From Ferguson to Baltimore: The Fruits of Government-Sponsored Segregation
In Baltimore in 1910, a black Yale law school graduate purchased a home in a previously all-white neighborhood. The Baltimore city government reacted by adopting a residential segregation ordinance, restricting African Americans to designated blocks. Explaining the policy, Baltimore’s mayor proclaimed, “Blacks should be quarantined in isolated slums in order to reduce the incidence of civil disturbance, to prevent the spread of communicable disease into the nearby White neighborhoods, and to protect property values among the White majority.”
Thus began a century of federal, state, and local policies to quarantine Baltimore’s black population in isolated slums—policies that continue to the present day, as federal housing subsidy policies still disproportionately direct low-income black families to segregated neighborhoods and away from middle class suburbs.
Whenever young black men riot in response to police brutality or murder, as they have done in Baltimore this week, we’re tempted to think we can address the problem by improving police quality—training officers not to use excessive force, implementing community policing, encouraging police to be more sensitive, prohibiting racial profiling, and so on. These are all good, necessary, and important things to do. But such proposals ignore the obvious reality that the protests are not really (or primarily) about policing.
In 1968, following hundreds of similar riots nationwide, a commission appointed by President Lyndon Johnson concluded that “[o]ur nation is moving toward two societies, one black, one white—separate and unequal” and that “[s]egregation and poverty have created in the racial ghetto a destructive environment totally unknown to most white Americans.” The Kerner Commission (headed by Illinois Governor Otto Kerner) added that “[w]hat white Americans have never fully understood—but what the Negro can never forget—is that white society is deeply implicated in the ghetto. White institutions created it, white institutions maintain it, and white society condones it.”
Stagnant GDP at the Start of 2015 is the Latest Evidence That the Economy Hasn’t Reached Escape Velocity
The Commerce Department estimates that U.S. gross domestic product (GDP, the widest measure of overall economic activity) was near stagnant in the first three months of 2015, growing at only a 0.2 percent annualized rate. This is a clear deceleration from the 2.2 percent growth rate in the previous quarter. Final sales (GDP minus the volatile inventory components of GDP) actually declined in the first quarter.
Most of this deceleration is likely transitory—due in part to particularly bad weather in the first quarter. Growth in the rest of 2015 will most likely be faster than previously projected, as the economy bounces back from this weak start to the year. Yet data on GDP in recent years confirms that the U.S. economy has not reached escape velocity—growth rates have not broken past the 2-2.5 pace that normally is associated with rapid declines in economic slack. Because growth has been steady for years, it might be tempting for some policymakers to shrug their shoulders and declare that this is the “new normal” and the best we can do. The economic evidence clearly suggests otherwise—this economy still needs active measures to boost demand to achieve a full recovery. At a minimum, this means the Federal Reserve should put off interest rate increases for the rest of 2015.
Workers Memorial Day: We Need Strong Workplace Safety and Health Protections
Here are a few recent reports about the grim toll of industrial fatalities and the hazards workers are exposed to every day, from the Cal-OSHA Reporter and other sources. Hopefully, they will remind you why we need a strong federal enforcement effort and much better programs of workers compensation for occupational injuries and illnesses. A recent NPR/ProPublica report was a wake-up call about how state legislatures are gutting the programs that compensate employees for lost limbs, lost eyes and damaged hearing, compensate them for lost wages, and pay for the medical care of injured workers.
Bumble Bee Foods facing criminal charges over worker death: “Los Angeles County District Attorney Jackie Lacey on April 27 announced that Bumble Bee Foods LLC and two others are facing criminal charges related to willfully violating worker safety rules and causing the 2012 death of an employee who became trapped inside an industrial oven at the company’s Santa Fe Springs plant.”
OSHA: York workers exposed to asbestos: “A York County company is facing a nearly half-million-dollar fine for allegedly failing to protect employees from asbestos. The York City-based First Capital Insulation Inc. allowed workers to remove asbestos improperly, failed to make sure employees’ respirators fit correctly and did not decontaminate employees and their clothing before they left a work site, the Occupational Safety and Health Administration stated in a news release this week.”
Police: Man dies in Oklahoma City industrial accident: “Oklahoma City police say a worker has died at an area commercial printing business after being trapped under a piece of machinery.”
Worker killed in cinder block wall collapse, Ramsey police say: “A 56-year-old construction worker was killed in a wall collapse at a Ramsey, New Jersey building on Wednesday, officials said.”
Just the Facts: Trade and Investment Deals Are Bad for Working Families
Last week, the president claimed that critics who say that the Trans-Pacific Partnership (TPP) “is bad for working families… don’t know what they are talking about.”
But the truth is, there is an emerging consensus that globalization has put downward pressure on the wages of most working Americans, and has redistributed income from the bottom to the top. My colleague Josh Bivens has shown that expanded trade with low-wage countries has reduced the annual wages of a typical worker by $1,800 per year. Given that there are roughly 100 million non-college-educated workers in the U.S. economy, the scale of wage losses suffered by this group likely translates to roughly $180 billion. Trade and investment deals such as the Korea-U.S. Free Trade Agreement (completed by President Obama), and the agreement to bring China into the World Trade Organization in 2001 (negotiated by President Clinton), have contributed these lost wages. It’s not surprising that one commentator concluded that “the Trans-Pacific Partnership trade deal is an abomination,” precisely because of its impacts on “low-skilled manufacturing workers and income inequality.”
Sluggish Wage Growth Over the Last Year Is Not Due to the Mix of Jobs Being Created
Over the last year, and, in fact, over the last five years, nominal wage growth has been slow—slow by historic standards and slow relative to wage growth that would be consistent with the Fed’s 2 percent overall price inflation target. Hourly wage growth has run at about 2 percent a year and, as we’ve discussed in great length, 2 percent hourly wage growth is far below the 3.5-4 percent target growth that is consistent with the Fed’s target of 2 percent price inflation and a 1.5 to 2.0 percent trend in productivity growth.
Wage growth that exceeds this 3.5 to 4 percent target for a period of time is not an economic problem to be solved. Rather, it is a normal pattern of the labor share of corporate sector income finally recovering its pre Great Recession levels. If last month’s weak job growth is just a blip and healthy job growth continues in the next year, this should eventually lead to a labor market tight enough to finally provide workers with the bargaining power necessary to bid up their wages.
There has been some discussion that the sluggish wage growth we’ve seen since the recovery began in 2009 is driven in large part by the mix of jobs being created, as if we have lower wages simply because the economy is adding more low-wage jobs. Earlier in the recovery there was likely some truth to this, as lower-wage sectors saw the first pickup in job growth. However, over the last year jobs have been created throughout the economy in high-, low-, and middle- wage sectors. The evidence suggests that the economy has been adding jobs in proportion to the rate that those jobs already exist in the economy.
Hatch and Ryan: Chasing Mice and Ignoring the Elephants
It’s a scary thing when powerful government officials misuse their power, and especially when they misuse it to afflict the needy and comfort the comfortable. This appears to be what’s happening now as the chairmen of the two congressional tax-writing committees seek to change the tax status of various worker centers that have annoyed politically active corporations like Walmart, Darden Restaurants, and McDonalds.
I am not a tax lawyer and can’t say with any certainty whether a worker center formed to provide services such as job training, education, and legal assistance to low wage workers should suddenly be transformed from a 501(c)(3) charity into a labor organization if it challenges wage theft or other labor problems caused by a store or corporation. I don’t think the law should operate that way, but the law has a lot of problems.
What I can say is that it’s a shame that Sen. Orrin Hatch and Rep. Paul Ryan are spending their time on a matter of importance only to huge corporations that need no help from Congress in crushing worker organizations, fighting wage increases, and profiting immensely from weak labor standards and high unemployment. As their letter to IRS Commissioner John Koskinen shows, Ryan and Hatch don’t like the fact that worker centers have exercised their constitutionally protected right to “protest and picket against targeted businesses.”
One of the protests the congressmen cited was a Restaurant Opportunity Center protest over the takeover of Olive Garden restaurants by a hedge fund, Starboard, that wanted to cut labor costs by $48 million and transfer the savings to the pockets of investors. The workers and the worker center weren’t asking for the right to be the exclusive bargaining representative: they just didn’t want their wages cut and didn’t want to be changed from waged employees to tipped employees. But Ryan and Hatch want the IRS to investigate the workers.
New Study Confirms that Right-To-Work Laws Are Associated with Significantly Lower Wages
Right to Work (RTW) laws weaken unions by depriving them of the funding they need to be effective, and workers, both union and non-union alike, in RTW states have lower wages. No one really disputes the first fact—workers in non-RTW states are more than twice as likely (2.4 times) to be in a union or protected by a union contract. And wages in RTW states are far lower—almost 16 percent on average. This isn’t surprising, since RTW’s proponents are anti-union hate groups and business organizations that oppose every effort to help workers organize or raise wages. In fact, their key pitch to legislators (outside of campaign contributions) is that RTW will lower labor costs, improve the “business climate,” and encourage out-of-state businesses to relocate.
So it was surprising to see the Heritage Foundation challenge the notion that RTW has no effect on a state’s wage levels. Yes, they say, wages are lower in RTW states, but it isn’t because of RTW. If true, it would leave proponents with no argument for RTW except its core purpose—weakening unions.
But in fact, it’s not true. EPI senior economist Elise Gould and co-author Will Kimball examined the Heritage report and found it to be deeply flawed. Heritage’s finding depends on statistical tricks—the removal of relevant and standard labor market controls such as the worker’s industry, and the inclusion of nonstandard and irrelevant worker characteristics and state-level amenities. Using only standard and relevant factors in the regression analysis yields a consistent finding: wages in RTW states are 3.1 percent lower than those in non-RTW states, after controlling for a full complement of individual demographic and socioeconomic factors as well as state macroeconomic indicators. This translates into RTW being associated with $1,558 lower annual wages for a typical full-time, full-year worker.
No, the TPP Won’t Be Good for the Middle Class
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.
Just Say No to the Estate Tax Repeal
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.
Equal Pay Day: Minding the (Gender Wage) Gap
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 10th 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 95th 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.
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 |
Source: EPI analysis of Current Population Survey Outgoing Rotation Group microdata
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.