But harm is done to U.S. workers, too, before temporary “guest” workers are ever brought to the U.S.  The businesses that could and should be recruiting and hiring workers here in the U.S. at decent wages are shunning them to hire more exploitable, more desperate foreigners. The law and regulations that govern guestworker programs, most notably the H-2B non-immigrant visa program, are ignored or circumvented, leaving U.S. workers jobless while people from thousands of miles away do jobs the local workers are able and willing to do.

The law and regulations forbid the admission of any H-2B guestworker to the U.S. unless the employer attests that U.S workers capable of performing the job are not available and that the employment of foreign workers will not adversely affect the wages and working conditions of similarly employed U.S. workers. The Department of Labor and the various State Workforce Agencies are charged with verifying that the jobs of U.S. workers are protected, but they have failed to do so.

In 2009 and 2010, Sen. Jeff Merkley (D-OR) and Rep. Peter DeFazio (D-OR) learned that millions of dollars of Recovery Act funds were being used to hire foreign H-2B guestworkers to cut and process trees in Oregon while thousands of Oregon’s local forest workers were unemployed and looking for jobs. Both taxpayers and local workers were taken advantage of by unscrupulous employers who didn’t care at all that the vital purpose of the Recovery Act was to put Americans back to work.

The Office of Inspector General investigated the recruitment and hiring practices of the forestry companies involved and found (PDF) that they turned away more than 100 U.S. workers before hiring a workforce made up entirely of H-2Bs (who, it should be noted, could be paid less-than the average wage for a comparable U.S. worker). The companies reported hiring 29 U.S. workers, but never did, while concocting a laundry list of reasons for refusing the others. The OIG concluded that the DOL and state agencies were unable to protect U.S. workers.

New DOL H-2B regulations that would have better protected the interests of the local workforce have been blocked by Congress and are tied up in federal court, so the scandal of replacing U.S. workers with H-2B guestworkers continues. But Sen. Merkley is trying to do something about it.

The Senate Gang of 8 has decided to open the floodgates to temporary foreign workers, expanding the H-2B program, tripling the size of the H-1B skilled worker program, and creating another low-skilled visa that will admit three times as many guestworkers as the current H-2B visa. Sen. Merkley has introduced an amendment to the immigration reform bill that will require genuine recruitment of local workers before guestworkers are admitted to take local forestry jobs. His amendment requires DOL to verify that the companies are giving U.S. workers a fair chance and requires state agencies to sign off before foreign workers are hired. These rules should be applied to every U.S. industry that uses the H-2B program, but I applaud Sen. Merkley’s efforts to ensure that at least in one part of the United States, in one industry, the rule of law will be that U.S. workers have a fair opportunity to find good jobs before they are given away to temporary foreign workers.

• A New Guide for Understanding Our Inequality (Inequality.org)
• Fight the Future (New York Times)
• Housing discrimination persists in U.S. in more subtle ways, HUD report says (Washington Post)
• It’s Not a Housing Boom. It’s a Land Grab (Color Lines)
• No More Captive Workers (Roll Call)
• Young, black and buried in debt: How for-profit colleges prey on African-American ambition (Salon)

I agree with him that lots of NDD spending is good—it includes the general business of running the non-defense portions of the government as well as programs like Head Start, and it also includes a substantial chunk of public investment financed by the federal government. So yes, let’s preserve this.

But this claimed tension between spending on Social Security and Medicare versus NDD spending is plain false. We recently looked at various competing budget proposals to see what their implications were for NDD spending and public investment at the end of the budget window. Paul Ryan’s budget, which takes a chainsaw to the social insurance programs also saw the biggest squeeze on NDD spending and public investment. President Obama’s budget, which included damaging cuts to Social Security and was couched in the language of protecting public investment, still saw NDD and public investment spending reach historic lows by the end of the budget window. The Congressional Progressive Caucus Back to Work budget had no cuts to social insurance and yet had substantially higher NDD spending and public investment than all other plans. 

The reason why Hiatt and other centrist proponents of gutting social insurance continue to push this even in the face of evidence showing that these cuts will not translate into more of the good spending they approve of seems pretty clear in other parts of his op-ed: they simply think too much is spent on older Americans. Take this quote from this piece:

“The guts of these programs [Social Security and Medicare] have to be preserved, as liberals rightly argue…  But while federal programs aimed at the young and the poor — and at investments in the future — are slated to dwindle, the entitlement programs are on track to give ever richer benefits to a growing older generation, some of whom don’t need all that much help.”

Well, sure, for some definitions of “some.” But this is clearly just the “greedy geezer” argument with some rough edges sanded off, and it’s nonsense. Social Security and Medicare do a good job of keeping the vast majority of seniors just out of poverty, but the idea that there’s huge savings to be made by only clawing back some benefits from the genuinely rich is false.

The economic content of Hiatt’s argument is just as bad. He writes that:

 ”Social Security, for example, is designed not just to provide a floor for all seniors but to give each succeeding generation more generous benefits than the one before. That’s a nice idea but one the country can no longer afford, at least not without robbing the future”

Really? Why are we so sure that “the country” can’t afford Social Security’s scheduled benefits? Take a look at this chart – the black line shows the share of the country’s economy that is scheduled to be devoted to Social Security benefits in the very long run. Not sure what looks so obviously unaffordable about this.

Look, our country is very rich and unless we let climate change ruin the future it will just get richer and richer going forward. “We” can afford our social insurance programs, so long as the “we” being tapped includes those at the very top who have seen the vast majority of income-gains in the past generation.

These trends are important—they provide point-in-time information and benchmark states’ progress getting back on track since the start of the Great Recession in 2007. Our monthly analyses track trends over the previous three months, six months and year. Many of our EARN state partners produce reports that drill down deeper in their respective state labor markets.

It’s important, though, to step back and look at these recent trends in the context of job loss during the Great Recession and population growth since the beginning of the recession.

This lens on state economies tells a very different, though equally important, story about what is happening in the labor market at the state level. We see, for instance, that despite the fact that Texas has led job creation, with 326,000 jobs gained between April 2012 and April 2013, it continues to have a jobs deficit of nearly 600,000 jobs. In other words, in order for Texas to return to pre-recession employment rates, the state would need to create another 594,100 jobs.

The national jobs deficit currently stands at 8.5 million jobs. That number includes the 2.4 million jobs lost since the beginning of the recession, and another 6.1 million jobs needed to return the nation to pre-recession employment rates.

As seen in Figure A, the only state to have gained back all the jobs lost during the Great Recession and to have created enough jobs to keep up with population growth is oil-rich North Dakota.

So, yes, celebrate the creation of jobs in states that are making progress, but do so in the context of the bigger picture, which unfortunately continues to show that there’s still “a lot of pain in the pipeline.” At the rate of job growth nationwide over the previous twelve-month period, we would still have a jobs deficit of 4.6 million jobs in May 2016.

But two influences she identifies as probable suspects in driving this increase don’t really fit the data: a rising college wage premium and the decision of young people to “shelter” in college while the recession-damaged labor market remains weak. We’ve examined both of these in the past, and, the college wage premium has actually been flat for over a decade and there didn’t really seem to be much sheltering during or after the Great Recession.

Given this, the real reasons for increased college completion seem like open, and important, questions.

Policymakers have lately taken more of an interest in curbing income inequality growth, and to that end, it is critical to understand the impact and scope of tax policy. Changes in tax and transfer policies are one of the more easily quantifiable contributors to income inequality, say compared with policies (or lack thereof) related to labor protections, collective bargaining, minimum wage erosion and trade.

While both tax and transfer policies can influence inequality growth, tax policy is particularly policy relevant. Tax policy can more easily be fitted to the upwardly skewed income distribution than transfer policy, and there is vastly more market-based income than transfer income at the top of the scale, so doing so would further advance Congress’s prioritization of deficit reduction. Additionally, changes in tax policy can be implemented faster than changes in many transfer benefits, as politicians are reluctant to change retirement benefits for those approaching retirement.

Most importantly, new economic research suggests that changes in tax policy over recent decades—particularly reductions in top marginal tax rates—have exacerbated market-based income inequality growth. This is critical because the shift in market-based incomes, particularly capital income’s rise as a share of total income, is driving income inequality growth. Tax policy changes have exacerbated post-tax, post-transfer income inequality by less than one might reasonably suspect, and there are practical limits to how much increased redistribution can push back against strong market trends (though we should be pushing harder). Meaningfully curbing income inequality growth necessitates reducing the market income share accumulating to upper-income households, and higher top marginal tax rates may be one of the more concrete policy levers to advance that end, as I explain in a new briefing paper.

Market-based income inequality, as measured by the “Gini” index, rose 23.1 percent between 1979 and 2007, while dampened post-tax, post-transfer income inequality rose 33.2 percent.¹ That’s because the federal tax and transfer system reduced the Gini index of income inequality by only 17.1 percent in 2007, down from a 23.4 percent reduction in in 1979. Roughly three-tenths of the percentage rise in post-tax, post-transfer inequality is attributable to changes in the redistributive nature of tax and budget policy since 1979.

But the declining redistributive nature federal tax system, however, is only responsible for a 3.6 percent increase in overall post-tax, post-transfer inequality between 1979 and 2007, again measured by the Gini index. This may seem surprisingly low given the sharp decline in top tax rates on labor and investment income over this period, among other tax policy changes. But the progressive income tax also exerts a countervailing effect on after-tax inequality as incomes—particularly at the top of the income distribution—rise faster than the inflation adjustments to tax brackets, the phenomenon referred to as “bracket creep.”

Yet recent research by Piketty, Saez, and Stantcheva (pdf) suggests that the post-World War II reduction in top marginal income tax rates has encouraged “rent seeking” behavior by executives and managers to bargain a higher share of total income, without changing the overall size of the pie being divided up. Essentially, a lower top tax rate increases the rate of return to efforts demanding greater compensation from boards of directors, and successful efforts will come out of workers’ paychecks, not shareholders’ portfolios. Time series regression analysis for the United States as well as cross-country comparisons suggest that a substantial portion of the net behavioral response to top tax rate cuts reflects this zero-sum, nonproductive shift of income from nonsupervisory workers to managers and executives. Research by my colleagues Larry Mishel and Natalie Sabadish regarding U.S. executives’ compensation in relation to workers’ average compensation similarly suggests that staggering increases in executive compensation, particularly in the financial sector, has fueled rising income inequality.

This “rent seeking” model suggests raising top marginal tax rates could yield large reductions in market-based income inequality growth without substantially reducing productive economic activity.

Moreover, economic research shows that there is already considerable scope to raise top tax rates without unduly burdening growth (but with big revenue gains) irrespective of these bargaining dynamics. Best estimates of behavioral responses to taxation (pdf) peg the revenue-maximizing tax rate at 73 percent (across federal, state, and local governments). But if this zero-sum “rent seeking” by executives constitutes a good chunk of the overall behavioral effect, Piketty, Saez, and Stantcheva estimate the revenue-maximizing top rate could be as high as 83 percent.

The bottom line for policymakers: Raising top tax rates could yield large results in slowing income inequality growth without unduly hampering economic growth. This is just one more piece of evidence suggesting that Washington’s dominant framework for tax reform is divorced from economic research and needs serious reevaluation.

1. The Gini index is a commonly used measure of inequality that quantifies the dispersion of income between 0 (perfectly equitable income distribution) and 1 (perfectly inequitable income distribution).

Jennifer Rosenbaum of the National Guestworker Alliance in New Orleans has a great op-ed in Roll Call that explains:

“The current Senate bill would provide one small category of guestworkers — those on the proposed W visa — whistle-blower protections and the ability to change employers without losing legal status. But the bill risks leaving hundreds of thousands of guestworkers subject to captive labor. And lobbyists are pushing to make sure that there are as many of those guestworkers as possible.”

One specific visa category where this is reportedly occurring is the J-1 “Exchange Visitor” visa. The J-1 visa, which has 16 subcategories and is managed by the State Department, is intended to facilitate cultural and educational exchanges for the more than 300,000 participants in the program every year. As EPI has shown in the past, the J-1 visa has morphed from a cultural exchange program into the largest guestworker program in the country. The Summer Work Travel, Intern, Trainee and Au Pair categories of the J-1 visa combined admit about 150,000 full-time workers every year. That’s bigger than the U.S.’s two main guestworker programs for less-educated temporary foreign workers, the H-2A and H-2B visa programs, combined, and bigger than the H-1B visa for educated workers. J-1 workers can be found working almost everywhere: in agriculture, in hotels or private homes, drug stores, amusement parks, at fast-food restaurants, summer camps, and until last year, in factories and fisheries.

Employers of J-1 workers and the State Department-approved labor recruitment firms (known as “sponsor” agencies) that connect exchange visitors with employers are arguing to keep the J-1 program unregulated and J-1 workers exempt from worker and human trafficking protections in the Senate bill. The substance of their main arguments are: (1) J-1 workers are not “workers,” they are exchange visitor “participants,” who benefit so much from getting to work in the United States and from meeting Americans that they don’t need the same legal protections against being held in debt bondage or subjected to employer and sponsor retaliation; and (2) employers are experiencing acute labor shortages and are so broke that they will go out of business if they, rather than the J-1 minimum wage workers, have to pay sponsor agencies thousands of dollars in “program” fees. (I’ll address the second point in detail in my next blog post).

The Senate bill does not radically reform or eliminate the J-1 program, or turn its management over to the Department of Labor as many believe it should in light of recent scandals. Instead, the current version of the proposed law would simply protect those J-1 exchange visitors who are recruited for jobs in the United States from being charged exorbitant fees by the sponsors and employers. They already wield enormous power over the workers by virtue of controlling their immigration status. The result of that relationship and the imposition of heavy fees on the J-1 workers can result in debt bondage, which of course, falls under the legal definition of human trafficking.

Few observers dispute that some valuable cultural exchanges occur thanks to the J-1 program, but no one can deny that serious abuses of J-1 workers have occurred at the hands of employers, sponsors, and the foreign labor recruiters they partner with. These abuses have been perpetrated even by large corporations that are household names around the world. For example, at a Hershey’s plant in Pennsylvania, J-1 workers “found themselves packing chocolates for Hershey’s under brutal conditions, living in squalid, overpriced housing and facing threats of retaliatory firing and deportation from recruiters and supervisors.” At a number of McDonald’s restaurants in Pennsylvania, J-1 workers also “faced brutal work conditions—including shifts of up to 25 hours straight with no overtime pay—as well as wage theft, inadequate housing and threats of deportation when they raised concerns.”

Employers and sponsors who urge Congress to ignore the fact that exchange visitors are full time workers and maintain the status quo in the immigration system—thus allowing abuse, exploitation, and human trafficking of young students from around the world to continue—are going too far.

Additional EPI research and commentary on the J-1 Exchange Visitor Program:

• Guestworker Diplomacy
• Hershey Co. strike highlights abuses in the J-1 program
• Feds correct to ban Alaska fish processing jobs from J-1 visa program
• State Department does the right thing, kicks abusive labor recruiter out of student visa program
• The J-1 and H-2B guestworker programs hurt young people’s employment prospects

The judge, following a ruling made 15 years ago by then district court judge Sonia Sotomayor¹, upheld and applied the Department of Labor’s six-part test for determining whether an internship is employment covered by the Fair Labor Standards Act or is, instead, training or education that can illegally go unpaid.

Congratulations are due to Eric Glatt, the lead plaintiff, who has become a leading activist in the fight against the deregulation of wages and the spread of unpaid labor. And congratulations, too, to the law firm of Outten and Golden, which represents Eric Glatt and plaintiffs in several cases that challenge the new sense of entitlement employers have to ignore the law and treat employees like serfs. Increasingly, trial lawyers are on the front lines of the fight to protect the dignity of work and the rights of labor. As state and federal agency budgets are cut the role of trial lawyers is growing in importance.

Judge William H. Pauley III had little trouble cutting through the muck of the defendant’s argument that really, the arrangement was voluntary and for the benefit of the unpaid workers rather than the corporation. The fact that Fox Searchlight cut its paid staff as it ramped up its hiring of interns was, by itself, proof that the relationship was illegal. But Judge Pauley also easily disposed of the most frequently heard argument in favor of letting employers off the hook for wages—the claim that the arrangement was for the benefit of the “interns” because they got experience and references for their resumes:

“Undoubtedly, Glatt and Footman received some benefits from their internships, such as resume listings, job references and an understanding of how a production office works.But those benefits were incidental to working in the office like any other employee and were not the result of internships intentionally structured to benefit them. Resume listings and job references result from any work relationship, paid or unpaid, and are not the academic or vocational training benefits envisioned by this factor. On the other hand, Searchlight received the benefits of their unpaid work, which otherwise would have required paid employees. Even under Defendants’ preferred test, the Defendants were the “primary beneficiaries” of the relationship, not Glatt and Footman.”

This decision could be a turning point in the battle to prevent the erosion of labor standards in the United States. Truly, nothing is more fundamental than the requirement that employers pay a fair wage for an honest day of work, but this 75-year old law is being chipped away at by corporations, along with colleges and universities that benefit from up to a million unpaid internships a year.

These unpaid internships are a drag on the economy, as students already burdened with student loan debt are forced to cut back their consumption of goods and services. The rise of unpaid work is lowering expectations for young workers, and it has infected the adult, non-student labor market as well, as the Fox Searchlight case demonstrates. Eric Glatt is a forty-something, not a twenty-something.

Endnotes

1. Archie v. Grand Cent. P’ship, 997 F. Supp. 504, 532 (S.D.N.Y. 1998).

At a time when the real value of the minimum wage is well below the levels of the 1960’s (making entry-level workers quite affordable), when the weak labor market is forcing college graduates in record numbers to take jobs that don’t require a college degree and entry level wages for college grads are already substantially below the levels of 10 years ago, the exploitation involved in not paying employees anything at all is shameful and economically dangerous.

It’s dangerous because the main obstacle to a healthy recovery from the Great Recession is weak consumer demand, and unpaid internships hurt consumer demand in two ways. First, they leave interns without any wage income, reducing their ability to purchase the products and services supplied by businesses. Second, they lower expectations and reduce wage demands by employees who do have paying jobs.

Nevertheless, employers from coast to coast think that simply by calling a job an internship, they can take advantage of young people desperate to start their careers and get the benefit of their talents and work, but not pay them even a measly $7.25 an hour.

Here is an example, easily found by searching on Craigslist, which is a clearly an employer the U.S. or New York State Department of Labor should visit and investigate.

This job requires skills that InParentis, the employer, does not have, by their own admission. They aren’t mentoring the employee/intern who takes this job, as they freely admit. They fail the most basic of the six parts of the test of a true internship: there is no pretense of a closely supervised, vocational school educational experience. This job is for the immediate benefit of the employer, who wants marketing help from someone with knowledge and skills—without paying for it. Nationally, entry-level marketing assistants earn, on average, about $16 an hour, far more than the minimum wage.

Here is another, from the West Coast. LUCK Media & Marketing doesn’t want to provide a mentoring, educational experience—it wants only a “qualified” individual who knows several office computer programs, can manage a database, update the company website and social media accounts, answer phones, pick up and deliver packages, and who brings her own laptop! It wants detail-oriented work from a talented employee—without paying anything for it.

Where is the California labor standards enforcement agency? Why hasn’t someone at the Wage Hour Division of the U.S. DOL paid a visit to LUCK Media & Marketing and told them to obey the law?

If the government doesn’t enforce the law, all employers will eventually think they can hire employees without paying them, simply by calling it an “internship.” As long as the labor market is weak, desperate young people will take these jobs, believing they have no choice, persuaded that the only way to get a paying job is to suffer through a period—or multiple, serial periods—of exploitation.

Law firms and private plaintiffs have brought some high profile FLSA cases, including a new suit against designer Norma Kamali and a suit that Charlie Rose settled for half a million dollars. But first and foremost, enforcing our bedrock labor law is the responsibility of the government.

As we approach the 75^th anniversary of the FLSA, the DOL owes it to America’s workers to stand up for them and enforce this fundamental, crucial law.

One thing to note is that a big chunk of the improvement in the gender wage gap since the 1970s—more than a quarter of it—was happening because of men’s wage losses, rather than women’s wage gains. With the exception of a period of labor market strength in the late 1990s, the median male wage has decreased over essentially the entire period since the late 1970s. That has made the gender wage gap smaller, but it certainly isn’t the kind of improvement anyone wants to see.

It is important to note that the forces that were holding back male wage growth over this period were also acting on women’s wages, but the gains made by women over this period in educational attainment, labor force attachment, and occupational upgrading more than overcame these adverse forces (at least until the last decade, when women’s wages have also dropped).

What are the forces holding back the wages of both women and men? Essentially, economic policy has not supported good jobs over the last 35 years. Rather, the focus has been on policies that were advertised as making everyone better off as consumers: deregulation of industries, the Federal Reserve Board prioritizing low inflation over full employment, the weakening of labor standards including the minimum wage, a “stronger” dollar, and the move toward fewer and weaker unions. In fact, these policies have served only to make the already-affluent better off.  They have eroded the individual and/or collective bargaining power of most workers, widened wage inequality among both women and men, and depleted access to good jobs.

There have been a lot of great articles recently (for example, here) about the large remaining gender gap in wages, and the work that needs to be done to get more women access to good jobs.