While we eagerly await the top line numbers in the Employment Situation Report every month, here at EPI, we also try to look under the hood and compare how various demographic groups are faring. As part of our effort to present a clear, accessible, and in-depth view of the economy and how it affects the workers in it, we’re launching EPI’s State of Working America Data Library. Right now, it’s got a great set of data on the labor force, but it’s going to be continually updated and expanded to include lots more.
Within the library, you can find up-to-date labor force statistics, including the unemployment rate, the long-term unemployment rate, the underemployment rate, the labor force participation rate, and the employment-to-population ratio. Not only do we provide a historical series back to 1979, but you can also sort the data by your variable of choice and download it as an Excel file. Within each series, we’ve disaggregated the data by various demographic groups and education categories. For example, you can find a consistent data series on the unemployment rate of prime-age black male workers, or the underemployment rate of young Hispanic female workers, or the long-term unemployment rate of white men, 55-64 years old. You can also examine the data by gender, race, and educational attainment at the same time—looking at labor force statistics such as the prime-age employment-to-population ratio for high school educated white women or the labor force participation rate of black men with an advanced degree.
It’s well documented and widely understood that wage inequality has grown dramatically over the last four decades as productivity and compensation growth have become delinked. Despite an expanding and increasingly productive economy, wages have stagnated for the vast majority. Looking at the most recent data—through the first half of 2016—we see that wage inequality has continued to grow, with top earners faring far better than those in the middle or bottom of the wage scale. First, the data paints a striking picture of growing wage inequality since the last business cycle peak in 2007. Second, average wage growth overall is slow, and any significant real wage growth continues to be driven by low (and below target) inflation—not meaningful acceleration in nominal wage growth. Last, strong payroll employment growth the last couple of months suggests positive future trends for not only wage growth, but also declining unemployment and rising labor force participation.
The figure below shows the disparate growth across the wage scale from 2007 to 2016 (using the most recent data, for the first six months of 2016, and comparing to wages at each decile and at the 95th percentile to those of the comparable period in 2007). I’m comparing the first half (FH) of both years to maintain the same seasonality in the data. Plus, it gives us a glimpse of what’s happened through the first half of this year. Except for the lowest wages—at the 10th percentile—what you see is a clear increase in growth as one moves up the wage distribution, from negative growth at the 20th percentile (-2.8 percent) to the fastest growth at the 95th percentile (10.4 percent). At the median, real wages grew a total of only 0.8 percent over the nine-year period. So, not only did the labor market since 2007 perpetuate the wage stagnation and inequality of the previous three decades, it has actually exacerbated it.
The final rule implementing President Obama’s executive order on fair pay and safe workplaces has been issued, along with guidance from the Department of Labor. This is a big deal, affecting as many as 28 million employees in the workforce of hundreds of thousands of government contractors.
The executive order puts in place a commonsense principle: when choosing which companies to do business with, choose the ones that follow the rules rather than the law breakers. Tax dollars should go to contractors with a record of integrity and business ethics, and should not be spent on bad actors. The executive order makes it clear that violations of labor law are an indication of bad ethics and a lack of integrity that must be considered when contracts are awarded.
As part of the contract approval process, federal contractors will have to reveal to the contracting agency any labor law violations they have been found guilty of committing in the previous three years. An agency can refuse to grant a contract to a company that has not resolved its violations. Today, by contrast, it is perfectly normal that a company with several OSHA violations, a National Labor Relations Act violation, and a judgment for wage theft and overtime pay violations could win a $200 million contract from the Department of Transportation or the Defense Department. In fact, the GAO found that almost two-thirds of the 50 largest wage-and-hour violations and almost 40 percent of the 50 largest workplace health-and-safety penalties issued between FY 2005 and FY 2009 were made against companies that went on to receive new government contracts.
The White House is making one last push for passage of the Trans-Pacific Partnership agreement, most likely during the lame duck session of Congress, after the elections but before the end of the year. This is despite the fact that Democratic presidential nominee Hillary Clinton opposes the TPP, as did Bernie Sanders, her rival in the primary, and as do the majority of Democratic members of Congress.
Let’s review the basic facts. Growing imports of goods from low-wage, less-developed countries, which nearly tripled from 2.9 percent of GDP in 1989 to 8.4 percent in 2011 (as shown in Figure A, below), reduced the wages of the typical non-college educated worker in 2011 by “5.5 percent, or by roughly $1,800—for a full-time, full year worker earning the average wage for workers without a four-year college degree,” as shown by my colleague Josh Bivens.
Overall, there are nearly 100 million American workers without a 4-year degree. The wage losses suffered by this group likely amount to a full percentage point of GDP—roughly $180 billion per year. Crucially, trade theory and evidence indicate strongly that growing trade redistributes far more income than it creates. The modesty of net benefits from trade is highlighted by the U.S International Trade Commission report that recently estimated that the TPP would generate cumulative net gains of $57.3 billion over the next 16 years, or less than $4 billion per year.
The U.S. economy has staged an impressively steady (if too slow) recovery from the Great Recession. But more than 7 years in, genuine full employment has not been reached—and until it is there is no reason for the Federal Reserve to begin the process of reining in economic growth. This is frustrating to many central bankers, who have traditionally seen their primary job as making sure that the economy does not grow too fast and generate wage and price inflation. But the economy has decisively changed, and it is sustaining growth, not restraining it, that has become the central problem to be solved. The old school of central banking that demanded comparatively hair-trigger responses to inflation is based on the experiences of the 1970s. Today’s central bankers should instead pay a lot more attention to the 1990s.
Today’s unemployment rate sits at 4.9 percent. This represents tremendous progress from the late-2009 unemployment peak of 10.0 percent. And many policymakers think that 4.9 percent unemployment clearly constitutes full employment—the lowest unemployment can fall without sparking an unsustainable spiral of wage and price inflation. But there is very little evidence that this is the case. For example, between 2005 and 2007, the unemployment rate averaged 4.8 percent, yet inflation-adjusted wages for the large majority of American workers fell in those years. And since the recovery from the Great Recession began, both wage and price growth have fallen well below targets the Fed sets for a healthy economy. So the key question is why is there pressure to raise rates ahead of data indicating any swell of wage and price growth pressure?
The answer is largely: the 1970s. The worry is that the rapid increase in inflation that occurred in that decade, with wages and prices chasing each other upwards for a long spell of time, tells us that inflation can seem quiescent but then leap forward quickly. This 1970s wage/price spiral is the primary episode that informs many central bankers’ thinking on why they must always keep a firm hand on the reins of inflation.
Top 10 H-1B employers are all IT offshore outsourcing firms, costing U.S. workers tens of thousands of jobs
The top 10 H-1B employers all use the program to send American jobs offshore. All of the firms are leaders in using the offshore outsourcing business model to sell information technology (IT) Services. Contrary to what some have claimed, not all of the top H-1B offshore outsourcing companies are Indian companies or headquartered in India: Five of the firms have their headquarters in India, four are headquartered in the United States, and one is headquartered in Ireland. But all of the top 10 have a common business model with large workforces in India and other low-cost countries.
In 2014, the U.S. government granted these ten firms 25,227 new H-1B workers, nearly 30 percent of the 85,000 annual quota.
And 2014 was not an unusual year. Over the ten-year span from 2005-14 those offshoring firms brought in a staggering 170,535 new H-1B guestworkers (see Table 1). Virtually all of these jobs can, and should, be done by American workers or lawful permanent residents (i.e., permanent immigrants already living in the United States). In fact, in many cases American workers were already doing the job, and they are being directly replaced, often being forced to train their foreign guestworker replacements as a condition of severance agreements. As Craig Diangelo, an American worker who was forced to train his H-1B replacement put it, “The sad part is that my job is still there… It didn’t go away. I went away.”
The Department of Labor has issued an update to its overtime rules that will bring an additional 12.5 million salaried employees under the exemption threshold, the level below which they are guaranteed overtime pay if they work more than 40 hours in a week, regardless of their job title or duties. The Department of Labor estimates that about 4 million employees will gain the right to overtime pay for the first time, and 8 million more will have their right to overtime pay strengthened.
Business groups know that with wages stagnant and profits at all-time highs, they are unsympathetic opponents of the rule, so they have been focusing attention on non-profits. The Society of Human Resources Management, for example, has adopted Operation Smile, a non-profit that helps coordinate cleft palate surgeries in less-developed countries, as its poster child. An Operation Smile executive testified in the U.S. Senate against the new overtime rule, claiming that it would raise the organization’s costs dramatically and reduce its ability to deliver cleft palate surgeries:
“Yet still, this proposed update will increase our payroll cost by nearly $1 million annually affecting over 50 percent of our workforce. This is not a financial cost we can absorb. Considering that a cleft lip surgery costs an average of $240, this would mean nearly 4,200 fewer surgeries provided globally each year.”
This post originally appeared in Democracy.
This election will be different, not only because of the stark departure of Donald Trump’s candidacy from any usual political convention, but also because the current economic debate is unlike any in recent memory. This was further elucidated by the plans each candidate laid out in Michigan this week. It is noteworthy, first of all, that both candidates have joined in calling for greater infrastructure spending, have abandoned the traditional approach toward trade and opposed the Trans-Pacific Partnership (TPP), have proposed subsidizing child care expenses, have highlighted wage stagnation, and have each claimed to be able to provide faster economic growth than the other.
It would be pointless, however, to delve into precise policy details without first commenting on the disturbing nature of the Trump candidacy. Among the least of his campaign’s problems is that it fails to elaborate on any of its positions or provide any kind of science or data, that would allow a proper assessment of its proposals. Trump has offered many broad ideas about taxes, but the details are strikingly few. Similarly, Trump’s budget plans just don’t add up: He wants more military spending, more infrastructure spending, and no cuts to Medicare or Social Security, along with huge tax cuts—all while claiming he would still move toward a balanced budget. Of course, most problematic is Trump’s bigotry and misogyny, and the egregious character flaws he displays almost daily: authoritarianism, dishonesty, volatility, and a lack of compassion.
But setting all that aside for the moment…
A recent Bloomberg View op-ed and Politico report have raised questions into whether Melania Trump, a Slovenian immigrant, former supermodel, and wife of the current Republican presidential candidate Donald Trump, was employed legally in the United States in the mid-1990s while she was in a temporary visa status. (The Washington Post also has a good Q-and-A-style rundown of the issues involved.) The op-ed and reports analyzed Ms. Trump’s past statements about her immigration status and juxtaposed them with the fact that it appears she was employed as a model during that period. If Ms. Trump was in the United States with a lawful immigration status and that status authorized her to be employed (for example, if she held an H-1B visa), then there’s really no issue here to discuss. But Ms. Trump’s response on Twitter to the Politico report did not answer the main questions that were raised: what was her visa status and did it authorize employment?
Since the reports were published, Ms. Trump’s former modeling agent has told the Associated Press that he sponsored an H-1B visa—a temporary work visa that allows employment in the United States for up to six years—for her in 1996. But photos she modeled for which have recently surfaced appear to have been taken in the United States in 1995. Without knowing more or being able to look at her immigration records on file at the State Department and Department of Homeland Security (which Ms. Trump could ask for and release, if she wanted to), it is reasonable to conclude that if she was in fact employed in 1995 and 1996—before she was issued an H-1B—it’s entirely possible that she was unlawfully employed while in the United States on a B-1 business visitor visa, a B-2 tourist visa, or a combination B-1/B-2 visa. Those visa statuses don’t permit employment, although a B-1 status might permit certain business activities (including a single, unpaid photo shoot) as long there is no payment from a U.S. source. But even in the case of a B-1, working for an extended period in the United States as a model would raise serious questions under U.S. law.
We will probably never get a final answer on this, but the situation raises a more important issue: there is a severe and troubling lack of government regulation, oversight, and enforcement when it comes to U.S. temporary (also known as “nonimmigrant”) visa programs.
Republican presidential nominee Donald Trump gave an economic policy speech yesterday. Besides peddling his standard trade scam, Trump doubled-down on one of his favorite tax scams, and unveiled an entirely new scam.
The speech itself was wrapped in the guise of global economic “competitiveness,” a mostly meaningless term which my colleague Josh Bivens and I will expand further on in an upcoming paper. Trump misleadingly claims that U.S. firms face the highest taxes in the world, and therefore his plan slashes the corporate income tax rate from 35 to 15 percent. Since capital income is heavily concentrated at the very top of the income distribution, and the corporate income tax largely falls on the owners of capital, this is a steeply regressive tax cut.
But Trump would go one step further, creating an enormous tax loophole for the rich by applying his 15 percent corporate rate to “pass-through” entities as well. Pass-through entities are businesses whose income are not taxed at the corporate level, but rather passed through entirely to the businesses’ owners and then taxed at the owners’ individual income-tax levels. High-income households can easily avoid paying their full income tax bill by reclassifying their income as pass-through income. This loophole allows Trump to claim that he is closing the carried interest loophole, while actually lowering the rate that hedge fund managers would pay from 23.8 percent to 15 percent. Incidentally, this loophole has already been tested, which proved disastrous for Kansas Governor Sam Brownback. So disastrous in fact, that Kansas primary voters have ousted more than a dozen Brownback-aligned incumbents in response.
I am cautiously optimistic that the topline payroll numbers in this Friday’s Employment Situation Report will build on June’s positive upturn and come in stronger than the weaker April and May figures. At the same time, observers should have the long view in mind, and not put too much stock in one month’s statistics. Whether it is nonfarm payroll, prime-age employment-to-population ratio, year-over-year nominal wage growth, or EPI’s own missing worker calculation, it’s important to look at trends averaged over time. So, here’s my rather simplistic attempt to do just that and set the stage for Jobs Day on Friday.
Let’s focus on nonfarm payroll employment. That’s the first number that tends to get reported in the news when the report gets released. It’s also the number that’s displayed the most volatility as of late. Below I’ve charted monthly payroll employment over the last year. May stands out as a low point over the year—and would even if the striking Verizon workers were added back in—and, in fact, it’s a low point of the last few years. The strong rebound in June (which included the returning Verizon strikers) stands in contrast to the rest of 2016, but it’s awfully close to the average of the last three months of 2015.
In a story in the Wall Street Journal last Friday, reporter Eric Morath notes that the recovery from the Great Recession has been historically slow. “In terms of average annual growth,” he writes, “the pace of this expansion has been by far the weakest of any since 1949.” Missing from this story is the fact that our historically weak recovery has been accompanied by historically deep cuts in government spending. The figure below compares the strength of expansion for each recovery since 1949 with changes in government spending (it includes data on the strength of each expansion, as reported by Morath). You can see that almost every other recovery was accompanied by an increase in federal, state, and local government spending.
During a recession, changes in government spending have a “multiplier effect” on output and income: each dollar of additional spending increases—and each dollar cut spending decreases—GDP by much more than one dollar. The Great Recession of 2008-2009 was the worst on record since the Great Depression of the 1930s, in terms of both total decline in real GDP, and total increase in the unemployment rate between the previous peak and the beginning of the subsequent recovery. The economy was in a very deep hole in 2009, and had we spent the way we did after previous recessions, we would have experienced substantial increase in GDP since then. Instead, cuts in government spending over the last eight years have had a pernicious, negative impact on output and income, as well as on jobs and wages, which depend on the level of spending in the economy. If it weren’t for these cuts, the economy would likely be fully recovered by now, and the expansion would have equaled or exceeded the Bush recovery.
A version of this article appeared in the Globalist.
U.S. trade policy of the last 20 years, if not dead, is on life- support. The economic case for the series of neoliberal trade deals since the North American Free Trade Agreement has collapsed in the wake of job losses, lower wages and shrinking opportunities for American workers. Voters are hostile, and both candidates for President oppose the latest proposed trade pact—the Trans Pacific Partnership.
But neoliberal trade deals have brought enormous profits to America’s multinational corporate investors. So, big business lobbyists and their champions in the Congress and the Administration are organizing to pass the TPP in the post-election lame duck session—regardless of who wins the election.
With their economic arguments discredited, they are now draping these trade and investment pacts with a mantle of moral superiority. American workers who complain are now told that they should be ashamed of themselves. Why? Because off-shoring their jobs helps workers in other counties who are even poorer.
Paul Krugman tells his New York Times readers that they should support “open world markets…mainly because market access is so important to poor countries.”
Burgeoning research in economics and epidemiology suggests that raising the minimum wage will improve the health of many Americans, especially low-income Americans, and this improvement should help bend the cost curve for medical care.
In a paper published by the University of Chicago Press, David Meltzer and Zhou Chen analyzed the relationship between obesity rates and the minimum wage, using data from the Behavioral Risk Factor Surveillance System (BRFSS) from 1984-2006. The BRFSS interviews more than 350,000 adults each year, making it the largest health survey in the world. Meltzer and Chen test whether changes in the inflation-adjusted minimum wage are associated with changes in body mass indexes of adults. They find that gradual erosion in the inflation-adjusted value of minimum wages across states explains about 10 percent of the increase in average body mass since 1970. DaeHwan Kim and I found additional evidence that low wages predict increases in obesity in the Panel Study of Income Dynamics (PSID). The PSID is a nationally representative sample of 5000 American families, who have been followed since 1968 by the University of Michigan’s Survey Research Center. Obesity is estimated to cost $190 billion in medical bills each year. A 10 percent decrease in obesity would result in a $19 billion of savings every year.
But it is not just obesity that may be affected by increasing the minimum wage; mental health can be affected, as well. The British government increased the national minimum wage in 1999. To measure its effects on public health, Reeves et al analyzed data on 279 workers in the British Household Panel Survey (BHPS). Their “experimental group” consists of 63 workers directly affected by the new wage and two “control groups”: 107 workers with incomes 10 percent above the minimum who were not directly affected by the increase, and another group of 109 workers employed in firms that did not comply with the new law. All 279 persons completed short mental health questionnaires as part of the BHPS. The “experimental group” (those who received the mandated minimum wage increases) reported improvements in anxiety and depression, but neither control group experienced improvements.
On Monday, Vox.com published an in-depth interview with presidential candidate Hillary Clinton. A wide range of topics were discussed, but of particular interest were Sec. Clinton’s positions on immigration—some of which were, I believe, either new or expressed publicly for the first time—regarding the impact of immigration on the labor market and the major flaws inherent in America’s temporary foreign worker programs.
I was encouraged by the fact that Clinton’s comments on immigration got right to the heart of how the immigration system is used by businesses and corporations to keep migrant workers exploitable and underpaid, which in turn degrades labor standards for U.S. workers who are similarly situated. Clinton rightly pointed out how immigration is good for the American economy, but took what I think was a smart, nuanced perspective—speaking about how the undocumented workforce undercuts labor standards for all workers, because undocumented workers fear deportation and because wage and hour laws haven’t been adequately enforced. It’s also encouraging that Clinton highlighted the problems with one of the main guestworker programs, the H-1B—used mainly for jobs in computer-related occupations—although unfortunately she did not discuss others like H-2B, L-1, or OPT.
I have to confess that I was quite surprised and pleased to hear Clinton make those comments. In the very recent past Clinton seemed reluctant to acknowledge that there were any real problems when it came to immigration and the labor market, or that there could be negative consequences for U.S. workers who are employed in industries where migrants make up a large share of the workforce. In fact, during the presidential campaign Clinton and her surrogates went so far as to use Sen. Bernie Sanders’s critique of guestworker programs—namely, that they leave migrant workers powerless and can degrade wages and labor standards—to attack him as somehow anti-immigration and anti-immigrant. I didn’t feel that this attack was fair or justified, which is why at the time, I defended Sanders’s policy position at length. Around the same time, AFL-CIO President Richard Trumka wrote convincingly how “Demanding Guestworker Reforms Is Pro-Immigrant”—but without naming any candidates.
JPMorgan Chase’s Jamie Dimon is really proud about giving his employees a raise, heartily patting himself on the back in a New York Times op-ed. JPMorgan will raise its lowest wage to $12, but over the next three years, and only starting in 2017. That’s a roughly 3.2 percent annual boost after taking projected future inflation into account. This hardly seems to deserve a parade.
Has it really come to this? Has providing a modest wage increase really become breaking news that corporate chieftains send crowing press releases about? Let’s be clear about this—this is not the way it’s supposed to be. Wages rising faster than the rate of inflation should be the norm in the American economy and should occur all the time, without fanfare and self-congratulation from employers. That wage increases are newsworthy even while unemployment is below five percent is quite telling. Even at such a low unemployment rate, all the power in the employment relationship still rests with employers.
Dimon points out that some of his current employees earn $10.15 an hour, and brags that this is $3.00 over the current federal minimum wage. Left unsaid is that the current minimum wage of $7.25 is roughly 25 percent below the inflation-adjusted value of the minimum wage in 1968, despite the fact that productivity has more than doubled since then. (Of course, the bank’s employees in New York City will be receiving $15.00 at the end of 2018 because of the recently passed minimum wage legislation that applies to the city.)
Gretchen Carlson is doing working Americans a real service by suing Roger Ailes, the CEO of Fox News, for sexual harassment. First, when a powerful, high profile CEO like Ailes is called out for disgusting behavior, it reminds workers and their bosses everywhere that women have a legal right to be treated with respect in the workplace.
Carlson is doing something else: she is boldly fighting the latest technique employers are using to avoid justice, to get away with sex or race discrimination, and to escape lawsuits for wage theft—putting binding arbitration clauses in employment contracts, which keeps cases out of the state and federal courts and push them into private dispute resolution systems that systematically favor employers.
Millions of working Americans are subject to arbitration clauses that they don’t even know about. More and more employers are forcing their employees, as a condition of being hired or of remaining employed, to waive the right to sue in a court if their employer violates the law. Workers must accept a process they often don’t understand, where the costs of seeking justice might be far higher even as their chances of winning or obtaining a just award of damages are reduced dramatically.
After the weakness in payroll job growth the last two months, this month’s Employment Report gives us reason to be optimistic about the future of the economy. Payroll employment grew by 287,000 jobs in June. As I discussed extensively yesterday, this is the kind of job growth that would likely get us to full employment within the next year. Specifically, if we saw job-growth in excess of 260,000 jobs per month over the next year, we could expect to see the unemployment rate approach 4.0 percent and the labor force boost up significantly. If instead we averaged closer to 100,000 jobs per month (not far below the average of the three months leading up to this report), this would only keep the economy in a steady state of labor market health, pulling in just enough workers to absorb new population growth.
Robust payroll employment is only one piece of the full employment puzzle, and other indicators are still lagging behind. Two key puzzle pieces are the prime-age employment-to-population ratio (EPOP) and nominal wage growth.
The share of the population 25-54 years old with a job fell significantly during the recession. For much of the last four years, the prime-age EPOP has been climbing, albeit in fits and starts. In June, it hit 77.8 percent, about where it’s sat the last few months. It still has a long way to go before it hits the most recent pre-recession peak of 80.3 percent from 2007 or the full employment peak of 81.9 percent in 2000. At 77.8 percent, the current prime-age EPOP is still below the lowest level reached during the last two business cycles we experienced before the Great Recession (78.1 percent).
What to Watch on Jobs Day: Putting employment growth in perspective in advance of Friday’s Jobs Report
Over the last several months, the pace of job growth has noticeably slowed, even after accounting for the large drag in last month’s payroll numbers exerted by the now-resolved Verizon strike. May’s payroll job growth of 38,000 brought average monthly job growth down to 116,000 jobs the past three months, and 150,000 this year so far. Adding the roughly 40,000 striking Verizon workers in May back in only pushes these numbers to about 129,000 and 159,000, respectively. Maybe these recent trends are just a blip, and we’ll soon return to a faster pace of job growth. But if not, we are looking at a marked slowdown compared to last year (which averaged 229,000 per month) and even slower than 2014 (which averaged 261,000 per month).
While the pace of job growth should be expected to slow as the economy approaches full employment, it’s not clear that we should rest easy that this is the explanation for any recent slowdown. After all, many indicators tell us we are still far from full employment (e.g. prime-age EPOPs and nominal wage growth) and May’s rate of growth was not even strong enough to keep up with growth in the working age population (again, even if we add in the striking Verizon workers). So, how much job growth do we need to not only keep up with population growth (which is the only job growth needed if the economy truly is at full employment), but to see lower rates of unemployment and greater participation in the labor force (assuming that we’re not yet at full employment).
In a couple of previous posts, I outlined some clear problems with Paul Ryan’s recent tax plan. The final major pieces of Speaker Ryan’s House GOP tax reform are the changes to the corporate income tax. The headline here is bad enough, cutting the top corporate income tax rate from 35 to 20 percent. But it gets worse, and as with the rest of this tax plan, it does so in a way that clouds how much of a giveaway Paul Ryan and the House GOP actually intend.
The corporate income tax is steeply progressive, making it an important tool for curbing inequality. This is because the vast majority of the incidence of the corporate income tax falls on the owners of capital, with capital income heavily concentrated at the very top of the income distribution. For instance, the Congressional Budget Office’s reading of the economic evidence assigns 75 percent of the incidence of the corporate income tax to capital owners. And taxes on capital income are eroding. Foreigners and retirement plans now hold 63 percent of U.S. stock and are nontaxable. So that erosion at the shareholder level has made the corporate income tax the main way through which shareholders are taxed, either explicitly or implicitly. Far from worries about so-called double taxation, Steve Rosenthal and Lydia Austin have shown that the percentage of corporate stock that is taxable has fallen from 83.6 percent in 1965 to 24.2 percent as of 2015. This makes pairing a reduction of the corporate income tax to 20 percent, along with the 50 percent tax exemption for capital gains, dividends, and interest that I touched on previously, a spectacular giveaway to the rich.
Despite its progressivity, and despite the erosion of other taxes on capital income, the corporate income tax base has also eroded substantially in recent decades. Since 2010 after-tax corporate profits have averaged 9.1 percent of GDP, while corporate income tax revenues have averaged 1.6 percent of GDP. Driving this erosion are business reclassification and income shifting, points we will make more detailed and visual in an upcoming joint Americans for Tax Fairness/EPI chart book. But for now, let’s focus on how Ryan’s House GOP tax plan would lock in current income shifting and worsen future income shifting considerably.
The most damaging part of Ryan’s corporate tax reform isn’t the stark cut in the headline rate—it’s the much less obvious change towards a territorial system of taxation. Territorial taxation gives multinational firms a quick and easy way to avoid all the taxes they owe on their U.S. profits, further eroding the corporate tax base.
Paul Ryan’s election-year tax reform agenda shocked some people with its 33 percent top marginal income tax rate on earned income. This is much lower than today’s rates—or even what prevailed after the George W. Bush tax cuts—but at the same time, it’s high relative to the world of wildly unrealistic Republican tax plans. Have Republicans realized that slashing taxes on the rich won’t lead to booming growth and hence be self-financing? Or have they realized that they shouldn’t exacerbate inequality by continuing to fight tooth and nail for enormous tax cuts for the rich? Sadly, no, they are still fighting for enormous tax cuts for the rich—they’re just being a bit more subtle about it now. One example of this subtlety was detailed in my previous post: the 33 percent statutory rate masks the fact that high-income individuals could easily pay a top rate of 25 percent under Ryan’s plan by simply reclassifying their income as pass-through income. So the extent to which the House Republican caucus is no longer calling for drastic cuts to top marginal income tax rates is highly exaggerated. They’ve simply traded in their very-apparent tax reductions for less-obvious tax loopholes.
Another example highlights how House Republicans are doubling down on tax breaks for an even-richer subset of high income individuals—people who make their income from capital earnings instead of working.
The Ryan tax plan drastically slashes taxes on both corporate income and income from capital gains, dividends, and interest. It cuts the corporate income tax to 20 percent and shifts the United States to a territorial system that would spur income shifting and tax avoidance. I’ll discuss the effects of those proposals in a later post, but for now I want to focus on Ryan and the House GOP’s 50 percent exclusion on income earned from capital gains, dividends, and interest.
Yesterday, presumptive Republican nominee Donald Trump gave a speech on trade, extensively citing EPI’s research which shows that trade deficits as a result of NAFTA and other trade deals, as well as trade with China, have cost U.S. jobs and driven down U.S. wages. It’s true that the way we have undertaken globalization has hurt the vast majority of working people in this country—a view that EPI has been articulating for years, and that we will continue to articulate well after November. However, Trump’s speech makes it seem as if globalization is solely responsible for wage suppression, and that elite Democrats are solely responsible for globalization. Missing from his tale is the role of corporations and their allies have played in pushing this agenda, and the role the party he leads has played in implementing it. After all, NAFTA never would have passed without GOP votes, as two-thirds of the House Democrats opposed it.
Furthermore, Trump has heretofore ignored the many other intentional policies that businesses and the top 1 percent have pushed to suppress wages over the last four decades. Start with excessive unemployment due to Federal Reserve Board policies which were antagonistic to wage growth and friendly to the finance sector and bondholders. Excessive unemployment leads to less wage growth, especially for low- and middle-wage workers. Add in government austerity at the federal and state levels—which has mostly been pushed by GOP governors and legislatures—that has impeded the recovery and stunted wage growth. There’s also the decimation of collective bargaining, which is the single largest reason that middle class wages have faltered. Meanwhile, the minimum wage is now more than 25 percent below its 1968 level, even though productivity since then has more than doubled. Phasing in a $15 minimum wage would lift wages for at least a third of the workforce. The most recent example is the effort to overturn the recent raising of the overtime threshold that would help more than 12 million middle-wage salaried workers obtain overtime protections.
Last Friday, Speaker Paul Ryan released his long awaited tax reform proposal, the final piece of the House GOP’s election year agenda, “A Better Way.” This agenda, as Ryan noted, is meant to highlight the policies Republicans are for, not simply what they are against. So what kind of tax reform are Republicans for?
It will come as no surprise that the consensus view of House Republicans is that tax reform means more tax cuts for the rich (a point I’ll highlight more in later posts). What is surprising, however, is how Paul Ryan and the House GOP propose cutting taxes for the rich.
Ryan has decided that the House GOP should take tax advice from noted fiscal policy experts Sam Brownback and Donald Trump. Specifically, Ryan’s House GOP tax reform agenda creates a new loophole for “pass-through” income. Pass-through entities are businesses whose incomes are not taxed at the corporate level, but instead “passed through” entirely to the business owners and then taxed at their individual income tax levels. Trump’s tax plan called for cuts to the top individual income rate that would reduce it from today’s 39.6 percent to 25 percent. But, on top of this already generous tax cut for the very top, he also introduces a special, lower rate for pass-through income—15 percent.
The British vote to leave the European Union is a watershed event—one that marks the end of an era of globalization driven by deregulation and the ceding of power over trade and regulation to international institutions like the EU and the World Trade Organization. While there were many contributing factors, the 52 percent vote in favor of Brexit no doubt in part reflects the fact that globalization has failed to deliver a growing standard of living to most working people over the past thirty years. Outsourcing and growing trade with low-wage countries—including recent additions to the EU such as Poland, Lithuania, and Croatia, as well as China, India and other countries with large low-wage labor forces—have put downward pressure on wages of the working class. As Matt O’Brien notes, the result has been that the “working classes of rich countries—like Brexit voters—have seen little income growth” over this period. The message that leaders in the United Kingdom, Europe, and indeed the United States should take away from Brexit is that the time has come to stop promoting austerity and business-as-usual trade deals like the Trans-Pacific Partnership (and the now dead Transatlantic Trade and Investment Partnership) and to instead get serious about rebuilding manufacturing and an economy that works for working people.
Conservative austerity policies in Britain over the past two decades, which have slashed government spending and limited government’s ability to deliver public services and support job creation, fueled the anger towards elites that encouraged Brexit. At the same time, the neoconservative, anti-regulatory views of public officials in Brussels—who are disdainful of government intervention in the economy and who consistently pushed for the “liberalization of labor markets” and other key elements of the neoconservative model—left Europe unprepared for the Great Recession. It’s no surprise, then, that there has been a revolt against the EU. When the financial crisis hit in 2008, EU authorities, especially banking officials in Germany and other wealthy countries that have a dominant influence over the European Central Bank, reacted by blaming public officials in Greece, Spain, Portugal and other countries hardest hit by the crisis. The budget cuts they demanded led to further contractions in spending and soaring unemployment which still persists in much of southern Europe, putting further downward pressure on employment in the UK and setting the stage for widespread populist revolts from the left and right that have gained traction across much of Europe.
Supreme Court immigration decision means millions of workers will be deprived of crucial labor protections
This morning the Supreme Court of the United States issued its decision in United States v. Texas, the State of Texas’s challenge to the most significant of the executive immigration actions—known as the DAPA and DACA+ initiatives—which were announced by President Obama on November 20, 2014. The Court was deadlocked in a 4-4 tie, which results in the Fifth Circuit’s decision being upheld, which had affirmed the District Court’s preliminary injunction that prevented the president from moving forward with DAPA and DACA+.
At issue in U.S. v. Texas was the president’s authority to defer the deportation of unauthorized immigrants who are the parents of children who are either U.S. citizens or legal permanent residents, if the parents have resided in the United States for at least five years, and are not an enforcement priority for deportation. This is known as DAPA—Deferred Action for the Parents of Americans and Legal Permanent Residents. The president also would have updated and expanded DACA, the Deferred Action for Childhood Arrivals initiative (in place since 2012), which to date has provided deferred action to over 700,000 people who entered the country as minors without authorization. Combined, over five million people are eligible for DAPA, DACA, and expanded DACA (sometimes referred to as DACA+), out of a total unauthorized immigrant population of 11 million.
Since implementation of the DAPA and DACA+ initiatives has been prevented, millions of unauthorized immigrants will not be eligible to apply for and obtain an employment authorization document from the Department of Homeland Security that allows them to work legally. This means that millions of workers will continue to lack access to basic labor standards and employment law protections—a terrible outcome for both unauthorized immigrants and American workers.
The substance and impact of the H-2B guestworker program appropriations riders some members of Congress are trying to renew
On June 8, the Senate Subcommittee on Immigration and the National Interest held a hearing on the H-2B temporary foreign worker program—a guestworker program that allows U.S. employers to hire workers from abroad for lesser-skilled occupations like landscaping, hospitality, seafood processing, and construction. It is a well-known fact the the program is rife with abuses, and I’ve shown how employers can legally underpay migrant workers in the program. News reports have revealed that employers use it try to avoid hiring American workers and that enforcement is lacking. (For more background, see EPI’s FAQ on the H-2B program.)
The hearing was timely because H-2B is currently a live issue on Capitol Hill. By that I mean Congress is considering provisions (also known as riders) to the omnibus appropriations bill that will fund the government for all of fiscal year 2017, which would extend riders amending the H-2B program that are currently in force during fiscal 2016. These riders deregulate the program by making it easier to exploit and underpay migrant workers while restricting the access of U.S. workers to jobs in their own communities. The riders also expand the program, allowing it to as much as quadruple in size. Members of Congress who want to grow the H-2B program, while keeping wages low for migrant workers, are again trying to hijack the appropriations process because there isn’t enough political support to pass the H-2B riders as a standalone bill.
Until now, very little has been written about the the substance of the riders and the H-2B rules they affect, or the impact they are having on the program and on the wages and working conditions of U.S. and migrant workers in the main H-2B occupations. The following is an excerpt from my congressional testimony on the H-2B program, which has been updated and edited for clarity; it explains in detail what you need to know about the H-2B riders.
From time to time researchers have raised technical measurement issues with our research showing that the compensation of a typical worker has diverged from overall productivity. The Heritage Foundation’s James Sherk—a repeat player—has a new entry.
Last September, Josh Bivens and I published a paper that provides a comprehensive review of the measurement issues and presents our estimates showing that rising inequality, both from greater inequality of compensation and an eroding labor’s share of income, drives the productivity-pay divergence, especially in this century. It easy to get caught up in a myriad of technical issues, none of which, as Bivens ably shows in his recent analysis, actually change the overall finding that hourly productivity growth has generally far exceeded that of a typical worker’s hourly compensation since around 1973 or 1979. As Bivens points out, Sherk actually ignores that we highlight the gap between a typical (median or “bottom eighty”) worker’s compensation and productivity and not the average compensation (including that of CEOs and the top one percent), which sets aside the main driver of the gap.
The following is a lightly edited transcription of a talk given by Josh Bivens at an AFL-CIO conference on the Implications of Globalization & Secular Stagnation for Monetary Policy.
The central question this presentation is “what are the implications of globalization and secular stagnation for monetary policy?” Let me tell you my final answer first and then I’ll work my way there.
My final answer is that globalization and secular stagnation make a sustained, coordinated fiscal expansion necessary for restoring growth to the global economy. Current politics in both the Unites States and Europe make this impossible in the short run. This means it’s likely to be a long time before we have a decent global economy, and that’s a real problem.
Let’s start out with some definitions. Secular stagnation is a chronic shortfall of aggregate demand that cannot be solved just by lowering short-term interest rates. It is obviously closely related to the problems of the zero lower bound (ZLB) on interest rates—it essentially says that this ZLB problem is not something that needs a one-time burst of policy activism to defeat, but that long-run forces (the rise of inequality, among other things) have lowered the long-term natural rate of interest that is consistent with full employment.
James Sherk at the Heritage Foundation has written a piece claiming that there has been no gap between growth in productivity and growth in pay. It’s written largely as an attempted debunking of our work, but since there’s not actually any bunk in this work, the attempt fails.
Sherk raises many issues. Some have a bit of validity to them, some do not. I’ll discuss some of the nitpickier bits of his piece a bit later. In the end, however, the difference between his findings and ours boils down to the fact that he ignores the effect of rising inequality in driving a wedge between productivity and pay. And it’s true that if you ignore inequality, you get a much sunnier view of American wage performance in recent decades. But that’s the whole point, no?
Past all the hand-waving, the difference between Sherk’s findings and ours is completely dominated by the same single point of contention that comes up in every debate about growth in productivity and pay: the difference between average versus typical pay growth. The title of our most recent piece on this topic is: Understanding the Historic Divergence Between Productivity and a Typical Worker’s Pay. That “typical” in the title is important. We look at two measures of hourly pay that we argue are relevant for typical American workers: average pay for private-sector production and non-supervisory workers from the Current Employment Statistics (CES) and the median worker from the Current Population Survey (CPS). Production and non-supervisory workers constitute 80 percent of the private workforce. We think that seems pretty typical. The median worker in the CPS is that worker who earns higher hourly pay that half of the workforce and lower hourly pay than half. This also seems broadly representative to us.