This piece originally appeared in the Wall Street Journal’s Think Tank.
Some policy makers and observers have urged raising interest rates in June. Proponents argue that some inflation measures show faster growth than the Federal Reserve’s preferred measure and that a potential bubble in the commercial real estate market justifies a rate increase. Ultimately, both arguments hinge on thinking that too-slow growth in real estate construction should be solved by raising rates. Here’s why that is not convincing.
The Fed’s inflation target is 2% annual growth in “core” personal consumption expenditures (minus food and energy prices, which tend to be volatile). The last quarter with annual growth of 2% in such expenditures was in 2012, and consistent price growth greater than 2% has not been seen since 2008.
Another measure, the core consumer price index, has shown growth exceeding 2% in recent months, leading some to declare that the Fed’s price inflation target has been met (and exceeded).
On Friday, when we get the latest jobs numbers from the Bureau of Labor Statistics, I’ll have my eye on a few measures of slack in the labor market. As the economy continues to add more jobs than are needed to simply absorb working-age population growth, I expect to see increases in both the overall and the prime-age labor force participation rates. This in turn should lead to a continuation of the slow but steady rise in the employment-to-population ratio, a metric that has been rising but which remains far below full employment levels.
Besides these key quantity measures of labor market slack, I’m also monitoring key price measures of slack—particularly nominal wage growth—which the Federal Reserve will also be looking at when it meets later this month. The year-over-year measures of nominal wage growth we get with each month’s employment report are the most timely measures of labor market slack, and while there has been some slight uptick recently, wage growth is still far below what we should be targeting for a truly healthy economy.
Year-over-year private-sector nominal wage growth was 2.5 percent in April 2016. After maintaining relatively slow growth, in the 2.0 to 2.2 percent range for several years, an increase of 2.5 percent is a welcome improvement. However, given the Fed’s target for price inflation of 2.0 percent, long-term trend productivity growth, the length of slow growth, and the failure of labor’s share of corporate income to rebound, the labor market should produce wage growth in excess of 3.5 percent for a consistent period before concerns over wage led inflationary pressures lead the Fed to increase rates. Tightening before a period of strong wage growth will lead to price and wage targets hardening into ceilings, and that will cause grave damage to the economy. Such premature tightening will be avoided if the Fed’s decisions truly are data driven.
A recent New York Times piece features some choice handwringing over the Labor Department’s new overtime rule, from executives in “prestigious” fields, like publishing, advertising, film and TV, and public relations. These are all fields where low-salaried junior employees are often encouraged or even expected to work well over 40 hours a week, and the executives quoted by the Times are worried that they will no longer be able to expect such long hours without paying overtime.
The change presents more than an economic challenge for the companies that rely on the willingness of young, ambitious workers to trade pay and self-respect for a shot at a prestige job down the road.
In the eyes of those who have survived the gauntlet of midday coffee runs and late-night emails, the administration’s overtime regulation represents nothing less than the beginnings of a cultural shift, and not necessarily a welcome one.
In order to ensure that low-paid employees are covered by the protections of the Fair Labor Standards Act’s overtime law, the Department of Labor mandates that workers must be paid time-and-a-half for every hour worked over 40 in a week, unless they qualify as an executive, administrator, or professional employee. In order to qualify for that exemption, a worker must make more than a salary threshold set by DOL and have sufficiently independent, high-level, and consequential duties, such that they truly are an executive, administrator, or professional worker. That salary threshold currently sits at $23,660 a year, but on December 1, 2016, it will be raised to $47,476 a year.
The American Enterprise Institute’s Aparna Mathur wrote an article claiming that the new overtime rules finalized recently by the Department of Labor could increase underemployment. The argument does not make much sense, however. Mathur tries to add to the wonky feel of her case by citing a recent (and good) Federal Reserve research note (or FEDS note, as they call it) on underemployment, but this is pure water-muddying; the FEDS note has nothing to do with the overtime rule.
First, a quick clarification because many are misunderstanding how the new rule works. The rule is only relevant to salaried workers—all workers paid by the hour are already eligible for overtime. Before the rule, only salaried worker whose pay was less than $455 a week were automatically eligible for overtime pay. This did not mean merely that salaried workers earning more than this didn’t earn time-and-half for hours worked in a week in excess of 40—t means they earned zero for each of those hours. The rule raises the threshold for determining automatic eligibility for overtime to $913 a week. Now, all salaried workers earning less than this amount must be paid (at time-and-a-half rates) for hours worked in a week in excess of 40.
Mathur argues that this rule will increase involuntary underemployment, and highlights findings from a recent FEDS note arguing that underemployment is currently even worse than traditional measures signal. However, Mathur’s description of the paper’s results highlights why her analysis of the overtime rule is so wrong. She writes about the FEDs note: “Relying on the more recent HRS data, the authors show that between 1992 and 2012, approximately 25 percent of workers reported that they had faced work-hour constraints, meaning they wanted more work but were unable to find it.”
Not quite. The Fed authors are very clear on a crucially important point: that the proper definition of underemployment is workers having fewer hours of work available to them “relative to the numbers they would prefer to work at current wages.”
Federal budget season came and went this year without any budget proposal hitting the floor of the U.S. House of Representatives. This was an odd (and ironic) bit of incompetence by the GOP leadership, who couldn’t even wrangle a majority to support their own budget proposal. But it was especially damaging to U.S. economic policy debates because it limited attention paid to the budget of the Congressional Progressive Caucus (CPC).
It’s true that political gridlock has meant the only live macroeconomic policy debate in DC in recent years has been around monetary policy. And the Fed’s decisions are important! But the abandonment of fiscal policy as a tool that could boost the economy, which began not soon after the recovery from the Great Recession began, is a real tragedy.
The need to resuscitate fiscal policy was usefully underscored in a widely-discussed speech by former Treasury Secretary and National Economic Council Chair Larry Summers earlier this week. Because the CPC and Larry Summers are perhaps not always thought of as completely in sync in policy debates, it’s worth noting that Summers’s remarks can be read as a ringing endorsement of the CPC budget. Some examples:
- “I am here to tell you that the most important determinant of our long term fiscal picture is how successful we are at accelerating the economy’s growth rate in the next three to five years, not the austerity measures that we implement.”
The CPC budget includes substantial upfront fiscal stimulus (mostly front-loaded infrastructure investments projects) precisely to accelerate the economy’s growth rate in the near-term.
Universities oppose paying their postdocs overtime, but will pay football coaches millions of dollars
Colleges and universities have made the indefensible argument that they can’t afford to pay their low-level salaried employees for their overtime under the Department of Labor’s new overtime rule. Universities have singled out postdoctoral researchers, many of whom spend 60 hours a week or more running the labs that turn out the nation’s most important scientific advances, as a group of employees that would just cost too much if they had to be paid for the extra hours they work each week.
Analyzed on their own, these postdocs—who are among the best-educated and most valuable employees in the nation, on whom our future health and prosperity depend, in part—obviously deserve to be paid for their overtime hours. After all, at a salary of $42,000 a year, these postdocs are being paid about $13.50 an hour (less than fast food workers are demanding).
When juxtaposed against the inflated salaries of university administrators with less stellar academic credentials making $200,000 to $3 million a year, the case for overtime compensation is only stronger. The comparison that really drives home how unfairly universities are treating their postdocs, however, is with the universities’ football coaches.
Note: The highest available head coach salary was selected for each state. Source: Data from USA Today and HKM Employment Attorneys LLP
Universities oppose paying their postdocs overtime, but will pay football coaches millions of dollars: Top NCAA College Football Coaches’ Salaries by State, 2015
University of Alabama
University of Alaska
University of Arkansas
University of Colorado
University of Connecticut
University of Delaware
University of Georgia
University of Hawaii
University of Illinois
University of Iowa
University of Kentucky
University of Maine
University of Maryland
University of Michigan
University of Minnesota
University of Mississippi
University of Missouri
University of Montana
University of Nebraska
University of Nevada
University of New Hampshire
University of New Mexico
University of Buffalo
North Carolina State
University of North Dakota
University of Oklahoma
University of Oregon
University of Rhode Island
University of South Carolina
University of South Dakota
University of Tennessee
University of Texas
University of Utah
University of Vermont
University of Virginia
University of Washington
University of West Virginia
University of Wisconsin
University of Wyoming
Note: The highest available head coach salary was selected for each state.
Source: Data from USA Today and HKM Employment Attorneys LLP
The recent settlements in the California Uber litigation demonstrate the perils of mandatory arbitration for our entire framework for regulating employment. Unfortunately, media coverage of the Uber controversies has not highlighted the damage that arbitration agreements have wrought to the individual workers involved and to our employment laws generally. But it is now more clear than ever that everyone who cares about employment rights and the fair treatment of workers should support federal legislation to end mandatory arbitration in employment and put workers and corporations on a more equal footing.
Uber has been in the news a lot lately. In the past month, it has settled a big class action lawsuit by California and Massachusetts drivers that was scheduled to go to trial in June, and it has agreed to permit its New York City drivers to form what they term a “drivers association”—that is to say, not a labor union. In each situation, Uber has preserved its right to treat its drivers as independent contractors. Uber also has pulled out of Austin rather than submit its drivers to the same fingerprinting requirements the city imposes on taxi drivers. Last fall, it pulled out of Alaska rather than provide its drivers with workers’ compensation.
This has also been a busy time for Uber litigation. There are currently dozens of lawsuits pending in state and federal courts, seeking to gain for its drivers all the various federal and state rights and benefits that accompany employee status. And the National Labor Relations Board is currently considering whether Uber drivers satisfy the test for employee status under the labor law.
The practices of Uber and other employers of on-demand workers raise many difficult issues under the labor and employment laws. The most important is the question of whether gig workers are employees or independent contractors. At stake is whether Uber has to provide the benefits of state and federal labor laws to its drivers. These include rights to minimum wage, overtime pay, and in many states, paid rest breaks, expense reimbursement, tips, workers compensation, and health and safety protections. The issue of employee status also implicates the ability of gig workers to form a labor union or whether their attempts to unionize make the workers liable for antitrust violations.
Last week, the Government Accountability Office (GAO) issued a misleading report on school segregation, which I discussed with NAACP Legal Defense Fund President Sherrilyn Ifill and others on the Diane Rehm Show.
The takeaway line of the GAO report was:
From school years 2000-01 to 2013-14, the percentage of all K-12 public schools that had high percentages of poor and Black or Hispanic students grew from 9 to 16 percent.
(When the GAO referred to “poor” students, it was not really speaking of poor students, but rather of those from families with incomes less than nearly twice the poverty line and who are eligible for subsidized lunches in schools.)
Not by coincidence, the GAO report was released on Tuesday, May 17, the 62nd anniversary of the Supreme Court’s Brown v. Board of Education decision banning school segregation. So it was not unreasonable for those who did not read the GAO report very carefully to conclude that it described a dramatic increase in racial segregation over the last 13 years.
But it did not, and could not.
The Department of Labor has issued a new rule, which expands the right to be paid time-and-a-half for overtime to salaried employees who earn less than $47,476 a year. Business groups that oppose the new rule claim that salaried employees will lose important work schedule flexibility when they become eligible for overtime pay. But the evidence shows this fear is unfounded, and, in fact, salaried workers who earn less than $50,000 a year currently have barely more flexibility at work than hourly paid employees.
An EPI analysis using General Social Survey data by Penn State labor economist Lonnie Golden shows that:
- Almost half—47 percent—of salaried workers earning less than $50,000 a year report that on a daily basis they “never” or “rarely” are allowed to change their work starting time and quitting times, while only 20 percent of salaried workers who earn $60,000 or more per year report never or rarely being allowed to change their schedules.
- Salaried workers earning less than $50,000 a year have no more ability to take time off during work for personal or family matters than hourly workers at the same level. Thus, “switching” employees from salaried to hourly status or requiring employers to track or monitor their hours for purposes of overtime pay would not reduce this valuable type of work schedule flexibility for employees. If we consider regularly being required to work overtime an indicator of inflexibility in one’s work schedule, salaried workers earning between $25,000 and $50,000 a year have about the same or an even greater likelihood of working mandatory overtime than their hourly counterparts. Thus, raising the overtime pay salary threshold for exemption to $47,476 should, if anything, provide the newly eligible workers somewhat greater flexibility to refuse unwelcome work beyond their usual number of hours per week.
In light of these conditions and findings, it is unsurprising that salaried workers generally report higher levels of work-family conflict and work stress than do hourly paid workers. It is also important to note that nothing in the new rule requires any employer to change any employee from salaried pay to hourly pay. That decision is entirely within an employer’s discretion. Many employers, including small business owners such as the National Retail Federation’s witness at a congressional hearing last October, already track the hours of salaried employees and provide comp time and bonuses based on overtime hours.
Explaining the differences between EPI and DOL estimates of workers affected by the new overtime salary threshold
In our report on the new overtime rule, EPI estimates that it will directly benefit 12.5 million workers. At first blush, our evaluation of the impact of the rule differs significantly from the widely circulated Department of Labor (DOL) assessment that 4.2 million workers will directly benefit from raising the salary threshold—meaning they are currently legitimately exempt because of their duties, but will be covered by the new threshold. DOL also notes that 8.9 million workers, meanwhile, will have their rights strengthened by the higher salary threshold, for a total of 13.1 million directly affected by the rule (600,000 more than our estimate). Additionally, of the 8.9 million salaried workers whose overtime rights would be strengthened, DOL notes that about 732,000 regularly work more than 40 hours a week, but are currently incorrectly classified as ineligible for overtime—bringing the total number of workers DOL estimates will be newly eligible for overtime pay up to 5 million.
We believe that many more workers will be newly eligible for overtime pay. Our assessment differs from DOL’s because the department assumes, incorrectly in our view, that overtime eligibility was not eroded by changes to the OT rules implemented by the Bush administration in 2004. We provided detailed evidence last year showing that overtime eligibility has been severely eroded since the late 1990s, when DOL computed the exemption probability estimates by occupation that it still relies on today. We concluded that:
…reliance on judgments made in 1998 provides an unreasonably sunny view of today’s workplaces that ignores changes in the law implemented in 2004, various court decisions, and the corresponding behavior of employers to limit the ability of workers to obtain overtime pay.
The 4.2 million employees DOL estimates will be newly entitled to overtime pay are limited to those who both meet duties tests establishing that their primary duty is executive, administrative or professional, and earn a salary higher than the old exemption threshold ($23,660 a year) but less than $47,476. For example, an accountant earning $40,000 or a bank branch manager earning $45,000 are legitimately exempt under the current rules but will be entitled to overtime pay because their salary is below the new threshold.
This blog post originally appeared on TalkPoverty.org.
Joplin, Missouri, a small city in the Southwest corner of the state, is probably best known for the devastating tornado that ripped through it on May 22, 2011. The storm killed 161 people and caused more than $2 billion in damages. Less well known is the widespread and growing poverty that is damaging the community—especially its students and schools—in quieter but no less harmful ways. But Joplin has begun to rebound, and the rest of the country should take note.
Three years before the tornado, CJ Huff, the superintendent of nearby Eldon, Missouri, was hired to lead Joplin’s 18 schools. His main charge was to raise the district’s graduation rate, which at the time hovered just above 73 percent. It quickly became apparent to Huff that the growing rate of child poverty stood in the way of reaching that goal as well as his broader aspirations to prepare students for college, careers, and active participation in a democratic society.
The Joplin school team conducted nine months of face-to-face talks with parents, teachers, and the community’s faith, business, and human services agency leaders in order to assess the school district’s needs. They discussed everything from the transition between elementary and middle school, to mental health, to mentorship. The plan they ended up with—called “Bright Futures”—is now a blueprint for school transformation in dozens of districts across the South and Midwest. Seven years later, Joplin’s graduation rate has risen to 87 percent. Here’s how Huff and the Joplin community did it.
This piece originally appeared in the Wall Street Journal’s Think Tank blog.
Weak data had convinced many that the Federal Reserve was unlikely to raise interest rates in June, but in recent days multiple Fed policymakers have suggested that an increase should be on the table in the near future. What’s unclear is why.
Little new data have emerged to suggest that the economy is much better than it was six or nine months ago. Since interest rates were raised in December, in fact, the pace of economic improvement has slowed almost to a stall.
Gross domestic product grew at 1.4% in the fourth quarter of 2015 and at 0.5% in the first quarter of 2016. These annualized rates represent extraordinarily weak growth over a six-month period, driven by declines in labor productivity (GDP divided by total hours worked in the economy) in both quarters.
This decline in productivity has largely been driven by historically anemic growth in business investment. Basically, in the face of weak demand, businesses have had little incentive to invest in new or better capital stock (physical plants and equipment). A larger capital stock gives workers more and better tools with which to do their jobs, making them more productive. But the extremely sluggish growth in business investment during the recovery has held back productivity growth.
Yesterday, the U.S. International Trade Commission (ITC) released a long-awaited report on the projected economic impacts of the TPP agreement. The report is remarkable for its frank estimates of the costs of the agreement, and the minimal benefits it identifies. Overall, the ITC projects that by 2027, the TPP will increase U.S. exports to the world by $27.2 billion (1.0 percent, as shown in Table 2.2) and U.S. imports from the world by $48.9 billion (1.1 percent), increasing the U.S. global trade deficit by $21.7 billion. All else equal, this rise in the trade deficit would put downward pressure on U.S. GDP. Nonetheless, the report concludes that over the next 16 years, the agreement will increase U.S. national income by $57.3 billion, 0.23 percent. This GDP gain stems largely from the ITC’s adoption of the standard full-employment assumption in modeling the TPP’s effects. There may have once been a time where such an assumption was warranted, but it seems highly inappropriate to apply to an economy that has been operating beneath full employment for at least 8 years and counting.
Dean Baker notes that even if the too-rosy GDP estimate were correct, it means that, “as a result of the TPP, the country will be as wealthy on January 1, 2032 as it would otherwise be on February 15 2032.” Worse yet, the ITC has a terrible record of forecasting the actual impacts of trade and investment deals, both overall and at the industry level. There is little reason to believe that this study will yield better results than past ITC efforts if the agreement is approved and implemented. In practice, whatever the ITC forecasts, U.S. trade and investment deals been near-inevitably followed by growing trade deficits and downward pressure on the wages of U.S. workers. There is every reason to expect that the TPP agreement will reinforce these trends.
Tomorrow, the Vice President is expected to announce the U.S. Department of Labor’s issuance of the final rule on overtime for salaried employees. Rumor has it that the rule will guarantee overtime pay to anyone working more than 40 hours in a week if their salary is less than $47,500 a year or $913 a week. That is less than DOL proposed last year, but still a very significant increase that will mean millions of employees will get raises or have their weekly hours scaled back to a more humane level. About 12.5 million employees will either be newly entitled to overtime pay or will have their rights strengthened so that they don’t have to rely on a complicated analysis of their job duties to determine that they have a right to time and a half for their overtime hours.
Reporters and Hill staffers wonder who are the people who will get raises, a question that is both easy to answer and difficult. The easy part is that employees earning close to, but less than, the new threshold will get raises if they typically work overtime. It will be cheaper and easier for the employer just to give them a raise of a couple of thousand dollars than to track their hours and pay them time and a half.
An obvious example is postdoctoral researchers, who typically earn $42,000 to $45,000, who work 50 to 60 hours a week, or more, conducting critical cancer and other biomedical research, physics, chemistry, biology, or math research. Paying them overtime for their normal, excessive workweek would be so expensive that their universities will give them a raise above the threshold in order to avoid it. The result will not just be better-rewarded researchers, but less turnover and stronger commitments to work that might benefit the entire nation and even the world.
In the comments it submitted for the rule-making record, the American Bankers Association provided good examples of employees in its industry who will benefit. The Bankers testified that banks commonly have various managers, including check processing managers, branch managers, IT managers, credit analysts, and compliance officers, who are currently treated as exempt and are denied overtime pay. But in many areas, their median salaries are fairly low: $45,400 for branch managers in Akron, Ohio and $46,300 in El Paso, Texas. Check Processing Managers in Little Rock, Arkansas earn a median salary of $45,800 while they earn a median $45,200 in Brownsville, Texas. It’s likely that their employers will give them all raises if they currently work even four or five hours of overtime a week.
It gets more difficult to predict when the salaries are lower. Will a university that pays its postdocs an exploitative $38,000 a year give them a raise above the new threshold? It probably depends on whether the postdocs are working more than 50 hours a week, at which point it’s cheaper to pay the threshold salary for exemption than to pay for each hour of overtime at 1.5 times the regular rate of pay.
Many reporters have told me that they are paid less than the salary threshold but are treated as exempt and denied any overtime pay. Reporters in high-cost areas such as New York, Washington, DC, or Boston are almost certainly going to receive salary increases, unless their pay is atypically low. I imagine that even in the South, many reporters are paid enough (and their hours are long enough) that a salary increase will be cheaper for their employer than paying overtime.
They probably won’t all get salary increases, but 2.6 million salaried employees covered by the Fair Labor Standards Act earn between $23,660 and $47,500. If they work substantial amounts of overtime now, they have a good chance that their salaries will be raised above the new exemption threshold.
It’s pretty clear that pinning Donald Trump down on actual policy specifics is going to be tough. He has released a tax plan (written down on actual paper), and until he decides to tear it up, it’s the best road map we have for what he wants to do with tax policy.
The road map charts the course to really large tax cuts, with the bulk of them going to very-high-income households: At the plan’s core is a mostly-routine Republican tax plan that includes giveaways similar to those intended by Marco Rubio, Jeb Bush, and Ted Cruz. The difference is that the plan throws people off the scent of who it benefits, because it contains some novel (and particularly stupid) detours that make no sense as good policy.
When Trump says things like “But the middle class has to be protected. The rich is probably going to end up paying more,” one might come away with the idea that this is a middle-class focused tax cut. The guts of Trump’s tax proposal, however, reveal how obvious of a giveaway to the already-rich it is. To get an idea of just how much money is being doled out, the Tax Policy Center (TPC) estimates that Trump’s plan would cost about $9.5 trillion over a decade. 35 percent of Trump’s tax cuts go to the top 1 percent of households during the first year of his tax plan (TPC estimates that as households making over $732,323 annually). This is more than the combined share that the 80 percent of us making under $142,601 a year can expect to see. And this regressivity actually grows over time: By 2025, the top 1 percent will take about a 40 percent share of the tax cut – almost equivalent to the combined share that the bottom 90 percent will see. The tax cut’s regressivity is highlighted even further by looking at the share within the top 1 percent. About half of the share going to the top 1 percent is actually going to just the top 0.1 percent – households making over $3,769,396 in the first year.
Explaining to Kevin Drum why we’re not happy about young high school grads’ recovery, and why he shouldn’t be either
I don’t know how EPI measures unemployment, but the federal government measures it in a consistent way every single month. For young high school grads, the average unemployment rate during the expansion of the aughts was around 11 percent. Today it’s 11.2 percent. In other words, it’s not “pretty poor,” it’s completely normal.
Well, we measure unemployment the same way that the federal government does, even using the same survey. All numbers and methods are described in our Class of 2016 paper from a few weeks ago. The reason we get 17.8 percent while Kevin gets 11.2 percent when looking at unemployment rates for young high school graduates is pretty obvious: we’re looking at 17-20 year old high school graduates who are not enrolled in further schooling while he is looking at 20-24 year old high-school graduates (no college). The numbers in our report also reflect a 12-month rolling average, because we also look at smaller demographic groups where sample size is an issue and want consistency across figures.
A bonus to our data is that we go back to 1989. What this shows is that the 2006 pre-recession trough that we have almost returned to is a pretty low bar for declaring “nothing to see here” on young peoples’ unemployment rates. For the group of young high school grads we look at, the pre-recession unemployment trough was 15.2 percent, but unemployment actually managed to reach 12.3 and 12.0 percent in the unemployment troughs before recessions in the early 1990s and early 2000s. So, yeah, we’re not in love with the 17.9 percent rate we hit in February this year, and we don’t think we’re “wildly misstating” the data to make the case that others shouldn’t be either.
On the heels of last week’s latest disappointing jobs numbers, today’s Job Openings and Labor Turnover Survey (JOLTS) report, unsurprisingly, shows little improvement in the labor market. In March, overall job openings rose slightly, while the number of people hired decreased. When we look at these numbers over the year, there has been a marked improvement in job openings—an increase in the rate of job openings (the number of job openings as a share of total employment plus job openings) from 3.5 to 3.9. Over that same period, the hires rate only increased from 3.6 to 3.7—a far slower improvement.
In today’s economy—as opposed to decades past—the listing of job openings is relatively easy and inexpensive, and may not accurately reflect an employer’s efforts to actually fill those openings. Employers may be interested in filling those positions at lower wages than would be required in a stronger labor market. They may not be searching intensively to find workers or willing to fill those positions if they have to offer higher wages. Considering the number of unemployed workers in the economy and the number of missing workers waiting on the sidelines for more opportunities, it seems that many of these openings could be filled if employers were more serious about filing them. It’s fairly straightforward economics at play here. If employers are unhappy with the pool of applicants, they simply might need to improve the job offering—the wages and benefits being offered—to recruit the candidates they desire. When that happens, we should see better wage growth than we’ve seen in the last several years of the recovery.
In June, the Supreme Court rescued the Fair Housing Act from a claim that it prohibited only overt discrimination—where a government body announces that it is enacting a housing policy for racially discriminatory reasons. Instead, Justice Anthony Kennedy’s opinion concluded that housing policies that have the effect of reinforcing segregation must be avoided, regardless of policymakers’ provable intent, unless an agency enacting such a policy can show that there was no reasonable alternative to segregation as a way to accomplish legitimate housing objectives.1
These days, when few public officials are so incautious as to announce they are racists, a different Court decision would have hamstrung efforts to desegregate housing nationwide.
Justice Kennedy based his ruling, in part, on a brief submitted by “Housing Scholars” organized by the Haas Institute and the Economic Policy Institute.2 The brief recounted the long history of government sponsorship of racial segregation that had established the nation’s racial housing patterns. The Housing Scholars argued that, because of entrenched patterns attributable to government policy, seemingly race-neutral policies could have the effect of reinforcing the segregation that government had helped put in place.
Now, a federal appeals court based in California, again relying in part on the Housing Scholars brief, has developed Justice Kennedy’s theory further. The case arose from the refusal of the City of Yuma, Arizona to permit construction of moderate-cost single family homes adjacent to a neighborhood where homes were more expensive.3 Although opponents of the development never said openly that their objection was based on race, they attacked the proposal using code words alleging that the development would bring crime into the neighborhood, that some of the homes might be purchased by single-parent families, and that “unattended children would roam the streets.” (The appeals court observed that where whites are involved, it is called “letting children play in the neighborhood.”) The court said that a reasonable jury could interpret such objections as racially motivated.
This morning’s employment situation report from the Bureau of Labor Statistics showed that the economy added 160,000 jobs in April and the unemployment rate held steady at 5.0 percent, while the labor force participation rate (LFPR) and the employment-to-population ratio (EPOP) ticked down. Nominal hourly wage growth held its recent trend, coming in at 2.5 percent over the year.
Payroll employment growth of 160,000 is notably slower than recent months. Even with the downward revisions to March, job growth looks slower than first quarter of this year (averaging 203,000) or last quarter of 2015 (averaging 282,000). While it is true that as the economy reaches full employment, job growth would be expected to slow, we are not nearly close enough to full employment to view this slow down as a positive move. Given that the first quarter GDP numbers came in so weak as well (0.5 percent annualized), it’s unlikely April’s low growth is a data blip that will be significantly revised upwards.
The White House released a report this morning that illuminates another part of the complex problem of stagnating wages—the rise of non-compete agreements and their spread to low-wage employment. Non-compete agreements, or “non-competes,” are contracts that ban workers at one company from going to work for a competing employer within a certain period of time after leaving a job. They can make sense when a worker has trade secrets or intellectual property in which the employer has invested. But they make no sense when applied to health care workers, retail and restaurant employees, and other low wage employees. All they do is limit opportunity and shackle people to an employer who will have less incentive to give a raise to retain them.
Employers are imposing non-competes in occupations with no possible trade secret justification—even doggy day care providers! The Treasury Department has found that one in seven Americans earning less than $40,000 a year is subject to a non-compete. This is astonishing, and shows how easily businesses abuse their power over employees and restrict their rights, as they increasingly do with forced arbitration clauses that take away the right of workers to seek justice in the courts. In both cases, workers often accept jobs without ever knowing that they have signed their rights away.
The Treasury Department has done groundbreaking work to show that non-competes have a measurable, negative effect on wages, as one would expect from a practice that limits employee mobility. The report also provides evidence that non-competes can reduce entrepreneurship and innovation.
(This blog post is an update to a post from March 30, 2015).
When the U.S.-Korea Free Trade Agreement (KORUS) was passed just over four years ago, President Obama said that the agreement would support 70,000 U.S. jobs. This claim was supported by a White House fact sheet that claimed that the KORUS agreement would “increase exports of American goods by $10 to $11 billion…” and that they would “support 70,000 American jobs from increased goods exports alone.” Things are not turning out as predicted. Far from supporting jobs, growing goods trade deficits with Korea have eliminated more than 95,000 jobs between 2011 and 2015.
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. Thus, it is changes in trade balances—the net of exports and imports—that determine the number of jobs created or displaced by trade and investment deals like KORUS.
In the first four years after KORUS took effect, there was absolutely no growth in total U.S. exports to Korea, as shown in the figure below. Imports from Korea increased $15.2 billion, an increase of 26.8 percent. As a result, the U.S. trade deficit with Korea increased $15.1 billion between 2011 and 2015, an increase of 114.6 percent, more than doubling in just four years.
U.S.-Korea trade, 2011–2015 (billions of dollars)
Change, billions of dollars, and percent from 2011-2015
Imports: +$15.2 (26.8%)
Exports: $0 (0.0%)
Trade Bal.: -$15.1 (114.6%)
Source: Author's analysis of U.S. International Trade Commission Trade DataWeb
Last week, the Federal Open Market Committee rightfully decided against another interest rate increase. Raising rates serves to slow the economy down and, at this point in the recovery, the economy still needs all the help it can get to keep growing. Gross domestic product (GDP) showed a slow rate of growth of 0.5 percent annualized in the first quarter of 2016, following just 1.4 percent growth in the last quarter of 2015. As my colleague Josh Bivens wrote, “if such slow growth continues into 2016, there will be significant upward pressure on unemployment and recent gains in labor force participation will likely fade away.” While we all hope that GDP growth for the first quarter gets revised significantly upwards, and that the last 6 months are more of a blip than a new trend, it is certainly the case that the Fed’s decision to not raise rates looks justified by the data.
Private sector nominal wage growth is one of the top indicators to watch on Friday, and one of the indicators the Fed tracks most closely in making their decisions. Last week, however, we got another useful measure of labor compensation growth. The Bureau of Labor Statistics (BLS) released its latest compensation data from the Employment Cost Index (ECI) for March 2016. The data on wages and salaries from the ECI very much confirm the monthly nominal wage growth numbers that appear every month in the Employment Report (with data from the Current Employment Statistics (CES)). Over the year, private industry wages and salaries as measured by the ECI increased 2.0 percent, while overall compensation costs increased 1.8 percent. Turning to the monthly CES data, wages grew 2.3 percent for the year ending in March 2016.
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, many of which are not even covered by the Fair Labor Standards Act (FLSA), oppose DOL’s updated 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 “Cost Impact Scoring Memo” by a company called Avalere to estimate the impact of the proposed overtime rule on its member agencies. Neither the survey questions, the actual responses, nor the response rate were included in Avalere’s report. But it is clear that the cost estimates are deeply flawed.
Our recent report on the class of 2016 showed that young high school and college graduates still face high levels of unemployment and stagnant wages, even though the labor market has improved since the Great Recession. Between these two groups, however, young high school graduates face a far less forgiving economic reality: the unemployment rate for young high school graduates is over three times higher than their college-educated peers (17.9 percent versus 5.6 percent), nearly one in seven is stuck in a part-time job when they really want full-time work, and the wages of entry-level jobs have barely budged since 2000.
Despite improvement in recent years, young high school graduates’ unemployment rate remains high: Unemployment rate of young high school graduates, by gender, 1989–2016*
* Data reflect 12-month moving averages; data for 2016 represent 12-month average from March 2015 to February 2016.
Note: Shaded areas denote recessions. Data are for high school graduates age 17–20 who are not enrolled in further schooling.
Source: EPI analysis of basic monthly Current Population Survey microdata
There are clear economic advantages for young people with a college degree relative to those who do not pursue and complete a college degree. This often leads pundits to suggest that more education is a solution to the low wages and high unemployment facing non-college educated workers. While this could be good advice at the individual level, encouraging more people to pursue higher education will do little to address the ongoing wage stagnation experienced by both high school and college graduates.
Neil Irwin wrote a piece on productivity growth in the New York Times that’s making the rounds. It’s a good piece, definitely worth reading. But I think we need to focus a lot more on the portion of the productivity slowdown that is likely fixable quickly with policy: the depressing effect of chronic aggregate demand slack. While economics textbooks tend to shorthand the determinants of productivity growth as slow-moving, supply-side influences like the education of the workforce and the pace of technological advance, plenty of evidence shows that productivity growth is actually positively affected by the rate of demand-growth in the economy. If this is true, then the deceleration of productivity might be just the latest casualty from the too-long slog back to full recovery after the Great Recession. And this would in turn provide yet another reason why the Fed and other macro policymakers should err strongly on side of giving the economy too much rather than too little support going forward.
This theme—that productivity and potential output may be depressed by our failure to generate enough demand-growth to engineer a full recovery—is also a key point of my recent paper on the Congressional Progressive Caucus budget. If passed, this budget would do a lot for boosting productivity growth. People are absolutely right to be concerned about sluggish productivity growth, but we should at least try to pluck the low-hanging fruit in restoring a decent rate of growth by finally locking in full employment.
For more than two years, the Obama administration has been working on restoring and strengthening working people’s right to receive overtime pay for working more than 40 hours per week. It’s been reported that the salary threshold under which all workers, regardless of their title or responsibilities, will be eligible for overtime will be set at $47,000 a year. While this is slightly lower than DOL’s original proposal, it represents a significant step forward in the effort to boost wages for working people.
If the salary threshold is indeed set at $47,000, it will directly benefit 12.5 million workers. 4.8 million workers will be newly eligible for overtime protections and another 7.6 million will be more easily able to prove their eligibility. All told, about 33 percent of the salaried workforce will be eligible for overtime, regardless of their duties on the job.
By restoring their right to be paid for the hours they work, President Obama and Secretary of Labor Perez are giving a raise to millions of working- and middle-class Americans. They deserve praise for their efforts.
On September 11, 2001, almost 3,000 people died in the attacks on the World Trade Center, the Pentagon, and the airliner crash in Pennsylvania. That tragedy is being compounded by the growing toll of cancer, lung disease and other illnesses related to the attack, particularly in the New York metro area, where first responders were exposed to a sickening mix of chemical and biological toxins. USA Today reported that “more than 9,000 claimants have been determined eligible for compensation of medical bills and other expenses,” and that 2,620 of the approved cases were cancer-related. This second wave of illness and death is taking place out of the public spotlight, but it is real and is causing suffering in thousands of families.
During the years since 9/11, a much larger wave of workplace deaths has been crashing down on American families without drawing much attention from the public or the media. Every year, more people are killed from injuries in the workplace than were killed on September 11, 2001. The number of fatal injuries has been as high as 5,840 but never lower than 4,551—this translates into roughly 65,000 unnecessary deaths resulting from negligence or the reckless indifference of employers who continue to send workers into unshored trenches, onto roofs without fall protection, into confined spaces filled with toxic gas, and into factories and mills with dangerous levels of explosive dust.
In the last week, Donald Trump has backed away a bit from his ridiculous ideas to retire the federal debt by selling national assets and has noted his approval of the Federal Reserve’s low interest rate policies in recent years. This may have led some to question whether or not his policy instincts are really all that bad. They are.
To see why, one needs to dig into his plan for federal taxes. The regressiveness of this plan has been well-advertised: about 40 percent of the $9.5 trillion cut would eventually go to the top 1 percent. But look beyond this bullet point and you’ll see that Trump’s plan is so convoluted that a key loophole it contains has largely escaped analysis. This loophole is a piece of tax policy so bad that, at an Urban Institute panel on tax ideas from the campaign trail, Joe Rosenberg of the Tax Policy Center deemed it the worst tax idea from the campaign. To put it even more bluntly, this loophole is so bad that even the resolutely pro-tax cut Tax Foundation doesn’t like it.
Luckily, we already have evidence of just how bad this loophole is. This is because it has already helped blow a hole in the revenue of the only entity that has adopted it: the state of Kansas.
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.