Class War: The View From the Board Room

This post originally appeared on The American Prospect.

The Vice-President for Governmental Affairs has just finished his report to the corporate board of directors. “Thanks, Ted,” says the Chairman. “You and your Washington staff have done a great job. Getting that little amendment inserted in the budget bill will save us at least $25 million next year. …. Questions or comments? Paul?”

Paul, the hedge fund CEO: “I’m worried about the big picture down there in Washington, Ted. It’s a mess. Deficit out of control.The anti-business attitude. Not to mention incompetence. Can’t even run a website for their own health care program. Pathetic.”

“Amen,” says Hank, who used to run a tobacco company. “What bugs me is Obama’s complaining about inequality. Just whips people up. Saw them last night on the TV news, in front of a McDonald’s somewhere, screaming for more money. Makes you sick. Want money? Get a job!”

“Actually Hank, those people already have a job,” says Cliff from Silicon Valley. “And lucky to have it. Plenty more out there ready to take their place.”

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Six Flags Wants an Exemption From a Minimum Wage Increase

Whenever a new law is passed (usually before it passes), well-placed lobbyists attempt to make exceptions to the general rules, to insert exemptions for their clients. Thus, the federal Fair Labor Standards Act has exceptions for companies that harvest shellfish, for summer camps, for ski resorts in national forests, and many others. Some of these exceptions make sense, but many defy logic. Why, for example, should “motion picture theatres” be exempt from overtime pay requirements?

Prince George’s County recently raised its minimum wage to $11.50 in several increments over three years, and special interest pleading has begun. The first in line is apparently Six Flags, an amusement park that claims paying a higher minimum wage would create a special burden. Why? Because it claims it won’t hire as many teenagers and seniors if their wages are increased.

The company’s argument assumes that there is a necessary trade-off between paying seniors and teens a living wage and employing as many of them as it has. But is that true? Will higher wages compel the company to reduce its staff?

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A Viper Lurking in the Farm Bill: So-Called Sound Science Provision Carries Anti-Regulatory Poison

The biggest lie in Washington might be the claim that government regulation is strangling business and making it impossible to earn a profit. The clearest evidence that this is a lie is the fact that business profits are at an all-time high. The chiefs and bosses of those businesses are doing very well, too, with CEO pay soaring far beyond any rational relationship to the pay of average workers.

Yet “too much regulation” remains the cry of the Chamber of Commerce and scores of other business lobbying groups, and it gets taken seriously by the media and by Congress, which is always looking for some reward to give corporate lobbyists for their electoral support. The latest goody is a provision in the House farm bill poorly named the ‘Sound Science’ provision, which is intended to damage the ability of federal agencies to regulate anything that relies on a scientific justification.

Section 12307 requires agencies to develop guidelines not just for making scientific judgments, but for governing how “scientific information is considered.” These guidelines would be wasteful make-work in any case because the agencies are already subject to direction by OMB and the Office of Science and Technology Policy. But they are much worse than that, because they open up every regulatory action, including “the listing, labeling, or other identification of a substance, product, or activity as hazardous or creating risk to human health, safety, or the environment,” to judicial intervention.

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Fast Track Legislation: Dead On Arrival?

Fast track legislation is moving forward. Retiring Senator Max Baucus(D-MT) and Republican leaders introduced a bill to give trade promotion negotiating authority (a.k.a. “fast track” authority) to complete the proposed Trans-Pacific Partnership and a trade and investment deal (the TTIP) with the European Union. The sponsors were unable to obtain a Democratic co-sponsor in the House, and House Ways and Means Ranking Member Sander Levin introduced a strong statement calling for a better model for negotiating trade agreements.

Fast Track is a terrible idea because it’s a proven job killer. It gives the president the right to send treaty implementing legislation to Congress for a vote without any opportunity to amend or improve it. Setting enforceable job creation goals or creating effective mechanisms to deal with currency manipulation, for example, will be impossible if the legislation is fast-tracked.

NAFTA, which was fast-tracked in 1993, and which was the prototype for more than a dozen U.S. trade and investment deals negotiated over the past decade, resulted in growing trade deficits with Mexico that eliminated nearly 700,000 U.S. jobs by 2010. More recently, President Obama pushed through a new trade deal between Korea and the United States (the KORUS deal), which resulted in the loss of 40,000 jobs in the first year alone.

Fast track legislation in its current form is opposed by more than 170 Republican and Democratic House members, so this legislation might be dead on arrival. The House Republican leadership is reportedly insisting that at least 50 Democrats co-sponsor the legislation, including at least one House Democratic leader, before it will be allowed to come to a vote on the House floor. With luck, the fast track bill will die in the House. The last thing America needs is renewal of fast track and more trade and investment deals rushed through Congress.

Senator Rubio: Wrong Diagnosis, Wrong Policy Prescriptions

In a teaser for a talk he gave yesterday about poverty and the congressional fight over Emergency Unemployment Compensation, Sen. Marco Rubio’s office circulated a ‘fact sheet’ that was as ill-informed and self-contradictory as the speech that followed it. For example, the fact sheet said we need unemployment assistance, but hinted that it shouldn’t be in the form of weekly benefit checks:

“Unemployment assistance must remain an important part of our social safety net, but these programs have to do more than simply provide a paycheck; they must be reformed to help people secure middle class jobs. … [W]e should redirect funds away from the federal government and steer them directly to states, while at the same time incentivizing work through a new, direct wage enhancement credit for lower income workers and the working poor.”

Unemployment insurance does not, in fact, have to do more than provide a check. It is intended to do one very important thing: provide income to people who have lost jobs through no fault of their own while they continue to search for new employment. It is not job training. It won’t provide a college degree or a license to practice a profession. It’s meant to keep people in their homes with food on the table until they can find a new job. And finding a job isn’t easy when there are three workers searching for each vacant position. UI has an ancillary benefit, in that it increases aggregate demand and supports jobs that would be lost without it, but its fundamental purpose is to help deserving people survive hard times with dignity. And that benefit depends precisely on checks being sent to the jobless, cashed, and spent.

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What to Watch on Jobs Day: The Sixth Anniversary of the Great Recession, and What the Seventh Might Look Like

Tomorrow’s release of jobs data will mark six full years since the official beginning—and four-and-a-half years since the official end—of the Great Recession. Some initial (though traditionally pretty noisy) signs indicate it could be a decent month of job growth.

My colleague Heidi Shierholz released a paper today to remind job market watchers just how far from a healthy labor market we are, and how it will take a very long time for even objectively great monthly job numbers to dig the U.S. labor market out of the deep hole it remains in.

You should read it—it has lots of great labor market indicators. I’ll just highlight one—the “jobs gap.” This is a simple measure of how many jobs the U.S. economy needs to return to immediate pre-Great Recession health (i.e., the labor market conditions that prevailed in December 2007). This jobs gap (pictured below) remains enormous. With 1.3 million jobs needed just to replace those lost during the Great Recession, and another 6.6 million jobs needed to provide work to soak up potential workers added since December 2007, the combined jobs gap is 7.9 million. This is down from its maximum value of 11.3 million reached in September 2010, but it indicates we’re less than a third of the way to full labor market recovery.

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Markets, Wages, and Fighting Poverty

My colleague Elise Gould recently showed that to lessen poverty is to lessen income inequality by raising wages of low and moderate income workers. This post adds some more data to the argument that raising wages for low-wage workers is an essential component of any anti-poverty strategy.

The recently released Council of Economic Advisers report on the War on Poverty highlights this by noting that ‘market poverty’—measuring poverty without accounting for government aid in the form of transfers and tax credits—is higher now than in 1967, and that only increased government support allowed poverty to fall:

“A measure of “market poverty,” that reflects what the poverty rate would be without any tax credits or other benefits, rose from 27.0 percent to 28.7 percent between 1967 and 2012. Countervailing forces of increasing levels of education on the one hand, and inequality, wage stagnation, and a declining minimum wage on the other resulted in “market poverty” increasing slightly over this period. However, poverty measured taking antipoverty and social insurance programs into account fell by more than a third, highlighting the essential role that these programs have played in fighting poverty.”

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Inequality Is the Main Cause of Persistent Poverty

I couldn’t agree more with Paul Krugman’s blog post this morning when he says, “the main cause of persistent poverty now is high inequality of market income.” We looked at precisely this question in the latest edition of State of Working America. (And the White House Council of Economic Advisors cited our work on this in their War on Poverty 50 Years Later Report, released today.)

In the roughly three decades leading up to the most recent recession, looking at the officially measured poverty rate, educational upgrading and overall income growth were the two biggest poverty-reducing factors, while income inequality was the largest poverty-increasing factor. Relative to these factors, the racial composition of the U.S. population over this period (the growth of nonwhite populations with higher likelihoods of poverty) and changes in family structure (the growth of single mother households) have contributed much less to poverty, particularly in recent years.

The figure below plots the impact of these economic and demographic factors on the official poverty rate from 1979 to 2007. The impact of income inequality and income growth were quantitatively large, but in the opposite directions. Had income growth been equally distributed, which in this analysis means that all families’ incomes would have grown at the pace of the average, the poverty rate would have been 5.5 points lower, essentially, 44 percent lower than what it was. 

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African American Poverty: Concentrated and Multi-Generational

In the current issue of The American Prospect, I review Patrick Sharkey’s Stuck in Place, a 2013 book that helps explain the persistent failure of educational policy to spur the upward mobility of low-income African American youth.

It is now well understood that many characteristics of children from low-income families—poor health, housing instability, inadequate pre-literacy experiences when young and inadequate after-school enrichment opportunities when older—make it difficult to take advantage of even the best classroom instruction. A quarter of a century ago, William Julius Wilson’s The Truly Disadvantaged showed that the harm is magnified when children with these disadvantages are concentrated in urban ghettos where jobs have vanished, violence, drugs, and stress are commonplace, and there are few adult role models of academic success.

Building on Wilson’s work, Sharkey demonstrates that the harm is exacerbated when families live in such low-income neighborhoods for multiple generations. Indeed, a child’s chance of success may be harmed as much or more by having a mother who grew up in a poor neighborhood than by growing up in a poor neighborhood him or herself. And, Sharkey shows, between black and white children who live in poor neighborhoods, blacks are more likely to have done so for multiple generations.

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The Skills Shortage Myth: A Public Relations Tool for Bad Corporate Citizens

Jim Tankersley has an amusing piece about Jamie Dimon, the CEO of JPMorgan, who is trying to distract attention from JPMorgan’s London Whale fiasco, its $13 billion settlement of charges relating to abusive trading in mortgage backed securities, and its role in the Madoff Ponzi scheme, by talking about the ”skills gap.“ Tankersley is appropriately skeptical about the so-called skills gap, which has become the chief excuse of the 1% for wage stagnation and rising inequality. His story’s first line is: “Jamie Dimon has no problem finding skilled workers to hire.”

Dimon himself admits, there’s not much evidence of a skills gap in the banking business: “If I travel all around America, a lot of people talk about the skills gap. We don’t see it ourselves that much.” So what about the rest of American industry? Apparently, Dimon doesn’t really know much, other than hearsay: “But if you go to Silicon Valley, they will talk about nothing but the lack of—they used to call them computer engineers, now they call them software writers. If you go to some of the manufacturing companies, they’ll talk about the lack of technical skills.” Silicon Valley companies do “talk” about a skills gap, but the claim that there are severe IT shortages is contradicted by a good deal of economic evidence that suggests the talk is self-serving.

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NAFTA, Twenty Years After: A Disaster

The post originally appeared on The Huffington Post.

New Year’s Day, 2014, marks the 20th anniversary of the North American Free Trade Agreement (NAFTA). The Agreement created a common market for goods, services and investment capital with Canada and Mexico. And it opened the door through which American workers were shoved, unprepared, into a brutal global competition for jobs that has cut their living standards and is destroying their future.

NAFTA’s birth was bi-partisan—conceived by Ronald Reagan, negotiated by George Bush I, and pushed through the US Congress by Bill Clinton in alliance with Congressional Republicans and corporate lobbyists.

Clinton and his collaborators promised that the deal would bring “good-paying American jobs,” a rising trade surplus with Mexico, and a dramatic reduction in illegal immigration. Instead, NAFTA directly cost the United States. a net loss of 700,000 jobs. The surplus with Mexico turned into a chronic deficit. And the economic dislocation in Mexico increased the the flow of undocumented workers into the United States.

Nevertheless, Clinton and his Republican successor, George Bush II, then used the NAFTA template to design the World Trade Organization, more than a dozen bilateral trade treaties, and the deal that opened the American market to China—which alone has cost the United States another net 2.7 million jobs. The result has been 20 years of relentless outsourcing of jobs and technology.

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4.5 Million Workers Start the New Year with Higher Pay

On January 1st, thirteen states raised their state minimum wages, lifting the pay of more than 4.5 million workers. Eight of these states (Arizona, Florida, Missouri, Montana, Ohio, Oregon, Vermont, and Washington), have state minimum wages that are “indexed” to inflation so that every year, the minimum wage is automatically increased in order to protect the purchasing power of minimum-wage workers’ incomes. Colorado also automatically increases its minimum wage based on inflation, with the increase occurring each July.

In the remaining 5 states (California, Connecticut, New Jersey, New York, and Rhode Island) citizens voted to raise their state minimum wages during the past year. Voters in New Jersey also chose to index their state minimum wage to inflation so that in January of 2015, New Jersey’s minimum wage workers will see the same paycheck protection afforded workers in the 9 other states with inflation indexing.  The table below details all of these increases.

As the table shows, these increases will give more than $2.7 billion in additional wages to affected workers over the course of the year.  For the states that voted to raise their minimum wages, these additional wages represent a modest, but valuable injection of dollars into the pockets of workers who typically rely on every penny they earn and are likely to spend those dollars right away. For the states with indexing, these new wages ensure that minimum wage workers can still afford the same volume of goods and services that they bought the previous year. 

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Listicle: The 13 Best and Worst Economic Policy Ideas of 2013

In keeping with what is as of now an annual tradition to produce some serious click-bait—and to cut through the “conventional wisdom” of inside the Beltway talking heads and commenters—we hereby present our best and worst economic policy ideas of 2013.

Reflecting the fact that fiscal policy in 2013 is a mess, the number of bad ideas on this list far exceed the number of good ones. (A 9-to-4 bad-to-good ratio seemed about right.) We’ll go ahead and put our best foot first.

Best Ideas

1.  “Inequality is the defining economic challenge of our time.” This was said by President Obama in a major address in December. In a period of wide—and rising— income inequality, wage stagnation, a tepid economic recovery, and fiscal policy mired in austerity,  it is absolutely essential to begin put the rise in inequality at the center of policy debates.

2.  Talking about expanding benefits, finally. While the conversation about Social Security in Washington has for far too long focused on how to cut benefits, Sen. Elizabeth Warren and Sen. Tom Harkin both rose up, not just to defend the current level of benefits, but to call for expanding them. This is absolutely the conversation we need to have. Retirement insecurity is growing as two legs of the three-legged “retirement stool” (pensions and personal savings) have become increasingly wobbly. Moreover, since the last major Social Security reform in 1983, the wealth of the bottom 60 percent of Americans actually declined. Even as our country has gotten 63 percent richer, millions of retirees are increasingly dependent on their benefits to get by. It’s a good thing we’re starting to consider increasing their benefits.

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What We Read Today

EPI is taking a much-needed break for the holidays. Working Economics will be back on January 2nd. Meanwhile, here’s what we read today:

And don’t forget to check out the 13 Most Important Charts of 2013.

Detroit’s Deals with Financial Institutions Led to Disaster

Today’s New York Times published one of the most important stories yet about the Detroit bankruptcy, a story that shines a harsh light on the financial institutions whose tricky deal-making helped tank the city’s finances. At the heart of the story is Detroit’s decision to enter into swap contracts that were spectacularly ill-advised. Mary Williams Walsh gives us the history:

“Detroit entered into the swap contracts back in 2005, when it tapped the municipal bond market for $1.4 billion to put into its workers’ pension funds. Much of the deal was structured with variable-rate debt, and the swaps were intended to work as a hedge, to protect Detroit if interest rates rose. But as things turned out, rates went down, and under those circumstances, the terms of the swaps called for Detroit to make regular payments to UBS and Merrill Lynch Capital Services, now part of Bank of America. Detroit has been doing so, even in bankruptcy. The swaps now cost it about $36 million a year.

“In retrospect, it seems clear that Detroit was already struggling in 2005 and was a poor candidate to borrow the $1.4 billion. The borrowing required an unusual structure to avoid violating the city’s legal debt limit. In 2009, the debt was downgraded to junk, putting the city out of compliance with the terms of the swaps. So Detroit restructured the swap obligations, offering the two banks the tax revenue that it received from local casinos as a backstop.”

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2013 Was a Wild Ride for Anyone Who Follows Immigration—and 2014 Will Be Too

I’m saddened because I wasn’t able to celebrate the passage of comprehensive immigration reform this year when commemorating International Migrants Day on December 18. Nevertheless, for people who care about immigration, 2013 was an intense and interesting year. Following is a quick wrap up of what happened this year, and what to be hopeful for in 2014.

To start, the lopsided share of the Latino vote won by President Obama in his reelection helped put a major federal immigration reform back on the table. Then at the end of 2012, eight members of the U.S. Senate began negotiating a bipartisan federal immigration reform bill. And in 2012 and 2013 anti-immigrant laws in Arizona and Alabama, which sought to make life so miserable for immigrants lacking formal legal status that they would “self-deport” back to their countries of origin, were defeated in the courts one by one.

In mid-2013, the Senate passed a comprehensive immigration bill by a vote of 68 to 32. There is no question that the Senate bill is historic: Both political parties agreed to reform just about every aspect of the U.S. immigration system, and create a legalization program for the 11.7 million unauthorized immigrants in the country. Unauthorized immigrants live in constant fear of deportation and separation from their families, and the 8 million of them in the U.S. labor market go to work every day vulnerable to exploitation because employers can and do threaten them with deportation if they attempt to organize or join a union, or speak out about unfair, unsafe, or illegal working conditions. And we know that as a result, unauthorized immigrant workers suffer from wage theft (i.e., are not paid the wages they are owed under minimum wages and overtime laws) at an astonishingly high rate. Legalizing these workers would not only be just and humane, but would improve wages and working conditions for all low-wage workers and help counter the current race-to-the-bottom pursued by many employers in terms of labor standards.

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North Carolina’s Failed Experiment in Cutting Unemployment Benefits

I don’t usually associate the American Enterprise Institute with compassion for the unemployed or anything, really, other than pro-business, anti-government policy prescriptions and rhetoric. So I was surprised and heartened by a thoughtful post by AEI Money & Politics blogger James Pethokoukis, who skewers the notion that cutting unemployment benefits will spur job creation.

Pethokoukis analyzes the effect of reductions in weekly benefit levels and total weeks of unemployment compensation enacted in North Carolina this summer—cuts so draconian they led to the state being kicked out of the federal Emergency Unemployment Compensation program that provides weekly benefits to long-term jobless workers. North Carolina Republicans claimed the cuts would force lazy workers to find jobs, thereby solving the state’s unemployment crisis.

Instead, as Pethokoukis shows, tens of thousands of North Carolinians stopped looking for jobs that weren’t there once they were cut off from weekly benefits (which are only paid to people who are actively seeking paid employment). The labor force participation rate fell nearly a full percentage point, as 42,656 workers gave up looking and dropped out of the labor force. If they hadn’t, according to Pethokoukis, “the state’s jobless rate would have increased to 9.1% rather than sharply declining.” University of California at Berkley economist Jesse Rothstein predicted this dropout effect in a 2011 paper he presented at EPI, which disputed the notion that unemployment insurance causes significant unemployment.

Hopefully, the North Carolina experience will help persuade House Republicans like Dave Camp to stop arguing that killing the EUC program will boost employment. As EPI and the CBO have shown, paying out $25 billion in EUC in 2014 will help the economy, not hurt it. Killing the program won’t help a single unemployed person find work, but will instead depress aggregate consumer demand and cost the economy 310,000 jobs.

Jobs of the Future Look like Today’s Jobs

The Bureau of Labor Statistics has released new employment projections for 2022. These projections are frequently misinterpreted, and the way BLS presents the data can certainly leave the uninitiated confounded. This analysis uses the occupation projections to discuss two issues: whether low-, middle- or high-wage occupations will grow disproportionately, and whether the occupation structure of 2022 relative to 2012 requires substantially more education and training. The answer to both questions is that the occupational structure of 2022 does not look dramatically different than what we have now. This means that the challenge we face is how to make occupations better paid rather than worry about whether the workforce we have is under-skilled or over-skilled for future work. That is, we have a job quality problem, and not a skills deficit problem. (Becky Thiess reached the same conclusions in an analysis of the prior set of projections.)

These projections get used in misleading ways. Some people look at the occupations that grow the fastest and draw conclusions, usually that we all need a lot more education. Others emphasize which occupations create the most number of jobs and find that a large expansion of low-wage work is looming. The BLS press release ricochets back and forth between both approaches, which obscures what one should conclude from the projections. Neither approach—looking solely at either the rate of employment growth or the absolute amount of employment growth—is correct. A fast growing occupation may be relatively small, and therefore inconsequential in the overall economy. A large occupation may generate a lot of absolute employment growth, but if it grew at the average of total employment growth (so its share of total employment did not change), then the overall character of employment (more skill, higher/lower wage) would not change.

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Do Native Americans Face Discrimination in the Labor Market?

This post originally appeared on the Huffington Post

Since the start of the Great Recession in 2007, Native American employment has been lowest in the regions where white employment has been highest. In my research in 2009 and 2010, I found that while whites were doing relatively well in terms of employment in Alaska, the Northern Plains, and the Southwest, Native Americans were doing rather poorly in these very same regions. I also noted that these were the regions where the proportion of Native Americans was relatively high in relation to the proportion of non-Natives. These findings raised the question of whether racial discrimination might play a role in the high level of joblessness among Native Americans.

(Read the detailed analyses of Native American employment and unemployment data.)

In a labor market free of racial discrimination, one would expect whites and Native Americans to have somewhat similar outcomes, not starkly divergent outcomes like we see in Alaska, the Northern Plains, and the Southwest. These divergent outcomes are the first suggestion that racial discrimination might be at play.

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Spending on Public Investments: Too Low but Getting Lower

The Murray-Ryan budget deal that passed the House and will approved by the Senate as soon as today provides some marginal and temporary relief from planned spending cuts over the next two years. However, it does nothing to derail the disastrous longer-term march towards cutting discretionary spending to historically low rates over the next decade. And given that the large majority of all federally-financed public investments come out of discretionary spending, these spending cuts are completely inconsistent with any policy that claims to value public investment.

Let’s define “public investment,” as my colleague Josh Bivens did earlier this year, as spending that “builds the nation’s capital stock by devoting resources” to the basic physical infrastructure, innovative activity, green investments, and education “that leads to higher productivity and/or higher living standards.” This sort of spending has a great bang-per-buck ratio in the current economic environment, as it leads immediately toward more jobs by boosting demand, and also helps amp up productivity growth in ways more likely to be broadly distributed across the population.

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Another Apple Supplier in China Admits Gross Violations of Worker Rights

In a swift reaction to ugly publicity about suicides, injuries, and mistreatment of workers, Biel Crystal, one of Apple’s most important suppliers of touchscreen cover glass for its iPhones, reached an agreement with the Chinese labor rights group, SACOM, to take three steps toward better conditions by January 2014:

  1. Clear work contracts for workers that include details on terms of contract, terms of probation, position, affiliated department.  The company also will not ask workers to turn in the contract when work relation ends.
  2. Compensation and assistance for injured workers in accordance with China’s Regulation on Work, related injury insurance and adequate measures to protect workers from work injury.
  3. One day off every seven working days.

These very basic protections might seem like minimal progress, but in light of the appalling conditions at Biel Crystal’s plant, even providing limited basic protections is welcome.

The fact that the company has acknowledged such significant shortcomings in these fundamental areas of labor rights shows just how far Apple is from living up to its commitments to decent labor conditions throughout its supplier chain. It should be a reminder to all who follow Apple that the recent report by its hand-picked monitor, the Fair Labor Association, was little more than a whitewash that covered up the truly horrendous labor conditions in the factories that make Apple products. The FLA’s investigation also assessed conditions for less than one-fifth of the workers in Apple’s supply chain and thus missed gross violations at other factories, such as at the Biel Crystal plant.

The Burden of Proof in the Inequality/Growth Debate

Take a look at the figure below, which displays comprehensive household income data from the Congressional Budget Office (a fantastic data set).1

The bottom line charts actual household income for the middle income fifth—it’s the average income of households between the 40th and 60th income percentiles. So, it’s households that are richer than forty percent of households as well as poorer than 40 percent of households. Think of it as a representative, if narrow, slice of the middle class.

This income rose by 19.1 percent in the 28 years before the Great Recession (1979-2007), or 0.6 percent per year. Better than zero growth for sure, but, could it have been higher?

The top line shows household incomes that start with middle-fifth incomes in 1979, but then are allowed to grow as fast as the overall average growth rate of household incomes. And since the very rich saw extraordinarily fast growth over this period (241 percent cumulative growth for the top 1 percent over this period!), this made overall average growth run much faster than growth for the middle-fifth—which is why that top line pulls progressively farther and farther away from the bottom line over time.

By 2007, if middle-fifth incomes had grown simply as fast as overall average incomes, then they would be 27 percent higher (about $19,000). This is big money for moderate-income families.

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Inequality: Not Really a Distraction, and Unambiguously Bad for Average Growth for the Vast Majority

Ezra Klein’s recent piece arguing that inequality is not the defining challenge of our time has attracted plenty of attention by now, so this might be getting old for people, but a couple of more thoughts.

First, I actually think he has a fair point in worrying that inequality could displace failure to fully recover from the Great Recession as a focal point for policymakers (I’ve actually worried a bit about that myself in the past—see here). And while there are plenty of ways that these issues are entangled, there are plenty of ways they’re not, and caring about acting aggressively on inequality is not actually a precondition to agreeing that we should push the U.S. economy back to full-employment (see pieces by economists like Ken Rogoff and Martin Feldstein, who have not shown any real interest in the inequality problem but who argue for boosting demand to complete the recovery).

On the other hand, it’s not like engineering a full recovery from the Great Recession has actually been a pressing focal point for policymakers (outside of the Fed) for a long time now. They really gave up focusing on this around 2011, and rising concerns about inequality are not why they gave up (for the record, the reason they did is simple: Republicans, especially in the House, have been determined to throttle government spending, and the resulting austerity is why the economy is nowhere near full recovery). Another reason to not worry too much about the alleged distraction of inequality is that acting to stem its rise often dovetails pretty nicely with boosting demand and helping recovery. For example, a substantial increase in the minimum wage would actually provide a moderate demand boost. Not a game-changing one, but it moves in the right direction, for sure. And if arguments to return more quickly to full employment are buttressed by invoking issues of inequality rather than “stimulus versus austerity” (a debate that has not borne fruit in the policy realm), that’d be great.

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On That Income Inequality and Income Growth Thing Out There

Ezra Klein has kicked off an expansive and useful conversation about whether reducing inequality or increasing growth (meaning a stronger recovery and driving down unemployment, not longer-term growth, as Matt Yglesias usefully points out), should be the top priority of policymakers. Klein uses my good buddy and former colleague Jared Bernstein’s recent WCEG paper as the starting point. This is good conversation to have, and is no doubt spurred by the founding of CAP’s new WCEG, headed by another former EPI colleague, Heather Boushey. Props also to Paul Krugman, Brad Delong, Matt Yglesias, Dean BakerEzra Klein, Jared Bernstein, Tim Noah, Steve Waldman for their thoughts.

I’d like to add a few thoughts to this discussion.

  1. There’s a danger to dwelling on the question of ‘does inequality hurt growth?’ if it establishes a litmus test that means addressing inequality requires a firm yes. Some lesser lights from the Manhattan Institute are already using this logic. If inequality has no effect on growth it is certainly still worth working towards more equitable growth because it would mean the vast majority—the 99 percent, you might say—would do far better. My colleague Josh Bivens (in the State of Working America) used the CBO’s comprehensive income data to calculate the middle fifth’s income was lower in 2007 by roughly $19,000 compared to a scenario where there had been equitable growth from 1979 to 2007. Josh refers to this as the inequality tax. I think this is the type of calculation that Krugman was looking for in his most recent post, when he illustrates that inequality matters. (more…)

The Budget Deal Loosens Austerity’s Grip on the Labor Market—But by Just a Bit

Beginning in 2011, policymakers—particularly Republicans in the House of Representatives— embraced the idea that austerity somehow fosters economic growth. They used the leverage provided by the need to raise the statutory debt ceiling to force steep cuts in spending under the Budget Control Act (BCA). Since then, discretionary spending has been falling, even before inflation adjustments. This austerity has been the primary drag on economic recovery, and has also squeezed spending on education, infrastructure investment, scientific research, and the federal workforce, which will lead to slower future growth and less efficient government. And there appears to be no end in sight even though it has been shown that austerity does not increase economic growth.

The Budget Conference agreement announced earlier this week by Sen. Patty Murray (D-Wash.) and Rep. Paul Ryan (R-Wis.), which the House overwhelmingly passed last night, sets discretionary budget authority limits for fiscal years 2014 and 2015. In the press release announcing the deal, the two co-chairs pointed out that the bipartisan deal for fiscal year 2014—at $1.012 trillion—is midway between the House budget level of $967 billion and the Senate budget level of $1.058 trillion. The agreed upon level is 8 percent less than the fiscal year 2010 discretionary budget authority and 5 percent less than the fiscal year 2011 level (all in nominal terms).

One key question is just how much relief this deal actually provides from austerity’s grip, and what could have happened if there was bipartisan support for active policies to get the economy and labor market back on track? I examine three scenarios.

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Our Fiscal Policy Is A Mess. Here’s How to Clean it Up.

The Murray-Ryan budget deal is marginally better than nothing; it prevents another federal government shutdown in January and provides a slight boost to discretionary spending over the next two years, relative to where we’d be absent this deal.

However, the deal demonstrates yet again that U.S. fiscal policy is a mess. Instead of dealing with the economic challenges of today—a sputtering economy, a jobs gap of nearly 8 million separating us from a pre-Great Recession labor market, long-term unemployment still at crisis levels, and nearly three job seekers for every job opening—policymakers are still acting as if future deficits are the single greatest threat to American living standards. No single fact exemplifies Congress’s preoccupation with deficit reduction than this: The Murray-Ryan deal will cut the ten-year deficit by about $23 billion—roughly the same amount as it would cost to extend federal emergency unemployment insurance for another year, a policy that would save 310,000 jobs in 2014.

It has indeed come to this. Given a clear choice, Congress would rather make symbolic gestures toward reducing the medium-term deficit—which is by no means a dire concern—than take on today’s economic challenges and help the most vulnerable among us.

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Apple Fails to Deliver on Key Labor Rights Promises, but the Company’s Chosen Labor Rights Monitor Finds Little Fault

The third and final verification assessment by the Fair Labor Association (FLA) of remediation steps at three Foxconn factories making Apple products led to a raft of stories with headlines touting the progress on worker rights at Apple’s largest supplier Foxconn. While some reforms reported – such as reducing work weeks somewhat (though not to levels in accordance with Chinese law) and certain safety and health improvements – do represent steps forward, progress has been scant in fundamental areas and critical promises have apparently gone unfulfilled. Unfortunately, it is still accurate to describe Apple’s supply chain as rife with labor rights abuses.

The FLA ignores crucial reforms promised by Apple and Foxconn, including increasing wages enough to offset reductions in work hours, providing back pay for uncompensated work time, and making progress towards a livable wage standard.  On March 29, 2012, the FLA described the basic remedial actions to be undertaken by Foxconn and Apple, including the promises that compensation at Foxconn factories would increase enough to offset any reduction in overtime hours; that Foxconn and Apple would provide retroactive pay for the many circumstances in which workers had not been compensated for all their overtime hours; and that a study would be undertaken to determine the amount of compensation necessary to provide for basic needs (according to the FLA’s own survey, nearly two-thirds of workers said their compensation did not provide them enough to meet their basic needs).

The FLA has not reported progress regarding any of these critical promises; indeed, the final report does not mention them at all.

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Law To End Abuse of Farmworkers Needs Strengthening

Farmworker Justice, the tiny but tireless organization that advocates for migrant and seasonal farmworkers, held a briefing on Capitol Hill yesterday to celebrate the 30th anniversary of the Migrant and Seasonal Agricultural Protection Act (AWPA), a federal law designed to help farmworkers get paid and obtain safe transportation to the fields without fear of retaliation. I worked on the legislation and the implementing regulations 30 years ago as a staffer for Rep. Bill Ford, so I listened with mixed emotions as lawyers familiar with the Act outlined both how the law has helped and where it has fallen short.

AWPA did not change the basic powerlessness of migrant farmworkers, especially the undocumented workers from Mexico and Central America who do most of the farm work in the West and Southwest.  As Hector Sanchez of the Labor Council for Latin American Advancement and Mary Bauer, a legal aid attorney from Virginia, put it, farmworkers still live and work in Third World conditions here in the U.S., the richest country on earth. They are often housed in shacks, trailers, cars, or even chicken coops with no plumbing.

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Truth As Well As Reconciliation

In the last week, we’ve paid great attention to Nelson Mandela’s call for forgiveness and reconciliation between South Africa’s former white rulers and its exploited black majority. But we’ve paid less attention to the condition that Mandela insisted must underlie reconciliation—truth. The Truth and Reconciliation Commission that Mandela established, and that Bishop Desmond Tutu chaired, was designed to contribute to cleansing wounds of the country’s racist history by exposing it to a disinfecting bright light. As for those Afrikaners who committed even the worst acts of violence against blacks, they could be forgiven and move on only if they acknowledged the full details of their crimes.

In the current issue of the School Administrator, I write that we do a much worse job of facing up to our racial history in the United States, leading us to make less progress than necessary in remedying racial inequality. We have many celebrations of the civil rights movement and its heroes, but we do very little to explain to young people why that movement was so necessary. Earlier this week, the New York Times described how the Alabama Historical Association has placed many commemorative markers around Montgomery to commemorate civil rights heroes like Martin Luther King, Jr., and Rosa Parks, but declined—because of “the potential for controversy”—to call attention to the city’s slave markets and their role in the spread of slavery before the Civil War. Throughout our nation, this fear of confronting the past makes it more difficult to address and remedy the ongoing existence of urban ghettos, the persistence of the black-white achievement gap, and the continued under-representation of African Americans in higher education and better-paying jobs.

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How to Raise $1 Trillion in Revenue Without Waiting on “Tax Reform”

Tax increases were considered a dead issue in the discussions leading up to the recent budget deal negotiated by Sen. Murray and Rep. Ryan. The main justification for this position was that tax reform is imminent, and changes to the tax system could be better handled by the experts on the Ways and Means Committee. This argument has been repeated over and over, but it is meaningless. To begin with, the House GOP leadership has made it clear that tax reform will have to be revenue neutral—that is, no revenue increases—so waiting for a tax reform bill in the context of a budget deal makes no sense. Second, the House GOP leadership has made it clear that tax reform will not be considered, let alone introduced, this year. The prospects for tax reform in the next year or the next Congress are, at best, dim. So there was no serious excuse for not increasing tax revenues in the budget deal.

Wholesale tax reform, however, is not needed to increase tax revenues; just a few tweaks to the tax system could raise enough revenue to extend unemployment insurance benefits for the long-term unemployed and provide substantial relief from the sequester over the next 10 years. The table below lists six tax changes, with revenue estimates, courtesy of the Congressional Budget Office and the Joint Committee on Taxation. The six changes, which would increase taxes on those taxpayers most able to pay, are:

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