What to Watch on Jobs Day: The teacher gap, and how today’s unemployment masks continued weakness in the economy
On Friday, the Bureau of Labor Statistics will release the September numbers on the state of the labor market. As usual, I’ll be paying close attention to the prime-age employment-to-population ratio (EPOP) and nominal wages, which are two of the best indicators of labor market health. Friday’s report will also give us a chance to examine the “teacher gap”—the gap between local public education employment and what is needed to keep up with growth in the student population.
The unemployment rate has fallen steadily over the last six years, and many have said that the current rate of 4.9 percent means we are back (or at least very close) to full employment—meaning that pushing unemployment any lower would cause inflation to accelerate above the Federal Reserve’s preferred 2 percent target. That is why some observers are calling upon the Fed to raise rates—before workers see the economic recovery translate into consistently strong nominal wage growth.
But the headline unemployment rate (which is notably higher than previous labor market peaks) continues to understate slack in the labor market. Today’s 4.9 percent unemployment rate is associated with much lower prime-age EPOPs—the share of the working age population who is actually working—than in the recent past. To make that comparison, let’s look at where prime-age EPOPs were in the last two business cycles when the overall unemployment rate was 4.9 percent. The graph below shows that the prime-age EPOP averaged 80.9 percent in the three months the unemployment rate hit 4.9 percent in 1997 and 79.5 percent in the two months unemployment hit 4.9 percent in 2005. On average, those five months saw a 2.5 percentage point higher prime-age EPOP (80.3 percent) than the average 77.8 percent we’ve seen in the five months with 4.9 percent unemployment this year.
Don’t Be Fooled: The TPP Is Not About National Security
This blog was first posted at The Globalist.
During the 1993 U.S. congressional debate over the North American Free Trade Agreement, a Democratic Congressman with a solid pro-labor voting record asked me why I thought NAFTA would be bad for working people.
After I had given my answer, he responded: “Well, you may be right about the economics.” “But we have a 2000-mile border with Mexico. The President told me we need NAFTA to make it secure.”
Who can argue against national security?
NAFTA was the economic model for the ever more corporatist trade deals that followed, including the currently proposed 12-nation Trans-Pacific Partnership.
The arguments for NAFTA also set the pattern for the debates over those deals. Whenever the economic case crumbles, “national security” becomes the fallback rationale.
After a quarter century of off-shored jobs and depressed wages in the wake of corporate-driven trade de-regulation, the claim that the Trans-Pacific Partnership will make life better for American workers is so discredited that both Hillary Clinton and Donald Trump are opposed.
$916 million losses aside, there are many ways Trump could avoid paying taxes
This weekend, the New York Times broke the story that Republican presidential nominee Donald Trump claimed a $916 million loss in 1995, possibly allowing him to avoid paying federal income taxes for as long as 18 years. The ability to use a large, one-time loss to reduce future income tax liability is not, on its face, all that objectionable—it simply allows individuals to smooth out their tax liability and avoid being penalized for having a volatile income.1 But Trump’s refusal to release his tax returns continues to obscure the numerous other potential loopholes that can be exploited by those at the top that are more arbitrary and objectionable.
Take one loophole that is especially relevant to Trump and real estate developers: “like-kind exchange.” Like-kind exchange allows investors owning real estate to defer, and coupled with another loophole in our tax code eventually avoid, paying capital gains taxes.
To see how, consider an investor who owns a stock and would like to invest in another stock. Selling their stock will trigger capital gains taxes. Not so for real estate. Instead, like-kind exchange rules allow investors like Trump to defer paying taxes on their capital gains if they’re exchanging the real estate for broadly defined like-kind property.
Freeing corporate profits from their fair share of taxes is not the deal America needs
There’s obviously plenty to criticize regarding Donald Trump’s claims and characterizations about the problems facing the U.S. economy during last night’s debate. But one thing that stuck out clearly was his peddling the myth that profits of U.S. corporations are “trapped” offshore by U.S. tax policy, and that these profits “can’t” be returned to the United States “until a deal is struck.” Now, Trump’s presentation of this argument during the debate was a characteristic dumpster fire of incoherence, but on the substance he was actually just trying to explain what has become a depressing conventional wisdom.
So, let’s provide a quick explainer about why these profits are not “trapped” abroad and why the only deal that needs to be cut is closing a loophole in the U.S. corporate income tax.
This loophole allows U.S. multinational firms to defer paying the corporate income tax on profits earned overseas until these profits are “repatriated,” or returned to shareholders in the United States. By now, about $2.4 trillion in profits sits offshore, and there would be about $700 billion in taxes if it were repatriated. Obviously this deferral is a huge deal.
September Fed decision was the right one for communities of color
At the conclusion of their most recent meeting, the Federal Open Market Committee (FOMC) decided against a September interest rate hike. Their decision is consistent with conclusions drawn in a recent analysis by our colleague Josh Bivens. Using the Fed’s own economic projections and other historical data, he makes the case that even a small increase in interest rates is far more likely to slow the economy and deter progress in reducing unemployment than holding interest rates steady is likely to trigger accelerating inflation. Their decision also lets jobseekers breathe a temporary sigh of relief—particularly people of color, who have seen the strongest labor market gains over the last couple years, but who still face extremely high rates of unemployment in some parts of the country.
The table below shows unemployment rates by race and ethnicity for each of the 12 metro areas with a Federal Reserve Bank, as well as other large metro areas across the country with sizable black or Latino populations. We only present unemployment rates for metro areas where the sample size was large enough to generate a reliable estimate for a particular race or ethnic group. These data show that nationally, the black unemployment rate has declined 3.1 percentage points over the last two years, compared with a 2 percentage points decline for Hispanics and a 1.2 percentage point improvement for whites. Although double-digit rates of black unemployment were more of a norm just two years ago than now, African Americans are still suffering from staggering unemployment, with rates higher than 10 percent in Chicago, Detroit, and Philadelphia. With the exception of Dallas, Latinos are more likely to be unemployed than whites in each of the selected metro areas, but Hispanic unemployment rates remain most elevated in Philadelphia and Chicago.
Raising rates, even a little, will slow the economy and slow progress in reducing unemployment
This week the Federal Open Market Committee (FOMC) will meet to decide whether or not to raise interest rates. By now this is a familiar debate. Some (call them hawks) argue that rate hikes are needed to slow the pace of economic growth and slow progress in reducing unemployment in the name of combating potential inflation. Others (call them doves) argue that we should not tighten until we’re absolutely sure that genuine full employment has been locked in. The past years’ evidence argues strongly that the doves are right.
Let’s start with the Fed’s own projections, which some Fed officials recently pointed to during a meeting with the Fed Up coalition to claim that interest rate increases were not meant to slow the economy or raise unemployment.
The table below shows the Fed’s current projections for the unemployment rate and other variables. They forecast that it will move from today’s 4.9 percent to 4.7 percent in the last three months of this year, and then fall further, to 4.6 percent for 2017 and 2018. After this it rises (after some unspecified time) to its long-run equilibrium of 4.8 percent. This 4.8 percent long-run rate is essentially the Fed’s estimate of the “natural rate of unemployment”—the lowest rate the economy can stay at without sparking an acceleration of inflation (this acceleration terminology is key: it’s not just inflation rising from 1.5 percent to 2.5 percent, it’s inflation that rises from 1.5 percent to 2.5 percent to 3.5 percent to 4.5 percent and so on). Importantly, in the Fed’s forecast, the unemployment rate falls over the next three years even as the projected federal funds rate is moved steadily up. By 2018, the 4.6 percent unemployment coincides with a 2.4 percent federal funds rate (it is just 0.25 percent today).
Nationwide increases in income are visible at the state level
Earlier this week the Census Bureau released data from the Current Population Survey (CPS) showing strong national income growth in 2015. State income data from the American Community Survey (ACS), which the Census Bureau released today, show similar results across the United States, with a 3.8 percent increase in real (inflation-adjusted) median household income for the country as a whole. This translates to an increase of $2,062 in the annual income of the typical U.S. household. (The ACS has a different sample and covers a somewhat different timeframe than the CPS, leading to slightly different estimates between the two surveys.) Real median household income increased in 39 states and the District of Columbia between 2014 and 2015.
Between 2014 and 2015, the largest percentage gains in household income occurred in Montana, where the typical household income grew by $3,146—an increase of 6.7 percent. Tennessee (6.4 percent), Oregon (5.9 percent), Massachusetts (5.7 percent), Rhode Island (5.7 percent), Wisconsin (5.6 percent), Hawaii (5.5 percent), New Hampshire (5.5 percent), District of Columbia (5.4 percent), Wyoming (5.4 percent), Kentucky (5.1 percent), and Vermont (5.1 percent) all had increase of 5 percent or more. In 11 states, median household income was unchanged over the year. There were no states that had a statistically significant decrease in median household income.
After years of wage stagnation, incomes have finally started to recover. The labor market recovery in 2015 included lower unemployment, more hours of work, and strong inflation-adjusted wage growth.
Poverty rates decrease throughout the states in 2015
The poverty rate fell in many states between 2014 and 2015, according to this morning’s release of state poverty statistics from the American Community Survey (ACS). In 23 states, there were decreases in the poverty rate, with 6 states reaching their 2000 levels. 27 states and the District of Columbia saw no significant change in the poverty rate, and there were no states that had a statistically significant increase in their poverty rate.
In 2015, the national poverty rate, as measured by the ACS , fell 0.8 percentage points, to 14.7 percent. (The ACS has a different sample, and thus slightly different estimates, than the Current Population Survey, which provided Tuesday’s national data.) Vermont saw the largest decline in its poverty rate (1.9 percentage points), followed by Tennessee (1.6 percentage point) and South Carolina (1.3 percentage point). The lowest poverty rates were in New Hampshire (8.2 percent) and Maryland (9.7 percent). While poverty did not rise in any state in 2015, there were still two states with poverty rates above 20 percent: New Mexico (20.4 percent) and Mississippi (22.0 percent).
Widespread income growth at the national level, driven by improvements in labor market conditions, was key to the reduction of poverty across the states. At the same time, minimum wage increases in many states and cities boosted wages for many of the country’s lowest-paid workers. These factors, combined with the absence of any real inflation, provided a welcome reversal to the stagnation in wages and incomes that has prevented improvements in living standards since the late 1990s. Additionally, government programs, including Social Security, housing subsidies, and unemployment insurance, kept millions above the poverty line. While poverty remains far too high in virtually every state, today’s data suggest that many states are heading in the right direction.
New Census data show strong 2015 earnings growth across the board, with black and Hispanic workers seeing the fastest growth
Today’s Census Bureau report on income, poverty, and health insurance coverage in 2015 shows that median household incomes for all race and ethnic groups increased between 2014 and 2015. Encouragingly, groups that, by and large, had seen the worst losses in the years since the Great Recession saw the biggest earnings gains in 2015. Real incomes increased 6.1 percent (from $42,540 to $45,148) among Hispanics, 4.4 percent (from $60,325 to $62,950) among non-Hispanic whites, 4.1 percent (from $35,439 to $36,898) among African Americans and 3.7 percent (from $74,382 to $77,166) among Asians. While the increase in incomes was statistically significant for all groups except Asians, racial income gaps remained unchanged between 2014 and 2015. The median black household earned just 59 cents for every dollar of income the white median household earned, while the median Hispanic household earned just 71 cents. Meanwhile, households headed by persons who are foreign born saw an increase in incomes of 5.3 percent between 2014 and 2015 (from $49,649 to $52,295), compared to an increase of 4.4 percent (from $54,741 to $57,173) among households with a native-born household head.
Based on EPI’s imputed historical income values (see the note under Figure A for an explanation), real median household incomes for all groups, except Hispanics, remain well below their 2007 levels. Between 2007 and 2015, median household incomes declined by 6.8 percent (-$2,686) for African Americans, 3.2 percent (-$4,662) for whites and 5.4 percent (-$7,158) for Asians, but increased 5.4 percent ($2,310) for Hispanics. Asian households continue to have the highest median income, despite large income losses in the wake of the recession.
The primary driving force behind the slow return to pre-recession income levels has been stagnant wage growth. Real wages had been essentially flat since 2000, but wage growth received an added boost in 2015, as a result of low inflation. From the start of the recovery in 2009 through 2015, real earnings of men working full-time, full-year are up for all race and ethnic groups—white men (1.5 percent), Hispanic men (7.0 percent), and black men (3.4 percent). As a result, the black-white male earnings gap is unchanged, but the Hispanic-white male earnings gap narrowed. Black men earned 70 cents for every dollar earned by white men in 2015 (compared to 69 cents/dollar in 2009) and Hispanic men earned 63 cents on the dollar (compared to 60 cents/dollar in 2009).
Poverty declined in 2015 by all measures; government programs, once again, kept millions above the poverty line
The official poverty rate fell by 1.3 percentage points from 2014 to 2015, as annual earnings and household incomes rose significantly for the first time since 2007. Since 2010, the U.S. Census Bureau has also released an alternative to its official poverty measure known as the Supplemental Poverty Measure (SPM). As shown in Figure A, the SPM has consistently indicated that poverty in America is more extensive than the official poverty measure reports. The good news is that the SPM data do show a similar decline in poverty last year to that reported in the official poverty measure. This year’s SPM release reported that in 2015, 45.7 million people were in poverty—roughly 14.3 percent of Americans. Under the “official” poverty measure, 43.1 million people were in poverty, or 13.5 percent of all Americans.
Poverty rates, official and supplemental poverty measure (SPM), all people and children, 2009–2015
| SPM – all people | Official poverty – all people | SPM – children | Official poverty – children | |
|---|---|---|---|---|
| 2009 | 15.3% | 14.3% | 17.3% | 20.7% |
| 2010 | 16.0% | 15.1% | 18.0% | 22.0% |
| 2011 | 16.1% | 15.0% | 18.0% | 21.9% |
| 2012 | 16.0% | 15.0% | 18.0% | 21.8% |
| 2013 | 15.8% | 14.8% | 18.1% | 21.5% |
| 2014 | 15.3% | 14.8% | 16.7% | 21.1% |
| 2015 | 14.3% | 13.5% | 16.1% | 19.7% |
Note: 2013 values reflect the CPS ASEC redesigned income questions.
Source: EPI analysis of Current Population Survey Annual Social and Economic Supplement Historical Income Tables.
The SPM data also show a lower rate of child poverty than the official statistics, primarily as a result of the SPM’s inclusion of noncash income from government assistance in its calculations. In 2015, the official child poverty rate was 19.7 percent—a decline of 1.4 percentage points from 2014. Under the SPM, the child poverty rate was 16.1 percent, 0.6 percentage points lower than in 2014 although the Census Bureau reports that this reduction in the SPM child poverty rate was not statistically significant.