Prime-Age Employment-to-Population Ratio Remains Terribly Depressed
My former colleague, Heidi Shierholz, used to call the prime-age employment-to-population ratio (EPOP) her desert island measure, if she could only take one with her. Today, I decided to take a closer look. My crude drawings on an otherwise straightforward graph are my attempt to illustrate three important points about trends in the prime-age EPOP. (Side note: I use prime age here, i.e. 25–54 year olds, to remove structural trends like baby-boomer retirement. And, for those nerdy enough to want to know, my drawings eliminate the ability to see the data behind this chart. For the data series, please see here.)
The most obvious point is the huge nose dive prime-age EPOP took during the Great Recession. The green circle shows the slow climb as the recovery began to take hold. We had a couple years of solid job growth, and that’s a fairly decent pace for the EPOP recovery. Then, early this year, the EPOP stalled out (see the red circled region). The prime-age EPOP hit 77.3 percent in February, then stagnated for four months at 77.2 percent, and fell slightly to 77.1 in July. This would be a terrible new normal for the economy, for the American people.
Paid Sick Leave is a Win for Workers and the Economy
The White House is reportedly considering an executive order that would require that federal contractors provide their employees with seven days of paid sick leave. This is a step in the right direction: The United States remains alone among our economic peers worldwide in failing to give all workers access to earned paid sick time. Through this executive order, President Obama can lead by example, and start to shift the paradigm towards giving more American workers and their families the right to take paid leave to care for their own or their family members’ health needs.
Currently paid sick days laws are or will soon be in place in 24 jurisdictions across the country, including four states: Connecticut, California, Massachusetts, and Oregon. The evidence from these jurisdictions has been overwhelmingly positive. The first jurisdiction to set a paid sick days standard was San Francisco, where employers have been required to offer earned paid leave since 2007. Fears that the law would impede job growth were never realized. In fact, during the five years following its implementation, employment in San Francisco grew twice as fast as in neighboring counties that had no sick leave policy. According to the Institute for Women’s Policy Research, San Francisco’s job growth was even faster in the foodservice and hospitality sector, which is dominated by small businesses and viewed as vulnerable to additional costs. Connecticut, meanwhile, became the first state to enact a sick-days standard in 2011. A year-and-a-half after the law took effect, researchers at the Center for Economic and Policy Research found that the law brought sick leave to a large number of workers, particularly part-time workers, at little to no cost to business. By mid-2013, more than three-quarters of employers expressed support for the law.
Exploring EPI’s Minimum Wage Tracker
The federal minimum wage has languished at $7.25 since 2009. As inflation erodes the real value of the federal minimum, twenty nine states (and D.C.) have taken it upon themselves to raise their state minimum wages. Some states have made small changes (such as Arkansas, which raised its minimum wage to $7.50), while others have moved forward more boldly (such as Massachusetts, where the state minimum wage will reach $11.00 by 2017.) Some passed incremental increases which will take place over two or three years, while others have automatic increases every year to account for inflation. Several enacted changes to their laws back in 2006, while others have jumped on the new wave of action that has taken place in the past few years. There is tremendous variation in minimum wage policy across the states, and EPI’s minimum wage tracker provides a simple and intuitive way to understand the breadth of state, local, and federal minimum wage policy.
Here are some interesting trends and data points worth noting:
Five states do not have a minimum wage. Alabama, Louisiana, Mississippi, South Carolina, and Tennessee all defer to the federal minimum wage of $7.25 in the absence of any state laws. Wyoming and Georgia both have a state minimum wage lower than the federal minimum. The minimum wage in both of these states is $5.15, but the federal minimum wage applies.
What to Watch on Jobs Day: Preparing for September’s Fed Meeting
Tomorrow, when the Bureau of Labor Statistics releases its monthly jobs report, we’ll be looking at what the Federal Reserve should pay attention to as they debate whether or not to raise interest rates at the next FOMC meeting in September. The Fed has continued to read the signs right and has kept its foot off the brakes as the economy continues to recover from the Great Recession. However, there are some rumblings of an interest rate hike in September. Such a hike would be premature. Where’s the evidence that the Fed should raise rates this year? If anything, the recovery has been slowing: on average, only 208,000 jobs were added in the first six months of this year, compared to an average 281,000 in the last six months of 2014. Yes, there was a long, cold winter, but we’ve yet to see the thaw in the topline numbers. A serious look at the economy suggests slow growth, not acceleration.
Nominal wage growth is one of the top indicators for the Fed to watch as it considers whether or not to raise rates, and I don’t see much positive news there. Wage growth has been pretty flat for the last five years, as shown in the chart below. And, the data from the Employment Cost Index that came out earlier this week confirms those trends.
Risk Shift and the Gig Economy
Recently, everyone from Hillary Clinton to the American Enterprise Institute (AEI) has been focused on the “gig” economy—businesses like Uber and Taskrabbit that let consumers call up services on demand with their computers or phones. Despite all the attention these businesses have received, both AEI and the Wall Street Journal have pointed out that the gig economy supposedly has not shown up in Bureau of Labor Statistics job data. But while the on-demand economy has not appeared in government labor statistics—yet—that does not mean that it is not having an impact on people’s livelihoods. The rise of the gig economy is part of a wider trend that Yale political scientist Jacob Hacker has noted of risk being shifted from employers onto the backs of workers. New technologies have only accelerated this shift.
Drivers for Uber and Lyft, as well as most workers in the gig economy, are classified as independent contractors, despite the fact that their employers direct much of their work activities. Uber, for example, tells drivers where to pick up passengers and also deactivates drivers’ accounts if they consistently receive poor ratings from passengers. But because they are independent contractors, drivers are responsible for insuring their own vehicles, and the company does not provide them with health insurance, paid vacation, or retirement benefits. Independent contractors are also unable to file for unemployment compensation, must bear all of the cost of Social Security payroll taxes, and cannot file for workers’ compensation.
Ride-sharing is not the only part of the economy where workers are frequently misclassified as independent contractors, however. Misclassification happens throughout the economy, everywhere from construction to housecleaning to home health care. Across the board, this practice leads to lower wages and tax revenues, among other social costs.
Summing up Today’s GDP Data Release
Today’s report on gross domestic product (GDP)—the widest measure of economic activity—does not paint an encouraging picture of America’s past or present economic health.
First: the past. Today’s report provides revisions to GDP data going back three years. These revisions show slower growth over the past three years, meaning that the second half of the economic recovery following the Great Recession has been slower than previously thought. This slower growth was driven in part by government spending—federal, state, and local—that was even more austere than previously estimated. Additionally, the deceleration of key inflation measures (“core” personal consumption expenditure prices) over the past three years was more pronounced than previously thought. The revised data indicate that the recovery has been weaker than originally thought and, subsequently, that a fully healthy economy is farther away.
Now: the present. Growth in the second quarter of 2015 proceeded at a 2.3 percent annualized rate, following growth of 0.6 percent in the first quarter. While it’s a relief that the first quarter growth disaster wasn’t repeated, nobody really thought that was a big danger. But today’s data does indicate that there has been a slowdown relative to even the past couple of years, and, unless growth in the second half of the year accelerates markedly, it’s likely that 2015 will struggle to post even 2.0 percent growth overall.
Inequality is Central to the Productivity-Pay Gap
Matt Yglesias is an insightful writer, but his recent article, “Hillary Clinton’s favorite chart is pretty misleading” is itself very misleading. Since the Clinton campaign’s “favorite chart” is an EPI chart, which Jared Bernstein and I originally came up with twenty years ago, I think it’s important to set the record straight. The main problem is that Yglesias does not actually engage with the chart he says he’s criticizing.
“That bargain has eroded. Our job is to make it strong again.” pic.twitter.com/T3ARkHJRsz
— Hillary Clinton (@HillaryClinton) July 13, 2015
The chart compares the growth of average productivity since 1948 with the growth of the hourly compensation (all wages and benefits) of production/nonsupervisory workers, a group comprising 82 percent of payroll employment (blue collar workers in manufacturing and non-managers in services).
The point is to show that the pay of a typical worker has not grown along with productivity in recent decades, even though it did just that in the early post-war period. That is, it shows a substantial disconnect between workers’ pay and overall productivity—a disconnect that has not always existed. We use data on production/nonsupervisory workers because there is no other data series on the pay of a typical worker that goes back to the early post-war period. The point of the chart is to show not only the current divergence but also that it was not always present—also, these data tend to move with the economy-wide median wage.
Do Disability Trends Reflect a Liberalization of the Program’s Medical Criteria?
(This is the fifth of six blog posts on disability.)
Earlier blog posts in this series questioned Stanford economist Mark Duggan’s Senate testimony that disability incidence is rising because low-wage workers have an increasing incentive to apply for benefits instead of working or looking for work. This post considers a related claim made by Duggan: that an increase in the share of beneficiaries with mental health disorders and musculoskeletal conditions reflects “the liberalization of the program’s medical eligibility criteria that occurred in the mid-1980s” and is problematic because “the employment potential of SSDI applicants with these more subjective conditions is substantial and it is often difficult to verify the severity of these conditions.”
The first part of Duggan’s claim is true, but somewhat misleading with respect to mental health. After Congress expanded and clarified eligibility criteria in 1984 in response to an ill-conceived effort by the Reagan Administration to reduce disability rolls, there was a rebound in disabled worker awards for mental health and other conditions. But the share of awards for mental health conditions declined as the baby boomers approached retirement because mental health problems don’t increase with age as much as other conditions.
On the other hand, the share of awards due to musculoskeletal conditions has grown steadily, more than offsetting declines in the shares due to mental health, cancer, and cardiovascular disease (see Figure 1). As discussed in earlier blog posts, there has been no upward trend in overall disability incidence over the past 20 years. Moreover, the employment potential of disability applicants is very low, even among those denied benefits. Nevertheless, it is reasonable to ask why there has been an increase in the share of awards for musculoskeletal conditions, and why increases in life expectancy due to such factors as a steep decline in smoking and advances in the treatment of cardiovascular disease haven’t led to a decline in overall disability, especially since fewer jobs now require hard physical labor.
Does Disability Insurance Reduce Labor Force Participation?
(This is the fourth of six blog posts on disability.)
In Senate testimony earlier this year, Stanford economist Mark Duggan claimed that Social Security Disability Insurance (SSDI) was an “important factor” in the decline in labor force participation in the United States relative to other industrialized countries. In an earlier blog post, I showed that even research cited by Duggan found that disability receipt had a negligible impact on overall employment. Is it still possible that SSDI has a noticeable impact on labor force participation, a measure that includes unemployed workers actively looking for work? It might, if you believe—as Duggan does—that the process of applying for benefits is enough to make people stop looking for work. But as will be detailed in this blog post, there are more likely explanations for the relative decline in labor force participation in the United States compared to Europe, including more supportive labor market policies in Europe.
In his testimony, Duggan points to an increase since 1990 in the prime-age (25-54) labor force participation rate for the EU-15 countries (countries that belonged to the European Union before it expanded into Eastern Europe) and a decline in the same measure in the United States. (Note that Duggan focuses on a measure that excludes older workers who have higher disability rates. The labor force participation of older workers is higher in the United States than in Europe, a fact that does not support Duggan’s claim that disability insurance is keeping Americans out of the labor force.)
Research that considers multiple causes for recent declines in participation in the United States generally finds that an aging workforce and unemployment—especially long-term unemployment—have been the main drivers (see, for example, research from the Council of Economic Advisors and Harvard University). The question is whether SSDI caused some unemployed workers to exit the labor force, or whether they would have exited regardless.
Looking at longer-term trends, the biggest difference between the United States and the EU-15 has been an increase in female employment and labor force participation in Europe, in which the adoption of family-friendly labor policies likely played a role. Prime-age employment rates in Europe are now similar to the United States (solid lines in the figures below) though they remain lower for older workers (dashed lines).
Clinton Speech Confirms That Presidential Campaigns Will Focus on Wage Stagnation
Hillary Clinton appropriately defines her economic policy goal as raising “incomes for hardworking Americans so they can afford a middle-class life” rather than “hitting some arbitrary growth target untethered to people’s lives and livelihoods.” The object of economic policy, in other words, is not growth or redistribution but higher living standards for the vast majority! Bravo. Equally important is that one of her three pillars of growth—fair growth—focuses on ending the wage stagnation that has limited median incomes for the past generation. America “needs a raise” and we need to reward “actually building and selling things.” As Clinton said, “If you work hard, you ought to be paid fairly.” So, if there was any doubt that addressing wage stagnation would be the central economic policy issue debated in the upcoming Presidential election then Hillary Clinton’s economic vision speech ended it.
Clinton’s speech sets the foundation for the emerging debate on wages by asserting that: (1) wage stagnation is the result of policy choices (it should be added, “on behalf of those with the most income, wealth and power”); and (2) ending wage stagnation is the “core economic challenge” to boosting middle class incomes and lifting more households into the middle class. Let the debate begin. We look forward to hearing from other candidates not only how they plan to obtain growth, but also how such growth will translate to higher pay for the vast majority. That generally hasn’t happened since 1979.
This is, of course, exactly the debate we hoped for when the Economic Policy Institute launched its Raising America’s Pay initiative in June 2014, and it is also how we framed the debate in our initial paper (“Raising America’s Pay: Why It’s Our Central Economic Policy Challenge”) and in our Raising America’s Pay policy agenda. In fact, making wage growth the central economic issue has been a key conclusion of every State of Working America published since its inception in 1988. Thanks are due to the fast-food and Walmart workers and their allies for establishing that wage growth for the vast majority is the immediate and central economic policy issue. Let the debate begin among the Democrats, among the Republicans, and then between the parties in the general election.