific policy recommendations for how job-matching organizations can better serve disadvantaged workers.

Staircases or Treadmills? is the first comprehensive study documenting the prevalence of all types of labor market intermediaries and investigating how these intermediaries affect workers’ employment opportunities. Benner, Leete, and Pastor draw on years of research in two distinct regional labor markets—“old economy” Milwaukee and “new economy” Silicon Valley—including a first-of-its-kind random survey of the prevalence and impacts of intermediaries, and a wide range of interviews with intermediary agencies’ staff and clients. One of the main obstacles that disadvantaged workers face is that social networks of families and friends are less effective in connecting job-seekers to stable, quality employment. Intermediaries often serve as a substitute method for finding a job.  Which substitute is chosen, however, matters: The authors find that the most effective organizations—including many unions, community colleges, and local non-profits—actively foster contacts between workers and employers, tend to make long-term investments in training for career development, and seek to transform as well as satisfy market demands. But without effective social networks to help workers locate the best intermediaries, most rely on private temporary agencies and other organizations that offer fewer services and, statistical analysis shows, often channel their participants into jobs with low wages and few benefits. Staircases or Treadmills? suggests that, to become more effective, intermediary organizations of all types need to focus more on training workers, teaching networking skills, and fostering contact between workers and employers in the same industries.

A generation ago, rising living standards were broadly distributed and coupled with relatively secure employment. Today, many Americans fear that heightened job insecurity is overshadowing the benefits of dynamic economic growth. Staircases or Treadmills? is a stimulating guide to how private and public job-matching institutions can empower disadvantaged workers to share in economic progress.

CHRIS BENNER is assistant professor of urban and economic geography at Pennsylvania State University.

LAURA LEETE is the Fred H. Paulus Director of Public Policy Research and associate professor of economics and public policy at Willamette University.

MANUEL PASTOR is a professor of geography and American Studies and ethnicity at the University of Southern California.

Over the past eight years, a marked shift in the national political mood has substantially reduced the federal government's involvement in ameliorating urban problems and enhanced the prominence of state and local governments in the domestic policy arena. Many states and big cities have been forced to reassess their traditionally vexed relationships.

Nowhere has this drama been played out more stormily than in New York. In The Two New Yorks, experts from government, the academy, and the non-profit sector examine aspects of an interaction that has a major impact on the performance of state and city institutions. The analyses presented here explore current state-city strategies for handling such troubling policy areas as education, health care, and housing. Attention is also given to important contextual factors such as economic and demographic trends, and to structural features such as the political framework, relationships with the national government, and the system of public finance.

Despite its uniquely large scope, the drama of the new New Yorks parallels or presages issues faced by virtually all large cities and their states. This unprecedented study makes a vital contribution in an era of declining federal aid and pressing urban need.

GERALD BENJAMIN is at SUNY New Paltz.

CHARLES BRECHER is at New York University.

CONTRIBUTORS: Richard D. Alba, Mary Jo Bane, Gerald Benjamin, Robert Berne, Susan Blamk, Barbara B. Blum, Matthew Drennan, Barbara Gordon Espejo, Ester Fuchs, Cynthia B. Green, James M. Hartman, Raymond D. Horton, Sarah F. Liebschutz, David Lewin, Irene Lurie, Paul D. Moore, James C. Musselwhite Jr., Martin Shefter, Kenneth E. Thorpe, Emanuel Tobier, Katherine Trent,