The U.S. trade deficit with Japan has increased steadily over the past four years, reaching $79.9 billion in 2012, an increase of $13.4 billion (20.2 percent) over the 2011 bilateral deficit of $66.5 billion. Two of the most important causes of persistent U.S.-Japan trade deficits are currency manipulation and Japan’s vast and impenetrable network of non-tariff trade barriers. Last month, the United States and Japan agreed on language that could allow Japan to join negotiations to enter the Trans-Pacific Partnership (TPP), a proposed free trade agreement with 10 other Asia-Pacific countries (a new round of negotiations on the TPP began in Singapore last week ). Unless Japan is willing to end its currency manipulation and informal trade barriers once and for all, it should not even be allowed to participate in the TPP negotiations.
The effect of trade flows on U.S. jobs is relatively straightforward: exports support U.S. jobs but the larger volume of imports displaces even more jobs. Trade deficits such as the one we have with Japan have cost the United States millions of jobs, most of them high-paying jobs in manufacturing. Signing trade deals is an ineffective way to create jobs, in large part because they usually result in higher trade deficits. Further, trade deals have traditionally not included effective means to deal with one of the biggest causes of our trade deficits: currency manipulation by our trading partners, which acts as an artificial subsidy to other countries’ exports, and a tax on U.S. exports. Japan has a history of currency manipulation, and recently-elected Prime Minister Shinzo Abe campaigned on his intention to stimulate the Japanese economy, in part by weakening the yen. Financial markets have responded to Mr. Abe’s wishes, and the yen has declined 18.8% since October, falling to 96 yen per dollar on March 12, 2013.1Read more
Earlier today, House Budget Committee Chairman Paul Ryan (R-Wis) released his Fiscal Year 2014 House Budget Resolution, The Path to Prosperity: A Responsible, Balanced Budget. Like Ryan’s fiscal 2012 and fiscal 2013 budget resolutions, this latest iteration is an austerity budget—it proposes aggressive near- and long-term spending cuts, which come on top of the austerity from sequestration spending cuts (which would be continued), the ratcheting down of discretionary spending caps, and the recent expiration of the payroll tax cut.
Ryan’s budget would reduce near-term primary spending (excluding net interest) by $42 billion in fiscal 2013, $121 billion in fiscal 2014, and $343 billion in fiscal 2015, all relative to CBO’s alternative fiscal scenario (AFS) current policy baseline.1 The fiscal 2013 spending cut represents the remainder of sequestration cuts scheduled for this year. Additionally, the Ryan budget would increase revenue by $58 billion in fiscal 2014 and $98 billion in fiscal 2015 by allowing the “business tax extenders” to expire. While tax increases have a much smaller drag per dollar than government spending cuts, this still contributes to the economic drag from the Ryan budget.
On net, we estimate that the Ryan budget would decrease gross domestic product (GDP) by 1.7 percent and decrease nonfarm payroll employment by 2.0 million jobs in calendar year 2014 relative to current policy. We estimate that the Ryan budget would increase the unemployment rate by between 0.6 percentage points and 0.8 percentage points. The Ryan budget would push the output gap—the difference between actual output and non-inflationary potential output, which registered $985 billion (5.9 percent of potential) as of the fourth quarter of 2012—from 4.4 percent under the AFS baseline back to 5.9 percent. By proposing a budget that would leave the output gap unchanged from 5.9 percent of potential GDP by the end of 2014, Ryan has essentially proposed that for at least two years the U.S. economy make zero relative progress in emerging from the current adverse economic equilibrium of depressed economic output, slow growth, high unemployment, and large cyclical budget deficits.Read more
What we read today:
- With Positions to Fill, Employers Wait for Perfection (New York Times)
- The War On Entitlements (New York Times)
- The children going hungry in America (BBC)
- McDonald’s Guest Workers Stage Surprise Strike (The Nation)
- The price of cheap labour (The Guardian)
On Tuesday, March 5, Sen. Tom Harkin (D-IA) and Rep. George Miller (D-CA) announced the introduction of The Fair Minimum Wage Act of 2013 to raise the minimum wage from $7.25 an hour to $10.10 an hour over the next three years. Once it reaches $10.10, the minimum wage would be raised automatically each year to account for inflation and ensure that it never loses its purchasing power. The bill also raises the wages of those who rely on tips, phasing in an increase until the “tipped minimum” – currently stuck at $2.13 an hour — reaches 70 percent of the regular minimum wage.
Harkin and Miller spoke eloquently about the need to make work pay, to reward people for the time and effort they put into serving or delivering food, caring for children and the elderly, and cleaning hotel rooms or office buildings.
Citing Economic Policy Institute calculations, Harkin estimated that 30 million workers would get a raise, including 17 million women. He pointed out that nearly 90 percent of minimum wage workers are adults, not teenagers, and that two-thirds are in low or moderate income households.
The two business people and two workers Harkin and Miller invited to the event made an enormous impression. Margot Dorfman, the President of the U.S. Women’s Chamber of Commerce, reiterated her support for the minimum wage, denouncing the idea that raising the minimum wage would be bad for business. “Nothing could be farther from the truth,” she said. “Our sales depend on consumer demand. If people aren’t paid a fair wage they can’t afford to shop in our stores or buy our services.” Dorfman made it clear that the NFIB and US Chamber of Commerce don’t represent small business. “They’re looking out for the big corporations that want to pay workers as little as possible. They want the taxpayers to pay for their workers’ food stamps. That’s not the position of women-owned small businesses.”Read more
New research in economics suggests that raising the minimum wage will improve the health of many Americans, especially those with low income, and this improvement should help bend the cost curve for medical care.
In a paper published by the prestigious National Bureau of Economic Research, David Meltzer and Zhou Chen (from the University of Chicago and the Centers for Disease Control) analyze data from the Behavioral Risk Factor Surveillance System (BRFSS) from 1984-2006. The BRFSS interviews more than 350,000 adults each year, making it the largest health survey in the world. Meltzer and Chen test whether variation in the inflation-adjusted minimum wage is associated with changes in body mass indexes of adults. They find that gradual reductions over time in inflation-adjusted minimum wages across states explain about 10% of the increases in average body mass since 1970.
Additional evidence derives from a study by DaeHwan Kim and myself that used the Panel Study of Income Dynamics (PSID) to investigate whether increases and decreases in inflation-adjusted wages predict obesity. The PSID is a nationally representative sample of 5000 American families that have been followed since 1968 by the University of Michigan’s Survey Research Center. We find that low wages predict increases in the prevalence of obesity. This study was published in the Journal of Occupational and Environmental Medicine. Obesity is estimated to cost $190 billion in medical bills each year according to a recent study in the Journal of Health Economics. A 10% decrease in obesity would result in a $19 billion of savings every year, as estimated by Meltzer and Chen.Read more
What we read today:
- Discredited: How Employment Credit Checks Keep Qualified Workers Out of a Job (Demos)
- Colorado, other states show the way on immigration reform (Denver Post)
- 401(k): Pass or Fail? (Fox Business)
- Labour plans crackdown on employers exploiting migrants (The Guardian)
In the fourth quarter of last year, Nevada and California had the highest Asian American unemployment rates of the ten states with sufficient Asian American data for analysis. The Asian American unemployment rate in Nevada was 8.4 percent and 7.8 percent in California. The lowest Asian American unemployment rates were in New Jersey (4.2 percent) and Hawaii (4.5 percent). Rates for all ten states (and for other racial groups) can be found in this interactive feature.
Although we have data for only ten states, these ten states contain more than two-thirds of the Asian American labor force (see Figure D). Nearly half of all Asian American workers reside in California, New York, and Texas alone. Because Asian Americans are quite diverse socioeconomically, it would be useful to disaggregate the data by Asian ethnic group, but a number of data issues make disaggregation not feasible.
In four states—California, Florida, Maryland, and Texas—the Asian American unemployment rate is higher than one might expect. Generally, more educated populations have lower unemployment rates. In these four states, although data from the American Community Survey indicates that the Asian American labor force is better educated than the white labor force, the Asian American unemployment rate is equal to or higher than the white rate. Further research is necessary to understand why Asian Americans have such high unemployment rates in these states.
Following the President’s expression of support for a $9.00 minimum wage, Sen. Tom Harkin (D-Iowa) and Congressman George Miller (D-California) sent out a press release indicating their support for increasing the minimum wage to $10.10 (this proposal follows their 2012 effort to pass legislation supporting a $9.80 minimum wage). Their proposal would increase the minimum wage via three incremental increases of $0.95, after which it would be indexed to inflation. The tipped minimum wage (the minimum wage paid to workers who earn a portion of their wages in tips) would also be increased in $0.85 increments from its current value of $2.13 per hour, where it has languished since 1996, until it reaches 70 percent of the regular minimum wage. At noon today, Senator Harkin and Congressman Miller will unveil the Fair Minimum Wage Act of 2013.
Raising the minimum wage would help reverse the ongoing erosion of wages that has contributed significantly to growing income inequality, while providing a modest stimulus to the entire economy, as increased wages contribute to GDP growth, which in turn leads to modest employment growth. Following are the major national findings of an upcoming EPI report on the impacts of a $10.10 minimum wage for the country and individual states.Read more
Teddy Wayne’s Sunday New York Times article about the exploitation of 20-somethings in the workplace (“The No-Limits Job”) should wake up a lot of young workers and their parents. There is something seriously wrong with a corporate culture that uses extremely low-paid or even unpaid labor and then treats the workers like they own them.
The low point in the article is probably the story of Dalkey Archive Press, of Champaign, Illinois, which not only employs unpaid interns but threatens them with “immediate dismissal” if they come in late or leave early without permission, are “unavailable at night or on the weekends,” or “fail to respond to e-mails in a timely way.” But as Wayne makes clear, round-the-clock, 24-7 internships can be exploitative even when paid.
One of my personal heroes, Ross Perlin, the author of Intern Nation, is interviewed by Wayne and warns about a sinister change in our culture that has made it acceptable to young people to give up their personal time and devote themselves to an employer, totally blurring the line between personal life and work while receiving almost no financial reward. This problem is worst in what Perlin calls the “rock-star professions”—film, TV, publishing, and media—and in creative industries like fashion, but the trend is spreading to other fields as well. Even un-hip businesses like manufacturers and law firms have begun to advertise for and employ unpaid labor, and failure to pay for overtime is endemic in white-collar work.
The Fair Labor Standards Act, which requires payment to employees of at least the minimum wage, is conveniently ignored by employers who rationalize their exploitation and illegality by arguing that the jobs are for the benefit of the interns, who usually do learn something and can put the experience on their resume. However, as Perlin explained in his book and Wayne’s article corroborates, a new phenomenon, the serial intern, is developing.Read more
What we read today:
- Automatic Reductions in Government Spending — aka Sequestration (Congressional Budget Office)
- Minimum Wage/Maximum Growth (The Innovation Files)
- How Much Does Race Still Matter? (New York Times)
- What’s So Bold about $9.00 an Hour? Benchmarking the Minimum Wage (Dissent)
Does the Immigration Innovation Act Help Offshore Outsourcing Firms? Financial Advisory Firm Says Yes
Supporters of the Immigration Innovation Act, dubbed the “I-Squared Act,” claim that legislation to dramatically increase the annual quota for H-1B guest worker visas is urgently needed to keep and create jobs in America. But the I-Squared Act will do just the opposite.
The headline in the leading news daily in India – the Times of India – had this assessment: “Proposed H-1B legislation to help Indian IT [companies]…”
CLSA, a leading financial advisory firm that analyzes the offshore outsourcing industry for investment clients, believes I-Squared will spur the sector’s growth. The firm finds the proposed legislation is “encouraging for Indian IT companies,” most of which are outsourcing companies with a business model that sends high tech American jobs overseas. The report says that passage of such a bill will make it much easier for the outsourcing industry to use the H-1B visa to bring in foreign guest workers from abroad, thus reducing the need for “hiring of locals in [the] US” at higher wages. In other words, if the bill passes, firms could more easily bypass and replace qualified American workers with hundreds of thousands of cheaper H-1B guest workers.
Given the policy proposals by some senators, CLSA has advised clients to “overweight” the Indian IT outsourcing sector in their portfolios. This is a reversal of fortune mostly based on the prospect that the U.S. government will make it possible for the outsourcers to get access to three to four times more guest workers per year.Read more
As a follow-up to my earlier blog post on the responsibility for and consequences of sequestration, I want to underscore that the entirety of the Budget Control Act (the resolution to the 2011 debt ceiling crisis, which created the sequester) was about shrinking government, not fiscal responsibility. As I previously noted, sequestration will harm the economy, and perversely increase the debt-to-GDP ratio to 76.3 percent by the end of fiscal 2013, from 76.1 percent without sequestration. And by defunding public investment (a key driver of long-run economic growth) and delaying economic recovery, thereby incurring more long-run economic scarring, sequestration will leave a poorer country to service larger relative debts.
But even ignoring the macroeconomic damage wrought by sequestration, this across-the-board meat cleaver approach to cutting spending is often fiscally imprudent even on a programmatic level.
For instance, the Office of Management and Budget estimated that the Internal Revenue Service tax enforcement department would see $436 million dollars of budget authority sequestered in fiscal 2013. (This estimate predates the lame duck deal’s two-month delay, although the fiscal 2014 cut would be larger.) But by all estimates, marginal increases in funding for tax enforcement pay for themselves multiple times over. In fiscal 2012, IRS enforcement raised $50.2 billion in revenue, or $2.3 million per enforcement agent. Former George W. Bush administration IRS Commissioner Mark Everson estimated that every additional dollar spent would return $4 in revenue, for $3 in deficit reduction (Sawickey et. al 2005). That would imply that the full fiscal 2013 cut could add $1.3 billion to the budget deficit.Read more
As “sequestration” spending cuts seem increasingly likely to take effect tomorrow, and the blame game escalates over responsibility for the fallout, some incorrect revisionist history as well as (silly) pox-on-both-houses punditry merit comment.
If sequestration takes effect, it will be because congressional Republicans put draconian spending cuts in play, and have subsequently refused to replace those cuts with more sensible deficit reduction. And should sequestration take effect, this would not be an isolated case of economic policy malpractice: Congressional Republicans have consistently hamstrung efforts that economists overwhelmingly agree would have meaningfully helped lower the unemployment rate and instead advanced policies projected to decelerate near-term growth.
My colleague Josh Bivens and I recently chronicled at length the numerous, varying ways Congressional Republicans have deliberately obstructed a stronger economic recovery over the past four years. 1 This economic and budgetary obstructionism, in turn, has been a considerable factor explaining why U.S. economic growth has decelerated since mid-2010 and is currently far too slow to push the economy back to full health in the next few years, already more than five years after the start of the Great Recession.
What follows is a not-so-quick history of how we got to this week’s deadline.Read more
Here are some articles we read today, yesterday, and over the weekend:
- Unemployment Stories, Vol. 28: ‘I’m Inclined to Simply Disappear Into Silence’ (Gawker)
- Fix the Economy, Not the Deficit (The American Prospect)
- We’re 60 Percent of the Way to Simpson-Bowles! (Mother Jones)
- Study ties black-white wealth gap to stubborn disparities in real estate (Washington Post)
- What if the Outrage over Excessive Welfare Extended to the Tax Code? (Tax Policy Center)
- Fight Over Spending Cuts a Prelude to Budget Battles Ahead (New York Times)
The Hong Kong based group SACOM released a report today of a new investigation of working conditions at three Apple factories in China. The investigation uncovered extensive labor rights abuses, including extremely long work hours, employees forced to work off the clock for no pay, continuing hazards to worker safety, and verbal abuse and humiliation of workers by supervisors. The report, issued on the eve of Apple’s annual shareholder meeting, calls into question the accuracy of Apple’s claims of labor rights progress in its supply chain.
SACOM interviewed 130 workers employed at Foxlink, Pegatron and Wintek, three key suppliers of parts used in the assembly of iPhones, iPods and Macs.
Of note, the report found that poor conditions have led to turnover rates so high that the factories are resorting to the use of contracted labor on a massive scale, hiring so-called “dispatch” agencies to provide workers who are employed by the agencies, not the factories. This arrangement makes workers especially vulnerable because they enjoy few protections under Chinese labor law. SACOM found that dispatch workers comprise as much as 80% of the workforce at these factories.
The findings in the SACOM report include:
Excessively long work hours remain common. During peak production periods, workers can work up to 14 hours per day and receive only one or two days off over a period of nearly three months. Working 70-100 hours per week is common during peak periods, far in excess of what is permitted by Chinese law (49 hours) and even above the maximum allowed under Apple’s own code of conduct (60 hours).Read more
Happy Friday! Here’s what we were reading today:
- The Ph.D Bust: America’s Awful Market for Young Scientists—in 7 Charts (The Atlantic)
- Academic raises doubts about hedge fund returns (Financial Times)
- Want to Tackle Income Inequality? You Need to Go After Capital Gains (Mother Jones)
- Why our brightest female graduates are still at a disadvantage (Washington Post)
These stories trace the progress of legal actions against some of America’s best-known tech companies over their attempts to suppress their employees’ wages through anti-competitive “no-poaching” agreements. The Department of Justice found evidence that Intel, Adobe Systems, Google, Apple, Pixar, and Intuit made secret agreements not to call each others’ employees with job offers, thereby reducing job opportunities and salaries in the industry. DOJ induced the six companies to settle an anti-trust suit in 2010 with a promise not to engage in similar restraints on trade in the future. The companies paid no damages and admitted no violations of anti-trust law, but the employees who had been hurt by the practices were not satisfied.
Employees filed suit against the six companies and Lucasfilm in federal court alleging an illegal conspiracy to restrain wages and salaries and seeking damages. When the companies tried to have the suit dismissed, the district court judge sided with the plaintiffs, and in January, according to Phys.org, Judge Lucy Koh ruled that the case should proceed to trial and that Apple CEO Tim Cook, Google Chairman Eric Schmidt and Intel chief Paul Ottelini may be questioned by plaintiffs’ attorneys about their roles in the alleged conspiracy. The trial, reportedly, will take place in November.
I recommend keeping this case in mind when it comes time to evaluate the companies’ claims that their interest in bringing skilled guestworkers to the U.S. has nothing to do with getting cheaper labor. Never mind that the H-1B visa, which ties employees to a single employer for 6 years or more, is a bigger restraint on employee mobility than a no-poaching agreement.
When President Obama and Japanese Prime Minister Abe meet on Friday, currency manipulation and Japan’s unfair trade policies must be addressed. The Yen has declined 13% in the past three months, in part because Mr. Abe has pledged to weaken monetary policy to spur growth. A weaker Yen lowers the cost of Japanese imports in the U.S. and raises the cost of U.S. exports in Japan and other countries where our products compete. While a more expansionary domestic monetary policy is an appropriate tool for a country stuck far below economic potential because of demand shortfalls, Japan has also displayed a historic pattern of intentionally lowering the value of their own currency vis-à-vis the U.S. dollar by buying U.S. denominated assets. Because the first-order effect of this direct currency manipulation is to create demand for Japan at the expense of the U.S., which is also currently starved of demand, this is not responsible policy for a country as large and important in global trade markets as Japan.
Currency manipulation is the single most important cause of growing U.S. trade deficits and Japan has a well established reputation as a currency manipulator. Japan has expressed a desire to join the proposed Trans-Pacific Partnership (TPP), a regional free-trade agreement with 10 other countries. The TPP should include language to end currency manipulation by Japan and other trading partners. Elimination of currency manipulation by China, Japan and other countries could create 2.2 to 4.7 million jobs, expand U.S. GDP and reduce the federal deficit, according to a recent EPI report.
The U.S. trade deficit with Japan increased from $66.4 billion in 2011 to $79.9 billion in 2012, an increase of $13.4 billion (20.2 percent).1 Growing trade deficits lead to job losses and growing unemployment or weaker growth in the United States.Read more
Jordan Weissman put together a nice series of charts in The Atlantic that help us better understand what’s at stake in the debate over tripling the number of “guest” workers admitted to the U.S. each year with college degrees and skills in science or engineering. It’s gotten harder and harder for U.S. PhDs to find work, and especially work that pays a salary that corresponds to the intellect of and investment made by these students, who are truly our best and brightest. A question members of Congress have to answer is: do we want to encourage or discourage U.S. students from pursuing these top degrees? Is NIH paying science post-docs enough? Is industry doing enough to recruit young U.S.-trained scientists? Will the Hatch-Klobuchar plan to admit 300,000 temporary, foreign high tech workers each year make matters better or worse for our young PhDs? Will the addition of as many as 1.8 million new foreign tech workers over six years crowd the U.S. labor market and depress wages?
Here’s a roundup of what we read today:
- The Wage Theft Epidemic (In These Times)
- A Chat With Mike The Mailman, Who Delivers the Mail (For Now) (The Billfold)
- Good News on Health Care Costs and the Budget (Economist’s View)
- Equipping the Fed for a Future Crisis (New York Times)
- New study badly undermines GOP position on sequester (Washington Post)
- Erskine Bowles: ‘Being far out front of the president on revenues wasn’t something I wanted to do again’ (Washington Post)
Both advocates and opponents talk a lot about how a minimum wage increase would affect Americans who are trying to find jobs. For the first time, we have insight into what job seekers themselves think about minimum-wage issues, thanks to newly-released data from the American National Election Survey.
The majority of job seekers report that raising the minimum wage to keep pace with the cost of living would be good for them personally. In fact, ten times as many job seekers report that minimum-wage increases would be good for their lives (66.5 percent) than report that it would be bad for their lives (6.5 percent). By a seven-to-one margin, they think it would be good (71.0 percent), rather than bad (10.1 percent), for America overall.
Here are the details. The data come from the American National Election Survey collected in December 2011 (ANES EGSS3 preliminary), which surveyed a nationally-representative sample of 1315 Americans including 126 job seekers. Job seekers are those currently not working and looking for work as well as those working part time but who would prefer full-time work. Using post-stratification weights among respondents, here are the questions and results.
Proposal: Raise the minimum wage every year to keep pace with inflation.
Would this be good, bad, or neither good nor bad for you personally?
|A little good||15.4||66.5|
|Neither good nor bad||27.1||93.6|
|A little bad||3.7||97.2|
Would this be good, bad, or neither good nor bad for the country?
|A little good||25.9||71.0|
|Neither good nor bad||19.0||90.0|
|A little bad||2.2||92.1|
Knowing that job-seekers—those with among the most to lose if opponents of increasing the minimum wage were correct in predicting job-loss—so clearly favor increasing the minimum wage to help workers keep up with inflation should matter to policy makers. Instead of listening only to talking heads speaking in the name of job-seekers, let’s hear the voices of job-seekers themselves.
Aaron Sojourner is a labor economist at the University of Minnesota’s Carlson School of Management.
Most members of Congress know very little about the H-2 guest worker visa programs, and, unfortunately, what they do know is mostly from speaking to a handful of business people who use the program or from listening to lobbyists who market ridiculous “studies” about how H-2 workers help the economy. They might have an image in their minds of “guest” workers lining up to take good jobs in the United States that no one else wants, and happily returning year after year. But Congressmen have little contact with H-2 workers and most are unaware of the widespread and ugly abuses that have marred the programs for decades. If they knew how often the programs have been used to exploit, cheat, and degrade foreign workers, they would realize it is no better than the infamous Bracero program of 50 years ago and should be either drastically reformed or abolished.
The Southern Poverty Law Center has been representing H-2 workers throughout the southern U.S. for years, hearing their stories of abuse and exploitation and suing on their behalf to recover at least some of the wages promised but unpaid, the fees extorted from helpless victims, the travel costs and debts incurred in return for unkept promises of well-paid, steady work. SPLC’s experience is captured in its new report, Close to Slavery 2013, which every journalist and immigration policy expert ought to read.
Every H-2 worker is not mistreated, but as Close to Slavery makes clear, so many workers are so badly abused that the program can’t be allowed to go on as it has. Year after year, international recruiters trick unsophisticated foreigners into borrowing large sums of money for the right to have a good job and substantial earnings in the U.S., only to find themselves locked into rural labor camps, poorly housed and fed, treated like prison labor, paid far less than promised, and then forced to repay recruiters and employers for expenses never mentioned during recruitment. SPLC has represented thousands of abused workers and won tens of millions of dollars in damages, but most H-2 workers have no access to our legal system, and even the judgments won often go unpaid.
Attempts by the U.S. Department of Labor to fix the H-2B non-agricultural program through regulatory improvements have been blocked by senators and congressmen from both parties who either don’t understand or don’t care that allowing these abuses to continue hurts U.S. workers, not just the foreign victims. The government’s failure to fix the well-documented problems in the program’s design makes it clear that any expansion of the program must be defeated. Real immigration reform would include reform of the H-2 visa and much tighter controls on the businesses that compete by exploiting the program and the guest workers themselves.
Our links today include a video:
- Book trailer for Behind the Kitchen Door by Saru Jayaraman
- Why Gender Equality Stalled (New York Times)
- Janet Yellen explains our crummy recovery in three charts (Washington Post)
- Who Gets Hurt Most by Higher Unemployment? (On the Economy)
Raising the minimum wage to $9.00 per hour, as the President called for in his State of the Union address, would be a good step toward reversing some of the huge decline in the purchasing power of the minimum wage that has occurred over the past 45 years. Now as lawmakers, pundits, bloggers, economists, and the public begin talking about the president’s proposal, it’s important that we keep the true value of the minimum wage in context, and look at how the president’s proposed minimum wage compares both with precedent and what the minimum wage might have been had we not let its value erode for so long.
In his speech, the President noted that a parent who is a minimum wage worker and works full time, year round, does not make enough money to be above the federal poverty line. This wasn’t always the case. Figure 1 shows the annual earnings of a minimum wage worker compared with the federal poverty line for a family of two or three. Until the 1980s, earning the minimum wage was enough for a single parent to not live in poverty. Indeed, a minimum-wage income in 1968 was higher than the poverty line for a family of three. But as the figure shows, today’s minimum wage is not enough for single-parents to reach even the most basic threshold of adequate living standards. The president’s proposal to raise the minimum to $9 per hour would bring the minimum wage back to a more reasonable level, although it would still fall short of the 1968 peak.
The H-1B ‘non-immigrant’ temporary foreign guest worker program is called a valuable tool for employers to attract and retain the “best and brightest” immigrants in the science, technology, engineering, and math (STEM) fields. Because employers may petition for permanent residence for their H-1B employees, the visa is sometimes described as a “bridge to immigration” that will keep the smartest foreign STEM workers in the U.S. permanently and thus improve the nation’s competitiveness. In part that’s how Senators Hatch, Rubio, Coons and Klobuchar explain their new bill – known as the “I-Squared Act” – that would more than quadruple the size of the H-1B program.
However, for the biggest users of the program, this view is false: In 2012, the 10 employers receiving the largest number of H-1B visas were all in the business of outsourcing and offshoring high-tech American jobs. Many of the jobs that went to H-1B workers should have instead gone to U.S. workers, but employers are not required to recruit them before applying for an H-1B, and can even replace their U.S. workers with H-1Bs. The top 10 H-1B employers were granted an astonishing 40,170 visas; nearly half the total annual quota. The table also shows each firm’s immigration yield: the ratio of permanent residence applications to new H-1B petitions for these companies. It is evidence of the companies’ intention to hire and keep their H-1B workers in the country permanently.
Immigration yield for top 10 H-1B employers, fiscal 2012
|Rank||Employer||Approved initial I-129 petitions for H-1B||PERM applications for H-1B workers||Immigration yield||Significant offshoring*|
|7||Tech Mahindra SATYAM||1,963||20||1%||X|
|8||IBM & IBM India||1,846||96||5%||X|
|9||Larsen & Toubro||1,932||15||1%||X|
* A significant component of this company's business model is offshore outsourcing.
Source: Author's analysis of PERM Disclosure Data, Office of Foreign Labor Certification, Department of Labor, fiscal 2012; and I-129 data by employer, USCIS, fiscal 2012
Of the many proposals in Tuesday night’s State of the Union address, the one that seems to be receiving the most attention (especially in the Twitterverse) is President Obama’s plan to raise the federal minimum wage from $7.25 to $9.00 an hour by 2015. The President also called for subsequently indexing the minimum wage to rise automatically each year with the cost of living. Though some states have higher minimums, the federal minimum wage has been set at $7.25 since July 2009. In the meantime, as it always does, inflation has eroded its value. This proposal lays the foundation for an important and overdue conversation about increasing the minimum wage to combat its erosion over the past four and a half decades. We have found that raising the minimum hourly rate to $9.00 by 2015 would directly boost the wages of over 13 million Americans. The increase would also have a spillover effect, bumping up wages for another 4.7 million workers who earn just above minimum wage.
The demographic composition of minimum wage workers is often grossly mischaracterized, so let’s take a closer look at exactly who the 18 million workers who would see a raise under the president’s proposal really are. (The 18 million estimate is revised slightly from yesterday’s analysis to reflect improved methodology.) The findings that follow are largely an update to an earlier EPI analysis which was based on the somewhat higher minimum wage increase introduced by Senator Tom Harkin (D-Iowa) and Representative George Miller (D-California) as the Fair Minimum Wage Act of 2012.
As part of his proposals to spur job growth, President Obama promised in last night’s State of the Union address to complete negotiations on the proposed Trans Pacific Partnership (a proposed free trade agreement (FTA) with at least eight other countries in Asia and Latin America), and announced new talks on a comprehensive FTA with the European Union. This is a shame, because chronically high unemployment is a real crisis, while trade agreements are a fake solution.
The issue is simple: it is trade balances – the net of exports and imports – that can affect jobs. Unless trade agreements promise to reduce our too-high trade deficit, they will have no positive effect on jobs. Even worse, past trade agreements have actually been associated with larger trade deficits in their aftermath.
The most surprising part of the president’s State of the Union address last night was his forthright endorsement of the principle that no one in the United States of America should work full-time and yet still find himself in poverty. That is a statement I often heard from Sen. Edward Kennedy, but I can’t remember any other president—not JFK, not LBJ, not Jimmy Carter, and not Bill Clinton—announcing it so clearly and forcefully.
The president called on Congress to raise the minimum wage to $9.00 an hour, which translates into a full-year income of $18,720, almost enough to meet the federal poverty guideline for a family or household of three people ($19,090), and more than enough to satisfy the guideline for a family of two ($15,130).
Raising the minimum wage is a perfect complement to immigration reform and its promise of legalizing millions of undocumented workers. Many of them are working at wages below even the current $7.25 per hour minimum wage and cannot have amassed much in the way of savings. If they are to pay the penalties and back taxes the immigration bill will require, and pay for English lessons to meet the bill’s other requirement, they will need to be paid fairly for their work.
I hope that Congress sees fit to include a higher minimum wage in any immigration reform bill it enacts.