Things are good for Google Executive Chairman Eric Schmidt. With $8.3 billion in his bank account, he’s the 49th wealthiest person in America. And he spent the week at the Davos World Economic Forum to celebrate.
During Schmidt’s Davos fireside chat, which was reported on by Henry Blodget at Business Insider, Schmidt had this to say, in the context of a discussion of income inequality:
“The stagnation in middle-class wages is not just a middle-class problem. It’s an economic problem. And it’s one of the main reasons that global economic growth is so lousy.
Why do stagnant middle-class wages hurt the economy?
Because the middle-class folks whose wages are stagnant are the global economy’s biggest spenders.”
He hit the nail right on the head. Wages for the vast majority of Americans have been basically flat for the last 40 years. To be specific, wages for the median worker have increased by just 5.0 percent between 1979 and 2012. During that time, workers gained a lot of education, and the economy as a whole became 75.4 percent more productive—we now produce more per hour worked than we ever have. Yet the typical American worker is being paid almost no more than his or her counterpart a half century ago.
A higher minimum wage is an important way to address wage inequality, as the erosion of the minimum wage is the main reason for the increase in inequality between low-and middle-wage workers (in particular the 50/10 wage gap, that between the median and the 10th percentile earner). This is particularly true among women, the group for whom the wage gap in the bottom half grew the most. As the figure below shows, two-thirds of the increase in the 50-10 wage gap can be attributed to the erosion of the real value of the minimum wage. [The 50/10 wage gap grew 25.2 (log) percentage points between 1979 and 2009 and that two-thirds of this increase (16.5 percentage points, or 65 percent of the total) can be attributed to the erosion of the minimum wage.] The paper this figure draws on usefully and appropriately captures the spillover impact of the minimum wage—the impact on those earning above the legislated rate. This finding makes sense, since it was in the 1980s that the minimum wage eroded the most, and that was the same time period when the 50/10 wage gap among women expanded greatly. The erosion of the minimum wage explains over a tenth (11.3 percent) of the smaller 5.3 (log) percentage point expansion of the 50/10 wage gap among men. For workers overall more than half (57 percent) of the increase in the 50/10 wage gap was accounted for by the erosion of the minimum wage.
University of Oregon labor scholar and EPI research associate Gordon Lafer often points out how relatively poor the quality of life is in right-to-work states, on average, compared to states that don’t restrict union contract rights.
Politico just came out with a new ranking of the 50 states, on a combination of 14 different measures of quality of life, including “high school graduation rates, per capita income, life expectancy and crime rate.” Then they average those 14 to create one overall ranking of the states.
The outcome suggests the opposite of corporate assertions that “right-to-work” states are doing better than others. According to Politico, 4 of the 5 best states to live in are non-right-to-work. In order, they are New Hampshire, Minnesota, Vermont, Utah, and Massachusetts.
Right-to-work states account for 8 of the 10 worst states, and all 5 of the 5 worst states (in order, from 46th-50th: Alabama, Tennessee, Arkansas, Louisiana, Mississsippi). The majority of RTW states are not only in the bottom half of the country, but in the bottom 20 of the 50 states.
Lafer’s home state, Oregon, where corporate backers are trying to pass a public sector right-to-work law, is ranked 23rd, outperforming nearly 2/3 of the states that currently have RTW laws.
As President Obama searches for ways to improve the wages of American workers by giving them a boost in bargaining for better job quality with their employers, he is limited by the dysfunctionality of Congress, which because of Republican opposition is unlikely to help even with a minimum wage increase. But the president, who manages the vast amount of work the government does through private contractors, should consider what he can do to set reasonable standards for the pay and compensation of the millions of employees of those federal contractors.
As EPI has estimated again and again, far too many people working for private firms— but for the benefit of the federal government, with their wages ultimately paid by the taxpayers—are likely working for poverty wages. This is unacceptable; it is damaging to those workers and their families, and it hurts the economy by reducing demand for goods and services—currently a problem of crisis proportions.
In November 2000, an EPI briefing paper by Chauna Brocht, The Forgotten Workforce, estimated that 162,000 federal contract workers earned less than the then-poverty level wage of $8.20 an hour (by poverty-level wage, we mean a wage for a full-time, full-year worker that would not lift a family of four out of official poverty). Most of the low-wage employers were large businesses and most were defense contractors.
President Obama will deliver his State of the Union this coming Tuesday, the 28th. It seems obvious that no big new policy initiative that requires action from Congress will pass in the next year, given DC gridlock. This is a real shame, because the crisis of joblessness and failure to fully recover from the Great Recession remains the single largest economic challenge facing the country, and solving it would require a serious course correction on policy. The most reliable fix for this crisis of joblessness would be simply allowing public spending to rise to levels that characterized every other recovery since World War II. Even better would be to allow this spending to rise to levels characterizing the recovery from the similarly steep early 1980s recession. In short, what is needed is not some historically unprecedented stimulus program, but simply an end to the historically unprecedented austerity program now underway.
And it’s pretty easy to specify where the first $25 billion or so of this spending should be allocated: extending the Emergency Unemployment Compensation (EUC) program for long-term unemployed workers—a program begun in June 2008 when the unemployment rate was significantly lower than today and when long-term unemployment was literally half as high. I’d be shocked if the president did not issue a forceful call to pass EUC for the upcoming year.
After this, a substantial program of public investment would be most welcome, boosting job-growth and economic activity in the short-run and boosting productivity in the longer-run. The talking point mobilized in favor of infrastructure investment—that it once was a bi-partisan priority—has the rare virtue of being true even today, so long as one listens to policy analysts and not politicians. For example, Martin Feldstein, Chair of the Council of Economic Advisors under Ronald Reagan, has endorsed a deficit-financed increase in infrastructure investment (granted, he endorses plenty of other things in that column that I’m not on board with, but the point remains). And Ken Rogoff, an economic adviser to John McCain in 2008, has also noted that infrastructure investment would be hugely beneficial in the current economic climate.1
Treasury Secretary Jack Lew sent a letter to Congress yesterday warning that the federal government probably will breach the statutory debt limit in late February. To remind those who may have forgotten, there is no credible evidence that the U.S. economy is running up against any genuine economic constraint on debt. Interest rates remain historically low and federal budget deficits are actually closing historically rapidly. Yet because the United States (almost alone among advanced countries) has an arbitrary limit on the amount of outstanding federal debt that must be periodically renewed through legislative action, approaching the statutory debt limit provides members of Congress the chance to flirt with severe economic damage simply by refusing to raise the limit.
The House GOP leadership claimed that they did not want to get “even close” to a default. However, a spokesperson for House Speaker Boehner said a clean bill to raise the debt limit would not pass the House without some concessions to Republicans in order for them to “save face.” These concessions presumably would be more spending cuts. Given what should be considered a GOP “win” in the recent Murray-Ryan budget deal, one wonders what more do they want? It is worth taking a closer look at the GOP win in the budget deal and compare it to what might have been.
The chart below displays nondefense discretionary budget authority from fiscal year 2006 to fiscal year 2021 (when funds are appropriated by Congress, agencies are given budget authority to incur financial obligations—i.e., spend money). Nondefense discretionary spending includes spending for public investments such as roads, bridges, sewage systems, basic scientific research, and education—all the things that boost long-term economic growth. The Budget Control Act (BCA), the law that gave us the sequester, along with other steep cuts that have attracted less attention, specifies the limits on discretionary spending until 2021. It is specified in nominal dollar amounts, which rise over time. In inflation-adjusted terms, however, the spending is constant. But a better way to measure public spending is as a percentage of GDP—basically looking at public spending in relation to income available to pay for that spending.
The “robots are coming” narrative dominating discussions of the economy was popularized by Erik Brynjolfsson and Andrew McAfee in their 2011 book, Race Against the Machine. They have built on that theme in the richer, deeper The Second Machine Age (W.W. Norton, 2014). The first half of the book provides a valuable window, at least for a non-technologist like me, into past developments and the future trajectory of digitization. Their claim is that digitization will do for mental power what the steam engine did for muscle power—that is, quite a bit, transforming our lives at work and play.
The remainder of the book dwells on the role of digitization in generating both bounty (more consumer choice and greater output, wealth, and income) and spread (greater inequalities of wages, income, and wealth). In treating these topics, they heavily rely on the work of others. As in their last book, they do not provide much direct evidence of the connection between technological change and wage inequality. I study these issues and believe they are wrong to tightly link digitization and robots to wage inequality and the slow job growth of the 2000s. Although the authors claim “technology is certainly not the only force causing this rise in spreads, but it is one of the main ones” my fear is that this book, like their last one, will fuel the mistaken narrative that technology is responsible for our job and wage problems and that we are powerless to obtain more equitable growth.
Let me start where we agree and where I very much appreciate their argumentation. Brynjolfsson and McAfee are very clear that we are experiencing a dramatic growth in wage, income, and wealth inequality; that living standards have faltered for a significant share of the population; and that these are challenges that must be addressed. They rightly fear that current inequities will generate greater future inequity: They argue that current wealth solidifies and expands inequality through the political process and worry that inequality impedes social mobility—the degree to which a child’s chances are linked to his or her parents’ current station. Inequality begets greater inequality. I appreciate their refutation of denialism and ‘so whatism’.
Their weakest case is that digitization is associated with the slow job growth of the last 15 years. The authors review all the reasons why economists find such a claim untrue, including 200 years of history disproving a link between technology and slow job growth. They propose a few reasons why things may be different now. However, their only evidence is that employment and productivity grew in tandem for many decades but became decoupled in the late 1990s and offer their “reading of technology” as an explanation. In fact, there’s a simple answer to the riddle of slow job growth: slow economic growth resulting from the collapse of two asset bubbles and inadequate policy responses. Job growth occurs when economic growth exceeds productivity. Simply put, if workers can produce 2 percent more this year than last year, the economy can grow 2 percent without adding any employment. Thus, the economy must grow faster than productivity to create jobs, something that has not happened in the unique circumstances of the 2000s.
Monday’s celebration of Dr. Martin Luther King Jr.’s legacy presents the perfect opportunity to reflect on how far the country has come and to acknowledge the undeniable advancements African Americans have made, and to consider the goals that remain unmet. Last year, EPI released the Unfinished March, a series of reports that detailed the remaining steps to fully achieve the goals of the March on Washington for Jobs and Freedom, the setting for King’s “I Have a Dream” speech. Yet to be achieved are the hard economic goals, critical to transforming the life opportunities of African Americans. They include decent housing, adequate and integrated education, full employment, and a national minimum wage that can realistically lift a family out of poverty.
The employment trends for African Americans over the past decade, as seen in this week’s Economic Snapshot, show just how much work remains to be done just to achieve the goal of full employment. While the economic woes of the past few years have worsened labor market prospects for all workers, for African American workers the employment situation is significantly worse, akin to depression-level conditions. An estimated 19.6 percent of black workers (nearly one in five) were unemployed at some point in 2013. Furthermore, given unemployment projections for 2014, it is likely that 17.4 percent of black workers will be unemployed at some point this year.
Needless to say, it doesn’t have to be this way. Recommitting ourselves to achieving Dr. King’s goals means implementing policies that would aid all U.S. workers, including large-scale ongoing public investments, the restoration of public services and public-sector employment cut in the recession and its aftermath, and the renewal of federal unemployment insurance benefits. Passing these policies would not only celebrate Dr. King’s legacy, but also help working families, of all races, across the country.
New Analysis of the Labor Market Outcomes of Employment- and Family-Based Immigrants Can Improve Policymaking
Unlike other developed countries such as Australia and Canada, the U.S. government simply does not collect and analyze enough information on the labor market outcomes of immigrants who are issued visas that grant them legal permanent resident (LPR) status. Especially when it comes to longitudinal data that track the same immigrants over time in order to see how their situation has changed. This dooms policymakers to make uninformed decisions based on assumptions or that are influenced by lobbying from interest groups. That’s why new (and as-of-yet unpublished) research from Professors Mark Rosenzweig (Yale University) and Guillermina Jasso (New York University) is groundbreaking: it analyzes data from Princeton University’s New Immigrant Survey (NIS) and offers a glimpse at how immigrants in the United States are performing in the labor market over time and by visa category.
The NIS “is a nationally representative multi-cohort longitudinal study of new legal immigrants and their children to the United States,” and one of the most useful data sets available on U.S. immigrants. The first cohort of immigrants participating in the NIS were interviewed in 2003, and follow-up interviews were conducted from 2007 to 2009. Rosenzweig recently presented their research based on these survey data at an informative conference on family immigration hosted by the U.S. Department of Homeland Security and the Organisation for Economic Cooperation and Development (OECD). He showcased some of the first analyses of the NIS’s longitudinal data on the labor market performance of immigrants who came to the United States through the Diversity Visa (DV) lottery and the employment-based (including spouses) and family-based immigrant visa categories; the latter of which represent two-thirds of all immigrant visas issued (by far the highest share in the OECD), and allow foreign citizens to join a spouse or parent who is a U.S. citizen or LPR, or to join the son, daughter, or sibling of a citizen already in the United States. (Lindsay Lowell of Georgetown also presented notable new research and findings documenting the growth of the family-based visa category in the United States since the 1970s.)
Seth Harris’s Legacy: Lives Saved, Wages Restored, Pensions Secured, and a More Effective U.S. Department of Labor
The Deputy Secretary of Labor for the last five years is not well known outside his agency (deputy secretaries are never well known, they’re supposed to avoid the limelight), but his record—the Department’s record of achievement during his tenure—deserves to be known and praised by every American who cares about justice and an economy that delivers shared prosperity. Seth D. Harris was appointed by President Obama in 2009, but he had already spent eight years at the Department as an aide and counselor to Secretary Robert Reich and as an Assistant Secretary under Secretary Alexis Herman. As Secretary of Labor Tom Perez said yesterday, no official since Frances Perkins in the 1930s has understood every aspect of the agency’s mission as thoroughly as Seth Harris, and the agency was much smaller then! It’s unlikely that anyone so knowledgeable will ever serve at the Department of Labor (DOL) again.
When Harris and Secretary Hilda Solis took office in 2009, the Department of Labor was a demoralized agency with poor operating systems and a disappointing record of declining enforcement and regulations that undermined the agency’s mission in important ways. With Secretary Solis’s support, Deputy Secretary Harris, as chief operating officer of the department, completely turned things around.
This article originally appeared on Project Syndicate.
In 2010, I sat across the table from Assistant US Trade Representative Barbara Weisel, who was responsible for negotiating the Trans-Pacific Partnership (TPP), the mega-regional free-trade treaty among Vietnam, Malaysia, and ten other Pacific Rim countries that President Barack Obama’s administration wants to conclude in the coming weeks. At the time, I was Senior Policy Adviser for the US House of Representatives’ Committee on Education and Labor – a position that made me the top congressional staff member responsible for upholding labor standards in international trade treaties.
The purpose of the meeting was for Congress to understand what steps the Obama administration was taking to protect American workers from being forced into unfair competition with workers from low-wage trading partners. I asked Weisel what I thought was a simple question: “What is the White House’s position on democracy?” Weisel claimed not to understand, so I explained: A majority of congressional Democrats supported the principle that the United States should sign trade agreements only with countries that are democracies.
Other democracies feel the same way. For example, trade agreements negotiated by members of the Commonwealth of Nations (formerly the British Commonwealth) contain just such a provision. The logic is obvious: If we in developed democracies had lacked the right to protest, speak out, organize unions, and vote for representatives of our choosing, we would never have ended child labor or established the eight-hour workday. Having used these rights to raise our own living standards, we should not now put developed countries’ workers in direct competition with workers who lack the basic freedoms needed to improve their own conditions.
No Matter How We Measure Poverty, the Poverty Rate Would Be Much Lower If Economic Growth Were More Broadly Shared
In an op-ed for the New York Times, Jared Bernstein discusses the relationship between GDP and poverty. He explains that growing inequality, not slowing GDP, led to a higher poverty rate than we would have had if economic growth were broadly shared. We create the same graphic in The State of Working America. Not surprising as Jared is a co-author on previous versions. I’m replicating the same idea below using the historical relationship between GDP and poverty from 1959 to 1979 to predict poverty to 2012. As you can see, poverty hits zero by the early 1990s. We choose a different end date in creating the prediction, which changes the estimated date poverty falls to zero, but the same basic fact remains: Poverty falls fast and would be erased from the United States had economic growth been as broadly shared as it had been in the years leading up to the late 1970s.
Many commentators, researchers, and others have argued that the official poverty measure fails to fully take into account the government tax and transfer system, which has accomplished much to reduce absolute deprivation. Some transfer programs are accounted for in the official poverty measure,including Social Security and unemployment insurance. Others, such as food stamps, housing assistance, and the earned income tax credit are not included in the official poverty measure. The Supplemental Poverty Measure (SPM), created by the Census Bureau, effectively takes many of these into account while simultaneously altering the threshold at which poverty is measured against.
This post originally appeared on The American Prospect.
The Vice-President for Governmental Affairs has just finished his report to the corporate board of directors. “Thanks, Ted,” says the Chairman. “You and your Washington staff have done a great job. Getting that little amendment inserted in the budget bill will save us at least $25 million next year. …. Questions or comments? Paul?”
Paul, the hedge fund CEO: “I’m worried about the big picture down there in Washington, Ted. It’s a mess. Deficit out of control.The anti-business attitude. Not to mention incompetence. Can’t even run a website for their own health care program. Pathetic.”
“Amen,” says Hank, who used to run a tobacco company. “What bugs me is Obama’s complaining about inequality. Just whips people up. Saw them last night on the TV news, in front of a McDonald’s somewhere, screaming for more money. Makes you sick. Want money? Get a job!”
“Actually Hank, those people already have a job,” says Cliff from Silicon Valley. “And lucky to have it. Plenty more out there ready to take their place.”
Whenever a new law is passed (usually before it passes), well-placed lobbyists attempt to make exceptions to the general rules, to insert exemptions for their clients. Thus, the federal Fair Labor Standards Act has exceptions for companies that harvest shellfish, for summer camps, for ski resorts in national forests, and many others. Some of these exceptions make sense, but many defy logic. Why, for example, should “motion picture theatres” be exempt from overtime pay requirements?
Prince George’s County recently raised its minimum wage to $11.50 in several increments over three years, and special interest pleading has begun. The first in line is apparently Six Flags, an amusement park that claims paying a higher minimum wage would create a special burden. Why? Because it claims it won’t hire as many teenagers and seniors if their wages are increased.
The company’s argument assumes that there is a necessary trade-off between paying seniors and teens a living wage and employing as many of them as it has. But is that true? Will higher wages compel the company to reduce its staff?
The biggest lie in Washington might be the claim that government regulation is strangling business and making it impossible to earn a profit. The clearest evidence that this is a lie is the fact that business profits are at an all-time high. The chiefs and bosses of those businesses are doing very well, too, with CEO pay soaring far beyond any rational relationship to the pay of average workers.
Yet “too much regulation” remains the cry of the Chamber of Commerce and scores of other business lobbying groups, and it gets taken seriously by the media and by Congress, which is always looking for some reward to give corporate lobbyists for their electoral support. The latest goody is a provision in the House farm bill poorly named the ‘Sound Science’ provision, which is intended to damage the ability of federal agencies to regulate anything that relies on a scientific justification.
Section 12307 requires agencies to develop guidelines not just for making scientific judgments, but for governing how “scientific information is considered.” These guidelines would be wasteful make-work in any case because the agencies are already subject to direction by OMB and the Office of Science and Technology Policy. But they are much worse than that, because they open up every regulatory action, including “the listing, labeling, or other identification of a substance, product, or activity as hazardous or creating risk to human health, safety, or the environment,” to judicial intervention.
Fast track legislation is moving forward. Retiring Senator Max Baucus(D-MT) and Republican leaders introduced a bill to give trade promotion negotiating authority (a.k.a. “fast track” authority) to complete the proposed Trans-Pacific Partnership and a trade and investment deal (the TTIP) with the European Union. The sponsors were unable to obtain a Democratic co-sponsor in the House, and House Ways and Means Ranking Member Sander Levin introduced a strong statement calling for a better model for negotiating trade agreements.
Fast Track is a terrible idea because it’s a proven job killer. It gives the president the right to send treaty implementing legislation to Congress for a vote without any opportunity to amend or improve it. Setting enforceable job creation goals or creating effective mechanisms to deal with currency manipulation, for example, will be impossible if the legislation is fast-tracked.
NAFTA, which was fast-tracked in 1993, and which was the prototype for more than a dozen U.S. trade and investment deals negotiated over the past decade, resulted in growing trade deficits with Mexico that eliminated nearly 700,000 U.S. jobs by 2010. More recently, President Obama pushed through a new trade deal between Korea and the United States (the KORUS deal), which resulted in the loss of 40,000 jobs in the first year alone.
Fast track legislation in its current form is opposed by more than 170 Republican and Democratic House members, so this legislation might be dead on arrival. The House Republican leadership is reportedly insisting that at least 50 Democrats co-sponsor the legislation, including at least one House Democratic leader, before it will be allowed to come to a vote on the House floor. With luck, the fast track bill will die in the House. The last thing America needs is renewal of fast track and more trade and investment deals rushed through Congress.
In a teaser for a talk he gave yesterday about poverty and the congressional fight over Emergency Unemployment Compensation, Sen. Marco Rubio’s office circulated a ‘fact sheet’ that was as ill-informed and self-contradictory as the speech that followed it. For example, the fact sheet said we need unemployment assistance, but hinted that it shouldn’t be in the form of weekly benefit checks:
“Unemployment assistance must remain an important part of our social safety net, but these programs have to do more than simply provide a paycheck; they must be reformed to help people secure middle class jobs. … [W]e should redirect funds away from the federal government and steer them directly to states, while at the same time incentivizing work through a new, direct wage enhancement credit for lower income workers and the working poor.”
Unemployment insurance does not, in fact, have to do more than provide a check. It is intended to do one very important thing: provide income to people who have lost jobs through no fault of their own while they continue to search for new employment. It is not job training. It won’t provide a college degree or a license to practice a profession. It’s meant to keep people in their homes with food on the table until they can find a new job. And finding a job isn’t easy when there are three workers searching for each vacant position. UI has an ancillary benefit, in that it increases aggregate demand and supports jobs that would be lost without it, but its fundamental purpose is to help deserving people survive hard times with dignity. And that benefit depends precisely on checks being sent to the jobless, cashed, and spent.
What to Watch on Jobs Day: The Sixth Anniversary of the Great Recession, and What the Seventh Might Look Like
Tomorrow’s release of jobs data will mark six full years since the official beginning—and four-and-a-half years since the official end—of the Great Recession. Some initial (though traditionally pretty noisy) signs indicate it could be a decent month of job growth.
My colleague Heidi Shierholz released a paper today to remind job market watchers just how far from a healthy labor market we are, and how it will take a very long time for even objectively great monthly job numbers to dig the U.S. labor market out of the deep hole it remains in.
You should read it—it has lots of great labor market indicators. I’ll just highlight one—the “jobs gap.” This is a simple measure of how many jobs the U.S. economy needs to return to immediate pre-Great Recession health (i.e., the labor market conditions that prevailed in December 2007). This jobs gap (pictured below) remains enormous. With 1.3 million jobs needed just to replace those lost during the Great Recession, and another 6.6 million jobs needed to provide work to soak up potential workers added since December 2007, the combined jobs gap is 7.9 million. This is down from its maximum value of 11.3 million reached in September 2010, but it indicates we’re less than a third of the way to full labor market recovery.
My colleague Elise Gould recently showed that to lessen poverty is to lessen income inequality by raising wages of low and moderate income workers. This post adds some more data to the argument that raising wages for low-wage workers is an essential component of any anti-poverty strategy.
The recently released Council of Economic Advisers report on the War on Poverty highlights this by noting that ‘market poverty’—measuring poverty without accounting for government aid in the form of transfers and tax credits—is higher now than in 1967, and that only increased government support allowed poverty to fall:
“A measure of “market poverty,” that reflects what the poverty rate would be without any tax credits or other benefits, rose from 27.0 percent to 28.7 percent between 1967 and 2012. Countervailing forces of increasing levels of education on the one hand, and inequality, wage stagnation, and a declining minimum wage on the other resulted in “market poverty” increasing slightly over this period. However, poverty measured taking antipoverty and social insurance programs into account fell by more than a third, highlighting the essential role that these programs have played in fighting poverty.”
I couldn’t agree more with Paul Krugman’s blog post this morning when he says, “the main cause of persistent poverty now is high inequality of market income.” We looked at precisely this question in the latest edition of State of Working America. (And the White House Council of Economic Advisors cited our work on this in their War on Poverty 50 Years Later Report, released today.)
In the roughly three decades leading up to the most recent recession, looking at the officially measured poverty rate, educational upgrading and overall income growth were the two biggest poverty-reducing factors, while income inequality was the largest poverty-increasing factor. Relative to these factors, the racial composition of the U.S. population over this period (the growth of nonwhite populations with higher likelihoods of poverty) and changes in family structure (the growth of single mother households) have contributed much less to poverty, particularly in recent years.
The figure below plots the impact of these economic and demographic factors on the official poverty rate from 1979 to 2007. The impact of income inequality and income growth were quantitatively large, but in the opposite directions. Had income growth been equally distributed, which in this analysis means that all families’ incomes would have grown at the pace of the average, the poverty rate would have been 5.5 points lower, essentially, 44 percent lower than what it was.
In the current issue of The American Prospect, I review Patrick Sharkey’s Stuck in Place, a 2013 book that helps explain the persistent failure of educational policy to spur the upward mobility of low-income African American youth.
It is now well understood that many characteristics of children from low-income families—poor health, housing instability, inadequate pre-literacy experiences when young and inadequate after-school enrichment opportunities when older—make it difficult to take advantage of even the best classroom instruction. A quarter of a century ago, William Julius Wilson’s The Truly Disadvantaged showed that the harm is magnified when children with these disadvantages are concentrated in urban ghettos where jobs have vanished, violence, drugs, and stress are commonplace, and there are few adult role models of academic success.
Building on Wilson’s work, Sharkey demonstrates that the harm is exacerbated when families live in such low-income neighborhoods for multiple generations. Indeed, a child’s chance of success may be harmed as much or more by having a mother who grew up in a poor neighborhood than by growing up in a poor neighborhood him or herself. And, Sharkey shows, between black and white children who live in poor neighborhoods, blacks are more likely to have done so for multiple generations.
Jim Tankersley has an amusing piece about Jamie Dimon, the CEO of JPMorgan, who is trying to distract attention from JPMorgan’s London Whale fiasco, its $13 billion settlement of charges relating to abusive trading in mortgage backed securities, and its role in the Madoff Ponzi scheme, by talking about the ”skills gap.“ Tankersley is appropriately skeptical about the so-called skills gap, which has become the chief excuse of the 1% for wage stagnation and rising inequality. His story’s first line is: “Jamie Dimon has no problem finding skilled workers to hire.”
Dimon himself admits, there’s not much evidence of a skills gap in the banking business: “If I travel all around America, a lot of people talk about the skills gap. We don’t see it ourselves that much.” So what about the rest of American industry? Apparently, Dimon doesn’t really know much, other than hearsay: “But if you go to Silicon Valley, they will talk about nothing but the lack of—they used to call them computer engineers, now they call them software writers. If you go to some of the manufacturing companies, they’ll talk about the lack of technical skills.” Silicon Valley companies do “talk” about a skills gap, but the claim that there are severe IT shortages is contradicted by a good deal of economic evidence that suggests the talk is self-serving.
The post originally appeared on The Huffington Post.
New Year’s Day, 2014, marks the 20th anniversary of the North American Free Trade Agreement (NAFTA). The Agreement created a common market for goods, services and investment capital with Canada and Mexico. And it opened the door through which American workers were shoved, unprepared, into a brutal global competition for jobs that has cut their living standards and is destroying their future.
NAFTA’s birth was bi-partisan—conceived by Ronald Reagan, negotiated by George Bush I, and pushed through the US Congress by Bill Clinton in alliance with Congressional Republicans and corporate lobbyists.
Clinton and his collaborators promised that the deal would bring “good-paying American jobs,” a rising trade surplus with Mexico, and a dramatic reduction in illegal immigration. Instead, NAFTA directly cost the United States. a net loss of 700,000 jobs. The surplus with Mexico turned into a chronic deficit. And the economic dislocation in Mexico increased the the flow of undocumented workers into the United States.
Nevertheless, Clinton and his Republican successor, George Bush II, then used the NAFTA template to design the World Trade Organization, more than a dozen bilateral trade treaties, and the deal that opened the American market to China—which alone has cost the United States another net 2.7 million jobs. The result has been 20 years of relentless outsourcing of jobs and technology.
On January 1st, thirteen states raised their state minimum wages, lifting the pay of more than 4.5 million workers. Eight of these states (Arizona, Florida, Missouri, Montana, Ohio, Oregon, Vermont, and Washington), have state minimum wages that are “indexed” to inflation so that every year, the minimum wage is automatically increased in order to protect the purchasing power of minimum-wage workers’ incomes. Colorado also automatically increases its minimum wage based on inflation, with the increase occurring each July.
In the remaining 5 states (California, Connecticut, New Jersey, New York, and Rhode Island) citizens voted to raise their state minimum wages during the past year. Voters in New Jersey also chose to index their state minimum wage to inflation so that in January of 2015, New Jersey’s minimum wage workers will see the same paycheck protection afforded workers in the 9 other states with inflation indexing. The table below details all of these increases.
As the table shows, these increases will give more than $2.7 billion in additional wages to affected workers over the course of the year. For the states that voted to raise their minimum wages, these additional wages represent a modest, but valuable injection of dollars into the pockets of workers who typically rely on every penny they earn and are likely to spend those dollars right away. For the states with indexing, these new wages ensure that minimum wage workers can still afford the same volume of goods and services that they bought the previous year.
In keeping with what is as of now an annual tradition to produce some serious click-bait—and to cut through the “conventional wisdom” of inside the Beltway talking heads and commenters—we hereby present our best and worst economic policy ideas of 2013.
Reflecting the fact that fiscal policy in 2013 is a mess, the number of bad ideas on this list far exceed the number of good ones. (A 9-to-4 bad-to-good ratio seemed about right.) We’ll go ahead and put our best foot first.
1. “Inequality is the defining economic challenge of our time.” This was said by President Obama in a major address in December. In a period of wide—and rising— income inequality, wage stagnation, a tepid economic recovery, and fiscal policy mired in austerity, it is absolutely essential to begin put the rise in inequality at the center of policy debates.
2. Talking about expanding benefits, finally. While the conversation about Social Security in Washington has for far too long focused on how to cut benefits, Sen. Elizabeth Warren and Sen. Tom Harkin both rose up, not just to defend the current level of benefits, but to call for expanding them. This is absolutely the conversation we need to have. Retirement insecurity is growing as two legs of the three-legged “retirement stool” (pensions and personal savings) have become increasingly wobbly. Moreover, since the last major Social Security reform in 1983, the wealth of the bottom 60 percent of Americans actually declined. Even as our country has gotten 63 percent richer, millions of retirees are increasingly dependent on their benefits to get by. It’s a good thing we’re starting to consider increasing their benefits.
EPI is taking a much-needed break for the holidays. Working Economics will be back on January 2nd. Meanwhile, here’s what we read today:
- Senate Bill Would Lower Contractors’ Compensation Cap (Wall Street Journal)
- How America’s harshest immigration law failed (MSNBC)
- Victims of Misclassification (New York Times)
And don’t forget to check out the 13 Most Important Charts of 2013.
Today’s New York Times published one of the most important stories yet about the Detroit bankruptcy, a story that shines a harsh light on the financial institutions whose tricky deal-making helped tank the city’s finances. At the heart of the story is Detroit’s decision to enter into swap contracts that were spectacularly ill-advised. Mary Williams Walsh gives us the history:
“Detroit entered into the swap contracts back in 2005, when it tapped the municipal bond market for $1.4 billion to put into its workers’ pension funds. Much of the deal was structured with variable-rate debt, and the swaps were intended to work as a hedge, to protect Detroit if interest rates rose. But as things turned out, rates went down, and under those circumstances, the terms of the swaps called for Detroit to make regular payments to UBS and Merrill Lynch Capital Services, now part of Bank of America. Detroit has been doing so, even in bankruptcy. The swaps now cost it about $36 million a year.
“In retrospect, it seems clear that Detroit was already struggling in 2005 and was a poor candidate to borrow the $1.4 billion. The borrowing required an unusual structure to avoid violating the city’s legal debt limit. In 2009, the debt was downgraded to junk, putting the city out of compliance with the terms of the swaps. So Detroit restructured the swap obligations, offering the two banks the tax revenue that it received from local casinos as a backstop.”
I’m saddened because I wasn’t able to celebrate the passage of comprehensive immigration reform this year when commemorating International Migrants Day on December 18. Nevertheless, for people who care about immigration, 2013 was an intense and interesting year. Following is a quick wrap up of what happened this year, and what to be hopeful for in 2014.
To start, the lopsided share of the Latino vote won by President Obama in his reelection helped put a major federal immigration reform back on the table. Then at the end of 2012, eight members of the U.S. Senate began negotiating a bipartisan federal immigration reform bill. And in 2012 and 2013 anti-immigrant laws in Arizona and Alabama, which sought to make life so miserable for immigrants lacking formal legal status that they would “self-deport” back to their countries of origin, were defeated in the courts one by one.
In mid-2013, the Senate passed a comprehensive immigration bill by a vote of 68 to 32. There is no question that the Senate bill is historic: Both political parties agreed to reform just about every aspect of the U.S. immigration system, and create a legalization program for the 11.7 million unauthorized immigrants in the country. Unauthorized immigrants live in constant fear of deportation and separation from their families, and the 8 million of them in the U.S. labor market go to work every day vulnerable to exploitation because employers can and do threaten them with deportation if they attempt to organize or join a union, or speak out about unfair, unsafe, or illegal working conditions. And we know that as a result, unauthorized immigrant workers suffer from wage theft (i.e., are not paid the wages they are owed under minimum wages and overtime laws) at an astonishingly high rate. Legalizing these workers would not only be just and humane, but would improve wages and working conditions for all low-wage workers and help counter the current race-to-the-bottom pursued by many employers in terms of labor standards.
I don’t usually associate the American Enterprise Institute with compassion for the unemployed or anything, really, other than pro-business, anti-government policy prescriptions and rhetoric. So I was surprised and heartened by a thoughtful post by AEI Money & Politics blogger James Pethokoukis, who skewers the notion that cutting unemployment benefits will spur job creation.
Pethokoukis analyzes the effect of reductions in weekly benefit levels and total weeks of unemployment compensation enacted in North Carolina this summer—cuts so draconian they led to the state being kicked out of the federal Emergency Unemployment Compensation program that provides weekly benefits to long-term jobless workers. North Carolina Republicans claimed the cuts would force lazy workers to find jobs, thereby solving the state’s unemployment crisis.
Instead, as Pethokoukis shows, tens of thousands of North Carolinians stopped looking for jobs that weren’t there once they were cut off from weekly benefits (which are only paid to people who are actively seeking paid employment). The labor force participation rate fell nearly a full percentage point, as 42,656 workers gave up looking and dropped out of the labor force. If they hadn’t, according to Pethokoukis, “the state’s jobless rate would have increased to 9.1% rather than sharply declining.” University of California at Berkley economist Jesse Rothstein predicted this dropout effect in a 2011 paper he presented at EPI, which disputed the notion that unemployment insurance causes significant unemployment.
Hopefully, the North Carolina experience will help persuade House Republicans like Dave Camp to stop arguing that killing the EUC program will boost employment. As EPI and the CBO have shown, paying out $25 billion in EUC in 2014 will help the economy, not hurt it. Killing the program won’t help a single unemployed person find work, but will instead depress aggregate consumer demand and cost the economy 310,000 jobs.
The Bureau of Labor Statistics has released new employment projections for 2022. These projections are frequently misinterpreted, and the way BLS presents the data can certainly leave the uninitiated confounded. This analysis uses the occupation projections to discuss two issues: whether low-, middle- or high-wage occupations will grow disproportionately, and whether the occupation structure of 2022 relative to 2012 requires substantially more education and training. The answer to both questions is that the occupational structure of 2022 does not look dramatically different than what we have now. This means that the challenge we face is how to make occupations better paid rather than worry about whether the workforce we have is under-skilled or over-skilled for future work. That is, we have a job quality problem, and not a skills deficit problem. (Becky Thiess reached the same conclusions in an analysis of the prior set of projections.)
These projections get used in misleading ways. Some people look at the occupations that grow the fastest and draw conclusions, usually that we all need a lot more education. Others emphasize which occupations create the most number of jobs and find that a large expansion of low-wage work is looming. The BLS press release ricochets back and forth between both approaches, which obscures what one should conclude from the projections. Neither approach—looking solely at either the rate of employment growth or the absolute amount of employment growth—is correct. A fast growing occupation may be relatively small, and therefore inconsequential in the overall economy. A large occupation may generate a lot of absolute employment growth, but if it grew at the average of total employment growth (so its share of total employment did not change), then the overall character of employment (more skill, higher/lower wage) would not change.