This post originally appeared on SCOTUSblog, as part of a symposium on Fisher v. University of Texas at Austin, the challenge to the university’s use of affirmative action in its undergraduate admissions process.
The Supreme Court’s affirmative action decisions have been suffused with hypocrisy. Justice Ruth Bader Ginsburg called them out, with barely more gentle phrasing, in her lone dissent to the seven-to-one majority opinion the first time Fisher v. University of Texas at Austin (2013) was before the Court. “Only an ostrich,” she observed, “could regard the supposedly neutral alternatives as race unconscious,” and only a (contorted) legal mind “could conclude that an admissions plan designed to produce racial diversity is not race conscious.”
The “diversity” standard in college admissions has gained great popularity because advocates of race-based affirmative action, stymied by the Court since Regents of the University of California v. Bakke, latched onto it as an alternative that could satisfy strict scrutiny. Many proponents have since persuaded themselves that diversity is, after all, a better approach than race-based affirmative action and that if the Court had not required it, we would have had to invent it. Yet while diversity in college classes is certainly an important educational and social goal, its elevation nonetheless dodges the nation’s racial legacy and avoids our constitutional and moral obligation to remedy the effects of centuries of slavery and legally sanctioned segregation. Without acknowledging we were doing so, we have engaged in a legal sleight of hand, substituting enriching the educational experience for remedying past injustice in designing affirmative action policy.
Underlying all this has been the Court majority’s conviction, most recently in Fisher I, that university officials have not identified specific Fourteenth Amendment violations for which their policies are a remedy, and therefore their consideration of race injects, without constitutional justification, a discriminatory racial consideration into the admissions process. The paucity of African Americans at the University of Texas reflects no de jure exclusion, the Fisher I majority believed, but only de factosocial inequality for which there is no race-conscious constitutional remedy. Therefore, including racial diversity in a scheme of skill-based, interest-based, or economic diversity is suspect, requiring very strict scrutiny. Indeed, the conditions set by the Fisher I majority opinion suggest a scrutiny that is strict in theory but fatal in fact. (I discuss the Fisher cases here only as they relate to the treatment of African Americans in affirmative action plans, not to that of other national or ethnic minorities or of disadvantaged economic groups; each has a different history and status, requires different opportunities to succeed, and raises different social policy and constitutional concerns).
African American Youth Experienced the Largest Boost in Summer Labor Force Participation and Employment
As students head back to school this fall, today’s release of the August jobs numbers provides the first complete look at the summer job market for teens. As a whole, the stronger start to the 2015 summer jobs season (compared to last summer) signaled by the June youth employment numbers was sustained throughout the summer. According to seasonally unadjusted teen employment-to-population (EPOP) ratios, averaged for the months of June, July and August, African American youth experienced the largest boost to summer employment compared to last year. Summer employment was up 2.5 percentage points for black teens, compared to a 1.5 percentage point increase for Hispanic youth and a 1.2 percentage point increase for white teens, as shown in the figure below. Though black teens continue to have the lowest rates of employment, the 2015 summer youth employment rate for black teens was closer to its 2007 pre-Great Recession rate than were those of white and Hispanic youth.
Average teenage (16-19 years) summer employment to population ratio, 2007,2014, and 2015
Source: EPI analysis of Current Population Survey
The Bottom Line of this Jobs Report: The Fed Should Hold the Line and Let the Economy Continue to Recover
The official unemployment rate (the U3) is only one data point—one that doesn’t include workers who have left the labor force because of weak opportunities or workers who want to be working full-time but can only get part-time work. The fact is that the economy is still not adding jobs fast enough, and the recovery is not creating strong wage growth. The best advice is for the Federal Reserve to continue doing what they’re rightfully doing—keeping rates low to let the economy recovery. Many pundits have been quick to encourage the Federal Reserve to raise rates, but a close look at the data shows that the economy still needs time to grow.
Nonfarm payroll employment rose by only 173,000 in August. While it’s best not to read too much into one month’s data, this brings average monthly job growth down to 212,000 so far in 2015. 2014 saw faster jobs growth: an average of 260,000. By that measure alone, we aren’t seeing an accelerating recovery. In fact, at this slower rate of growth, a full jobs recovery is still two years away.
A great example of just how slow this job recovery is going is the flat prime-age employment-to-population ratio (EPOP). This means the economy is only adding enough jobs to keep up with prime-age population growth—nothing more, nothing less. It means the economy is moving at a pace where we are not working off any of the joblessness that remains from the Great Recession. The prime-age EPOP in August (77.2 percent) is still below the lowest trough of the last two recessions (78.1 percent). We have a long way to go before this data point says recovery.
This blog post originally appeared on TalkPoverty.org.
Labor Day is a time to honor America’s workers and their contributions to our economy. It is also a time to reflect upon the state of workers’ economic position, and how that position has faltered in recent decades. Except for a short period of across-the-board wage growth in the late 1990s, 2015 marks a general 36-year trend of broad-based wage stagnation and rising inequality in our country, which has had real, adverse effects on low- and middle-income households. This anemic wage growth is closely tied to the stalled progress in reducing poverty since 1979, as many poor people work and their incomes are increasingly dependent upon work. Therefore, along with strengthening the safety net, the goals of anti-poverty advocates should be one in the same with pro-worker advocates: to reverse the decades-long trend of wage stagnation and promote real wage growth for all Americans.
Despite dramatic gains in educational attainment, wages have failed to grow for those at the bottom (and middle) over the last four decades. At the same time, low income household incomes have become increasingly dependent on wages. The figure below shows the major sources of income for non-elderly households in the bottom fifth of the income distribution from 1979 to 2011, using the CBO’s measure of comprehensive income. It shows that incomes of the bottom fifth are increasingly dependent on ties to the workforce. Wages, employer-provided benefits, and tax credits that are dependent on work (such as the EITC) made up 68.3 percent of non-elderly bottom-fifth incomes in 2011, compared with only 58.2 percent in 1979. While government in-kind benefits from sources such as the Supplemental Nutrition Assistance Program (formerly food stamps) and Medicaid increased from 13.2 percent of these bottom-fifth incomes in 1979, to 19.5 percent in 2011, cash transfers such as welfare payments have declined 9.2 percentage points (from 18.6 percent to 9.4 percent).
At the beginning of August, Netflix announced that it would grant its employees “unlimited” parental leave during the first year after a child’s birth or adoption. After the initial praise, though, a darker side of the announcement was revealed: only “salaried streaming employees”—the roughly 2,000 white-collar workers who work in the company’s streaming division—will be covered by the new policy. Employees of Netflix’s DVD distribution centers, meanwhile, will not receive the benefit of paid parental leave.
A few have asked whether or not Netflix’s paid parental leave policy will set a new standard in the American workplace. Unfortunately, the exclusion of its lower-paid workers from the policy already reflects a harsh reality facing U.S. workers: paid family leave is a rarity, and when it is offered, the recipients are much more likely to be high-wage earners.
As the figure above shows, only 12 percent of private sector workers in the United States receive paid family leave, a number that puts us behind our international peers. (Among the 34 OECD nations, for example, the United States is the only nation that does not mandate paid maternity leave.) Which workers receive paid family leave is heavily determined by how much they earn—just like Netflix’s policy. While 23 percent of workers at the top of the wage distribution have access to paid family leave, only 4 percent of workers at the bottom receive the benefit.
This month, the Federal Open Market Committee (FOMC) will meet to decide whether to raise interest rates in order to slow down the economy and ward off incipient inflation, and I know I sound like a broken record, but, the stakes are too high not to keep repeating the same message over and over again. So let me say it again: the economy doesn’t need to cool off. It needs to simmer a while longer. Unfortunately, a serious look at the economy suggests slow growth, and not a hint of acceleration—making a rate hike terribly premature.
In light of the upcoming Federal Reserve decision, the two measures I’ll be closely watching on Friday, when the Bureau of Labor Statistics releases its monthly jobs report, are nominal hourly wage growth and the prime-age employment-to-population ratio (EPOP).
Nominal wage growth is one of the top indicators the Fed should 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. Lately, it’s been teetering in the 1.8 to 2.2 percent range. By any standard, that’s anemic. And there has certainly not been any sign of acceleration in these data.
Last week’s decision by the National Labor Relations Board regarding Browning-Ferris Industries of California (BFI) is a big victory for working people and labor advocates. By holding that BFI is a joint employer with the staffing agency that provides all but a few of the workers at one of BFI’s recycling centers, the decision closes one of the many loopholes corporations use to avoid paying decent wages, Social Security and Medicare taxes, worker’s compensation premiums and unemployment insurance taxes, and to avoid even providing a safe workplace.
Millions of people work for employers that want their time, their sweat, and their creativity —but don’t want to treat them as employees. The companies have put middle-men between themselves and their workers and—– thanks to Reagan-era legal changes—have avoided their responsibilities, including the duty to recognize and bargain with employee unions. Now, after 30 years of watching corporations evade these obligations with the government’s blessing, the key labor agencies of the federal government are saying, “enough is enough.” The NLRB is following the lead of David Weil, the Department of Labor’s Wage and Hour Division administrator, who has begun cracking down on phony independent contractor arrangements.
This victory, like most labor victories these days, is bittersweet. On the one hand, whenever a government agency protects or expands the rights of workers to organize and bargain collectively, or holds a corporation accountable for its treatment of workers, it is a cause for celebration. On the other hand, all the BFI decision does is restore the law regarding joint employers to where it was until 1984. Things weren’t going all that well for the labor movement even before the Reagan era, and the BFI joint employer doctrine won’t level the playing field between workers and corporations. It just turns back the clock to a fairer set of rules.
My name is Caleb Sneeringer, and I worked for Walgreens for six years. I was first hired in 2008 as an assistant manager, and in 2010 I was promoted to executive assistant manager—my first salaried position with Walgreens. I earned a salary of $46,000 and was scheduled for 45 hours a week.
Unfortunately, 45 hours a week quickly turned into 55–70 hours. You see, around the time of my promotion, Walgreens implemented a “no overtime” rule for hourly employees. In my store this and other budget cuts resulted in a loss of approximately 150 hours a week among hourly employees—and their work and responsibilities were shifted to salaried staff. This created a more unpredictable scheduling situation, and many store associates were forced to use SNAP assistance (i.e., food stamps) to meet their basic needs.
Right now, the U.S. Department of Labor is considering an important rule change that would affect salaried workers and overtime pay. If implemented, the overtime salary threshold will be raised from $23,660 to $50,440. For me, my former coworkers at Walgreens, and millions of workers across the country, this rule change will mean the right to receive the overtime pay we are owed.
After the Department of Labor (DOL) issued regulations last year requiring third-party providers of home care services to pay the minimum wage and overtime to their employees, various employer groups filed suit in federal court in an attempt to have the new rules struck down. In short, they argued that the Secretary of Labor didn’t have the legal authority under the Fair Labor Standards Act (FLSA) to change the definition of “companionship services” it had used in the regulations it promulgated in 1975 to set wage and hour rules for home care workers. The U.S. District Court judge who heard the case, Richard Leon, didn’t just agree with the employers, he wrote a vituperative opinion expressing his outrage that the Department of Labor was arrogantly usurping congressional powers.
Calling on his inner George W. Bush, the judge declared that the Department of Labor was trying to “seize unprecedented authority to impose overtime and minimum wage obligations in defiance of the plain language of Section 213. It cannot stand.”
Last week, in Home Care Association v. Weil, a unanimous three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit disagreed with Judge Leon about the “plain language” of the statute and overruled him, finding that “the Department’s authority [to change its regulations] is clear.” The appeals court pointed out that the Supreme Court had already decided that Section 213 of the Fair Labor Standards Act doesn’t unambiguously compel any conclusion about whether third-party providers of home care services are exempt from the overtime and minimum wage requirements. Judge Leon forgot that the issue was so far from plain that back in 1975 that DOL considered covering third-party employers, before choosing not to. (How he forgot, since he cited DOL’s hesitation himself, is another story.)
This blog post originally appeared on Wall Street Journal Think Tank.
Recent volatility in stock markets in the U.S. and globally has led many economic observers to conclude that the Federal Reserve is less likely to begin raising short-term interest rates at its September meetings. I’ve been on Team Don’t Raise for a while now, but I’m not excited about those joining the cause in light of recent stock market swings.
As a general principle, the Fed should not react to short-term movements in the financial markets. For one thing, the labor market is much more important to the lives of most Americans, and it is more relevant to the Fed’s mandate of securing maximum employment with inflation stability.
Then consider this: More than 80% of stock wealth in the U.S. is owned by the wealthiest 10% of Americans, and more than half of Americans own no stocks at all (either directly or through retirement or other accounts). In short, movements in the stock markets do not have much effect on the spending power of most U.S. households. That means that movements in the stock markets—especially short-term volatility that is likely to largely dissipate—provides little information about the overall state of economic health.
The stock market has taken a hit in the past few days, with concern over the Chinese economy driving a big selloff. How worried should we be? The short answer is: not very.
My assessment of the underlying health of the U.S. economy hasn’t really changed over the past week, even as the stock market has declined pretty spectacularly in recent days. Why this equanimity?
A couple of things. First, stock market movements significantly change the wealth of only a small sliver of the U.S. population. Roughly 90 percent of stocks are held by the wealthiest 10 percent of the population. This means that the spending power of the vast majority of American households isn’t significantly affected by changes in stock prices.
Second, while stocks were pretty expensive in the past week, it doesn’t seem to me that there was an obvious market-wide bubble that would mean these declines were inevitable and will be enduring. Yes, some sectors and stocks (tech and “sharing economy” stocks) do look awfully bubbly. But when graded on things like price/earnings ratios—especially given today’s very low interest rates—the market overall looks expensive but not like an obvious bubble. What all this means is that recent stock market declines are most likely to redistribute wealth from today’s stock owners to tomorrow’s stock owners (who are buying up cheap stocks today).
All in all, the stock market is a terrible gauge of overall economy-wide health, so even large swings in it by themselves do not provide much of a signal for how to assess this broader health.
President Obama recently announced a major overhaul of the rules governing the payment of overtime to salaried employees. These changes are long overdue and will finally align the overtime exemption for salaried employees with common sense and the original intention of the law—to ensure that all workers receive overtime protection except those with such high salaries or such substantial responsibilities that they don’t need the protections.
Since the president’s announcement, opponents of the proposal have made a number of questionable claims. One claim in particular—that nonprofit organizations providing services to the poor and the disadvantaged will see a crippling increase in personnel costs—is demonstrably false.
The Fair Labor Standards Act (FLSA) is based on a few basic principles. First, most employees in the United States are entitled to the minimum wage, currently set at $7.25 per hour at the federal level, for all hours worked, and “time-and-a-half” for all hours worked over 40 in a workweek. These rules, first enacted in 1938, have proven to be a simple but important protection for workers and the labor market, guaranteeing workers at least a minimal level of wage protection.
The second principle, however, is that FLSA coverage does not extend to all employees or all employers. There are number of exemptions and exclusions from minimum wage and/or overtime embedded in the FLSA. Unless coverage is established for the employer or employees, the protections of the FLSA, including the proposed overtime rule changes, simply do not apply.
Coverage is determined in one of two ways. First, employers who are engaged in business that generates annual business or sales revenues of at least $500,000 per year are covered by the FLSA and must pay the minimum wage and overtime, unless another of the many exemptions in the law applies. Importantly, the key criterion for this provision is business or sales revenue. Most nonprofitsincluding the charitable organizations providing free meals to the hungry and nonprofits providing addiction or mental health services are not engaged in business, they are providing charitable services and therefore their employees are not typically covered by the FLSA.Read more
Catherine Rampell wrote a piece having some fun with the bidding war among GOP candidates about how much they can promise to raise economic growth rates. There’s some good stuff there—including the riff on how GOP politicians are looking to “disrupt” economic statistics largely by defunding those doing the valuable work of collecting them.
But “Step 1” in her list is a pet peeve of mine. The claim is that the growth of the mid/late-20th century rested largely on the fact that the United States faced less foreign competition in those years, as trading partners’ economies in Europe and Asia were devastated by war. Let me quote a chunk of Rampell’s point here:
“If we (or others) can manage to destroy the capital stock of our economic rivals while sustaining no damage to our own—which is, you know, basically what happened in World War II—we’ll be perfectly positioned for another global-competition-free, postwar economic boom. This little artifact of the last postwar era, and how much it explains the robust mid-20th-century growth rates that my presidential rivals now pine for, has curiously eluded others’ policy plans.”
One hears variants of this argument a lot*, but it’s actually really hard to make an economic case that this dynamic—increased U.S. competitiveness stemming from war destruction in our trading partners—mattered at all for mid-century American growth.
Is the claim that exports surged and that’s why mid-century growth was good? They really did not—exports grew substantially faster post-1979 than before. And we were not shielded from import growth in the pre-1979 period, since imports grew faster than in the pre-1979 period than after.
This post originally appeared in The Huffington Post.
After forty years of rising income and wealth inequality, some of America’s rich seem worried that maybe things have gone too far. In a recent New York Times op-ed, for example, Peter Georgescu, CEO emeritus of the multinational public relations firm, Young and Rubicon, wrote that he is “scared” of a backlash that might lead to social unrest or “oppressive taxes.”
The Times was so impressed with such enlightened views from this prominent capitalist that a few days later they devoted another long article with his answers to questions submitted by readers.
We should, I suppose, be grateful that Georgescu seems to understand that the gap between the rising value of what American workers produce and the stagnation of their wages has channeled the benefits of economic growth to shareholders (and, he might have added, but didn’t, corporate CEOs). But if you are waiting for him and other members of his class to get serious about the problem, don’t hold your breath.
Georgescu writes that he would like to see corporations pay their workers a fair wage. But with few exceptions, they don’t. He doesn’t tell us why, but the reason is obvious—paying workers less has made their owners and top executives rich.
So, what to do?
Congress Must Act to Save the 190,000 to 640,000 U.S. Jobs at Risk Due to Chinese Currency Devaluation
China’s decision to devalue its currency last week means that it has chosen to export its unemployment problem, rather than take the hard steps needed to restructure its domestic economy. Over the past decade, trade deficits caused by currency manipulation by about 20 mostly Asian countries, predominantly China, has eliminated between 2.3 million and 5.8 million U.S. jobs. The yuan fell 4.4 percent in the first three days after China announced its devaluation, and a cumulative drop of 10 to 15 percent is possible over the next two weeks, according to the Economist Intelligence Unit. A devaluation of the yuan of between 4.4 to 15 percent, if it persists, would likely increase U.S. trade deficits sufficiently to eliminate between 190,000 and 640,000 U.S. jobs. There is growing, bipartisan support from both Republicans and Democrats for new policies to end currency manipulation and to reverse the damage it has done to the U.S. economy. Congress should take immediate steps to pass tough laws to end currency manipulation and to ensure that injured domestic workers and companies obtain timely relief from unfairly traded imports.
To evaluate the costs of China’s currency devaluation, I use the results of C. Fred Bergsten and Joseph E. Gagnon’s study for the Peterson Institute for International Economics, which used the Federal Reserve Board’s macroeconomic model to assess the effects of a 10 percent depreciation of the trade-weighted value of the U.S. dollar. China is America’s largest trading partner, responsible for 21.3 percent of total U.S. trade, based on the trade weights used in the Federal Reserve’s Broad Index of the U.S. dollar. Thus, a 4.4 percent devaluation of the yuan (or renminbi, as it is also known) translates into a 0.9 percent appreciation of the real U.S. dollar. Likewise, a 10 percent devaluation would increase the U.S. dollar by 2.1 percent, and a 15 percent devaluation would increase the value of the dollar by 3.2 percent.
In the Washington Post Fact Checker column today, Glenn Kessler got really exercised about Bernie Sanders’ totally accurate description of a Congressional Budget Office (CBO) report on job losses that will occur if spending caps in the Budget Control Act (BCA) are not loosened in coming years. In the end, Kessler’s “fact check” is much more misleading than anything Sanders and his staff released.
The CBO provided a range of estimates of job losses that would occur in 2016 and 2017 if these spending caps are not lifted (alternatively, one could describe these as job gains that would be realized if the caps are lifted). The high end of these estimates was 800,000 jobs in 2016 and 600,000 in 2017. That’s how much higher total employment in the United States could be if the caps were lifted, relative to a counterfactual baseline where the caps stay in place.
So, what has Kessler so angry? First, that Sanders cited the high end of the CBO range—even though he and his staff are clearly identifying it as the high end. Kessler writes:
First of all, note that the Sanders’ statement says that “as many as” 1.4 million jobs would be lost. That’s a signal that a politician is using the high-end of a range.
On Tuesday, China announced the largest one-day devaluation of its currency in more than two decades. Make no mistake—although authorities claimed this policy was a shift toward more market-driven movements, the value of the currency is tightly controlled by China’s central bank. By choosing to devalue its currency, Chinese officials are trying to solve their domestic economic problems—including a massive property bubble, a collapsing stock market, and a slowing domestic economy—by exporting unemployment to the rest of the world. The United States, which is the largest single market for China’s exports, will be hardest hit by the devaluation of the yuan. Manufacturing, which was already reeling from the 20 percent rise in the value of the dollar against major currencies in the last 19 months, can expect to see even faster growth in imports from China.
The devaluation of the yuan (also known as the renminbi) will subsidize Chinese exports, and act like a tax on U.S. exports to China, and to every country where we compete with China, which is already the largest exporter in the world. It will provide rocket fuel for their exports, transmitting unemployment from China directly to the United States and other major consumers of imports from China. Already in 2015, the U.S. manufacturing trade deficit has increased 22 percent, which will continue to hold back the recovery in U.S. manufacturing, which has experienced no real growth in output since 2007.
The Chinese devaluation highlights the importance of including restrictions on currency manipulation in trade and investment deals like the proposed Trans-Pacific Partnership (TPP), which includes a number of well-known currency manipulators. Millions of jobs are at stake if a clause to prohibit currency manipulation is not included in the core of this “twenty-first century trade agreement.” This devaluation by China, which is not a member of the TPP, will raise pressure on other known currency manipulators that are in the agreement—such as Japan, Malaysia, and Singapore—to devalue their currencies, which could more than offset any benefits obtained under the terms of the TPP.
So far this year, job growth has been steady as the economy has continued to slowly chug along. This morning’s Job Openings and Labor Turnover Survey (JOLTS) report supports that story and rounds out our knowledge of the employment situation for June.
In June, the number of unemployed fell to 8.3 million. While this is an improvement, the number of job openings also fell, which caused the job-seekers-to-job-openings ratio to stay put at 1.6-to-1. This ratio has been declining steadily from its high of 6.8-to-1 in July 2009, but it has been stuck at 1.6 for the past three months, as shown in the figure below. The job-seekers ratio is currently much higher than its low-point of 1.1 in 2000, indicating that there is still a lot of slack in the labor market. In a tighter labor market, this ratio would be closer to 1-to-1 or less, as there would be more job opportunities available for each job seeker.
The job-seekers ratio, December 2000-June 2015
|Month||Unemployed job seekers per job opening|
Note: Shaded areas denote recessions.
Source: EPI analysis of Bureau of Labor Statistics Job Openings and Labor Turnover Survey and Current Population Survey
I was caught off guard by all of the recent attention and coverage given to Senator and presidential candidate Bernie Sanders’ positions on immigration. Not because his views were widely discussed (he is running for president, after all), but because the criticisms he was subjected to were often mistaken or even intentionally misleading.
So what did Senator Sanders actually say about immigration? In an interview with Sanders, Vox.com editor Ezra Klein brought up the concept of an “open borders” immigration policy. Sanders rejected the notion—open borders and unlimited immigration, of course, being a position that no elected official supports. Sanders went on to point out—a point which he later reiterated to journalist Jose Antonio Vargas and the Hispanic Chamber of Commerce—that in some cases the importation of new foreign workers can negatively impact the wages of workers in the United States. Note that Sanders didn’t say immigrants are taking jobs or lowering wages. He was specifically referring to non-immigrant, temporary foreign worker programs, also known as “guestworker” programs, which are full of flaws that employers take advantage of to exploit American and migrant workers alike, and to pit them against each other in the labor market.
The reality is that what Sanders supports on immigration is careful and nuanced, and it’s the correct path forward for American immigration policy. In a nutshell, Sanders is strongly in favor of legalization and citizenship for the current unauthorized immigrant population, which will raise wages and lift labor standards for all workers, and he’s against expanding U.S. temporary foreign worker programs, which allow employers to exploit and underpay so-called guestworkers. Limiting guestworker programs will reduce wage suppression and improve labor standards for U.S. and migrant workers alike.
Slow Wage Growth is Certainly Not a Sign of the “Some Further Improvement” Needed for the Fed to Raise Rates
Arguably, the most important measure for the Federal Reserve as they decide whether to raise rates in September is nominal average hourly earnings. Over the year, average hourly earnings rose only 2.1 percent, in line with the same slow growth we’ve seen for the last six years. And wages for production/nonsupervisory workers rose even more slowly, at 1.8 percent over the year. The annual growth rates are slow by any measure, but are certainly far below any reasonable wage target.
Wage growth needs to be stronger—and consistently strong for a solid spell—before we can call this a healthy economy. As shown below, nominal wage growth since the recovery officially began in mid-2009 has been low and flat. This isn’t surprising—the weak labor market of the last seven years has put enormous downward pressure on wages. Employers don’t have to offer big wage increases to get and keep the workers they need. And this remains true even as a jobs recovery has consistently forged ahead in recent years.
Pressure is building on the Fed to reverse its monetary stimulus by raising short-term interest rates, slowing the recovery in the name of stopping wage-fueled inflation. Fortunately, the Fed has said that their decision to raise rates will be “data driven.” The data clearly show that the economy has not improved enough.
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.
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.
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.
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.
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.
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.
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.