An interesting story in the New York Times this morning looks at the effect that job losses from trade have had on people’s political views. It’s no surprise that voters on the losing end of globalization are disenchanted with the political mainstream, as the Times puts it. They have every right to be.
But I’m tired of hearing from economists about the failure to support workers dislocated by globalization as a cause of anger and the policy action the elite somehow mistakenly forgot. Ignoring the losers was deliberate. In 1981, our vigorous trade adjustment assistance (TAA) program was one of the first things Reagan attacked, cutting its weekly compensation payments from a 70 percent replacement rate down to 50 percent. Currently, in a dozen states, unemployment insurance—the most basic safety net for workers—is being unraveled by the elites. Only about one unemployed person in four receives unemployment compensation today.
I’m also getting tired of hearing that job losses from trade are the result of the U.S. economy “not adjusting to a shock.” Trade theory tells us that globalization’s impact is much greater on the wages of all non-college grads (who are between two-thirds and three-quarters of the workforce, depending on the year), not just a few dislocated manufacturing workers. The damage is widespread, not concentrated among a few. Trade theory says the result is a permanent, not temporary, lowering of wages of all “unskilled” workers. You can’t adjust a dislocated worker to an equivalent job if good jobs are not being created and wages for the majority are being suppressed. Let’s not pretend.
This week, Washington, D.C. Mayor Muriel Bowser unveiled the details of her plan to raise the minimum wage in the District of Columbia to $15 an hour by 2020—unfortunately, the main difference between the Mayor’s plan and the ballot initiative is that her plan perpetuates the unjust subminimum wage for tipped workers.
Currently, tipped workers in the District are paid a minimum wage of just $2.77 an hour before tips and depend on diners to pay the bulk of their wages. Mayor Bowser’s proposal would raise the tipped minimum wage to $7.50 by 2024, where it would equal half the regular minimum wage. Having this separate, lower minimum wage for tipped works is unique to the United States; no other country has a separate minimum wage for tipped workers. This two-tiered system—which Mayor Bowser’s law will perpetuate—enshrines both gender and racial inequality directly into our labor law. The result is lower wages and higher levels of poverty for tipped workers, who are more often women and people of color.
When the first minimum wage was created in 1938 as part of the New Deal, it exempted many of the industries that commonly practiced tipping. The explicit subminimum wage for tipped workers was established in 1966 when the Fair Labor Standards Act was expanded, and restaurant owners and their lobbyists have defended the two-tier system ever since. The result is a subminimum wage for tipped workers that has been stuck at $2.13 at the federal level since 1991 and at $2.77 in DC since 1993.
This system has an obvious implication for working people who make their living in restaurants: they have lower wages and are much more likely to live in poverty. In states where tipped workers are paid a base wage of just $2.13 an hour, they are more than twice as likely to live in poverty than other workers. In these states, 18 percent of waitstaff and bartenders live in poverty, compared with 7 percent for other workers. In places like D.C., where tipped workers are paid a base wage somewhere between $2.13 and the full minimum wage, 14.4 percent of waitstaff and bartenders are in poverty.
The U.S. Department of Labor is about to issue a final rule that will increase the number of people entitled to overtime pay when they work more than 40 hours in a week. The rule will simply say, in effect, that if an employee earns less than $50,440 a year (or close to that—we won’t know the final number until the rule is released), she must be paid time and a half when she works more than 40 hours a week, even if she is a salaried employee, and even if her employer calls her a manager, professional, or supervisor.
This is a consequential move, which will improve the lives of many working people in a number of ways. Millions of employees who work long hours will get paid overtime for the first time. Millions of other workers who have been working long hours, at a cost to their health and their families, will have their hours reduced to 40 hours a week. Millions more will get a raise above the threshold, because their employer can continue to avoid paying overtime. And hundreds of thousands of people will get jobs because employers will reduce the hours of some employees to avoid paying overtime and hire additional people to do the work at straight time wages.
Many colleges and universities have complained that they cannot afford it. They don’t want to pay for overtime hours that have been free for years. At a congressional field hearing in March, the University of Michigan’s associate vice president for Human Resources said it would be “cost prohibitive” to raise salaries or pay overtime for post-doctoral researchers and others earning less than $50,000 a year. The coalition of universities and colleges lobbying to weaken the rule suggests a salary threshold “between $29,172 and $40,352” as the point where overtime pay could be denied. The U-M associate vice president went on to conclude that, “The climate for most colleges and universities in the U.S. is one of ongoing financial pressures that would curtail hiring new employees or increasing compensation as a result of these FLSA changes.”
It’s been pointed out to me that yesterday’s blog post about a story by NPR’s Chris Arnold targeted too much ire at Arnold himself rather than the phenomenon he was reporting about. I think that’s probably right, and so I apologize to him for that. I was using Arnold’s story as a jumping off point for a discussion of a larger issue, and should have made that more clear. I do think my larger points about the substance of the topic under debate hold. The damage done by trade to American workers is consistently underestimated and is often treated as a surprise when it shouldn’t be—it’s completely the prediction of standard trade theory. To the degree that Arnold’s story helps take this “surprise” excuse off the table for future debates over trade, it’s doing a service.
Some quick notes on why I think all of this is important, however. This is Arnold’s first paragraph:
Economists for decades have agreed that more open international trade is good for the U.S. economy. But recent research finds that while that’s still true, when it comes to China, the downside for American workers has been much more painful than the experts predicted.
I think Arnold reports this exactly right. Experts continue to portray the downside of expanded trade for American workers as having turned out to be unexpectedly large, but they are wrong to be surprised. Downward pressure on a large majority of American workers’ wages is completely predicted by mainstream economic theory. But I should have made clearer where my criticism here was aimed.
New legislation would bring transparency to America’s immigration system and help fight human trafficking
Every year, hundreds of thousands of workers from abroad come to the United States to temporarily fill jobs in a number of occupations, including farm labor, landscaping, hospitality and seafood processing, as well as information technology jobs or to teach at U.S. universities and grade schools. They come through a virtual alphabet soup of temporary foreign worker programs which are distinguished by different “nonimmigrant” visa classifications, each having their own distinct purpose and history. The most common nonimmigrant visas that authorize employment are the H-2A, H-2B, H-1B, J-1, L-1, A-3, G-5, F-1/Optional Practical Training (OPT), and B-1 visa classifications, but also important are H-1B1, O-1, O-2, E-2, E-3, P-1, P-2, Q-1, and TN visas. The workers themselves, who hold nonimmigrant visas, are commonly referred to as guestworkers and are allowed to remain and work in the country for a limited period of time, depending on the terms of their specific visa.
Over the years, countless cases of abuse and exploitation of guestworkers have come to light and been reported on by the media. The abuses are usually carried out by employers or the labor recruiters who connect guestworkers to their jobs and employers, for a fee. Some of the abuses are extreme and amount to human trafficking: they have been compared to slavery by Buzzfeed and the Southern Poverty Law Center and described as “creating an underground system of financial bondage” by the Center for Investigative Reporting. None of these labels are an exaggeration.
Unfortunately, little else is known about how these guestworker programs operate, despite the fact that hundreds of thousands of guestworker visas are issued every year. That makes it difficult to craft rational policy solutions to improve how the programs are managed and to ensure that the labor standards of guestworkers—and of Americans who work in major guestworker occupations—are protected. The dearth of information also results in an outsized role for corporate interest groups that spend millions lobbying to expand and deregulate guestworker programs, because it is difficult for lawmakers to verify claims about how guestworker programs impact the economy, businesses, and the labor market.
That’s why the Visa Transparency Anti-Trafficking Act, a new piece of legislation introduced today in the House by Reps. Lois Frankel (D-Fla.), David Schweikert (R-Ariz.), Ted Deutch (D-Fla.), and Jim Himes (D-Conn.), and in the Senate by Sen. Richard Blumenthal (D-Conn.), is so important. The Act would create a uniform system for reporting data that the government already collects on work visa programs and require making that information available to the the public, non-governmental organizations, researchers, and lawmakers. Because the government already possesses a vast amount of data on guestworker programs and temporary visas, the bill does not require the government to collect much more or to impose new burdens or requirements on employers. It would simply provide increased access to this information. That may seem like a small step, but it would go a long way to bringing a much-needed dose of transparency to our immigration system and drastically improve the quality of public debates surrounding temporary foreign worker programs.
Yesterday, NPR’s Chris Arnold wrote the latest in what has become a very long line of “explainer” pieces about economic globalization and the presidential campaigns. Nearly all of these pieces seek to resolve an alleged puzzle: nearly all reputable economists argue that policy efforts to boost trade are good for the U.S. economy, yet many (if not most) American workers strongly oppose trade agreements signed in recent decades.
Arnold puts forward a pretty common solution to this alleged puzzle: “trade’s benefits are diffuse, but the pain is concentrated.” In this view, the only losers from trade are those workers directly displaced by imports. Every other consumer in the economy benefits from lower prices. But because the losers are small and concentrated, they can organize to oppose trade agreements. And while the winners are numerous and widespread, the benefits (e.g., slightly more affordable clothing and DVD players) are hard to notice, so no one organizes to support these agreements.
This is a common way of describing the effects of using policy to expand trade, but on the economics, it is certainly not correct. In textbook trade models, using policy levers (lower tariffs, for example) to boost trade with poorer countries will indeed cause total national income in the United States to rise. But these same textbooks also predict that the resulting expansion of trade will redistribute far more income than it creates. And the direction of this redistribution is upward. So it is perfectly possible to have policy efforts to expand trade lead to higher national income yet leave the majority of workers worse off. Importantly, the losers in these textbook models are not just workers directly displaced by imports—they’re all the workers in the entire economy who resemble the trade-displaced in terms of education and credentials.
This post originally appeared in The Globalist.
The presidential primary campaigns of both political parties have exposed widespread voter anger over U.S. global trade policies. In response, hardly a day has recently gone by without the New York Times, the Washington Post and other defenders of the status quo lecturing their readers on why unregulated foreign trade is good for them. The ultimate conclusion is always the same—that voters should leave complicated issues like this to those intellectually better qualified to deal with them. Trade experts, according to Binyamin Appelbaum of the Times have been “surprised” at the popular discontent over this issue. Their surprise only shows how disconnected the elite and the policy class that supports it is from the way most people actually experience the national economy. The United States has always been a trading nation. But until the 1994 North American Free Trade Agreement, trade policy was primarily an instrument to support domestic economic welfare and development.
A lop-sided deal: Investment vs. jobs
Starting with NAFTA, pushed through not by a Republican president, but by the Bill Clinton in 1994, it became a series of deals in which profit opportunities for American investors were opened up elsewhere in the world in exchange for opening up U.S. labor markets to fierce foreign competition. As Jorge Castañeda, who later became Mexico’s foreign minister, put it, NAFTA was “an agreement for the rich and powerful in the United States, Mexico and Canada, an agreement effectively excluding ordinary people in all three societies.” For 20 years, leaders of both parties have assured Americans that each new NAFTA-style deal would bring more jobs and higher wages for workers, and trade surpluses for their country. It was, they were told, an iron law of economics.
It’s now widely accepted among Washington commentators that the Republican House of Representatives dropped the ball on the federal budget over the past week. You might think this means people have finally noticed just how bad the Republican House Budget Resolution that passed out of committee recently was. But, no.
Instead, the tsk tsking is about the Republicans officially missing the statutory deadline to pass a budget resolution. Now, this is a puzzling failure, to be clear. Republicans have majorities in both the House and the Senate, and Speaker Paul Ryan promised to restore “regular order” on budgets during his tenure.
And Republicans had fun in recent years characterizing Democrats as not doing their jobs because they could not pass annual budgets through regular order (the irony, of course, being that these budgets were held up by Republicans boisterously opposing any compromise). Mitch McConnell did some of the best mocking, “I don’t think the law says, ‘Pass a budget unless it’s hard,’ so I think there’s no question that we would take up our responsibility. We would be passing a budget. Every year.”
Last week, the Princeton University trustees announced they were rejecting student protester demands that “Woodrow Wilson” be removed from the names of the university’s School of Public and International Affairs and a residential undergraduate college.
The protesters objected to honoring Wilson because he participated in and, as president of the United States, helped lead a national wave of reaction against the progress towards equality that African Americans had made in the decades after emancipation. In particular, Wilson segregated, for the first time, the federal civil service.
The trustees agreed that Wilson’s racial policies, both as president of the university (where he refused to admit African American students) and as president of the United States were a serious blemish on his record. They recommended greater efforts to recruit African American students, programs to better incorporate those students into university life, and “a much more multi-faceted understanding and representation of Wilson on our campus, especially at the school and the college where his name is commemorated.” They made no specific proposals in this regard, but it would seem reasonable to install a prominent plaque at the entrances of these buildings that describe Wilson’s contributions to segregating American society, and distribute a pamphlet to each student at the school and college that describes the origins of segregation and Woodrow Wilson’s contribution to it.
Such an approach would be preferable to removing his name. Preserving the identity of the school and college should be a provocation for ongoing discussion of this history. Sanitizing the names, in contrast, could ensure that future generations of Princeton students will be as little challenged by that history as previous generations have been.
After a too-short hiatus, fear-mongering about the debt is back in a big way. TIME magazine is so worried that they’ve taken it upon themselves to not only put out an entire series to remind people that they must still fear the debt boogeyman, but have also allowed the headline story to center on long-debunked ramblings about the glories of the gold standard. There is so much wrong in the headline story that it would take a treatise to correct, but let’s just focus on a couple of easy things.
First: $13,903,107,629,266 (the size of the federal government’s debt)—that’s a big number. But context, one of many things lacking in this article, is also important. $18,164,800,000,000 is a larger number, and one that happens to be U.S. Gross Domestic Product (GDP). As was highlighted in our recent piece on Donald Trump, what matters is the size of public debt relative to the size of the economy. For further context, Greek debt at its recent peak was 175 percent of Greek GDP. That’s a level that the Congressional Budget Office baseline doesn’t even have the U.S. government hitting in three decades. And even Greek debt had to be combined with screaming policy incompetence among European Union policymakers to spark an economic crisis. Finally, if we believe that the confidence fairy may tolerate a couple of years of deficits but will come roaring back to punish us because of sustained debt levels, then it’s worth noting that Japan, where debt currently sits at 123 percent of GDP, has had a debt-to-GDP ratio of over 80 percent since 2004—with no signs yet of creditors fleeing.
Since the author of the TIME article, James Grant, is determined to analogize between government debt and personal debt, we should point out a couple of quick things. First, even for a person, a debt that is less than 80 percent of their annual income is far from ruinous. Lots of Americans would, for example, rejoice if their outstanding mortgage was less than 80 percent of their annual salary. Second, lots of people have debts—mortgages, auto loans, student loans—and yet have substantial net worth because they also own assets. Both of these insights apply to the government, maybe even more forcefully. For example, many people with mortgages less than 80 percent of their annual income would consider themselves in a good financial place. But people really do have to pay off their mortgage in full someday. Governments—entities that never die—don’t. So, the burden of an 80-percent-of-income debt is much, much less pressing to a government than a person. The government also owns assets. Lots of them. And these estimates of assets don’t even include the biggest one: the power to tax.
There are economically coherent arguments about why the United States should address projected future deficits before too long. They’re not hugely convincing to us, but they do exist. But they’re not in the new TIME magazine cover story.
40,000 Verizon workers are currently on strike across the country after the company and labor unions failed to reach a new contract agreement last year. Verizon has reaped over $39 billion in profits over the last three years, and its CEO rakes in 200 times more per year than the average Verizon worker. Despite this clear sign of prosperity, Verizon refuses to let its employees share these gains. Instead, Verizon wants to severely cut health care coverage, slash benefits for injured and retired workers, and outsource work to low-wage contractors overseas. As the daughter of a striking Verizon worker and as a union member myself, I know that workers do not decide lightly to go on strike. Strikes are disruptive and stressful, and create financial strain for workers and their families. But they are necessary when large corporations refuse to give working people a fair share of the profits they help create, and Verizon workers have been without a contract for ten months.
By going on strike, the Verizon workers are using one of the few tools workers have left in today’s economy to claim their fair share of economic growth. They are also pushing back against the rigged rules of the economy that privilege capital owners and corporate managers. I stand in solidarity with my mother and thousands of her fellow union members as they fight for a fair contract. Their call for job security, protected benefits, and improved working conditions is emblematic of larger trends affecting working people across America. Their strike is also an example of how important it is for working people to have the right to stand together and negotiate collectively for fair wages and benefits and safe working conditions. Unfortunately, this right has been severely eroded over the fifty years by policy choices made on behalf of those with the most wealth and power—and this erosion has directly contributed to stagnating wages for the vast majority of workers.
A trial court in Wisconsin has ruled that the state’s new law banning union contracts that make every employee the union represents pay his fair share of the costs of representation is unconstitutional.
The union plaintiffs and the court took a fairly novel approach to this issue and ruled on grounds I had never considered: compelling a union to represent non-dues-paying free riders (as the law does) means the state is taking the union members’ dues and forcing them to spend it on free riders without any compensation by the state. It’s an unconstitutional taking without just compensation, in violation of Article 1, section 13 of the Wisconsin constitution. A similar argument under the Fifth Amendment of the U.S. Constitution was made by Judge Diane Wood, dissenting in Sweeney v. Pence, 767 F3d 654, 683-84 (7th Cir 2014), where the majority upheld Indiana’s identical law.
The state requires unions to represent every member of the bargaining unit fairly and equally, so the union can’t avoid spending from its treasury when a non-dues-payer demands that the union take his grievance, in a situation where it would take a union member’s grievance. That representation can involve arbitration fees and the costs of a lawyer, which can easily exceed $10,000. The state imposes this burden on the union for the “public purpose [of] making the business climate in the state more favorable,” but it offers the union no compensation at all. The court rejected the notion that giving the union exclusive bargaining rights was sufficient compensation: “The proposition that winning an election is sufficient compensation and that all subsequent work must be done for free does not make any more sense than the proposition that there is a free lunch.”
Over the weekend, Republican presidential candidate Donald Trump insisted that he could eliminate the national debt, which currently stands at around $19 trillion, “over a period of eight years.” Upon hearing this, most people would think that Trump planned to cut spending or hike taxes. However, Trump plans to cut taxes, which suggests that he had to be proposing enormous spending cuts. If spending cuts began rapidly enough to fulfill Trump’s promise of eliminating our $19 trillion debt, the “very massive recession” that is currently just another of Trump’s fantasies would become a very real possibility.
Trump, however, has something else in mind besides (or at least in addition to) spending cuts as a strategy for eliminating our national debt. Trump’s plan is a relatively new twist in D.C. policy debates: selling government assets.
This plan, while truly stupid, is a useful reminder about how limited and silly our budget deficit debates are in D.C. While it has received plenty of deserved scorn, we shouldn’t lose sight of the fact that about half of the ridiculousness of Trump’s overall debt plan actually just mimics pretty conventional D.C. budget wisdom. The other half brings a new kind of ridiculousness to the table, but these new proposals come with a grain of useful insight embedded in them. First, though, it will help to examine the conventional ridiculous featured in Trump’s plan.
First, there is the $19 trillion debt number that Trump references. Anybody who tells you the national debt is $19 trillion is simply fear-mongering. This $19 trillion number is the gross national debt, which includes debt issued to government accounts (in practice, this means debt held by the Social Security Trust Fund). According to the Congressional Budget Office (CBO), this debt “does not directly affect the economy and has no net effect on the budget.” What matters for future taxpayers is the net debt (i.e., the debt held by the public), which CBO’s most recent measure puts at about $13 trillion in 2015. $13 trillion should be a big-enough number to sound scary, but D.C. budget fear-mongers can never resist going for the even higher (though irrelevant) $19 trillion.
Yesterday, Zack Beauchamp updated a piece he had written a while back that claimed Bernie Sanders’ trade agenda could prove ruinous to the world’s poorest people. I think Beauchamp really overstates this, for a couple of reasons.
First, only an expansive reading of some of Sanders’ rhetorical excesses would lead one to think he would pursue policies that radically restricted the access to U.S. markets currently enjoyed by our poorer trading partners’ exports. It is not an uncommon reaction to criticisms of today’s global trade regime to assume that this market access would clearly be significantly reduced if this status quo were overturned, but that’s far from obvious.
Second, the evidence marshalled on behalf of trade liberalization’s positive benefits for development is entirely about the benefits of unilateral, domestic liberalization. That is, the benefits a country gains from cutting its own tariffs, and not about the ease of access that they have to the U.S. market. This evidence is completely silent on the benefits of access to the U.S. market. Economic theory teaches that the benefits of unilateral liberalization completely dwarf those of market access, and there is not much evidence to suggest that this theory is wrong.
A rule requiring investment advisors to act in the best interest of clients saving for retirement was released today despite a six-year campaign to weaken or kill it. Secretary of Labor Thomas Perez and his staff deserve enormous credit for persevering.
The financial services industry made the usual claim that the rule would hurt the people it was supposed to help—essentially, that investors are better off with bad advice than no advice. It also told Congress the rule would be unduly burdensome, while assuring investors there was nothing to worry about, as Senator Elizabeth Warren and Representative Elijah Cummings pointed out.
Let’s hope the financial industry was lying to investors, not Congress, because the rule should have an impact on its bottom line. The only problem is that it doesn’t go far enough. A financial advisor can now be sued for recommending a higher-cost mutual fund over a similar but lower-cost fund without disclosing that he or she is working on commission—a practice that was perfectly legal until today. But the rule doesn’t require that he or she provide information about low-cost index funds and similar investments, even though the original draft rule pointed out that the prevailing view in the academic literature was that such a passive investment strategy was optimal.
It’s unlikely that investors could successfully sue advisors simply for steering them to higher-cost asset classes, as long as the investments are generally considered suitable for people saving for retirement (mutual funds or annuities, for example, and not shares in racehorses). But the mutual fund and insurance industries succeeded in having this spelled out in the final rule and eliminating a safe harbor for broker-dealers offering “high-quality low-fee products… calibrated to track the overall performance of financial markets.” The list of other changes is worth reading and perhaps worrying about, though they may matter little in practice and simply allow the administration to demonstrate its responsiveness while giving lobbyists something to show for their expensive efforts.
The Department of Labor (DOL) is about to release a final rule that will require overtime pay for millions of salaried employees who currently can be required to work long hours for no more pay than they receive for a 40-hour week. This will give them either more money or more time with their families or for themselves.
But the overtime rule naturally makes some employers unhappy, since they can currently get 60 hours of work from many employees for only 40 hours of pay. Even some non-profit human service providers, which for the most part are not even covered by the Fair Labor Standards Act (FLSA), oppose DOL’s updated rule. This might be because they don’t understand the law, but that misunderstanding hasn’t stopped them from paying for and publishing the first of what will likely be a wave of spurious reports and cost estimates of the new rule.
An association of community providers serving people with intellectual and developmental disabilities (the American Network of Community Options and Resources, or ANCOR) commissioned a “study” by a company called Avalere to estimate the impact of the proposed overtime rule on its member agencies. Sadly, Avalere’s report is little more than a collection of baseless assumptions adding up to an absurd result. Neither the survey questions, nor the actual responses, nor the response rate were included in Avalere’s report.
Yesterday, the Treasury Department took laudable regulatory action to discourage corporate inversions, a tax evasion maneuver where U.S. multinational corporations merge with much smaller foreign corporations in order to move the corporation, on paper, to a lower-tax country. As Treasury Secretary Jack Lew notes, “After an inversion, many of these companies continue to take advantage of the benefits of being based in the United States—including our rule of law, skilled workforce, infrastructure, and research and development capabilities—all while shifting a greater tax burden to other businesses and American families.”
The new Treasury rules make it harder for companies to access some of the tax benefits of corporate inversions. If the shareholders of the old U.S. parent company end up owning more than 60 percent of the new merged foreign company, then many tax benefits obtained by inverting will be clawed back by Treasury. Today’s rule changes strengthen this provision by excluding the stock of the foreign company attributable to assets acquired from an American company in the three previous years. The upshot is that the ability of foreign companies to engage in serial inverting is reduced.
To see how this works, consider the recent example of Pfizer’s proposed inversion with Allergen. In 2014, Treasury issued a Notice to limit the tax breaks associated with an inversion to companies whose original shareholders owned less than 60 percent of the new merged foreign firm. Pfizer therefore structured its inversion so that its current shareholders would own 56 percent of the newly merged foreign company. However, Allergen is a serial inverter, being the result of numerous mergers with American companies over the past 3 years. With the new regulatory guidance, it looks likely that the Pfizer-Allergen inversion will no longer meet the appropriate threshold. The new regulatory action means that foreign firms cannot simply use a string of acquisitions to increase their size and avoid inversion thresholds.
According to this morning’s Job Openings and Labor Turnover Survey from the Bureau of Labor Statistics, the job-seekers to job-openings ratio held steady at 1.4 in February 2015, meaning there are still 14 job seekers for every 10 job openings in the economy. While there have been great improvements in the job-seekers ratio in the past several years, we are still far from a full employment economy. The job-seekers ratio also fails to reflect the missing workers in the economy today—in other words, those who are not actively seeking a job (in the last four weeks), but would likely start looking if the economy was stronger and they saw better opportunities for themselves in it.
The job-seekers ratio, 2000-2016
Note: Shaded areas denote recessions.
Source: EPI analysis of Bureau of Labor Statistics Job Openings and Labor Turnover Survey and Current Population Survey
There is still a substantial gap between the number of job openings and the number of unemployed people, illustrating just how far we are from full employment. As shown in the figure below, this gap is far larger today than it would be in a tight labor market.
Job openings levels and unemployment levels, 2000-2016
|Job Openings level||Unemployment level|
Note: Shaded areas denote recessions.
Source: EPI analysis of Bureau of Labor Statistics Job Openings and Labor Turnover Survey and Current Population Survey
The plans to raise the minimum wage to $15 in California and New York are ambitious and welcome at a time when the eroding value of the federal minimum wage means more and more working families can afford less and less. California’s minimum wage would reach $15 in 2023 for all employees and in 2022 for those in firms with more than twenty-five employees. New York’s plan would raise the minimum wage to $15 by 2018 in New York City and by 2022 in the City’s suburbs and on Long Island. The minimum wage upstate would rise to at least $12.50, with the possibility of then going higher. These increases are significantly larger in scope than what has been typical of recent federal and state minimum wage hikes. Furthermore, both proposals would raise the wage floor to levels relative to the wages of typical workers that have not been the norm for at least three decades.
The fact that these proposals are outside the bounds of recent experience does not automatically make them ill-conceived. Moving beyond the timidity of most recent minimum wage hikes is exactly what is needed if we are to undo decades of falling wages and deteriorating living standards for the lowest-paid third of America’s workforce.
The Berkeley Labor Center estimates that 5.6 million workers—or the entire bottom third of the California workforce—would benefit from the California increase (excluding those already helped by various city initiatives). EPI’s analysis estimates that 3.2 million workers, or 37 percent of the New York workforce, would benefited from a statewide increase to $15, although the number affected by the current proposal would be less, given the smaller wage hike in the upstate region.
Looking ahead to Equal Pay Day later this month, five top female U.S. soccer players made headlines for filing a case against U.S. Soccer for wage discrimination. Even while they have received far higher honors in soccer fame than the men’s national team, the players contend that they earn as little as 40 percent of their male counterparts. For example, the players claim that a men’s U.S. soccer player can earn as much as $8,166 extra for a win at an exhibition game—a women’s player, meanwhile, receives as little as $1,350 extra for winning a similar match.
While this case is high profile, the fact is that the gender pay gap exists across occupations and throughout the economy and that gaps between men’s and women’s pay can add up to a substantial amount over time. Equal Pay Day is April 12 this year because it marks how far into 2016 women would have to work to earn the same amount that men earned in the 2015. Depending on factors like occupation, race, and education level, though, this date could stretch far beyond April 12 for many women.
In 2015, the typical woman’s hourly pay was only 83.3 percent of the typical men’s hourly pay. That means that the median woman earns about 83 cents on the man’s dollar. At the bottom of the wage distribution, pay is relatively more equal, as the minimum wage, though low by historical standards, still provides a wage floor that ensures working people earning it are paid at the same rate. The gap at the top of the wage distribution, meanwhile, is much larger because men disproportionately hold jobs in higher paying occupations, which tend to reward excessive work hours (though longer work hours do not necessarily translate to higher per hour productivity). Additionally, women are more likely to be perceived as less dedicated to their careers, regardless of whether they work the same hours as their male counterparts, (i.e. gender discrimination), which can lead to huge losses in earnings over the course of their careers in the form of forgone promotions and pay raises.
The gender wage gap is largest among top earners: Women’s hourly wages as a share of men’s at various wage percentiles, 1979–2015
|10th percentile||50th percentile||95th percentile|
Note: The xth-percentile wage is the wage at which x% of wage earners earn less and (100-x)% earn more.
Source: EPI analysis of Current Population Survey Outgoing Rotation Group microdata
Gender wage gaps also exist across all levels of education. Even among the most educated workers—those with an advanced degree—large wage-gaps persist, with women making only 73.4 percent of men’s hourly wages. Among those with a college degree, women make 75.2 percent of male earnings. For those with a high school degree, women make 78.3 cents on the high-school-educated man’s dollar.
What to Watch on Jobs Day: Signs of more workers returning to the economy and increases in their wages
I’ll be looking at two particular trends tomorrow when the March Employment Situation report comes out. First, I’ll look at what’s happening with the labor force participation rate, along with the accompanying employment-to-population ratio and the unemployment rate. Second, I’ll continue to look at nominal wage growth, to measure the strength of the recovery’s impact on workers.
The first indicator to watch, which has showed signs of a turnaround, is labor force participation. Both the overall and the prime-age labor force participation rates appear to have bottomed out in mid-2015 and have been slowly rising the last few months, but the labor force is still down by about 2.4 million “missing workers.” These workers aren’t counted among the unemployed, because they haven’t actively looked for work in the last four weeks, but they are likely to return to the labor force as the economy recovers. Last month, we saw some signs of that return, as the number of missing workers fell and the overall and prime-age employment-to-population ratios rose slightly. There is still far to go before we reach full employment, but this is certainly an encouraging sign that we are moving in the right direction.
While the unemployment rate has been holding steady, a slight rise in coming months could actually be a positive move—if driven rising labor force participation, which would mean that potential workers see hope for themselves in the labor market and have started to look for jobs. As more potential workers get pulled back into the labor market and more unemployed workers get jobs, we should see this labor market tightness translate into stronger wage growth.
A new report by Andrew Stettner, senior fellow at The Century Foundation, brings needed attention to the nation’s troubled unemployment insurance (UI) programs. The report concentrates on crucial financing questions, noting that the lack of UI state reserves prior to the Great Recession led to significant cuts in state programs in recent years, with benefit recipiency rates reaching historically low levels in 2014 and 2015. In particular, Stettner notes that six out of every seven unemployed individuals in the most restrictive Southern states go without benefits, a level that calls into question whether those states still provide meaningful social insurance. At the same time, low reserves continue to threaten a majority of states while we head inevitably toward the next recession. According to the report, only 18 states currently meet recommended trust fund levels.
Stettner recounts the main facts in his overview of recent UI developments, including recent state UI benefit cuts and financing changes. Despite these benefit cuts and financing changes, he reports that state reserves are less than 60 percent of the trust fund reserves found prior to the recent recession. Worryingly, many of the states adopting benefit cuts will remain at low solvency levels when the next recession arrives.
Wayne Vroman, a long-time expert on UI financing at the Urban Institute, has reinforced some of Stettner’s observations on UI financing in a recent report. Vroman has written about UI financing since the 1980s, and this report shows a troubling pattern he has called attention to in recent years. Our 13 biggest states—where about two-thirds of benefits are paid and UI taxes collected—do a remarkably poor job of UI financing. Vroman finds that “program revenue responded more slowly in the 13 big states and their benefits were reduced more when compared with the other states in the state UI system.” Vroman’s more technical approach presents a number of regressions trying to better understand why big states fail to adequately finance their state UI trust funds. While his paper can’t fully explain the big states’ failures, Vroman does identify factors that make UI financing stronger, most notably the indexation of the taxable wage base.
The Department of Labor has taken another significant action to protect American workers from harm by issuing a final rule to control employee exposure to silica dust, which destroys lung tissue and causes cancer, disabling thousands of workers every year and killing hundreds more. Secretary of Labor Tom Perez and OSHA Administrator David Michaels have persevered against a political hailstorm to finish this rule, which was first conceived more than 35 years ago.
Some employers will complain that it’s too expensive to protect their employees from lung disease, but it’s not. Thousands of businesses, in construction, mining, brick-making, and other industries already meet the standard. A dent in the profits of the businesses that haven’t cared enough in the past to do what was needed is no reason to back away now from safer workplaces and better lives for millions of Americans.
Ultimately, the decision to issue this rule rests with President Obama, who deserves credit for putting people first.
This post originally appeared on TalkPoverty.org.
Two of the most widely cited statistics on inequities within the American labor market are that the average woman earns just 79 cents for every dollar earned by a man, and that the black unemployment rate is typically double that of whites. While these statistics are partly accounted for by differences in occupation or education, gender pay inequities persist even among men and women in the same job, and the two-to-one unemployment disparity exists even for blacks and whites with the same level of education. What this means is that even among otherwise socioeconomically similar individuals, we can still observe differences in pay or employment that arise from discrimination.
Although the explicitly discriminatory policies and practices that created these disparities are now illegal—thanks in part to Title VII of the Civil Rights Act of 1964, which outlawed employment and pay discrimination on the basis of race, color, religion, sex or national origin—the inequities persist. That’s because many of the channels through which opportunity is passed, like social networks, are shaped by biases based on race and gender. Regardless of whether these biases are conscious or subconscious, patterns of old-fashioned segregation stand in the way of eradicating them.
Recently, I gained some profound insight into this phenomenon from a most unlikely place: a second-grade music class.
This week, the House Budget Committee reported out, on a party-line vote, their fiscal year 2017 budget resolution. Infighting between House Republicans, centered on the idea that proposed spending cuts should be even more drastic, suggests that this year’s budget resolution is unlikely to pass. However, with all the media attention focused on the House Republican’s inability to come to an agreement, we shouldn’t lose sight of just how austere their budget resolution already is, and how much damage the cuts it calls for would do to the economy over both the short and long run.
For example, the cuts over the first two years would impose a significantly larger fiscal drag on economic recovery than previous Republican budgets. It’s true that the economy is healthier than it’s been in previous years, and the Federal Reserve may have more scope to neutralize fiscal drag than in years past, so it’s possible (if not likely) that job growth may be able to absorb some of this fiscal drag beyond 2017. Because of this possibility, we have departed from previous years’ practice in specifying a point estimate on how much this budget will affect economic growth and job creation in years beyond 2017. However, the evidence is still overwhelming that rapid spending cuts would be deeply damaging to a still-weak economy, and we can be pretty concrete about this over the next year.
GOP House budget resolutions for the past several years have been obsessed with eliminating the budget deficit by the end of the ten year budget window. This was already a quixotic and damaging goal, and it has become even more so thanks to changes in the CBO’s baseline. And while deficits are created from revenue minus spending, congressional Republicans’ outright refusal to raise any taxes means that spending cuts—and thereby low- and middle- income people—must bear the entire brunt of the budget resolution’s burden. They bear this burden to the tune of $6.5 trillion in spending cuts to vital programs over ten years—programs that overwhelmingly serve those most in need. The cuts would take away affordable health insurance coverage from the millions that have gained it under the Affordable Care Act and then further erode the safety net with cuts to Medicaid, unemployment benefits, and nutrition assistance. Besides making the economic lives of vulnerable populations harder, focusing cuts on this group imposes a large fiscal drag, since these are households that tend to spend (not save) additional dollars of resources back into the economy.
As part of his fiscal year 2017 budget, President Obama has proposed to spend “nearly $6 billion in new funding to help more than 1 million young people gain the work experience, skills, and networks that come from having a first job.” There’s no question that this is a good idea and Congress should fund it. The New York Times editorial board said essentially the same, calling on the Republicans in Congress who oppose it to “consider the desperation that young unemployed people are facing in this country and the civic costs of standing idly by and doing nothing to help them.” If you’re feeling déjà vu, it’s because last year President Obama also asked Congress for appropriations to fund youth employment programs, to the tune of $3 billion. But Congress didn’t fund the president’s proposal last year, and they’re unlikely to fund it this year either. In consideration of this political reality, President Obama should do what he can through executive action. To start with, he could open up 100,000 jobs for young Americans today for free by simply eliminating the State Department’s J-1 visa Summer Work Travel (SWT) program.
SWT is one of many “cultural exchange” programs in State’s larger overall J-1 visa Exchange Visitor Program, which brings over 300,000 foreign researchers, students, and workers into the country every year through a variety of programs, along with 30,000 to 40,000 of their spouses and children who can come with J-2 visas. In the J-1 SWT program alone, approximately 100,000 foreign college students from around the world come to the United States to work for four months in hotels, beach resorts, restaurants, ice cream shops, and various other seasonal businesses, in a variety of low-paying, lesser-skill jobs. Reports like EPI’s Guestworker Diplomacy and the Southern Poverty Law Center’s Culture Shock have explained in detail how SWT is a temporary foreign worker program disguised as an exchange program, and is administered by an agency with zero expertise in enforcing labor and employment laws. Numerous worker abuses and even human trafficking have been facilitated by this temporary work visa program, and the basic structure of the program, which allows such abuses to occur, has not changed.
The legal authority for SWT originally came from the Fulbright-Hays Act of 1961, which created the overarching Exchange Visitor Program to facilitate educational and cultural exchanges with persons from abroad by allowing them to visit the United States temporarily. But most of the individual programs were created entirely by the executive branch, and their regulatory frameworks are outlined mainly in State Department regulations. This is in fact the case with SWT, which operated for decades without any specific congressional authorization, despite the fact that it arguably contains no educational or cultural component. In 1998, Congress did weigh in on SWT, by including one sentence in an omnibus appropriations bill that authorizes the State Department to “administer summer travel and work programs without regard to preplacement requirements.” This authorizing language, however, does not require the State Department to continue to run the SWT program, it simply permits it.
This morning’s Job Openings and Labor Turnover Survey (JOLTS) report has both some optimistic news about the economy and some rather disappointing news (and revisions to the entire historical series). I’m optimistic because job openings increased in January, rising from 5.3 million to 5.5 million between December 2015 and January 2016. And, the rate of job openings—the number of job openings as a share of total employment and job openings—increased from 3.6 to 3.7. Over the last year the rate of job openings has risen from 3.4 to 3.7—a sign of an economy that continues to recover.
But, what we need is for those job openings to translate into hires. Unfortunately, in January, the hires rate dipped, falling from 3.8 to 3.5 in one month. I wouldn’t put much stock in any one month’s fluctuations as the series are quite volatile, however, such a substantial drop in the hires rate is not an indication of positive movement in the labor market. While there has been clear progress in terms of growing job openings, it is also important to remember that 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” a company can put behind 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 and the labor market is far from full employment, as it is today, companies may very well be holding out for an overly-qualified candidate at a cheap price.
Senators Patty Murray and Sherrod Brown, together with Rep. Rosa DeLauro, are tackling one of the most important employment issues of the 21st century—wage theft, the failure of employers to pay employees what they are legally owed. This is a serious social and economic problem, which I have estimated could amount to more than $20 billion a year in stolen or underpaid wages, including non-payment of overtime pay, failure to pay the federal, state or local minimum wage, failure to pay statutorily required prevailing wages, forcing employees to work “off-the-clock,” taking illegal deductions from the paychecks of drivers misclassified as independent contractors, and even failure to pay anything at all. A study by the U.S. Department of Labor suggests that minimum wage violations alone range from $8 billion to $14 billion a year.
The consequences of these losses are serious: increased poverty, hardship for the near-poor, lost tax revenues for governments, including lost Social Security and Medicare contributions, and increasing inequality. When the employers who commit wage theft go unpunished it undermines their law-abiding competitors and generally diminishes respect for and faith in the rule of law.
Just as raising the minimum wage could save hundreds of million dollars in safety net program expenditures, failing to pay the current minimum wage causes safety net spending to increase considerably. As DOL found in its recent study of minimum wage violations, “Minimum wage violations led to $5.5 million in additional breakfast benefits in California and $3 million in New York, in FY2011. The school lunch program spent an additional $10.1 million in California and $4.8 million in New York in FY2011 due to minimum wage violations.”
All eyes will be on the Federal Open Market Committee (FOMC) today as they decide whether or not to follow up December’s interest rate hike (the first since 2006) with another. A consensus seems to be firming that they will hold pat in March and instead are likely to raise in June. Holding still and not raising rates is likely the right decision for two reasons: it will help reverse past damage left over from the Great Recession and will also make the job of future FOMCs easier because it will build credibility.
Both of these benefits stem from the Fed’s inability to keep wage and price inflation from running consistently below healthy targets in recent years. The Fed’s dual mandate is to maximize job-growth and push down unemployment while maintaining stability in inflation. The Fed has adopted an inflation target of 2 percent for “core” prices (ie, excluding food and energy) in the personal consumption expenditures (PCE) deflator. Yet the PCE core deflator has seen annualized growth of less than 2 percent for years now, and there’s no sign yet in the data that it is even moving durably closer to this target.
The American economy faces two major and interrelated problems, and contrary to what one would expect given the newly resurgent cries of deficit hawks, more spending is essential to solving both.
First and foremost, the economy has still not fully recovered from the Great Recession. Since the enactment of the Budget Control Act of 2011, ongoing austerity measures have meant that now, six and a half years after the Great Recession officially ended, the economy still has some slack and demand for workers is still too low. Indeed, if public spending growth over the current recovery had simply matched that of the early 1980s recovery, the economic recovery would already be complete. Instead, pulling away fiscal support too soon led to unnecessarily depressed output and high unemployment that has persisted throughout the recovery.
But austerity hasn’t just blocked a recovery to pre-recession trends, as bad as that would be. A growing body of research strongly suggests that the decelerating productivity growth that’s shown up in economic data recently is driven in large part by the weak aggregate demand implied by austerity.