President Obama has been vociferously defending the Trans-Pacific Partnership (TPP) recently. He insists that it will be good for the American middle class and that TPP’s critics arguing otherwise are wrong. But in this case he’s wrong and the TPP critics are right: there is no indication at all that the TPP will be good for the American middle class.

I tried to take this on in very wonky terms in this long-ish report here, and in this post I’ll try to boil it down a bit.

The basic argument for why the TPP is likely to be a bad deal for the middle class is pretty simple. For one, even a genuine “free trade agreement” that was passed with no other complementary policies would actually not be good for the American middle class, even if it did generate gains to total national income. For another, the TPP (like nearly all trade agreements the U.S. signs) is not a “free trade agreement”—instead it’s a treaty that will specify just who will be protected from international competition and who will not. And the strongest and most comprehensive protections offered are by far those for U.S. corporate interests. Finally, there are international economic agreements that the United States could be negotiating to help the American middle class. They would look nothing like the TPP.

Even genuine “free trade” would likely be hard on the American middle class

Most (not all, but most) of the countries that would be included in the TPP are poorer and more labor-abundant than the United States. Standard trade theory has a clear prediction of what happens when the United States expands trade with such countries: total national income rises in both countries but so much income is redistributed upwards within the United States that most workers are made worse off. This is sometimes called “the curse of Stolper-Samuelson”, after the theory that first predicted it. And there is plenty of evidence to suggest that it’s not just a theory, but a pretty good explanation for (part of) the dismal performance of wages for most American workers in recent decades and the rise in inequality. And the scale of the wage-losses are much, much larger than commonly realized—it’s not just those workers who lose their jobs to imports. Instead, the majority of American workers (those without a 4-year college degree) see wage declines as a result of reduced trading costs. The intuition is simply that while waitresses and landscapers might not lose their jobs to imports, their wages are hurt by having to compete with trade-displaced apparel and steel workers.

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The House is set today to begin consideration of an ill-conceived bill inappropriately entitled “Death Tax Repeal Act of 2015.” This bill would repeal the estate tax, a tax which only affects estates worth more than $5.4 million—the wealthiest 0.2 percent of estates in the county. Although only very few—and by definition the wealthiest—American estates are affected by the estate tax, these estates are large enough that its repeal will reduce tax revenues by $269 billion over the next 10 years. It is rather disconcerting that the Republican-led Congress wants to increase federal debt by $269 billion to give the wealthiest a tax break but can’t find $168 billion to fund the Highway Trust Fund to repair our crumbling roads and bridges.

Repealing the estate tax also has other serious adverse effects. First, the tax provides an incentive to the wealthiest Americans to leave part of their estate to charity since charitable contributions are tax deductible. Repealing the tax could dramatically reduce charitable giving as wealthy individuals decide to leave their vast estates to heirs rather than charities.

Second and more important, repeal of the estate tax goes against the founding ideals of our country as best summed up by the economist Richard T. Ely when he wrote on the estate tax in 1888:

One of the principles which controlled the action of Jefferson and other founders of this republic, was the abolition of hereditary distinctions and privileges, and their aim was to force each one to rely on his own exertions for his own fortune, desiring to give to all as nearly as practicable an equal start in the race of life.

It has also been urged by others that one of the most dangerous tendencies of our times is the increasing aggregation of wealth in a few hands. This scheme is a slight corrective, which is in harmony with the spirit of our institutions.

Today is Equal Pay Day, a reminder that a significant pay gap still exists between men and women in our country. At the median in 2013, a woman working full-time, full year was paid only 78.3% of what a man working full-time, full-year earned. Equal Pay Day is April 14 because it marks how far into the next year women would have to work to earn the same amount that men earned in the previous year.

But while comparing median full-time, full-year workers is interesting, it is also worth looking at what the wage gap looks like at different points of the male and female hourly wage distributions. Last week, I looked at the pay gap throughout the wage distribution, and found that the gap was highest at the top. Women at the bottom 10^th percentile of earners made 91 percent of men’s hourly wages. At the median, women earn 83 percent of men’s hourly wages. But at the 95^th percentile, women earn only 79 percent of men’s wages.

We can also look at gender wage gaps by education level. The figure below shows the gender wage gaps at several levels of educational attainment. Even among the most educated workers—those with an advanced degree—large wage-gaps persist, with women making only 74 percent of men’s hourly wages. For those with a college degree, women make about 78 percent of male earnings.

Pay Gap

Women earn less than men at every level of education: Hourly wages by gender and education, 2014

Education level	Men	Women
Advanced degree	$44.10	$32.82
College	$33.35	$25.94
Some college	$20.19	$16.20
High school	$18.12	$14.29
Less than high school	$13.37	$10.44

 

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The data underlying the figure.

Source: EPI analysis of Current Population Survey Outgoing Rotation Group microdata

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Although women have come a long way in terms of equality and the gender pay gap since the Equal Pay Act was signed in 1963, there is still a long way to go. Even (and sometimes especially) among the most educated and highest-earning women, significant wage gaps remain. One of the agenda items of our initiative to Raise America’s Pay is to end discriminatory practices that contribute to such gender inequalities. We need consistently strong enforcement of antidiscrimination laws in the hiring, promotion, and pay of women and minority workers. This includes greater transparency in the ways these decisions are made and ensuring that the processes available for workers to pursue any violation of their rights are effective. Wage gaps between men and women are one more way that the rules of the American labor market short changes too many working families.

This post originally appeared in The Huffington Post.

This week, Senator Hatch will reportedly introduce “fast track” (trade promotion authority) legislation in the Senate, to help President Obama complete the proposed Trans-Pacific Partnership (TPP), a trade and investment deal with eleven other countries in Asia and the Americas. “Fast Track” authority would allow the President to submit trade agreements to Congress without giving members of Congress the opportunity to amend the deal. Experience has shown that these trade and investment deals typically result in job losses and downward pressure on the wages of most American workers. The last thing America needs is renewal of fast track and more trade and investment deals rushed through Congress.

The administration has claimed that the TPP will create jobs, but it will not. There are other policies that have attracted bipartisan support, including ending currency manipulation and rebuilding infrastructure that could each create millions of U.S. jobs. President Obama has limited political capital to expend with the Republican-controlled Congress and he must choose his policies wisely.

Trade and Jobs?

For more than twenty years, both Democratic and Republican administrations have claimed that free trade agreements like the U.S. – Korea Free Trade Agreement (KORUS) and the North American Free Trade Agreement (NAFTA) would lead to growing U.S. exports and stimulate creation of goods jobs in the United States. Bill Clinton claimed that NAFTA would create 200,000 jobs in its first two years and a million jobs in five years. President Obama claimed that KORUS would “support 70,000 American jobs” because the agreement would “increase exports of American goods by $10 billion to $11 billion.”

Claims that trade and investment deals would support domestic job creation have proven to be empty promises. Expanding exports alone is not enough to ensure that trade adds jobs to the economy. Increases in U.S. exports tend to create jobs in the United States, but increases in imports lead to job loss—by destroying existing jobs and preventing new job creation—as imports displace goods that otherwise would have been made in the United States by American workers. Thus, it is changes in trade balances—the net of exports and imports—that determine the number of jobs created or displaced by trade and investment deals like NAFTA and KORUS.

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This piece originally ran in The American Prospect.

We think of America as the land of opportunity, but the United States actually has low rates of upward mobility relative to other advanced nations, and there has been no improvement in decades. Creating more opportunity is therefore a worthy goal. However, when the goal of more opportunity is offered instead of addressing income inequality, it’s a dodge and an empty promise—because opportunity does not thrive amid great inequalities.

It is important to distinguish between opportunity (or mobility) and income inequality. Concerns about mobility relate to strengthening the chances that children who grow up with relatively low incomes will attain middle-class or higher incomes in their adulthood. To address income inequality, on the other hand, is to focus on whether low- and middle-income households improve their share of the economic growth generated in the next two decades. Rising inequality is best illustrated by the fact that while the top 1 percent only received 9 percent of household income in 1979, this group gained either 38 percent (using the CBO’s comprehensive measure) or 60 percent (using tax data on market-based incomes) of the income growth between 1979 and 2007. That is, the top 1 percent received four to six times its expected share of all the income growth.

The opportunity dodge is popular with centrist and conservative politicians. Conservatives, for the most part, consider income outcomes to be the result of meritocracy. “I don’t care about income inequality per se; I care about opportunity inequality,” Arthur Brooks, head of the American Enterprise Institute recently said. “I want everybody to have a chance to be mobile, to rise, for everybody to have a chance to earn success.” Likewise, Jeb Bush’s highly touted speech to the Economic Club of Detroit keyed in on “the opportunity gap.” Left unsaid is that groups losing out from income inequality are judged to have not exerted sufficient effort, to have inadequate skills, or to have pursued counterproductive behaviors (such as not getting married).

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As I noted in earlier blog posts, Andrew Biggs of the American Enterprise Institute and retired Towers Watson executive Sylvester Schieber have been leading a chorus of retirement crisis deniers, based in large part on the claim that income surveys don’t count lump-sum distributions from retirement accounts. While no one denies that the Census Bureau’s Current Population Survey income measures don’t include these distributions, it has always been clear from other survey data—notably the Federal Reserve’s Survey of Consumer Finances—that savings in these accounts are so unequally distributed that they make little difference to most retiree households.

Starting in 2014, the Census Bureau began asking some survey respondents about lump-sum distributions as well as other questions designed to better capture income from interest-earning accounts and other sources. Preliminary results are in, and they don’t support Biggs and Schieber’s vision of sugar plums for retiree households. The median income of households 65 and older increased from $35,611 to $37,252—less than 5 percent—a far cry from the 60 percent difference Biggs and Schieber were throwing about. This is less than the increase seen by households age 45-54, whose median income rose from $67,141 to  $70,802, presumably because income from retirement sources increased less than income from other interest-earning accounts.

Biggs and Schieber, usually impressively quick on the draw, have been noticeably silent.

The widespread, flagrant abuse of the H-1B visa, which allows employers to hire non-immigrant foreign workers for IT jobs and other skilled work, is drawing bipartisan attention in Congress. In particular, the case of Southern California Edison (SCE), which used two Indian outsourcing firms to replace 400-500 well-paid U.S. workers with cheaper guestworkers, has caught the attention of leaders from both parties. 10 senators sent a letter to the Obama administration calling for an investigation by the Departments of Justice, Homeland Security, and Labor.

As we have pointed out many times, the biggest users of the H-1B visa are not small businesses looking for a rare scientist or information technology wizard. Rather, they are big corporations like Disney, SCE, and Northeast Utilities that want to reduce their labor costs by hiring younger, cheaper foreign workers. They hire “body shops” like Tata, Infosys and Wipro to import Indian college graduates to replace U.S. workers who might be paid $30,000 or $40,000 more. And it’s legal! It’s wrong and it’s appalling, but it’s legal.

Microsoft, Google, and the other high tech companies that want to increase the number of H-1B visas available to private employers by 120,000 or so claim they can’t find the tech workers they need in the U.S. and don’t have access to enough foreign workers. There is not much evidence to support their claim. But one thing is clear: if the H-1B visa weren’t used to replace U.S. workers, there would be a lot more available to Microsoft et al. Congress should reform the H-1B and prevent its abuse before it gives any thought to expanding the number of visas available.

This post was updated at 5:43 pm to reflect additional analysis.

Today, the Washington Post fact checker, Glenn Kessler, claimed that Public Citizen’s analysis of the Korean Free Trade Agreement (KORUS) is based on flawed economics and faulty math. Kessler accepts the White House claim that the employment effect of the KORUS should be based only “on a gain in merchandise exports,” and then claims that “the most appropriate way to look at export flows would be on an annual basis, which shows a net gain of about $2.3 billion. That’s theoretically a gain of 15,000—a far cry from the loss of 85,000 [jobs],” as estimated by Public Citizen. By ignoring imports, Kessler completely ignores one of the most important factors in the effects of trade on employment.

Imports reduce the demand for domestic goods and services. This is a fundamental assumption in introductory (and applied) macroeconomics. By ignoring it, Kessler denies his readers critical information needed to evaluate Public Citizen’s claim.

The Fact Checker approach (and the White House’s KORUS trade and job estimate) is a form of bookkeeping which counts only the credits and ignores the debits. It would earn a failing grade in any basic accounting class. Kessler spends a lot of time talking about things that make job and export calculations difficult (overall economic health, and the state of the business cycle), and yet he glosses over the impact of imports. It’s really important to calculate the jobs impact of both exports and imports, and it’s easy to do.

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