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.
Last night’s State of the Union address laid the foundation for important policy initiatives, from investing in infrastructure and early care and education to prioritizing the creation of more manufacturing jobs. But according to a post-SOTU briefing hosted by the White House, the “most-tweeted” element of the President’s address was his proposal to increase the minimum wage to $9.00.
“We gather here knowing that there are millions of Americans whose hard work and dedication have not yet been rewarded… for more than a decade, wages and incomes have barely budged… We know our economy is stronger when we reward an honest day’s work with honest wages. But today, a full-time worker making the minimum wage earns $14,500 a year… Tonight, let’s declare that in the wealthiest nation on Earth, no one who works full-time should have to live in poverty, and raise the federal minimum wage to $9.00.”
This proposal lays the foundation for an important conversation about increasing the minimum wage, a conversation that has already been joined by many, including our former EPI colleague, Jared Bernstein, our colleagues at the National Employment Law Project, and even Bloomberg News, which posted an article online that recognizes the positive impact such a change would have on the economy.
The erosion of low wages is not news, both in the sense that it’s not a new phenomenon, and it certainly hasn’t been the focus of much media attention.Read more
The president can end currency manipulation with the stroke of a pen, halving the U.S. trade deficit and creating millions of jobs
Five years after the start of the great recession nearly nine million jobs are still needed to return to full employment. And as the Administration lays the groundwork for its second term, job creation should be goal number one. Under existing authority, the President can execute one simple policy that would create 2.2 to 4.7 million jobs over the next three years: End currency manipulation by a handful of countries, especially China. This policy would boost GDP, reduce unemployment and, in budgetary terms cost nothing. It would, in fact, substantially reduce the federal deficit. No other policy could achieve this jobs trifecta.
Over the past fifteen years rising trade deficits have devastated U.S. manufacturing employment. Since April 1998, the United States has lost 5.7 million manufacturing jobs, nearly a third of manufacturing employment and most of those job losses were due to the growing U.S. trade deficit. Although half a million manufacturing jobs have been added since 2009, a full manufacturing recovery requires greatly increasing exports relative to imports. While exports support domestic job creation, imports (and growing trade deficits) eliminate domestic jobs. Although the overall U.S. trade deficit declined slightly last year, the trade deficit in manufactured products increased by $44.7 billion in 2012. This growing manufacturing trade deficit is a threat to manufacturing employment and the overall recovery.
Currency manipulation, which distorts trade flows by artificially lowering the cost of imports to the U.S. and raising the cost of U.S. exports, is the single most important cause of these growing trade deficits. Halting global currency manipulation by making it illegal for China and other currency manipulators to purchase U.S. Treasury bills and other government assets is the best way to reduce the U.S. trade deficit, create jobs, and rebuild the economy.Read more
Today, EPI researchers read these articles:
- Out, damned spot: The ‘mindbugs’ of bias that sneak into our brains (Washington Post)
- Poll: Americans expect economic pain to continue (Washington Post)
- The 0.03% Solution to Washington’s Budget Problems (New York Times)
- Student loans: The next housing bubble (Salon)
- More Jobs, Higher Pay (New York Times)
Yesterday, the Congressional Budget Office (CBO) released their updated budget baseline in the February 2013 Budget and Economic Outlook report. One interesting takeaway is that projected deficits for the new ten-year budget window are $7 trillion, whereas last August the agency projected $2.3 trillion in total deficits over 2013-22.1 Why such a large change in projected deficits?
First of all, the August baseline assumed the expiration of a variety of tax provisions, including the Bush tax cuts, the Alternative Minimum Tax patch, a variety of business tax extenders, indefinite war spending, a massive cut to Medicare doctors’ payment rates, and sequestration. Though CBO always calculates these baseline projections with respect to current laws, it was clear that this was not a realistic baseline and that the current policy baseline was a more accurate depiction of likely ten-year budget projections.
Secondly, each time the CBO updates their baseline budget projections, they take into account legislative, economic, and technical changes that have occurred since the previous update—changes that impact the size of projected surpluses or deficits. In this instance, passage of the American Taxpayer Relief Act of 2012 (ATRA) caused enormous changes that pretty much explain the entire increase in projected deficits (excluding debt-service costs, ATRA boosted projected deficits by $4 trillion). ATRA impacted future revenue levels by:
- Permanently extending the Bush income tax rates for all income under $400,000 ($450,000 for joint filers); a provision that, though helpful for lower-and middle-income earners while the economy remains depressed, is already proving to be very costly down the road.Read more
Congressional Progressive Caucus (CPC) Co-Chairs Rep. Keith Ellison (D-MN) and Rep. Raúl Grijalva (D-AZ) have introduced the Balancing Act of 2013 (H.R. 505) which presents an evidence-based approach to two imminent challenges actually facing policymakers: preventing what is intentionally terrible budget policy from taking effect, and preventing budget policy from exacerbating the jobs crisis and counterproductively delaying a return to full employment.
Broadly speaking, their bill would replace the entirety of the pending automatic “sequestration cuts”—now legislated to commence March 1—with $948 billion in progressive revenue (much of which was proposed in the CPC’s budget fiscal 2013 alternative, the Budget for All) coupled with $276 billion in near-term economic stimulus, paid for with $278 billion in cuts to spending by the Department of Defense. Replacing the sequester with revenue would bring net spending cuts and revenue increases roughly to a 1:1 ratio, and the DOD spending reductions would bring nondefense and defense discretionary spending cuts to a 1:1 ratio (measuring deficit reduction since the start of the 112th Congress, notably $1.5 trillion in discretionary spending cuts and $633 billion in policy savings from the lame duck budget deal). And most critically, the bill would balance deficit reduction with near-term measures boosting growth and employment, while making the composition of deficit reduction less economically damaging than scheduled.Read more
With the recent news that both the United Kingdom’s and United States’ economies contracted last quarter—the U.K. by a large 1.2 percent annualized rate and the U.S. by a much smaller 0.1 percent—it’s a good time to revisit the contrasting economic situations in the U.K. and the U.S. to show just how dangerous austerity is to economic growth. First off, both countries fell into recession by experiencing a similar housing market shock, and the central banks of both countries engaged in responses of similar magnitude. And between the second quarter of 2009 (the trough for both countries) and the third quarter of 2010, both countries grew at similar rates: 2.2 percent annualized real growth for the U.K., and 2.5 percent annualized for the U.S. (according to OECD data).
But in the summer of 2010, the newly-elected conservative-led coalition government of the U.K. passed and implemented an aggressive austerity budget. This budget was heavily weighted toward spending cuts—nearly 80 percent of the total fiscal consolidation—and included a 25 percent cut to non-health domestic departmental spending by 2014-15. Tax increases accounted for the remaining 20 percent, including increases in the value-added tax (essentially a sales tax). In total, this fiscal consolidation represented 2.2 percent of U.K. GDP by 2014-2015. Combined with the previous government’s planned austerity, the overall fiscal consolidation implemented totaled 6.3 percent of GDP.
Immigration reform should invest in labor standards enforcement and electronic employment verification—not more border security
The Pew Hispanic Center estimates that 45 percent of unauthorized immigrants crossed the border legally, but overstayed their temporary work or tourist visas, which means that almost half of unauthorized migration won’t be impacted at all by more Border Patrol agents, surveillance drones, or additional miles of border fencing. That’s why the additional funding proposed for border enforcement in the immigration proposals put forth by President Obama and the “Gang of Eight” Senators is misguided. Instead, some of those funds would be better spent by first, legalizing and fully integrating unauthorized immigrants into the fabric of American society, and then by investing in the creation of a functioning electronic employment verification mechanism. New funds should be devoted to increasing the level of labor standards enforcement by the agencies of the U.S. Labor Department. This is the only way to prevent future unauthorized migration.
It is encouraging that both immigration proposals offer a pathway to citizenship for unauthorized immigrants. Legalization will ensure that five percent of the labor force is no longer exploitable and that unauthorized workers do not degrade the wages and working conditions of U.S. workers. But the proposals ignore the reality that according to almost every conceivable metric, the southern border is more secure than it has ever been, and cities near the southern border are some of the safest in the country. Last year, $18 billion in taxpayer dollars was spent on securing the border—perhaps it was worth it, based on these results—but we might have reached the point of diminishing returns.
Compare this to the $1.6 billion that was spent in 2012 on enforcing labor laws and regulations, to protect 135 million workers, despite rampant wage theft of low-wage workers and alarmingly high levels of work-related injuries, illness, and deaths. Employer subcontracting to avoid accountability and employees being misclassified as independent contractors are also widespread problems in the workplace; they are tactics businesses use to exploit workers and escape liability when they circumvent labor and immigration laws, and to avoid paying payroll taxes and worker’s compensation insurance premiums. If a new comprehensive immigration law does not invest heavily in enforcing labor standards and tackling these problems, they are likely to continue. Read more
President Obama and a group of eight Senators (also known as the “Gang of Eight”) have each released sets of principles for reforming our immigration system. Their courage and hard work to fix our long-broken immigration system should be applauded. Both plans rightly focus on granting a path to citizenship for the unauthorized immigrant population—which will allow more than 5 percent of the U.S. labor force to come out of the shadows and the underground economy. This will level the playing field for all workers (as well as the firms that employ them) and end the exploitation of foreign workers who labor without the protections offered by most labor and employment laws.
What has not been discussed to a large extent—and which the president and the Gang of Eight’s frameworks do not yet address in detail—is how we manage future flows of immigrant workers, and how we fix the poorly functioning programs employers use to hire workers from abroad. Any acceptable and successful comprehensive solution to our immigration system will hinge upon this.Read more
There is a rapidly-forming consensus that policymakers should commit to specific levels of deficit reduction over the next 10 years. At a press conference earlier this month, President Obama endorsed a specific 10-year savings target of $1.5 trillion, arguing that two years ago there was a consensus that “we need[ed] about $4 trillion to stabilize our debt and our deficit, which means we need about $1.5 trillion more.” This is consistent with the Center on Budget and Policy Priorities’ recommendation that $1.4 trillion in deficit reduction (including interest savings) over the next 10 years be targeted to stabilize the debt ratio (federal debt as a share of total gross domestic product).
Various commentators such as Martin Wolf of the Financial Times and Paul Krugman of the New York Times have noted that this amount of deficit reduction is modest, and consequently suggest that policymakers instead focus on the more pressing priority of job creation and rapidly lowering unemployment. But the case for turning to job creation is even stronger than perhaps they realize: this analysis shows that the debt ratio can be stabilized with less than $1.4 trillion. And more importantly, there actually isn’t a single minimum target necessary; if coupled with near-term stimulus, the debt ratio could be stabilized without any deficit reduction whatsoever. Read more
Here are a few links that EPI’s research team clicked through today:
- “We all agree that spending cuts hurt the economy. Right? Right.” (The Plum Line)
- “Diagnosing the ‘GDP problem‘ (The Maddow Blog)
- “‘Pease’ Provision in Fiscal Cliff Deal Doesn’t Discourage Charitable Giving and Leaves Room for More Tax Expenditure Reform” (Center on Budget and Policy Priorities)
Amid signs that the Maryland economy is slowly improving, lower-income earners continue to struggle. Maryland has now gained back more than four of every five jobs lost during the recession, yet population growth since December 2007 means that the state needs to create more than 180,000 jobs just to get back to the unemployment rate preceding the recession.1 Raising Maryland’s minimum wage would put much-needed money in the pockets of Maryland’s low-income workers, particularly important in a state where low wages (i.e., wages at the 20th percentile) declined by a nation-leading $1.20 between 2009 and 2011.2 Senator Robert J. Gargiola and Delegate Aisha Braveboy have introduced legislation this year to raise Maryland’s minimum wage from the current $7.25 per hour to $10.00 in 2015, increasing the tipped minimum wage from 50 percent to 70 percent of the full minimum wage, and indexing both wage rates to rise automatically with the cost of living. The data show that this proposal would improve the well-being of working families in Maryland, while injecting almost half a billion dollars into the economy.
This paper provides an overview of the economic impact and demographic details of the workers who would benefit from the proposed increase in the minimum wage, examining their gender, age, race and ethnicity, educational attainment, work hours, family composition, and other characteristics. It also details the estimated economic activity and job-creation impacts that would result from an increase in the Maryland minimum wage to $10.00.
Key findings include:
– Increasing the Maryland minimum wage to $10.00 by July 2015 would result in raised wages for over half a million (536,000) Maryland workers—roughly one in five workers in the state. These workers would receive $778 million in additional wages over the phase-in period. Read more
In a CNN opinion piece published Jan. 28, Tamar Jacoby, the president and CEO of ImmigrationWorks USA, shows amazing disdain for the one-third of Americans working low-wage jobs. She claims that they shouldn’t want the jobs they have because they can find more productive and better paying work. Jacoby thinks a job as a home health aide is beneath the aspirations of native-born Americans. So much for the dignity of work!
Dr. Martin Luther King Jr. criticized Jacoby’s way of thinking about “low productivity” work in a famous speech to striking sanitation workers just before he was assassinated:
If you will judge anything here in this struggle, you’re commanding that this city will respect the dignity of labor. So often we overlook the worth and significance of those who are not in professional jobs, or those who are not in the so-called big jobs. But let me say to you tonight, that whenever you are engaged in work that serves humanity, and is for the building of humanity, it has dignity, and it has worth. One day our society must come to see this. One day our society will come to respect the sanitation worker if it is to survive. For the person who picks up our garbage, in the final analysis, is as significant as the physician. All labor has worth.
The fact is that 40 million Americans work in extremely low wage jobs and are either grateful to have them or unable to find anything better. It’s shocking Read more
Today’s GDP report was unexpectedly disappointing, but the economy is likely not entering recession. The downward drag on GDP growth that pushed into negative territory was mostly exerted by changes in private inventories (which are volatile and unlikely to provide a consistent drag on GDP going forward) and a large reduction in defense spending that is also unlikely to be repeated.
The large drag imposed by this defense cutback, however, illustrated the valuable point that fiscal contraction is contractionary: When government spending drops, the economy suffers. The rest of the economy is simply not growing strong enough to make up for losses in demand due to government spending cuts. And while the defense drag this quarter was extraordinarily large, the trend has been steadily declining public support to the economy for some time now.
The downward trend in government spending can be illustrated by taking a look at current government expenditures, relative to potential gross domestic product. We look at expenditures as a percent of potential GDP because it does not allow a decline in actual GDP (or a slowdown in its growth) to make this ratio look bigger. What we’re looking for is a policy-induced rise (or failure to rise) in the importance of public spending, and expressing this spending as a share of potential GDP better isolates this policy effect. Read more
Here are a few of the links that EPI’s research team clicked through during the last couple of days:
- “Payroll Tax Cuts May Boost the Economy More than You Think” (TaxVox)
- “U.S. Income Inequality Worse Than Many Latin American Countries” (Huffington Post)
- “Nicholas Stern: ‘I got it wrong on climate change – it’s far, far worse‘” (The Guardian)
- “Obama wants to tackle poverty and inequality. So why is his economic team so focused on the deficit?” (Washington Post)
- “Failures” (Paul Krugman)
- “Your Biggest Carbon Sin May Be Air Travel” (New York Times)
- “The Force: How much military is enough?” (New Yorker)
The cash balance retirement plan Louisiana Gov. Bobby Jindal recently signed into law for state workers was declared unconstitutional by a state district judge because it did not pass the Louisiana House of Representatives with a two-thirds majority. The cash balance plan would shift considerable risk onto workers without addressing the issue of unfunded liabilities caused by elected officials’ failure to keep up with required contributions.
Jindal has announced that he will appeal the decision. But this isn’t the only legal challenge the plan faces. The IRS is also considering whether the plan fails the Social Security equivalency test, which exempts some public-sector workers from participating in Social Security as long as government employers provide a retirement benefit at least equivalent to Social Security benefits. As Michelle Chen wrote in an In These Times blog post, Republicans around the country are using “pension panic” to push through policies that are both half-baked and anti-worker.
When and what kind of deficit reduction matters most: The danger of aggressive 10-year deficit targets in the current budget debate
In the aftermath of the American Taxpayer Relief Act of 2012 (i.e., the lame-duck budget deal, ATRA for short), many in Washington have urged 10-year deficit reduction targets that are trillions more than the $600 billion reduction already locked in by ATRA. While many of these calls for increased deficit reductions have been inchoate (as noted here), others have been more reasonably grounded. Yet, we think that nearly all demands for specific, ambitious 10-year deficit reduction targets are likely to be terribly counterproductive in the current debate
The primary reason for this is simple: Without a sharp focus on when and what kind of deficit reduction should happen, these calls can easily lead policymakers to embrace measures that will surely hamper economic recovery. And this recovery should be the primary focus of these policymakers. The output gap in 2012—essentially the difference between actual economic output and output that would have been produced had all productive resources in the economy been put to work—will likely register just shy of $1 trillion, or 5.6 percent of the economy. This is $1 trillion in national income that the country is forfeiting each year simply due to the continued weakness in aggregate demand—weakness that would likely be exacerbated by any aggressive deficit reduction in the next few years. This depressed state of the economy makes the timing and composition of any proposed deficit reduction crucial. And yet these crucial details are generally not a primary focus in 10-year deficit reduction targets that are dominating the debate.
In regards to timing, deficit reduction that imposes a drag on growth really should not begin at all until the economy moves much closer to full employment. Read more
Via Ezra Klein comes a must-read leaked memo from Senate Budget Committee Chairwoman Patty Murray (D-Wash.) to Senate Democrats ahead of fashioning a Senate Budget Resolution. It’s an excellent chronology of the deficit reduction enacted in the 112th Congress—a hefty $2.4 trillion expected to take effect and $3.6 trillion if sequestration goes into effect—and the looming phases of the Beltway budget fights following the American Taxpayer Relief Act (i.e., the lame-duck budget fight, or ATRA for short).1
Klein hones in on tables depicting the fundamentally unbalanced nature of deficit reduction in the 112th Congress: Ignoring sequestration, 70 percent of policy deficit reduction measures (i.e., excluding additional debt service savings) enacted came from spending cuts as opposed to revenue, and if sequestration takes effect as scheduled, the share of spending cuts ratchets up to 80 percent. Murray’s memo contrasts these ratios with a 51 percent revenue share proposed by the Simpson-Bowles Co-Chairs’ report and 52 percent in the Senate’s bipartisan “Gang of Six” proposal. Hence Murray’s conclusion:
“Revenue Must be Included in Any Deal. Tackling our budget challenges requires both responsible spending cuts and additional revenue from those who can afford it most.”
She’s absolutely right, but the memo hits only on the budgetary half of why compositional balance is important. Accepting on face value that the 113th Congress will pursue more deficit reduction measures (more forthcoming from us on this premise)—at the very least replacing sequestration in chunks or entirety—including progressive revenue is critical for minimizing the economic drag of austerity. Read more