One of the persistent criticisms of President Obama’s fiscal plan is that it counts war spending reductions as savings. Basically, the Congressional Budget Office calculates its defense baseline in part by taking the most recent war supplemental (technically called Overseas Contingency Operations, or OCO) and assuming that amount—adjusted for inflation—will be spent each year over the foreseeable horizon. This adds up to about $1.73 trillion over 10 years. The president’s proposal, however, includes only $653 billion in OCO spending over 10 years, for a savings of about $1.1 trillion.
Some critics, however, allege that these savings cannot be counted because the CBO OCO baseline itself isn’t realistic, therefore the savings are not “real.” For example, the Committee for a Responsible Federal Budget (CRFB) argues that counting these savings is a “budget gimmick” that the president uses to “inflate his savings.” According to this critique, another baseline for OCO expenditures should be used—either the president’s budget request or the CBO’s drawdown policy option—which would lower the baseline and make it practically impossible to generate budget savings from reducing war spending.
All due respect to CRFB and the other critics, but this criticism is silly. The CBO OCO baseline isn’t “unrealistic”—rather, it represents the costs of President Bush’s aggressive invasion-centered approach to foreign policy extended into perpetuity. President Obama is, thankfully, in the process of trying to change America’s approach to foreign policy, drawing down troops from Iraq and Afghanistan and moving toward a more multilateral, patient, diplomatic, and most importantly, less expensive approach. Furthermore, the fiscal plan proposes to cap OCO spending, thereby making sure those savings are realized.
President Obama’s foreign policy approach costs less money than President Bush’s, and the budget outlook should reflect those savings.
This week, House Republicans are continuing with their repeated criticisms of EPA regulations as a threat to the economy, and are about to vote on legislation calling for a new panel to study the cumulative effect of certain EPA rules and delaying, perhaps indefinitely, the implementation of two key rules. This stonewalling approach is misguided: the combined costs of the EPA rules advanced by the Obama administration are not a threat to the economy. Once fully in effect:
- The cumulative compliance costs of EPA rules finalized so far during the Obama administration will amount to between 0.04 percent and 0.07 percent of the economy
(Unless otherwise noted, all the findings in this post can be found in my report from last week).
- The cumulative compliance costs of rules finalized or proposed (assuming all rules proposed so far are finalized) by the Obama EPA will amount to between 0.11 percent and 0.15 percent of the economy.
It is entirely implausible that compliance costs that comprise such a small share — about one-one thousandth — of the economy can have a huge effect on the economy’s direction, but that is what EPA opponents have been asserting for some time. The proposition that these rules are a serious concern for the economy is especially unlikely when one considers:
- The rules would yield significant economic benefits — ranging from increased productivity by healthier workers or consumer savings due to greater fuel efficiency — that partly or in some cases fully offset the compliance costs.
- The costs of EPA rules are often overstated by the government itself (see pages 21-23 of this EPI report from April).
- The rules are phased in over several years, facilitating necessary compliance.
While the overall economic effects of these rules will be negligible, the health benefits will be profound, saving tens of thousands of lives and dramatically reducing respiratory diseases and heart attacks. When these health benefits are quantified in dollars, the EPA rules finalized and proposed so far by the Obama administration have net benefits that could exceed $200 billion a year.
To be sure, some important EPA rules may yet be proposed by the Obama administration, and their costs, and their benefits, should also then be considered. But the evidence to date is clear: the hue and cry over the effect of EPA regulations on the economy is a counterproductive distraction. The lopsided attention to this topic is making it harder for the nation and Congress to focus on the changes in policies that could actually significantly improve the employment situation.
President Obama’s Super Committee proposal makes the case for $1.6 trillion in new revenue from tax reform that would lower tax rates, close loopholes such as the ones that exist for oil and gas companies, roll back the Bush tax cuts for upper-income earners, and restore fairness in the tax code. Included in this package of revenue policies is something the president has dubbed the “Buffett Rule,” which states that people making over $1 million should not pay lower taxes than those in the middle class.
The Buffett rule is less a specific policy and more of a guiding principal, the concept of which could not come at a more appropriate time. While our income tax code includes six marginal tax rate percentages, the highest-income taxpayers often end up paying lower marginal rates than those in the middle class, because 1) tax subsidies tend to disproportionately benefit high-earners, and 2) the rate at which capital gains and dividends are taxed is much lower than the rate at which wage income is taxed. This is why Warren Buffett pays a lower tax rate than his secretary.
In fact, the highest income households are enjoying some of the lowest taxes in generations. Since 1979, our overall average tax rate has fallen slightly, but for those at the top of the income ladder, the rate has fallen dramatically. While average tax rates went from 22.2 percent of income in 1979 to 20.4 percent of income, for the top 1 percent of households the rate has fallen from 37 percent of income to 29.5 percent of income, a reduction of over a fifth. It’s even more pronounced for the highest income earners: the tax rate for the top 400 households (average income $350 million!) fell from 26.4 percent in 1992 to 16.6 percent 15 years later, a nearly 40 percent reduction.
The diminished tax burden on high income earners has both expanded our deficit and helped make us a more unequal society. The Buffett rule is long overdue.
Note: Updated figures show that for 2008, the top 400 paid an average tax rate of 18%. This chart reports 2007 numbers because that is the most recent year the Congressional Budget Office offers information for both the top 1% of households and the average tax rate.
President Obama outlined a fairly progressive federal budget proposal for the Super Committee this morning, calling for upfront job creation, more revenue from high-earners, and preserving our commitments to children, the disabled, and the elderly. The proposal represents a balanced and progressive approach that addresses the root causes of our budget deficits, namely the Great Recession, a decade of ineffective and unfair tax cuts, and a decade of unfunded wars. Here’s a quick summary:
— $447 billion for the American Jobs Act
— $1.2 trillion in discretionary cuts (already enacted under the Budget Control Act)
— $1.1 trillion from drawing down troops overseas
— $577 billion from cuts to mandatory programs: about 40 percent are Medicare savings (mostly reducing overpayments), 10 percent are Medicaid/SCHIP savings, and the rest are from agricultural subsidies, federal employee benefits, and recalibrating government fees and program oversight
— $1.6 trillion, including $900 billion from allowing the Bush tax cuts to expire for high-earners and capping tax subsidies
— $436 billion in interest savings
There are many things in here for progressives to like. First, it focuses on job creation, including in the proposal the American Jobs Act that the president released last week. That’s as it should be—a continued downturn makes fiscal balance near impossible. The first step of the Super Committee must be getting the economy back on track, and the AJA is a good start.
Second, the proposal moves toward a more fair and equitable tax code. The guiding principle for reform is the so-called “Warren Buffet rule,” which holds that middle-class Americans shouldn’t be paying a higher tax rate than high-income Americans. Beyond addressing fairness, the proposal acknowledges that considerably more revenue is needed; the alternative spending-cuts-only approach would unacceptably force the brunt of deficit reduction on the backs of poor and working families. Furthermore, the president also issued a veto threat against any legislation that affects Medicare benefits without also including additional tax revenue from high-earners and corporations, a welcome sign that the president actually intends to use his constitutional powers as leverage in the coming negotiations.
Third, the proposal includes savings from winding down the wars in Iraq and Afghanistan. This reflects the fact that the wars in Iraq and Afghanistan are extremely expensive (nearly $1.3 trillion has already been appropriated for these wars over the last decade), and drawing them down entails substantial savings.
Fourth, the proposal generally takes the right approach to reforming health programs, doubling down on the health care reforms in the Affordable Care Act. On Medicare, it focuses on health provider savings while maintaining the commitment to seniors. The Medicaid savings are less positive, as they could shift costs to states and even undermine health care reform. But these proposals stand in stark contrast to the House Republican plan to turn Medicare into a voucher program—leaving seniors to fend for themselves in predatory, broken insurance markets—and cut Medicaid in half over the next two decades.
And fifth, the proposal does not cut Social Security, a recognition of the fact that the program does not impact the deficit over the long run. The president took a firm position that any Social Security reform must be done on a separate legislative track, one that focuses not on deficit reduction but rather on protecting it for future generations.
The outlined budget proposal would provide a counterweight to the lopsided discretionary spending cuts from the Budget Control Act and flip federal fiscal policy from being an obstacle to a force for economic recovery. This budget outline would also stabilize deficits and begin to reduce debt as a share of the economy in a balanced manner consistent with commitments to a fair tax code and economic security programs for children and seniors. Hopefully, the Super Committee will mirror this dual focus of strengthening the economy today and improving the long-term fiscal outlook in a balanced fashion.
As we have pointed out numerous times before, our country is currently experiencing – thanks to the Great Recession and weak recovery – a large jobs shortfall of around 11.2 million jobs. This includes 6.9 million jobs lost since Dec. 2007, plus 4.3 million jobs needed to keep up with population growth that weren’t created because of the downturn.
Presidential candidate Mitt Romney has recently addressed this jobs shortfall, coming out with a jobs plan that he claims would create 11.5 million jobs.
But would Romney’s plan actually create jobs anywhere close to this scale? “Believe in America,” his plan, is heavier on ideological rhetoric than it is on direct job creation solutions. In fact, nowhere in the 160 page plan could I find a stated job creation number – 11.5 million is a number Romney has quoted in public appearances, but it does not appear anywhere in his plan. The math doesn’t just appear to be fuzzy – it appears to be nonexistent. Not surprisingly, attempts to contact the Romney campaign for specifics on the 11.5 million miracle number went unanswered.
So what does Romney’s plan actually propose doing? He makes the George W. Bush-era tax changes permanent, at a cost of around $3.8 trillion over the next decade, and cuts the corporate income tax rate. He repeals the Affordable Care Act and financial regulatory reform. He pursues free trade agreements and creates something called the Reagan Economic Zone, which would basically be a partnership “codify[ing] the principles of free trade at the international level.” He goes after the NLRB and certain labor practices, focuses on private-sector job training, and promises to increase the legal immigration of highly skilled individuals. Finally, he promises to pursue a balanced budget amendment and a strict spending cap, both irresponsible policies that would make it extraordinarily difficult for the government to respond to economic crises. (Sweeping tax cuts coupled with a balanced budget requirement would also force big spending cuts, thereby reducing employment).
So Romney’s plan is really more of a conservative wish list of supply-side policies for stimulating long-term economic growth than a plan to put Americans back to work today or next year (or the year after next). And he relies on assumptions that don’t have a whole lot of foundation – for instance that trickle-down economics works or that it’s unhealthy for the federal government to ever run deficits. He also assumes that giving corporations lower tax rates will create more jobs, even though corporations are currently sitting on $1.12 trillion in cash and liquid investments, and waiting for demand to increase before hiring again. Romney then turns these supply side policies into a boost in near-term activity (4 percent per year for four years, versus 3.4 percent in the Congressional Budget Office’s economic projections). This better-than-expected growth is somehow translated into jobs numbers, without letting us see the math.
He also isn’t clear about what his jobs number means. Is it jobs created in addition to the number of jobs our economy is currently projected to create, or is it total jobs created? This is sort of an important point to clarify. In his speech Romney does say “new jobs,” but in reality a job is new both if it is projected to be created and if it is created on top of the number of jobs already projected to be created. Over four years, 11.5 million jobs breaks down into roughly 240,000 jobs created per month. Though significantly better than recent job creation, 240,000 jobs per month is a fairly modest target. In an economy coming out of a recession, monthly jobs numbers should be more on the order of 300,000–350,000 – something Romney’s plan would likely fall shy of accomplishing (again, it comes down to a short-term vs. long-term policy focus).
Richard Trumka, president of the AFL-CIO and a member of EPI’s Board of Directors, summed up Romney’s jobs plan by saying it can be reduced to two sentences: “Let rich people have a lot more money. And remove regulations and they’ll create jobs.” If we’ve learned anything from eight years of this tactic (2001-2008), it’s that this two-pronged strategy simply doesn’t work.
Sometimes, it’s worth documenting the obvious. A recession causes income losses for families pretty much across the board, but much more so the lower your income. That is, a recession drives up inequality between the top and the middle and the middle and the bottom. The primary driver of this inequality is that unemployment and reduced work hours hits those with low and middle earnings the hardest. We can see that by looking at changes in family incomes along with changes in their earnings and work hours, as we do by income in the figure below for families with children (under 18 years old).
Remember, income includes all the sources of income a family receives, such as: transfer income (e.g., unemployment compensation); dividend, interest or rental income; or earnings. Plus, a family’s earnings depend upon how many people in the family work, how much they work in a year (weeks per year and hours per week) as well as the level of their hourly wages.
The income losses from 2007 to 2010 were pervasive with those in the upper fifth losing 4.3 percent and larger (6.6 percent) losses in the middle and much larger losses (11.2 percent) for the bottom fifth. This is well known, or should be. This inequality is driven by the difference in reduced working time, as family work hours shrunk by 14.0 percent, 11.9 percent and 4.3 percent, respectively, for families in the lowest, middle and upper fifths. Not surprisingly, the pattern of reduced family earnings across income fifths corresponds to that of reduced work hours.
The implications are straightforward. Policies which generate jobs and greater work hours are key to reversing the income declines. Doing so is imperative for the broad middle class but will be especially important for the lowest income families who have seen their work opportunities and their incomes fall the most.
David Brooks writes a column with a pretty common theme: macroeconomics as morality tale. His overarching claim is that government is powerless to fight unemployment and near the end he sneers at those who expect some help from policymakers – “Many voters seem to think that government has the power to protect them from the consequences of their sins.”
I’m not much for the religious rhetoric, but if I had to identify any particular group of voters who had sinned, I’d argue that they have indeed been protected from the “consequences of their sins” by government.
I presume, though, that the sins Brooks has in mind is the big increase in household debt associated with the housing bubble? Again, if we’re identifying sinners, I’d nominate first the policymaking elites who didn’t just fail to see the housing bubble – they saw it and urged households to pile up more debt to keep it going. And I don’t see those guys facing severe consequences, outside of some mockery.
More important than the fact that his moral compass doesn’t seem to distinguish well between malefactors versus victims of the financial crisis, Brooks has the economics all wrong. Yes, household spending and residential construction collapsed when home prices fell, and the rest of the economy followed. What’s the “consequence” of this that government is allegedly unable to protect against? Less spending. Period.
Is the government really incapable of spending? It wasn’t that long ago that Brooks was lamenting the rise in spending in recent years. Or is it that government spending, unlike private spending, somehow doesn’t create jobs? But it does.
Brooks hand waves about how financial collapses in the past have led to long and brutal downturns as evidence that government is powerless. Actually, that’s just evidence that governments foolishly listened to counsels like Brooks in the past. We now know (or we should know) better.
William Gale, co-director of the Tax Policy Center, has dusted off a five-year-old plan to convert tax deductions for retirement savings into flat-rate refundable credits. Gale’s new proposal, like the one he co-wrote in 2006 with Jonathan Gruber and Peter Orszag, would make 401(k) subsidies less skewed toward high-income households.
In the new paper, Gale proposes a version that would raise tax revenues by $450 billion over 10 years by reducing the proposed government match from a revenue-neutral 30 percent to a revenue-raising 18 percent. These savings, which would come primarily from cutting tax breaks for households in the top income quintile, could stave off deeper cuts to other government programs or fund the president’s proposed jobs bill.
This seems like a no-brainer, and from a pure policy perspective, it is. Current tax breaks are very poorly targeted. For the same dollar contribution to a 401(k), high-income taxpayers in the 35 percent tax bracket get a tax break that’s three-and-a-half times larger than the tax break received by moderate-income taxpayers in the 10 percent bracket. Combined with the fact that high-income households can afford to save more, the result is that an estimated two-thirds of these tax breaks go to households in the top 20 percent of the income distribution. And since most high-income households are already saving, they can simply steer funds into tax-favored accounts, which is why “tax break” rather than “tax incentive” is the more accurate term.
Gale touts his plan as a progressive one, and in a sense it is, since it would reduce the cost of a highly regressive tax break while potentially easing the pressure on essential government programs. But there’s a difference between “less regressive” and “progressive.” Most of the subsidies would still flow to high-income households who can afford to save more and who also tend to get more help from their employers.
An 18% government match will not change the fact that high-fee, high-risk, 401(k)s are not an affordable retirement vehicle for low-income or even middle-income families. And since the funds are still taxed when they’re tapped for retirement, the value of the tax break remains tied to investment returns. (It helps to think of the tax break as a no-interest loan from the government, the value of which depends on how much you make investing the funds). This also tends to favor higher-income households who can afford to take on more risk.
If Gale’s plan isn’t a solution to the retirement crisis facing our country, isn’t it at least an improvement over the current system? Certainly, as long as it’s not oversold. Tweaking a broken system can forestall more far-reaching reforms. (This might partly explain why Orszag, in his new role as a Citigroup vice chairman, is still free to tout the plan). A more imminent concern is the fact that Gale promoted his plan at a recent Senate hearing as a way to help soften the blow of what he characterized as unavoidable Social Security cuts.
It’s also too bad that Gale proposed a lower government match rather than reducing the contribution limit. The 2001 Bush tax cuts increased the contribution limit from $10,500 to $15,000 and introduced a higher “catch-up” contribution for older workers (these limits are now indexed for inflation). Few middle-class households can afford to contribute $10,500, let alone the current limit of $16,500 (or $22,000 for those 50 and older). Lowering these limits but keeping the 30 percent match would be more progressive and have a real incentive effect, as middle-income households might actually increase their retirement saving, as opposed to high-income households simply shifting money around.
Happy birthday, economic meltdown! (Original title changed to make sure nobody actually thought I was genuinely enthusiastic about the economic crisis…)
Yesterday marked three years since Lehman Brothers filed for bankruptcy – the high-water mark of the financial crisis. Over the next six months, the stock market declined by nearly 40 percent and the economy lost 4.2 million jobs – a pace of job-loss not seen since (at least) the Great Depression.
This episode has firmly tied together the financial crisis and the jobs-crisis in most Americans’ mind. But we should actually be a little more careful about doing this. The economy had already been in recession for eight-and-a-half months before Lehman’s bankruptcy (having shed 1.2 million jobs in seven straight months of losses) and had already swallowed one stimulus package (the Economic Stimulus Act, passed in Feb. 2008 and signed into law by President George W. Bush) with just a small hiccup before continuing its way down. The unwinding of investment bank Bear Sterns (not to mention hundreds of smaller commercial banks) had been done in a more “orderly” manner six months before (it was sold to J.P. Morgan in March 2008) but job losses just accelerated after this. So maybe the subsequent economic damage wasn’t all about Lehman?
In fact, both Wall Street’s meltdown and the American jobs crisis are casualties of the bursting of the housing bubble. The 35 percent decline in home prices between the beginning of 2006 and 2009 damaged banks’ holdings of mortgage-backed securities, which famously caused so much havoc on Wall Street.
But the economic damage inflicted by the bubble’s burst spread far beyond banks’ balance sheets. These same home price declines erased about $8 trillion in household wealth and consumer spending collapsed by over $400 billion as a result. The glut of unsold homes (who wants to buy an asset that is diving in value?) led to another $400 billion contraction in the residential building sector. Basically, these two effects, combined with the collateral damage they caused (state and local government cutbacks as tax revenues plunged and a pullback of other business investment as firms saw sales dry up) meant that the economy was staring (at least) a $1 trillion hole in overall demand for goods and services square in the face. And this hole, along with policy responses that were insufficient, can easily explain the depth of the recession we had without any reference at all to what was happening in the financial markets on Wall Street.
So was the Lehman blow-up and associated panic all just a side-show to the issue of jobs? That’s probably too strong. There’s serious economic literature arguing that financial market seize-ups can have significant effects on the non-financial economy. So maybe instead of the $1 trillion hole that we ended up, with the economy would have had a $2 trillion hole had policymakers allowed financial markets to completely shutter (hence shutting down credit even for still-viable businesses and households).
Maybe. However, we know the story of how policymakers reacted to the financial market distress: with near unlimited willingness to put public funds on the line and great deference to incumbent players. And, this mostly worked – there is little evidence that financial markets are actually providing a great impediment to U.S. recovery (this is not to say that an alternative set of policies to alleviate financial market distress couldn’t have also worked – and with less danger that by coddling incumbent players that we’ve just reassured them that no matter how poorly or riskily they do their jobs they’ll be bailed out again).
So how did policymakers react to the crisis left over after the ambitious financial market response – that $1 trillion hole in the economy caused by the purely non-financial sector fallout of the housing bubble? With measures that were clearly seen as insufficient in real-time. Wouldn’t it have been nice if policymakers had been as assertive in making sure that the job-market was healthy as they were in making sure that financial markets were healthy? If one was cynical you might think that the economic struggles of rich bankers are more important to policymakers than the struggles of ordinary workers.
For more than 75 years, the National Labor Relations Board has had the power to protect employees in their right to organize by ordering employers to return operations that the employer moved in retaliation for the exercise of protected rights. This power has always been recognized and has been exercised by Republican appointees, including, in 1987, those of President Reagan, who ordered an employer that refused to bargain in good faith to return work to a warehouse operation it had closed (Century Air Freight).
Yet the Chamber of Commerce and the House Republican leadership want people to think that the NLRB affirming this same anti-retaliatory principle in the Boeing case is something extraordinary, that it is a new assertion of government power by the Obama administration, which is bending over to do a favor for its union friends. Accordingly, House Republicans are advancing legislation that would overturn long-established labor law and prevent the NLRB from “ordering any employer to close, relocate or transfer employment under any circumstances.”
The media have failed to point out that these assertions of newly exercised, politicized authority are objectively false, and instead, have given full expression to the campaign of inaccuracies and misstatements. Even Steven Greenhouse in the New York Times falls into this trap, though he does point out that moving work to retaliate against the exercise of protected rights is illegal.
To get to the actual facts of this matter, I am printing the section of the NLRB General Counsel’s report from 2006 that deals with the NLRB’s power to restore the status quo when work has been relocated in violation of the National Labor Relations Act. The author was Arthur F. Rosenfeld, who served as General Counsel from June 2001 to Jan. 2006, and who was not just a George W. Bush appointee, but had served as counsel to Senate Republicans on the committee with jurisdiction over the NLRA and the NLRB.
Mr. Rosenfeld stated: “We typically seek an order restoring the prior operation and prohibiting similar conduct in the future. Such relief is necessary because, when these actions unlawfully eliminate all or large portions of an operation and the jobs of unit employees, they undermine the status of an incumbent union or one seeking recognition.”
So is Obama’s NLRB overreaching and creating some new extraordinary power for the government? Clearly not. Even under Republican administrations, ordering an employer to move work back after it had been relocated illegally was “typical.”
Here is the relevant section of Rosenfeld’s 2006 GC Memorandum:
3. Subcontracting or other change to avoid bargaining obligation
These cases involve an employer’s implementation of a major entrepreneurial-type decision that adversely affects unit employees: for example, subcontracting or relocating entire plants, departments, or product lines. Such changes can be discriminatorily motivated, i.e., designed either to interfere with a union organizational campaign or to escape from an incumbent union, and thus violative of Section 8(a)(3).7 The change can also be independently violative of Section 8(a)(5) if undertaken without satisfying an employer’s bargaining obligation to an incumbent union. We typically seek an order restoring the prior operation and prohibiting similar conduct in the future. Such relief is necessary because, when these actions unlawfully eliminate all or large portions of an operation and the jobs of unit employees, they undermine the status of an incumbent union or one seeking recognition. Moreover, an interim restoration order preserves the Board’s ability to issue (and courts to enforce) a final order restoring operations without it being too burdensome for the respondent because of the passage of time or the prior alienation of the old facility or equipment.Based upon these considerations, courts have granted interim restoration of operations in these situations. See, e.g., Maram v. Universidad Interamericana de Puerto Rico, Inc., 722 F.2d 953 (1st Cir. 1983); Aguayo v. Quadrtech Corporation, 129 F. Supp.2d 1273 (C.D. Ca. 2000). In certain cases the courts have granted a less drastic interim remedy of preventing the sale or alienation of a facility pending a Board decision. See, e.g., Hirsch v. Dorsey Trailers, Inc., 147 F.3d 243 (3d Cir. 1998). See also Dunbar v. Carrier Corp., 66 F. Supp.2d 346 (N.D.N.Y.), stay denied 66 F. Supp.2d 355 (N.D.N.Y. 1999).
The single case authorized by the Board in this category during the reporting period involved the discriminatory relocation of unit work. The case was successfully resolved with a Board settlement.
We know that children are disproportionally impacted by unemployment and underemployment. EPI has already looked at the total number of children who live in families with at least one unemployed or underemployed parent ( see this snapshot, or this paper).
Given the importance of early childhood development, we should be very concerned with the well-being of young children and how they are impacted by parental unemployment. Having an unemployed parent increases the risk for disruptions in nutrition, housing, and education–all of which are important for brain development specifically and a child’s future more generally.
The figure below shows the percentage of children living in a family with at least one unemployed parent, with a further breakdown of the share of children aged from 0 to 5. The chart shows 2010 (the most recent data available) compared with pre-recession levels in 2007, and also a breakdown by race.
The data shows that kids overall are more likely to be impacted by unemployment, and that children 5 and under are even more at risk. In 2010, 7.5 million children (10.6 percent of all children) lived in a family with at least one unemployed parent. Of those, 2.8 million (11.4 percent of all similarly aged children) were children 5 years old and younger. This is about twice as many children at this age who lived in a family with at least one unemployed parent in 2007, prior to the recession. About 1.2 million of these children 5 and under live in single-parent families where their parent is unemployed.
The impact also varies by race and ethnic status, with children between the ages of 0-5 in black families facing unemployment at twice the rate (18.5 percent of all similarly aged children) as white families (9.1 percent); and Hispanic families (13 percent) are also above the national average.
With children overall, and especially younger kids, being hit hard by unemployment, spurring job creation is not just good policy in the short-run, but is essential for our nation’s long-run economic health.
It was great to see President Obama challenge congressional Republicans to do something real about jobs. His jobs bill, submitted to Congress Monday, would support 2.3 million new jobs and provide continuing support for another 1.6 million jobs. But his plan requires congressional approval, which is about as likely as a World Series appearance for Washington’s sub-.500 Nationals this year.
With unemployment at 9.1 percent, our economy desperately needs at least 11 million new jobs now just to get the unemployment rate down to pre-recession levels. We cannot allow the political stalemate in Washington to stand in the way of a full set of bold job creation initiatives. The president should take immediate, executive action that will directly support the creation of up to 2.25 million export jobs by eliminating unfair currency manipulation by China and other countries.
The administration wants to stimulate exports, and that’s a good idea, but if and only if it improves the trade balance. Growing exports support domestic employment but growing imports displace domestic jobs; meaning that we need policy changes to boost net exports. The president included an oft-repeated promise in his speech last week that he will soon send legislation to Congress to implement Bush-negotiated free trade agreements with South Korea, Colombia and Panama. Passage of those FTAs would be a terrible idea because all past evidence indicates that FTAs are not an effective tool for improving the U.S. trade balance and stimulating net job creation.
If the president was serious about boosting net exports he would take significant action to stop the currency management of our trading partners that has hamstrung the competitiveness of U.S. producers. He has the authority to do this without Congress – and swift and independent action could help to create millions of new jobs over the next 18 to 24 months.
The best estimates are that currency intervention by our trading partners (i.e., buying U.S. dollar-denominated assets to boost the value of the dollar and keep their own currency artificially cheap) raises the cost of U.S. exports – both to the intervening countries (China is the most important one) as well as to every country where U.S. exports compete with goods coming from there. China’s currency intervention has also compelled Hong Kong, Singapore, Malaysia and Taiwan to follow similar policies in order to protect their relative competitiveness and to promote their own exports.
In a recent report on the benefits of revaluation, I showed that full revaluation (28.5%) of the yuan and other undervalued Asian currencies would improve the U.S. current account balance by up to $190.5 billion, increasing U.S. gross domestic product by as much as $285.7 billion, adding up to 2.25 million U.S. jobs, and reducing the federal budget deficit by up to $857 billion over 10 years.
This revaluation done quickly would be a win-win – it would help workers in China and other Asian countries by reducing inflationary overheating and increasing workers’ purchasing power in those countries.
There are several different actions that can be taken by the Obama administration to put pressure on China. First, it can and should identify China and the other countries listed above as currency manipulators when the Treasury releases its Semiannual Report on International Economic and Exchange Rate Policies in mid-October. This would trigger mandatory negotiations which could result in sanctions if the issues are not resolved. Secretary Tim Geithner has consistently refused to name China or any other country as a currency manipulator, despite all available evidence to the contrary. The administration could also file complaints with the World Trade Organization (WTO) about China’s currency manipulation and request dispute resolution.
The administration could also endorse China currency legislation that has been introduced in both the House and the Senate. The Currency Reform for Fair Trade Act (HR 639, S 328) was passed by an overwhelming majority of both Democrats and Republicans in the House in 2010, but the bill died in the Senate. The scope of the bill is a bit limited – only 3 percent of Chinese imports would be affected – making it something of a rifle shot; larger artillery may be needed to persuade China that it’s in its own interests to revalue.
The mere threat of a large, across-the-board tariff on imports from China may be sufficient to persuade China that the time has come for a major revaluation that would benefit both countries. In 2005, Senators Charles Schumer and Lindsey Graham introduced legislation (S. 295) that would have imposed a 27.5 percent tariﬀ on all imports from China if it failed to revalue within 180 days. This legislation was approved by the Senate (by a veto-proof margin of 67-33) but not by the House. Even so, shortly after its passage, China allowed its currency to rise for the first time in more than a decade. The currency ultimately appreciated by 20 percent, until the onset of the great recession in late 2007, when it was again tied to the dollar. China will respond to the threat of severe external pressure – especially since their policy of intervention has clear downsides for them as well.
The U.S. needs at least 11 million jobs to eliminate excess unemployment. Fiscal policy, if it can be enacted, is a good start, but the task before us is huge. We need a job strategy that pulls every available policy lever. The best place to start is with exchange rates—a lever that can be pulled by President Obama even if Congress refuses to help.
Progressives believe the highest-income households should contribute more revenue; conservatives counter that the bottom half of earners should be paying more. When pressed about the need for revenue and shared sacrifice, House Majority Leader Eric Cantor recently lamented that nearly half of Americans don’t pay federal income taxes. Texas Governor Rick Perry went further, decrying this result of the tax code an “injustice.” This is a misleading grievance demonstrating a misunderstanding of the tax code: more than four in five households pay federal taxes and the role of the income tax is to adequately fund government without pushing more families into poverty.
While 46 percent of Americans won’t pay federal income taxes this year, 82 percent of households will pay federal income taxes and/or social insurance payroll taxes—predominantly Social Security and Medicare contributions. Payroll taxes are a tax on earned income and cannot be ignored because they are both regressive and substantial. Lower-income households pay higher average social insurance tax rates than upper-income households and these taxes brought in $865 billion last budget year (40 percent of all revenue).
A recent Tax Policy Center report explains that the basic structure of the tax code accounts for half of the 46 percent of households owing no income tax, while tax expenditures (preferences and credits) eliminate remaining income tax liability for the other half. The income tax code intentionally spares subsistence levels of income from taxation, hence the standard deduction ($5,800 for single filers and $11,600 for married joint filers) and personal exemption ($3,700). Of the households made nontaxable by tax expenditures, 44 percent pay no income tax because of special tax treatment for the elderly and 30 percent pay no income tax because of credits for children and poor workers.
Of the narrow 18 percent of households paying neither income nor payroll taxes, 57 percent are elderly households and 38 percent are non-elderly households with less than $20,000 in income. There simply isn’t much income here for taxes to collect: the lowest earning 20 percent of households (earning under $20,500 in 2007 dollars) received only 4 percent of pre-tax income in 2007, compared with 19 percent captured by the top 1 percent of households (earning above $352,900).
Broadening the tax base so that substantially more tax filers pay income taxes would require reducing the personal exemption, standard deduction, extra standard deduction for the elderly, exclusion of some Social Security benefits from taxation, child tax credit, or earned income tax credit. (Alternatively, higher employment and more evenly shared income gains would raise the number of households paying income taxes).
Forcing a higher tax burden on those with little to live on is a twisted concept of shared sacrifice, particularly when poverty has climbed to a 17-year high and recent income losses have been most pronounced at the bottom of the earnings distribution (see Figure H in this EPI analysis). Tax policy should instead focus on where the income gains have been concentrated over the last three decades.
Oregon Senator Jeff Merkley deserves praise for his effort to keep the focus on America’s job crisis. His suggestion that the Joint Select Committee on Deficit Reduction (aka the “super-committee”) request the Congressional Budget Office to score the committee’s proposals for not only their budgetary impact, but their impact on unemployment is brilliant in its simplicity.
If this were to happen, folks would be able to see the impact of the committee’s proposals on both the deficit and the labor market. They would also see the foolishness behind the deficit hawks’ repeated assertions, here, here, and here, that reducing the deficit will reduce unemployment.
The vast majority of across-the-spectrum respected economists, including my personal (non-EPI) favorite, Paul Krugman, have made the case quite convincingly over, and over, and over, that cutting spending in a time of high employment is the height of foolishness.
As for EPI, we said it here, and here, as well as plenty of other places. I’m convinced and I’m not even an economist. Here’s to hoping that we’ll see some common sense come out of the so-called super-committee.
Young adults increase employer-sponsored insurance as their employment rates fall: Evidence the Affordable Care Act works
On Tuesday, Sept. 13, after the U.S. Census Bureau presented the latest data on income, poverty, and health insurance coverage for 2010, many wondered whether we’d see any effects of the Patient Protection and Affordable Care Act, commonly know as health reform, in this release.
Health and Human Services Secretary Kathleen Sebelius argued that we did. In her piece, “Affordable Care Act in Action,” published in the White House blog, Secretary Sebelius pointed out the significant increase in coverage rates for young adults, ages 18-24, as a sign that health reform is working. Sara Collins, Tracy Garber, and Karen Davis of the Commonwealth Fund argued as well that young adults are already benefiting from the Affordable Care Act, using as evidence the 2.0 percentage point decline in the uninsured rate for young adults. Writer Jonathan Cohn with the telling title “Gosh, Could Obamacare Be Working” makes a similar argument, using a nice graphic as well.
All three articles rightfully point to the fact that the uninsured rate for young adults, 18-24, fell between 2009 and 2010 and, in fact, this was the only age group with a statistically significant decline in their uninsurance rate. They argue that the provision of health reform allowing young adults up to age 26 to stay on or join their parents’ employer-sponsored health insurance policy, is to credit for this up-tick in coverage.
An alternative explanation for the rise in insurance coverage among young adults could be that they are simply faring better in the labor market than other age groups. This is simply not the case – in fact, their simple employment rates deteriorated more than any other age-group.
In this figure, I compare changes in the employment rates and the rate of employer-sponsored health insurance for various age groups between 2009 and 2010. As you can see, the job-market didn’t do the younger group any favors between 2009 and 2010. Their employment rate actually fell further than any other age group. On the flip side, their rate of employer-sponsored health insurance actually rose.
To me, this is strong evidence in support of the argument that health reform is beginning to work.
Click the figure to enlarge
The Obama administration’s proposed American Jobs Act is heavily weighted towards payroll tax cuts – more than half of the total cost is accounted for by cuts on either the employee or employer side. And it’s widely assumed that the direct spending provisions (about $100 billion in mostly infrastructure spending) have the least chance of making it out of the legislative process. Should this worry us?
At least a little. From an “old Keynesian” perspective, payroll tax cuts should work pretty well. Money in peoples’ pockets should probably boost their spending. There’s microeconomic work suggesting that people do respond pretty robustly to increased cash-on-hand and the macroeconomic multipliers tend to show that payroll tax cuts are pretty decent stimulus – far outpacing most other tax cuts, though falling well short of direct spending and transfer payments.
However, from a “new Keynesian” perspective, payroll tax cuts may be not only less effective than advertised, but actually outright contractionary.
Gauti Eggersston has written a number of papers about how to think about the effects of macro policy when the economy is “at the zero bound” of short-term interest rates – like today’s American economy. In one paper he warns specifically about the contractionary possibility of payroll tax cuts. The (very) simplified intuition is that these tax cuts increase take-home wages and hence provide incentives to workers to increase the hours of work they supply the labor market. This increase in labor supply puts downward pressure on overall wages which pushes down prices. This price decline increases real interest rates (which are simply nominal rates minus inflation), which slow economic activity as well, thereby reducing aggregate demand.
As unemployment is simply the difference between labor supply and labor demand, payroll tax cuts exacerbate this gap on both sides – increasing labor supply and reducing economy-wide demand. During normal times, the Federal Reserve can short-circuit this vicious cycle simply by cutting nominal rates – but the short-term rates controlled by the Fed already sit at zero.
How seriously to take this warning?
On the one hand, John Taylor, an economist at Stanford and a vociferous critic of the Obama administration’s American Recovery and Reinvestment Act (ARRA), claims to have found no effect at all of temporary tax cuts on household consumption.
On the other hand, Taylor claims that even policies that are very well-targeted to cash-strapped households had no effect on spending – essentially arguing that even unemployment insurance and food stamp increases were saved dollar-for-dollar by recipient households. This seems implausible.
And, Dean Baker and David Rosnick re-examine Taylor’s results and show that temporary tax cuts do boost consumption by an amount greater than zero once one allows for a structural break post-2008 in the effect of stimulus on consumption (and, the rationale for assuming that the post-2008 economy is behaving very differently from what came before seems solid for pretty apparent reasons – Great Recession, Lehman Brothers, etc.).
Lastly, one should note that the payroll tax cuts of 2011 have not been accompanied by an obvious surge in labor supply – labor force participation rates fell by slightly more between January and August of 2011 than they did between the same months of 2010, even as the payroll tax cut should’ve induced more labor supply than the Making Work Pay tax credit it was frequently cited as “replacing”.
So where does this leave us on the question of payroll tax cuts? They probably do some good – even Eggersston notes that if they go to cash-strapped households that the “old Keynesian” effects may dominate the “new.” But it should be clear that a fiscal jobs bill weighted more than half towards payroll tax cuts is one clearly tailored at least as much for political traction as economic impact.
If the choice is “payroll tax cuts or nothing,” I’ll take the cuts. But, there are clearly more effective measures to spur job growth (the direct spending components of the American Jobs Act, for example) and the economy will be better off if these are part of any final legislation.
Earlier this week, Office of Management and Budget Director Jack Lew outlined a package of tax changes to pay for the American Jobs Act. These offsets are generally consistent with our criteria for financing an effective jobs plan: the president’s proposed jobs bill would add to the near-term budget deficit (as it should) and gradually be paid for over the next decade, largely when the economy is stronger and unemployment is lower. Furthermore, the proposed offsets are entirely on the revenue side (also beneficial, as permanent tax changes have substantially less impact on near-term economic activity than spending cuts) and these specific polices would have almost no impact on economic activity.
The White House proposed four policies that would save $467 billion over the next decade, slightly exceeding the $447 billion price tag of the job creation package, which is front loaded over the next two years. Most of these policies were proposed in the president’s 2012 budget and none of the proposals would decrease disposable income for working and middle class families.
At $400 billion, the largest of the proposed offsets would limit the rate at which tax expenditures–such as itemized deductions–reduce tax liability for households with adjusted gross income above $200,000 ($250,000 for joint-filers). The value of most tax expenditures increase with a tax filer’s marginal tax rate; limiting this value would make many preferences less regressive while maintaining incentives embedded in the tax code.
The president’s budget proposed limiting the value of itemized deductions to 28%, which would have only affected 1.8% of tax filers relative to current tax policies, according to the Tax Policy Center. The Joint Committee on Taxation estimated that this would save $293 billion over 2012-21. This policy has been scaled up to also limit the value of specified above-the-line deductions and exclusions for upper-income households. (In our budget blueprint for economic recovery and fiscal responsibility, we proposed limiting the benefit on itemized deductions to 15% for savings of $1.2 trillion over 10 years).
The other offsets include $40 billion from ending subsidies to oil and gas companies, $18 billion from ending the carried interest loophole for investment income, and $3 billion from ending a tax break allowing firms to gradually write off the cost of corporate jets. The carried interest preference, which allows investment bankers to reclassify a portion of their ordinary income as capital gains subject to a 15% tax rate, was recently highlighted when Warren Buffet implored Congress to stop coddling millionaires with lower effective tax rates than those paid by many middle-class families. The oil and gas subsidies are prime examples of corporate welfare embedded in the tax code benefiting a particularly profitable industry. Repealing these carve outs will have a negligible impact on employment; further, all pass muster as progressive improvements to the tax code.
Beyond picking offsets that would have little impact on economic activity, the timing seems appropriate. The budgetary offsets would be delayed until Jan. 2013, and the offsets combined with the jobs package would almost certainly increase the budget deficit for the next two years (the timing of infrastructure outlays is somewhat uncertain).
Budgetary offsets focused more heavily on spending cuts or the near-term deficit would compromise the positive employment impact of the American Jobs Bill, but these progressive revenue changes would have a negligible impact on employment. Allowing the near-term budget deficit to rise and at the same time putting the country on a stable fiscal path over the long run isn’t just possible, it’s necessary.
My colleague Algernon Austin rightfully points out how devastating this economy has been for children. One statistic he didn’t mention from today’s Census Bureau data release was the extent of deep poverty among kids. Nearly one-in-10 children live in deep poverty, or live below half of the poverty line. For a two-parent, two-kid family, half the poverty line is about $11,000. And, 9.9 percent of kids in this country live in such poor economic conditions.
A smaller share of the overall population live in deep poverty: 6.7 percent. As shown in the figure, the extent of deep poverty in 2010 was unprecedented (since the data for this statistic was collected in 1975). Besides last year, the closest deep poverty has gotten to the current rate was in 1993, at a rate of 6.2 percent.
Click the figure to enlarge
Even in relatively good economic times, the United States has an appallingly high rate of child poverty for a very rich country. In 2007, by international comparative standards*, UNICEF found that the United States had the highest rate of child poverty of 24 OECD nations. The poverty data released today shows the worsening living standards for America’s children caused by the recession.
Overall, the U.S. poverty rate for American children increased 4 percentage points from 2007 to 22.0% in 2010. African American children continue to have the highest rate of poverty at 39.1%. Hispanic children have the second highest rate at 35%. However, as the figure shows, Hispanic children have experienced the largest increase in child poverty since the start of the recession. Black children have had the second largest increase.
The economic distress of families hurts children and undermines their future. Only by putting their parents to work in good jobs can we lay the foundation for a prosperous future for our children.
Click the figure to enlarge
*In the UNICEF comparison, a poor household is one that earns less than 50% of the median household income.
The labor market is the foundation of income for nearly all working-age families, so when the labor market deteriorates, household income drops.
As the figure shows, income for the median working-age household – where the householder is under 65 – dropped by $4,184 between 2007 and 2010. Furthermore, the Great Recession came on the heels of one of the worst business cycles (2000-2007) on record in terms of job creation, one in which the income of the median working-age household fell $2,113.
Thus, the typical working-age household brought in roughly $6,300 less in 2010 than it did in 2000, a more than 10 percent decline. A lost decade, indeed.
This morning’s release by the U.S. Census Bureau of the 2010 data on income, poverty, and health insurance coverage is yet another reminder of the real and human consequences of the Great Recession and its aftermath. A first take:
15.1%: The share of the population in poverty in 2010
22.0%: The percent of children under 18 in poverty
46.2 million: The number of people in poverty in 2010
$22,113: The poverty threshold for a family of four
3.2 million: The number of people kept out of poverty by unemployment insurance
20.3 million: The number of people kept out of poverty by Social Security
-11.3%, -6.6%, -4.5%: The change in family income between 2007 and 2010 for the bottom 20 percent, middle 20 percent, and the top 20 percent, respectively
$6,298: The decline in median working-age household income from 2000 to 2010
$5,494: The decline in median African-American household income from 2000 to 2010
$4,235: The decline in median Hispanic household income from 2000 to 2010
Health insurance coverage
49.1 million: The number of people under 65 without any health insurance
13.6 million: The decline in the number of people under 65 with employer-sponsored health insurance from 2000-2010
10.5 percentage points: The decline in the share of the under 65 population with employer-sponsored health insurance from 2000-2010
On Aug. 30, 2011, President Obama sent a letter to House Speaker John Boehner responding to his request that the administration supply Congress with any planned new rules costing more than $1 billion. The president provided a list of seven such rules, noting the cost (but not the benefits) for each. One of these potential rules, the Ozone standard, has since been withdrawn by the administration.
This exchange generated substantial press coverage, despite the conspicuous absence of information provided on the potential benefits from these rules. This information, however, is readily available, and these benefits would be enormous. Tabulating information from the regulatory impact analysis for each proposed rule indicates that the monetized benefits from the remaining six rules could amount to $218 billion a year. If these rules are finalized, the final versions might differ from the proposed versions or the estimates may change, so the overall cost and benefit figures may differ from those described here.
The combined annual benefits from these rules range from $83 billion to $218 billion a year, dramatically exceeding the range of costs of $19 billion to $20 billion a year. This means net benefits could range from $63 billion a year to close to $200 billion a year.
All figures are expressed in 2011 dollars:
|Hours of service||1.1||.3-2.5|
The first three rules are from the Environmental Protection Agency, while the last three rules are from the Department of Transportation. The air toxics rule (designed to reduce emissions of hazardous air pollutants from the electric power industry, including mercury, other metals such as cadmium and arsenic, acid gases, and organics) and the major source part of the Boiler MACT rule (designed to limit large emissions of hazardous air pollutants from industrial, commercial, and institutional boilers and process heaters) have the largest benefits; these benefits primarily reflect attaching a monetized value to various health benefits. In combination, the benefits from these two rules alone would include the following:
— 9,300-23,500 lives saved (which EPA describes as avoiding ‘premature mortality’)
— 15,000 fewer heart attacks
— 16,500 fewer hospital and emergency room visits
— 303,000 fewer cases of respiratory symptoms
— 1.16 million more work days (because workers are not too sick to go to work)
This exercise underscores the folly of considering the costs of rules, even if the price tags come in at above a billion dollars, without considering their benefits.
Note on coal ash calculation: The table above includes the benefit range for the scenario EPA considers most likely, in which the regulation of coal ash will increase the use of coal ash for other purposes. Opponents of this regulation typically cite another scenario, in which the regulation of coal ash stigmatizes its use. The Environmental Integrity Project and the Institute for Policy Integrity have separately advanced strong arguments against the application of the worst-case “stigma” scenario, in which the regulation of coal ash is assumed to undercut the use of coal ash for other purposes. Still, even if that unlikely worst case scenario applies, the combined benefits from the six billion-dollar regulations examined here would equal between $80 billion and $193 billion, and net benefits would range from $60 billion to $174 billion.
House Republicans intend to pass legislation this week to further weaken the National Labor Relations Board and leave it less able to protect workers from anti-union retaliation by companies like Boeing.
Almost everything you’ve read or heard about the National Labor Relations Board’s enforcement action against Boeing is wrong. Editorial boards were quick to believe Boeing’s line that the NLRB has abused its authority by ordering the company to shut down its Dreamliner production line in South Carolina and move it back to Washington State. Most of the media seem convinced that the NLRB and President Obama have decided to prevent companies from moving to right to work states as a favor to unions that supported the president. All of this is untrue. In fact:
— The NLRB hasn’t ordered Boeing to do anything. Its General Counsel filed a complaint, but the NLRB members haven’t heard the case or made any decision. The administrative Law Judge hasn’t even scheduled a hearing.
— The case has nothing to do with right to work laws, and the General Counsel would have filed the same complaint if the company had moved production to Michigan or Massachusetts rather than South Carolina.
— No governmental power has been abused. The NLRB General Counsel is following established precedent. The GC under Ronald Reagan would have handled this case the same way. We know this because, faced with a similar case, the NLRB under Reagan in fact did order an employer (Century Air Freight) to return to the status quo, moving work back to a union plant after the employer broke the law by moving the work out.
— The remedy the General Counsel is seeking allows Boeing to maintain a production line in South Carolina. The NLRB complaint explicitly permits Boeing to move work to South Carolina for non-discriminatory reasons.
The only abuse in this case is the abuse of power by politicians like Rep. Darrell Issa and Speaker of the House John Boehner, who are intervening in an enforcement proceeding on behalf of a powerful corporation that has given hundreds of thousands of dollars to politicians, including Issa and Boehner. Is it any surprise that Boeing’s contributions tipped toward the Republicans this year and now favor them 60% to 40%, according to Open Secrets?
In the past, attempts by elected officials to influence ongoing investigations or enforcement were considered unethical, and politicians like the Keating 5 risked real damage to their careers when they intervened on behalf of campaign contributors. What a difference a few years and Citizens United have made.
In truth, there’s probably one other guilty party: the Boeing Corporation, which apparently intended to teach the Machinists Union a lesson by punishing them for exercising their legal right to strike. Boeing could legally move work to South Carolina for any number of reasons, including because it prefers to operate in a right-to-work state, it wants to find cheaper workers, or because the state gave it tax breaks to move. But it has been illegal for 76 years to move in order to retaliate against employees who chose to strike during their last contract negotiations, and it’s illegal to threaten employees with punishment for striking.
The right to strike is a fundamental human right, protected by the United Nations charter and the National Relations Act. And Boeing knows that. Even so, there’s plenty of evidence to support the NLRB complaint that Boeing violated the law. Now they want not just to avoid liability, but to cripple the NLRB’s ability to protect other workers in the future. And Boeing is so big and so politically connected, and has so much help from the rest of the organized business lobby, it might well succeed.
So don’t be misled. This isn’t a case of big government telling business where it can operate. It’s government of the people, by the people, and for the people defending a fundamental human right and middle-class workers who have nowhere else to turn.
I make a discouraging prediction: academic achievement gaps between advantaged children and the various categories of disadvantaged children will grow in coming years, and education policy will be powerless to prevent this.
A recent Economic Policy Institute analysis suggests the impact of our stagnant employment rate on children’s welfare. Consider, for example, the unusually severe labor market adversity experienced by black families, and how this is likely to affect the black-white achievement gap that receives so much well-deserved attention in education policy.
— Although the national unemployment rate for whites is now 8 percent, for African-Americans it is 17 percent.
— Although the underemployment rate (including those who have given up looking for work, and those who have taken part time jobs because full time work is unavailable) for whites is now 13 percent, for African-Americans it is 25 percent.
— Although 8 percent of white children had an unemployed parent during an average month in 2010, 16 percent of African-American children had such a parent.
— Because African-American children are more likely to be in single parent homes than whites (67 percent vs. 24 percent), they are also more likely to have been in homes where no parent was working at some time during the past year.
Parental unemployment has a demonstrable impact on student achievement. When parents suffer unemployment, parents’ stress increases and they are more likely to discipline their children arbitrarily, leading to children themselves attending school in greater stress and less able to perform to the top of their ability.
When parents suffer unemployment, they are more likely to lose health insurance; their children are less likely to get routine and preventive health care, are more likely to suffer from untreated asthma, toothaches, and earaches, and uncorrected vision problems, all of which contribute to school absenteeism and less ability to perform in schools.
When parents suffer unemployment, they are more likely to lose their homes, or fall behind in rent, leading to more frequent moves and interrupted schooling for their children. When parents suffer unemployment, they are more likely to shift their youngest children from more expensive (and higher-quality) early childhood programs to less expensive (and lower-quality) programs.
Even children of employed parents are suffering from the weak labor market: 38 percent of families have suffered an erosion of wages, hours worked or benefits. Many have also lost health insurance in the last year. All of these adverse impacts of the recession disproportionately affect African-Americans, Hispanics and low-income families.
Even if the modest job creation policies now being advanced by President Obama were to be enacted, and unemployment were to fall somewhat, the accumulated effects of the economic crisis will permanently damage a generation of children. The first five are the most important years of a child’s development. When parents are in economic crisis during their children’s infancy and early childhood, the damage to children’s healthy maturation permanently diminishes their future prospects. Today’s disparate experience of unemployment by parental group will be reflected not only in their young children’s relative school readiness, but in an achievement gap of high schoolers a decade hence and then in disparate adult earnings throughout their working careers.
Education policymakers devote great time and effort these days to a variety of school interventions – improving teacher quality, creating common standards, offering greater school choice. These may make a difference, but will be overwhelmed by the immediate and long-term consequences of our failure to attack unemployment with sufficient vigor. As a result, our achievement gaps will grow and whatever positive effect new school interventions may have will be swamped by the array of calamities accompanying persistent high unemployment – parental stress, housing instability, inadequate health care, and other impacts of reduced income on parental ability to nurture their children and deliver them to school ready to learn.
On Tuesday morning, Sept. 13, the U.S. Census Bureau will release the newest data on poverty, health insurance, and annual income for 2010. This is the one data release in the year that gives us the most-quoted information on what happened to family income, poverty, and health insurance coverage over the preceding year. It’s a great window into why debates over the state of the economy and labor market have real, human consequences.
Unfortunately, we expect the bad news to continue
. Why? Namely because of two factors. First, the unemployment rate increased from 9.3% in 2009 to 9.6% in 2010. Second, long-term unemployment, or the percent unemployed 27 weeks or more, grew from 31.2% in 2009 to 43.3% in 2010.
Here are the things to look out for:
– In 2009, the poverty rate hit a record high of 14.3%, a level not seen since 1994. The data will likely show a slight increase in poverty in 2010, a balancing act between higher unemployment and unemployment insurance extensions.
– In 2009, deep poverty hit a record high (since the data began being collected in 1975). Again, given the poor labor market, there’s a good chance 2010 will break last year’s high as more Americans fall below half the poverty line.
– It’s likely that we’ll see a full decade of consecutive losses in employer-sponsored health insurance. As the job market remains weak (both lack of jobs and lack of bargaining power), Americans can no longer depend on their workplace for consistent affordable coverage.
– Losses in workplace coverage will lead many to become uninsured, with an expected small rise in the rate of uninsurance in the U.S. Kids will likely be somewhat insulated from these losses through public insurance, but working-age adults will continue their upward march towards nearly one in four working age adults uninsured.
– Income for the median, or typical, family, after adjusting for inflation, will have declined in 2010. Working-age households, who are most affected by deterioration in the labor market, will have seen the biggest losses.
– These losses will cap off a decade of deterioration: the median working-age household saw an income decline of nearly $5,000 between 2000 and 2009 due to both the extremely weak business cycle from 2000 to 2007 and the Great Recession from 2007 to 2009.
Check back on Tuesday for our live analysis of the 2010 data.
It is nice to see that good public policy research can make its way down the long and winding road of idea to proposal to … (dare to dream) legislation?
Last night, President Obama called for the passage of an American Jobs Act, which would spend nearly $450 billion on aid to unemployed workers and strapped state and local governments, infrastructure spending (with school renovations and improvements singled out for lots of this spending), and tax cuts for both workers and businesses.
The size and composition of the American Jobs Act looks a lot like the American Jobs Plan that EPI forwarded in December 2009. This is a good thing not just for EPI’s ego, but for the future of the American labor market. You see, the similarities in these plans aren’t evidence that EPI has some mammoth influence on the administration, instead both plans are simply based on a solid consensus of what applied economists know about what would actually work to reduce joblessness fast.
Now, we will pat ourselves on the back for a couple of things. We got the depth of the downturn and the stubbornness of the recovery right in real-time – before, unfortunately, most of our policymakers. We also have been calling all along for lengthy and generous unemployment compensation and for infrastructure spending – particularly on schools – to be a major part of stimulus. It’s extraordinarily efficient stimulus and the main strike argued against it (it’s too slow in being rolled out) never made much sense to us – because we knew early-on how long unemployment would remain elevated and how much job-growth would be needed to combat it. And, we argued that if you must make business tax cuts part of a jobs-plan to garner wide-spread support, you should at least tie these tax cuts directly to firm’s hiring decisions to maximize their bang-for-buck.
It’s a shame that policymakers’ attention drifted from job-creation for a year or more, but at least it’s back on the front-burner now. EPI was just one cog in the machine arguing for this renewed focus, but we’re happy it’s arrived and want to do what we can in the coming months to make sure that as much of this well-considered jobs-plan makes it through the (sure to be) brutal legislative process as possible.
To hear the punditry tell it, the priority Washington has given to deficit reduction over job creation reflects an ideological revolt from the grass roots against big government. Yet, listening to such Tea Party ravings as “Keep the Government’s hands off Medicare” hardly suggests the presence of deep thinking about political philosophy. Moreover, the polls don’t show much division on the deficit/jobs question at all. Majorities think that the government should put the unemployed to work by investing in infrastructure and education and should get the money by taxing the rich.
So why the gap between what the people prefer and what their elected representatives are doing? The answer is money, which ironically is rarely mentioned by the talking heads and columnists who instruct the public about economic policy. I’m not talking about the money supply, here. I’m talking about the money that the typical politician spends 75 percent of his or her time raising for the next election.
The present quasi-lunatic state of our political debate is no accident. It is the inevitable product of the large amounts invested by corporate America in politicians who promote its interest in government de-regulation and low taxes. In 2010, for example, Tea Party- connected candidates received at least $20 million in contributions from Wall Street and the U.S. Chamber of Commerce.
Why? After having been rescued from the consequences of their own greed and folly by President Obama, Wall Street is now outraged at the modest restraints put on their recklessness by the Dodd-Frank Bill, and any hint that they might be asked to pay a little more in taxes to help pay for the economic damage they have done.
With last year’s Supreme Court’s Citizen United decision, economic policy will be even more hostage to campaign spending by the rich and powerful. My own view is that public financing of campaigns has not worked. So Progressives need to directly attack the Supreme Court ruling by organizing a movement for a constitutional amendment aimed at controlling money in politics. The opportunity for educating the public on how their government really works alone would make the effort worthwhile.
Pie in the sky? Maybe. But it is even more naïve to think that we will ever have an economy that works for working people if the interests that are sucking our economy dry continue to choose the policymakers.
President Obama’s jobs plan, if implemented, would boost employment by around 4.3 million jobs (yes, 1.6 million of those jobs would come from continuing temporary policies that are already in place and supporting the economy today, but the new initiatives alone would generate 2.6 million jobs).
How do we judge such large figures? Here’s a benchmark: right now the gap in the U.S. labor market is around 11 million jobs when you take into account both the number of jobs we are down since the start of the recession and the number we should have gained to keep up with normal growth in the working-age population. Eleven million is the number of jobs we need — and Obama has just proposed a plan that could take a big bite out of that gap. This plan is a vital step in the direction of providing a solution that matches the scale of the ongoing crisis.
Tonight, President Obama outlined a set of measures that would create jobs. Here’s a quick look at the impact on employment over the next couple of years.
The table below shows a preliminary breakdown of the package and a first pass look at the job impact (we’ll revise and update as more details are released). The plan includes $162 billion for the continuation of the payroll tax holiday and extended unemployment insurance benefits, and $285 billion for other new measures, including the expansion of the payroll holiday (to a 3.1 percentage point reduction and to employers), infrastructure investments, aid to states and localities, school construction, etc.
Overall the package would increase employment by about 4.3 million jobs over the next couple of years. The new initiatives would boost employment by about 2.6 million jobs, while the continuation of the two temporary provisions (EUI and the payroll tax holiday) would prevent a backslide of over 1.6 million jobs.
There’s still a big hole left to fill, but every step matters.
Note: The above analysis is a quick first approximation, and notably does not include a full accounting of the macroeconomic dynamics of fiscal policy, GDP, employment, etc. In particular, the 2012 impulse may take longer to ramp up for some kinds of investments and will last longer into 2013 than what is noted in the table. However, when private and government forecasters fire up their models (e.g. Moody’s, CBO, etc), they will very likely find similar results. Multipliers are from Moody’s/Zandi.