A balanced budget amendment would be extraordinarily dangerous for the economy
The House is set to take up a balanced budget amendment this week, which would limit federal spending in each fiscal year to federal receipts in that year. Putting aside for a moment the chutzpah of House Republicans trying to pass a balanced budget amendment (BBA) just a few months removed from their passage of a $1.5 trillion tax cut that went largely to the richest households and big corporations, the simple fact is that the economic consequences of a balanced budget amendment range from extremely bad to catastrophic. The reason for this is that a BBA would amplify any negative economic shock to the economy and would thereby turn run-of-the-mill recessions into disasters.
When the economy enters a recession, government deficits increase as tax revenues decline and government spending on programs such as unemployment insurance increase. These “automatic stabilizers” are incredibly important as they cushion the blow to the economy from a recession. For example, researchers at Goldman Sachs found that the shock to private sector spending from the bursting of the housing bubble was larger than the shock that led to the Great Depression of the 1930s. Given this larger initial shock, why didn’t we have another Great Depression, with unemployment rates approaching 20 percent and beyond, in 2009–10? The simple reason is that the mechanical increase in the deficit from tax reductions and increased transfer payments absorbed a lot (not enough, but a lot) of this shock, and automatic stabilizers were either non-existent or a lot smaller in the 1930s. Having these programs in place to absorb recessionary shocks is one of the great economic advances of the past 80 years—and getting rid of them by imposing a BBA makes as much sense as outlawing computers or antibiotics. To comply with a BBA as a recession approached, Congress would have to offset any mechanical increase in the deficit by raising taxes or cutting spending. The increased taxes or spending cuts would further drag on the economy, raising the deficit again and requiring still further tax increases or spending cuts. This vicious cycle would amplify the damage to the economy. Essentially this vicious cycle would lead to a large increase in the fiscal multiplier, with each dollar in spending cuts leading to output losses of about $2.50.
The Federal Reserve could try to counteract this drag on the economy by cutting interest rates. But the extent to which they would be able to mitigate the damage may be extremely limited, for a couple of reasons. First, while the Fed can certainly restrain growth by raising interest rates, spurring growth by cutting rates is often ineffective; a dynamic often referred to as rate cuts akin to “pushing on a string.” Further, with current chronic downward pressure on aggregate demand, so-called “secular stagnation,” characterizing the U.S. economy in recent decades, it is likely that the Federal Reserve would be constrained by the zero-lower bound (ZLB) on interest rates—as it was during the Great Recession. Since interest rates cannot be moved (for too long or too far) below zero, when the Federal Reserve hits the ZLB they will be unable to offset any further drag on the economy through conventional monetary policy.
New UN data on international migrants highlights special responsibility for destination countries in the Global Compact for Migration
Large movements of refugees and migrants around the world since 2015, many in response to humanitarian crises, have led to a global negotiation at the United Nations (UN) to create a new Global Compact for Migration (GCM). The GCM will be a non-binding international agreement to establish a new regime for cooperation on international migration that can maximize the benefits of migration and better protect migrants in vulnerable situations. While governments—minus the United States—continue to negotiate the GCM, it’s important to step back and reflect on the lives at stake. The latest UN report and data on migration from the UN Population Division helps by providing a snapshot of migrants around the world. These data can assist policymakers who are currently negotiating the GCM’s substantive provisions, who should remember to take into account their special responsibilities to protect the human rights of all migrants who live and work within their borders.
The UN Population Division reported that there were 258 million international migrants worldwide in 2017, meaning that 3.4 percent of people had been living outside of their country-of-birth for at least one year. The number of international migrants rose by 10 million from 248 million in 2015, but was unchanged as a share of the global population. The number of migrants in 2017 is an increase of 50 percent from 173 million in 2000, rising 0.6 percent from 2.8 percent of the global share of the population in 2000. Almost 75 percent of international migrants are of prime working age, meaning between the ages of 20-64. Men were 52 percent of international migrants in 2017 and women 48 percent.
By continent, Asia hosted 80 million international migrants, Europe 78 million, North America 58 million, Africa 25 million, Latin America 9.5 million, and Oceania 8.4 million. Europe’s population would have declined between 2000 and 2015 had it not been for the arrival of international migrants.
What to Watch on Jobs Day: Multiple measures indicate the presence of labor market slack
I’ve written a lot about wages in recent months. In March, I detailed trends in wages through 2017 in a report, with specific emphasis on growing inequality both across the wage distribution and between black and white workers. My “What to Watch on Jobs Day” blog post last month, as well as my statement on jobs day, tried to put wage growth in perspective by comparing multiple measures of wage growth and showing how many of them fell short of levels that would be needed to confidently declare the economy at full employment. On Friday’s Jobs Day, I will look at wage growth once again, as well as other measures of labor market slack which indicate that the economy has yet to unambiguously reach full employment.
Wage growth is a really important measure of labor market strength, and while slow wage growth is not just an indication that the economy remains below full employment, by definition slow wage growth means there continues to be some slack in the labor market. Slow wage growth tells us that employers continue to hold the cards, and don’t have to offer higher wages to attract workers. In other words, workers have very little leverage to bid up their wages. Slow wage growth is evidence that employers and workers both know there are still workers waiting in the wings ready to take a job, even if they aren’t actively looking for one. But, you say, the unemployment rate is 4.1 percent. Where are these workers waiting in the wings? The focus of this blog post and what I’ll be looking at on Friday (along with wages) are the other measures that similarly indicate there remains a non-trivial amount of slack in the labor market. I’ll argue that we can actually see this “waiting in the wings” in the data in other measurable ways, aside from weak wage growth.
Last week, my colleague Josh Bivens highlighted one underappreciated measure of labor market flows: the share of the newly employed that come from out of the labor force. One might be tempted to believe that the labor force represents a rather static and cleanly-defined group of people: those who have a job or those who don’t but want one and are actively looking for one. If that were the case, then the total labor force wouldn’t fluctuate so much and only the unemployment rate would move up and down at different points in the business cycle. But, the labor force itself ebbs and flows, even relative to the working-age population.
Does high CEO pay matter to shareholders?
Last month, we did an analysis that examined the impact of a provision of the Affordable Care Act limiting the amount of CEO pay that could be deducted from profits to $500,000.
In the years after it took effect, this provision raised the cost of CEO pay to employers (i.e., shareholders) by more than 50 percent. Prior to 2013, shareholders of health insurance companies effectively paid just 65 cents on every dollar of CEO compensation, since their taxes would fall by 35 cents for every dollar they paid out. After 2013, they would be paying 100 cents of every dollar.
If CEO pay bears a close relationship to their value to the company, this change in the tax code should have led to some reduction in their pay. Using a wide variety of specifications, controlling for growth in profits, revenue, stock price, and other relevant factors, we found no evidence that the pay of health insurance CEOs fell at all in response to the limit on deductibility.
While this finding does support the view that CEO pay is not closely related to their value to shareholders, it is worth asking how much this provision mattered to insurers’ bottom line. In other words, how much more did they effectively end up paying to their CEOs, measured as a share of profits, as a result of the change in the tax code?
Evidence shows collective bargaining—especially with the ability to strike—raises teacher pay
Some recent media reports on a new academic study by political scientist Agustina S. Paglayan give the impression that the paper’s findings reflect badly on teachers unions. This is a misreading, however, of the study and of its implications. A key issue lost in the press accounts is that the study is, first and foremost, an historical analysis, examining the effects of the expansion of state collective bargaining rights for teachers between 1959 and 1990. Given the historical focus, the study excludes the experience of the last three decades, where the evidence clearly suggests that collective bargaining raises teachers pay.
But, even with respect to just the historical period studied, the paper’s conclusions are much more nuanced than the press reports suggest. A central conclusion, which has been overlooked in media accounts, is the author’s view that the reason that teachers unions might not have been effective in raising expenditures on education (including teachers’ pay) in the early days of expanding collective bargaining rights is because the laws that allowed collective bargaining often simultaneously restricted the ability of public-sector unions to strike. What the law gave with one hand, it often took back with the other. To illustrate the point, the paper shows that in states where public-sector workers had both the right to collective bargaining and the right to strike, collective bargaining did appear to increase expenditures on education.
More recent evidence on the effect of unions on teacher pay
Any analysis of unionized public-sector teachers’ pay needs to separate out two points of comparison: one is a comparison of teachers’ pay with what similar workers earn in the private sector; the other is a comparison between what unionized and non-unionized teachers earn in the public sector.
A perfect pairing: New tip provisions and a strong minimum wage
Last December, the U.S. Department of Labor (DOL) issued a proposal to allow employers to collect their workers’ tips, ostensibly to distribute them more evenly through tip pools. However, the rule was written in such a way that it would have made it legal for employers to simply pocket tips. This would have been a major windfall to restaurant owners and other employers of tipped workers, out of the pockets of people who work for tips. We estimated that if that rule were finalized, workers would lose $5.8 billion a year in tips, with $4.6 billion of that coming from the pockets of women working in tipped jobs.
Because of the overwhelming outcry from workers and allies in response to the proposal, along with excellent investigative journalism that uncovered the administration’s cover-up of its analysis showing the rule would be terrible for workers, DOL came to the table to hammer out a compromise. As a result, last week’s spending bill included a provision that makes it clear that employers may not keep any tips received by their employees, and ramps up the punishment for violations. Those things are huge wins for workers.
The clear next steps for protecting workers in tipped occupations are eliminating the tip credit for minimum wage employers, enforcing one minimum wage for all workers regardless of whether they receive tips, and substantially increasing the federal minimum wage. The rest of this post explains why these next steps are so crucial.
It is not uncommon for servers in restaurants to voluntarily share a portion of their tips with kitchen staff. A provision in the spending bill passed last week allows employers to operate tip pools between tipped workers and “back-of-the-house” or other non-tipped workers. Under the new rules, employers can operate these pools if they pay their tipped workers a base wage of at least the federal minimum wage, which is currently $7.25—i.e. employers cannot operate a tip pool between tipped and non-tipped workers if they use a tip credit to cover any wages up to $7.25 an hour. Non-tipped workers in tip pools must still be paid a base wage of the full minimum wage in their city or state. And, as always, the total pay of tipped workers (base wage plus tips) must be at least the full minimum wage in their city or state.
The Federal Reserve Bank of New York’s search for a new president was a flawed process that should go back to the drawing board
It is now widely recognized that the president of the Federal Reserve Bank of New York is a uniquely powerful economic policymaking position. More crucially, it’s likely the most important such position that is not chosen by President Trump. Given the poor choices Trump has already made in choosing the leadership of the Fed, it is more important than ever to make a great choice for the NY Fed presidency.
The process so far has not been encouraging. Several on a list of highly qualified and diverse candidates were not contacted by the NY Fed. Worse, the leading candidate in today’s news reports wasn’t even being mentioned a week ago. This is not how a transparent and publicly accountable process should work, and it’s why the Fed needs fundamental reform.
This leading candidate is John Williams, the current president of the San Francisco Fed. Hiring the current leader of another regional Fed bank hardly constitutes out-of-the-box thinking for the NY Fed. Further, while Williams has done valuable economic research, his tenure as a policymaker at the Fed is frankly disappointing. He has consistently underestimated how much lower the unemployment rate could sustainably go. In 2012, he even thought that 6.5 percent might be the lower limit on the unemployment rate. Since then, he has modified his estimates, but he has seemingly not been chastened about making firm before-the-fact predictions about how low unemployment could go before sparking accelerating inflation.
The Federal Open Market Committee (FOMC) has lost some of its leading proponents for testing the lower limits of unemployment, and has gained some members who have been deeply wrong in arguing that unemployment should not be allowed to fall as far and fast as it has in recent years. Shifting John Williams from the San Francisco Fed to the NY Fed does nothing to push back on this drift of the FOMC away from valuing genuine full employment.Read more
Congress is trying to use appropriations expand the H-2B temporary worker program—where migrants are exploitable and have few rights—by 73 percent
The GOP-led Congress is aiming to pass an omnibus appropriations bill to fund the federal government before the current temporary spending bill expires on March 23, 2018. Part of the negotiations include a major effort by legislators in both parties—who are being bombarded by corporate lobbyists in the hospitality, seafood, landscaping, and construction industries—to expand the H-2B temporary migrant worker program. We estimate the proposal would increase the number of H-2B workers that employers can hire in lesser-skilled occupations by at least 73 percent, from 66,000 per year to 114,000.
The H-2B program—like other temporary migrant worker programs—is not a work program that brings immigrants to the United States with equal rights and the option to stay permanently. Instead, it is used by employers carve out a lawless zone in the labor market where migrant workers have few workplace rights in practice, because they arrive indebted to labor recruiters and indentured to U.S. employers.
Nevertheless, rather than focusing on the most urgent immigration issues at hand, including a path to citizenship for immigrants who are in danger of becoming undocumented, like DACA recipients, and those who have Temporary Protected Status, Congress is instead focusing on making changes to temporary worker programs via the appropriations process. Congress has done this a number of times in recent years, something that Republican Senate Judiciary Chairman Sen. Chuck Grassley and Democratic Ranking Member Sen. Diane Feinstein came together last year to criticize for usurping the committee’s jurisdiction over immigration legislation. Other Senators have done the same, including Dick Durbin and Bernie Sanders. The New York Times editorial page and migrant worker advocates alike have also criticized this end-around the normal legislative process.
Using the H-2A guestworker program for year-round agricultural jobs would lower wages for farmworkers
The H-2A guestworker program provides an unlimited number of temporary work visas to agricultural employers to hire farmworkers from abroad to fill temporary or seasonal jobs lasting for less than one year. Last year, over 200,000 H-2A jobs were certified by the U.S. Department of Labor (DOL)—the most ever—despite the many abuses and exploitation that continues to occur at the hands of employers and labor recruiters. Members of Congress are currently negotiating and debating the fiscal 2018 omnibus appropriations bill to fund the federal government, and hope to pass it before the current temporary spending bill expires on March 23, 2018. On the table is a proposal to allow employers to use the H-2A program to fill year-round, permanent jobs in agriculture with H-2A workers who have few rights and no path to permanence and citizenship. It was first proposed in July 2017 by Rep. Dan Newhouse (R-WA) but never became law.
We have already explained why making H-2A year-round via appropriations is a bad idea, but one other major consequence that Congress should consider is that it will result in allowing agricultural employers to pay much lower wages to H-2A workers in year-round jobs than they pay to the Americans and immigrants who are currently employed in those jobs.
Making H-2A year-round would expand the scope of H-2A by allowing employers offering year-round employment on dairy, livestock, and poultry and egg farms, as well as in nurseries and greenhouses and other non-seasonal agricultural occupations, to hire H-2A workers—bringing H-2A workers into sectors that offer approximately 260,000 year-round full-time equivalent (FTE) jobs. Table 1 lists some of the main year-round agricultural industries in major agricultural states, accounting for 123,000 of the 260,000 full-time equivalent jobs, and shows how much farmworkers earned annually, on average in 2016 in those occupations (according to the Quarterly Census on Employment and Wages, from DOL).
Preemption laws prevent cities from acting on everything from labor and employment to gun safety
On Valentine’s Day, a 19 year-old with a legally purchased AR-15 assault rifle stormed into Marjory Stoneman Douglas High School in Parkland, Florida and murdered 14 students, and 3 educators. In Florida, an AR-15 military-style assault rifle is easier to buy than a handgun. Understandably, many of the students who survived the mass shooting and the families of the 17 victims have called for a change in the law, arguing that it shouldn’t be so easy to legally purchase weapons that powerful. I write here not to weigh in on the merits of any given gun law, but to comment on the process of advocating for legislative change, and the challenges at the local level with the preemption laws on the books.
In terms of advocating for a change in federal law, Congress’s ban on AR-15s and other semiautomatic assault weapons expired in 2004, and federal lawmakers have not been able to pass a similar ban since.
In terms of advocating for change in state law, dozens of Florida high school students recently loaded onto buses and drove to the Florida state capital to lobby for a bill banning assault rifles, which was voted down by the state’s House of Representatives.
In terms of advocating for a change in gun laws at the city and county level, the students, families of the victims, or anyone else won’t even have a chance because of Florida’s preemption law. “Preemption” in this context refers to a situation in which a state law is enacted to block a local ordinance from taking effect—or dismantle an existing ordinance.