What to Watch on Jobs Day: Taking stock of the labor market, 10 years since the start of the Great Recession
The last jobs report of 2017 comes out on Friday, giving us a chance to step back and look at the entire year. Tomorrow’s jobs report also marks the 10th anniversary of the start of the Great Recession. My expectation is that the December data will confirm that, while by some measures the economy has almost recovered its immediate pre-Great Recession health, by other measures it is still notably weaker than in 2007, the last year before the Great Recession hit. Further, as I have often noted, 2007 should not be considered a benchmark for a fully healthy economy for America’s workers. Almost all labor market measures were notably weaker in 2007 than they were at the previous business cycle peak in 2000. There was very little reason to think that the U.S. economy in 2007 was at full employment. If one looks at the stronger business cycle peak of 2000 as a more appropriate benchmark, the economy in 2017 looks even weaker, and the case for continued policy support for faster growth is strengthened. Many working people are still not seeing the recovery reflected in their paychecks—and the economy will not be at genuine full employment until employers start offering workers higher wages.
In this post—and tomorrow when the December numbers come out—I’m going to look at average payroll employment growth over the last several years. Because there is always a bit of volatility in the monthly data—especially in the household series—taking a year-long approach allows us to smooth out the bumps and take stock of all the key measures: payroll employment growth, the unemployment rate, the employment-to-population ratio, and nominal wage growth.
The figure below shows average nonfarm employment growth for 2007–2016 and for the first 11 months of 2017. With an average of 174,000 new jobs being added each month, job growth in the first 11 months of 2017 was slower than in any year since 2011. But even at this slower pace of growth we are not only absorbing population growth, but also chipping away at the slack remaining in the labor market—namely workers who continue to be sidelined and who I expect will enter or re-enter the labor market as opportunities for jobs and better paying jobs expand. If December’s numbers are in line with payroll employment growth over the last several months, it will be more proof that the economy is continuing its slow but steady march towards full employment.
The courts are getting it wrong when it comes to unpaid interns
For the past six years, a group of brave young (and some not so young) former interns have been fighting for workplace protections, including the right to be paid. Not just to be paid properly—to be paid at all. I have had the privilege of representing many of them in their lawsuits. It has been quite a journey that, at this point, is going in the wrong direction.
At the beginning, the court of public opinion was decidedly against us. Anderson Cooper mocked our lawsuit against Fox Searchlight Pictures, which used unpaid interns on its Black Swan film production, placing it on his “RidicuList.”
But slowly the tide turned our way as more interns spoke up about the long hours they toiled for no pay and receiving little or no benefit in return. The New York Times reported that former interns were pushing back against exploitative internships. A social media campaign urging companies to #payyourinterns exploded.
The interns’ lawsuits raised a straightforward point: interns who do real work for private companies, whether menial or not, are protected by our nation’s labor laws and, therefore, should be paid at least minimum wage for the hours they work. The fact that many interns are students or work for relatively short durations should be irrelevant. Seasonal and temporary workers must be paid the minimum wage, so why should there be an exception for interns? The fact that some schools grant credit to some interns should not change the calculation either. Course credit is no substitute for pay and, for many interns, paying for the school credit is another out of pocket expense that they can ill afford. In fact, everyone seems to benefit from the transaction more than the interns—schools benefit by reaping tuition dollars without providing instruction and corporations benefit by substituting parts of their paid workforces with unpaid hours.
By overturning Specialty Healthcare, the NLRB has made it harder for workers to organize
On Friday, the Trump administration’s appointees to the National Labor Relations Board (NLRB) once again made it more difficult for workers to join together and form a union, by overturning the Board’s standard for determining an appropriate bargaining unit, as established in 2011’s Specialty Healthcare case.
Under the National Labor Relations Act, private-sector workers who wish to be represented by a union can petition the NRLB to hold a union election. Federal labor law gives the Board wide discretion to determine the appropriate “bargaining unit,” the term for the group of workers that will vote in the election and will be represented by the union. In Specialty Healthcare, the Board established that once an appropriate unit of employees is identified based on the employees’ “community of interest,” an employer can only petition to add more employees to the unit if the employer can show the additional employees share an “overwhelming community of interest” with the workers who are already in the bargaining unit. This standard is important to prevent employers from attempting to manipulate or gerrymander the bargaining units in order to thwart their employees’ union elections. The NLRB’s standard for determining an appropriate bargaining unit in Specialty Healthcare has been unanimously upheld in all seven U.S. Courts of Appeals in which it has been challenged.
Since the NLRB issued its decision in Specialty Healthcare corporate special interests have assailed it as inviting the proliferation of “micro” units that will allow unions to form small pockets of unionized employees among an employer’s workforces. However, data on the median size of bargaining units disproves the argument that the standard would lead to the proliferation of so-called “micro-units”—the median size of bargaining units has hardly changed since the Board issued its Specialty Healthcare decision in 2011.
Why then were the Chamber of Commerce and other corporate interest groups committed to doing away with the Specialty Healthcare standard? They simply want to make it easier for employers defeat an organizing campaign, by manipulating who is in a bargaining unit. By overturning this rule, the Trump administration has once again shown that it wants to make it harder for workers to organize and join unions.
The arguments supporting corporate tax cuts are wrong, and territorial taxation will make things worse
Congressional Republicans are set to release the final version of their tax bill this evening. Pending more details, the final bill coming out of the conference committee looks increasingly like the Senate version of the bill, which makes Republican tax priorities clear. Most of the individual provisions in the bill are temporary, and the exceptions to this actually raise taxes on households—by tying tax brackets to a new, lower inflation rate and reducing the number of people receiving help buying health insurance through the Affordable Care Act. The end result for the Senate bill was that on average, households making under $75,000 would see a tax increase by 2027 according to the Joint Committee on Taxation.
On the other hand, the changes for corporations, such as lowering the corporate tax rate and shifting to a “territorial” tax system, are permanent. Since changes benefiting corporations are the only policies deemed worth keeping by Republicans (besides those that raise taxes on most families), it bears repeating that these cuts will not trickle down to typical workers, and arguments to the contrary are not credible.
The typical first argument peddled is that U.S. corporations are taxed at disproportionately high rates and this hurts U.S. workers through some vague notion of “competitiveness.” As we’ve detailed, “competitiveness” is a meaningless term and the evidence doesn’t support the idea that cutting corporate tax rates will help typical American workers. There is no international evidence that corporate tax cuts boost investment (which could potentially lead to higher wages), nor is there any evidence on the state-level that corporate tax cuts boost wages.
NLRB reverses Browning-Ferris, makes it harder for workers to bargain with their employers
Yesterday, the National Labor Relations Board (NLRB) made it more difficult for millions of workers to join together and form a union, by overturning its joint-employer standard established in 2015’s Browning-Ferris Industries case.
It is hard in today’s economy to bargain for higher wages or better working conditions, especially if your direct employer doesn’t really make those decisions. Under President Obama, the NLRB tried to make it easier for employees by holding each employer responsible when they co-determine what a worker’s wages, hours, and working conditions will be. In yesterday’s decision, the Trump NLRB decided to make it harder than ever.
The NLRB’s latest decision is bad law resulting from a bad process. Ordinarily, before overturning major precedent, the Board invites the public to comment by filing amicus briefs. However, this time, they did not, and instead announced this reversal with no warning or notice. President Trump’s appointees to the Board were so keen to respond to the demands of the franchising industry, which wants a rule that franchisors like McDonald’s aren’t responsible unless they exercise direct control over a franchisee’s labor relations, that they reversed the joint-employer standard in a case where the standard wasn’t even an issue, and where the public had no opportunity to weigh in.
The economy is on the right track, but key indicators show we’re not at full employment yet
The Bureau of Labor Statistic’s released its employment situation report for November this morning, which had the economy adding 228,000 jobs and the unemployment rate holding steady at 4.1 percent. Labor force participation among prime-age workers, those 25-54 years old, increased slightly, while the prime-age employment-to-population (EPOP) ratio hit its highest point in this recovery. Meanwhile, year-over-year nominal wage growth is stalled at 2.5 percent, below where it should be and with no sign of inflationary pressures to weigh on the Federal Reserve’s decision whether to raise rates later this month.
Given the weather-related volatility this fall, it’s useful to provide some context on the topline employment growth figure. Over the last three months, average job growth was 170,000, while over the last six months, job growth averaged 178,000. An increase of about 90,000 is enough to keep up with population growth—so by any measure, smoothed or not, the economy is pulling more people off the sidelines and into the labor force. Even if the unemployment rate simply holds steady, absorbing more and more would-be workers at this point of the recovery is a sign of a healthy economy well on its way to full employment. There is no reason to think that much of the remaining slack, particularly among prime-age workers, won’t continue to be soaked up in a steadily improving economy.
The prime-age EPOP hit a high water mark this month, rising 0.2 percentage points, to 79.0 percent. The overall EPOP—including those above age 55 and below age 25—fell ever so slightly (0.1 percentage points). Unfortunately, this drop is due to losses among young workers, rather than older workers voluntarily retiring. While these differences are certainly important to note, I’d argue that the prime-age EPOP is a better measure of overall labor market health. In a stronger economy, we would expect a larger share of this population to be gainfully employed. As you can see in the figure below, the prime-age EPOP has now comfortably passed the low water mark of the last two business cycles, but still has a way to go before hitting full employment levels.
If corporate rate cuts don’t trickle down, the House tax plan will raise taxes on moderate-income households too
The headline distributional numbers for the Senate tax plan from the Joint Committee on Taxation (JCT) attracted much attention because they showed that households making under $75,000 would actually see a tax increase on average in 2027. Many have noted that the House bill is not as bad on this score, with the JCT analysis showing that “only” households earning between $20,000 and $30,000 will face a tax increase on average in 2027.
But behind the ostensibly better House distribution score is a major catch—low- and moderate-income households will face tax increases unless corporate tax cuts trickle down to them in the form of higher wages, which historically has not happened when corporations receive large tax cuts. The individual income taxes low- and moderate- income households pay through withholding on their paychecks and on tax forms each year will certainly increase by 2027.
The central mechanism of both versions of the Tax Cut and Jobs Act (TCJA) is easier to see in the Senate bill: permanent tax cuts for corporations, coupled with eventual individual income tax increases for low- and moderate-income households. By 2021, households making less than $30,000 will see individual income tax increases under the Senate tax bill. And the only individual income tax changes that are permanent are the repeal of the individual mandate from the Affordable Care Act (ACA) and indexing tax brackets to a slower growing measure of inflation, thereby pushing people into higher tax brackets more quickly. This means that on average every income category is paying more individual income taxes in 2027 under the Senate tax bill. These tax increases are used to pay for permanent tax cuts for big corporations.
What to Watch on Jobs Day: Labor market should continue to improve, with or without pending tax cuts
Tomorrow, the BLS will release the latest numbers on job creation and the labor market. Today, I’m going to take step back and provide some context for what we’ve seen so far this year, as we approach the 10th anniversary of the beginning of the Great Recession. I’m also going to provide some perspective on the tax bill wending its way through Congress, in light of steady progress in the labor market over the last several years. The bottom line is that (1) contrary to recent economic commentary surrounding the proposed tax cuts in Congress, it is not clear that we have reached genuine full employment yet and significant slack may still remain in the labor market , but (2) if we continue to see solid payroll employment growth in the months to come, we should expect to see continued strong progress in labor force participation, particularly among prime-age workers, and in wage growth—even in the absence of any fiscal stimulus from tax cuts. Any claims that these tax cuts, if they pass, will lead to significant improvement in the labor market or in wages need to be viewed in the context of an already steadily improving economy.
In January 2017, we released our autopilot economy tracker, as a way to set down key benchmarks for the U.S. economy. Think of it as providing a gauge of whether changes to policy are leaving any discernible mark on the economy’s trajectory. We look at where several economic indicators were headed before the year started, and where they would be if those trends simply continued. Take, for example, the prime-age employment to population ratio (EPOP). In the figure below, you can see clearly the progress that has been made over the last several years, and the continuation of that trend through this year with no discernible uptick in the pace of recovery. Steady improvements in the prime-age EPOP since January have tracked our predictions of an economy on auto-pilot fairly well, and we should expect this trend to continue into next year.
The distribution of TCJA cuts, as well as the burden of financing them, by income group and race
The House and Senate both passed versions of the Tax Cuts and Jobs Act (TCJA) in recent weeks. Both versions of the bill, which must now be reconciled and voted on again, are made up mostly of large, hugely regressive tax cuts that give disproportionate benefits to big corporations and the wealthiest Americans. While the regressivity of these bills by income class has been well-documented by now, we’ve been asked by a number of people about the likely distribution of tax cuts called for by the TCJA across racial groups. A fully fleshed-out and precise estimate of this racial distribution would take lots of time and effort to calculate, but a decent rough estimate can be made pretty quickly if we’re willing to use some plausible proxy data.
However, it is also crucially important to note that congressional Republicans have not just passed versions of the TCJA in recent weeks, they have also passed a budget resolution calling for steep cuts to key programs, in large part because they want this money to finance their tax cuts. Assessing the impact of tax cuts while ignoring likely spending cuts would lead to a radical underestimate of the effect of coming fiscal policy changes on typical Americans’ livelihoods. Given this, we also examine the likely distribution of the burden of financing the TCJA with spending cuts by income class and race.
The Urban-Brookings Tax Policy Center (TPC) has provided estimates of what share of the tax cuts would go to different income groups. The Survey of Consumer Finances (SCF) provides data on the share of households in each of various income groupings that are headed by white, African American, or Hispanic householders. The SCF is uniquely useful here because it has clear income percentile rankings all the way up to the top 1 percent. Merging the TPC and SCF data in this way is not a pure apples-to-apples comparison. The TPC data is arranged by “tax units” while the SCF data is arranged by households (while the SCF calls their unit of analysis “families”, it is much closer to the “household” definition used by surveys like the Census). A tax unit can contain more than one household. But, all this said, there still should be substantial overlap between the two data measures, and the TPC data on tax units should provide a useful overview of the distribution of tax cuts across households.
United States fails to participate in key global conversations on migration
On December 2, the State Department announced—and multiple news outlets reported—the decision of the Trump administration to end U.S. participation in the Global Compact for Migration (GCM), a non-binding international agreement that is in the process of being negotiated by 193 member states of the United Nations. The GCM is an attempt to improve coordination and governance on migration, seek new solutions to challenges posed by increased migrant flows, and strengthen the contributions of migrants to sustainable development. Numerous groups working to advance migrants’ rights have condemned the U.S. withdrawal from the GCM process.
The State Department’s statement came on the eve of an important intergovernmental meeting in Puerto Vallarta, Mexico, to prepare the world’s governments for the negotiations during most of 2018. The Trump administration’s statement pointed to the New York Declaration of 2016, which kicked off the process for UN Member States to negotiate a Global Compact, as containing “numerous provisions that are inconsistent with U.S. immigration and refugee policies and the Trump Administration’s immigration principles.” UN Ambassador Nikki Haley further noted that “decisions on immigration policies must always be made by Americans and Americans alone.”
The GCM is a historic opportunity to improve the governance of migration. The compact is likely to address issues such as deportations, the rights of child migrants, and labor migration—but no one knows what will be in the final compact because there is no initial first or “zero” draft. In addition, the United States could decide not to support the final text if it fails to improve the status quo, and the GCM will be a non-binding agreement, meaning the United States is not required to comply with it under international law. As a result, Ambassador Haley’s statement that “the global approach in the New York Declaration is simply not compatible with U.S. sovereignty” is misleading.
