Robert Samuelson’s op-ed in Sunday’s Washington Post argues that the United States has reached or passed “the practical limits of ‘economic stimulus.’” He’s wrong, and much of the evidence he points to on the fiscal side ranges between grossly misleading and simply inaccurate. Several points:
- More fiscal expansion—particularly deficit-financed spending on infrastructure, aid to states, safety net spending, and well-targeted tax cuts—would accelerate economic growth and boost employment. This may be disputed on editorial pages, but it is not disputed by economists paid for their economic analysis. See analyses from Moody’s Analytics, Macroeconomic Advisers, or EPI’s own analysis of President Obama’s American Jobs Act, most of which Congress has not acted upon. Claims to the contrary are also belied by concern about the so-called “fiscal cliff” professed by both sides of the political aisle; politicians are worried that budget deficits closing too quickly will push the economy into a double-dip recession, as the Congressional Budget Office has forecast under its current law baseline.
- The point of the American Recovery and Reinvestment Act (ARRA) and subsequent ad hoc fiscal stimulus was to boost aggregate demand, not primarily “to inspire optimism by demonstrating government’s commitment to recovery.” Increased aggregate demand from ARRA kicking in and ramping up was responsible for arresting the economy’s rapid contraction in 2009 and the simultaneous deceleration (and eventual reversal) of job losses, not the confidence fairy.Read more
The Obama administration announced another trade case against China, this one focused on China’s blatant, illegal subsidies to exporters of auto parts. These subsidies have helped China take a growing share of the huge U.S. auto parts market, at a cost of tens of thousands of good manufacturing jobs. EPI researchers reported on the breadth and depth of these illegal subsidies earlier this year and warned that they threatened to decimate employment in the U.S. industry just as it got back to its feet after the Great Recession. As EPI’s Rob Scott and Hilary Wething wrote in January: “Chinese auto-parts exports increased more than 900 percent from 2000 to 2010, largely because the Chinese central and local governments heavily subsidize the country’s auto-parts industry; they provided $27.5 billion in subsidies between 2001 and 2010 (Haley 2012).” The U.S. trade deficit in auto parts with China reached $9.1 billion in 2010 and has continued to grow.
It’s great to see President Obama stand up for fair trade, even if the timing is provoking some skepticism in the media. As I’ve pointed out to several reporters, Republican presidential nominee Mitt Romney has been calling on Obama to get tougher on China’s unfair trade practices. Romney can hardly complain when the president does exactly what Romney recommends. And with tens of thousands of good jobs at stake, it would have made no sense for Obama to delay this case until after the election; every month of delay would just mean more bankrupt manufacturers, more plant closings, and more jobs lost.
The administration, following its standard, cautious practice, has not tackled the full extent of illegal Chinese subsidies. Rather, it’s gone after the low-hanging fruit, the clearly prohibited, high-profile, publicly reported, targeted subsidies that depend on export volume. There’s much more to do. In a report for EPI, Usha Haley, Professor of International Business at Massey University in New Zealand, documented more than $27 billion in Chinese government subsidies to the auto parts industry from 2001 to 2011 and identified another $11 billion in subsidies planned for the future. Preventing this massive intervention will be critical if the U.S. auto parts industry is to get back on its feet, let alone to thrive and grow. The case announced today was a logical place to start.
I’m told that it’s the one-year anniversary of the beginning of the Occupy Wall Street (OWS) activities. Smarter political minds than mine can tell you why OWS either mattered or not, or matters still or not. My quick take on them (a wholly unoriginal one) is that they introduced an element into the economic conversation that was not simply obsessing about the size of the budget deficit and how to reduce it.
Given that this deficit conversation was inane and destructive, the OWS movement deserves great credit for breaking it up. Further, given that the element OWS introduced in the nation’s conversation—the growth of inequality in recent decades—is the most important economic trend in the past generation, they deserve even further credit; they didn’t just interrupt a dumb conversation, they tried to start a relevant one.
We tried to argue that many of the claims of the OWS movement were well-supported by economic-data—see our paper here. Since then, we have released our newest edition of The State of Working America—see the website (and data) here—which further cements the case that inequality was the primary barrier to decent growth in low– and middle-income households living standards, and which links the growth of this inequality to intentional policy decisions made explicitly to redistribute income upwards. Read more
Four years ago, we published Grading Education: Getting Accountability Right. We surveyed national samples of adults, school superintendents, state legislators and school board members and concluded that they all supported a balanced set of goals for public education, including not only basic skills but also reasoning, social skills, preparation for civic participation, a good work ethic, good physical and emotional health, and appreciation of the arts and literature. Accountability systems based heavily on basic math and reading skills will undermine these balanced goals by creating incentives to shift instruction towards those aspects of the curriculum on which the school or teachers are being evaluated.
You can read the introduction and summary of Grading Education for more. You can also look at a summary of the goals survey. In addition, a chapter summarizing how other fields—medicine, job training, law enforcement—have learned about the dangers of standardized accountability was published separately. And an appendix reprints a sample of letters and statements we have received from teachers describing how standardized testing, and preparation for it, has destroyed creative and successful curricula and instruction nationwide.
EPI assembled a group of prominent testing experts and education policy experts to assess the research evidence on the use of test scores to evaluate teachers.Read more
Ben Bernanke made news yesterday by committing to provide more accommodative monetary policy in an effort to spur a faster recovery—and specifically linking his moves to the Federal Reserve’s disappointment in the labor market recovery so far.
This is a welcome, if still insufficient, development.
Bernanke’s move comes after a widely-circulated paper by Michael Woodford was presented at the Fed’s Jackson Hole conference. The paper argued that the main beneficial impact of Fed easing was through its impact on expectations—that is, if the Fed could convince the public that it will not pull the plug on its support to the economy even if inflation begins to pick up, then they can convince businesses and households to start spending (the mechanisms is that the higher expected inflation rates can drive real interest rates lower even as the Fed’s nominal policy interest rates are stuck at zero). Woodford argues that the most powerful way these expectations are changed are simply through the Fed’s “forward guidance,” or, well, talking.
This raises two quick issues. Read more
It was bound to happen, whether in Chicago or elsewhere. What is surprising about the Chicago teachers’ strike is that something like this did not happen sooner.
The strike represents the first open rebellion of teachers nationwide over efforts to evaluate, punish and reward them based on their students’ scores on standardized tests of low-level basic skills in math and reading. Teachers’ discontent has been simmering now for a decade, but it took a well-organized union to give that discontent practical expression. For those who have doubts about why teachers need unions, the Chicago strike is an important lesson.
Nobody can say how widespread discontent might be. Reformers can certainly point to teachers who say that the pressure of standardized testing has been useful, has forced them to pay attention to students they previously ignored, and could rid their schools of lazy and incompetent teachers.
But I frequently get letters from teachers, and speak with teachers across the country who claim to have been successful educators and who are now demoralized by the transformation of teaching from a craft employing skill and empathy into routinized drill instruction using scripted curriculum.Read more
Rebecca Mead understands what too many of my friends do not. In an excellent blog post for the New Yorker, Mead warns that the neo-liberal education “reform” movement is not primarily about improving educational opportunities for poor, urban minority students. It’s about breaking teachers unions.
Chicago is currently ground zero for the so-called reformers, and Mayor Rahm Emanuel is their latest champion, picking up the same cudgel that Joel Klein and Michelle Rhee wielded in New York and Washington, D.C. Emanuel has provoked a strike by 29,000 school teachers, refusing to settle unless the teachers’ union gives in to high stakes testing.
Rhee once admitted that she would be happy to see the entire D.C. school system turned over to private charter schools, and my guess is that Emanuel feels the same way about Chicago. Chicago’s public school teachers, who devote their lives to the education of the city’s poor, mostly minority children, know the direction Emanuel and his school CEO are heading; they’ve seen Arne Duncan and his successor close schools, charterize schools, increase class sizes, and divert money from the school budget.Read more
As the Chicago public schools teachers strike continues, with no resolution of the conflict in sight, the mayor and CEO might do well to reflect on two key lessons imparted by a scholar whose research on Chicago school reforms is universally hailed as in-depth, groundbreaking, and unimpeachable. Anthony Bryk is the creator of the Consortium on Chicago School Research and current president of the Carnegie Foundation for the Advancement of Teaching.
Bryk and his CCSR colleagues’ 2010 book, Organizing Schools for Improvement: Lessons from Chicago, has become a bible for evidence-based education policymakers across the country. While their data and methods are so complex that the authors advise many readers to skip the long chapter explaining them, two key findings jump out as relevant to the battle being waged now in Chicago over the current round of attempted reforms.
First, Bryk says, contrary to current popular reform policies, which advocate relatively quick-fix single-shot changes like replacing teachers or principals, turning over schools to new management, or closing them altogether, improving a school and sustaining those improvements is a complex, long-term process. Indeed, after much mulling, he and his colleagues liken the process most closely to that of baking a cake. It requires five ingredientsRead more
Although Hispanic and black families have the highest poverty rates of the major racial and ethnic minorities, the latest poverty data holds some positive news. The poverty rate for Hispanic families with children under 18 years old declined 1.6 percentage points (Figure A). Black families showed a 1.1 percentage-point decline, but this decline was not statistically significant. Non-Hispanic white and Asian American families had small increases that were not statistically significant.
Everybody knows the most pressing economic problem facing the United States today is joblessness. And many also know that this problem is economically solvable, yet not being solved largely because of political gridlock.
But, some might still find it hard to believe that policymakers could really be so indifferent to the economic struggles of most American families. This is where The State of Working America—released yesterday—comes in handy. Think of it as the Rosetta Stone of American economic policymaking over the past generation. Or just a book and accompanying website with lots and lots of charts and tables. Either way.
The two important points that come through loud and clear from its tracking of trends in income, wages, jobs, wealth and poverty are:
- The primary barrier to low– and middle-income families seeing decent rates of economic growth over most of the last generation was the simple fact that a very narrow slice at the very top claimed a vastly disproportionate share of the fruits of economic growth Read more
This morning’s release by the U.S. Census Bureau of the 2011 data on income, poverty, and health insurance coverage is yet another reminder of the ongoing consequences of both the Great Recession and the weak business cycle that preceded it. A first take:
- 15.0%: The share of the population in poverty in 2011
- 21.9%: The percent of children under 18 in poverty
- 46.2 million: The number of people in poverty in 2011
- $22,811: The poverty threshold for a family of four with two children
- 44.0%: The share of the poor population in “deep poverty,” or below half the poverty line
- 2.3 million: The number of people unemployment insurance kept out of poverty in 2011
- 21.4 million: The number of people Social Security kept out of poverty in 2011
- 5.7 million: How many fewer people would be in poverty if the Federal Earned Income Tax Credit was included in the Census definition of money income
- 3.9 million: How many fewer people would be in poverty if food stamps (SNAP) were added to money income
- -1.7%, +5.1%: The change in average household income between 2010 and 2011 for the middle 20 percent, and the top 5 percent, respectively. The disparity means income inequality increased in 2011. Read more
In his Democratic National Convention speech last week, former President Bill Clinton joked about conservatives’ struggle between professed concern about public debt, proposed tax cuts, and arithmetic:
“Somebody says, ‘Oh, we’ve got a big debt problem. We’ve got to reduce the debt.’ So what’s the first thing [Republican presidential nominee Mitt Romney] says we’re going to do? ‘Well, to reduce the debt, we’re going to have another $5 trillion in tax cuts, heavily weighted to upper-income people. So we’ll make the debt hole bigger before we start to get out of it.’”
There are plenty of holes in Romney’s plan, which would translate to somewhere between $2.7 trillion and $6.1 trillion in deficit-financed tax cuts over the next decade, relative to current tax policies.1 Within this range, their impact is difficult to quantify because the Romney plan suffers from serious sins of omission.
Romney initially proposed repealing the estate tax; eliminating capital gains, dividends, and interest taxation for households with adjusted gross income under $100,000 ($200,000 for married taxpayers filing jointly); cutting the corporate income tax rate from 35 percent to 25 percent; eliminating the corporate alternative minimum tax (AMT); and repealing new taxes from the Affordable Care Act (ACA). This $2.7 trillion package of tax cuts would be entirely deficit-financed. Read more
By Scott Nova and Isaac Shapiro
Information from Apple’s own factory auditor, the Fair Labor Association, and new reports in Chinese media show that the iPhone 5 is being produced by employees:
- Who work far more hours than allowed by Chinese law;
- Who are not paid for all the hours they work;
- Who lack any true voice in the workplace to advocate for necessary reforms
- Who partly consist of thousands of students who are being coerced to work, in a practice that Chinese media outlets characterize as “forced labor”
In short, any excitement over any new capabilities of the iPhone 5 demands to be tempered by a realistic appraisal of the unacceptable working conditions for the Chinese workers producing it. These conditions are explained in some detail below; a fuller analysis by our organizations of what changes in labor practices have and have not been made at Foxconn (Apple’s lead supplier in China) over the past year is forthcoming. Read more
If you believed the Wall Street Journal Washington Wire headline or the rhetoric of Arizona’s attorney general, you’d think the right to use card check to select a union as a bargaining representative had been struck down by a U.S. district court. But it always helps a little to read the court’s decision. And having done so, I’m happy to report that the obituary for card check as a way to select a union was premature, at best.
Arizona, goaded by the Koch brothers and anti-union businesses, passed a constitutional amendment declaring that secret ballot elections are the only permissible way to select an employee representative in Arizona. In other words, card check elections are illegal. (“The right to vote by secret ballot for employee representation is fundamental and shall be guaranteed where local, state or federal law permits or requires elections, designations or authorizations for employee representation.”) Federal law protects card check elections, so the National Labor Relations Board sued Arizona in federal court, and the court issued a decision on Wednesday. Read more
In his convention speech last night, former President Bill Clinton claimed that, “We could have done better, but last year the Republicans blocked the President’s job plan, costing the economy more than a million new jobs.” According to Glenn Kessler of the Washington Post’s Fact Checker, this claim was “merely a fuzzy and optimistic projection.” This is flat-wrong, and the evidence cited by Kessler to support his claim is far “fuzzier” than the counterfactual impact of the American Jobs Act (AJA).
The problem revolves around the baseline against which policy changes are scored. With the benefit of hindsight, we know pretty well how many jobs would have been created relative to what actually happened in terms of 2012 policy changes. The article linked to by Kessler, and on which he hangs his criticism, is full of quotes from forecasters saying that the AJA wouldn’t add to jobs because, “Some of this is just extending support that was already in place,” and implicitly would happen anyway. We now know that this is wrong—much of what was called for in the AJA turns out not to have supported the economy in 2012 (because it was never passed). And if it had been, the effects would have been … to add over a million jobs to the economy. Wonky details follow. Read more
Elizabeth Warren on why
you should read State of Working America too many American families are struggling to get ahead
People are buzzing about former President Clinton’s speech to the Democratic convention last night. And the man clearly knows how to communicate ideas about economic policy. But for my money, it was Elizabeth Warren who got it spot-on:
“I’m here tonight to talk about hard-working people: people who get up early, stay up late, cook dinner and help out with homework; people who can be counted on to help their kids, their parents, their neighbors, and the lady down the street whose car broke down; people who work their hearts out but are up against a hard truth—the game is rigged against them… It wasn’t always this way.”
This isn’t just a good translation of policy analysis into English—it could also pretty much serve as the press release for a book EPI is officially releasing next week: The State of Working America, 12th edition.
The State of Working America (SWA, around here) is the comprehensive reference tracking trends in wages, incomes, and wealth of American families, and it focuses particular attention on low- and middle-income workers and their families—the same group Warren was talking about last night. We’ve never intended SWA to be a policy manifesto—it has always instead been a “just the facts” kind of project. But this year, we decided to connect some awfully obvious dotsRead more
The supposedly kinder and gentler Medicare voucher proposed this year by House Budget Committee Chairman and Republican vice presidential nominee Paul Ryan (R-Wis.) is less draconian than last year’s version, but still packs a wallop. The voucher shifts costs to seniors because the value of the voucher can’t grow faster than half a percentage point above per capita GDP, and health care costs are projected to grow faster than that. (You can ignore the part about tying the voucher to the second-lowest-cost private plan or, if it’s cheaper, fee-for-service Medicare cost growth—this is just window dressing because overall costs will exceed the “fallback” spending limits.)
The voucher will initially shift around 11 percent of costs ($700) to seniors in 2023, an amount that will grow to 45 percent ($15,700) by 2087 (all figures are in 2012 dollars and rounded to the nearest $100). You can see how this adds up by summing the annual amounts in the table below over life expectancy in retirement. Thus, for example, a 40-year-old female who expects to retire at 65 in 2037 will live to about 2058, during which she will pay roughly $82,800 more for health care.Read more
The emergency unemployment compensation (EUC) benefits that millions of Americans are receiving to help them survive a period of long-term joblessness will terminate on Dec. 31 under current law. If the modest but steady income EUC provides—averaging about $300 per week—is cut off, then families, communities, and businesses across the country will suffer. Jobless workers will struggle to pay their rent and utilities and will reduce spending on discretionary purchases of food, clothing, recreation, and entertainment. Businesses, in response, will hire fewer employees. If EUC is not extended through the end of 2013, the effects on the economy will be serious: Economic activity will be about $56 billion lower than it otherwise would have been1and about 430,000 jobs will be lost—at a time when every job is precious.
So far, I have heard nothing to indicate that policymakers in Washington are addressing this matter, even though Democratic and Republican leaders are about to close a deal on keeping the government running for the next six months. It would be disastrous for Congress and the president to let EUC expire. Continuing EUC has to be part of the continuing appropriations legislation that congressional leaders are negotiating right now, which will fund existing programs all across the government through March 2013 at current levels. Read more
Republican vice presidential nominee Paul Ryan (R-Wis.) is not a deficit hawk, and has never been a deficit hawk. In the near-term, advocating accelerated deficit reduction is economically detrimental rather than praiseworthy, but in many circles the “deficit hawk” label is bestowed as a compliment upon Ryan for supposedly stabilizing the long-term fiscal outlook. Ryan is hawkishly anti-government spending, except for defense spending, and he falsely conflates domestic spending with deficits and public debt. But Ryan’s purported concern about the deficit is belied by his proposed $4.5 trillion in unfunded tax cuts and reliance on made-up revenue levels to pad long-term budget projections from the Congressional Budget Office (CBO). This isn’t a secret to budget analysts and economists (e.g., Peter Orszag’s recent piece in the Washington Post), but it regrettably continues to be lost on much of the press and punditry.
Take, for instance, last week’s Leader in The Economist, Paul Ryan: The man with the plan, which praised Ryan as “the first politician to produce a plausible plan for closing the deficit, which he did in April last year.” This is an egregious misrepresentation of fact. Ryan’s fiscal year 2012 budget would not have reached balance until somewhere between 2030 and 2040, according to CBO’s long-term analysis, but even this “feat” was falsely predicated on revenue magically rising to 19 percent of GDP—as Ryan demanded CBO assume. Read more
Today is the 49th anniversary of Dr. Martin Luther King’s brilliant “I Have a Dream” speech, the final speech of the 1963 March on Washington, which was officially titled the “March on Washington for Jobs and Freedom.” That event is obscured by the distance of a half-century, but it’s worth the effort to review the official demands of the march and the economic thinking of King and his allies, A. Philip Randolph of the Brotherhood of Sleeping Car Porters and Walter Reuther of the United Auto Workers. What they wanted for Americans then is still badly needed today—perhaps more than ever.
The March was about civil rights, voting rights and racial equality, but it was also about the need for jobs and for jobs that paid a decent wage. The marchers wanted the federal minimum wage raised nearly 75 percent, from $1.15 an hour to $2.00 an hour. They also called for “A massive federal program to train and place all unemployed workers—Negro and white—on meaningful and dignified jobs at decent wages.”
In 1963, the unemployment rate averaged about 5.0 percent, which looks good compared to today’s 8.3 percent, but King and the other organizers wanted full employment and believed it was the federal government’s responsibility to provide it. Read more
The Affordable Care Act (ACA), called “Obamacare” by opponents and supporters alike, has been maligned and misrepresented countless times over the last few years. The most recent claim—which has turned up in a recent Mitt Romney ad but has been a staple of GOP talking points since the Paul Ryan pick for vice president—is, “You paid into Medicare for years … but now when you need it, Obama has cut $716 billion from Medicare … to pay for Obamacare.” In other words, ACA took money out of the Medicare system for use elsewhere.
This is a pretty big lie. To take money “out of the Medicare system,” one would have to actually divert revenues away from the program. But ACA doesn’t do this at all—instead, it reduces how much Medicare will have to spend over the next 10 years by $716 billion. It does this without actually cutting benefits, instead deriving savings from three areas:
- Reducing reimbursements Medicare currently makes to hospitals—but by less than the gain hospitals would receive from newly-insured patients purchasing hospital services in coming decades.
- Reforming the separate Medicare Advantage program, which was supposed to save money, but ended up being more expensive. Read more
Apple’s key Chinese supplier is Foxconn, made famous by the rash of suicides committed by its employees, who live packed into dorms, far from home, working brutal schedules of overtime (sometimes as much as 80 hours a month, on top of the core 160 hours), subjected to verbal abuse and humiliating punishment by supervisors, and systematically cheated on wages.
When labor rights groups in China and Hong Kong exposed these conditions and the New York Times published a front-page exposé, Apple hired the Fair Labor Association (FLA) to help it improve conditions—and its corporate image. In a public report, Apple committed itself to a broad range of reforms, and has made some headway on several fronts, according to the FLA.
But many observers are skeptical because Apple and Foxconn have put off most of the reforms that would actually cost them some money. The FLA could not, for example, get the companies to agree to comply with Chinese law limiting maximum overtime hours until the summer of 2013, and the companies continue to subject Foxconn workers to 60 hours of overtime per month—nearly twice the amount of overtime permitted by law. The companies also pledged only to study whether the workers were right in their complaints that wages are too low to meet basic needs. And most telling, there is no indication the companies have kept their public promise to pay back wages to the hundreds of thousands of employees Foxconn systematically cheated by working them “off the clock.” Read more
Louisiana politicians have been getting bad advice from their state’s economists about the Department of Labor’s guest worker regulations. Rep. Rodney Alexander (R-La.) posted a story on his website about the supposedly enormous negative impact of a new Department of Labor regulation that would raise the wages of U.S. and foreign workers employed by companies that import H-2B guest workers. Alexander and Sen. Mary Landrieu (D-La.) both voted to block the new wage rule from taking effect.
The outsized impact estimates come from a March 23, 2012 report by three Louisiana State University economists, entitled Economic Impact on Louisiana Agricultural Industries of the Proposed Change to the Wage Methodology for the Temporary Non-Agricultural Employment H-2B Program. A careful look at the report shows that the estimates are certainly wrong.
The report’s authors, Kurt M. Guidry, J. Matthew Fannin, and Michael E. Salassi, assume that if wages increase, net income (sales revenue minus wages) will simply decrease proportionately. Rather than increase prices and pass them along to consumers, or mechanize certain operations to reduce the wage bill, or improve productivity through better hiring, training, or management, seafood companies and landscaping contractors will lose $1 of income for each $1 of higher wages. That is an unreasonable assumption, which the report applies to about a dozen different industries, from agricultural aviation and forestry to hotels and food service. Read more
Republicans in Congress have been engaged in a two-year long assault on the government’s regulatory powers, attacking everything from the Clean Air Act and mercury pollution controls to the National Labor Relations Board’s enforcement powers. Their actions have been directed by business groups like the Chamber of Commerce, which publish seemingly-credible reports with big numbers about regulation’s supposed negative impact on the economy, relentlessly shifting blame away from themselves for the failure of wealthy corporations to create jobs in the United States instead of in China, Mexico and Bangladesh.
The latest installment in this wave of faux reports comes from the Manufacturers Alliance for Productivity and Innovation. Yesterday, they released a commissioned report on the costs of regulation that was so slanted and sloppy it seems like a parody. The authors throw out a bunch of big numbers with no supporting data and then—“extrapolating”—pretend that they can reasonably estimate how much regulations have reduced manufacturing activity. But the fact, of course, is that manufacturing employment has risen over the last two years—for the first time in a decade—just when the supposed cumulative impact of regulations should have been taking its biggest toll.
The authors acknowledge that they made no attempt to estimate the benefits of regulation, either to the public in general, workers, consumers, or the industries themselves. Read more
David Leonhardt on the New York Times‘ Economix blog is spurring an interesting conversation about what has caused the slowdown in income growth. Though not explicit, what Leonhardt is asking people to explain is the sluggish growth in median household income since 2000, when incomes for working-age households fell over the 2000–2007 business cycle (the first time in any cycle in the post-war period) and then were battered by the great recession we’re still effectively in. This is what we are referring to in the forthcoming The State of Working America (out on Sept. 11) as the “lost decade.”
The heart of the matter is the ongoing failure of wages and benefits for typical workers (including those with a college degree!) to see any improvements, even though productivity (the ability of the economy to provide higher pay) has grown appreciably. I want to focus on one issue raised in this discussion, the role of rising health care costs on wage growth, an issue we examine (in the new book) more thoroughly than I have seen before. The issue is the extent to which rising employer health care costs have squeezed wage growth and contributed to rising wage inequality. An earlier paper tackled this issue as well.
The relationship between employer health insurance costs and wages is that employers set the growth of compensation, and when health costs rise, there is simply less compensation available for wage growth. This assumes that higher health spending by employers offsets the possibility of higher wages dollar-for-dollar. (Although this is likely not the case, I will assume it for our purpose here; there is also the issue that there are other benefits beyond health that could provide an alternative to wages in soaking up increased health costs.)
The potential squeeze of health care on wages can be measured simply by examining employer health care costs as a share of total wages; the faster that share grows, the more there is a squeeze on wages. Read more
We cannot remedy the large racial achievement gaps in American education if we continue to close our eyes to the continued racial segregation of schools, owing primarily to the continued segregation of our neighborhoods. We pretend that this segregation is nobody’s fault in particular (we call it “de facto” segregation), and that therefore there is nothing we can or should do about it. Instead, we think that somehow we can devise reform programs that will create separate but equal education. One after another of these programs has failed—more teacher accountability and charter schools being only the latest—but we persist.
The presidential campaign can be a reminder, though, of the opportunities we’ve missed and continue to miss. Forty years ago, George Romney, Mitt’s father, resigned as Secretary of Housing and Urban Development after unsuccessfully attempting to force homogenous white middle-class suburbs to integrate by race. Secretary Romney withheld federal funds from suburbs that did not accept scatter-site public and subsidized low and moderate income housing and that did not repeal exclusionary zoning laws that prohibited multi-unit dwellings or modest single family homes—laws adopted with the barely disguised purpose of ensuring that suburbs would remain white and middle class.
Confronted at a press conference about his cabinet secretary’s actions, President Nixon undercut Romney, responding, “I believe that forced integration of the suburbs is not in the national interest.” This has since been unstated national policy and as a result, low-income African Americans remain concentrated in distressed urban neighborhoods and their children remain in what we mistakenly think are “failing schools.” Nationwide, African Americans remain residentially as isolated from whites as they were in 1950, and more isolated than in 1940. Read more
This Week with George Stephanopolous yesterday was dominated by a panel discussing the deeply silly question of, “Is the U.S. going bankrupt?”
It’s a silly question for one because it conflates issues with the federal budget deficit (which the show was entirely about) with the U.S. economy writ large. I know this is news to far too many pundits but the budget deficit and the U.S. economy are not the same thing. And if you look at the broader perspective of the U.S. economy, it’s clear that it’s not “going broke.” On average, the U.S. economy over any long period of time has been (and will be, absent some catastrophe) growing acceptably fast. Unfortunately, very few American households have actually experienced this “average” growth, since incomes at the very top have grown extraordinarily rapidly and absorbed vastly disproportionate shares of income growth in recent decades. So, if This Week wants to devote a very serious show obsessing about the dangers of growing inequality, then I’ll be happy to give them a round of applause for devoting time to an actual, identifiable economic problem.
And even in its own poorly-defined terms (i.e., the outlook for the federal budget deficit), the show was mostly a bust.
For one, nobody reminded the panel or its viewers that the large increase in budget deficits in recent years have been driven entirely by the Great Recession (and its aftermath) and the explicitly temporary policy responses passed in its wake. This is important to know. In 2006 and 2007—even after the Bush tax cuts, wars fought with no dedicated funding and the passage of a deeply-inefficient Medicare drug program that also had no funding source—budget deficits averaged around 1.5 percent of total GDP, levels that no economist would argue are evidence of a crisis. Read more
Dylan Matthews over at Wonkblog used some data we provided to point out “one big flaw” in a report (written by Anthony Carnevale and two co-authors for the Georgetown Center on Education and the Workforce (GCEW)) touting the value of a college education in the recession and recovery. The flaw is, “it doesn’t separate out people who only have a bachelor’s from the 11.3 percent of workers who have an advanced degree beyond a bachelor’s,” when it talks about “college graduates.” Matthews notes that:
“While those with only a BA still did much, much better than people with a high school degree or only some college, they still saw job stagnation during the recession. The only group that continued to gain jobs were those with advanced degrees. Fully 98.3 percent of job gains among those with at least a bachelor’s were realized by those with advanced degrees…”
I want to dig into the issues raised by the GCEW report and the general discussion of the value of a college degree. It is important to separate out two dimensions to the value of a college degree that are frequently conflated, as this report does. One issue is whether an individual will be relatively better off if he or she obtains a college degree and the second issue is the benefit to the economy of a greatly boosted share of the workforce with a college degree (say, if we had 40 or 50 percent rather than the current 33.2 percent with a college degree or further education).
I am totally in favor of policies which facilitate every person’s ability to obtain (and complete) a college degree or other advanced training or skills (i.e., apprenticeships, associate degrees). Those who do advance their education and skills will, on average, be better off in terms of their incomes, employment, health, and be more engaged citizens than those who have not been able to pursue greater education and skills. So, on issue number one there need not be any debate. More education and skills can also be essential for improving social mobility and opportunity and generating a more inclusive economy.
However, if the entire workforce had college educations, we still would have unemployment over 8 percentRead more