Inflation—sources, consequences, and appropriate policy remedies

Several very good primers were recently written on how to think about inflation in the coming months. But as the reaction to monthly price inflation numbers that ever tick above a 2% annualized rate continues to be disproportionately angst-ridden, another one may be useful.

Assessing this week’s data and the ongoing debate about inflation and economic “overheating” requires an understanding of at least four key points:

  1. The source of inflationary pressure is crucial to assessing how policy should respond. Inflation coming from the labor market because workers are empowered enough to secure wage increases that run far ahead of the economy’s long-run capacity to deliver them (that is, productivity growth) is the only source of inflation that should ever spur a contractionary macroeconomic policy response (either smaller budget deficits or higher interest rates). This type of inflation is what worries about “overheating” center on.
  2. Other sources of inflationary pressure are far more likely to be transitory and hence should not spur a contractionary policy response.
    • Inflation in the prices of commodities is often volatile and driven largely by global markets. Such price increases are likely to hinge on idiosyncratic drivers like weather changes, oil field discoveries, or rapid growth in large economies outside the United States. This kind of inflation should not spur a contractionary response. These price increases are not driven by economic “overheating”; engineering an economic “cooling” by reducing budget deficits or raising interest rates will not stop them—but it will cause a lot of collateral damage in slowing growth within the United States.
    • Inflation driven by very large relative price changes is also highly likely to be transitory and should not be met with a contractionary macroeconomic policy response.
  3. Arguing that inflation stemming from many sources should not be met with a contractionary policy response does not mean that this type of inflation is good, or even just benign. Such inflation often does reduce typical workers’ living standards. But to be effective, anti-inflation policy must address such types of inflation with tailored measures, not across-the-board macroeconomic austerity.
  4. Spillovers of inflation that begin outside the labor market but spark inflation driven by wage-price spirals are highly unlikely given the extremely weak bargaining position and leverage of typical U.S. workers in recent decades. This degraded bargaining position also suggests that unemployment rates might reach far lower levels than they did in past decades before spurring wage growth sufficient to drive excess price inflation.

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A real “party of the working class” wouldn’t attack the Affordable Care Act

A number of high-profile Republicans in recent years have tried to claim that they have become the “party of the working class.” Nothing exposes this as false as clearly as the GOP’s unrelenting attacks on the Affordable Care Act (ACA)—legislation that was imperfect but still an enormously important advance in the U.S. welfare state.

The latest attack is another court case that made its way to the Supreme Court (California vs Texas)—which could have a ruling as soon as Thursday. Legal merits of the case aside (there were essentially none), the economic fallout of the case if it is decided in the plaintiffs’ favor would be profound, as the requested remedy is the abolition of the entire ACA.

The ACA was in some ways hugely complicated, but can be boiled down to five major undertakings:

  • Strengthening employer-provided health insurance with mandates like no lifetime caps on benefits paid and an allowance for adults up to age of 26 to be covered on parents’ plans;
  • Providing needed regulation for the “non-group” health insurance market (the market for people who can’t get insurance through their employer or through existing government programs);
  • Providing subsidies to make purchasing non-group plans more affordable for many;
  • Paying for states to expand their Medicaid programs significantly; and
  • Raising taxes on high incomes to pay for its spending provisions.

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Job Openings and Labor Turnover Survey for April shows an economic recovery gaining steam

Below, EPI senior economist Elise Gould offers her initial insights on today’s release of the Jobs and Labor Turnover Survey (JOLTS) for April. Read the full Twitter thread here.

May jobs report is a promising sign that the recovery is on track: Initial comments from EPI economists

EPI economists offer their initial insights on the May jobs report below. While they see strong growth in employment, including in leisure and hospitality, the U.S. labor market is still facing a large jobs shortfall. Relief and recovery measures—including expanded unemployment benefits—should be sustained for workers and their families as the economy continues to recover.

From senior economist, Elise Gould (@eliselgould):

Read the full Twitter thread here.

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What to watch on jobs day: Missing expectations for job growth isn’t worrisome—yet

Last month saw disappointing growth in payroll employment, with just 266,000 jobs added in April, when many expected a number well over 500,000 (and maybe even over a million). Ahead of tomorrow’s release of the jobs report for May, we want to put that headline number in perspective, particularly in how this relates to policy choices.

The Biden administration has clearly decided to go big on the amount of fiscal support they are going to provide the economy over the next year—passing the $1.8 trillion American Rescue Plan (ARP) on the heels of a $900 billion package passed in December. They are determined to not repeat the policy mistake that led directly to a lost decade of economic potential after the Great Recession in 2008-09, when the government provided too little fiscal support. It took 10 full years after the Great Recession just to regain the pre-2008 unemployment rate low point, and even when this unemployment rate low was regained in 2017, it was partly because labor force participation still remained depressed. All of this raises a couple of questions: Just how much faster can recovery be this time, and would another month as disappointing as April make this fast recovery impossible to attain?

We think one reasonable metric of success would be a full return to pre-COVID labor market conditions by the end of 2022. These pre-COVID conditions included an unemployment rate of 3.5% and a prime-age labor force participation rate of 82.9%. Restoring pre-COVID labor market health by the end of 2022 would require creating 504,000 jobs each month between May 2021 and December 2022. This average monthly jobs growth target starts from today’s 9.0 million “jobs gap” relative to February 2020, and includes the need to absorb growth in the working-age population over the next 20 months (this growth in the working-age population requires roughly 55,000 jobs per month on its own). Hitting this end-of-2022 goal would see the U.S. economy reach 4.0% unemployment by mid-2022.

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What if it’s not a labor shortage, but just the return of tipping customers driving wage growth in restaurants?

One of the most widely discussed data points from last month’s jobs report was the rapid acceleration in wage growth for the leisure and hospitality (L&H) sector, particularly among production and nonsupervisory workers. This sector-specific wage acceleration (not seen in other sectors), combined with disappointing economywide job growth for the month, launched a huge debate about potential labor shortages. We wrote previously about why concerns over labor shortages were largely misplaced. Among other things, the rapid wage growth in L&H was accompanied by very fast sectoral job growth, so there was no evidence that any labor shortage was impinging on overall growth.

Further, this acceleration of wages in L&H might provide less evidence of even a sector-specific labor shortage than previously thought. When economists or other analysts express concerns about labor shortages, they generally mean a shortfall of potential employees that forces employers to gouge deeper into their profit margins to raise wages to attract workers. At some point this gouging will become unsustainable and so hiring will lag.

However, there is compelling evidence that the wage acceleration in L&H in recent months is not driven by employers raising base pay to attract workers, but instead by just an increase in tips stemming from restaurants filling back closer to pre-COVID capacity. Put another way, since December 2020, the rise in tip income, not an increase in base wages, can likely entirely explain the acceleration of wages for production and nonsupervisory workers in restaurants and bars. If this is the case, the wage acceleration will stop when restaurants get back to normal capacity. The evidence that the L&H wage acceleration is largely just a resurgence in tip income is as follows:

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Only one in five workers are working from home due to COVID: Black and Hispanic workers are less likely to be able to telework

Key takeaways:

  • At the beginning of the pandemic, we showed that not everybody can work from home, with the ability to telework differing enormously by race and ethnicity.
  • As with the pre-pandemic period, there remains a large disparity between the share of Black and Hispanic workers who are able to telework during the pandemic, compared with white and Asian American and Pacific Islander (AAPI) workers.
    • Specifically, only one in six Hispanic workers (15.2%) and one in five Black workers (20.4%) are able to telework due to COVID, compared with one in four white workers (25.9%) and two in five AAPI workers (39.2%).
  • According to April monthly data, the disparity in teleworking across educational level still persists. About one in three workers with a bachelor’s degree or higher still teleworked as a result of COVID (33.8%), compared with about one in 20 workers with a high school degree or less (4.8%).

The COVID-19 pandemic has highlighted and exacerbated underlying disparities in the health and economic wellbeing of people across the country. Segregated cities and neighborhoods have devastated many—disproportionately Black and Hispanic communities—under the weight of the pandemic and the ensuing recession, while others have been less impacted. Some families have seen multiple family members and friends become seriously ill or lose their jobs, while others have come away relatively unscathed (and in some cases, prospered). Millions of workers have risked their health and the health of their families by going to work in-person, while others have been able to work from home and don’t regularly encounter those facing the pandemic’s wrath.

The bottom line: disparities persist between who can safely stay home and get a paycheck and who cannot.

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Labor rights and civil rights: One intertwined struggle for all workers 

A person working eight hours per day with a one-hour round-trip commute—who sleeps for eight hours a night—spends over half of their waking life at, going to, or coming from their workplace. Aside from children, full-time students, and those who have lived long enough to collect Social Security benefits, Americans live their lives as workers. With the exception of the roughly 10% of U.S. workers who list themselves as self-employed1 and those who make their income from capital, that work takes place as employees.

Despite how much of American adult life is governed under employment agreements, most Americans also have little say over the terms of those agreements after they have been accepted. Most American workers are employed “at will,” meaning they can be fired by their employer at the employer’s discretion as long as the given reason does not violate federal law. If a worker is made to feel uncomfortable at work by a customer, or if the pace of work becomes stressful, or if conditions of their life change such that they need special accommodation, then in most cases solutions are up to the kindness of the employer to provide—there is nothing that requires them to do so.

Entering the workplace for most American adults can in that case represent an agreement to forfeit a degree of control over their lives in exchange for the wages necessary to live. If people do not have a voice in determining the pace and content of their time in the workplace, then in a real sense they lack control over the largest portion of their lives.

The core idea behind “civil rights” is that people should have the freedom to exist in political and social equality with one another. But under employment, an individual worker has a starkly unequal relationship with their employer. For workers to exist in the workplace without forfeiting their civil rights, they must be able to bargain on equal footing with their employers—that is, they need to have the ability to organize into unions among themselves. In this sense the movement for securing labor rights is not separate from the movement for securing civil rights—it is a fulfillment of those goals.

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President Biden’s budget shows what true ‘fiscal responsibility’ means: Pushing the economy closer to full employment, reducing inequality, and measuring the debt burden more accurately

The Biden administration released the president’s budget today—a proposal for tax and spending policies they would like to see become law over the next year. It includes substantial investments in traditional infrastructure, child care and early education, higher education, and elder care. It also calls for recurring cash payments to families with children. It includes money for more generous subsidies through the Affordable Care Act (ACA), substantial increases in Medicare and Medicaid coverage, and calls on Congress to undertake permanent reforms to modernize the nation’s fragmented and inadequate unemployment insurance system.

The proposal also calls on Congress to develop comprehensive legislation to strengthen and extend protections against the abusive practice of misclassifying employees as independent contractors and uses federal housing grants to incentivize inclusionary zoning practices to alleviate the nation’s housing shortage.

On the tax side, it raises taxes on realized capital gains and on corporate income, and it closes loopholes and tightens enforcement in an effort to raise revenue through greater tax compliance.

About 18 months ago, we at EPI released a blueprint for guiding fiscal policymakers. In this blueprint, we identified the main targets of fiscal policy as: ensuring high-pressure labor markets and low unemployment, reducing inequality, and then (and only then) reducing the economic obligations incurred by the public debt.

The Biden administration’s budget (particularly given the passage of the American Rescue Plan earlier this year) scores extremely high on these marks. Specifically:

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Preliminary data show CEO pay jumped nearly 16% in 2020, while average worker compensation rose 1.8%

Data from large firms filing information on CEO compensation through the end of April show corporations and a strong stock market shielded CEOs from the financial impact of the pandemic.

An examination of the early filings of 281 large firms shows:

  • The offer by CEOs to forgo salary increases during the pandemic was largely symbolic. Salaries were stable, but many CEOs pocketed a windfall by cashing in stock options and obtaining vested stock awards, compounding income inequalities laid bare during the past year.
  • CEO compensation, including realized stock options and vested stock awards, rose 15.9% from 2019 to 2020 among early reporting firms. Growth in CEO compensation was slightly faster than last year’s strong growth—14.0% between 2018 and 2019—while the annual compensation of the average worker increased just 1.8% in 2020.
  • Strong CEO compensation growth and modest growth in worker annual compensation yielded a remarkable growth in the CEO-to-worker compensation ratio, which jumped from 276.2 in 2019 to 307.3 in 2020 among early-reporting firms. In firms that retained the same CEO, the CEO-to-worker compensation ratio rose to 341.6 in 2020, up from 278.9 in 2019.

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There is no justification for cutting federal unemployment benefits: The latest state jobs data show the economy has not fully recovered

Key takeaways:

  • There are still nearly 10 million people actively looking for work and unable to find it. April state jobs and unemployment data released last Friday show that in many of the 24 states—led by Republican governors—that are cutting federal unemployment insurance (UI) programs, labor market conditions look similar to the national picture.
  • The data likely understate the weakness of these labor markets, as labor force participation has fallen since the pre-pandemic level. And nearly all the states cutting UI still have significantly fewer jobs than before the pandemic.
  • Those still filing for these benefits are the workers that need them the most, due to care responsibilities, health concerns, or other factors. Governors cutting off these key supports for these workers are not acting in the long-term best interest of any state’s workers or businesses.

Republican governors in 24 states—including Florida and Nebraska just this week—have indicated they will pull out from the federal unemployment insurance (UI) programs created at the start of the pandemic. Some states are ending participation in all federal pandemic UI programs, others only some of the federal supports. These actions are dangerously shortsighted.

UI provides a lifeline to workers unable to find suitable jobs, giving them time to find work that matches their skills and pays a decent wage. Moreover, the money provided through these entirely federally funded programs bolsters consumer demand and business activity in local economies, helping to speed the recovery. In many states, these federal UI programs are providing the bulk of all unemployment benefits to jobless workers. By cutting off these programs—which currently provide an extra $300 in weekly benefits, allow workers who have exhausted traditional UI to continue receiving benefits, and expand eligibility to workers typically not included in existing UI programs—governors are weakening their states’ potential economic growth.

Further, the most recent national jobs and unemployment data show that the country has not yet recovered from the COVID-19 recession. In April, the country was still down 8.2 million jobs from before the pandemic, and down between 9 and 11 million jobs since then if you factor in the jobs the economy should have added to keep up with growth in the working-age population over the past year.

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New York included undocumented immigrants in pandemic aid, and 290,000 workers will benefit: Other states should replicate the program

Key takeaways:

  • Congress and both recent presidential administrations excluded undocumented immigrants from key sources of pandemic aid: unemployment insurance and stimulus checks.
  • In April, New York became the first state in the nation to give undocumented immigrants aid that approaches what others got in unemployment insurance, benefiting an estimated 92,000 people. And New York will give undocumented workers who don’t qualify for the higher level of compensation what others got in stimulus payments, benefitting an additional 199,000 people.
  • It hurts all of us if any of us are left out of programs intended to get us through the recession and through a health care crisis. New York’s program could readily be replicated in other states.

This April, New York committed an unprecedented $2.1 billion of the state budget to make up for the exclusion of undocumented immigrants from federal aid during the COVID-19 pandemic.

Over a year ago, the pandemic hit New York early and brutally hard. Hospitals were full, and there were heart-wrenching backlogs in burying the dead as its limit. It quickly became clear that immigrants and people of color were disproportionately among those falling sick and dying. At the same time, the notion of “essential workers” took hold, and New Yorkers applauded the people keeping life going for the rest of us, knowing that many were immigrants, including large numbers who were undocumented. The unemployment rate spiked to 16% and was even higher for people of color and immigrants.

Yet, the first round of desperately needed federal aid very specifically excluded many immigrants. Future rounds of aid under both the Trump and Biden administrations continued to exclude undocumented individuals from expanded unemployment insurance and stimulus checks.

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Illinois extended unemployment benefits to school workers in the summer, and Minnesota should follow suit

For over a decade, EPI has documented the significant pay penalty that teachers in our country’s K–12 schools suffer as a result of woeful underinvestment in public education. But it is not just teachers who have been underappreciated: Many other school staff who are essential for providing high-quality, safe, and nurturing learning environments face considerable financial challenges as a result of their decision to serve in public schools. Paraprofessionals, classroom assistants, administrative assistants, custodians, food service workers, bus drivers, and other nonlicensed staff in schools typically receive low pay and inadequate hours during the school year, and no employment from school districts over the summer months—meaning a potential loss of 10 or 11 weeks of paid employment.

In 2020, Illinois took an important step toward fixing this last issue, by making nonlicensed school staff eligible for unemployment insurance during the summer months. Illinois’s experience offers guidance for other states considering similar programs, as in Minnesota where a similar measure is currently under debate. We’ll discuss the Illinois experience later on, but first it’s useful to understand a little more about who nonlicensed school staff are and the pay they receive.

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Restaurant labor shortages show little sign of going economywide: Policymakers must not rein in stimulus or unemployment benefits

Recent economic data suggest labor shortages in leisure and hospitality have popped up—but there is little reason to worry about spillover into the rest of the economy and no reason to change policy course.

Yes, last week’s jobs report was disappointing, with employment growth slowing significantly from the months before. It would be a mistake, however, to make too much of a single month’s data—the monthly jobs report data are notoriously volatile, and there are still excellent reasons to believe that coming months will see very strong job gains. Further, as disappointing as last week’s report was, there is nothing in it that demands a reorientation of the general policy stance taken by the federal government. The relief and recovery aid already passed (including the boosts to unemployment insurance) should be continued, and proposed packages (like the American Families Plan and the American Jobs Plan) should be passed.

The argument that last week’s report demands a rethink of today’s policy orientation rests on claims that it contained clear evidence of damaging labor shortages induced by either too-extensive stimulus or too-generous unemployment insurance (UI).

There is not compelling evidence of either of these. In fact, nothing in last week’s jobs report calls for a wholesale change of policy course from the federal government. The key takeaways from the data are:

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Job openings surged in March as the economy continues to recover from the pandemic 

Today’s Job Openings and Labor Turnover Survey (JOLTS) reports an all-time high number of job openings, surging to 8.1 million for the end of March. This is a positive sign that the economy is moving forward. While hires were little changed, I’m optimistic that in coming months those job openings will translate into filled jobs.

One important indicator from today’s report is the job seekers ratio—the ratio of unemployed workers (averaged for mid-March and mid-April) to job openings (at the end of March). On average, there were 9.8 million unemployed workers compared with 8.1 million job openings. This translates into a job seekers ratio of 1.2 unemployed workers to every job opening. Put another way, for every 12 workers who were officially counted as unemployed, there were only available jobs for 10 of them. That means, no matter what they did, there were no jobs for 1.6 million unemployed workers.

As with job losses, workers in certain industries are facing a steeper uphill battle. In the construction industry as well as arts, entertainment, and recreation, there were more than two unemployed workers per job opening. In educational services, accommodation and food services, other services, and transportation and utilities, there were more than three unemployed workers for every two job openings.

JOLTS

Unemployment and job openings by industry (in thousands), April 2021

Industry Unemployment, three-month average Job openings, three-month average Ratio
Mining 109.7 24.7 4.4
Construction 841.3 326.7 2.6
Educational services 200.0 125.0 1.6
Information 160.7 104.7 1.5
Transportation and utilities 594.0 398.7 1.5
Arts, entertainment, and recreation 324.0 225.7 1.4
Real estate and rental and leasing 133.3 93.3 1.4
Retail trade 1118.0 845.3 1.3
Other services 433.0 328.0 1.3
Durable goods manufacturing 451.7 386.0 1.2
Accommodation and food services 1232.3 1097.7 1.1
Nondurable goods manufacturing 337.0 342.7 1.0
Professional and business services 1118.3 1467.0 0.8
Finance and Insurance 200.3 275.3 0.7
Wholesale trade 189.0 270.7 0.7
Government 562.3 816.0 0.7
Health care and social assistance 694.3 1413.0 0.5
ChartData Download data

The data below can be saved or copied directly into Excel.

Notes: Unemployment levels represent the average of the unemployment level for the current month and the subsequent month in the Current Population Survey to better line up with the job openings data from the Job Openings and Labor Turnover Survey. Both unemployment data and job openings data are then averaged over three months to smooth for better data reliability. These data are non-seasonally adjusted so caution is warranted when making comparisons across time.

Source: EPI analysis of Bureau of Labor Statistics Job Openings and Labor Turnover Survey and Current Population Survey.

Copy the code below to embed this chart on your website.

There has been much bemoaning of labor shortages, particularly within accommodations and food services, even though there are no available jobs for one-third of the job seekers in that sector. Any potential shortage from the recent surge in job openings is likely to be quite short-lived, as before long many more workers will come back into job-search as it becomes increasingly safe to pursue these public facing jobs with improving public health metrics, as childcare and schooling becomes more reliable, and as wages rise to compensate for the extra risk of working in face-to-face places during the lingering pandemic. And, as we saw in the April employment data last Friday, the labor market added 241,400 more jobs in accommodation and food services, so the trend is already moving in the right direction.

It’s also important to remember that all potential workers don’t show up in the official count of unemployed, particularly in this recession as workers sheltered at home to avoid the pandemic or to care for family members. The economic pain remains widespread with 22.1 million workers hurt by the coronavirus downturn. I hope hiring picks up in coming months since the labor market continued to face a significant jobs shortfall likely in the range of 9.0 to 11.0 million jobs.

This Mother’s Day, recognize care work as the work that powers our economy

Mother’s Day is, at its core, about care. When we select Hallmark cards and order flower deliveries, we’re honoring the care provided by moms and other maternal figures. This Mother’s Day, though, marks more than a year into a pandemic that threw the disparities in our care system into stark relief. Women left the workforce in staggering numbers to attend to COVID-related caregiving responsibilities at home. This was disruptive for individual families and the economy at large.

So this year, while of course we should celebrate our mothers, there’s much more to be done. Honoring our caregivers goes beyond individual gestures; it calls for a sweeping investment in care workers and services.

Care isn’t a burden for women and families to shoulder alone. It’s the foundation of our economy, and it deserves to be treated as such. For the tens of millions of workers with care responsibilities related to, for example, young children or elderly parents, having stable, high-quality care services available is what makes it possible for them to hold a job. Put simply, care services are needed for the functioning of our modern labor market.

Workers with care responsibilities need a strong care system in place in order to participate in the workforce. As it stands, our care infrastructure is fragmented and inadequate, which cuts off opportunities for millions of workers. The burdens of our inadequate care infrastructure disproportionately fall on women, who still perform the bulk of care work in this country. Those care burdens are a primary cause of low labor force participation among prime age women in the U.S. relative to our peer countries around the world, even before the pandemic. Poor care infrastructure comes at great economic costs.

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While a disappointing jobs report, job gains in leisure and hospitality respond to increased demand in April

A disappointing 266,000 jobs were added in April, and March’s employment number was revised down by 78,000. While the overall growth was far below expectations, leisure and hospitality gained 331,000 jobs, a sign that increased demand has led to significant gains in employment in that sector.

The unemployment rate ticked up in April to 6.1%, in large part due to workers beginning to return to the labor force in search of jobs. The labor force increased by 430,000 workers in April, the largest gain in six months. Likely in response to improving public health metrics and increased expectations of job opportunities, more and more workers are actively returning to the labor force in search of work. While wage growth will be the leading indicator of employers having to bid up wages to attract workers, the significant rise in the labor force runs counter to anecdotal claims of labor shortages.

As of the latest data, employment is still down 8.2 million jobs from its pre-pandemic level in February 2020. But, if we include the likelihood that thousands of jobs would have been added each month over the last year without the pandemic recession, the jobs shortfall is more likely in the range of 9.0 and 11.0 million. Now is not the time to turn off vital relief—including expanded unemployment benefits—to workers and their families.

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What to watch on jobs day: An improving labor market, but rising long-term unemployment and a significant jobs shortfall are still causes for concern

When the April jobs report comes out tomorrow from the Bureau of Labor Statistics, I expect another month of strong job growth. Progress on the production and distribution of the vaccine, as well as forthcoming aid to state and local governments and direct assistance to workers and their families, means that the labor market should pick up steam. And that’s much needed, because the U.S. economy is still facing a significant jobs shortfall between 9.1 million and 11.0 million jobs, as I show below.

As of the latest March 2021 data, employment is down 8.4 million jobs from its pre-pandemic level in February 2020. In addition, thousands of jobs would have been added each month over the last year without the pandemic recession.

I consider two plausible counterfactuals for how many jobs may have been created if the recession hadn’t hit, as shown in the figure below. First, we could simply add enough jobs to keep up with population growth. There was a noticeable slowdown in ages 16+ population growth early in the pandemic; however, on average, we still would have needed a minimum of 54,000 jobs a month just to keep up with that growth.

Alternatively, we could count how many jobs may have been added if we took pre-recession growth in payroll employment and extended that forward. Average monthly job growth over the 12 months prior the recession was 202,000. Using these reasonable counterfactuals, we are now short between 9.1 million and 11.0 million jobs since February 2020. When the latest job numbers are released tomorrow, we should not only look at the difference in jobs between now and February 2020, but also what could have been if the economy continued growing over the last year.

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When corporations deceive and cheat workers, consumer laws should be used to protect workers

A janitorial company lures low-wage, immigrant workers to become “franchisees,” offering the promise of small business ownership and steady income. An online food delivery company provides a place on the app for customers to tip workers. A training program for jobseekers promises a position at the end of the costly course.

But in reality, the franchisees can barely survive, the company keeps the tips, the training is bogus, and the promised job is nonexistent.

Some public enforcement agencies (and even private lawyers) have recently attacked corporate misconduct of this sort by enforcing laws traditionally used to protect consumers in order to address unfair and deceptive labor market practices that target working people, often immigrants and people of color. More enforcement agencies and lawyers should follow their lead. Public enforcement agencies that focus on enforcing consumer protections, including federal agencies, attorneys general, and state and local consumer offices, should take an expansive view of their mission, and take action to protect worker-consumers in their often-complex relations with large corporations that use abusive and predatory practices.

A few recent cases provide examples of how this can be done.

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U.S. labor shortage? Unlikely. Here’s why

Update: Data released following the publication of this piece show there are signs of short-term worker shortages in isolated sectors, namely leisure and hospitality. There is, however, no evidence of a widespread labor shortage, and the isolated shortages that do exist are not a reason for concern. See this blog post for an updated analysis.)

This op-ed was originally published for The Commons hosted by the Initiative for Policy Dialogue. Read the piece here

There are lots of anecdotal reports swirling around about employers who can’t find workers. Just search “worker shortages” online and a seemingly endless list of stories pops up, so it’s easy to assume there’s an alarming lack of people to fill jobs. But a closer look reveals there may be a lot less to this than meets the eye.

First, the backdrop. In good times and bad, there is always a chorus of employers who claim they can’t find the employees they need. Sometimes that chorus is louder, sometimes softer, but it’s always there. One reason is that in a system as large and complex as the U.S. labor market there will always be pockets of bona fide labor shortages at any given time. But a more common reason is employers simply don’t want to raise wages high enough to attract workers. Employers post their too-low wages, can’t find workers to fill jobs at that pay level, and claim they’re facing a labor shortage. Given the ubiquity of this dynamic, I often suggest that whenever anyone says, “I can’t find the workers I need,” she should really add, “at the wages I want to pay.”

Furthermore, a job opening when the labor market is weak often does not mean the same thing as a job opening when the labor market is strong. There is a wide range of “recruitment intensity” that an employer can apply to an open position. For example, if employers are trying hard to fill an opening, they will increase the compensation package and perhaps scale back the required qualifications. Conversely, if employers are not trying very hard, they may offer a meager compensation package and hike up the required qualifications. Perhaps unsurprisingly, research shows that recruitment intensity is cyclical. It tends to be stronger when the labor market is strong, and weaker when the labor market is weak. This means that when a job opening goes unfilled when the labor market is weak, as it is today, employers are even more likely than in normal times to be holding out for an overly qualified candidate at a very cheap price.

This points to the fact that the footprint of a bona fide labor shortage is rising wages. Employers who truly face shortages of suitable, interested workers will respond by bidding up wages to attract those workers, and employers whose workers are being poached will raise wages to retain their workers, and so on. When you don’t see wages growing to reflect that dynamic, you can be fairly certain that labor shortages, though possibly happening in some places, are not a driving feature of the labor market.

And right now, wages are not growing at a rapid pace. While there are issues with measuring wage growth due to the unprecedented job losses of the pandemic, wage series that account for these issues are not showing an increase in wage growth. Unsurprisingly, at a recent press conference, Federal Reserve Chairman Jerome Powell dismissed anecdotal claims of labor market shortages, saying, “We don’t see wages moving up yet. And presumably we would see that in a really tight labor market.”

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The carceral state and the labor market

Mass incarceration is a core feature of contemporary society in the United States. According to the most recent available data, more than 2.1 million people are housed in America’s local jails and state and federal prisons (BJS 2020b; BJS 2020c). Expressed as a share of the population, 639 of every 100,000 people in the country are in prison or jail, the highest incarceration rate, by a substantial margin, among the world’s rich democracies (Figure A) and three times higher than the rate that prevailed in this country prior to the 1980s (Figure B).

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The Biden-Harris administration’s first 100 days: How to assess progress for workers

In the first 100 days, the Biden-Harris administration has taken a number of promising steps toward crafting an economic policy approach that would boost living standards and security for all U.S. families. But much remains to be done.

In this post, we highlight—in very broad strokes—what is needed to build an economy that generates faster, more sustainable, and more equitably distributed growth. We then identify where the administration has made progress in the first 100 days and where more forceful action is needed.

Building an economy that works for everyone requires the following:

  • Pursuing a “go-for-growth” approach to macroeconomics that aims for labor markets where jobs are plentiful and employers have to work hard (including offering higher wages) to attract workers, so-called “high-pressure” labor markets.
  • Crafting and enforcing fairer rules for markets, particularly through labor market institutions and standards that provide workers a more level playing field when bargaining with employers for better pay and working conditions.
  • Constructing deeper and more protective social insurance systems that use a larger public role in providing unemployment benefits, health coverage, and retirement income security— including long-term care for older adults and people with disabilities.
  • Undertaking ambitious public investments in both people and physical capital, including physical infrastructure, early child care and education, higher education, and green investments.
  • Reforming taxes in a way that helps finance the needed fiscal spending in this program, curbs growing inequality, and discourages the economic “bads” of greenhouse gas emissions and financial speculation.

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Up to 390,000 federal contractors will see a raise under the Biden-Harris executive order

Today the Biden-Harris administration issued an executive order requiring federal contractors to pay a minimum wage of $15 per hour. This is very welcome news. We estimate that up to 390,000 low-wage federal contractors will see a raise under this policy, with the average annual pay increase for affected year-round workers being up to $3,100. Roughly half of workers who would see a raise will be women and roughly half will be Black or Hispanic workers.

To arrive at these estimates, we first estimate the state- and industry-specific shares of federal contract employment using FY2020 federal contract obligations from USA Spending and input-output tables from 2019 Bureau of Labor Statistics employment requirements data. We then combined these results with the EPI Minimum Wage Simulation Model, assuming that the state- and industry-specific wage distributions for federal contractors are similar to the state- and industry-specific overall wage distributions. Following this methodology, we project that the policy will raise wages of up to 390,000 federal contractors in 2022. We say “up to” 390,000 to account for the fact that some workers who would otherwise be affected by a $15 minimum wage will already be receiving a higher wage as a result of the Davis-Bacon Act or the Service Contract Act. An extreme lower bound for the number of contract workers affected by this executive order after accounting for these other wage standards is 226,000. (This lower bound is generated by entirely excluding the construction industry and, outside of construction, raising the underlying wage distribution by an industry-specific union wage premium.)

We are thrilled that the administration is increasing the minimum wage for workers on federal contracts to $15 per hour and raising wages for hundreds of thousands of workers, and we encourage the administration to go further to help ensure that the estimated two million total jobs held by federal contract workers are good jobs. This would include steps like ending practices that allow low-road contractors to win bids that are so low they are inconsistent with decent pay and working conditions, and banning federal government contractors from requiring contract workers to sign forced arbitration and class action waivers, which limit the ability of these workers to challenge illegal practices.

New personal income data show the need for broad and permanent unemployment insurance reform

Recently released data from the U.S. Department of Commerce’s Bureau of Economic Analysis (BEA) show that unemployment insurance (UI) made up an unprecedented share of total wage and salary income1 in 2020—reflecting the immense economic fallout from the pandemic and the large federal response to the crisis.

Importantly, more than 70% of UI dollars during the pandemic have come from emergency federal programs to prop up the inadequate state-run UI systems, revealing the gross inadequacy of existing UI benefits, the scale of the ambitious but temporary federal response, and the resulting obvious need for broad structural reform of the UI system. Key findings are:

  • Nationally, UI benefits as a share of total wage and salary income peaked at over 10% in the second quarter of 2020. Before 2020, UI benefits had never been as high as 3% of total wage and salary income.
  • At the state level, UI benefits had never exceeded 6% of any state’s wage and salary income before 2020. But in the second quarter of 2020, four states saw UI benefits exceed 20% of state wage and salary income.
  • State UI programs could not meet the needed support for an unprecedented number of unemployed workers. Two key pieces of federal legislation helped fill the gap. The Federal Pandemic Unemployment Compensation (FPUC)—mostly the extra $600 in weekly benefits included as part of the CARES Act in March 2020—contributed the most federal dollars in 2020. But the Pandemic Unemployment Assistance (PUA) program (which expanded eligibility to workers traditionally left out of UI benefits) was also hugely important. In 13 states, PUA accounted for more than 45% of total UI dollars received in the fourth quarter of 2020.
  • These pandemic-related UI programs greatly equalized the protectiveness of the UI system as a whole across groups. In particular, states with a higher share of Black residents were more reliant on federal assistance to provide UI benefits. But if the pandemic programs fade with no structural reforms, the UI system will revert to being one that sees stingier benefits precisely in those states with higher Black population shares. This disparate racial impact is a key reason why reforms are needed.

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A farewell from EPI’s President

It has been my honor, privilege, and joy to lead the Economic Policy Institute for the last three and a half years. For me, EPI has been a vibrant intellectual community for more than 30 years. I wandered in the door as an inexperienced trade economist in the 1990s, consumed and distributed EPI’s excellent research during the 20 years I was at the AFL-CIO, and then became president of EPI in 2018.

During my tenure, with the invaluable partnership of Vice President John Schmitt, EPI has grown its staff, expanded its work, strengthened its voice and impact, forged new partnerships, deepened its state policy work via the EARN network, and sharpened its focus on racial justice through expansion of the Program on Race, Ethnicity, and the Economy, as well as throughout our work.

So it is with a heavy heart that I announce that I will be leaving EPI on May 7. I have accepted a job in the Biden/Harris administration. It is not easy to leave an organization like EPI—and the extraordinarily brilliant, insightful, and delightful staff—but I believe there is a short window that provides an opportunity for me to contribute to work I care deeply about.

I have complete, unshakable confidence in EPI, its staff, and its work. I know how valuable, timely, and thoughtful that work has been and will continue to be—especially now. EPI is well positioned to shape and inform the bold, ambitious policy agenda laid out by the new administration and Congress.

EPI’s wonderful board of directors, led by Board Chairman Richard Trumka and the executive committee, will organize a national search for the next president, who will have the good fortune to lead this stellar organization on to do the Research that builds Worker Power so we can achieve Justice. For the duration of the search, John Schmitt has generously and graciously agreed to step in as interim president. With his deep experience, John will ensure a smooth and successful transition.

I know EPI will continue to advance its mission to strengthen workers’ voice and power at the workplace and beyond and to make the world fairer and more humane. I will be eternally grateful that I had the opportunity to work alongside EPI’s amazing staff, and I look forward to staying connected in this next chapter for me and for EPI.

(On May 10, Thea Lee joined the U.S. Department of Labor as Deputy Undersecretary of Labor to lead International Labor Affairs Bureau.)

How Amazon gerrymandered the union vote—and won

In all of the coverage about how Amazon and its relentless anti-union campaign defeated the union organizing drive at its fulfillment center in Bessemer, Alabama, one key feature of Amazon’s campaign deserves highlighting—namely, Amazon’s countless tactics to try and delay the vote and dilute the union’s support by adding thousands of workers to the bargaining unit who hadn’t previously been involved in the organizing drive. This common tactic, which is straight out of the standard union avoidance playbook, unquestionably played a significant role in defeating the organizing drive. Yet the tactic is perfectly legal under our current labor law. The Protecting the Right to Organize (PRO) Act would put a stop to this tactic and put voting decisions back in the hands of workers and the National Labor Relations Board (NLRB).

The Protecting the Right to Organize, or PRO Act, would curtail the ability of employers to gerrymander bargaining units and delay elections in three ways:

  1. Directs that employers have no role in the processing of National Labor Relations Board’s election petitions—the proceeding is between workers, their union, and the NLRB. Employers would no longer be able to intervene in election proceedings to try to gerrymander the bargaining unit.
  2. Makes clear that the bargaining unit proposed by the union will be the voting unit as long as the workers share a community of interest and workers outside the proposed bargaining unit do not have an overwhelming community of interest with them.
  3. Codifies reforms adopted by the Obama NLRB—and largely repealed by the Trump NLRB—to streamline the election process to cut down on unnecessary delays that employers then use to campaign against the union.

First, some background. When workers want to form a union, they typically gather signatures on a petition or cards indicating their support for union representation. If workers and their union gather signatures from at least 30% of the group—known as the “bargaining unit”—the NLRB will process a petition for a representation election. The NLRB will hold a hearing on the petition and issue a decision setting an election date, the voting bloc, the method of voting (mail ballot or in person), and other details.

When employers are notified of an election petition, their first play when they want to defeat an organizing drive is to stall the election and give themselves time to campaign against the union, as Amazon did in Bessemer. A common employer tactic—and one employed by Amazon—is to use the NLRB hearing to argue that the voting bloc should be different from the group described by workers in their election petition. Typically, employers will argue that the voting bloc/bargaining unit should be larger than the one sought by workers, because employers know they can dilute the union’s support by adding workers who haven’t previously been involved in the organizing drive.

Employers slow down the process by asking for a hearing on the proposed bargaining unit, which can take weeks or even months. In the meantime, the employer holds mandatory meetings where workers are required to listen to anti-union speeches by the company. Employers hire professional “union avoidance” consultants, who are paid thousands of dollars a day to script and run anti-union campaigns. The longer the employer can delay, the longer the employer can run its campaign. Meanwhile, the union has no similar access to the facility to talk with workers about the benefits of organizing.

This is precisely what Amazon did in Bessemer. The Retail, Wholesale and Department Store Workers Union (RWDSU) filed a petition with the NLRB on November 20, 2020, seeking an election to represent a unit of 1,500 full-time and part-time workers at the Bessemer fulfillment center. The petition excluded temporary and seasonal employees from the bargaining unit, which is typical, because these short-term employees do not have the same permanent attachment to the job as regular employees. If Amazon had not intervened, an election would likely have been held among the 1,500-person voting bloc in late December.

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Powerful government policy segregated us; the same can desegregate us, says Color of Law author Richard Rothstein

I am the author of a book, The Color of Law, that disproves the myth of de facto segregation. In truth, we are residentially segregated, not naturally or from private bigotry, but primarily by racially explicit policies of federal, state, and local governments designed to prevent African Americans and whites from living as neighbors; these 20th-century policies were so powerful that they determine much of today’s residential, social, and economic inequality.

Because powerful government policy segregated us, racial boundaries violate the fifth, 13th, and 14th amendments. Our nation thus has a positive constitutional obligation to redress segregation with policies as intentional as those that segregated us.

The federal government made housing and homeownership critical to families’ economic stability and upward mobility. But we routinely excluded African Americans from government benefits that propelled whites into the middle class.

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We need a vaccine for false narratives about racial disparities: Taking statistics with a dose of history and context will bolster economic and racial justice for Black workers

Key takeaways:

  • We need new narratives around Black economic disadvantage.
  • In today’s heightened public awareness of racial inequalities, the ways we talk about racial economic disparities shape the solutions we develop for those disparities—and whether we consider disparities as problems worth solving at all.
  • Americans have historically had a tendency to individualize both successes and failures—that is, to look at groups of individuals and assume their outcomes are just the combined result of individual decisions, something known as “methodological individualism.” It fails to account for the ways that structural features of the U.S. economy narrow the options for Black workers and their families.
  • In this blog post, I offer tools for gaining the deeper understanding of statistics that allow us to actually tackle the problems of inequity with impactful solutions instead of explaining them away.

Black workers disproportionately experienced the darkest side of 2020, both in terms of health and labor market outcomes—a reality that was not unexpected.

Researchers, advocates, and activists have spent years pointing out that Black Americans are more likely to have the health conditions that significantly increase the mortality rate of COVID-19 infection. We have known for years that Black American households have a fraction of the wealth that white American households do, meaning that in the event of an economic shock they would be less resilient, more likely to default on loans, and unable to draw upon savings to pay rent, possibly leading to evictions.

The last 50 years of labor market data have given us two recognizable facts:

  1. The Black unemployment rate is consistently around double the white unemployment rate under normal economic conditions.
  2. Black workers find employment more slowly, especially in the wake of an economic downturn.

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Today’s inflation data show zero sign of sustained economic overheating

Correction: The first paragraph of this blog post has been updated with the correct overall consumer price index (CPI) in March 2021 of 2.6% and “core” measure of the CPI of 1.6%. The initial analysis had accidentally switched the two numbers. The numbers in Figure A remain the same.

Today, the Bureau of Labor Statistics (BLS) reported that the overall consumer price index (CPI) in March 2021 was 2.6% higher than in March 2020, while the “core” measure of the CPI (which excludes volatile food and energy prices) was 1.6% higher than a year ago. Given that these are noticeable (if modest) increases over recent months’ year-over-year inflation rates, some might be tempted to argue that this data should make policymakers worry about economic “overheating” stemming from “too much” fiscal support provided in recent recovery legislation. This is clearly wrong, for a number of reasons:

  • The data released today do not show that prices have risen rapidly since recovery legislation passed—instead they just show that prices plummeted during the near-total shutdown of large swaths of the economy a year ago in response to the COVID-19 shock.
    • Measured on an annualized basis from February 2020—before the COVID-19 economic shock—inflation in March 2021 was running at just 1.5%.
    • Measured since October—shortly before the $2.8 trillion in additional relief spending provided by legislation in December 2020 and the American Rescue Plan (ARP) in March—inflation is running at an annualized rate of 1.3%.

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The American Jobs Plan’s tax provisions are valuable but not the limit on possible spending

The spending in the American Jobs Plan (AJP) is well targeted to meet several (but obviously not all) pressing social needs. Because so much of the spending is temporary and provides needed investments, there is no pressing economic need to “pay” for it with tax increases. Yet the tax provisions in the AJP are also smart and valuable. This post discusses some of the economics of the AJP, with a special focus on these tax provisions. Its main findings are:

  • The bulk of these tax provisions undo some of the worst parts of the Tax Cuts and Jobs Act (TCJA) passed in the first year of the Trump administration. Given this, to make the case that rolling back these parts of the TCJA will harm the U.S. economy, one has to believe that the passage of the TCJA benefited the U.S. economy. There is no evidence this is the case.
  • The entire case for corporate tax cuts benefiting the U.S. economy hinges on the effects on business investment. But business investment growth in the two years following the TCJA’s passage (even before the COVID-19 shock) was cratering, not rising.
  • The vast majority of new revenue that will be raised from the AJP tax provisions will come from taxing “excess profits”—profits accrued by virtue of monopoly or other privileged market positions. As such, this extra revenue will have little to no effect on economic decision-making and hence will not reduce business investment or economic growth more generally.
  • Two “model-based” analyses of the AJP find very different things: Moody’s Analytics forecasts strong positive effects on economic growth over the next 10 years, while the Penn Wharton Budget Model forecasts very slight negative growth effects by 2030. The finding that the AJP might reduce economic growth rests on a number of bad assumptions: that the corporate tax changes will significantly affect economic decision-making and reduce investment; that the productivity gains stemming from public investment are small; that budget deficits will crowd out large amounts of private capital formation over the next decade; and that AJP’s care investments will reduce labor supply. None of these assumptions are likely to be correct.

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