What to Watch on Jobs Day: Signs of a Tightening Labor Market?

The economy is slowly recovering from the Great Recession. We saw stronger job growth in 2014 than in 2013 or 2012. In 2015, I hope to see signs of even stronger job growth, pulling the missing workers back into the labor force, and achieving decent, if not strong, wage growth for most. I’ll be looking at these factors when the jobs report comes out tomorrow and throughout the year.

First, jobs growth. If we continue to see the average rate of job growth experienced in 2014, it will be the summer of 2017 when we return to pre-recession labor market health. 2014’s rate of job growth was a positive step, but I’m hoping for even more.

Second, labor force participation. While the unemployment rate continued to fall through 2014, it remains elevated across the population (by age, race, gender, education, sector, occupation)—and even so, it does not reflect the full picture of the labor market. Some of the decline is due to an increase in employment, but some of it is due to a drop in labor force participation. Between November and December 2014, 70 percent of the decline in the number of unemployed people was caused not by workers finding jobs but by people leaving the labor force, or not entering it in the first place.

To better explain this trend, we’ve been tracking what we call the “missing workers.” These are people who have left (or never entered) the labor force, but who would be working or looking for work if job opportunities were significantly more robust. Because jobless workers are only counted as unemployed if they are actively seeking work, these missing workers are not reflected in the official (U3) unemployment rate. We compare today’s labor force participation rate with projections based solely on structural changes in the workforce—like the retiring baby boomers—and find that there are currently 6.1 million missing workers. If these missing workers were actively looking for work, the unemployment rate would be 9.1 percent.

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Obama’s Budget: Mostly a Political Document, and That’s Just Fine

This post originally ran on the Wall Street Journals Think Tank blog.

The White House released its annual budget on Monday for fiscal year 2016. On the one hand, this may seem like a low-value exercise, given the dim prospects for its major initiatives passing a Republican-controlled Congress. But on the other hand, the raft of stories written about it prove the president continues to have unrivaled power in setting the terms of policy debate.

And the terms set by the 2016 budget are really useful.

Most of the big-ticket items were previewed: significant increases on tax rates for the highest-income households on income they receive simply from wealth-holdings, higher taxes on large transfers of wealth, tax cuts for low- and middle-income taxpayers, and substantial spending increases on community colleges, early childhood care, and infrastructure.

One item that wasn’t telegraphed by the White House included corporate tax reforms that would impose a minimum 19% tax on foreign earnings of U.S. firms with no opportunity for deferral. This is a very big step in the right direction, if still a little shy of perfect since deferral should be ended and U.S. firms should be taxed at the going corporate income tax rate regardless of where income is earned. But 19% is a lot better than today’s implicit 0% on income held abroad. Further, a large chunk of the budget’s infrastructure proposals is financed by a one-time tax of 14% on accumulated earnings of U.S. corporations held abroad. Again, this is much better than the frequently floated alternative of allowing U.S. firms to repatriate their foreign-held earnings at a preferential rate.

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Ideas Good and Not so Good: Infrastructure Investment and Corporate Taxes

President Obama released his fiscal year 2016 budget proposal earlier this week. The proposal is full of good ideas, so-so ideas, and some not so good ideas. One great idea is to devote more money to the Highway Trust Fund for infrastructure investments, which improves job growth now and in the future. At the moment, however, it’s paired with the not-so good idea to pay for it with a mandatory one-time 14 percent tax on the $2 trillion of tax-deferred foreign earnings of U.S. corporations, which would bring in $268 billion over the six years. To be clear, this is an improvement over the other “one-time” corporate tax change often floated to realize a temporary revenue windfall—a full repatriation tax “holiday” for earnings accumulated overseas. So if the Obama proposal is a lot better than a full holiday, what’s the problem? The proposed one-time tax rate is still too low.

The 14 percent one-time tax is a transition tax to the president’s proposal to institute a 19 percent tax on corporate foreign-sourced earnings. Currently, corporate foreign-sourced earnings are subject to the U.S. corporate income tax, but payment of the tax is deferred (i.e., no U.S. taxes are paid at all) until the corporation brings to earnings to the United States (or in the jargon: repatriates the earnings). The earnings are then theoretically taxed at the statutory corporate tax rate of 35 percent, but due to various deductions and tax credits most corporations pay substantially less than the 35 percent rate. It is estimated that firms have stashed away $2 trillion in untaxed earnings overseas. One reason it makes sense for them to stash money overseas is that Congress has in the past offered a repatriation tax “holiday,” which allowed them to repatriate it at hugely preferential rates. And proposals to do this again have been percolating for years, so it makes a lot of sense for multinationals to wait and see if they get another windfall.

This largely explains why the business community, rather than jumping at the chance to face a 14 percent tax rate instead of the 35 percent rate, wants the transition tax rate to be no higher than 5 percent or even lower. Of course they can’t flat-out argue that they’re actually waiting for another pure windfall, so instead they argue the 14 percent rate somehow harms competitiveness, though they don’t explain how. Let’s examine this specious argument.

Firms compete over customers for their products and competitiveness, by its very nature, is forward looking since the past can’t be changed. The tax on income that has already been earned will not affect a firm’s behavior; the accumulated $2 trillion of untaxed income is based on past decisions, which cannot be changed. Consequently, there is no reason to tax this income at a rate less than the statutory corporate tax rate since there is no competitiveness issue. A lower tax rate just rewards firms for the aggressive tax planning that allowed them to accumulate $2 trillion in untaxed earnings.

 

TPP and Provisions to Stop Currency Management: Not That Hard

As discussions surrounding the proposed Trans-Pacific Partnership (TPP) heat up, there has been a new push to include provisions within the agreement to keep countries from managing the value of their currency for competitive gain vis-à-vis their trading partners. This push got an unexpected (by me, anyhow) boost recently when former U.S. Treasury Secretary and former Obama administration National Economic Council Director Larry Summers called for it (see page 22 in the link).

This currency management is a key cause of persistent U.S. trade deficits, and it is widespread. Given that our trade deficit drags on demand growth, and given that generating sufficient demand to reach full employment is likely to be a key economic problem in coming years, this is an important issue to address. Further, given that U.S. tariffs are extremely low, it’s hard to think of any other issue besides currency management that could possibly matter more for trade flows, so excluding it from the TPP seems odd. And yet many TPP proponents are extremely reluctant to include binding tools to stop currency management in the treaty. There have been many arguments for why the United States can’t or shouldn’t stop currency management, but the latest rationale is pretty novel: the claim is that including a currency chapter in the TPP would let other countries use the provisions of the treaty to stop the Federal Reserve from engaging in expansionary monetary policy. If such a provision had been in effect during the Great Recession, this argument continues, it would have kept the Fed from engaging in the quantitative easing (QE) that it undertook to blunt the recession and spur recovery.

Tying the Fed’s hands like this would indeed be a bad thing, but there’s no reason at all to think one couldn’t define currency management in way that did not constrain the Fed or any other central bank wanting to undertake similar maneuvers.

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A Great Idea: End the Sequester

President Obama released his 2016 budget proposal this morning. While president’s budgets are rarely implemented, especially if Congress is controlled by the opposite party, they help to set the agenda for the upcoming legislative year. And this year the president has a great idea that should not be disregarded: ending the sequester.

The president has proposed increasing discretionary spending by over $70 billion, which would effectively put an end to the sequester-induced straight jacket on the budget. Half of the increase would be directed for defense discretionary spending and the other half for nondefense discretionary programs—i.e., the programs that fund public investments. While the proposed spending increase is not enough to meet our actual needs, it is a start.

As a reminder, the sequester is the result of legislation Congress passed and President Obama signed in 2011. At the time, the discretionary caps and sequester were a bad idea; today they are a bad and dangerous idea. This self-imposed austerity was the major factor in the slow recovery from the Great Recession. Recently, Erskine Bowles, a deficit hawk and co-chair of the 2010 National Commission on Fiscal Responsibility and Reform (often called Simpson-Bowles) said “I don’t think it gets any stupider than the sequester.” I agree. Let’s hope the president forcefully pushes Congress to end the stupid sequester.

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Sluggish Wage Growth Continues Throughout 2014

Today, the Bureau of Labor Statistics (BLS) released the Employment Cost Index (ECI), a closely watched measure of labor costs, for the last quarter of 2014. Nominal year-over-year compensation for private industry workers rose 2.3 percent, while private sector wages and salaries rose 2.2 percent.

To put these numbers in perspective, below is a chart of the year-over-year changes in both the ECI compensation and wage series along with the monthly BLS Current Employment Statistics (CES) nominal wage series for all nonfarm employees. It’s clear that nominal wage growth (using any of these measures) has been flat for a long time—and there’s little evidence this trend has changed in recent months.

The horizontal shaded area represents growth of 3.5 to 4 percent—nominal wage growth consistent with the Fed’s 2 percent inflation target and a stable labor share of income (given a range of 1.5 to 2 percent trend productivity growth).

We need to see consistent wage growth above this range before there is a hint of upward pressure on prices stemming from too-tight labor markets. Thus, the Fed should not even consider raising interest rates to forestall inflation until wage growth is consistently above this target.

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Year-over-year change in private-sector nominal average hourly earnings, 2007–2014

CES, all private ECI, wages and salaries ECI, total compensation
2007-03-01 3.6427146% 3.5749752% 3.1746032%
2007-04-01 3.3234127%
2007-05-01 3.7257824%
2007-06-01 3.8575668% 3.3431662% 3.1465093%
2007-07-01 3.4482759%
2007-08-01 3.5433071%
2007-09-01 3.2337090% 3.4146341% 3.1219512%
2007-10-01 3.2778865%
2007-11-01 3.3203125%
2007-12-01 3.1113272% 3.2945736% 3.0038760%
2008-01-01 3.1067961%
2008-02-01 3.0464217%
2008-03-01 3.0332210% 3.1639501% 3.1730769%
2008-04-01 2.8324532%
2008-05-01 3.0172414%
2008-06-01 2.6666667% 3.1398668% 2.9551954%
2008-07-01 3.0000000%
2008-08-01 3.2794677%
2008-09-01 3.2747983% 2.9245283% 2.8382214%
2008-10-01 3.3159640%
2008-11-01 3.5916824%
2008-12-01 3.6303630% 2.6266417% 2.4459078%
2009-01-01 3.5310734%
2009-02-01 3.4725481%
2009-03-01 3.1775701% 2.0446097% 1.8639329%
2009-04-01 3.2212885%
2009-05-01 2.8358903%
2009-06-01 2.7365492% 1.5682657% 1.4814815%
2009-07-01 2.5889968%
2009-08-01 2.4390244%
2009-09-01 2.2977941% 1.3748854% 1.1959522%
2009-10-01 2.3383769%
2009-11-01 2.0529197%
2009-12-01 1.8198362% 1.2797075% 1.1937557%
2010-01-01 1.9554343%
2010-02-01 1.8140590%
2010-03-01 1.7663043% 1.4571949% 1.6468435%
2010-04-01 1.7639077%
2010-05-01 1.8987342%
2010-06-01 1.7607223% 1.6348774% 1.9160584%
2010-07-01 1.8476791%
2010-08-01 1.7070979%
2010-09-01 1.8867925% 1.6274864% 2.0000000%
2010-10-01 1.8817204%
2010-11-01 1.6540009%
2010-12-01 1.7426273% 1.8050542% 2.0871143%
2011-01-01 1.9625335%
2011-02-01 1.8262806%
2011-03-01 1.8246551% 1.6157989% 1.9801980%
2011-04-01 1.9111111%
2011-05-01 2.0408163%
2011-06-01 2.1295475% 1.6979446% 2.3276634%
2011-07-01 2.2566372%
2011-08-01 1.9434629%
2011-09-01 1.9400353% 1.6903915% 2.1390374%
2011-10-01 2.1108179%
2011-11-01 2.0228672%
2011-12-01 1.9762846% 1.5957447% 2.2222222%
2012-01-01 1.7060367%
2012-02-01 1.9247594%
2012-03-01 2.1416084% 1.8551237% 2.1182701%
2012-04-01 2.0497165%
2012-05-01 1.7826087%
2012-06-01 1.9548219% 1.8453427% 1.8372703%
2012-07-01 1.7741238%
2012-08-01 1.8630849%
2012-09-01 1.9896194% 1.8372703% 1.9197208%
2012-10-01 1.4642550%
2012-11-01 1.8965517%
2012-12-01 2.1102498% 1.7452007% 1.8260870%
2013-01-01 2.1505376%
2013-02-01 2.1030043%
2013-03-01 1.8827557% 1.7346054% 1.9014693%
2013-04-01 1.9658120%
2013-05-01 2.0504058%
2013-06-01 2.1729868% 1.8981881% 1.8900344%
2013-07-01 1.9132653%
2013-08-01 2.2118248%
2013-09-01 2.0356234% 1.8041237% 1.8835616%
2013-10-01 2.2495756%
2013-11-01 2.1573604%
2013-12-01 1.9401097% 2.0583190% 1.9641332%
2014-01-01 1.9789474%
2014-02-01 2.1017234%
2014-03-01 2.1419572% 1.7050298% 1.6963528%
2014-04-01 1.9698240%
2014-05-01 2.0510674%
2014-06-01 1.9599666% 1.8628281% 2.0236088%
2014-07-01 2.0442219%
2014-08-01 2.1223471%
2014-09-01 1.9950125% 2.2784810% 2.2689076%
2014-10-01 1.9510170%
2014-11-01 1.9461698%
2014-12-01 1.6549441% 2.1848739% 2.3450586%
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The data below can be saved or copied directly into Excel.

Nominal wage growth consistent with the Federal Reserve Board's 2 percent inflation target, 1.5 percent productivity growth, and a stable labor share of income.

Source: EPI analysis of Bureau of Labor Statistics Current Employment Statistics (CES) public data series and Bureau of Labor Statistics Employment Cost Index (ECI)

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Congress, Consider the Facts not Fiction before Voting to Repeal the Medical Device Tax

A priority of the new GOP-dominated Congress is to dismantle the Affordable Care Act (ACA), otherwise known as Obamacare. Having failed to repeal the ACA in the past, the GOP is now starting to nibble at the edges of the ACA, hoping to weaken it. One nibble that is likely to see congressional action soon, and which may even pass in both houses, is the repeal of the medical device tax.

The medical device tax is a small 2.3 percent excise tax on the manufacturer’s price of medical devices. It applies to manufacturers and importers of medical devices. The purpose of the tax is to raise revenue to help offset the costs of the ACA by taxing industries that benefit from health care reform: as reform leads to more people with health insurance coverage, the demand for health care—including medical devices—is likely to rise. The medical device tax became effective on January 1, 2013 and is projected to raise about $3 billion per year, or almost $30 billion over 10 years.

The medical device industry, which apparently is represented by Advanced Medical Technology Association (AdvaMed), argues this small tax is a job killer. According to a recent “study” by AdvaMed, the tax reduced industry employment by 14,000 jobs in 2013, or 3.2 percent of the employees in the industry. Furthermore, the “study” argues that R&D has been reduced in the industry, although no numbers are reported. AdvaMed says they estimated this number from a survey of 55 companies in the industry—less than a quarter of the firms in the industry.

This appears to be pretty damning evidence against the medical device tax, but how does it square with what really happened? Every year, Ernst & Young (E&Y) issues a report on the financial condition of the industry; the E&Y data come from a variety of sources including company financial reports. E&Y shows that industry revenues increased by 4 percent between 2012 and 2013, R&D spending increased by 6 percent, and employment increased by 5 percent. In the first year of the medical device tax, the industry created over 20,000 jobs! Oh, and profits were up by 32 percent.

Of course, it is impossible to say what would have happened in the absence of the medical device tax; perhaps more jobs would have been created. But, contrary to AdvaMed’s fictions, it is clear that the number of jobs in the industry has not fallen.

At about the same time the AdvaMed “study” was released, the Congressional Research Service issued an updated report on this tax. The report concludes: “The analysis suggests that most of the tax will fall on consumer prices, and not on profits of medical device companies. The effect on the price of health care, however, will most likely be negligible because of the small size of the tax and small share of health care spending attributable to medical devices.”

Unless Congress is willing to replace lost revenue from the repeal of the medical device tax, they should keep this small tax on one group that benefits from the ACA.

New Data Show Top 1 Percent Really are Different from You and Me

On Monday, we released new estimates of top incomes by state for 2012, based on the work done by Thomas Piketty and Emmanuel Saez. Coincidentally, Saez just released a preliminary update to 2013 of the national top income time series. Saez’s key finding is that the average income of the top 1 percent in the U.S. fell in 2013 by 14.9%. This decline at the top was large enough to lower overall average incomes in 2013 by 3.2%. The good news is, the bottom 99% saw their earnings climb—but by a very modest and somewhat disappointing 0.2%.

Illustrating that the top 1 percent really are different from you and me, Saez notes the fall in income at the top is due to high income earners shifting income from 2013 to 2012 in an effort to reduce their tax liabilities in anticipation of higher top marginal tax rates which took effect in 2013. In an earlier EPI analysis in October 2014, Lawrence Mishel and Will Kimball reported on the decline of wages among the top 1 percent of wage earners, which prefigured these results for households. Similarly, Mishel and Kimball also noted the changes in taxes and suggested this decline was probably only temporary.

Saez expects top incomes to rebound in 2014, but fall short of their 2012 values. Indeed, James Parrott of the Fiscal Policy Institute noted in his summary of New York State top income trends (look up your state’s top income trends here) that data from the New York State Division of the Budget indicate that the top 1 percent’s share of New York personal income tax liability is expected to reach 42.5% in 2015—just shy of its 2012 value of 43.2%.

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Trade Agreements or Boosting Wages? We Can’t Do Both

It’s widely expected that in tonight’s State of the Union address President Obama will call for actions to boost wages for low- and moderate-wage Americans, and also for moving forward on two trade agreements—the Trans-Pacific Partnership (TPP) and the Trans-Atlantic Trade and Investment Partnership (TTIP).

These two calls are deeply contradictory. To put it plainly, if policymakers—including the President—are really serious about boosting wage growth for low and moderate-wage Americans, then the push to fast-track TPP and TTIP makes no sense.

The steady integration of the United States and generally much-poorer global economy over the past generation is a non-trivial reason why wages for the vast majority of American workers have become de-linked from overall economic growth. This is not a novel economic theory—the most staid textbook models argue precisely that for a country like the United States, expanded trade should be expected to (yes) lift overall national incomes, but should redistribute so much from labor to capital owners, so that wages actually fall. So, it can boost national income even while leaving the incomes of most people in the nation lower than otherwise.

The intuition on how is pretty easy. Take the most caricatured example of how expanded trade works: the United States produces and exports more capital-intensive goods (say airplanes) and imports more labor-intensive goods (say apparel). By focusing on what we’re relatively better at producing (capital-intensive airplanes)and trading this extra output for what our trading partners are relatively better at producing (labor-intensive apparel), we can see national incomes rise in both countries. This specialization in the United States requires shifting resources (i.e., workers and capital) out of apparel production and into airplane production. But each $1 in apparel production lost requires more labor and less capital than the $1 in airplane production gained—causing an excess supply of labor and an excess demand for capital. Capital’s return rises while labor’s wage falls.

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The President’s Twofer

In the weeks leading up to the State of the Union address, President Obama has gradually laid out his vision for America. I am particularly impressed with his proposal to make two years of community college free for students who are willing to work for it. This program would help young adults from lower-income families get a needed start toward a four year college education or vocation training for a career.

Critics have argued it is easy to propose a new program without paying for it. Well, last Saturday, the president said how he will pay for it: raise taxes. What is great about his tax proposal is it is a twofer. First, it would raise needed revenue—$320 billion over 10 years—to pay for the policies that would help low- and middle-income families. Second, it would make the tax code fairer and help reduce the growth in the share of income going to the top 1 percent by increasing taxes on capital income—bringing taxes levied on income gained from wealth closer to income gained from working. The administration estimates that 99 percent of the impact of this proposal would affect the richest 1 percent and more than 80 percent would affect just the richest 0.1 percent.

The main tax proposal is changing how capital gains are taxed. The tax rate on capital gains and dividends is increased to 28 percent—the rate under President Reagan. Currently, the tax rate on capital gains and dividends is 20 percent plus a 3.8 percent surtax. The president’s proposal would increase the tax rate to 24.2 percent plus the 3.8 percent surtax.

In addition, the proposal removes a loophole—the “stepped-up basis” loophole—that allows the wealthiest taxpayers to escape paying tax on inherited assets. We at EPI have been pushing for this change for years. Currently, when assets are transferred, say in a bequest, no taxes are due on appreciated assets. For example, suppose an individual purchases $10 million in stock. That person would have to pay taxes on any realized capital gains when the stock is sold (if the stock was sold for $100 million then the individual would pay taxes on the difference between the purchase price—the basis—and the sales price or $90 million). But if the individual never sells the assets and passes on the $100 million of stock to an heir, no capital gains taxes are due on the $90 million gain. Furthermore, when the individual receiving the assets sells the assets, the basis is stepped-up to $100 million rather than $10 million. The president’s proposals would retain the $10 million basis for the heir (called carry-over basis) and taxes would be paid on any gains when the assets are inherited. In an era with a deeply eroded estate tax, removing this “stepped-up basis” loophole would help us tax large blocks of inherited wealth—essentially adopting some of Thomas Piketty’s ideas for pushing back against rising income and wealth inequality.

What I Want to Hear in the State of the Union Address

On Tuesday, President Obama will deliver his State of the Union address, which gives him an opportunity to lay out his priorities and set an agenda for the year ahead.

At EPI, we have argued that raising wages is the central economic challenge. It is terrific news that the president will address wage stagnation in his speech. After a year of strong job creation but continued stagnant wage growth, many economists and commentators—not to mention the American people—are beginning to focus on wages. Even the new GOP-controlled Congress is paying lip service to the middle class squeeze (but is offering no program to address these challenges). So we are now entering into a great debate about what can be done to raise wages. Ross Eisenbrey and I offered our solutions in a recent interview in The New Republic.

Given congressional obstruction, the president has done his best to address our most pressing economic challenges through executive action:

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Paid Leave is Vital to Families’ Economic Security

Yesterday, President Obama proposed a fundamental right to earned paid sick leave for all workers in this country. He also directed federal agencies to offer paid family leave to their workers. This is welcome news.

The fact is, we are behind all of our economic peers in the world in terms of providing what should be a bare minimum standard: paid leave when workers are sick, have doctor’s appointments, or need to care for family members. We also fall short when it comes to family leave—although California has had great success with their paid family leave initiative. Meanwhile, Bloomberg put out a great graphic comparing maternity leave in the United States with other countries in the world. It’s easy to see how far we have to go.

Employers, workers, and the public would all benefit from paid sick and family leave. My colleagues and I have shown through a series of studies on cities and states that paid sick leave is of negligible cost to employers, and we have presented this evidence at state legislative hearings. Mandatory paid sick time would mean that the many employers that already provide paid sick days would have a level playing field with their competitors, and all employers would be able to more easily maintain healthy workplaces. While any new labor standard generates concerns about the business climate and job creation, the evidence from jurisdictions that require paid sick days has all been positive.

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Average Real Hourly Wage Growth in 2014 Was No Better Than 2013

The Bureau of Labor Statistics released the Consumer Price Index for December 2014 today, which lets us look at trends in real (inflation-adjusted) wages over the year. In the aftermath of the Great Recession, the U.S. economy has seen very little real wage growth. Real hourly wage growth fell 1.0 percent in 2011, and then 0.1 percent in 2012. Over the last two years, real wage growth has been positive, but slow: real wages rose 0.5 percent in 2013 and 0.4 percent in 2014. Even with the drop in inflation over the last couple of months, average wages increased in 2014 slightly less than in 2013. This means that, by definition, there has been no acceleration in wage growth. Decent wage growth would look like inflation plus productivity growth (around 1.5 to 2.0 percent). Given this, it is clear that the Federal Reserve should not take action to slow the economy down.

Our nominal wage tracker shows just how much wage growth has been falling short of reasonable targets. The labor market and the economy could withstand even higher wage growth because labor’s share of corporate sector income yet to rise in this recovery, and profits are still at record highs. Therefore, real wage growth can be accomplished without putting pressure on prices.

Turning to monthly wages, the figure below shows real average hourly earnings of all private employees (top line) and production/nonsupervisory workers (bottom line) since the recession began in December 2007. For both series, you can see that real wages fell during the recession, then jumped up in late 2008, in direct response to a drop in inflation. When inflation falls and nominal wages hold steady, the mathematical result is a rise in inflation-adjusted wages. After the deflation leading up to 2009 stopped boosting real wages, wage growth has been flat.

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White House Breaks Silence on Disability Rule

The White House finally weighed in on the new House rule preventing a simple fix to extend the life of Social Security’s Disability Insurance (DI) trust fund. The fund is projected to run out next year, and if revenue isn’t reallocated from the larger Old Age and Survivors Insurance (OASI) program, disability benefits, already meager, will be reduced by a fifth, as taxes allocated to the program aren’t enough to cover promised benefits. Though a routine reapportionment of payroll taxes would address the problem, the new rule prohibits such a move unless steps are taken to extend the solvency of the Social Security system as a whole.

Since a simple majority is required to overturn the rule or vote for benefit cuts, the rule appears largely symbolic. But depending on whom you talk to, it may or may not have real political repercussions. One thing seems clear: It’s an attempt to pit retirees against disabled beneficiaries, with Republicans positioning themselves as advocates of seniors and reformers of a disability system supposedly rife with fraud and abuse.

What happens when this comes to a head in an election year? Though Republicans may be hoping to force benefit cuts by creating an artificial crisis, it seems unlikely that they’ll let 11 million disabled beneficiaries and their dependents, who disproportionately live in red states, experience sharp benefit cuts, which would cause the average benefit to drop below the federal poverty line.

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How to Increase Revenue Without Increasing Taxes

Rep. Lloyd Doggett and Sen. Sheldon Whitehouse introduced the Stop Tax Haven Abuse Act earlier this week (Rep. Doggett and former-Sen. Carl Levin introduced a similar bill in the 113th Congress). The bill would strengthen reporting standards for multinational corporations, strengthen various enforcement provisions, and end certain loopholes that allow corporations to avoid paying U.S. taxes as well as “check-the-box rules.” An explanation of these rules can be found here. It would also deal with what’s known as the “Ugland House” problem.

Though most people are aware of the nice beaches in the Cayman Islands, they are probably unaware of the Ugland House. The Cayman Islands is a tax haven for many profitable U.S. multinational corporations, who claim to earn substantial profits there but pay no taxes to Cayman authorities. In 2008, foreign subsidiaries of U.S. multinational corporations reported they earned $43 billion in the Cayman Islands, which is rather interesting, because this amount is 20 times the Cayman Islands’ GDP. It is simply not possible that this amount could reflect legitimate business activities in the Caymans. This is where the Ugland House comes in.

The Ugland House (on South Church Street in George Town on Grand Cayman) is home to the law firm of Maples and Calder. It is also the legal “home” to over 18,000 corporations, many of which are foreign subsidiaries of U.S. corporations. The Ugland House serves as nothing more than a mailing address for these corporations—their only contact with the Cayman Islands. Their actual business operations are located in other countries, like the United States. A lot of money, however, is credited to this address. (It is worth noting there is a building in another well-known tax haven that serves the same purpose: 1209 North Orange Street in Wilmington, Delaware.)

So far, Congress has been uninterested in doing anything about this tax avoidance problem. The Stop Tax Haven Abuse Act would address this problem by categorizing corporations worth more than $50 million which are managed and controlled in the United States as U.S. taxpayers, no matter where they are incorporated. It is estimated that this act would raise almost $300 billion in revenue over 10 years. While some members appear to think that making U.S. taxpayers pay what they owe amounts to a tax hike, Rep. Doggett and Sen. Whitehouse are to be congratulated on their efforts to curb the flagrant abuse of tax loopholes by profitable companies that can afford to pay their fair share.

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Still No Sign of a Skills Mismatch—Unemployment is Elevated Across the Board

One of the recurring myths following the Great Recession has been that recovery in the labor market has lagged because workers don’t have the right skills. The figure below, which shows the number of unemployed workers and the number of job openings in November by industry, is a useful way to examine this idea. If today’s labor market woes were the result of skills shortages or mismatches, we would expect to see some sectors where there are more unemployed workers than job openings and others where there are more job openings than unemployed workers. What we find, however, is that there are more unemployed workers than jobs openings across the board.

Some sectors have been closing the gap faster than others. Health care and social assistance, which has been consistently adding jobs throughout the business cycle, has a ratio quickly approaching 1. Wholesale trade is also moving towards a ratio of 1. And on the other end of the spectrum, there are 6.2 unemployed construction workers for every job opening. Arts, entertainment, and recreation has the second highest ratio, at 3.2-to-1.

Taken as a whole, these numbers demonstrate that the main problem in the labor market is a broad-based lack of demand for workers—not available workers lacking the skills needed for the sectors with job openings.

JOLTS

Unemployed and job openings, by industry (in millions)

Industry Unemployed Job openings
Professional and business services 1.1029 0.8648
Health care and social assistance 0.7116 0.7004
Retail trade 1.1112 0.4763
Accommodation and food services 0.9649 0.5807
Government 0.6825 0.4352
Finance and insurance 0.2636 0.2311
Durable goods manufacturing 0.4713 0.1775
Other services 0.3750 0.1480
Wholesale trade 0.1597 0.1526
Transportation, warehousing, and utilities 0.3663 0.1645
Information 0.1507 0.0989
Construction 0.7853 0.1272
Nondurable goods manufacturing 0.3048 0.1088
Educational services 0.2258 0.0784
Real estate and rental and leasing 0.1148 0.0566
Arts, entertainment, and recreation 0.2175 0.0685
Mining and logging 0.0518 0.0293

 

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Note: Because the data are not seasonally adjusted, these are 12-month averages, December 2013–November 2014.

Source: EPI analysis of data from the Job Openings and Labor Turnover Survey and the Current Population Survey

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Little Change in Hires, Quits, or Layoffs in November 2014

The hires, quits, and layoffs rate held fairly steady in the November Job Openings and Labor Turnover Survey (JOLTS), released today. Total separations—the combination of quits, layoffs, discharges, and other separations—fell slightly in November.

The figure below shows the hires rate, the quits rate, and the layoffs rate. Layoffs shot up during the recession but recovered quickly and have been at prerecession levels for more than three years. This makes sense, as the economy is in a recovery and businesses are no longer shedding workers at an elevated rate. The fact that this trend continued in November is a good sign. However, not only do layoffs need to come down before we see a full recovery in the labor market, but hiring needs to pick up. While the hires rate has been generally improving, it’s still below its prerecession level.

The voluntary quits rate had been flat since February (1.8 percent), and saw a modest spike up in September to 2.0 percent, before falling to 1.9 percent in October and holding steady in November. A larger number of people voluntarily quitting their jobs indicates a strong labor market, where hiring is prevalent and workers are able to leave jobs that are not right for them and find new ones. There are still 9.1 percent fewer voluntary quits each month than there were in 2007, before the recession began. We should be hoping for a return to pre-recession levels of in voluntary quits, which would mean that fewer workers are locked into jobs they would leave if they could.

JOLTS

Total hires, layoffs, and quits, December 2000–November 2014

Month Hires Layoffs Quits
Dec-2000 5.395 1.879 3.044
Jan-2001 5.801 2.109 3.39
Feb-2001 5.434 1.8 3.284
Mar-2001 5.619 2.134 3.178
Apr-2001 5.335 1.929 3.191
May-2001 5.358 2.007 3.116
Jun-2001 5.083 1.924 2.993
Jul-2001 5.173 1.941 2.945
Aug-2001 5.076 1.878 2.823
Sep-2001 4.961 2.056 2.729
Oct-2001 5.016 2.222 2.843
Nov-2001 4.887 2.12 2.621
Dec-2001 4.788 1.881 2.627
Jan-2002 4.9 1.84 2.894
Feb-2002 4.883 1.97 2.675
Mar-2002 4.626 1.765 2.526
Apr-2002 4.93 1.9 2.71
May-2002 4.923 1.931 2.722
Jun-2002 4.821 1.85 2.602
Jul-2002 5.014 1.99 2.688
Aug-2002 4.881 1.856 2.607
Sep-2002 4.87 1.888 2.608
Oct-2002 4.803 1.847 2.563
Nov-2002 4.941 1.912 2.497
Dec-2002 4.93 1.986 2.647
Jan-2003 5.008 1.98 2.489
Feb-2003 4.681 1.95 2.498
Mar-2003 4.444 1.868 2.428
Apr-2003 4.689 2.023 2.387
May-2003 4.618 1.977 2.394
Jun-2003 4.772 2.136 2.365
Jul-2003 4.721 2.053 2.341
Aug-2003 4.666 1.979 2.38
Sep-2003 4.87 1.893 2.468
Oct-2003 4.898 1.889 2.508
Nov-2003 4.726 1.812 2.495
Dec-2003 4.967 1.951 2.503
Jan-2004 4.839 1.913 2.423
Feb-2004 4.69 1.838 2.467
Mar-2004 5.17 1.889 2.662
Apr-2004 5.115 1.911 2.623
May-2004 4.951 1.858 2.482
Jun-2004 4.949 1.88 2.666
Jul-2004 4.858 1.819 2.67
Aug-2004 5.129 1.954 2.639
Sep-2004 4.984 1.829 2.593
Oct-2004 5.122 1.794 2.585
Nov-2004 5.204 1.954 2.818
Dec-2004 5.239 1.973 2.772
Jan-2005 5.187 1.913 2.83
Feb-2005 5.203 1.909 2.675
Mar-2005 5.207 1.958 2.854
Apr-2005 5.291 1.884 2.765
May-2005 5.271 1.911 2.842
Jun-2005 5.286 1.967 2.796
Jul-2005 5.301 1.862 2.747
Aug-2005 5.431 1.878 2.938
Sep-2005 5.429 1.902 3.053
Oct-2005 5.065 1.717 2.943
Nov-2005 5.227 1.639 2.928
Dec-2005 5.057 1.735 2.823
Jan-2006 5.218 1.719 2.853
Feb-2006 5.347 1.721 3.013
Mar-2006 5.294 1.63 3.037
Apr-2006 5.125 1.743 2.808
May-2006 5.47 1.933 3.049
Jun-2006 5.256 1.674 3.034
Jul-2006 5.357 1.767 2.943
Aug-2006 5.208 1.627 2.95
Sep-2006 5.213 1.741 2.914
Oct-2006 5.17 1.77 2.936
Nov-2006 5.469 1.826 3.096
Dec-2006 5.19 1.724 3.083
Jan-2007 5.195 1.681 2.975
Feb-2007 5.178 1.762 2.995
Mar-2007 5.287 1.787 2.985
Apr-2007 5.153 1.856 2.89
May-2007 5.217 1.725 2.978
Jun-2007 5.18 1.83 2.829
Jul-2007 5.106 1.797 2.898
Aug-2007 5.131 1.841 2.89
Sep-2007 5.136 2.071 2.638
Oct-2007 5.203 1.911 2.853
Nov-2007 5.177 1.924 2.823
Dec-2007 5.035 1.794 2.823
Jan-2008 4.868 1.823 2.818
Feb-2008 4.863 1.875 2.809
Mar-2008 4.759 1.842 2.619
Apr-2008 4.857 1.854 2.839
May-2008 4.604 1.813 2.639
Jun-2008 4.782 2.021 2.62
Jul-2008 4.467 1.906 2.495
Aug-2008 4.58 2.137 2.375
Sep-2008 4.297 1.96 2.417
Oct-2008 4.454 2.126 2.443
Nov-2008 3.899 2.187 2.083
Dec-2008 4.271 2.407 2.129
Jan-2009 4.111 2.502 2.04
Feb-2009 4.004 2.468 1.959
Mar-2009 3.697 2.442 1.804
Apr-2009 3.87 2.592 1.731
May-2009 3.736 2.118 1.711
Jun-2009 3.649 2.123 1.737
Jul-2009 3.807 2.237 1.71
Aug-2009 3.734 2.063 1.642
Sep-2009 3.846 2.095 1.644
Oct-2009 3.746 1.972 1.67
Nov-2009 3.966 1.863 1.786
Dec-2009 3.819 1.981 1.69
Jan-2010 3.895 1.871 1.683
Feb-2010 3.805 1.79 1.735
Mar-2010 4.163 1.861 1.818
Apr-2010 4.085 1.677 1.906
May-2010 4.38 1.754 1.779
Jun-2010 4.078 1.996 1.91
Jul-2010 4.12 2.067 1.846
Aug-2010 3.916 1.761 1.864
Sep-2010 3.991 1.785 1.888
Oct-2010 4.063 1.661 1.877
Nov-2010 4.13 1.772 1.821
Dec-2010 4.17 1.778 1.943
Jan-2011 3.901 1.685 1.814
Feb-2011 4.048 1.65 1.872
Mar-2011 4.246 1.716 1.988
Apr-2011 4.216 1.673 1.933
May-2011 4.131 1.694 1.99
Jun-2011 4.296 1.849 1.946
Jul-2011 4.157 1.749 1.971
Aug-2011 4.192 1.719 2.043
Sep-2011 4.321 1.766 2.029
Oct-2011 4.237 1.747 1.965
Nov-2011 4.263 1.77 1.97
Dec-2011 4.256 1.717 1.973
Jan-2012 4.282 1.654 1.978
Feb-2012 4.446 1.772 2.09
Mar-2012 4.473 1.666 2.191
Apr-2012 4.316 1.828 2.097
May-2012 4.43 1.859 2.162
Jun-2012 4.35 1.778 2.141
Jul-2012 4.257 1.628 2.092
Aug-2012 4.44 1.896 2.119
Sep-2012 4.232 1.771 1.941
Oct-2012 4.357 1.76 2.043
Nov-2012 4.465 1.771 2.095
Dec-2012 4.343 1.596 2.138
Jan-2013 4.389 1.578 2.301
Feb-2013 4.551 1.618 2.268
Mar-2013 4.301 1.755 2.103
Apr-2013 4.457 1.7 2.238
May-2013 4.541 1.783 2.198
Jun-2013 4.418 1.662 2.199
Jul-2013 4.525 1.666 2.305
Aug-2013 4.592 1.701 2.346
Sep-2013 4.701 1.783 2.381
Oct-2013 4.512 1.547 2.426
Nov-2013 4.574 1.511 2.448
Dec-2013 4.578 1.702 2.417
Jan-2014 4.516 1.703 2.368
Feb-2014 4.699 1.596 2.475
Mar-2014 4.706 1.638 2.461
Apr-2014 4.77 1.701 2.467
May-2014 4.738 1.656 2.487
Jun-2014 4.791 1.657 2.484
Jul-2014 4.934 1.726 2.547
Aug-2014 4.742 1.619 2.51
Sep-2014 5.075 1.653 2.753
Oct-2014 5.101 1.757 2.712
Nov-2014 4.990 1.612 2.618

 

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Note: Shaded areas denote recessions.

Source: EPI analysis of Bureau of Labor Statistics Job Openings and Labor Turnover Survey

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Job-Seekers-to-Job-Openings Ratio Continues its Downward Trend in November

The number of job openings hit 5.0 million in November, according to this morning’s Job Openings and Labor Turnover Summary (JOLTS)—a slight increase from 4.8 million in October. Meanwhile, according to the Census’s Current Population Survey, there were 9.0 million job seekers, which means there were 1.8 times as many job seekers as job openings in November—the lowest since January 2008. A rate of 1-to-1 would mean that there were roughly as many job openings as job seekers. In a stronger economy, the ratio would be smaller, but we are definitely moving in the right direction.

This slight decline in the jobs-seekers-to-job-openings ratio is a continuation of its steady decrease, since its high of 6.8-to-1 in July 2009, as you can see in the figure below. The ratio has fallen by 0.8 over the last year.

At the same time, the 9.0 million unemployed workers understates how many job openings will be needed when a robust jobs recovery finally begins, due to the 5.8 million potential workers (in November) who are currently not in the labor market, but who would be if job opportunities were strong. Many of these “missing workers” will go back to looking for a job when the labor market picks up, so job openings will be needed for them, too.

Furthermore, a job opening when the labor market is weak often does not mean the same thing as a job opening when the labor market is strong. There is a wide range of “recruitment intensity” with which a company can deal with a job opening. If a firm is trying hard to fill an opening, it may increase the compensation package and/or scale back the required qualifications. On the other hand, if it is not trying very hard, it might hike up the required qualifications and/or offer a meager compensation package. Perhaps unsurprisingly, research shows that recruitment intensity is cyclical—it tends to be stronger when the labor market is strong, and weaker when the labor market is weak. This means that when a job opening goes unfilled when the labor market is weak, as it is today, companies may very well be holding out for an overly-qualified candidate at a cheap price.

JOLTS

The job-seekers ratio, December 2000–November 2014

Month Unemployed job seekers per job opening
Dec-2000 1.1
Jan-2001 1.1
Feb-2001 1.3
Mar-2001 1.3
Apr-2001 1.3
May-2001 1.4
Jun-2001 1.5
Jul-2001 1.5
Aug-2001 1.7
Sep-2001 1.8
Oct-2001 2.1
Nov-2001 2.3
Dec-2001 2.3
Jan-2002 2.3
Feb-2002 2.4
Mar-2002 2.3
Apr-2002 2.6
May-2002 2.4
Jun-2002 2.5
Jul-2002 2.5
Aug-2002 2.4
Sep-2002 2.5
Oct-2002 2.4
Nov-2002 2.4
Dec-2002 2.8
Jan-2003 2.3
Feb-2003 2.5
Mar-2003 2.8
Apr-2003 2.8
May-2003 2.8
Jun-2003 2.8
Jul-2003 2.8
Aug-2003 2.7
Sep-2003 2.9
Oct-2003 2.7
Nov-2003 2.6
Dec-2003 2.5
Jan-2004 2.5
Feb-2004 2.4
Mar-2004 2.5
Apr-2004 2.4
May-2004 2.2
Jun-2004 2.4
Jul-2004 2.1
Aug-2004 2.2
Sep-2004 2.1
Oct-2004 2.1
Nov-2004 2.3
Dec-2004 2.1
Jan-2005 2.2
Feb-2005 2.1
Mar-2005 2.0
Apr-2005 1.9
May-2005 2.0
Jun-2005 1.9
Jul-2005 1.8
Aug-2005 1.8
Sep-2005 1.8
Oct-2005 1.8
Nov-2005 1.7
Dec-2005 1.7
Jan-2006 1.7
Feb-2006 1.7
Mar-2006 1.6
Apr-2006 1.6
May-2006 1.6
Jun-2006 1.6
Jul-2006 1.8
Aug-2006 1.6
Sep-2006 1.5
Oct-2006 1.5
Nov-2006 1.5
Dec-2006 1.5
Jan-2007 1.6
Feb-2007 1.5
Mar-2007 1.4
Apr-2007 1.5
May-2007 1.5
Jun-2007 1.5
Jul-2007 1.6
Aug-2007 1.6
Sep-2007 1.6
Oct-2007 1.7
Nov-2007 1.7
Dec-2007 1.8
Jan-2008 1.8
Feb-2008 1.9
Mar-2008 1.9
Apr-2008 2.0
May-2008 2.1
Jun-2008 2.3
Jul-2008 2.4
Aug-2008 2.6
Sep-2008 3.0
Oct-2008 3.1
Nov-2008 3.4
Dec-2008 3.7
Jan-2009 4.4
Feb-2009 4.6
Mar-2009 5.4
Apr-2009 6.1
May-2009 6.0
Jun-2009 6.2
Jul-2009 6.8
Aug-2009 6.5
Sep-2009 6.2
Oct-2009 6.5
Nov-2009 6.3
Dec-2009 6.1
Jan-2010 5.5
Feb-2010 6.0
Mar-2010 5.8
Apr-2010 5.0
May-2010 5.1
Jun-2010 5.3
Jul-2010 5.0
Aug-2010 5.0
Sep-2010 5.2
Oct-2010 4.8
Nov-2010 4.9
Dec-2010 5.0
Jan-2011 4.8
Feb-2011 4.6
Mar-2011 4.4
Apr-2011 4.5
May-2011 4.5
Jun-2011 4.3
Jul-2011 4.0
Aug-2011 4.3
Sep-2011 3.9
Oct-2011 4.0
Nov-2011 4.2
Dec-2011 3.7
Jan-2012 3.5
Feb-2012 3.7
Mar-2012 3.3
Apr-2012 3.5
May-2012 3.4
Jun-2012 3.3
Jul-2012 3.5
Aug-2012 3.4
Sep-2012 3.4
Oct-2012 3.2
Nov-2012 3.2
Dec-2012 3.4
Jan-2013 3.3
Feb-2013 3.0
Mar-2013 3.0
Apr-2013 3.1
May-2013 3.0
Jun-2013 3.0
Jul-2013 3.0
Aug-2013 2.9
Sep-2013 2.8
Oct-2013 2.8
Nov-2013 2.6
Dec-2013 2.6
Jan-2014 2.6
Feb-2014 2.5
Mar-2014 2.5
Apr-2014 2.2
May-2014 2.1
Jun-2014 2.0
Jul-2014 2.1
Aug-2014 2.0
Sep-2014 2.0
Oct-2014 1.9
Nov-2014 1.8

 

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Note: Shaded areas denote recessions.

Source: EPI analysis of Bureau of Labor Statistics Job Openings and Labor Turnover Survey and Current Population Survey

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Single-Digit Black Unemployment May Not be So Far Away

Double-digit black unemployment rates have been the norm for the past six years. However, following another solid month of job growth in December 2014, the black unemployment rate fell to 10.4 percent—just half a percentage point away from single digits. In a previous post, I highlighted the strong labor market gains made by people of color in 2014, based on every major economic indicator, including the unemployment rate, employment-to-population ratio (EPOP) and labor force participation. From December 2013–December 2014, African Americans had the largest increase in both labor force participation rate and EPOP of any demographic group. Combined with the fact that unemployment rates for whites (4.8 percent) and Hispanics (6.5 percent) have moved steadily closer to pre-recession levels, it’s not unreasonable to assume that, if 2014 labor market trends continue into 2015, black employment could really get a boost.

By projecting the 2014 average monthly change in the size of the black labor force and the number of unemployed black workers through 2015, I calculated a projected monthly black unemployment rate. I also used monthly averages over the past two years, both by level and percent change. Based on these estimates shown in the figure below, the black unemployment rate could finally fall below 10 percent by mid-2015.

Unemployment

2015 projected black unemployment rates based on 2013 and 2014 trends in labor force and unemployed

 Date 2014 avg level change/mo 2013-2014 avg level change/mo 2014 avg percent change/mo 2013-2014 avg percent change/mo
Dec-2014 10.4% 10.4% 10.4% 10.4%
Jan-2015 10.3% 10.3% 10.3% 10.3%
Feb-2015 10.2% 10.1% 10.2% 10.2%
Mar-2015 10.1% 10.0% 10.1% 10.1%
Apr-2015 10.0% 9.9% 10.0% 10.0%
May-2015  9.9% 9.7% 9.9% 9.9%
Jun-2015 9.7% 9.6% 9.8% 9.8%
Jul-2015 9.6% 9.4% 9.7% 9.7%
Aug-2015 9.5% 9.3% 9.6% 9.5%
Sep-2015 9.4% 9.1% 9.4% 9.4%
Oct-2015 9.3% 9.0% 9.3% 9.3%
Nov-2015 9.2% 8.9% 9.2% 9.2%
Dec-2015 9.1% 8.7% 9.1% 9.1%
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Source: EPI analysis of Bureau of Labor Statistics' Current Population Survey public data series

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Will the Supreme Court Annihilate One of the Most Effective Tools for Battling Racial Segregation in Housing?

The U.S. Supreme Court could be on the verge of issuing a major setback to racial integration efforts. In two weeks, it will hear oral arguments regarding whether the federal government and states should be permitted to pursue policies that perpetuate or exacerbate racial segregation in housing—even where no intent to segregate is proven.

The segregation of low-income minority families into economic and racial ghettos is one cause of the ongoing achievement gap in American education. Students from families with less literacy come to school less prepared to take advantage of good instruction. If they live in more distressed neighborhoods with more crime and violence, they come to school under stress that interferes with learning. When such students are concentrated in classrooms, even the best of teachers must spend more time on remediation and less on grade-level instruction.

The Economic Policy Institute, together with the Haas Institute for a Fair and Inclusive Society at the University of California, have organized a large group of housing scholars—historians and other social scientists—to sign a friend-of-the-court brief urging that housing policies perpetuating segregation should be banned.

(more…)

Little Sign of a Tightening Labor Market

A drop in the unemployment rate from 5.8 percent in November to 5.6 percent in December could mean one of two things. It could mean that more people are getting jobs. Or, it could mean that people have given up looking and left the labor force. These days, the truth lies somewhere in between. Looking at December’s jobs report, however, it’s pretty clear that the primary reason the unemployment rate fell to 5.6 percent is a declining labor force.

Over 70 percent of the decline in the number of unemployed people between November and December was due to a drop in the labor force. The labor force participation rate fell from 62.9 percent to 62.7 percent between November and December. And, the employment-to-population ratio (the share of the population working) held constant at 59.2 percent.

Even with the decline in labor force participation, the unemployment rate in December 2014 remains elevated compared to 2007, which had an average rate of 4.6 percent. The table below compares the unemployment rates between today and 2007 across various demographic groups.

You can see that no one demographic group has been spared by the weak economy. Compared to 2007, unemployment is elevated for groups that typically face higher-than-average joblessness, such as people of color, younger workers, and those with only a high school degree. But unemployment is disproportionately higher (i.e. the ratio between the years is larger) for those with a college degree or working in “Management, professional, and related occupations.”

(more…)

At an Average of 246,000 Jobs a Month in 2014, It Will Be the Summer of 2017 Before We Return to Pre-recession Labor Market Health

Dramatically falling employment in the Great Recession and its aftermath has left us with a jobs shortfall of 5.6 million—that’s the number of jobs needed to keep up with growth in the potential labor force since 2007. Each year, the population keeps growing, and along with it, the number of people who could be working. To get back to the same labor market we had before the recession, we need to not only make up the jobs we lost, but gain enough jobs to account for this growth.

The chart below projects out the potential labor force into the future. In December, the economy added 252,000 jobs; average monthly job growth in 2014 was 246,000 jobs. This is a clear improvement over the last several years, but the reality is that if we add 246,000 jobs a month going forward, it will take until August 2017 to hit the employment level needed to return the economy to the labor market health that prevailed in 2007.

Yes, job growth increased in 2014—in fact, job growth has gotten stronger each consecutive year in the recovery—and I’m optimistic that we will continue to see job growth that strong or stronger in the upcoming months. The high of the last year occurred in November, with today’s revisions bringing the number of jobs added in that month up to 353,000. If we were to create that number of jobs—the highest monthly number of the recovery—every month, we would return to pre-recession labor market health in August 2016. That’s awfully optimistic, and yet, still nearly 9 years since the recession began.

December Caps of a Year of Strong Job Growth but Stagnant Wages

With today’s jobs report, we can now look at the state of the labor market in 2014 as a whole, and examine the trajectory of our economic recovery. The good news is that in 2014 people were increasingly finding jobs. The bad news is that we are still digging our way out of the recession, and wage growth remains stagnant and untouched by recovery.

In December, the economy added 252,000 jobs, while average monthly job growth in 2014 was 246,000 jobs. This is a clear improvement over the last several years. Since the end of the recession, we have seen an increasing number of jobs added each year, albeit a slow increase. In 2010, average monthly job growth was only 88,000. Average monthly job growth rose in each consecutive year, up to 194,000 in 2013 and 246,000 jobs a month in 2014.

If we continue to see the 2014 level of jobs growth for the next few years, we will return to pre-recession labor market health in August 2017. On the one hand, 246,000 jobs a month is a decent rate of growth; on the other hand, September 2017 is almost three years away, and nearly 10 years since the recession began.

Despite the minor surge in job creation over the last year, there is still substantial slack in the labor market, as evidenced by the continued sluggishness in nominal wage growth. Private sector nominal average hourly earnings grew 1.7 percent annually in December, lower than average, but in line with what we’ve seen this year so far. Nominal hourly earnings averaged $24.44 in 2014, up from $23.96 in 2013—the average annual growth rate between 2013 and 2014 was 2.0 percent.

As you can see in the figure below, for the last five years, nominal wages have grown far slower than any reasonable wage target. The fact is that the economy is not growing enough for workers to feel the effects in their paychecks and not enough for the Federal Reserve to slow the economy down out of fear of upcoming inflationary pressure. If the Fed acts too soon, it will slow labor share’s recovery and come at a cost to Americans’ living standards. It is imperative that the Fed keep their foot off the brake for as long as it takes to see modest (if not strong) wage growth for America’s workers.

Nominal Wage Tracker

Nominal wage growth has been far below target in the recovery: Year-over-year change in private-sector nominal average hourly earnings, 2007–2014

All nonfarm employees Production/nonsupervisory workers
Mar-2007 3.6427146% 4.1112455%
Apr-2007 3.3234127% 3.8461538%
May-2007 3.7257824% 4.1441441%
Jun-2007 3.8575668% 4.1267943%
Jul-2007 3.4482759% 4.0524434%
Aug-2007 3.5433071% 4.0404040%
Sep-2007 3.2337090% 4.1493776%
Oct-2007 3.2778865% 3.7780401%
Nov-2007 3.3203125% 3.8869258%
Dec-2007 3.1113272% 3.8123167%
Jan-2008 3.1067961% 3.8619075%
Feb-2008 3.0464217% 3.7296037%
Mar-2008 3.0332210% 3.7746806%
Apr-2008 2.8324532% 3.7037037%
May-2008 3.0172414% 3.6908881%
Jun-2008 2.6666667% 3.6186100%
Jul-2008 3.0000000% 3.7227950%
Aug-2008 3.2794677% 3.8263849%
Sep-2008 3.2747983% 3.6425726%
Oct-2008 3.3159640% 3.9249147%
Nov-2008 3.5916824% 3.8548753%
Dec-2008 3.6303630% 3.8418079%
Jan-2009 3.5310734% 3.7183099%
Feb-2009 3.4725481% 3.6516854%
Mar-2009 3.1775701% 3.5254617%
Apr-2009 3.2212885% 3.2924107%
May-2009 2.8358903% 3.0589544%
Jun-2009 2.7365492% 2.9379157%
Jul-2009 2.5889968% 2.7056875%
Aug-2009 2.4390244% 2.6402640%
Sep-2009 2.2977941% 2.7457441%
Oct-2009 2.3383769% 2.6272578%
Nov-2009 2.0529197% 2.6746725%
Dec-2009 1.8198362% 2.5027203%
Jan-2010 1.9554343% 2.6072787%
Feb-2010 1.8140590% 2.4932249%
Mar-2010 1.7663043% 2.2702703%
Apr-2010 1.7639077% 2.4311183%
May-2010 1.8987342% 2.5903940%
Jun-2010 1.7607223% 2.4771136%
Jul-2010 1.8476791% 2.4731183%
Aug-2010 1.7070979% 2.4115756%
Sep-2010 1.8867925% 2.2447889%
Oct-2010 1.8817204% 2.5066667%
Nov-2010 1.6540009% 2.1796917%
Dec-2010 1.7426273% 2.0169851%
Jan-2011 1.9625335% 2.2233986%
Feb-2011 1.8262806% 2.1152829%
Mar-2011 1.8246551% 2.1141649%
Apr-2011 1.9111111% 2.1097046%
May-2011 2.0408163% 2.1041557%
Jun-2011 2.1295475% 2.0493957%
Jul-2011 2.2566372% 2.2560336%
Aug-2011 1.9434629% 1.9884877%
Sep-2011 1.9400353% 1.9864088%
Oct-2011 2.1108179% 1.7169615%
Nov-2011 2.0228672% 1.8210198%
Dec-2011 1.9762846% 1.8210198%
Jan-2012 1.7060367% 1.3982393%
Feb-2012 1.9247594% 1.5018125%
Mar-2012 2.1416084% 1.7080745%
Apr-2012 2.0497165% 1.7561983%
May-2012 1.7826087% 1.4425554%
Jun-2012 1.9548219% 1.5447992%
Jul-2012 1.7741238% 1.3853258%
Aug-2012 1.8630849% 1.3340174%
Sep-2012 1.9896194% 1.3839057%
Oct-2012 1.4642550% 1.2787724%
Nov-2012 1.8965517% 1.4307614%
Dec-2012 2.1102498% 1.6351559%
Jan-2013 2.1505376% 1.8896834%
Feb-2013 2.1030043% 2.0408163%
Mar-2013 1.8827557% 1.8829517%
Apr-2013 1.9658120% 1.7258883%
May-2013 2.0504058% 1.8791265%
Jun-2013 2.1729868% 2.0283976%
Jul-2013 1.9132653% 1.9736842%
Aug-2013 2.2118248% 2.1265823%
Sep-2013 2.0356234% 2.1739130%
Oct-2013 2.2495756% 2.2727273%
Nov-2013 2.1573604% 2.2670025%
Dec-2013 1.9401097% 2.3127200%
Jan-2014 1.9789474% 2.2055138%
Feb-2014 2.1017234% 2.4500000%
Mar-2014 2.1419572% 2.2977023%
Apr-2014 1.9698240% 2.2954092%
May-2014 2.0510674% 2.3928215%
Jun-2014 1.9599666% 2.2862823%
Jul-2014 2.0442219% 2.2828784%
Aug-2014 2.1223471% 2.4789291%
Sep-2014 1.9950125% 2.2761009%
Oct-2014 1.9510170% 2.2222222%
Nov-2014 1.9461698% 2.1674877%
Dec-2014 1.6549441% 1.6216216%
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Nominal wage growth consistent with the Federal Reserve Board's 2 percent inflation target, 1.5 percent productivity growth, and a stable labor share of income.

Source: EPI analysis of Bureau of Labor Statistics Current Employment Statistics public data series

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Turning to the household survey, where the official unemployment rate is determined, we see a similar story. The unemployment rate in December declined to 5.6 percent, primarily due to a drop in the labor force. All together, the unemployment rate for 2014 averaged 6.2 percent, down significantly from its high of an average of 9.6 percent in 2010. And, just in the last year, the unemployment rate has fallen dramatically, from an average of 7.4 percent in 2013. That said, the official unemployment rate fails to take into account millions of missing workers—workers who have been sidelined by the weak economy and who are expected to return to the labor market when job opportunities significantly improve.

Missing Workers

Millions of potential workers sidelined: Missing workers,* January 2006–December 2014

Date Missing workers
2006-01-01 530,000
2006-02-01 110,000
2006-03-01 110,000
2006-04-01 250,000
2006-05-01 210,000
2006-06-01 110,000
2006-07-01 60,000
2006-08-01 -120,000
2006-09-01 120,000
2006-10-01 -50,000
2006-11-01 -220,000
2006-12-01 -500,000
2007-01-01 -460,000
2007-02-01 -210,000
2007-03-01 -150,000
2007-04-01 650,000
2007-05-01 560,000
2007-06-01 360,000
2007-07-01 370,000
2007-08-01 840,000
2007-09-01 410,000
2007-10-01 800,000
2007-11-01 280,000
2007-12-01 250,000
2008-01-01 -320,000
2008-02-01 220,000
2008-03-01 50,000
2008-04-01 340,000
2008-05-01 -60,000
2008-06-01 20,000
2008-07-01 -70,000
2008-08-01 -90,000
2008-09-01 180,000
2008-10-01 60,000
2008-11-01 420,000
2008-12-01 420,000
2009-01-01 710,000
2009-02-01 620,000
2009-03-01 1,050,000
2009-04-01 750,000
2009-05-01 650,000
2009-06-01 650,000
2009-07-01 1,040,000
2009-08-01 1,320,000
2009-09-01 2,050,000
2009-10-01 2,270,000
2009-11-01 2,300,000
2009-12-01 3,120,000
2010-01-01 2,770,000
2010-02-01 2,690,000
2010-03-01 2,440,000
2010-04-01 1,940,000
2010-05-01 2,530,000
2010-06-01 2,950,000
2010-07-01 3,220,000
2010-08-01 2,830,000
2010-09-01 3,200,000
2010-10-01 3,640,000
2010-11-01 3,310,000
2010-12-01 3,800,000
2011-01-01 3,910,000
2011-02-01 4,110,000
2011-03-01 3,960,000
2011-04-01 4,000,000
2011-05-01 4,110,000
2011-06-01 4,220,000
2011-07-01 4,640,000
2011-08-01 4,100,000
2011-09-01 3,990,000
2011-10-01 4,090,000
2011-11-01 4,090,000
2011-12-01 4,150,000
2012-01-01 4,450,000
2012-02-01 4,180,000
2012-03-01 4,240,000
2012-04-01 4,630,000
2012-05-01 4,240,000
2012-06-01 4,060,000
2012-07-01 4,520,000
2012-08-01 4,630,000
2012-09-01 4,500,000
2012-10-01 3,930,000
2012-11-01 4,370,000
2012-12-01 4,070,000
2013-01-01 4,350,000
2013-02-01 4,790,000
2013-03-01 5,310,000
2013-04-01 5,060,000
2013-05-01 4,840,000
2013-06-01 4,700,000
2013-07-01 5,030,000
2013-08-01 5,150,000
2013-09-01 5,370,000
2013-10-01 6,120,000
2013-11-01 5,700,000
2013-12-01 5,950,000
2014-01-01 5,850,000
2014-02-01 5,650,000
2014-03-01 5,330,000
2014-04-01 6,210,000
2014-05-01 5,940,000
2014-06-01 5,950,000
2014-07-01 5,810,000
2014-08-01 5,890,000
2014-09-01 6,250,000
2014-10-01 5,720,000
2014-11-01 5,760,000
2014-12-01 6,100,000

 

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* Potential workers who, due to weak job opportunities, are neither employed nor actively seeking work

Note: Volatility in the number of missing workers in 2006–2008, including cases of negative numbers of missing workers, is simply the result of month-to-month variability in the sample. The Great Recession–induced pool of missing workers began to form and grow starting in late 2008.

Source: EPI analysis of Mitra Toossi, “Labor Force Projections to 2016: More Workers in Their Golden Years,” Bureau of Labor Statistics Monthly Labor Review, November 2007; and Current Population Survey public data series

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What to Watch on Jobs Day: Looking Back on 2014

As we await the last jobs report for 2014, it’s useful to step back and look at the December report in the context of the entire year—and in the context of the recovery as a whole. If December’s numbers come in as expected, we will see a relatively strong labor market in 2014, compared to the economy in the Great Recession and the beginning of the recovery.

Arguably, the real recovery did not even begin until 2014. Job growth was considerably stronger in 2014 than in previous years, and the unemployment rate, along with the long-term unemployment rate, measurably declined. Meanwhile, the employment-to-population ratio of prime age workers (25-54 years old) increased, and the rate of involuntarily part-time workers declined while those voluntarily working part-time increased. These are all pieces of good news. I expect these trends to continue in the right direction in December, or at least remain stable.

The one indicator that hasn’t improved over the year—and one we don’t expect to change in the December report—is nominal wages. Nominal wage growth has been consistently below target over the last five years, and last year was no exception. EPI has been tracking nominal wages, and it’s clear that the cumulative cost to slow wage growth is mounting. Indeed, nominal wages will be the key indicator to watch in 2015. As the labor market continues to improve, more people will find employment and the rolls of missing workers (those who have been sidelined in the weak economy) should shrink. As workers return to the labor force and get jobs, the unemployment rate will better reflect the state of the labor market. Eventually, a healthier labor market should translate into decent wage growth. The question is, when will workers start seeing the decent economic news reflected in their paychecks?

Moreover, as my colleague Josh Bivens has written, it’s important that the good economic news doesn’t prompt the Federal Reserve to raise interest rates any time soon. Many analysts and prognosticators worry that falling unemployment will cause wages to rise significantly, pushing up inflation above the Fed’s 2 percent target. But with wage growth continuing to be sluggish, there’s no reason to worry about runaway inflation. And putting the brakes on the economy too soon could have a disastrous impact.

Check back tomorrow when we’ll reflect on the 2014 labor market, including jobs, unemployment, and wages. We’ll update our missing workers calculator, assess the jobs gap, and analyze nominal wage growth in the context of Federal Reserve policy.

Agribusiness Reveals its Dislike of Deferred Action for Unauthorized Immigrants

As I and others have written over the past month and half or so, President Obama’s new Deferred Action for Parental Accountability initiative (DAPA) will shield from deportation and provide work authorization to unauthorized immigrants who have a son or daughter who is a U.S. citizen or legal permanent resident, if they are not an enforcement priority and have been residing in the country for at least five years. DAPA will give the potentially four million who qualify the full spectrum of workplace rights provided under U.S. law. This means immigrant workers will be able to hold accountable employers who commit wage theft or violate workplace safety laws, without fearing threats of deportation that employers may lob at them to keep them from complaining. It’s easy to see how raising the floor for unauthorized immigrant workers in this way will benefit all workers, raise wages, and increase tax revenue. But nevertheless, not everyone is happy about it.

I always suspected that the agricultural industry would not support deferred action or any DAPA-like program, but until now the industry had been relatively quiet about their position. My assumption was that—because unauthorized immigrants comprise such a large share of the workforce employed in agricultural occupations, and because ag employers directly benefit from having unauthorized immigrant employees who can’t complain about dangerous workplaces where pesticides are in the air and extreme, triple-digit temperatures are the norm—they would find objectionable anything that increased farmworkers’ bargaining power or that allowed them to move to better-paying jobs in other industries. Because unauthorized immigrants don’t have a lot of bargaining power and are mostly employed by bosses willing to violate the law, they can’t easily get a job anywhere else, which means they have to put up with the low wages that are on offer in ag.

So I was pleasantly surprised to see some truth seep out onto the airwaves, thanks to a three-minute interview conducted by Tucker Carlson the other day on Fox and Friends, which sheds some light on what the ag industry really thinks about DAPA.

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The President Set a Goal of Doubling Exports by 2014—Why Haven’t We?

The United States failed to achieve a doubling of exports between 2009 and 2014, as promised in President Obama’s National Export Initiative (NEI). It wasn’t even close. Total U.S. goods and services exports increased by less than 50 percent ($766 billion, or 48.4 percent) between 2009 and 2014 (estimated), as shown in the figure below. Meanwhile, imports increased by an even larger $883.8 billion, and as a result, the U.S. trade deficit increased by $117.0 billion.

Expanding exports alone is not enough to ensure that trade adds jobs to the economy. Increases in U.S. exports tend to create jobs in the United States, but increases in imports lead to job loss—by destroying existing jobs and preventing new job creation—as imports displace goods that otherwise would have been made in the United States by domestic workers. Between 2009 and 2014 the growth in imports more than offset the increase in exports, resulting in a growing trade deficit, as shown in the figure. Growing trade deficits have eliminated millions of jobs in the United States, and put downward pressure on employment in manufacturing, which competes directly with most imported products. For example, growing trade deficits with China alone have displaced 3.2 million U.S. jobs between 2001 (when China entered the WTO) and 2013, with 1.3 million of those jobs lost since 2009 alone.

Trade Defecit

U.S. exports, imports, and trade balance change, 2009 –2014

Goods Services
Exports $569.00 $197.84
Imports $792.00 $91.77
Trade Balance $0.00 $-117.00
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Sources:  EPI's analysis of U.S. Census Bureau, U.S. International Trade in Goods and Services

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The Economy Really is Doing a Bit Better—So Let’s Not Ruin It

People are excited by recent good news on the economy—especially the 321,000 jobs created in November and the 5.0 percent (annualized) growth rate posted by gross domestic product (GDP) in the third quarter of this year. The excitement is understandable—this is genuinely good news. Yet we shouldn’t lose sight of how far away from a healthy economy we remain. We’re climbing more rapidly out of the hole that the Great Recession left us in, but we’re still really only halfway there.

You can see this measured in terms of how many jobs we need to restore the labor market health that prevailed immediately before the Great Recession began, or in the share of “prime-age” adults (ages 25-54) that have jobs.

And in terms of restoring average wage growth we’re not even halfway there. In fact, we’re still essentially nowhere yet.

All of this makes one twist on the commentary about recent good news really odd—the idea that there may be a dark cloud to the silver lining if it makes the Fed raise interest rates sooner and slow recovery. This perspective shows just how strange an economic world we’re living in.

Yes, we’re now growing relatively fast, both on the GDP and jobs side. But that’s what’s supposed to happen following recessions: you have to re-absorb the workers who were laid-off during the recession as well as provide jobs for the normal inflow of potential workers into the labor force. What’s been remarkable in the recovery since the Great Recession so far is that this above-trend growth really never happened. Moreover, there’s nothing in a period of above-trend growth following a recession that argues the Fed must spring into action to stomp on it.

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Five Things We Could Change if the Real World Worked More like the Fictional World of Annie

In the spirit of the season, this post combines a few of my favorite year-end traditions—reflecting on the past, setting goals for the future and December movie releases. At the top of my “movies to see” list is a remake of one of my childhood favorites, Annie. The 2014 adaptation of the film includes a few twists on the 1982 version of the film I first fell in love with—the most obvious being African American actors playing the lead roles of Annie and Will Stacks (originally Oliver “Daddy” Warbucks).

In fact, Annie’s story has been reincarnated many times over since cartoonist, Harold Gray, first introduced his Little Orphan Annie comic strip in 1924 but the basic premise has stayed the same. A rich benefactor, who has amassed immense wealth through capitalism (specifically in World War I, hence the name Warbucks), adopts a little girl and transforms her life from that of a poor, abused, outcast orphan into a beloved daughter with full access to anything she can dream of.

Early versions of the Little Orphan Annie comic strip often espoused views of politics that sound awfully familiar today—including the idea that providing the masses with jobs that pay fairly and treating workers with respect is the obligation of virtuous capitalists. Also central to the story of Annie is how the perspective and priorities of the adults in charge of her well-being shape the child’s future. As a man of great wealth, power and influence, Warbucks didn’t suggest a bootstraps approach as the way to a better life, rather he offered the girl support as needed and often intervened in Annie’s life during crisis.

While Annie’s story is a fictional expression of her creator’s political views, it can also serve as a metaphor for many of today’s social and economic challenges. I’m not suggesting in any way that paternalism is the solution to inequality and poverty. Rather, I offer a list of five things that might be different if more of our nation’s wealth, power and influence were used to positively transform lives and promote economic mobility.

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There Should Be Overtime Protection—and Pay—For Anyone Paid Less Than $51,000 a Year

In March 2014, President Obama directed Secretary of Labor Tom Perez to prepare an update of the regulations that govern exemptions from the Fair Labor Standards Act (FLSA) requirement that employers pay time-and-a-half for work beyond 40 hours in a week. The so-called “white collar” exemptions for professionals, executives, and administrators include a threshold salary below which every employee is guaranteed overtime pay regardless of his or her work duties. Above that salary level, the employer doesn’t have to pay anything for overtime hours—not even minimum wage—if the work performed meets certain criteria.

The salary threshold has rarely been increased, and since 1975, its real value has been eroded by inflation. It currently stands at $455 a week, or $23,660 a year—below the poverty level for a family of four and nothing like a true executive or professional salary. Whereas 65% of salaried workers were guaranteed overtime coverage by the salary threshold in 1975, just 11% are covered today.

In the past year, four significant proposals have been made to update the salary threshold, and each would guarantee coverage to a different number of workers. The figure and table below show that as the threshold increases, millions more employees are guaranteed overtime coverage.

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20 States Raise Their Minimum Wages While the Federal Minimum Continues to Erode

On January 1st, 20 states will raise their minimum wages, lifting the pay of over 3.1 million workers throughout the country.1 New York, meanwhile, will have already raised its minimum wage on December 31st.  In nine of these states (Arizona, Colorado, Florida, Missouri, Montana, New Jersey, Ohio, Oregon, and Washington) the increases are routine—the minimum wage in those states is “indexed” for inflation so that each year the minimum is automatically increased to account for rising prices. The increases in the other 11 states, plus DC, are the result of changes to minimum wage laws—either legislation passed by state lawmakers or referenda passed directly by voters at the ballot box. Later in the year, another half-a-million workers in Delaware and Minnesota will also get a raise as legislated increases take effect there.

As the table below shows, the increases range from a 12-cent inflation adjustment in Florida—raising the minimum to $8.05—up to a $1.25 increase in South Dakota that will lift the state floor to $8.50. The smaller inflation-linked increases will lift pay for the roughly 4 to 7 percent of workers with wages at or very close to the minimum. The states instituting larger increases, however, will see a more sizeable portion of the state workforce getting a raise—such as in Minnesota, where the $1.00 increase later in the year is expected to lift pay for nearly a fifth of wage earners in the state.

All told, these increases will provide workers with $1.6 billion in additional wages over the course of the year. This added pay represents a modest, but significant, boost to the spending power of the affected workers, many of whom have children and families to support.

Even in the states where the minimum is simply being adjusted for inflation, the buying power of low-wage workers is being preserved, so they can still afford the same quantity of goods and services year-to-year. Given that consumer spending accounts for roughly 70 percent of the U.S. economy, this automatic adjustment of the minimum wage each year should be a no-brainer. Just as workers across the spectrum need regular pay increases so they can continue to afford their basic needs, businesses need a customer base with growing incomes if they’re going to thrive and expand. And because minimum wage increases overwhelming benefit low- to moderate-income households, they’re an easy way to put more money in the pockets of families that are likely to go out and spend it right away. As the last column of the table shows, the $2.5 billion in added wages generated by next year’s increases will translate into about $1.1 billion in economic growth as those dollars ripple out through the economy.

It’s encouraging that five states—Alaska, Michigan, Minnesota, South Dakota, Vermont—and the District of Columbia that have larger increases taking effect next year also enacted indexing that will take effect in future years. As shown in the map below, this will bring the number of states with some form of indexing up to 15. The map also shows that as of the new year, 29 states and the District of Columbia (as well as a number of cities and smaller municipalities) will have minimum wages above the federal minimum of $7.25. At that time, 60 percent of all U.S. workers will be in states with wage floors above the federal.

All this action at the state level speaks to how broadly voters and policymakers throughout the country recognize that the federal minimum is too low. At $7.25 per hour, the federal minimum wage is worth roughly 23 percent less than it was worth in the late 1960s, and its eroding value has led to more and more workers turning to federal safety net programs because they’re paid too little from work to make ends meet. Given that the country has grown vastly richer and more productive over the past 45 years, there’s no reason why workers in any state should be getting paid less today than their counterparts a generation ago.

The good news is that states aren’t waiting for the federal government to act. This is the first time in history that so many states will be raising their wage floors in the absence of a federal increase, and the first time since 2008—when states were raising their wage floors in anticipation of the last federal increase—that so many states will be above the federal minimum. But many other states still have minimum wages at or below the federal minimum, and states with minimum wages that aren’t indexed will see their wage floors erode in the coming years. We need a national wage floor that ensures a decent level of pay for work regardless of what state one lives in. That’s why Congress should follow the example set by voters and legislators in their home states and raise and index the federal minimum wage—fixing this problem once and for all.

Note: This post has been updated from an earlier version.  The previous version incorrectly accounted for state minimum wage increases that took place in 2014. The figures and table have been updated to correctly account for these increases. The earlier post also incorrectly stated that the DC minimum wage will take place on January 1.  It will take place on July 1.

1. Although originally scheduled to take effect on January 1, the Alaska minimum wage increase will not go into effect until February 24th. This should not measurably change the statistics for Alaska listed in the table. Additionally, tens of thousands of workers in the District of Columbia will also get a raise next July when the District minimum wage rises from $9.50 to $10.50.  Estimates for DC are not included here because data challenges make identifying affected workers in the District more challenging, although a ballpark estimate would be roughly 100,000 workers.