Unpaid Internships: Bad for Business, Bad for Interns

Yesterday’s NYT column by David Carr about internships doesn’t just bury the lede, it takes it hostage and heads off in the opposite direction before revealing that Carr thinks businesses ought to pay their interns and will be rewarded for it. Carr starts out by seeming to make fun of young people who think they’re too good to get someone else’s coffee and drycleaning and seems in particular to have no patience for an intern who moved to New York to work for Vogue only to find herself being abused and undervalued—and crying into her pillow at night. He argues that lawsuits enforcing interns’ right to be paid might be ill-conceived.

But the column takes an abrupt turn when Carr describes the experience of The Atlantic Media, which ended its practice of hiring unpaid interns soon after the Labor Department issued a Fact Sheet declaring most unpaid internships at for-profit companies illegal. The Atlantic began paying its interns (Carr doesn’t mention that it provided backpay to previous interns who had been unpaid) rather than doing away with internships altogether. It created year-long fellowships involving mentoring and education, substantive work, and honest compensation. Far from suffering financially, the company has thrived. The fellows are diverse, smart, creative, and bring new energy to the company.

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On Social Security, Elizabeth Warren Gets It Mostly Right

Huffington Post reports a recent floor speech where Sen. Elizabeth Warren (D-Mass.)  condemned the notion that we ought to be cutting back on Social Security benefits rather than expanding them:

Sen. Elizabeth Warren (D-Mass.) recently joined the push to increase Social Security benefits, saying the program can be kept solvent for many years with “some modest adjustments.”

“The suggestion that we have become a country where those living in poverty fight each other for a handful of crumbs tossed off the tables of the very wealthy is fundamentally wrong,” Warren said in a Senate floor speech on Monday. “This is about our values, and our values tell us that we don’t build a future by first deciding who among our most vulnerable will be left to starve.”

She added, “We don’t build a future for our children by cutting basic retirement benefits for their grandparents.”

I agree with Warren: It’s morally wrong to cut Social Security benefits when seniors are already struggling and the generations coming behind us will have fewer pensions and lousier savings in their 401(k)s, if they have any savings at all.  We are a wealthy nation, but our wealth is being shifted away from the majority and into the pockets of a smaller and smaller slice of upper income earners and rich families.  As EPI’s State of Working America reveals, from 1983 (when the last major Social Security reform was enacted) through 2010, the wealth of the bottom 60 percent of Americans actually declined.  Even as the nation’s wealth increased by 63 percent, the bottom 60 percent of families were made poorer because a range of policies froze their wages, shipped their jobs overseas, lowered the minimum wage (after adjustment for inflation), and indebted them by raising the price of education.

Further, as much as I agree with Sen. Warren on the merits and understand why she felt the need to push back on the “grandparents vs. grandchildren” framing, I don’t think she went far enough in her argument here—because it is actually the grandchildren who are really the most at risk. Maya MacGuineas and Alan Simpson pretend that if we don’t cut “entitlements” (earned benefits) like Social Security now, we will somehow bankrupt our grandchildren. So their solution is….to cut the grandchildren’s income. Raising the retirement age for the generations coming behind us means cheating them, cutting their benefits when we should be raising taxes now to fund their future benefits.  They are the ones who will lose the ability to retire while they can still enjoy it. They are the janitors, cashiers, factory workers, construction workers, and nurses’ aides who will be forced to work even longer in physical jobs or see their benefits cut to levels even closer to poverty. Already, the average benefit is just a little more than the poverty threshold, $14,760 vs. $11,490.

Besides being morally wrong, cutting Social Security is economically incoherent. As EPI has shown repeatedly, retirement insecurity is growing and essentially every “leg of the retirement stool” besides Social Security is failing American workers and retirees. In short, the next generations will need a strong Social Security system more than ever. If they are to have what they need, Social Security must be expanded, not cut back. Its funding must be shored up by scrapping the cap, the arbitrary limit that lets the top earners escape taxation on salaries over $113,700 a year, while the bottom 90 percent pay on every nickel they earn. Additional benefits will require higher payroll taxes, but those taxes will be a fair price for better financial security for the elderly. For some details on this, see Monique Morrissey’s presentation at the National Academy for Social Insurance from earlier this year.

In Debate Over ”Secular Stagnation,” Don’t Let Legitimate Concerns Over Inequality Let Austerity Off the Hook

The debate over “secular stagnation” started by Larry Summers and Paul Krugman continues on. Contributions from Jared Bernstein, Dean Baker, and Daniel Davies are worth reading (as are plenty I’m missing, for sure).

The root question being discussed is whether or not the shortfall in aggregate demand that drove the Great Recession and continues to depress the U.S. economy (and other advanced economies) is something that will afflict us for a long time, and if so what to do about it.

Historically, the prospect of demand shortfalls lasting a decade is not something that worried macroeconomists. The general assumption was that economies were pretty resilient, and so long as the Federal Reserve cut short-term interest rates as downturns loomed, recessions would be short and recoveries rapid. And for recessions in the U.S. before 1990, that seemed borne out by the data. Yet the last three recoveries have been slow—and each one slower than the last. And the recovery following the 2001 recession really only happened when an enormous asset bubble in housing pumped hundreds of billions of dollars of demand into the economy, and even with this enormous (and ephemeral) boost, the recovery was still anemic. Hence the concerns over “secular stagnation,” or, demand shortfalls that linger on for a long time.

Yesterday’s addition to all of this, from the BBC, discusses an implicit debate between Krugman and Joseph Stiglitz about whether or not the inequality is a key influence depressing demand and making recovery so hard.

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Responding to an Uninformed Critique

Earlier this year, we published an analysis of international test score data in which we showed that these data hide many complex issues, and that glib conclusions regarding the meaning and policy implications of international test data should be avoided. We showed that it is more appropriate to compare student performance across countries by comparing students with similar social class backgrounds, and we showed that comparative information is more useful if it includes test data trends over time as well as levels in the current year. We also presented apparent anomalies in test data (for example, periods in which performance on one international test goes up but performance on another international test, purporting to measure the same subject, goes down, or carelessness in sampling methodology) that should caution analysts from relying too heavily on test score data.

Upon the release of our report, we were attacked by several promoters of the conventional idea that international test data show that American schools are in collapse and are threatening our economic security. Prominent among these was Marc Tucker, president of one of the leading education-scold organizations, the National Center on Education and the Economy. Tucker attacked our report without having bothered to read it, and was subsequently forced to issue an apology for misrepresenting our findings (“We misstated the conclusions presented by Martin Carnoy and Richard Rothstein in the report described in this newsletter. We believe we have stated those conclusions accurately here, and apologize to the authors for the error”).

He apparently didn’t learn anything from this embarrassing episode, because now, two weeks before release of new international test score data, he has again attacked our earlier report, again based on his own misrepresentations of what the report actually says. The occasion of his current critique is Valerie Strauss’ Answer Sheet blog at The Washington Post.

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Our Debt is Not a Problem We Need to Solve Right this Second

Yesterday, the Committee for a Responsible Federal Budget released a report entitled “Our Debt Problems Are Very Far from Solved,” which implicitly argues that—despite dramatic drops in our near-term deficits and vast improvements in the medium-term outlook of the federal government’s balance sheets—long-term deficit reduction should remain our top economic policy priority for now.

Concentrating on deficit reduction above all else would be a mistake for a number of reasons: such a focus ignores recent changes in facts about our fiscal outlook; it calls for painful and unnecessary policy changes; and it sets aside the issues that should be our focus, namely returning to a broadly-shared economic growth. To be clear, there are policies that would reduce long-term deficits while helping to meet these other challenges, but there are also policies that would reduce long-term deficits while making these challenges even worse. It matters, a lot, which set of policies we choose. Prioritizing deficit reduction, in and of itself, as the pre-eminent policy goal going forward makes for a much worse debate.

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Either AEI Has Forgotten Basic Statistics or They Are Advocating For More Collective Bargaining

Admittedly, I don’t read the American Enterprise Institute’s blog very much. Today, however, someone alerted me that they published this post suggesting that minimum wage laws are at least partially to blame for Europe’s employment woes. In it, Dr. Mark Perry presents a table of countries in Western Europe, their country-wide statutory minimum wage, if they have one, and their respective “jobless rates.”1 He then asserts:

“[M]inimum wage proponents… argue that other countries have minimum wage laws apparently without any adverse consequences on employment levels or jobless rates. The empirical evidence from Western Europe seems to suggest otherwise. Labor markets in the group of countries with no minimum wage laws are much healthier and doing much better than the group of countries with minimum wage legislation, measured by the jobless rates in Western Europe.”

To paraphrase, “Look: minimum wage, higher joblessness; no minimum wage, lower joblessness… just saying.” Although this argument has something of a timeless quality to it (pdf), it’s wrong, tissue-paper thin, and not something we would expect from any serious researcher.

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Brief Discussion of Senator Baucus’s Discussion Draft

Senate Finance Committee Chairman Max Baucus released his international business tax reform discussion draft yesterday. This is an ambitious and fairly thorough proposal and the Senator is to be commended on offering such a detailed draft with legislative language.

But from the start it fails in one crucial area—revenue. Senator Baucus apparently is looking for additional revenue for short-term deficit reduction, but the international tax reform discussion draft is intended to be long-term revenue neutral (more on this below). Corporate taxes already provide too little revenue; corporate tax revenue, which was about 4 percent of GDP in the 1950s, is equal to about 1.5 percent of GDP today. If corporate tax revenue as a percent of GDP had been at its 60-year average last year, corporate tax revenues would have been 43 percent higher, or about $120 billion. Meanwhile, corporate profits are currently at an all-time high.

Revenue aside (and it’s a big aside), it is difficult to fully assess the policy merits of a discussion draft that offers two options and is necessarily incomplete until the rest of the corporate income tax proposal is released. Nonetheless, I have a few comments, based on what has been released and my reading between the lines.

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Uwe Reinhardt on Cost-sharing

In an article in JAMA (The Journal of the American Medical Association), Uwe Reinhardt writes about the improbability of “more skin in the game” as a solution to our health care spending woes. Increasing “cost-sharing” or creating “more skin in the game” are different ways to say that patients can/will/should pay more when they go to the doctor or hospital. It means that patients bear a higher share of medical costs, through higher deductibles, higher co-pays, higher so-insurance, and the like. And, it’s often argued that patients with “more skin in the game” will spend their health dollars more wisely. This was the rationale behind the excise tax on high-priced health insurance plans, a tax to not only raise revenue to pay for health reform but also as a way to thin out health plans, making patients pay more for care.

Reinhardt suggests that inducing patients to shop around for cost-effective health care is “about as sensible as blindfolding shoppers entering a department store in the hope that inside they can and will then shop smartly for the merchandise they seek.” The problem, he argues, is that health care has been historically “delivered behind the secure walls of a fortress that kept information on the prices charged for health care and the quality of that care opaque from public view.”

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Actually, the Fed Can Do Something (Lots, Even) About Inequality

At today’s confirmation hearing for prospective Federal Reserve Chair Janet Yellen, Senator Heidi Heitkamp (D-N.D.) asked Yellen about how Fed policy contributes to inequality, and specifically worried that recent Fed policies (ie, quantitative easing) have helped asset owners without doing much to help low- and moderate-income Americans.

There are a couple of things to note about this. For one, Yellen’s answer that faster growth and a better job-market recovery would do a lot to ease inequality was spot-on. The short version is that the Fed can do the most to address inequality by quickly getting unemployment down to very low levels. She specifically noted the episode of the late 1990s when very tight labor markets led to across-the-board wage growth. This is exactly right, and too often under-appreciated.

We noted in The State of Working America, 12th Edition that even relatively rosy estimates of unemployment reductions imply that the Great Recession and the weak recovery that preceded it could well lead to typical Americans seeing essentially no wage and income growth for two full decades before all is said and done. This is an underappreciated policy catastrophe.

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Is There Any Reason Not to Release the ACA Prices?

The uproar over people having their insurance plans cancelled just as the ACA “exchanges” for purchasing insurance  are being set up has been amplified—probably enormously—by the failure of healthcare.gov. It is understandably anxiety-inducing to lose the insurance you have without receiving proper information on an available alternative.

Research done before the exchanges were set-up provided ample evidence that while some young, healthy, higher income people may face higher premiums (for now—but will get a better deal if they make it to the “not so young and healthy” phase of life—yah social insurance!), the vast majority of those in the individual market (and remember the uninsured!) will find better deals in the new system. So, while we have some clear evidence of that fact from states that are operating their own exchanges, people who live in states that refused to set up their own exchanges and free-rode on the federal government’s site don’t have the information yet.  The U.S. Department of Health and Human Services released a useful brief on health premiums in the federally facilitated exchanges for a set of individuals, with factors that could be used to adjust them to all family types. Unfortunately, interpreting the results are out of reach for most Americans and listing the plan features with the premiums would be far more useful. The Kaiser Family Foundation created a handy calculator, which gets closer by incorporating all ages and family types, but doesn’t provide nearly the breadth of information that could be made available.

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The Jobs Gap May Be Bigger for Men, But Within Industries Men are Still Gaining More than Women

Yesterday’s Economic Snapshot showed how women’s and men’s employment prospects have fared in the Great Recession and its aftermath. Women have regained 2.9 million jobs, bringing them back to pre-recession levels, and men have gained 2.7 million jobs, still falling short 1.7 million jobs of their pre-December 2007 levels.

At first glance, it may appear that women are doing better than men. Men lost 3.4 million more jobs in the Great Recession and its aftermath than women—employment among men dropped 8.7% while women only saw a 4.0% drop in employment. By mid-2009, men had lost so many jobs that women’s payroll employment was 50% of the work force for the first time in history. In the recovery, men reversed the trend and gained more jobs than women (4.4 compared to 2.9) but, women still have a smaller jobs gap, 3.6 million compared to 4.4 million for men.

So what’s really going on here? To understand the gender dynamics of employment, it’s crucial to look at the gender breakdowns within industries. The table (an updated version of Table 5.8 from the State of Working America) below shows the distribution of male and female workers across industries and the relative change in male and female employment within their industries since 2007. The industries that have taken the biggest employment hits since 2007—construction and manufacturing, which dropped 22.3% and 12.9%, respectively—also have a disproportionately larger share of male workers than in other industries. Industries that have a larger share of female workers, such as health care and social assistance government, fared considerably better: health care and social assistance employment increased 11.5 percent since December 2007. One story of the Great Recession shows that women fared better than men, as they were disproportionately employed in industries that sustained less dramatic employment drops during Great Recession than industries that were male dominated.

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House Signals Opposition to Proposed Trans-Pacific Partnership

The Obama administration has been rushing to complete a trade agreement with a dozen Pacific Rim countries including Japan, Canada, Malaysia and Vietnam, with key negotiations set to start next week in Salt Lake City. A bi-partisan group of more than 170 Democrats and Republicans sent letters to the president this week signaling their intent to oppose so-called “Fast Track” procedures (also known as Trade Promotion Authority) which would allow the White House to submit trade agreements to Congress without the opportunity to amend the deals.

Congress is wise to pause before giving the president carte blanche to negotiate new trade deals and wise to demand fuller consultation with Congress on the content of those deals. Fast track authority was first developed by the Nixon administration to rush trade agreements through Congress without threat of amendment. But deals such as the North American Free Trade Agreement and the recently ratified Korea-U.S. trade agreement (KORUS) have failed to live up to expectations precisely because they are much more than simple trade agreements. These agreements are concerned with stimulating foreign investment and remaking a host of regulatory policies covering labor law, patents and copyrights, food safety standards, and state owned enterprises, as well as financial, healthcare, energy, telecommunications, and other service industries, as noted in a letter this week from 151 Democratic members of Congress to the president. KORUS and dozens of other trade and investment deals have resulted in a huge surge in outsourcing and have eliminated millions of jobs, especially in U.S. manufacturing.

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The United States Postal Service is Waking Up

Last week, I wrote that Congress has been tying the hands of the Postal Service by limiting its ability to develop new products or to price its services competitively. Worse, Congress filled the Postal Service’s pockets with weights to drag them down financially, adding tens of billions in costs for retiree health insurance on a schedule no other corporation has to live with, while charging it more than $50 billion for pensions earned before the Postal Service was incorporated in 1971—costs that the federal government should bear, not the Postal Service.

It’s a recipe for killing the Postal Service, and postal management has sometimes seemed like a willing victim. Most notoriously, they’ve pushed to end six-day delivery of mail, even though customers love it.

But this weekend brought good news. Recognizing the strength their unparalleled, universal delivery system represents, postal management has negotiated something new: not subtracting, but adding a day of package delivery on Sunday. For now it’s limited to delivering packages for Amazon in New York and Los Angeles, but once these deliveries have been extended to the rest of the nation, who knows what other customers will decide to take advantage of this new opportunity?

I firmly believe that if the Postal Service is freed to compete more fairly, without having obstacles strewn in its path by a hostile Congress, it can rise to the challenge of maintaining universal delivery at a price that customers can afford. The Postal Service and its hundreds of thousands of employees deserve the chance.

We Have Skilled Construction Workers−They Need Jobs

The next time you read in the newspaper or hear on TV that there is a shortage of construction workers and we have to import tens of thousands of workers from abroad in order to have enough construction labor, remember this memo from Jason Furman, Chair of the Council of Economic Advisers:

Construction employment rose by 11,000 in October and is up 185,000 over the past year, but remains 1.9 million jobs below its previous peak, underscoring the importance of continued strengthening in housing markets and investments in infrastructure. Of the 185,000 increase in construction employment over the past year, the bulk (104,000) is in residential construction, while 65,000 are in non-residential construction, and 16,000 are in heavy and civil engineering construction. The gains in residential construction are consistent with the recovery we have seen unfolding in the housing sector, but additional steps still must be taken to create a more durable and fair system that promotes responsible homeownership. Moreover, the fact that employment in non-residential and heavy and civil engineering construction has grown slowly is an important reminder that we should also be looking for opportunities to invest in America’s roads, bridges, and schoolhouses.”

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Indian IT Outsourcing Firm Pays Biggest Immigration Fine in History

The lengths to which businesses will go to get cheap labor are boundless.  Tech firms, despite their luster, are no better in this regard than landscaping firms, hotels, or construction companies. Most tech firms want to reduce their labor costs (except for their executives), and a surprising number seem to treat the law as an obstacle to get around. I’ve written about the Justice Department’s settlement with 6 of the most famous information technology (IT) companies in America over anti-trust charges involving a conspiracy to suppress wage demands, and a subsequent lawsuit filed by the employees who would have been harmed by the conspiracy.

A newer case came into the spotlight last week.  The Justice Department’s $35 million settlement of civil fraud charges against Infosys, a firm whose business model is largely based on the outsourcing and offshoring of IT work to India, facilitated by using the H-1B guestworker visa, exposed a pervasive scheme of visa abuse in the H-1B and B-1 “business visitor” visa categories. This scandal lends support to the efforts of Sen. Charles E. Schumer (D-N.Y.), Sen. Richard J. Durbin (D-Ill.), and Sen. Charles Grassley (R-Iowa) to put new limits on IT outsourcing firms.

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Don’t Blame the Robots for Slow Job Growth In 2000s

There is a lot of talk about robots these days, as if technological change has led to weak job creation, caused wage inequality, and even caused the profit share of the economy to increase as workers’ share (compensation) falls. We have definitely had problems with employment growth and growing wage inequality, alongside a profit boom not just during the Great Recession and its aftermath but since 2000—and for wage inequality, for two decades prior. Is technology driving all this? I think not.

This post tackles the issue of whether robots slowed job growth in the 2000s (my colleague Josh Bivens has addressed this previously, but for the recovery). In the near future I will be addressing whether robots are responsible for our current wage inequality. Spoiler alert: they aren’t.

MIT professors Andrew McAfee and Erik Brynjolfsson wrote the influential book Race Against The Machine, which has driven much of this conversation. They label the disconnect between employment growth and productivity growth in the 2000s the “Great Decoupling.” Moreover, they argue that there has been an “acceleration of technology” that has “hurt wages and jobs for millions of people” even as “digital progress grows the overall economic pie.” Brynjolfsson and McAfee know a lot more about technology and its impact on firms and work than I do, but attributing the job slowdown in the 2000s to robots or digitalization overlooks a simple alternative answer: slow aggregate output growth caused by the bursting of asset bubbles. In fact, they do not offer much evidence to connect the technological trends (robots and digitalization) they document to the aggregate job, wage and inequality trends they, and I, care about.

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Health Insurance Exchanges Will Go a Long Way Toward Fixing the Broken Health Care System

The non-elderly population across the country relies on employer-sponsored health insurance (ESI) as their primary form of health coverage. In eleven of the last twelve years, however, ESI coverage has declined. Across the country, on average, ESI coverage for the under-65 population fell 10.8 percentage points from 2000 to 2012. Translated into raw numbers, if the ESI coverage rate had not declined over this period, 29 million more Americans would be covered today by their employers. Twenty-two states experienced losses in excess of 10 percentage points over the period. The largest declines in coverage occurred in Nevada, Michigan, Georgia, Ohio, Wisconsin, and Indiana, each with losses of at least 13 percentage points.

As a result of these losses, the average coverage rate in 2012 was down to 58.4 percent. The map below compares ESI coverage for the entire under-65 population across states in 2011/2012.1 Massachusetts has the highest rate of ESI coverage at 70.8 percent. It is followed by New Hampshire (70.0 percent), Connecticut (69.7 percent), Minnesota (69.0 percent), North Dakota (67.6 percent), and Maryland (67.3 percent). In contrast, less than half of New Mexico’s non-elderly population has ESI, at 47.2 percent.

Map

Employer-sponsored health insurance coverage by state, population under 65 years old, 2011–2012

State ESI Coverage
Alabama 57.9%
Alaska 57.0%
Arizona 54.8%
Arkansas 50.1%
California 52.6%
Colorado 61.4%
Connecticut 69.7%
Delaware 64.4%
District of Columbia 57.6%
Florida 51.8%
Georgia 54.5%
Hawaii 65.9%
Idaho 56.7%
Illinois 60.8%
Indiana 63.0%
Iowa 64.5%
Kansas 59.9%
Kentucky 57.5%
Louisiana 53.0%
Maine 60.9%
Maryland 67.3%
Massachusetts 70.8%
Michigan 62.5%
Minnesota 69.0%
Mississippi 53.7%
Missouri 60.6%
Montana 51.5%
Nebraska 63.0%
Nevada 56.4%
New Hampshire 70.0%
New Jersey 66.0%
New Mexico 47.2%
New York 59.6%
North Carolina 55.9%
North Dakota 67.6%
Ohio 61.4%
Oklahoma 54.0%
Oregon 57.1%
Pennsylvania 64.6%
Rhode Island 62.6%
South Carolina 56.8%
South Dakota 59.0%
Tennessee 56.0%
Texas 52.1%
Utah 66.3%
Vermont 60.9%
Virginia 64.0%
Washington 59.3%
West Virginia 59.2%
Wisconsin 64.7%
Wyoming 61.1%

Source: Author’s analysis of Current Population Survey Annual Social and Economic Supplement microdata

Embed this chart

These huge losses almost surely explain the increasing demand for health reform that characterized the years leading up to the passage of the ACA, and highlight why health reform was so important. The fact is the employer-based health insurance system was fraying rapidly in the decade before health reform was implemented. Even before the ACA’s implementation, many of those losing ESI found shelter in public insurance, which disguised the precipitous drop in employer coverage. Indeed, from 2000 to 2012, public insurance, primarily in the form of Medicaid and CHIP, helped counteract the erosion in employment-based coverage and is the only reason why the uninsured rate did not rise one-for-one with the fall in ESI. However, many Americans, particularly those of working age, are still falling through the cracks. Fortunately, once the (admittedly too large) kinks are worked out, the health insurance exchanges created under the ACA will make it easier and more affordable for Americans to secure and maintain health insurance coverage, even if ESI continues the decline that has characterized the last decade.

Endnotes

1. Because of sample size requirements, I combined two years of data 2011 and 2012.

A Daily Reminder That Thousands Die In Preventable Workplace Deaths Every Year

Five days a week, I receive the Cal-OSHA Reporter News Digest, which compiles reports of deaths and injuries in California as well as other states. It’s a regular reminder that I am a lucky man to have worked my entire life in think tanks, government offices, and law firms. Every issue is filled with grim stories of workers mangled by machinery, suffocated by corn in a silo, killed in falls or struck by a careless driver as they worked on the highway, or sometimes, killed in ways so horrible that it beggars the imagination. On any given day, dozens of people are killed in the workplace, and the Cal-OSHA reporter captures only a few of these stories. It does not, and cannot, begin to capture the extent of workplace injuries, since for every one death there are a thousand injuries. And the toll from occupational illness is too slow and insidious to capture, though silicosis, black lung, asbestos disease, and cancer from hundreds of toxic chemicals kill an estimated 50,000 workers every year. Today’s Cal-OSHA Reporter was typical—a perfect reminder that American workers are not sufficiently protected from harm, that OSHA and its sister agencies in the states face an overwhelming challenge with far too few resources, and that employers that put their employees’ lives at risk and take them from their families forever are rarely punished in a way that meets the enormity of what they did or allowed to happen.

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Transatlantic Free Trade Agreement: Job Claims Are Pure Baloney

The Senate Finance Committee held hearings this week on the proposed Transatlantic Trade and Investment Partnership (TTIP). The committee chair, Sen. Max Baucus, claimed that the TTIP could boost U.S. exports to the EU by a third, adding “more than one hundred billion dollars annually to U.S. GDP,” and that it “could support hundreds of thousands of new jobs in the United States.” The statement is remarkable for its sheer audacity in the face of massive evidence of the failure of similar deals to deliver promised benefits. U.S. trade with Mexico after the North American Free Trade Agreement (NAFTA) has cost the United States nearly 700,000 jobs through 2010. U.S. trade with China has certainly failed to deliver on the promised benefits of growing exports. Since that country entered the World Trade Organization (WTO) in 2001, the U.S. has lost 2.7 million jobs through 2011 due to growing trade deficits with China. And the Korea-U.S. Free Trade Agreement (KORUS) has also resulted in growing trade deficits with that country and the loss of more than 40,000 U.S. jobs. Most of the trade-related job losses are concentrated in manufacturing, and growing trade deficits are responsible for a large share of the decline in U.S. manufacturing employment over the past fifteen years.

Using estimates of changes in two-way trade between the U.S. and the EU under the agreement reveals that TTIP is projected to result in a growing U.S. trade deficit with the EU and the loss of at least 71,000 additional U.S. jobs. Senator Baucus, citing advice from Benjamin Franklin, advises the U.S. to “jump quickly at opportunities.” When it comes to evaluating trade deals, Congress and the public would be better served by the common law principle of ‘Caveat Emptor,’ or, let the buyer beware. Congress has a duty to perform their due diligence in evaluating proposed trade and investment agreements before jumping at the next “great deal.” In particular, members should note that Sen. Baucus’s claims that the TTIP “could support hundreds of thousands of new jobs” are pure baloney.

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Dear Tim Cook: Fraction of Icahn Request Could Significantly Address Apple’s Labor Rights Violations

As the size of Apple’s cash reserves continues to mount, the company has come under increasing pressure to return more of those reserves to shareholders, through dividends and/or stock buy backs. The attention became particularly heated in February 2013 when hedge fund manager David Einhorn took up this position. In April, Apple did double its “capital return” program to $100 billion, to be distributed to shareholders by the end of 2015. This step muted the debate, until billionaire investor Carl Icahn began to acquire large amounts of Apple stock and to argue that Apple should return an additional $150 billion to its shareholders. Icahn pressed this case publicly and privately with Apple CEO Tim Cook, including in a letter to Cook just last week. It is in this context that the following letter was just sent to Mr. Cook. For more information on the working conditions facing Apple workers, see www.AppleLabor.com.

Dear Mr. Cook:

Another consideration should take precedence over Apple’s assessment of Carl Icahn’s suggestion that the company return $150 billion to its shareholders through a stock buyback, which would be on top of the $100 billion already pledged to Apple shareholders through the capital return program. This other consideration is much less expensive, yet far more justified.

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New Research Yields Old Results

The Joint Committee on Taxation (JCT), Congress’s official score keeper on revenue bills, recently issued a new report that details how they are changing how they calculate the distribution of the burden of the corporate income tax among taxpayers. This is important because talk of corporate tax reform is in vogue. In deciding on changes to corporate taxes, Congress should have an idea who will pay higher taxes, who will pay lower taxes, and who will be unaffected.

The burden of the corporate income tax falls on somebody, and much research has been devoted to determining who that somebody is. The candidates are capital owners (that is, corporate shareholders), workers, and customers. Most tax analysts scratch customers from the list, leaving capital owners and labor. Until a few years ago, most tax analysts read the weight of economic evidence as suggesting that capital bore 100 percent of the corporate tax burden.

During the George W. Bush administration, some tax analysts began producing analyses that attributed 60, 90, 100, and even 400 percent of the burden of the corporate income tax to labor. Subsequent studies, however, called much of this research into question and confirmed the earlier near-consensus that the burden of the corporate income tax is indeed overwhelmingly borne by capital. But the 2000s-era research did have some influence—government agencies that deal with tax policy (the Department of Treasury, the Congressional Budget Office, and JCT) made modest changes to their methods of calculating the distribution of the burden of the corporate income. CBO now attributes 75 percent of the burden to capital and the rest to labor. Treasury settled on 82 percent of the burden on capital and 18 percent on labor. JCT has now concluded that 75 percent falls on capital and 25 percent on labor.

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DC Minimum Wage Part 2: The Tipped Minimum Wage—Separate, But Not Equal

Following up on my previous blog post, there was considerable debate at Monday’s DC Council hearing on whether the city should raise the tipped minimum wage. One area restaurant owner in particular was adamant that there should be no change to the city’s current tipped minimum wage of $2.77 per hour. He argued that the council was attempting to “fix something that [was not] broken”—in that all of his tipped employees already earn far more than minimum wage under the current system, and if they did not, he was legally obligated to make up the difference. This is, by law, how the system should work. Notwithstanding the fact that his particular restaurant is a high-end nightclub where the average bill (and thus the average tip) is likely to be quite high, the evidence suggests his characterization reflects the exception rather than the norm for tipped workers.

Under current federal law, workers who customarily receive at least $30 from tips per month may be paid a base wage of only $2.13 per hour by their employer, so long as the their weekly earnings—tips plus base wage—equal an hourly rate of at least the regular federal minimum wage of $7.25. In other words, when you go to a restaurant in most places in the country, the server or bartender who serves you is only being paid something between $2.13 and $5 per hour by their employer, depending on the state. There are 18 states where the tipped minimum wage is $2.13, eight states where the tipped minimum wage is equal to the regular minimum wage, and 26 states with a tipped minimum somewhere in between. In the District of Columbia, the regular minimum wage is $8.25, and the tipped minimum wage is $2.77.

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Comparing the DC Minimum Wage Proposals

On Monday, I testified before the DC Council in support of the Minimum Wage Amendment Act of 2013, one of several bills being considered to raise the District’s minimum wage from its current value of $8.25 per hour up to rates ranging from $10.25 per hour to $12.50 per hour. The various bills have different phase-in schedules, i.e., some reach their final targets sooner than others, and some are “indexed” so that that they will automatically be adjusted for inflation in the years after reaching their target value.

 Here’s a quick rundown of the bills, with the principal author in parenthesis:

B20-438, the “Minimum Wage and Accrued Sick and Safe Leave Amendment Act of 2013” (David Catania, Councilmember At-Large): Raises the city minimum wage to $10.50 per hour over three years; no indexing.

B20-459, the “Minimum Wage Amendment Act of 2013” (Vincent Orange, Councilmember At-Large): Raises the city minimum wage to $12.50 per hour over 4 years beginning in 2015; indexes the value to the Consumer Price Index for all urban consumers (CPI-U) thereafter; raises the “tipped” minimum wage in the District to 70% of the regular minimum wage.

B20-460, the “Living Wage for All Act of 2013” (Tommy Wells, Ward 6): Raises the city minimum wage to $10.25 per hour over 2 years; indexes the value to the CPI-U thereafter; increases the standard deduction for taxpayers in the District.

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Food Stamps: ARRA’s Last Stand?

Funding to the Supplemental Nutrition Assistance Program (SNAP, or informally known as food stamps) is set to take a big hit on Friday with the expiration of expansions passed as part of the American Recovery and Reinvestment Act (ARRA). It’s important to see just how far those dollars went to lift Americans out of poverty. SNAP, bolstered by the ARRA extensions, kept 4.0 million Americans out of poverty in 2012 alone. A sad contrast is with another vital safety net program that also benefited from expansions in ARRA,  but which saw the ARRA expansions fade away much more quickly—unemployment insurance.

The poverty-reducing effects of unemployment insurance declined rapidly beginning in 2011 as the share of unemployed workers eligible for UI began falling. Further, in 2012 Congress provided fewer weeks of federal UI benefits to long-term unemployed workers (clawing back extensions in ARRA).

The declining protection offered by UI as the ARRA extensions fade away could well be the future of SNAP.  This would be both a human and an economic disaster. While the cuts will have real impacts on the lives of millions of American households, it will put a further drag on economic recovery. Food stamps are essentially being attacked as the last vestige of expansionary policy that hasn’t been stamped out yet by the sharp move towards austerity in recent years. It’s a mistake to think these cuts won’t have lasting effects on families, particularly children, but also will have deleterious effects on our recovery.

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Racial Underrepresentation In Construction: How Do The Union And Nonunion Sectors Compare?

Recently, I have undertaken some research on racial under-representation in the construction industry, and some interesting early findings are worth sharing. Construction is a sector that has historically excluded black workers—including the unionized portion of the industry. Giving minority workers access to good jobs is an important part of closing our large and persistent racial wage inequities, so this is a critical issue. It was on this basis that many progressives have been hostile to infrastructure spending in the past: it provided jobs in a sector where it was well known and documented that black workers had been excluded from opportunities. Some people, such as National Black Chamber of Commerce CEO Harry C. Alford, contend that “construction sites are still close to Jim Crow.”

It is worth asking whether and to what extent construction work is racially exclusionary, especially the unionized sector as Alford also contends. After all, there have been changes over the years, with unions increasing the number of minorities admitted into apprenticeship programs, and undertaking project labor agreements that incorporate community agreements that bring excluded populations into the industry. What does the current situation look like, and how does the union sector compare to the nonunion sector? It turns out that, at least in one of our largest and heavily unionized cities, New York City, Alford’s characterization is quite outdated.

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EPI Submits Amicus Brief on Civil Rights Case to SCOTUS

The Supreme Court has accepted a case in which the relevance of “disparate impact” evidence in discrimination cases brought under the Fair Housing Act is being challenged. The Economic Policy Institute, in collaboration with the Chief Justice Earl Warren Institute on Law and Social Policy at the University of California School of Law, and with the U.C. Berkeley Haas Institute for a Fair and Inclusive Society,  has submitted an Amicus Curiae brief to the Court in this case.

Our brief argues that entrenched patterns of residential segregation, established substantially by government policy, structure the housing opportunities of African Americans into the present time. In a case like that considered by the Court, a redevelopment project that displaces African Americans could violate the Fair Housing Act if provision is not made for the relocation of displaced residents into integrated middle-class communities nearby.

Many distinguished scholars have joined us as amici in this brief, including Elizabeth Anderson, John Brittain, Nancy Denton, Christopher Edley, Jr., James Kushner, Ira Katznelson, James Loewen, Myron Orfield, Jr., John Powell, Gregory Squires, and many others.

If you are a scholar in this field, and we neglected to invite you to join these amici, please understand that it was an oversight under serious time-pressure to submit this brief by the Court’s deadline.

Finding Some Good News About Health Reform

No, nothing to do with the website—that still seems problematic at best. But the CBO just released new estimates of the budget savings that would result from raising the Medicare eligibility age from 65 to 67. The punchline that most have focused on is that this (terrible) policy change is now estimated to save just a small fraction of what it was estimated to have saved in previous years ($19 billion over 10 years in the latest estimate, compared to $113 billion over 10 years in previous estimates).

Why the change? Mostly because CBO has changed its estimates to better reflect that fact that those who enroll in Medicare at 65 and 66 are less expensive than previously thought. The genuinely expensive 65- and 66-year-olds that are covered by Medicare tend to have been allowed to enroll at earlier ages because of chronic illness or disability. Further, many 65- and 66-year-olds still receive employer-sponsored insurance and use Medicare as secondary insurance. CBO seems to have made re-estimates that boost the importance of both these issues in reducing the estimate of what newly enrolled 65- and 66-year-olds spend on Medicare.

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What We Read Today

Happy Friday. Here’s what we read today. Read anything interesting lately? Share it in the comments!

Alt Underemployment

In the past, I have shown that most of the improvement in the unemployment rate since its peak of 10 percent in the fall of 2009—and all of the improvement in the unemployment rate over the last year—has not been for good reasons. It has been due to people either dropping out of, or not entering, the labor force due to weak job opportunities.

But what about other measures of labor market slack that the Bureau of Labor Statistics publishes? The most comprehensive direct measure of labor market slack published by the BLS is the U-6 measure of labor underutilization, the so-called “underemployment” rate. Like the unemployment rate, the underemployment rate has declined substantially in this recovery, from a peak of 17.1 percent in the fall of 2009 to its current rate of 13.6 percent. While still very elevated—the U-6 averaged 8.3 percent in 2007—that is significant improvement. Is it a sign of major healing?

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Replace Some of the Sequester by Closing Tax Loopholes

The sequester (pdf) cut approximately $85 billon from Fiscal Year 2013 spending—half from reductions in defense spending and half from elsewhere in the budget. OMB calculated (pdf) that it would result in a 5 percent reduction in nondefense discretionary spending—funding for programs like education and housing assistance, veterans’ benefits and services, medical and scientific research, and health and safety regulations.

I have long argued that cuts to government spending are uncalled for, given the lack of a robust economic recovery. However, if you are searching for sensible ways to shrink the deficit, there are better alternatives to sequestration. For example, we could eliminate the nondefense discretionary spending cuts in the sequester and shave $26 billion annually from the deficit by eliminating or closing a handful of tax loopholes.

Tax loopholes, formally known as tax expenditures, reduce tax revenues by over $1 trillion every year. There are many reasons to keep tax loopholes in the tax code: some are very popular (e.g., the mortgage interest deduction), some provide incentives to socially beneficial behaviors (e.g., the earned income tax credit), and some are technically difficult to change (e.g., the exclusion for employer retirement plans).

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