[Updated – somehow didn’t get the GDP row in previous table to come along—should be fixed now]
Ten years ago (July 2004) was the last time the Fed started raising the effective Federal Funds Rate to provide less support to an economic recovery. Many observers—even presidents of regional Fed banks—think the Fed should start tightening today. I thought I’d just take a quick look at some measures of slack and inflationary pressures to see if the economy does indeed look at least as tight as it did in July 2004. Indicators are in the table below.
First, the unemployment rate—it was 5.6 percent in the second quarter of 2004 (i.e., right before tightening began) and it’s 6.2 percent today.
Next, we look at the employment to population ratio for prime-age adults—simply the share of prime-age (25-54) adults with a job. This was 79 percent in July 2004 and is 76.5 percent today.
Third, we examine the output gap, as measured by the Congressional Budget Office. This is a measure of how much of the economy’s productive potential is being unused—the most direct attempt to measure economic slack. In the second quarter of 2004 this measure indicated that 0.9 percent of potential output being unused, while today this number is 4.5 percent—and this even after the CBO has made very large downward revisions in the unobserved “potential” measure.
Second quarter job growth was delightfully strong—277,000 jobs added per month on average—and even I got excited that maybe the pace of job growth was meaningfully accelerating. But July’s job growth of 209,000 certainly dampens those hopes. Over the 12 months from July 2013–June 2014, job growth averaged, yes, 209,000 per month. Sigh. At this pace, it will take nearly four years to get back to health in the labor market.
The weak labor market of the last seven years has put enormous downward pressure on wages. Employers just don’t have to offer big wage increases to get and keep the workers they need when their workers don’t have anywhere else to go. As the labor market continues to tighten, at some point wage growth will accelerate and workers will see real wage growth, which will be a very good thing. But as the figure shows, there is no sign of that yet in today’s jobs report.
Hope Springs Eternal, But The Data Is Actually Pretty Mixed About Whether Or Not Recovery Is Accelerating
The last couple of months have provided some data points that have raised hopes that the recovery is about to step into a higher gear.
Unemployment fell by 0.6 percent between December 2013 and June 2014, and essentially all of the decline was driven by actual job-growth rather than falling participation. Payroll job-growth for the second quarter of 2014 averaged 272,000, a rate that, if continued, would see us back to pre-Great Recession labor market health by early 2017. Not soon enough, but much better than the November 2018 recovery that would have happened had the pre-2014 pace of job-growth in the recovery persisted. And yesterday it was reported that gross domestic product grew at an annualized rate of 4.0 percent in the second quarter.
How excited should we be by all of this?
Let’s take GDP first, since the story is pretty unambiguous: not very excited at all. Yesterday’s second quarter number was largely a pretty predictable bounceback from the disastrous first quarter numbers, which showed that the economy contracted at a 2.1 percent rate. Average these two quarters and you have the economy growing at less than a 1 percent rate for the first half of the year. This sad performance comes even as the fiscal drag from federal and state governments has relented a lot since 2013. It’s very hard to see us moving ahead of the same 2 percent growth in final demand that we have seen over the past three years.
Last month’s jobs report was a strong one. We added 288,000 jobs, bringing the second-quarter average growth rate to 272,000 jobs per month. Meanwhile, the unemployment rate dropped for good reasons—because people found work, not because people stopped looking. Indeed, last month’s report made me unusually optimistic; at a growth rate of 272,000 jobs per month, we would get back to a healthy labor market in early 2017. That would still mean that the Great Recession, all told, will have caused roughly ten years of weakened labor market opportunities for American workers, but at least there’s light at the end of the tunnel.
So July’s jobs numbers, which will be released on Friday, will help answer the all-important question: have we really kicked it into higher gear? A jobs number north of 270,000 would be a pretty clear sign that the answer is yes—but anything much less than that would push us back to “we have to wait and see” territory. Unfortunately, consensus forecasts are for job growth around 235,000—if true, that sets us back to growth rates that put health in the labor market more than three years away.
I read two pieces about the STEM (science, technology, engineering, and math) workforce this morning: an op-ed in USA Today and an editorial in the Washington Post. Both reference a recent Census Bureau study, which found that only a quarter of bachelor’s degree graduates in STEM fields end up working in those fields. But from there, the two pieces head in very different directions.
The Post says Census got the number of STEM jobs wrong, because, in fact, one out of every five jobs requires STEM skills, even if the students end up working outside their field. That’s stretching definitions, though the idea that many STEM grads can use what they learn outside their field of study is certainly true. But, amazingly, the Post also says the numbers don’t really matter: “Whatever the number generated, it should not be seen as determining the need for STEM education.” Whether one STEM worker in four finds a job in his field of study, or only one in ten, the education is so valuable we can’t have too many STEM majors, according to the Post editorial. Why, even farmers should have STEM degrees because, “many farmers rely on genetic modification of crops.” That’s just silly. Many truck drivers rely on civil engineering, but they don’t need engineering degrees any more than a farmer planting hybrid corn needs a math or genetics degree.
The Post’s editors believe there’s no such thing as an oversupply of STEM graduates, but their editorial doesn’t review the boom and bust history of STEM graduate oversupply, or even mention what effect oversupply might have on the earnings or aspirations of the students who have paid for and worked to complete STEM bachelor degrees. By contrast, the USA Today authors (some of whom have done research with EPI before), all of whom are academics with close ties to actual students, do care about what happens to STEM grads after they leave school and look for work. They are rightly concerned that the wages of IT personnel have been flat for 16 years, and they worry that overproducing STEM grads, coupled with industry’s immigration proposal to triple the number of IT guestworkers, will suppress wage growth and deny IT workers the middle class security most would like, let alone a fair share of the tech industry’s fabulous profits.
Of all the thefts that happen in the United States, one type is greatly outpacing the rest. With billions of dollars stolen annually—greater than all burglaries, robberies, larcenies, and motor vehicle thefts combined—wage theft has become an epidemic. And wage theft’s victims tend to be those who can least afford it and who lack the power to stop it: low-wage and immigrant workers. When victims do speak out, they often face severe economic retribution, like cuts in their hours or the possibility of losing their job.
The federal government is not just failing to do enough to stop wage theft—it’s an active participant in it. Federally-contracted workers are victimized at an alarming rate. According to a Senate Heath, Education, Labor, and Pensions Committee report, 35 of the Department of Labor’s 100 largest wage theft penalties from 2007-2012 (32 companies, with three repeat violations) were levied against federal contractors. In total, these firms had to repay employees $82.1 million in back wages, but only six faced civil penalties, which totaled just $640,385. Moreover, this did not prevent these firms from getting future government contracts—in FY 2012, these same 32 companies received a whopping $73.1 billion in federal contracts. If this doesn’t send a clear message to contractors, I’m not sure what does. Rip off your employees and you may get a slap on the wrist, but don’t worry, the contracts will keep coming.
In fact, the federal bidding process even provides a certain incentive for these illegal labor cost reductions. With contracts going to the lowest bidder, some firms try to shave costs in whatever ways possible, including illegally denying employees the wages they deserve.
Yesterday, House Budget Committee Chairman Paul Ryan (R-Wis.) unveiled his long-awaited plan to fight poverty, called “Expanding Opportunity in America.” And while Ryan’s new proposals serve to distance his ideas from the more draconian aspects of his annual budget proposals, as well as 2012’s Romney-Ryan presidential campaign, this new plan serves as further evidence that Ryan fundamentally misunderstands the nature of poverty in the United States.
Drifting in Ryan’s ocean of misunderstanding is some flotsam of good policy ideas. Chief among them, Ryan does not advocate the shredding of the social safety net to further the goal of deficit reduction, as he did in his most recent budget proposal, which cut $3.3 trillion from low-income support programs over 10 years. Instead, in “Expanding Opportunity,” he emphatically states that his new treatise “is not a budget-cutting exercise.” Moreover, by calling for an expansion of the Earned Income Tax Credit (EITC) for childless workers, Ryan is moving away from prior rhetoric that belittled Americans with little or no federal income tax burden.
An expanded EITC isn’t Ryan’s only proposal that would help truly alleviate poverty—he also advocates prison sentencing reform and programs to try to reduce recidivism, helpful in the fight against poverty because the incarceration rate and long duration of sentences have led to prison becoming a “poverty trap,” especially for poor African-American men and their families.
As for the EITC, Ryan’s proposal is very similar to one backed by President Obama; Ryan would increase the maximum benefit to childless workers by just over $500, to $1,005, allow workers to receive the benefit until they hit an income of $18,070 (compared to the current cutoff of $14,790), and allow workers as young as 21 (as opposed to 25) receive the credit. Ryan would also aim to have the credit applied to paychecks monthly, rather than requiring completion of complicated forms during tax season, which can be magnets for shady tax preparation outfits.
Corporate inversions are all the rage these days—over the past week and a half at least two large firms have announced plans to renounce their U.S. “citizenship.” Simply put, the U.S. corporate tax base is slowing leaking out of the U.S. to other countries. Most observers quite rightly blame our dysfunctional corporate income tax system for this problem, though there is no consensus on how to fix it—tax reform is unlikely in the near- or medium-term. As far as what to do about our eroding corporate tax base in the meantime, Democrats and Republicans are on completely different pages.
The main GOP position (and the position of others as well) was best summed up by John McKinnon and Kristina Peterson of the Wall Street Journal: “Many Republicans say inversions should be addressed as part of a broader overhaul of the tax code, noting that the U.S. has the highest corporate tax rate in the developed world.” There are two major problems with this position, however.
First, tax reform is not going to happen any time soon, but the tax base is eroding now. The GOP apparently wants tax reform, but when a serious tax reform plan was proposed by House Ways and Means Committee Chairman Dave Camp, the Speaker Boehner’s first comment was literally “Blah, blah, blah, blah.” This does not sound like a leader of a party that is serious about adopting tax reform anytime soon. Unless Congress passes a stopgap measure, it is likely a major proportion of the U.S. corporate tax base will have inverted before they can agree on a tax reform proposal.
Second, while the United States has one of the highest statutory corporate tax rates among developed countries, few firms actually pay that tax rate. Citizens for Tax Justice note that many large corporations, including GE, Verizon, and Boeing, have a negative tax rate. Additionally, it is noteworthy that two of the recent firms proposing to invert pay average tax rates of 22 percent (AbbVie) and 25 percent (Mylan), which are considerably below the 35 percent statutory corporate tax rate. The main point is the average corporate tax rate (what firms actually pay) is much lower than the statutory tax rate (what is written in the tax code) and not that much different from the average tax rate of many advanced economies.
On May 22, 2014, the Office of Management and Budget solicited comments on a proposal for changes to the North American Industry Classification System (NAICS) that would take effect in a 2017 revision. The revision would reclassify factoryless goods producers (FGPs) such as Apple and Nike, most of which are now in wholesaling or management of companies, as manufacturers, and move trade by manufacturing service providers (MSPs), such as China’s Foxconn (which builds Apple products) into services. In What is manufacturing and where does it happen?, I show that this proposal would artificially inflate U.S. manufacturing production and employment and deflate U.S goods trade deficits with many countries. It would also irrevocably change U.S. balance of payments accounting. I recommend that OMB should withdraw its NAICS 2017 proposal regarding FGPs and MSPs, and remand the issue to the OMB committee that handles trade statistics policy for reconsideration.
NAICS is used by the myriad federal statistical agencies that collect, analyze, and publish economic data, including data on trade. The OMB proposal was developed to respond to the rapid growth of establishments that design products but outsource most or all of the production process.
The NAICS 2017 proposal—which is part of a broader, international, behind-the-scenes effort to redefine and recalculate U.S. and international trade accounts—would artificially inflate measures of U.S. manufacturing production and employment by arbitrarily moving wholesalers such as Apple and Nike into manufacturing, and changing substantial quantities of the goods we import into services. This would reduce our reported trade deficit in goods (on a balance of payments basis), with no change in our underlying balance of trade. And it would make it appear that U.S. manufacturing output has increased when, in fact, much of the actual manufacturing production has been offshored.
Suppressing measured trade deficits through statistical manipulation is no substitute for better trade and manufacturing policies. Congress should order a comprehensive review and evaluation of recent and planned changes to U.S. international trade and national accounting statistics, and of the international standards on which U.S. trade accounting systems are based.
Anyone who knows the shameful history of the U.S. response to Jewish refugees before World War II wants to avoid repeating it. As the Nazi genocide progressed, the United States turned its back on the Jews, infamously forcing the St. Louis, a ship with more than 900 German-Jewish refugee passengers, to sail back to Europe in June 1939 after it was refused entry to Cuba, rather than issuing visas to the refugees. President Franklin Roosevelt could have intervened through executive action, but chose not to in the face of the public’s anti-Semitism, worries about competition for scarce jobs, and isolationism. More than 250 of the St. Louis’s passengers eventually died in the Holocaust.
At the same time, Congress refused to take steps to save Jewish children who were fleeing Nazi violence and persecution. Bills introduced in the House and Senate to admit 20,000 German-Jewish children beyond the existing quotas were allowed to die in committee.
The United States had no role in the rise of the Nazis, but we are deeply involved in the political instability of Central America. We took sides in a civil war in El Salvador and supported a coup in Honduras. The United States bears a large part of the responsibility for the drug violence and armed conflict in Central America that are driving so many children from their home communities. We are the consumers of the drugs whose sale and transshipment enriches the drug gangs and fuels the drug wars. Without our insatiable consumption of illegal drugs, the drug violence would diminish. Moreover, as Jeff Faux has argued, without our militarization of the region and our billions of dollars of support for violent, right-wing governments and militias, large parts of the population would not live in terror. And finally, without our trade policies, which have disrupted the Central American economies and displaced tens of thousands of agricultural workers, there would be less of an economic incentive to immigrate to the United States.
Tuesday’s New York Times ran two interesting articles with the rather alarming headlines: “U.S. Drug Firms Seek Inversion Deals to Evade Taxes” and “Reluctantly, Patriot Flees Homeland for Greener Tax Pastures.” Both articles reported on U.S. multinational corporations trying to merge with smaller foreign corporations to move the parent corporation offshore to a lower tax country, known as corporate inversions. In essence, the corporations are giving up U.S. “citizenship” so as to avoid U.S. taxes. It is time for Congress to put a stop to the erosion of the corporate income tax base.
The corporate inversions that have been in the news recently are Pfizer wanting to become a U.K. firm (the deal has been temporarily withdrawn), and Walgreens wanting to become a Swiss firm. Now AbbVie, a Chicago-based firm, wants to become an Irish firm, and Mylan, a Pittsburgh firm, wants to become a Dutch firm (ironically, the CEO of Mylan was named “Patriot of the Year” in 2011 by Esquire magazine).
These mergers have several things in common. First, the current shareholders of the U.S. firms will own the majority of the stock in the new foreign firm (typically 70 to 79 percent). Second, little or no economic activity will be moved from the United States to the new home country. Third, the corporate tax bill of the new firm will be substantially lower. Last, some of the current stockholders could face higher tax bills. Let me discuss each in turn.
This morning, the Congressional Budget Office released its latest long-term budget outlook. While CBO projects the federal debt to begin increasing sharply in future decades, the main takeaway is that, with the debt stable for the remainder of this decade relative to the size of the economy, Congress should not see these projections as a reason to double down on economy-stunting austerity. Instead, policymakers should take advantage of our fiscal health to make the investments necessary to help boost our demand-starved economy and our still-flagging labor market.
CBO expects annual deficits to range from 2.8 to 3.5 percent of GDP through 2020—down from a peak of 10 percent of the economy in 2009—and not to reach 4.5 percent again until 2027. Yes, says CBO, over the long run our debt is a problem, especially as health care costs truly escalate in coming decades. And yes, CBO assumes that certain tax and spending policies will lapse when they will in all likelihood be extended, meaning today’s projections of future deficits are too low. But while our recent political past is strewn with the carcasses of failed grand bargains, fiscal commissions, and super committees, this near-term picture shows us that our deficit hysteria has calmed for good reason—there is no near-term deficit problem.
Let’s look at it this way. Since the Simpson-Bowles fiscal commission released its final proposal in December 2010, actual and projected budget deficits have fallen by $2.2 trillion over the 2011–2020 window, compared to the baseline the fiscal commission was working with—even with no bipartisan grand bargain over the budget.
How has this happened? A mix of poor policy choices and good fiscal news has given our budget some fiscal breathing room.
The U.S. steel industry won an important victory late Friday afternoon when the Department of Commerce announced that it would impose punitive tariffs on manufacturers in Korea and eight other nations who have dumped steel pipes in the United States at artificially low prices (producers from India and Turkey were also hit with countervailing duties to offset illegal subsidies). The background for this decision is explained in our May report on surging steel imports, which showed that the U.S. steel industry is facing its worst import crisis in more than a decade, with more than half a million U.S. jobs at risk.
Commerce’s decision last week concerned imports of Oil Country Tubular Goods (OCTG), steel pipe that is used to build out the infrastructure needed to support the booming American oil and gas fracking industry. Imports of unfairly cheap and subsidized steel pipes have decimated domestic producers and threaten the jobs and incomes of thousands of steelworkers and their families. U.S. Steel had already announced the closure of two U.S. plants making OCTG pipe, and many more jobs and plants are at risk. Among the nine countries included in the OCTG case, Korea was by far the largest supplier of imported steel pipe sold at artificially low prices.
In a closely related development, a Wall Street Journal story published last Thursday asked “Is Korean Steel Really Chinese?” This is an important issue in the larger steel crisis. Our May report showed that the major cause of the global steel crisis is the growth of excess global steel production capacity. Chinese producers account for more than a third of total excess global capacity, which now exceeds half a billion metric tons. Much of this capacity is targeted on the U.S. market, one of the largest and most open in the world.
Anti-government conservatives have been attacking public employees and their pensions for years, but the attacks picked up after the financial crisis in 2008, when the stock market crashed, leaving many public plans—and private plans, too—temporarily underfunded. Rather than going after Wall Street and searching for ways to prevent a repeat of the sub-prime mortgage crisis or too-big-to-fail banking, which threatened the entire economy (and not just public employee pensions), conservatives are trying to use the crisis to cut pension benefits. They want to claim that the current state of public pensions is somehow inevitable, even though it is unprecedented and clearly the result of the market crash. They want people to ignore the cause of the pension plans’ underfunding and simply do away with them, replacing them with individual accounts, just as they want to destroy Social Security and replace it into private accounts.
As part of this anti-pension campaign, National Review Online recently published a story with the provocative headline, “How the High Costs of Public-Sector Pensions Affect States’ Economic Growth.” The story, in fact, has nothing to do with economic growth. Instead, it describes a report that simply ranks the states on the size of their pension plans’ underfunding, while admitting that its data are out-of-date, which “argues for caution in interpreting this or any study on current public pension funding.”
Here are some stories that are worth reading today:
NFL cheerleader lawsuit update: Buffalo Jills win one against Bills (Los Angeles Times): “A judge in New York ruled this week that a wage lawsuit against the NFL’s Buffalo Bills can continue, despite the team’s claim that the cheerleaders are not its employees.”
The US will start running out of money for roads in August. Here’s why. (Vox): “The United States is less than a month away from yet another transportation crisis.”
Can a new brand of unions help America’s workers? (Fortune): “As unions come under siege, emerging labor groups are testing new ways to rebuild workers’ bargaining power.”
American workers die needlessly in the heat every year (Washington Post): “According to the Occupational Safety and Health Administration, we could do a much better job of protecting those men and women. In 2012, 31 outdoor workers died in the heat and 4,120 fell ill, according to OSHA stats.”
Paying Employees to Stay, Not to Go (New York Times): “While they make $7.25 an hour, the federal minimum wage, Mr. Nawn receives $9 an hour, which Boloco sets as the floor at its chain of 22 restaurants, most of them in New England.”
By nearly all accounts, the June 2014 jobs report is a strong one. The economy added 288,000 jobs in June, marking the five year anniversary of the recovery and the fifth consecutive month of job growth over 200,000 – a pattern we’ve not seen since the late 1990s. Also, the unemployment rate dropped from 6.3 percent to 6.1 percent, as the labor force participation rate held steady, and the share of the working age (16 or older) population with a job increased by one-tenth of a percent.
Another indication of the strength of this report is the large gains in employment for African Americans and Latinos. The share of working age African Americans with a job has increased 1.3 percentage points since January 2014 and the increase for Latinos has been six-tenths of a percent, compared to an increase of one-tenth of a percent for whites. The June employment growth account for over half of this increase for African Americans and all of the gains for Latinos and whites. These gains also bring the black-white unemployment gap to the lowest level this year at a ratio of 2-to-1.
This is important because of the convention that people of color are often the “first fired and last hired.” The fact that employment is now growing more strongly for African Americans and Latinos demonstrates how critical continued strong job growth will be to further reducing unemployment for people of color and narrowing racial unemployment gaps.
The release of the June 2014 jobs numbers this morning marked the five-year anniversary of the official end of the recession (and start of the recovery) in June 2009, making this a reasonable time to address one of the persistent myths of this recovery—that the jobs recovery has been weak because of a “skills mismatch,” whereby workers do not have the skills they need for the jobs that are available.
This brief commentary provides an in-depth look at this issue, but the unemployment numbers released today also provide good information. In an update to this post, the table below shows the June unemployment rate, the unemployment rate in 2007, and the ratio of the two, for a variety of demographic categories and by occupation and industry. We see that while (as per usual) there is considerable variation in unemployment rates across groups, the unemployment rate is substantially higher now than it was before the recession started for all groups. The unemployment rate is between 1.2 and 1.7 times as high now as it was seven years ago for all age, education, occupation, industry, gender, and racial and ethnic groups. Elevated unemployment across the board, like we see today, means that the weak labor market is due to employers not seeing demand for their goods and services pick up in a way that would require them to significantly ramp up hiring, not workers lacking the right skills or education for the occupations or industries where jobs are available.
The release of the June 2014 jobs numbers this morning marked the five-year anniversary of the official end of the recession (and start of the recovery) in June 2009. It was a strong report. A couple of thoughts:
- We added 288,000 jobs in June, bringing the second-quarter average growth rate to 272,000. This is strong job growth. The only sobering part is that we still have a gap in the labor market of 6.7 million jobs, and even if we saw June’s rate of job growth every month from here on out, we still wouldn’t get back to health in the labor market for another two and a half years.
- The unemployment rate dropped from 6.3 percent to 6.1 percent, and it was mostly for good reasons! Recall that the unemployment rate can drop for good reasons—a higher share of potential workers find jobs—or bad reasons—potential workers drop out of, or never enter, the labor force because job opportunities are so weak. Most (though not all) of the improvement in the unemployment rate since its peak of 10 percent in the fall of 2009 has been for bad reasons. But in June, the drop in the unemployment rate was largely of the good kind. The labor force participation rate held steady, and the share of the age 16+ population with a job increased by one-tenth of a percent. Furthermore, the share of the “prime-age” population with a job (my favorite measure of labor market health), increased by three-tenths of a percent, restoring it to its March level following two months of declines.
- The issue of “missing workers”—potential workers who, because of weak job opportunities, are neither employed nor actively seeking a job—still looms large in today’s labor market. I estimate that there are roughly 6 million such workers, and if they were in the labor force looking for work, the unemployment rate would be 9.6 percent instead of 6.1 percent.
What to Watch on Jobs Day: Five Years Since the Official End of Recession, the Public Sector Jobs Gap Is 1.5 Million
Aside from the oddity that the numbers are being released on a Thursday, what should we be looking for tomorrow? Last month, as predicted, much was made of the fact that we now have more total jobs (public and private combined) than we did before the Great Recession began in December 2007 (of course, due to the growth of the potential labor force since that time, we are still millions of jobs in the hole).
The data being released tomorrow are for June 2014, which marks the five-year anniversary of the official end of the recession (and start of the recovery) in June 2009. One thing that has been historically unique about this recovery is the unprecedented loss of public sector jobs. The private sector began adding jobs in the spring of 2010, but the public sector continued shedding jobs until last summer. The figure below shows the public sector jobs gap. We are currently 716,000 public sector jobs below where we were when the recovery started, but to keep up with population growth since then, we should have added over 800,000 jobs, so we are around 1.5 million public sector jobs down. About a third of them are teachers and other employees in public K-12 education.
The total number of public sector jobs hit its low of the recovery last July, so we are no longer shedding public sector jobs. However, we have also not started filling in the gap, as public sector jobs have been roughly flat since last summer. The loss of public sector jobs has been an enormous drag on our recovery that was not a factor in earlier recoveries.
The Court’s Harris v. Quinn Decision Undermines Home Health Care and Further Weakens Collective Bargaining Rights
Monday’s Supreme Court decision in Harris v Quinn was destructive in several ways. It undermines the unionization that has been transforming home health care from a rock-bottom, minimum wage job with no respect and no benefits into something much better. That, in turn, could worsen the care provided the disabled by lowering pay, making the profession less attractive, and worsening turnover. The nakedly political decision damages the constitution and the credibility of the Court. And the majority opinion foretells even greater damage for public employee unionization and collective bargaining when the Court revisits these issues again.
The Court held that the historically disadvantaged , mostly female home-care workers (“personal assistants”) and their union have lesser rights than “full-fledged public employees” because the state is not their employer for all purposes—though it is for the crucial purposes of bargaining their wages and benefits. Because of that, in the Court’s view the employees’ union and the state don’t have a great enough interest in labor stability to enforce a provision in the collective bargaining agreement that requires all covered employees to pay their fair share of the costs of bargaining and enforcing the contract (an agency fee). Dissenting employees get a free ride, because in the Court’s view, their right not to pay the agency fee is more important than the right of the majority of home-care workers to have an effective union that will raise their wages far beyond the cost of the agency fee. That balancing is plainly wrong and reflects Justice Alito’s 19th century dislike of unions, his hostility to the government’s duty to “promote the general welfare,” and his contempt for majority rule. (So what if a majority of the employees voted to require the fair share provision?)
In the current issue of The American Prospect, I charge that many liberals and civil rights advocates have been too quick to accommodate to a reactionary Supreme Court plurality that considers the nation’s racial problems to be solved or beyond remedy. The Court now says that institutions of higher education must be “colorblind” in their admissions procedures, because racial preferences are unacceptable unless designed as a remedy for specific state-sponsored acts to discriminate against African Americans. And such acts, the Court says, are no longer responsible for African Americans’ disadvantages.
It may well be pragmatically necessary for universities to operate within the confines of Court rulings by substituting recruitment of low-income students for African Americans and by seeking “diversity” in incoming classes. But necessary though these policies may be in the short term, they are flawed because the descendants of American slaves and the victims of government-sponsored Jim Crow rules, in the North as much as in the South, remain uniquely entitled to affirmative action. And while students from low-income families are easy to identify, it is much more difficult to remain colorblind while continuing to identify working and middle-class African American students who are the most deserving of university admission assistance.
Continuing its recent habit of allowing a foreseeable problem to become a full-blown crisis, Congress has so far done nothing to prevent the looming insolvency of the federal Highway Trust Fund (HTF). The HTF is a dedicated account from which the U.S. Treasury draws to pay for road construction (and provide support for mass transit). Because the gasoline tax—the HTF’s primary source of dedicated revenue—has not been increased since 1993, more has been spent from the HTF than it has taken in for years. Since 2008, Congress has needed to transfer $54 billion from the U.S. Treasury’s general fund to the trust fund to prevent its insolvency. Unless Congress again transfers general funds to the HTF, or otherwise closes its funding gap, the trust fund is expected to go bust this August. And if highway spending were to be reduced to the level of current revenues for one year, because the trust fund “has no authority to borrow additional funds,” it would cost our economy 160,000 to 320,000 jobs, using my colleague Josh Bivens’s methodology.
I should note two things about this short history. First, there’s no particular economic problem facing the federal government here. HTF spending is already factored into the federal budget’s baseline. Continuing to finance its operations with general fund transfers will hence do nothing to increase overall projected federal budget deficits. Instead, this is largely an accounting problem—spending is constrained by the fact that, by law, HTF spending is supported primarily by a dedicated tax. Second, if policymakers nevertheless object to the fiscal non-problem of continuing to finance highway spending in part with general fund transfers, there’s obviously a simple solution. No, not a huge corporate tax break. Instead, we could just raise the federal gasoline tax.
Earlier this week, EPI economist Heidi Shierholz spoke on a Congressional Full Employment Caucus panel about policy fixes to the nation’s long-term unemployment crisis, convened by Rep. Conyers (D-Mich.). Other panelists included Betsey Stevenson, Member of the White House Council of Economic Advisers, and Judy Conti, Federal Advocacy Coordinator at the National Employment Law Project. Below is an excerpt of her comments, which explain why we remain in a long-term unemployment crisis, why the long-term unemployed will continue to face tough job odds without substantial policy intervention, and what can be done to address it.
The Great Recession officially ended five years ago this month, but the labor market has made only agonizingly slow progress towards full employment. We’ve had an unemployment rate of 6.3 percent or more for more than five and a half years; as a reminder, the highest the unemployment rate ever got in the early 2000s downturn was 6.3 percent, for one month. And even this headline unemployment rate probably overstates the true degree of labor market weakness, as it has fallen in large part in recent years because people have left the labor force in large numbers—and not just voluntary retirees. If the job market improves in coming years, it is very likely that many of these “missing workers” will return. Because of the ongoing weakness in the labor market, long-term unemployment remains extremely elevated. Though the labor market is headed in the right direction, unemployed workers still vastly outnumber job openings in every major industry, and the prospects for job seekers remain dim.
The labor force is comprised of employed people and jobless people who are actively seeking work. Before the Great Recession started, just 0.7 percent of the labor force was unemployed long-term. That shot up to 4.4 percent by the spring of 2010, and has since dropped part-way back to 2.2 percent. This may not sound high on the face of it, but it is still three times higher than what it was before the recession began and represents 3.4 million long-term unemployed workers. Furthermore, outside of the Great Recession and its aftermath, it is higher than at any other time in more than 30 years, including the entirety of the two recessions prior to the Great Recession. Importantly, it is also far higher than any period in the past when Congress has decided to end extended unemployment benefits. In short, we remain in a long-term unemployment crisis, even if you wouldn’t know it judging from too many policymakers’ actions.
It is important to note that there’s no real puzzle as to why long-term unemployment is high: economic growth remains extraordinarily weak. And this weakness is driven simply by an ongoing shortfall of aggregate demand (spending by households, businesses, and governments) relative to potential output.
The Supreme Court is about to issue a decision on a case that could hit working people—especially working women—right in the paycheck. Harris v. Quinn is about isolating individual workers so they are weak and unable to protect themselves in a labor market that fails to reward their hard work. By weakening the unions that have organized home care workers, given them a voice, and helped them win wage and benefit increases that are lifting many of them out of poverty, Harris v. Quinn could block the road to economic opportunity for a largely female, economically disadvantaged workforce. Right-wing groups want the public to think Harris v. Quinn is as a case about freedom of speech and association; they pretend it is about protection of the individual—but how does it protect an individual if the end result is a smaller paycheck?
American workers, by and large, have suffered from stagnant wages for decades. At the same time, the percent of working Americans in unions or covered by union contracts has been falling. Studies suggest that a substantial part of this wage stagnation is the result of eroded unionization, as fewer workers, both union and nonunion, benefit from the unions’ ability to improve wage standards in particular industries and occupations. The consequence: profits have reached historic highs, CEO pay is in the stratosphere, but workers are not sharing in the nation’s ever-increasing wealth.
Almost anything that worsens these trends ought to be avoided, including anything that weakens unions or makes it harder for workers to bargain successfully. Americans need a raise: more pay for the work they do, better benefits, and more regular hours, and they need help in getting it. On their own, the ability of individual Walmart cashiers, for example, or Amazon’s warehouse workers to get a raise is negligible. But collectively, if they can join together and bargain as a group, they would have a chance to exert enough leverage to make the companies listen to their demands. The players in the NFL, MLB and NBA all know that what they have won had to be wrested from management.
This month, a California judge struck down California’s teacher tenure law in a landmark case, Vergara v. California. Proponents claim that eliminating tenure will mean fewer ineffective teachers at low-performing schools. But teacher tenure in the K-12 context does not mean a lifetime guarantee of a job. It means that teachers have basic rights—most importantly, the right to due process if the district wants to fire them. This distinction is critical, both because eliminating tenure does not necessarily make it easier to fire bad teachers, and because tenure can actually help attract good teachers to hard-to-staff schools, retain them, and support their role as voices for student justice in those schools.
There have been many good commentaries on why the Vergara ruling will do little to help students. Washington Post columnist Catherine Rampell nails the essential point, writing, “Making it easier to fire bad teachers isn’t going to magically cause the educational achievement gap to disappear. You need to be able to attract and retain more good teachers, too.”
New York University professor (and EPI board member) Pedro Noguera notes in the Wall Street Journal that both the plaintiffs’ suit and the judge’s verdict are fundamentally flawed. Noguera agrees that there are disparities in teacher qualifications and quality between schools serving high- versus low-income students, but tenure does not contribute to these differences. The fact is that schools serving low-income students have less funding and fewer resources than schools in more affluent areas. That means they aren’t able to pay teachers as much. It means class sizes are larger, nurses and counselors are fewer, libraries are worse. These and many other factors make it harder for low-income schools to attract and retain good teachers. The due-process protections afforded by tenure, at the very least, ensure that teachers who do stay in high-poverty schools can speak out against these inequities and be advocates for a more just system for their students.
Today, Sen. Tom Harkin (D-IA) and eight co-sponsors introduced legislation to restore overtime protections for low- and mid-wage salaried workers. The Restoring Overtime Pay for Working Americans Act would guarantee overtime pay for millions of salaried workers earning less than $52,000 a year.
Americans are working longer hours and are more productive than ever—yet wages are largely flat or falling. Indeed, the median worker saw a wage increase of just 5.0 percent between 1979 and 2012, despite overall productivity growth of 74.5 percent. One reason Americans’ paychecks are not keeping pace with their productivity is that millions of middle-class and even lower-middle-class workers are working overtime and not getting paid for it. This is because the federal wage and hour law is out of date—and especially the regulation that sets the salary level below which all employees must be paid time-and-a-half for their overtime hours.
Updating overtime rules is one important step in giving Americans the raises they deserve. If the threshold is raised from its current $455 per week ($23,660 annually) to $984 per week ($51,168 per year, the threshold’s 1975 level, adjusted for inflation) millions of salaried workers would be guaranteed the right to overtime pay if they work more than 40 hours in a week.
This bill would go above and beyond the recent announcement by President Obama in strengthening overtime pay regulations. I salute Sen. Harkin for taking up this issue and calling for a reasonable salary level, indexed for inflation, along the lines Jared Bernstein of the Center on Budget and Policy Priorities and I have advocated. Sen. Harkin led the battle in Congress in 2004 to block a set of very detrimental changes the Bush administration made to the overtime rules. While Sen. Harkin was not entirely successful, he did force the Bush Labor Department to issue a final rule that was less damaging than its first proposal. It’s heartening to see that both Sen. Harkin and his colleagues, along with the Obama administration, continue to believe that low and mid-level workers should be paid when they work overtime. If more workers were paid time-and-a-half when they worked overtime, it would boost the economy and show that in America, hard work pays off.
In politics, bad ideas never go away, even after being shown to be bad. A repatriation tax holiday is a case in point. Senators of both parties have suggested using revenue generated from a repatriation holiday to plug near-term shortfalls in the Highway Trust Fund, which will be depleted within a couple of months. The problem, of course, is that revenues are only generated in the short-run, and revenue losses in out-years dominate the overall budget impact of a repatriation holiday.
Under its baseline budget, the Congressional Budget Office projects a fiscal year 2015 Highway Trust Fund shortfall of about $12 billion. The Joint Tax Committee projects that a repatriation holiday enacted this year would bring in about $13 billion in additional revenue in fiscal year 2015. Sounds like a great fix for a budget problem. What is not mentioned is cumulative Highway Trust Fund shortfalls between 2016 and 2024 total $824 billion and that the repatriation holiday will reduce federal tax revenues by $115 billion over the same period. Consequently, using a repatriation holiday as a short-term fix would increase longer-term federal budget problems associated with underfunding the Highway Trust Fund—increasing projected deficits from $824 billion to almost $1 trillion over the next 10 years. Surely, a repatriation holiday is a bad and costly idea.
But there are also other problems with a repatriation holiday, which requires a brief and, admittedly, wonkish review of the 2004 repatriation holiday.