A tale of two states (and what it tells us about so-called “right-to-work” laws)
In 2011 and 2012 two states, New Hampshire and Indiana, debated the same bill: so-called “right-to-work” legislation, pushed by corporate lobbyists and the American Legislative Exchange Council (ALEC), designed to weaken unions financially and pave the way for greater corporate dominance of state politics. New Hampshire’s governor vetoed the bill in 2011. Indiana, by contrast, enacted it in 2012. It is instructive to compare the two states. By almost any measure, the economy of New Hampshire is stronger and its citizens are better off, on average, than the citizens of Indiana. Right-to-work did not improve the Indiana economy relative to New Hampshire’s, and no one should be fooled into thinking that passing right-to-work now will improve the New Hampshire economy.
So-called “right-to-work” laws prohibits unions and employers from agreeing to collective bargaining agreements that require employees covered by the agreement to pay their fair share of the costs of negotiating and enforcing it. The only right that “right-to-work” creates is the right for free riders to get the benefit of higher union wages and protections against unfair discipline without contributing any dues or fees for that privilege.
EPI published two reports critical of the New Hampshire legislation, one in 2011 and another in 2012, pointing out that the only real purpose and effects of these laws are lowering wages and weakening unions. As the figure below suggests, such laws do nothing to create jobs, and they don’t give anyone a right to work, but they are associated with lower wages—lower on average by more than 3 percent, or $1,500 per worker.
The Obama legacy on wages
The closing days of the Obama years give us a chance to assess the president and his administration across a range of issues. Given that we at EPI have repeatedly called broad-based wage growth the central economic challenge of our time, it seems appropriate for to assess the administration’s performance in pushing policies to generate this growth.
We have generally organized the policies that would boost wages for most workers into three broad buckets: generating full employment and a “high-pressure” labor market, supporting or creating institutions and standards that boost workers’ bargaining power, and providing a countervailing force against the power of the top 1 percent to claim excess shares of economic growth.
Economic and political context
Before we assess the Obama administration along the key dimensions highlighted above, it’s crucial to provide the larger economic and political context of the past eight years. Even if an administration did everything right on policy efforts to boost wages, wages still might not rise if the overall economy was damaged when the incoming administration inherited it. This is clearly the case for the Obama administration. In February 2009, the first full month of the Obama administration, the economy had been in recession for 13 months, and the severity of the economic crisis was accelerating. In the six months ending in February 2009, the economy lost 650,000 jobs each month on average.
The economy has made great strides since the recession began, but there is still work to be done
Today’s jobs report gives us an opportunity to compare how the economy is treating Americans today compared with December 2007, when the recession began. As the recovery has strengthened we’ve seen improvements in all measures of employment, unemployment, and wage growth. All measures indicate a consistent story—an economy on its way to full employment, but not there yet. Taking a data-driven approach to policymaking would mean continuing to push, keeping interest rates low and letting the economy recover for Americans across genders, races, ethnicities, and levels of educational attainment.
In December, the unemployment rate edged up slightly to 4.7 percent because of a small but positive increase in the labor force participation rate. The unemployment rate peaked at 10.0 percent during the recession, and at 4.7 percent it is now below where it was before the recession began (5.0 percent). Meanwhile, the unemployment rate for black workers hit 7.8 percent in December. This is its lowest point so far in the recovery, but it’s still slightly above its pre-recession low in August 2007 (7.6 percent). Likewise, the unemployment rate for Hispanic workers (5.9 percent) has stagnated for much of the year and remains significantly above its pre-recession low point of 4.7 percent in October 2006. The underemployment rate—which adds in workers who are part-time for economic reasons and those marginally attached—was 9.2 percent in December and still hasn’t reached its pre-recession level (8.8 percent). So, while the economy is the strongest it’s been in years, there are still a lot of workers sitting on the sidelines and underutilized, and a lot of communities that are not feeling the full extent of the recovery.
What to watch on Jobs Day: The year in review
The last jobs report for 2016 comes out tomorrow, giving us a chance to step back and put the entire year in context. 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.
This week’s jobs report will also give us a great vantage point to compare December 2016 to December 2007, the last peak year before the Great Recession hit. The unemployment rate continues to fall, and is now far below where it was at its peak (10.0 peak), and even below where it was when the recession began (5.0 percent). The prime-age employment-to-population ratio has been digging its way out of a deep hole over the last several years as well, but progress in this measure has been slower. It is expected to improve as the economy strengthens and more would-be workers return to the labor market and find jobs. Nominal wage growth has also seen some improvements recently, increasing from an average rate of growth of about 2.0 percent in the first few years of the recovery to 2.5 percent average growth over the last year, but it’s still well below levels consistent with the Fed’s target inflation and trend productivity growth.
If December’s numbers are in line with payroll employment growth over the last several months, it will be further evidence that the economy is continuing its march towards full employment. Unfortunately, the return to a full employment economy—one where additional demand in the economy will not create more employment—has been slower than necessary. It faces an uphill battle against a relentless pursuit of austerity at all levels of government and, after rightfully holding off for the most part, Federal Reserve policymakers appear to be putting on the brakes prematurely. For the recovery to truly reach all workers and their families across the country—across race, ethnicity, and levels of education—we need to get back to full employment.
It remains to be seen what, if anything, President-elect Trump will do to strengthen the economy for working people. On net, it could go either way. But all measures, the next president is inheriting an economy far stronger than the last and one that, if left alone, will continue to heal.
401(k)s are an accident of history
401(k)s were never intended to replace pensions, so it should be no surprise that they aren’t up to the task. This has been pointed out before, but it’s nice to be reminded that even the people who came up with the 401(k) concept now “lament the revolution they started,” to quote an excellent article by the Wall Street Journal’s Timothy W. Martin.
This is the kind of negative coverage that keeps the folks at the Investment Company Institute busy. Students of spin may want to check out the industry lobby’s latest effort, which obscures the dismal record of 401(k) plans by lumping them in with traditional pensions. It also focuses on retired seniors, ignoring the growing number who can’t afford to stop working.
Careful readers will note that even the ICI’s rosy report shows that decades into the 401(k) revolution seniors received $105 billion dollars in pension income and only $29 billion from 401(k)-style plans in 2014. Admittedly, this is based on somewhat unreliable household survey data and ignores the fact that many well-off 401(k) and IRA participants treat retirement savings plans as tax shelters and avoid withdrawing money from them as long as possible. Still, it’s a stretch to suggest that the looming retirement crisis is a mirage caused by poor data (see also here and here).
Why unemployment will keep dropping in 2017
This post originally appeared on Fortune.com.
The economy has been steadily recovering from the 2007–08 Great Recession and is expected to continue heading toward full employment in the next year or two. Many signs suggest that we are not there yet—notably below-target wage growth and still-depressed labor force participation. The prime-age labor force participation rate—the share of the population 25–54 years old that is either working or looking for work—remains 1.7 percentage points below its pre-recession level.
Unfortunately, the return to a full employment economy—one where additional demand in the economy will not create more employment—has been slower than necessary, as it faces an uphill battle against the relentless pursuit of austerity at all levels of government. But if the economy continues growing anywhere near its current rate of about 175,000 to 200,000 additional jobs per month, the labor market in 2017 will absorb new and returning workers and the unemployment rate could easily get below 4.5% for the year.
Over the last several years, the unemployment rate has seen a steady fall from a high of 10% in 2009 down to a recent low of 4.6% last month. In recent months, there has been a tug of war between a lower unemployment rate and an increase in labor force participation. For instance, last month, the drop in the number of unemployed workers was mostly due to a fall in the size of the labor force. As the economy gains strength, more would-be workers are expected to return (or enter) the labor market as job prospects improve. Over the past year, slight improvements in unemployment have been made even as participation has increased.
The new year brings higher wages for 4.3 million workers across the country
At the start of the new year, 19 states increased their minimum wages, lifting the pay of over 4.3 million workers.[i] This is the largest number of states ever in a given year to increase their minimum wages absent an increase in the federal minimum wage. In seven of these states (Alaska, Florida, Missouri, Montana, New Jersey, Ohio, and South Dakota) the increases were due to inflation indexing, where the state minimum wage is automatically adjusted each year to match the growth in prices, thereby preventing any erosion in the real value of the minimum wage. The increases in the remaining 12 states were due to legislation or ballot measures approved by voters.
The table below shows the values of the minimum wage increases and the number of workers directly affected in each state. Due to relatively low inflation in 2016, small inflation-linked increases of only 5 cents will occur in four states (Alaska, Florida, Missouri, and Ohio). The largest increases were the result of ballot measures passed in Arizona (a $1.95 increase) and Washington (a $1.53 increase). In these and other states instituting legislative increases, a significant portion of the wage-earning workforce will directly benefit from the increase in the minimum wage: Arizona (11.8 percent), California (10.7 percent), Washington (10.7 percent), Massachusetts (9.2 percent), and Connecticut (7.6 percent). It should be noted that these estimates likely understate the total numbers of affected workers, because they do not include workers who are paid just above the new minimum wage. Many of these workers will also receive a wage through “spillover effects,” as employers adjust their overall pay ladders.
The Obama legacy: creating more, better jobs
This post originally appeared on TalkPoverty.org.
During his 2016 presidential campaign, president-elect Donald Trump promised that if he was elected, “the American worker will finally have a president who will protect them and fight for them.” Creating good-paying and high-quality jobs is definitely a worthwhile goal for the president to increase Americans’ living standards and decrease poverty.
Despite the president-elect’s claim that there are “no jobs,” the labor market has improved at a remarkably steady rate as the country worked its way out of the deep recession. During the past six years, there has been job growth each and every month, and a 5 percentage point drop in the unemployment rate. In part, that’s due to President Obama’s Recovery Act, which stimulated growth, provided aid to states, and invested in infrastructure. The rescue of the auto industry saved at least 1 million jobs, and kept an entire region out of a severe depression.
In 2015, most Americans finally started to feel the benefits of the recovery. Income rose for the typical American household, and the poverty rate saw one of the largest single-year declines in almost 50 years—primarily due to improvements in the labor market.
UN Special Rapporteur offers sharp criticism of American temporary foreign worker programs
On December 19, one day after International Migrants’ Day, Maria Grazia Giammarinaro, the United Nations Special Rapporteur on Trafficking in Persons, Especially Women and Children, issued a statement regarding her official visit to the United States to assess the country’s state of affairs on human trafficking. During her trip, Giammarinaro met with government officials, diplomats, trafficking survivors, and representatives from civil society. While she praised the United States for developing “an impressive number of laws and initiatives which focus on the protection of victims,” especially the Victims of Trafficking and Violence Protection Act and its subsequent reauthorizations, she offered up sharp and insightful criticisms of the nonimmigrant visa programs that temporarily authorize migrants to work in the United States:
The legal framework governing temporary visas for migrant workers, especially H-2A visa for temporary or seasonal agricultural work and H-2B visa for temporary or seasonal non-agricultural work visas, is of particular concern as it exposes applicants to the risk of exploitation, including human trafficking. Workers holding these temporary visas are tied to a specific employer who can exercise extensive control over them. Employers often confiscate passports, withhold wages, terminate contracts arbitrarily and threaten employees with job loss and deportation. Some live in deplorable housing conditions, commute long distance and enjoy low benefits. This is a serious problem in itself, but it is exacerbated by the fact that concerned workers may fear that if they report abuses, they will be deported or denied future visa applications. This situation creates vulnerabilities to labour exploitation, such as unsafe working conditions and isolation, especially in rural areas where there are fewer service providers. In order to prevent further harm, it will be essential to amend the regulation governing these temporary visas, as well as to those of Exchange visitor (J-1) and domestic workers (G-5) visas, and make visa “portable” to allow workers to change abusive employers.
In time for Christmas: a “progressive” Social Security plan Scrooge would love
Donald Trump ran a campaign that rejected Republican orthodoxy on a variety of issues. He consistently and emphatically rejected the party line on slashing social insurance programs like Medicare and Social Security. And yet, Congressional Republicans are ploughing ahead with plans to gut these benefits. The latest proposal, from House Social Security Subcommittee Chairman Sam Johnson (R-Texas), actually slashes benefits even more than would be sufficient to close Social Security’s projected shortfall. The extra savings generated by these cuts is used to reduce taxes on higher-income households.
Johnson attempts to camouflage the draconian nature of his plan with targeted benefit increases for low earners. Despite this window dressing, as many low earners will see cuts as will see increases, according to the Social Security Actuary’s analysis of the plan. This hasn’t stopped budget hawks from touting its supposed progressivity, pointing to a benefit formula more tilted in favor of low earners and an increase in the special minimum benefit going to those with steady work histories. However, for most workers, including many low earners, these provisions are more than offset by benefit cuts.
The first major plank of the Johnson plan revises the overall benefit formula for retirees. By itself, this provision would increase benefits for roughly half of workers (the 51 percent with earnings below 90 percent of the average wage index) while reducing them by a greater amount for the other half. Johnson also introduces a revised special minimum benefit that would increase benefits for around 37 percent of workers. However, other provisions increase the normal retirement age (equivalent to an across-the-board cut) and enact a range of other cuts. On net, only one in four workers (26 percent) would come out ahead from Johnson’s plan, while 70 percent would see benefit cuts, with some workers seeing cuts of up to 74 percent based on the examples modeled in the Chief Actuary’s analysis.