By now, the story of what’s happening in Flint is well known. The city has been struggling since the decline of its automobile industry. Its financial troubles were severe enough that the city went into state receivership and an emergency manager was appointed by the state of Michigan to fix the budget. One way to lighten Flint’s financial woes was to cease piping water all the way from Detroit and instead source water locally. A water treatment facility that would be used to get water from Lake Huron would not be ready for a couple of years, so as a stopgap measure, the city began piping water from the polluted Flint River. Residents started complaining about the water almost immediately. City authorities waffled—issuing boil orders, telling residents to run their taps for five minutes before using the water, and adding large amounts of chlorine (creating another problem), before finally admitting that the water was undrinkable.
Since the switch to Flint River water, the number of children in Flint with blood lead levels over 5 micrograms per deciliter has doubled. In some Flint zip codes, the numbers are even higher. And those are only the children we know about. The number of children who are lead poisoned is likely much higher.
Children who have been exposed to lead suffer irreversible learning deficiencies and behavioral problems and the effects of early exposure persist throughout life. Even very low levels of lead contribute to cognitive impairment, including reductions in IQ, verbal, and reading ability, with no identifiable safe bottom threshold. Lead exposure also affects young children’s behavior, leading to a greater propensity to engage in risky behavior and violent or criminal activity later in life.
Having closely followed all of President Obama’s speeches on income inequality, I’ve noticed a significant move forward, from an abstract discussion to one that focused on the key underlying issue—the need to generate robust, widespread wage growth. Unfortunately, this week’s State of the Union (SOTU) address was a huge step backward in how the president framed and discussed the issue. His policy agenda, which I view very favorably, has not shifted. President Obama actually has a wage growth agenda—he just does not highlight its elements as part of a coherent package. That’s unfortunate.
The president’s SOTU framed income inequality and the “strain” on working families as the result of ongoing technological disruption, a force widely considered to be something we cannot nor should not do something about. This is extremely disappointing, incorrect as a factual matter, and misdirects our policy focus and mis-educates the public. It is especially disappointing since the views of center-left economists have been converging on a recognition that technological change has not been a leading factor in our wage problems or inequality in the 2000s (see Mike Konzcal). One need only note the statements made by President Obama’s leading economic advisor in the first term, Larry Summers, last March at a Hamilton Project event on the role of robots:
“And I am concerned that if we allow the idea to take hold that all we need to do is there are all these jobs with skills and if we just can train people a bit then they will be able to get into them and the whole problem will go away. I think that is fundamentally an evasion of a profound social challenge… I think that the broad empowerment of labor in a world where an increasing part of the economy is generating income that has a kind of rent aspect to it, and the question of who is going to share in it becomes very large.”
In plainer terms, Summers is saying that economy’s winners at the top of the income scale have gotten more than their share gaining ‘rents’ (meaning they don’t reflect efficiency gains), and that giving working people the power to act collectively will be key to any rebalancing between the elites and the middle and working classes. He’s saying that any talk about “skill deficits” as the cause of wage problems—that is what the technology story is all about— is misguided, and evades the essential questions of power in the marketplace that drive inequality and wage stagnation.
The Supreme Court heard oral arguments yesterday in Friedrichs v. California Teachers Association, a case that could profoundly affect the economy and the ability of millions of workers to improve their wages and working conditions. Friedrichs challenges the right of a majority of workers, through their democratically elected union, to bargain a contract with their public employer that makes every employee covered by the contract pay her fair share of the costs of negotiating it, administering it, and enforcing it in the courts or in arbitration. By preventing “free riders,” fair share clauses help ensure the viability of the union and the collective bargaining relationship.
What the fair share requirements (also known as “agency shop” provisions) don’t do is equally important to understand. They don’t require anyone to join the union—the law has been clear for decades that no one can be forced to join a union. And fair share provisions don’t require anyone to contribute to union political activity or advocacy on issues unrelated to collective bargaining.
Nevertheless, anti-union groups and the complaining teachers claim that it is unconstitutional for a public employer such as a state or county to make unwilling employees pay their fair share of bargaining costs. They claim a First Amendment right to accept the higher wages and benefits that come with the union contract without having to pay anything to support the union that won that contract. Alarmingly, a majority of the Supreme Court justices appear to agree, even though it means overturning Supreme Court precedent that is less than 40 years old. That case, Abood v. Detroit Board of Education, held that the interests of the government in having a single, stable collective bargaining partner outweighed the right of dissenting employees not to associate with the union and help pay for bargaining and administering the employment contract:
“The governmental interests advanced by the agency-shop provision in the Michigan statute are much the same as those promoted by similar provisions in federal labor law. The confusion and conflict that could arise if rival teachers’ unions, holding quite different views as to the proper class hours, class sizes, holidays, tenure provisions, and grievance procedures, each sought to obtain the employer’s agreement, are no different in kind from the evils that the exclusivity rule in the Railway Labor Act was designed to avoid. See Madison School Dist. v. Wisconsin Employment Relations Comm’n, 429 U.S. 167, 178, 97 S.Ct. 421, 425, 50 L.Ed.2d 376 (Brennan, J., concurring in judgment). The desirability of labor peace is no less important in the public sector, nor is the risk of “free riders” any smaller.”
The labor market ended the year on a positive note, adding an additional 292,000 jobs in December. Of course, all economic woes are not solved. It’s clear from the data that we are still far from a full employment economy. Notably, wage growth is still not where it ought to be, and the prime-age employment-to-population ratio is barely half-way back to its 2007 level, which was not a banner year for full employment to begin with.
The Job Openings and Labor Turnover Survey (JOLTS) data released this morning provide further evidence that the economy is chugging along, but has a ways to go before the labor market is fully recovered. While my favorite indicators to watch on jobs day are nominal wage growth and the prime-age employment-to-population ratio, my favorite indicator on JOLTS day is the quits rate. There are three key lines in the graph below: the hires rate, the quits rate, and the layoffs rate.
Hires, quits, and layoff rates, 2000-2015
|Month||Hires rate||Layoffs rate||Quits rate|
Note: Shaded areas denote recessions. The hires rate is the number of hires during the entire month as a percent of total employment. The layoff rate is the number of layoffs and discharges during the entire month as a percent of total employment. The quits rate is the number of quits during the entire month as a percent of total employment.
Source: EPI analysis of Bureau of Labor Statistics Job Openings and Labor Turnover Survey
National Association of Manufacturers’ criticisms of the Obama overtime proposal all miss their mark
Last September, the National Association of Manufacturers (NAM) filed comments in opposition to the Labor Department’s proposed rule on overtime pay for salaried workers, which would raise the salary threshold under which all workers are eligible for overtime pay from $23,660 to $50,440. NAM’s chief criticism boils down to this: “The Labor Department set the salary level threshold for exemption too high.” The evidence NAM presents to support that criticism, however, is inaccurate, irrelevant, or contradicts its claims.
First, NAM claims, “The proposed salary threshold is grossly out of step with nearly 80 years of historical practice and precedent.” The evidence is a chart that purportedly shows the historic levels after each past increase, adjusted for inflation. But the chart is misleading. It cherry picks the lowest of the several potential levels set in the past, instead of the level that corresponds to the current duties test. When the correct levels are compared, DOL’s proposed $50,440 salary threshold is lower than the levels set in the Truman, Eisenhower, Nixon, and Ford administrations. As Tammy McCutchen testified in Congress on behalf of the U.S. Chamber of Commerce, the short test salary threshold varied between a low of $51,957.36 and a high of $63,741.60.
Even if you take NAM’s misleading chart at face value, it shows an increase in the threshold of 22% in the ten years from 1949 to 1959, or 2.2% per year. If the same rate of increase were applied to the 1975 threshold of $35,625, the 2015 threshold would be almost 90% higher, or about $67,000. NAM should be grateful that the Labor Department chose such a modest level.
An honest discussion of how to reduce poverty: strengthen the safety net and raise wages across the board
I’m afraid Speaker Paul Ryan’s poverty forum will fall short of coming up with solutions that will truly help lift the poor out of poverty. Real solutions should expand policies that have already been proven to work: strengthening the social safety net, making poverty programs better coordinated and more accessible to low income families, and improving job opportunities and wages across the board.
Given his past comments, it seems hugely unlikely that Ryan’s effort will emphasize these priorities, and will instead focus on pure distractions, like alleged fundamental design flaws in safety net programs that keep them from working. For example, Ryan’s arguments that the safety net creates disincentives to work can be solved by increasing program funding to flatten out phase out ranges to ensure minimal market distortions—that is (again) making the programs more generous. While some programs (e.g., the Earned Income Tax Credit [EITC]) already have these gradual phase-out ranges, others could be improved. The health insurance marketplace created a smooth transition from Medicaid to the marketplace with exchange premium and cost-sharing subsidies. Unfortunately, many states failed to expand Medicaid, leaving its near poor in the unnecessary gap. Child care subsidies, while vitally important and woefully underfunded, could be enhanced so that recipients do not fall off that eligibility cliff (PDF).
Ryan wants people to think that these issues represent a fundamental problem with these programs that can only be solved by ripping them up root and branch and sending core responsibility for safety net programs to the states. But this is wrong—these problems can best be solved with more money for benefit expansions and program coordination, including more generous and gradual phase out ranges. The fact is that Ryan’s main proposal to merge safety net programs and block grant funds to states are likely to do more harm than good, leading to increases in poverty, not reductions.
The American safety net does, of course, have a fundamental flaw: it’s simply not generous enough, because we do not provide it enough money. Any serious agenda to address poverty should attack both pre-tax and transfer inequality (mostly by boosting hourly compensation for low and moderate-wage workers) and post-tax and transfer inequality by strengthening the safety net.
The labor market is still moving in the right direction, but has a ways to go before reaching full employment
The top line numbers from this morning’s jobs report suggest that the economy is moving in the right direction, but we need to see a whole lot more movement before we reach full employment. It’s hard to overstate how important true full employment is for workers. In the absence of substantive policy changes to restore workers’ bargaining power, a tight labor market is the one avenue left to improve living standards for the vast majority of workers and their families. In a full employment economy, there are fewer people lined up for every job and employers have to offer higher wages to attract and retain workers. So, it’s really important for the Federal Reserve to let the economy achieve not just a full recovery from the Great Recession, but also genuine full employment.
While payroll employment growth in 2015 was a bit weaker than 2014, we ended the year on high note. Payroll job growth in December was strong at 292,000 jobs. While average payroll growth in 2015 (221,000 a month) was still below 2014 (260,000), the last three months saw some decent acceleration. Fourth quarter job growth averaged 284,000, compared to 174,000 in the third quarter. I’m hoping this is an indication of stronger job growth in 2016. If that strong pace continues over the next year, we will return to pre-recession labor market health in the near future.
When that happens, we should see better and better wage growth. Nominal average hourly wage growth rose 2.5 percent over the year, which is still too slow, but there have been some signs it’s picking up. In each successive quarter of 2015, average hourly wage growth increased by 0.1 percentage points. I wouldn’t go so far as to say that constitutes substantial acceleration, but the rate of growth has indeed nudged up. It’s important to remember, however, that nominal wage growth is still far below target levels. We need to see stronger and more sustained wage growth, above 3.5 percent, before it would be safe to say we were at full employment and it would be appropriate for the Fed to act to raise rates.
The 2015 job market ended on a high note after trailing the pace of monthly job growth in 2014 for much of the year. The economy averaged net job growth of 284,000 in the last quarter of 2015, adding 292,000 in December—the second highest month behind October. Though the national unemployment rate was unchanged over the last month, it appears that African Americans reaped notable benefits from the end of the year increase in hiring. The black unemployment rate declined 1.1 percentage points (to 8.3 percent) and the percentage of African Americans with a job (the employment-to-population ratio, or EPOP) rose by half a percentage point, to 56.4 percent.
Even with this end of the year hiring surge, unemployment rates have remained relatively flat over the last two quarters of the year and are still slightly above the 2007 pre-recession average. However, comparing annual averages for 2013, 2014, and 2015 reveals that there has been notable longer term progress, especially for black workers. On average, the black unemployment rate falls by 1.7 percentage points for every 1 percentage point drop in the national rate. The following chart shows that relationship has held up over the last couple years, but it also shows that changes in the black unemployment rate are consistent with increased employment and a growing (rather than shrinking) labor force. In fact, African American workers have registered more growth in labor force participation and employment than whites or Latinos over the last year.
With the last jobs report for 2015 coming out tomorrow, let’s step back and put it in the context of the entire year—and of the recovery as a whole. If December’s numbers come in as expected (analysts are predicting job growth around 215,000), that will be an indication of a relatively strong labor market in 2015, especially compared with the Great Recession and the beginning of the recovery. While the economy has improved, when you look at the peak in 2007 or the stronger economy of 2000, it is clear we still have a way to go before we reach full employment.
Job gains in 2015 were slower than 2014, but they remained solid—slowly eating away at the slack created by the Great Recession. The unemployment rate, and the long-term unemployment rate, measurably declined. The unemployment rate fell from a January to November average of 6.2 percent in 2014 to 5.3 percent in 2015, while the long-term unemployment rate fell from 33.5 percent to 28.1 percent over the same period.
Another key indicator is the employment-to-population ratio (EPOP) of prime age workers (25-54 years old). While prime-age EPOP increased in 2014, it has barely budged since January of 2015, even as the unemployment rate continued to fall. A flat EPOP would mean we’re only adding enough jobs to absorb new prime age population growth. Job growth has to be stronger, and sustained for a longer period, before we return to recovery level EPOPs. If job growth continues in 2016, prime-age EPOPs should start rising again, continuing their march toward recovery.
The Federal Reserve’s decision to begin nudging up interest rates in the clear absence of any inflationary pressures in economic data is disappointing. Interest rate increases should be a tool used to slow the pace of economic growth and halt downward progress on unemployment when there are clear signs of economic overheating that threaten to unsustainably push up wage and price inflation. There are no such signs in today’s economy.
If last week’s hike presages a regular round of increases and monetary tightening going forward, the cost would be immense—millions of Americans would have fewer work opportunities and tens of millions would see smaller wage increases 12-18 months from now. Further, these costs would be strongly regressive, disproportionately harming low and moderate-wage workers and communities of color.
Over the past generation in the American economy, only genuine full employment like we achieved in the late 1990s has delivered strong and equitable wage growth. Because other policy decisions made over this time have eroded most sources of American workers’ bargaining power (inflation-adjusted minimum wages are low, unionization rates are low, and exposure to global competition is high), low and moderate wage workers need extraordinarily tight labor markets to achieve decent rates of hourly pay increases. A full-employment economy is particularly vital for African American and Latino workers, who continue to experience significantly higher rates of unemployment and lower rates of wage growth than other workers, but who have seen larger drops in unemployment as the recovery has proceeded.
Senator Barbara Mikulski wants the public to believe that replacing U.S. workers with lower-paid foreign guestworkers is somehow good for us and good for the economy. That’s nonsense. The economy needs good-paying jobs for U.S. workers, not jobs that pay $5 an hour less and get filled by indentured workers recruited from foreign countries.
Sen. Mikulski claims that her efforts to gut the Department of Labor’s H-2B visa program regulations are all about trying to protect the Maryland seafood industry, which she claims is at risk because few Americans are willing to take oyster and crab-shucking jobs for minimum wage. What she doesn’t tell the public is that the H-2B visa program she’s expanding—while simultaneously gutting all of its rules—is used mostly to bring in landscape laborers and gardeners, not crab pickers. Her claim that bringing in one poorly paid gardener creates four jobs in the U.S. economy—a claim concocted by a conservative think tank—is utter baloney. You can find some economist somewhere who will defend almost any claim, but that particular claim is indefensible. Bringing in landscape laborers on H-2B visas who are indentured to their employers and can’t bargain for better wages and working conditions lowers wages for Americans who would otherwise get those jobs, and it leaves more money in the employer’s pocket, but it doesn’t create additional jobs. As EPI has shown, there are no labor shortages in landscaping or other H-2B occupations, but employers want H-2B workers instead of Americans because they can control them and keep them in shocking conditions.
H-2B visas are also used to bring in indentured construction laborers at wages far below prevailing wages. Ask a construction worker in Baltimore what he thinks about seeing what used to be decent-paying construction jobs go to people from thousands of miles away when thousands of Maryland construction workers are still unemployed.
If Sen. Mikulski weren’t so concerned about the corporations itching to bring in another 200,000 guestworkers, she could guarantee an adequate supply of seafood workers by restricting the 66,000 H-2B visas already available to jobs where a real labor shortage has been found—where employers offer higher wages and still can’t find qualified workers—rather than supporting an amendment that drastically cuts wages and labor protections and opening the gates for a race to the bottom.
The Obama administration deserves the nation’s thanks for standing up to the financial industry and its army of lobbyists on a matter of principle as well as practical importance: holding financial advisers accountable to their clients. Secretary of Labor Tom Perez refused to back down from a rule he proposed that would require financial advisers to act in the best interests of their clients. The rule simply requires advisors to provide what most clients probably already think they are receiving: advice about their retirement plans untainted by conflicts of interest. It would prohibit common practices such as steering investments to companies that pay the adviser a commission.
This rule would seem to be a no-brainer, but the industry makes billions of dollars from conflicted advice, and it’s used to getting its way. So the outcome of its efforts to kill the fiduciary rule was uncertain until yesterday, when it was revealed that an amendment to block the fiduciary rule was left out of the House omnibus appropriations bill.
No evidence of labor shortages but Congress considering giving H-2B employers access to more exploitable and underpaid guestworkers
Expanding and deregulating the H-2B visa program (a temporary foreign worker program that allows U.S. employers to hire low-wage guestworkers from abroad temporarily for seasonal, non-agricultural jobs, mostly in landscaping, forestry, seafood processing, and hospitality) has been a top goal for business groups including the U.S. Chamber of Commerce, ImmigrationWorks USA, landscaping and seafood employers, and the Essential Worker Immigration Coalition (EWIC)—lobbyists representing employers claiming they can’t find U.S. workers willing to mow lawns, plant trees, or pick crabmeat.
These lobbyists have never presented a credible case regarding labor shortages in H-2B jobs. But H-2B employers have spent millions of dollars on litigation, lobbying, and campaign contributions; anything it takes to keep wages from rising and to prevent their access to low-paid indentured foreign workers with few rights from ever being restricted.
And it’s happening again. To avoid a government shutdown, Congress has to pass appropriations legislation soon to fund the entire federal government. Whenever that happens, members of Congress attempt to insert “riders,” legislative provisions tucked into appropriations bills that amend the law in substantive ways that have nothing to do with appropriations. Thanks to the aforementioned corporate lobbyists, the current 2016 fiscal year appropriations negotiations have included discussions about riders to remake the H-2B program. The omnibus bill introduced in the House on the evening of December 15 included riders that would: 1) vastly increase the size of the H-2B program, 2) eliminate protections that keep workers from being idled without work or pay for long periods of time, and 3) prevent U.S. workers from having a fair shot at getting hired for job openings by preventing enforcement of the rules that require employers to recruit workers already present in the United States before they can hire an H-2B worker. Finally—and worst of all—if the House appropriations bill becomes law it will also dramatically lower the wage rates employers are required to pay, which would permit employers to pay their H-2B workers much less than American workers employed in the same jobs and local area. Needless to say, the lower wages H-2B workers will be paid create a huge incentive to hire temporary foreign workers instead of the local U.S. workers who reside in communities where the jobs are located.
In addition, legislation in the House and Senate has been introduced that would permanently implement these changes, including reducing H-2B wage rates, expanding the size of the H-2B program to about 200,000, and repealing all of the protections for foreign and American workers that the Obama administration just implemented in April 2015, after fighting opposition to them from corporate lobbyists and Congress for the past five years.
States and districts must fulfill the promise of more equity in education offered by new education law
For many of the nation’s schools, this week feels distinctly festive. Congress finally passed, and the President signed, the Every Student Succeeds Act (ESSA), reauthorizing the Elementary and Secondary Education Act (ESEA), wrapping up a nearly eight year effort.
There’s much to celebrate in the new bill. First, no more No Child Left Behind, the 2001 iteration of ESEA that shifted our flagship federal education legislation from a civil rights law supporting the nation’s neediest schools and students to one that penalized those same schools for failing to meet higher standards, while withholding many of the supports they need to do so. Second, the newly reauthorized law returns key aspects of education policy to state and local authority, making it easier for schools to target interventions and resources based on their unique contexts. Third, by incorporating such strategies as pre-kindergarten and wraparound supports for disadvantaged students, it recognizes that students’ needs—and education itself—extend beyond K-12 and the school day.
At the same time, skeptics rightly point out that many of the states and localities celebrating their renewed authority have historically used that authority pretty badly. Under ESSA, state and local education agencies must practice due diligence and recognize that with increased flexibility and autonomy comes increased responsibility. The skeptics also point out that ESSA is still a far cry from what is needed to level the education playing field. Substantially improving education and narrowing gaps requires, at a minimum, funding levels that enable ESSA to serve as a real equalizer and implementation that extends that equalizing potential at the state and local levels.
On Wednesday, December 16, the Federal Reserve is expected to announce that it is raising interest rates above zero for the first time in seven years. In recent briefings and presentations, EPI Research and Policy Director Josh Bivens has argued that a rate increase would be a mistake. The following is a rough transcript of remarks delivered at events including a December 1 briefing with Rep. John Conyers.
It’s a near lock that the Fed will raise the short-term interest rates it controls off of zero this week—where they’ve been sitting since the end of 2008. I think this is a mistake. You should raise interest rates only when you think you need to start slowing the pace of economic growth because you’re worried that fast growth and falling unemployment will spark too-rapid wage growth that will bleed into rapid price inflation. But there’s no reason to think that the pace of economic growth today is excessive and needs to be slowed because of incipient inflation.1
And the stakes to getting this tradeoff between low unemployment and stable inflation wrong are huge. Since 1979, the bottom 70 percent of American workers have essentially seen one multi-year episode of strong, equitable growth in hourly pay. That occurred in the late 1990s and early 2000s, when unemployment fell far below what existing estimates said it could without sparking inflation—it bottomed out at 3.8 percent for a month in 2000, and averaged 4.1 percent for two solid years in 1999 and 2000. This led to the only serious period of strong, equitable wage growth in the past 35 years. The bottom 70 percent saw trivial wage growth (or wage declines) in the entire rest of that period. The figure below shows wage growth in the late 1990s/early 2000s compared to the rest of the 1979-2013 period for various points in the wage distribution. Besides the top 5 percent, it can be seen that most wages grew much faster during the late 1990s high-pressure labor markets than in other periods post-1979.
What if the next time you went for a medical checkup, you were accosted by a pharmaceutical rep waiting for her expense-account lunch with the doctor. But instead of saving her pitch for the doctor—a sleazy enough practice—the drug rep began telling everyone in the room that they should take an expensive drug that has no advantage over a generic version and is approved only for medical conditions no one there has.
Illegal? Yes. But imagine that this was actually legal and that President Obama, with the support of progressives in his party, had issued a proposed rule intended to curb such practices by requiring that anyone offering advice to patients in a doctor’s office have the patient’s best interest at heart.
Here’s what would happen: Republicans in Congress would start parroting industry talking points about this having a chilling effect on urgently-needed advice people are receiving for free and can’t afford to pay for. A substantial minority of congressional Democrats would claim to agree with the president in principle, but find one reason or another to delay the rule indefinitely with quibbles and questions. The industry lobby would continue to shower Republicans with campaign donations, while the hand-wringing Democrats would avoid being singled out by the industry in their quest for reelection. Pundits would treat it as a complicated issue where there is serious risk of unintended consequences, and Americans would continue to be suckered into paying exorbitant prices for risky products they shouldn’t be buying in the first place.
The Job Openings and Labor Turnover Survey (JOLTS) report released today by the Bureau of Labor Statistics shows signs of a continued slow recovery. Job openings fell slightly to 5.4 million, and the quits rate remained, stubbornly, at 1.9 percent, where it has been for most of the last year. Along with last Friday’s jobs report, today’s report provides more evidence of a recovering but still weak economy. While most indicators have been trending in the right direction, nominal wage growth and the prime-age employment-to-population ratio remain far outside of target ranges, and provide ample evidence that the economy has a way to go before reaching full employment.
In October, there were 1.5 unemployed workers for every job opening, a slight tick up from last month. That means they for every 15 jobs, there are five potential workers who won’t be able to find a job no matter how hard they look. And the job-seekers-to-job-openings ratio is higher among certain sectors. Notably, there are still 45 unemployed construction workers for every 10 job openings in construction.
The sluggish quits rate is particularly troubling. At 1.9 percent, the quits rate was still 9.2 percent lower than it was in 2007, before the recession began. This is evidence that workers are stuck in jobs that they would leave if they could. A larger number of people voluntarily quitting their jobs would indicate a strong labor market—one in which workers are able to leave jobs that are not right for them and find new ones. Hopefully we will see a return to pre-recession levels of voluntary quits, but given that the rate has stayed flat, we are obviously not there yet.
This piece originally appeared in the Wall Street Journal’s Think Tank blog.
Our friend and former colleague Jared Bernstein has mounted a small but strategic retreat in the campaign to have the Fed continue focusing on full employment. He has written that Friday’s jobs report, though not stellar, was good enough to make a December increase in interest rates a near-certainty. He then argues that this might not be the worst thing in the world:
Even while I do not see much rationale for an increase, especially given elevated underemployment and the stark lack of inflationary pressures, given their recent messaging, a non-liftoff in December would suggest the economy is a lot worse than they thought in some secret way they’ve been keeping from us. Such a negative surprise would be ill-advised.
Presuming that they won’t want to go there, it’s now all about the ‘path to normalization:’ how fast they raise. … [I]f I’m Chair Yellen, my message to the hawks is: ‘OK, you got your rate liftoff even though the data weren’t really there for it. Now back…off and let’s go back to being data-driven about future increases.’ ”
Jared is right that the larger economic question is not just about a 25-basis-point increase this month but about how rapidly interest rates climb over the next year or so. But we’re still really uncomfortable with starting lift-off before the data support it. Once you start indulging faith-based arguments about monetary policy, you’ve lowered the bar for data-driven analysis, making smart policy choices harder and harder to sustain.
On Friday, the Bureau of Labor Statistics will release the November numbers on the state of the labor market. On December 15, the Federal Open Market Committee will meet to determine whether they should raise interest rates, and most prognosticators think that this time they will actually go through with it. Last month’s stronger than expected jobs report led many to declare, prematurely, that it is time to start raising rates in order to ward off incipient inflation. The reality is that we need to see strong wage growth that is consistent and strong enough so that labor share of income returns to pre-recession levels and the labor market achieves a full recovery. Then, and only then, should we begin a conversation about raising rates.
Over the last six years, nominal wage growth has continued hover around 2.0 to 2.2 percent, far below target (see below on the target). Yes, October’s year-over-year growth was stronger—2.5 percent for nonfarm employees, although it was lower for production and nonsupervisory workers (2.2 percent). But again, one month of data is not sufficient evidence, and even 2.5 percent is still far below the wage target.
The Department of Homeland Security’s proposed STEM OPT extension fails to protect foreign students and American workers
For decades, the Optional Practical Training (OPT) program has permitted foreign graduates of U.S. universities, who visit the United States to study through the F-1 nonimmigrant visa program, to be employed in the United States for up to 12 months immediately after graduation. In 2008, the George W. Bush administration extended the OPT program period to 29 months for F-1 graduates of a science, technology, engineering, or math (STEM) program—known as the STEM OPT extension—through an Interim Final Rule (IFR) promulgated by the Department of Homeland Security (DHS). On August 12, 2015, the U.S. District Court for the District of Columbia struck down the 2008 IFR, ruling that the regulation was illegally created in violation of the Administrative Procedure Act. Judge Ellen Segal Huvelle vacated the IFR effective February 12, 2016.
On October 19, 2015, President Obama proposed new DHS regulations that would reinstate the STEM OPT extension and increase its duration from 29 months to 36 months per STEM degree for foreign STEM graduates, and allow the extension eligibility to apply to up to two STEM degrees. Effectively, this would allow foreign graduates with STEM degrees to be employed for up to six years while on an F-1 visa. The DHS regulatory notice solicited comments from the public. In our comment, we argue that the president’s STEM OPT extension proposal is problematic for several reasons:
Last Thanksgiving I wrote a blog post in the “how to argue with your relatives at Thanksgiving” genre, providing some hard numbers for people who didn’t want to let their conservative relatives spout nonsense about economics with impunity at the holiday dinner table. This year, lots of those same arguments are still in the news, so I updated some of the data and points for 2015. Also, another silly argument seems to be making the rounds: the claim that the Fed’s low interest rates have somehow hurt “poor savers,” and hence the Fed should raise rates at its next meeting.
So, here’s an updated list of some of the myths that come up every year, and how to address them.
MYTH: The government’s spending too much—they should tighten their belts the same way households had to following the Great Recession
This “tighten the belts” line is perhaps the worst analogy ever. And yes, it’s bipartisan silliness. Simply put, if everybody (households, businesses, and governments) tightens their belts together (i.e., stops spending money) then the result is just a steep recession. Even with increased federal government spending, tightened household and business spending in 2008-2009 led to a savage economic downturn. Actively cutting government spending would’ve made it worse. Much worse. There really is tons of evidence that the increases in government spending during and right after the Great Recession (the Recovery Act, mostly) made the recession much lighter and the recovery come faster.
But, say you continue to disbelieve the overwhelming evidence that spending cuts slow growth and worsen recessions. Let’s just look at the data on federal spending in the recovery since the Great Recession versus recovery from the previous three recessions (in the early 1980s, early 1990s, and early 2000s) to see if even the premise of “exploding spending” in recent years is right. The figure below shows (inflation adjusted) federal government spending over the full business cycle (centered on the recession’s trough in the middle of 2009.
By closing loopholes in the Buy American Act, the 21st Century Buy American Act will increase demand for U.S. manufactured goods and create at least 60,000 to 100,000 U.S. jobs. The Buy American Act requires “substantially all” direct purchases by the federal government (of more than $3,000) “be attributable to American-made components.” However, there are a number of exclusions or loopholes in the Buy American Act. The single largest is an exception for “goods that are to be used outside of the country,” and the 21st Century Buy American Act includes provisions to close it. In addition, current regulations interpreting the Buy American Act state that “at least 50 percent of the cost must be attributable to American content,” which can reduce net demand for American made content.
Between 2010 and 2015, the “goods used outside of the country exception” was used to purchase $42.3 billion in goods that were manufactured outside of the United States, an average of $8.5 billion per year.1 The 21st Century Buy American Act would require most or all of those goods to be U.S. made, increasing demand for U.S. manufactured goods by up to $8.5 billion per year.2 Although labor markets have improved in the United States since the recession, there remains substantial slack and 2.6 million jobs were still needed to catch up with growth in the potential labor force in September 2015. I assume, based on recent research by my colleague Josh Bivens (Table 5) that wages earned by new manufacturing workers will support a macroeconomic multiplier of 1.6 in the domestic economy over the next year.3 I also assume, based on total GDP and employment levels in 2014 that a 1 percent increase in GDP adds 1.3 million jobs to the economy. Thus, the $8.5 billion increase in spending on domestic manufactured goods (with 100 percent domestic content) would increase GDP by $13.6 billion (0.08 percent), creating up to 100,000 new jobs in the domestic economy.
Congresswoman Rosa DeLauro (D-Conn.) spoke at the unveiling of EPI’s Women’s Economic Agenda on November 18, 2015. Her remarks, as prepared for delivery, are posted below.
Good morning. Maya, thank you for that kind introduction. I have to first recognize EPI and Larry who have been a godsend in providing members of Congress great economic information that focuses on the impacts of public policies on low and middle class Americans and their families. The topics they cover are wide-ranging—from the impact of various trade agreements to the current jobs crises, where people are in jobs that don’t pay them enough to live on.
Let me also acknowledge my colleagues and the advocates who join me at the podium. Senator Warren—a woman who needs no introduction. The Boston Globe describes her as “a fierce advocate for the lot of working families.” Senator Warren has a reputation for knowing how to get things done.
Elise Gould at EPI—thank you for your tireless work on this Women’s Economic Agenda. Let me acknowledge Liz Shuler. Thank you for your leadership and advocacy at AFL-CIO. And all the advocates here today. Each of them put working families at the heart of everything they do.
Today we come together to push the policies as part of the Economic Policy Institute’s Women’s Economic Agenda to improve the lives of working women and families.
The Elementary and Secondary Education Act (ESEA) appears, finally, to be nearing reauthorization. Barring unforeseen circumstances, Congress will, after years of effort, begin to right some of the wrongs wrought by the excessive focus on standards and accountability in No Child Left Behind (ESEA’s current iteration). The draft framework sent to the conference committee swings the pendulum from federal overreach and prescription back toward state and local control. It claws back—but does not eliminate—accountability requirements by striking “Adequate Yearly Progress,” annual measurable objectives, and the unattainable goal of 100% proficiency from the act.
Not only would this ESEA do less wrong, it would do more right; key passages hold promise to return ESEA to its civil rights and antipoverty roots. Informed by rising rates of student poverty, the proposed framework recognizes that poverty poses a major impediment to effective teaching and learning.
It is true that much of the debate around reauthorization has been about testing, funding for charter schools and vouchers, the Common Core State Standards, and a range of other issues worthy of consideration. But these are not central to the core purpose of ESEA, which was originally passed as part of President Lyndon Johnson’s War on Poverty. Over the years, that purpose has been diluted. But as 10 organizations, led by the Broader, Bolder Approach to Education, wrote to education leaders of both houses last year, Congress has a unique chance to reverse course and bring ESEA back to its roots. We called on Congress to follow five key principles in ESEA reauthorization:
These five principles represent the original spirit and intent of the law, and they give states, districts, and schools the flexibility they need to address their specific concerns and meet the unique needs of their students. We propose that they be at the center of a reauthorized Elementary and Secondary Education Act.
Closing the pay gap and beyond: A brief explanation of the motivation behind EPI’s Women’s Economic Agenda
This morning, EPI released our Women’s Economic Agenda (and an accompanying research paper)—a set of policies designed to close the gender wage gap and ensure that women achieve real, lasting economic security.
In the last several decades women have made great strides in educational attainment and labor force participation. Nevertheless, when compared with men, women are still paid less, are more likely to hold low-wage jobs, and are more likely to live in poverty. And the problem is worse for women of color. As demonstrated in numerous research studies, gender wage disparities are present across the wage distribution and within education, occupations, and sectors, sometimes to a grave degree.
Closing the gender wage gap is absolutely essential to helping women achieve economic security. But to bring genuine economic success to American women and their families, we must do more. The gender wage gap is only one way the economy shortchanges women.
At the same time the gender wage gap has persisted, hourly wages for the vast majority of workers have stagnated, as the fruits of increased productivity and a growing economy have accrued to those at the top. It hasn’t always been this way. As you can see in the figure below, pay rose with productivity in the three decades following World War II. But since the 1970s, pay and productivity have grown further apart, as the result of intentional policy decisions that eroded the leverage of the vast majority of workers to secure higher wages.
A progressive women’s economic agenda, one that seeks to truly maximize women’s economic potential, must focus on both closing the gender wage gap and raising wages more generally.
Friend and former colleague Jared Bernstein made a defense of the ACA excise tax on expensive employer-provided health insurance plans a couple of days ago. It’s about as good a defense as there is of the excise tax, but at EPI we’re still largely unconvinced. He provides some arguments on the substance of the tax (which I’ll briefly touch on below), but mostly leans on a political argument, that this is a tax that actually exists, and given the anti-tax zealotry of congressional Republicans, we should be very leery of giving away any revenue that is currently on the books.
First, some economics, and then on to some politics.
Jared and I are roughly on the same page regarding the wage/health care trade off issue. As the excise tax is imposed on plan costs above a certain threshold, this will encourage people to shift into plans with lower upfront premiums. But these lower upfront premiums mean that more health costs are shifted onto households in the form of higher co-pays, deductibles, and co-insurance. The good news of lower premiums, however, is that this frees up money for employers to give more compensation to workers in the form of cash wages rather than health premiums. Elise Gould and I have argued in the past that this wage boost stemming from less-generous health plans is likely to be a long time coming, particularly if labor markets remain slack. Jared agrees. He argues this trade off likely will happen in the longer run. I agree (though I’m not 100 percent sure, and am troubled by the lack of robust empirical support in the research literature on this). My beef has mostly been with people who simply state that the excise tax will lead to a “raise” for American workers. That’s bunk. It will change the composition, not the level, of employee compensation. And it will increase total taxes on this compensation, hence cutting their take-home pay.
Today’s release of the September Job Openings and Labor Turnover Survey (JOLTS) data corroborates the story we saw in August and September’s jobs reports, as hiring slowed and the economy added a paltry number of jobs (note that the JOLTS data comes with a one-month lag relative to monthly jobs numbers, so the much-improved October jobs report data is not reflected in today’s release). Although the number of job openings increased to 5.5 million in September, this was after a large decrease to from 5.7 to 5.4 million in August. But the main data point we should focus on is the hires rate, which actually fell in September from 3.6 percent to 3.5 percent, the lowest it has been in a year.
In September, there were 1.4 active job seekers for every job opening. Although this decline is a welcome improvement in the JOLTS ratio, it is important to remember that there are still almost 8 million unemployed workers and over 3.5 million estimated “missing workers” who have left the labor force altogether because job opportunities have been so weak.
In fact, there is still a significant gap between the number of people looking for jobs and the number of job openings. The figure below shows the levels of unemployed workers and job openings. You can see the labor market improve over the last five years, as the number of unemployed workers falls and job openings rise. In a stronger economy (like the one shown in the initial year of data), these levels would be much closer together.
The National Association of Homebuilders (NAHB), both in congressional testimony and in the official comments it submitted to the Department of Labor, makes a strong case for the Obama administration’s proposed rule on the overtime rights of salaried workers. Yes, you read that right: NAHB makes an ironclad case that businesses will have little difficulty adjusting to the proposed rule change.
Naturally, NAHB, which claims to represent 140,000 members involved in “home building, remodeling, multifamily construction, property management, subcontracting, design, housing finance, building product manufacturing and other aspects of residential and light commercial construction,” testified before Congress that the DOL proposal would be the end of Western Civilization. But the data they presented tell a different story.
NAHB’s own survey of its members found that two-thirds would make no changes in their policies or operations. Many, of course, already pay their supervisors more than $50,440 a year and would be unaffected. Of the one-third that would make adjustments, most would do exactly what the rule contemplates: they would reduce the amount of overtime their supervisors work. Twice as many firms would raise the salary of their supervisors above the $50,440 threshold as would reduce their salary. And only 13 percent of the firms that said they would make a change would switch their supervisors from salary to hourly wage. In other words, just 4 percent of home builders would convert their salaried supervisors to hourly pay.
It is noteworthy that of the four top responses among the home builders who say they will make changes, two are undeniably positive—raising salaries and reducing overtime hours worked. Apparently, Ed Brady, the NAHB official who testified in the Small Business committee, is one of the few home builders in America who would contemplate outsourcing the role of construction supervisor in order to avoid paying overtime. Any contractor who employed that supervisor would have to deal with the same issues as Mr. Brady, and would charge for the costs they entail, plus a profit— so perhaps it’s not surprising that Mr. Brady is alone in planning to outsource his supervisors.
Clearly, the NAHB’s own evidence shows that DOL’s proposed changes in the overtime rules will have small, mostly positive effects on the homebuilding industry and its employees.
An increase of 271,000 in payroll employment is a promising sign. One month is surely not predictive of the future, but if this continues, it is good news for the economy and the people in it. While the topline employment number for October is quite encouraging, other indicators continue to paint a picture of a plateaued economy, particularly the fact that there has been no growth in prime-age employment-to-population ratio (EPOP) this year.
The share of the 25–54 year old population actually employed is arguably one of the best measures of economic health. At 77.2 percent, it remains depressed— lower than the worst of the prior two recessions before the Great Recession. The effects of such low prime-age EPOPs may be far-reaching, affecting not only the incomes but also the health of the population.
Public-sector employment also remains weak, and depressed government spending continues to be the leading cause of the sluggish pace of recovery in recent years. One thing that has been historically unique about this recovery is the unprecedented loss of and lack of recovery of public-sector jobs. The figure below compares public-sector employment in this recovery to the three prior recoveries. Recessions are marked by the lines to the left of the zero point on the x-axis, while recoveries are to the right. This graph clearly shows that the public sector has seen massive job loss in the current recovery. This is a direct result of austerity policy and a huge drag that has not weighed on earlier recoveries.
Bringing It Back Home, a report issued by the Economic Policy Institute at the end of October, provides a distinct service in reminding Americans that they can learn more about how to improve their schools by looking at successful American states than they can by heading overseas to pry lessons out of foreigners.
The authors, Stanford’s Martin Carnoy, EPI’s Emma Garcia, and Tatiana Khavenson at the National Research University Higher School of Economics in Moscow, have produced an impressive piece of scholarship. Their work makes a genuine new contribution to the discussion about how to improve American schools.
In considering this study, several points need to be born in mind.
First, the United States has very real problems in its schools. We cannot be Pollyannas about where we are. Average student performance is not where we would like it to be, and the average conceals terrible gaps between students doing well and those bringing up in the rear.
Historically, we have done a reasonably good job with the traditional students our schools were designed to serve. But now we face a new challenge: a student population in which the majority of students are, for the first time in our history, both low-income and children of color.