The TPP is a back door for dumped and subsidized imports from China; it would enhance, not limit, China’s influence in the region
President Obama has built his closing case for the Trans-Pacific Partnership on a political argument, saying “…we can’t let countries like China write the rules of the global economy. We should write those rules.” But it is both arrogant and wrong to think that the United States has the power to shape the rules governing China’s relationship to TPP signatories. As of today, China has already established deeper trade ties than the United States with the TPP nations. Further, congressional approval of the TPP would actually lock in those advantages for China. China has a large trade surplus with the TPP countries, and crucial terms of the agreement (specifically weak rules of origin (ROO) requirements, which we’ll talk about in detail below) would provide a back-door guarantee for China and other non-TPP members to duty-free access to U.S. and other TPP markets. This would be especially significant for autos and auto parts, as well as other key products. TPP exporters are not going to turn away from their suppliers in China just because they signed a trade deal with the United States.
The United States has a massive trade deficit with China that has taken on added significance in the light of the proposed TPP agreement between the United States and 11 other Pacific Rim countries. While China is not party to the TPP, it is a major force behind a larger East Asian co-production system that uses unfair trade (dumping, subsidies, excess capacity, export restrictions, and more), coupled with currency manipulation and misalignment, to make U.S. goods more costly and thus less competitive in China, the TPP and in other markets.
The United States also had a large trade deficit with the TPP countries in 2015 that cost 2 million U.S. jobs. Flawed trade and investment deals, such as the North American Free Trade Agreement (NAFTA), plus the currency manipulation and unfair trade by some TPP members account for many of those lost jobs (note that Mexico and Canada are TPP countries). In addition, analysis developed here demonstrates that a substantial share of these TPP job losses can be directly linked to trade between China and the other members of the TPP. Specifically, most of the TPP countries run large trade deficits with China while running large, offsetting trade surpluses with the United States. Thus, it appears that at least some TPP producers are buying parts and components from China and re-exporting them in the form of finished goods to the United States.
There was some good news in this morning’s Employment Situation Report. The economy added 161,000 new jobs in October—enough to bring in players off the bench. Perhaps most significantly, nominal wage growth increased 2.8 percent over the year, another step-up over the pace of growth in recent years and a sign of a tightening labor market, where workers may be starting to gain some leverage. All in all, last month was a solid step closer to full employment, but we still have not reached it yet. It’s important to remember that these positive highlights don’t mean we are at full employment. That’s why the Federal Reserve made the right decision to leave rates alone earlier this week. The economy continues to move in the right direction, but considerable slack remains and the recovery has yet to be fully realized in all parts of the economy or for all workers.
This month and this year, the economy has hit some milestones, but I’d argue that those are relatively low bars for success. For example, for the first time this recovery, the prime-age employment-to-population ratio (EPOP) exceeded its low point of the last two business cycles. As seen in the figure below, prime-age EPOP hit 78.2 percent in October, just surpassing its level in February 1993 of 78.1 percent. Is it good that the prime-age EPOP is rising? Yes, but, prime-age EPOPS remain below the low point of the last recession, let alone levels that could constitute a full employment economy. That’s what I mean by a “low bar.” But, the uptick last month is a good sign and I look forward to continued progress on this key measure.
Amidst lots of questions about the economy heading into the presidential election next week, I thought it would be appropriate to provide a brief analysis of where the economy is today. Since the Great Recession and aftermath, the labor market has improved at a remarkably consistent and steady rate. But as steady and long-lived as the recovery has been, it has not yet been fully cemented into a healthy, full employment economy. The improvement is easy to document. It can be obviously seen in the underlying growth in total payroll employment and precipitous drop in the unemployment rate. The still-unhealed damage is illustrated by remaining slack that has led to still slower than targeted nominal wage growth and underperforming prime-age employment-to-population ratio.
For its part, aside from a tap last December, the Federal Reserve has been keeping their foot off the brakes, letting the labor market soak up the slack. They should continue to do so until it’s all gone. In the last year, the labor force participation rate has risen, while the unemployment rate held steady. So, yes, the economy is on the right track. And, if payroll employment stays on course, the unemployment rate will start coming down again even as missing workers continue to enter or re-enter the labor force. And, as this happens, workers and would-be workers will be in shorter supply, finally giving them the leverage to bid up their wages.
This blog was first posted at OnLabor.
As Jon reported this morning, an employment tribunal in London has concluded that Uber drivers are not self-employed independent contractors, but rather Uber workers. The tribunal’s decision is available here, and I recommend it: it’s full of details regarding the relationship between Uber and its drivers. And although legal tests differ across jurisdictions, what the U.K. tribunal found has clear relevance for the question of whether Uber drivers in the U.S. meet the definition of “employee” under U.S. labor and employment laws. To put it bluntly, what the tribunal finds clearly confirms the conclusion that Uber drivers are employees under U.S. standards. The opinion is 40 single spaced pages, but here are some (and just some) of the relevant findings that led the tribunal to conclude that drivers are workers under UK law:
Fed should hold steady—the economy had “room to run” over past year and may well have more in the next year
The Fed’s Federal Open Market Committee (FOMC) will debate again this week whether or not they should raise interest rates to slow the economic recovery in an effort to forestall potential inflation.
The debate over when the Federal Reserve should begin raising its short-term policy interest really began in earnest in September 2015. In the month before the FOMC met in September 2015, futures markets put the odds of a rate hike at over 50 percent. It is likely that all that kept the hike from happening in September of that year was the surprise financial market declines in China, which spilled over into the American stock exchanges for a spell. In December 2015, after this short-term drama passed, the Fed raised rates for the first time in seven years.
In the debate that accompanied the run-up to the September 2015 meeting, those arguing for further patience from the Fed (like this author) argued that there remained lots of slack remaining in the labor market, and that this slack would contain inflationary pressures. One source of slack identified was a potential firming-up of labor force participation, which had dropped considerably over the recovery.
Annual inflation-adjusted earnings of the top 1.0 percent of wage earners grew 2.9 percent in 2015, and the top 0.1 percent’s earnings grew 3.4 percent, according to our analysis of the latest Social Security Administration wage data. What is relatively unique about 2015 was that the 3.4 percent wage growth for the bottom 90 percent matched that of the top 0.1 percent. This strong wage growth for the bottom 90 percent reflects both the lull in inflation (up just 0.1 percent) and the failure of wage inequality to continue its growth in 2015. Annual wages of the bottom 90 percent now stand 3.5 percent above what they were pre-recession in 2007, with all of that growth essentially occurring in 2015. The top 1.0 percent’s earnings have surpassed their previous high point, attained in 2007, by a mere 0.2 percent, recovering from the steep 15.6 percent fall during the financial crisis from 2007–09. High earners between the 90th and 99.9th percentile have seen the strongest growth since 2007, with earnings rising 7.7 percent. It’s only the earnings of the top 0.1 percent that remain below 2007 levels (down 5.1 percent).
Wage inequality has grown tremendously over the longer-term period from 1979 through 2015. The annual earnings of the top 1.0 percent rose 156.7 percent from 1979 to 2015 while the very top 0.1 percent enjoyed earnings growth of 338.8 percent. In contrast, the bottom 90 percent of wage earners had annual earnings grow by just 16.7 percent over the 1979–2007 period and an additional 3.5 percent between 2007 and 2015 for a cumulative annual earnings growth of 20.7 percent over the thirty-six years from 1979 to 2015.
The national recovery since the end of the Great Recession has been needlessly held back by spending cuts at all levels of government. Figure A below compares the growth in per capita spending by federal, state, and local governments in this recovery with previous recoveries.
Fiscal austerity explains why recovery has been so long in coming: Change in per capita government spending over last four business cycles
Note: For total government spending, government consumption and investment expenditures deflated with the NIPA price deflator. Government transfer payments deflated with the price deflator for personal consumption expenditures. This figure includes state and local government spending.
Source: EPI analysis of data from Tables 1.1.4, 3.1, and 3.9.4 from the National Income and Product Accounts (NIPA) of the Bureau of Economic Analysis (BEA)
As tight as federal spending growth has been in recent years, the bulk of the differences between the current recovery and previous ones shown in Figure A actually stems from state and local spending decisions. These state-level spending cutbacks have held down growth substantially.
States, unlike the federal government, are generally constrained in their ability to boost spending by the need to raise revenue. But as a general rule, government spending boosts economic activity in a weak economy more than tax cuts drag on activity. (In economist jargon, spending increases have higher “multipliers” than revenue increases.)
A women’s economic agenda for the 45th U.S. president: Investing in the infrastructure to support a 21st century economy
Progress on closing the gap between men’s and women’s wages in the U.S. economy has been glacially slow in recent decades—and gender wage parity has become a top priority for those committed to ensuring the economic security of American women. This priority is absolutely essential. No matter how you cut it, the gender wage gap is real and it matters. That said, pay parity cannot be the only goal for those looking to improve the economic lot of American women. In recent decades, the hourly pay of typical male workers has essentially stagnated even as the economy has grown. Closing only the gap between typical female and typical male workers threatens to ensure parity in this stagnation, not parity in progress. To achieve parity in progress, gains in reducing gender wage gaps must be paired with gains in closing another gap: the gap between economy-wide productivity and the wages of all typical workers. This is an ambitious goal, but it’s the only one that ensures genuine economic security for American women and the families that rely on them.
Here, I hope to draw out the importance of taking a holistic approach to improving the lot of women, men, and families across society. I can summarize my argument in three major points:
- The gender wage gap exists and progress closing it has been agonizingly slow, particularly in recent years. And, when combined with wage penalties faced by workers of color, it leads to wages for women of color being drastically lower than for white men.
- Rising inequality has kept the vast majority of men’s and women’s wages from rising as fast as gains in economy-wide productivity over the last four decades.
- Solutions need to close both the gender and inequality wage gaps and invest in a policy infrastructure to support all workers’ efforts to balance demands of work and home.
Labor mobility is fundamental to the ability to earn good wages. The improvement in incomes and living standards over the centuries is tied tightly to the growing ability of workers to quit the job they have and take another. And it is a timeless truth that employers will try to find new ways to hamper their employees’ legal right to leave. Increasingly, they are turning to non-compete clauses that they slip into the fine print of employment contracts. Thirty million U.S. employees, many of them relatively low wage workers, are bound by non-competes.
Peasants in medieval times were generally not permitted to leave the land on which they were born, and throughout Europe and Russia they were essentially owned by the owner of the land, their lord and master. The use of indentured servitude in the cities was a less onerous but still heavy burden on young workers, who were forced to work for years with little or no compensation for a single master, whose abuse or mistreatment usually had no remedy.
Slavery is the most extreme example of a legal limitation on labor mobility and the most destructive. Slavery in the United States not only brutalized and impoverished the enslaved, it dragged down the wages of anyone forced into competition with them. Slavery’s effects on free labor were an additional reason beyond simple morality for Abraham Lincoln and the free soil movement to oppose slavery. How could free construction workers, for example, demand higher wages if their employer’s competitor was using unpaid, enslaved labor?
This article first appeared on the American Constitution Society (ASC) Blog.
From First Lady Michelle Obama’s speech in New Hampshire to accusations by Fox News’ Gretchen Carlson against Roger Ailes, sexual harassment and sexual assault have been dominating the headlines for months.
Also in the news has been the topic of forced arbitration agreements that limit victims’ ability to have their day in court. Very much a part of the Wells Fargo scandal has been the bank’s argument that it shouldn’t have to face its clients at trial.
These two stories actually have more in common than is often mentioned. First, of course, Fox tried to shut down Carlson’s suit by saying her contract’s arbitration clause prevented her from using that public forum. Few realize how common it is for women and men who allege harassment at work to be shunted into a secretive process that often prioritizes the interests of the employer.
One of President Obama’s most important contributions to better pay and working conditions in the United States is his executive order on Fair Pay and Safe Workplaces, which he issued two years ago and is finally taking effect this month. The order, which addresses wage theft and on-the-job hazards, including sexual harassment and race discrimination, affects 25 million employees working for businesses that provide goods and services under contract to the federal government – businesses that range from janitorial services to ship builders.
The first provisions are set to take effect in two weeks – unless a lawsuit filed in Texas by various business groups succeeds in delaying or blocking enforcement of the rules.
Why is the Executive Order Needed?
The federal government purchases over $500 billion in goods and services from the private sector, and the firms it deals with employ about 20 percent of the nation’s total workforce. It is important that the government chooses to deal with honest employers and that, when given a choice of two otherwise similar contractors, it chooses to do business with the one that demonstrates superior integrity and a greater inclination to obey the law. That is common sense.
In Quartz, I described a rarely noticed but devastating development that is undermining African American working and middle class families—a racially disparate property tax system that, in many cities, extorts a premium from African American homeowners. This premium can be so large that families lose homes when cities foreclose on properties where taxes have become unaffordable.
This discriminatory race tax has arisen because homes in African American neighborhoods that lost value following the housing price bubble collapse in 2008 have, in the subsequent recovery, been slower to recover value than properties in white neighborhoods. In most cities, assessors are required to re-assess properties on a regular basis, but when they have failed to do so, homeowners in African American neighborhoods wind up paying more tax relative to their home values than homeowners in white neighborhoods.
What to Watch on Jobs Day: The teacher gap, and how today’s unemployment masks continued weakness in the economy
On Friday, the Bureau of Labor Statistics will release the September numbers on the state of the labor market. As usual, I’ll be paying close attention to the prime-age employment-to-population ratio (EPOP) and nominal wages, which are two of the best indicators of labor market health. Friday’s report will also give us a chance to examine the “teacher gap”—the gap between local public education employment and what is needed to keep up with growth in the student population.
The unemployment rate has fallen steadily over the last six years, and many have said that the current rate of 4.9 percent means we are back (or at least very close) to full employment—meaning that pushing unemployment any lower would cause inflation to accelerate above the Federal Reserve’s preferred 2 percent target. That is why some observers are calling upon the Fed to raise rates—before workers see the economic recovery translate into consistently strong nominal wage growth.
But the headline unemployment rate (which is notably higher than previous labor market peaks) continues to understate slack in the labor market. Today’s 4.9 percent unemployment rate is associated with much lower prime-age EPOPs—the share of the working age population who is actually working—than in the recent past. To make that comparison, let’s look at where prime-age EPOPs were in the last two business cycles when the overall unemployment rate was 4.9 percent. The graph below shows that the prime-age EPOP averaged 80.9 percent in the three months the unemployment rate hit 4.9 percent in 1997 and 79.5 percent in the two months unemployment hit 4.9 percent in 2005. On average, those five months saw a 2.5 percentage point higher prime-age EPOP (80.3 percent) than the average 77.8 percent we’ve seen in the five months with 4.9 percent unemployment this year.
This blog was first posted at The Globalist.
During the 1993 U.S. congressional debate over the North American Free Trade Agreement, a Democratic Congressman with a solid pro-labor voting record asked me why I thought NAFTA would be bad for working people.
After I had given my answer, he responded: “Well, you may be right about the economics.” “But we have a 2000-mile border with Mexico. The President told me we need NAFTA to make it secure.”
Who can argue against national security?
NAFTA was the economic model for the ever more corporatist trade deals that followed, including the currently proposed 12-nation Trans-Pacific Partnership.
The arguments for NAFTA also set the pattern for the debates over those deals. Whenever the economic case crumbles, “national security” becomes the fallback rationale.
After a quarter century of off-shored jobs and depressed wages in the wake of corporate-driven trade de-regulation, the claim that the Trans-Pacific Partnership will make life better for American workers is so discredited that both Hillary Clinton and Donald Trump are opposed.
This weekend, the New York Times broke the story that Republican presidential nominee Donald Trump claimed a $916 million loss in 1995, possibly allowing him to avoid paying federal income taxes for as long as 18 years. The ability to use a large, one-time loss to reduce future income tax liability is not, on its face, all that objectionable—it simply allows individuals to smooth out their tax liability and avoid being penalized for having a volatile income.1 But Trump’s refusal to release his tax returns continues to obscure the numerous other potential loopholes that can be exploited by those at the top that are more arbitrary and objectionable.
Take one loophole that is especially relevant to Trump and real estate developers: “like-kind exchange.” Like-kind exchange allows investors owning real estate to defer, and coupled with another loophole in our tax code eventually avoid, paying capital gains taxes.
To see how, consider an investor who owns a stock and would like to invest in another stock. Selling their stock will trigger capital gains taxes. Not so for real estate. Instead, like-kind exchange rules allow investors like Trump to defer paying taxes on their capital gains if they’re exchanging the real estate for broadly defined like-kind property.
There’s obviously plenty to criticize regarding Donald Trump’s claims and characterizations about the problems facing the U.S. economy during last night’s debate. But one thing that stuck out clearly was his peddling the myth that profits of U.S. corporations are “trapped” offshore by U.S. tax policy, and that these profits “can’t” be returned to the United States “until a deal is struck.” Now, Trump’s presentation of this argument during the debate was a characteristic dumpster fire of incoherence, but on the substance he was actually just trying to explain what has become a depressing conventional wisdom.
So, let’s provide a quick explainer about why these profits are not “trapped” abroad and why the only deal that needs to be cut is closing a loophole in the U.S. corporate income tax.
This loophole allows U.S. multinational firms to defer paying the corporate income tax on profits earned overseas until these profits are “repatriated,” or returned to shareholders in the United States. By now, about $2.4 trillion in profits sits offshore, and there would be about $700 billion in taxes if it were repatriated. Obviously this deferral is a huge deal.
At the conclusion of their most recent meeting, the Federal Open Market Committee (FOMC) decided against a September interest rate hike. Their decision is consistent with conclusions drawn in a recent analysis by our colleague Josh Bivens. Using the Fed’s own economic projections and other historical data, he makes the case that even a small increase in interest rates is far more likely to slow the economy and deter progress in reducing unemployment than holding interest rates steady is likely to trigger accelerating inflation. Their decision also lets jobseekers breathe a temporary sigh of relief—particularly people of color, who have seen the strongest labor market gains over the last couple years, but who still face extremely high rates of unemployment in some parts of the country.
The table below shows unemployment rates by race and ethnicity for each of the 12 metro areas with a Federal Reserve Bank, as well as other large metro areas across the country with sizable black or Latino populations. We only present unemployment rates for metro areas where the sample size was large enough to generate a reliable estimate for a particular race or ethnic group. These data show that nationally, the black unemployment rate has declined 3.1 percentage points over the last two years, compared with a 2 percentage points decline for Hispanics and a 1.2 percentage point improvement for whites. Although double-digit rates of black unemployment were more of a norm just two years ago than now, African Americans are still suffering from staggering unemployment, with rates higher than 10 percent in Chicago, Detroit, and Philadelphia. With the exception of Dallas, Latinos are more likely to be unemployed than whites in each of the selected metro areas, but Hispanic unemployment rates remain most elevated in Philadelphia and Chicago.
This week the Federal Open Market Committee (FOMC) will meet to decide whether or not to raise interest rates. By now this is a familiar debate. Some (call them hawks) argue that rate hikes are needed to slow the pace of economic growth and slow progress in reducing unemployment in the name of combating potential inflation. Others (call them doves) argue that we should not tighten until we’re absolutely sure that genuine full employment has been locked in. The past years’ evidence argues strongly that the doves are right.
Let’s start with the Fed’s own projections, which some Fed officials recently pointed to during a meeting with the Fed Up coalition to claim that interest rate increases were not meant to slow the economy or raise unemployment.
The table below shows the Fed’s current projections for the unemployment rate and other variables. They forecast that it will move from today’s 4.9 percent to 4.7 percent in the last three months of this year, and then fall further, to 4.6 percent for 2017 and 2018. After this it rises (after some unspecified time) to its long-run equilibrium of 4.8 percent. This 4.8 percent long-run rate is essentially the Fed’s estimate of the “natural rate of unemployment”—the lowest rate the economy can stay at without sparking an acceleration of inflation (this acceleration terminology is key: it’s not just inflation rising from 1.5 percent to 2.5 percent, it’s inflation that rises from 1.5 percent to 2.5 percent to 3.5 percent to 4.5 percent and so on). Importantly, in the Fed’s forecast, the unemployment rate falls over the next three years even as the projected federal funds rate is moved steadily up. By 2018, the 4.6 percent unemployment coincides with a 2.4 percent federal funds rate (it is just 0.25 percent today).
Earlier this week the Census Bureau released data from the Current Population Survey (CPS) showing strong national income growth in 2015. State income data from the American Community Survey (ACS), which the Census Bureau released today, show similar results across the United States, with a 3.8 percent increase in real (inflation-adjusted) median household income for the country as a whole. This translates to an increase of $2,062 in the annual income of the typical U.S. household. (The ACS has a different sample and covers a somewhat different timeframe than the CPS, leading to slightly different estimates between the two surveys.) Real median household income increased in 39 states and the District of Columbia between 2014 and 2015.
Between 2014 and 2015, the largest percentage gains in household income occurred in Montana, where the typical household income grew by $3,146—an increase of 6.7 percent. Tennessee (6.4 percent), Oregon (5.9 percent), Massachusetts (5.7 percent), Rhode Island (5.7 percent), Wisconsin (5.6 percent), Hawaii (5.5 percent), New Hampshire (5.5 percent), District of Columbia (5.4 percent), Wyoming (5.4 percent), Kentucky (5.1 percent), and Vermont (5.1 percent) all had increase of 5 percent or more. In 11 states, median household income was unchanged over the year. There were no states that had a statistically significant decrease in median household income.
After years of wage stagnation, incomes have finally started to recover. The labor market recovery in 2015 included lower unemployment, more hours of work, and strong inflation-adjusted wage growth.
The poverty rate fell in many states between 2014 and 2015, according to this morning’s release of state poverty statistics from the American Community Survey (ACS). In 23 states, there were decreases in the poverty rate, with 6 states reaching their 2000 levels. 27 states and the District of Columbia saw no significant change in the poverty rate, and there were no states that had a statistically significant increase in their poverty rate.
In 2015, the national poverty rate, as measured by the ACS , fell 0.8 percentage points, to 14.7 percent. (The ACS has a different sample, and thus slightly different estimates, than the Current Population Survey, which provided Tuesday’s national data.) Vermont saw the largest decline in its poverty rate (1.9 percentage points), followed by Tennessee (1.6 percentage point) and South Carolina (1.3 percentage point). The lowest poverty rates were in New Hampshire (8.2 percent) and Maryland (9.7 percent). While poverty did not rise in any state in 2015, there were still two states with poverty rates above 20 percent: New Mexico (20.4 percent) and Mississippi (22.0 percent).
Widespread income growth at the national level, driven by improvements in labor market conditions, was key to the reduction of poverty across the states. At the same time, minimum wage increases in many states and cities boosted wages for many of the country’s lowest-paid workers. These factors, combined with the absence of any real inflation, provided a welcome reversal to the stagnation in wages and incomes that has prevented improvements in living standards since the late 1990s. Additionally, government programs, including Social Security, housing subsidies, and unemployment insurance, kept millions above the poverty line. While poverty remains far too high in virtually every state, today’s data suggest that many states are heading in the right direction.
New Census data show strong 2015 earnings growth across the board, with black and Hispanic workers seeing the fastest growth
Today’s Census Bureau report on income, poverty, and health insurance coverage in 2015 shows that median household incomes for all race and ethnic groups increased between 2014 and 2015. Encouragingly, groups that, by and large, had seen the worst losses in the years since the Great Recession saw the biggest earnings gains in 2015. Real incomes increased 6.1 percent (from $42,540 to $45,148) among Hispanics, 4.4 percent (from $60,325 to $62,950) among non-Hispanic whites, 4.1 percent (from $35,439 to $36,898) among African Americans and 3.7 percent (from $74,382 to $77,166) among Asians. While the increase in incomes was statistically significant for all groups except Asians, racial income gaps remained unchanged between 2014 and 2015. The median black household earned just 59 cents for every dollar of income the white median household earned, while the median Hispanic household earned just 71 cents. Meanwhile, households headed by persons who are foreign born saw an increase in incomes of 5.3 percent between 2014 and 2015 (from $49,649 to $52,295), compared to an increase of 4.4 percent (from $54,741 to $57,173) among households with a native-born household head.
Based on EPI’s imputed historical income values (see the note under Figure A for an explanation), real median household incomes for all groups, except Hispanics, remain well below their 2007 levels. Between 2007 and 2015, median household incomes declined by 6.8 percent (-$2,686) for African Americans, 3.2 percent (-$4,662) for whites and 5.4 percent (-$7,158) for Asians, but increased 5.4 percent ($2,310) for Hispanics. Asian households continue to have the highest median income, despite large income losses in the wake of the recession.
The primary driving force behind the slow return to pre-recession income levels has been stagnant wage growth. Real wages had been essentially flat since 2000, but wage growth received an added boost in 2015, as a result of low inflation. From the start of the recovery in 2009 through 2015, real earnings of men working full-time, full-year are up for all race and ethnic groups—white men (1.5 percent), Hispanic men (7.0 percent), and black men (3.4 percent). As a result, the black-white male earnings gap is unchanged, but the Hispanic-white male earnings gap narrowed. Black men earned 70 cents for every dollar earned by white men in 2015 (compared to 69 cents/dollar in 2009) and Hispanic men earned 63 cents on the dollar (compared to 60 cents/dollar in 2009).
In recent decades, the vast majority of Americans have experienced disappointing growth in their living standards—despite economic growth that could have easily generated faster gains in their living standards had it been broadly shared. Today’s excellent news on family income growth over the past year doesn’t make up for this long legacy of rising inequality. It is certainly a good start. But, we’ll need a run of years like this to restore the income losses suffered during the Great Recession for most American families, let alone make up for a generation of income growth that lagged far behind the economy’s potential.
As with most economic analysis, assessing the growth of living standards for the vast majority requires specifying benchmarks against which to measure actual performance. I offer up two reasonable benchmarks. The first is how income growth differs for families at different parts of the income distribution. What we have seen since the last business cycle peak in 2007, before the Great Recession hit, is growing income inequality. Today’s news about income growth in 2015 is a welcome break from this trend, but does not yet overturn the general pattern that we have seen since 2007. The second benchmark I posit is income growth relative to that of earlier historical epochs. What this benchmark shows is that in the three decades following World War II, income growth was both much faster as well as more broadly shared than it has been since 1979.
Key numbers from today’s new Census reports, Income and Poverty in the United States: 2015. All dollar values are adjusted for inflation (2015 dollars).
Median earnings for men working full time rose 1.5 percent, to $51,212, in 2015. Men’s earnings are down 0.7 percent since 2007, and are still 0.1 percent lower than they were in 2000.
Median earnings for women working full time rose 2.7 percent, to $40,742, in 2015. Women’s earnings are up 1.5 percent since 2007, and are 7.8 percent higher than they were in 2000.
Median earnings for men working full time
- 2015: $51,212
- 2014–2015: 1.5%
- 2007–2015: -0.7%
- 2000–2015: -0.1%
Median earnings for women working full time
- 2015: $40,742
- 2014–2015: 2.7%
- 2007–2015: 1.5%
- 2000–2015: 7.8%
Today’s report from the Census Bureau shows impressive (and long-awaited) across-the-board improvements to household incomes over 2014–2015, as inflation-adjusted wages improved and unemployment fell (from 6.2 to 5.3 percent) while inflation was absent. Inflation-adjusted wages for women finally exceeded their pre-recession levels in 2015, rising 2.7 percent, while the 1.5 percent increase in men’s earnings leaves them just 0.7 percent down from 2007 levels. These findings reinforce the centrality of wage growth for reestablishing household income gains—as we argued in Raising America’s Pay—and the importance of lowering unemployment. This is for the simple reason that most households, including those with low incomes, rely on labor earnings for the vast majority of their income.
Despite gains in 2015, household incomes have still not fully recovered from the deep losses suffered in the Great Recession—the bottom 95 percent of households still had incomes in 2015 below those of 2007 (while those in the top five percent are now three percent ahead). One more year of modest growth will bring the broad middle class back to pre-recession incomes.
Non-elderly household incomes rebound
The Census data show that from 2014–2015, median household incomes for non-elderly households (those with a head of household younger than 65 years old) increased 4.6 percent, from $60,531 to $63,344. This increase is a superb and most-welcomed improvement. Median household income for non-elderly households in 2015 ($63,344) was 5.0 percent, or $3,304, below its level in 2007—roughly half the total loss that prevailed over the 2007–14 period. The disappointing trends of the Great Recession and its aftermath come on the heels of the weak labor market from 2000–2007, during which the median income of non-elderly households fell significantly, from $69,016 to $66,648, the first time in the post-war period that incomes failed to grow over a business cycle. Altogether, from 2000–2015, the median income for non-elderly households fell from $69,016 to $63,344, a decline of $5,672, or 8.2 percent.
Next Tuesday, the Census Bureau will release its data on income, poverty, and health insurance coverage for 2015, which will give us a better picture of how working families are—and are not—recovering from the Great Recession. Even in the full business cycle of 2000-2007, earnings and incomes never fully recovered to the pre-recession peaks reached in 2000, so when the Great Recession hit, the economic impacts were especially devastating for many. To the extent the data allow, next week’s release will let us see how much the recovery has improved the economic lot for typical Americans, paying particular attention to differences in the recovery across racial and ethnic groups.
First, EPI researchers will examine the data on median earnings, by gender, race and ethnicity. Hourly wage data for 2015 suggest decent growth between 2014 and 2015 across the board, driven mostly by unexpectedly low inflation, driven mostly by falling oil prices. Median hourly wages grew 1.7 percent between 2014 and 2015. Hand-in-hand with stable average weekly hours, this suggests an uptick in median annual earnings.
We’ll look at changes over the last year, as well as changes since before the Great Recession, and since 2000—the last business cycle peak that can be confidently associated with genuine full employment. Women have already exceeded their 2000 real earnings level; the hourly wage data indicate a return to 2007 prerecession levels of earnings for men in 2015. We’ll also analyze these changes by race and ethnicity to understand how the economy has treated demographic groups. Again, the hourly wage data is the best predictor of what we can expect for these sub-groups. (For a taste of these comparisons, check out EPI’s new State of Working America Data Library.) I expect the 2015 annual earnings data to show a slight decline in the gender wage gap, and the Hispanic-white wage gap, but a slight increase in the black-white wage gap.
Hoping to equate the H-1B temporary foreign worker program with permanent immigration, advocates often lump the H-1B visa together with lawful permanent residence (also known as “green card” status). But the H-1B is a temporary, nonimmigrant visa for guestworkers, not a permanent immigration status that would eventually put a migrant worker on a path to American citizenship.
The H-1B program can serve as a bridge to permanent immigration for many educated and skilled foreign workers; in fact, between 2010 and 2014, an average of 44,000 H-1B guestworkers became immigrants (i.e., lawful permanent residents) each year. The U.S. government approved an annual average of 115,000 new H-1B guestworkers over that same timeframe. The H-1B path to a green card is controlled by the employer. The employer—not the H-1B worker—has the discretion of applying for a green card, and as a result, employers hold a lot of power over the hundreds of thousands of H-1B workers here.
The first step an employer must take to put an H-1B nonimmigrant worker on the path to a green card is to file for permanent labor certification with the U.S. Department of Labor (DOL), to check if there are any U.S. workers available to fill the job that the H-1B worker is already doing. (These are sometimes referred to as “PERM” applications or the PERM process, which stands for Program Electronic Review Management, the name of the electronic system used by the DOL.) Public data are available showing which companies applied for permanent labor certification for their H-1B workers and for how many, and these data let us examine whether employers typically use the H-1B program as a bridge to permanent immigration—or not. As the table below shows, the top employers received large numbers of new H-1B workers in fiscal 2014 but applied for very few green cards for their H-1B workers.
Today’s jobs report from the BLS showed that the U.S. manufacturing sector lost 14,000 jobs in August and has now lost 57,000 jobs since January of this year. This job loss is, in part, a consequence of the sharp rise of the dollar in 2014 and 2015, which has gained nearly 20 percent on a broad, trade-weighted basis, as shown below. The rising dollar has reduced the cost of imports, increased the cost of U.S. exports resulting in growing trade deficits. Growing exports support U.S. employment, but growing imports cost U.S. jobs, so the manufacturing decline was entirely predictable from the expected increase in the U.S. trade deficit, which responds to changes in the dollar with a lag of one to two years. Yet the U.S. government continues to do nothing about destructive exchange rate movements, whether they are caused by intentional currency manipulation or more recent, market-driven misalignments.
Data for the U.S. trade deficit in July were also released this morning. The trade deficit in manufactured products (Exhibit 1S) increased 3.1 percent, year to date, relative to the same period last year, despite a decline in the overall U.S. trade deficit. U.S. imports of petroleum products declined sharply in this period, while the trade deficit in non-petroleum goods (which is dominated by trade in manufactures) increased sharply. The single largest cause of the growing manufacturing trade deficit is malign neglect of currency manipulation over the past 20 years by the U.S. government.
China, which has been the most important currency manipulator over the past two decades, was responsible for nearly two thirds (61.3 percent) of the U.S. trade deficit in manufactured goods in 2015. The trade deficit with China increased in July. China has also distorted trade by generating massive amounts of excess production capacity in a wide range of industries, including steel, aluminium, glass, paper and renewable energy products. China’s capacity growth has been fueled by illegal subsidies and other unfair trade practices. A new report from Duke University explores the impacts of overcapacity in China’s steel industry.
Today’s jobs report came in somewhat underwhelming. This morning, I compared payroll employment growth to weak tea and the labor market saw little to no improvement in other key measures. Yesterday, I urged readers to look under the hood of the headline jobs day numbers and see how well the economy is treating workers across various demographic groups. Today, I’m going to take one statistic from today’s report and see how various groups have fared.
According to the Bureau of Labor Statistics, the official unemployment rate is 4.9 percent. Let’s just remember for a moment that the unemployment rate only counts people actively looking for work, taken as a share of the labor force. So, this leaves out the estimated 2.2 million workers who we expect will return or join the labor force as job opportunities improve. With these missing workers, the unemployment rate would be 6.2 percent. It also leaves out workers who want to work full-time but could only find part-time work or those who might have looked in the last year, but not in the last month. Adding these in, the underemployment rate would be 9.7 percent.
Even with those caveats, I must admit the official unemployment rate is still quite a useful measure. And, along with nominal wage growth, it’s a key measure the Federal Reserve watches when deciding how to act on interest rates. At 4.9 percent, the unemployment rate is 0.3 percentage points higher than it was in 2007, before the recession began, and 0.9 percentage points higher than the last time the economy was at full employment (2000). In fact, for five months in 2000, the unemployment rate was below 4.0 percent, hitting a low of 3.8 percent in April 2000. Examined another way, the unemployment rate is 1.1 times higher today than in 2007 and 1.2 times higher than in 2000.
Earlier this week, I analyzed the latest wage data by percentile, which shows that inequality has grown since the last business cycle peak in 2007. Today, I’m going to discuss the latest wage data by education groups. The main takeaways are four-fold. First, women are consistently paid less than men across all education groups. Second, wages have increased more for those with a college or advanced degree than for those with lower levels of education, both in the past year and since 2007. Third, the increase in the college premium since 2007 is dwarfed by the growth in wage inequality generally. And fourth, much of the increase in wages in the last few years has been driven by historically low inflation, as opposed to strong or accelerating nominal wage growth.
The table below shows first half (FH) average wages for 2007, 2015, and 2016 by highest level of education attainment and by gender. You can see that at every level of education, men are paid more than women—illustrating the difficulty of women to educate their way out of the gender wage gap. In fact, the gap grows with increasing levels of education. One particular striking finding is that men with just a bachelor’s degree are paid more, on average, than women with an advanced degree.