What to Watch on Jobs Day: Weather-Related Revisions, Thoughts on Austerity, Missing Workers, and Nominal Wages
As another Jobs Day approaches, there are a few things I’ll be thinking about and watching for: the top line payroll employment numbers and whether the February number will get revised downward (because of the weather); the effect that proposed budget cuts could have (and the harmful effects that austerity has had so far on the economic recovery); whether more people enter the labor force in March as job opportunities appear to be on the horizon and what that does to our missing workers number (and the official unemployment rate); and, of course, what’s happening with nominal wages (and the patience of the Fed).
While payroll employment has picked up in the last year, February’s numbers—295,000 new jobs—came in a little higher than expectations. It’s possible that revisions may lower that number slightly, because of the unseasonably large amounts of snow that fell mid-month. However, we should not put too much stock into any small deviations from trend. Job growth has been solid, and as long as it stays that way, a return to pre-recession labor market health is about two years away.
I’m optimistic for stronger growth and a faster recovery, but the recent budget talks are a reminder that policymakers can actively slow (or if they choose, speed up) recovery by depressing (or increasing) demand. As the budget debate continues in Congress, it is important to remember that more stimulus, not austerity, would have aided in the labor market recovery. Austerity at all levels of government continues to be a drag on the economy. One clear direct effect of austerity is that public sector jobs are still nearly half a million down from where they were before the recession began. And, this fails to account for the fact that we would have expected these jobs to grow with the population—taking that into consideration, the economy is short 1.3 million public sector jobs. This shortfall in jobs in turn removes the multiplier effect on private sector demand, snowballing into an even slower recovery. Furthermore, cuts to public programs (like SNAP) not only hurts families, but also lower the demand needed to spur on job growth.
No, We’re Not There Yet!: Why Full Employment is a Better Destination than Full Recovery
Earlier this week, I had the opportunity to present findings from my recent report, The Impact of Full Employment on African American Employment and Wages, at the Center on Budget and Policy Priorities’ Full Employment forum. This blog post is taken from my opening remarks, which you can watch on C-SPAN.
Talking about the labor market each month has become a bit like taking my children on a road trip—every couple miles one of them is asking, “Are we there yet?” In the case of the labor market, this question commonly refers to whether or not the economy has fully recovered. In both cases, my typical response is, “No, not yet.” If you’re familiar with either of these situations you know that answer usually leads to another question: “How much longer?” The answer to that question ultimately depends on the intended destination.
Clearly, going to a neighborhood park requires less time in the car and is cheaper than going to Busch Gardens. However, it’s also true that the payoff for these two destinations is not the same. Similarly, I would argue that full employment is a better destination with a better payoff than full recovery, and this is especially true for African Americans. The distinction is this: A full recovery is simply a return to pre-Great Recession labor market conditions. Whether or not that’s a good outcome depends on how well you were doing in 2007—while the national unemployment rate in 2007 was 5.6 percent, the black unemployment rate was 8.3 percent. On the other hand, full employment raises the bar to the point at which anyone who is willing and able to work at the prevailing wage rate can find a job.
U.S.-Korea Trade Deal Resulted in Growing Trade Deficits and More Than 75,000 Lost U.S. Jobs
(Update of a blog post from March 14, 2014).
March 15th was the third anniversary of the U.S.-Korea Free Trade Agreement (KORUS). President Obama said that the agreement would support 70,000 U.S. jobs. This claim was supported by a White House fact sheet that claimed that the KORUS agreement would “increase exports of American goods by $10 to $11 billion…” and that they would “support 70,000 American jobs from increased goods exports alone.” Things are not turning out as predicted. Far from supporting jobs, growing goods trade deficits with Korea have eliminated more than 75,000 jobs between 2011 and 2014.
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 domestic 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 KORUS.
In the first three years after KORUS took effect, U.S. domestic exports to Korea increased by only $0.8 billion, an increase of 1.8 percent, as shown in the figure below. Imports from Korea increased $12.6 billion, an increase of 22.5 percent. As a result, the U.S.trade deficit with Korea increased $11.8 billion between 2011 and 2014, an increase of 80.4 percent, nearly doubling in just three years.
Should We Force Integration on Those Who Don’t Want It?, and Other Commonplace Questions about Race Relations
Last week, Stuart Butler and Jonathan Grabinsky of the Brookings Institution published a web-memorandum describing “Segregation and Concentrated Poverty in the Nation’s Capital.” It showed that racial segregation has not diminished in Washington, D.C. over the last 20 years and that few blacks in the city live in low-poverty neighborhoods, while most whites in the city do so. It noted that such segregation blocks economic mobility for African Americans.
I write here not so much to discuss their memorandum as the comments that followed it on the memo’s web page. One asked,
“Who is forcing this segregation? Could it just maybe be a voluntary choice of the individuals involved? Could it be basic human nature to be with those more like yourself??? Do you think we should force integration on all Americans regardless of what they want???… Why is it the business of government to decide who lives where??”
Another observed that African Americans in the Washington metropolitan area are
“…moving to segregated areas of Maryland which does not help the situation. Even though mandating a move [to integrated neighborhoods] might be a good social engineering experiment I’m sure it will be quickly looked on as gerrymandering.”
And another said that it is obvious that
“there are negative consequences to a person’s decision NOT to invest in their own human capital, to develop marketable skills or to become educated… [L]et’s not get fooled by the notion that “segregation” is a cause. We are all self-educated! It’s just that some of us decided not to participate in that effort. … I don’t have a whole lot of sympathy for anybody that decides to follow that path – nor do I think the rest of us should have to pay for it!”
These are very commonplace reactions to discussions of racial segregation, by those who are relatively well-informed and those who are not, and by liberals and conservatives alike. These issues deserve to be aired, explored, and resolved.
The first commenter asks, reasonably, “Why is it the business of government to decide who lives where?” Perhaps it is not, but the commenter fails to realize that it was government that decided that blacks should live in ghettos. We should think of efforts to desegregate as only a demand that government undo the enduring effects of its previous unconstitutional decisions about who should live where. The second commenter is partly correct that desegregation policy would be “social engineering.” What she fails to realize is that it would only be reverse social engineering, attempting to undo the harm previously committed by government’s successful and multi-faceted efforts to engineer segregation.Read more
No, Post-NAFTA Trade Agreements Are Not Why the US Trade Deficit Improved After the Mid-2000s
As I’ve noted before, as trade agreements and other legislation (Trade Promotion Authority, or TPA) get debated, you’ll see more and more bad arguments in favor of them. Just yesterday, a study from Third Way claimed that trade agreements signed after 2000 have led to reductions in the U.S. trade deficit. They label these post-2000 trade agreements as “higher standard” trade agreements.
My guess it would be news to lots of policymakers that, say, the Central American Free Trade Agreement (CAFTA) and the Australia-U.S. FTA, signed in the mid-2000s during the George W Bush administration, and the Korea-US and Panama-US agreements, signed in 2012 and 2013 respectively, all qualify as simply indistinguishably “high-standard.” For instance, those who follow issues of labor standards, say, would argue that CAFTA had far less effective labor protections than these later agreements.
Leaving that aside, Third Way claims that because bilateral trade balances between the United States and the signatory countries improved after the treaties were enacted, that this means these agreements are “working.” This is really facile analysis. To see why, just note that the large majority (about 75%) of the total improvement in bilateral trade deficits following trade treaty enactment that Third Way identifies occurred with a set of countries that signed trade agreements between 2004 and 2006: Singapore, Chile, Australia, El Salvador, Guatemala, Honduras, Nicaragua, Morocco and Bahrain. The real action is the first three, which account for nearly all the improvement in this groups’ bilateral trade balance improvement between treaty enactment and 2014.
What’s the significance of this? Well of course the sum of trade balances with those countries improved between 2004-06 and 2014—the overall U.S. trade deficit fell from over $1 trillion on average in those years to just over $900 billion today.*
There was nothing magic at all about those trade treaties that drove improvement in the nation’s trade balance—what happened between the mid-2000s and today was the Great Recession, which compressed imports and reduced trade deficits. Add to this the improvement in the U.S. oil trade balance (which I don’t think anybody claims has been influenced by trade treaties) and you really don’t need to invoke trade treaties at all to explain improving trade balances between 2004-06 and 2014.
*Update: I’m reporting numbers that used the same deflation choice Third Way used – converting to $2014 using the CPI-U-RS. This isn’t quite the right way to deflate these, but wanted my numbers to be comparable.
Stark Choices: “People’s Budget” vs. Republican Plan
This piece originally appeared in The Hill.
The annual federal budget debate typically doesn’t excite many folks outside the Washington beltway. And with good reason—the Republican budget process is intended to lull the public to sleep by staying short on details and long on damaging provisions that will hurt low-income and middle-class families.
But folks should pay attention to the debate because budgets have consequences—and if done right, they can truly move our country forward. The “People’s Budget,” which we both helped prepare, is a bold and responsible alternative to the Republican plans that take from working families while giving more to corporations and the wealthy.
The GOP budgets proposed in Congress would cut about $5 trillion over the next decade. The overwhelming burden would fall on programs that boost working families: education, Medicare and Medicaid, college aid, job training, medical research and rebuilding roads and bridges. Tens of millions of Americans would lose health insurance and millions more would lose food stamps or be priced out of college.
Republicans push these devastating cuts as a path to a balanced budget. But their budgets have been widely panned by experts as being based on “magic asterisks.” While they’re comfortable putting the squeeze on working families who will be most affected by these cuts in benefits and services, they refuse to ask corporations and the wealthy to contribute one thin dime to the effort. In fact, not one tax loophole is closed by their budgets.
Senate Committee Debates Whether to Allow H-1B Guestworkers to Replace U.S. IT Workers
The Senate Judiciary Committee explored important economic questions this week. Should businesses be able to lay off qualified U.S. tech workers and replace them with lower paid foreign workers? Is there a shortage of skilled Science, Technology, Engineering and Math (STEM) workers—or an oversupply? And even if there is such a shortage, should we import temporary non-immigrant labor from abroad, or would it be better to let the free market work long enough for wages to rise and more students to be attracted to these fields?
The committee’s Republican and Democratic members disagreed with each other without regard to party labels. No senator, in fact, seemed more concerned about the rights of U.S. workers and their economic outcomes—and more skeptical of claims made by the business community—than Sen. Jeff Sessions of Alabama, a conservative, anti-union Republican. Two Democrats, Sen. Amy Klobuchar (D-MN) and Sen. Chuck Schumer (D-NY) took the side of big business, along with Sen. Orrin Hatch (R-UT), Sen. John Cornyn (R-TX) and Sen. Jeff Flake, while Sen. Dick Durbin (D-IL) and Sen. Chuck Grassley (R-IA) defended the interests of U.S. workers.
Most Americans probably think it is illegal to lay off an U.S. worker and replace him with a temporary foreign worker. Yet Prof. Ron Hira and several other witnesses testified that this is not just a common practice, it is the primary use of the H-1B visa program. (Hira points out that most of the top 10 users of the H-1B visa are firms that outsource and offshore U.S. IT jobs.) When Ben Johnson of the American Immigration Council said replacing U.S. workers should not be prohibited, Sens. Hatch, Klobuchar, and Flake all agreed; in fact, they voted in 2013 to remove language from the immigration bill that would have made it illegal to use the H-1B visa to replace U.S. workers. And all three are sponsors of the “I-Squared” bill, which would triple the number of temporary non-immigrant foreign workers replacing Americans.
The Senate GOP Budget Looks Good Relative to the House GOP Budget, But Not Relative to Much Else
Yesterday I wrote a quick overview of the House GOP budget proposal, which I argued would clearly be bad for our economic—and quite possibly physical—health. The Senate GOP budget proposal is a bit better, but while less it’s less austere than the House GOP budget, it is still harmful to the general welfare and the economy.
The Senate Budget Committee’s fiscal year 2016 budget resolution, proposed by Senator Mike Enzi (R-WY), would continue damaging austerity for yet another year. This budget, which like the House Budget resolution passed with only GOP support, proposes to eliminate the budget deficit by 2025 without raising taxes. However, to achieve this goal, the budget punishes low- and middle-income people, with cuts to public investments (education, infrastructure, research and development), Medicaid, unemployment benefits, and nutrition programs for needy children.
Furthermore, because these cuts start early, when the economy is still likely to be operating below potential due to deficient aggregate demand, the budget plan has adverse effects on economic growth and jobs in the near-term. Based on standard multipliers and relationships between GDP and employment growth, I estimate that the Senate GOP budget cuts would reduce GDP by 0.7 percent in FY2016 and decrease payrolls by almost 800,000 jobs, relative to CBO’s baseline economic and budget projections. It gets even worse in FY2017—GDP would be reduced by almost 1.9 percent, with payrolls decreasing by 2.3 million jobs.
All in all, the Senate GOP budget does slightly less damage than the House GOP budget, but that’s a low bar to clear.
Austerity as a Hazard to Health: Economic and Otherwise
The House Budget Committee passed, along party lines, a fiscal year 2016 budget resolution proposed by Chairman Tom Price that would continue damaging austerity for yet another year. This draconian budget proposes to eliminate the budget deficit by 2025 without raising taxes. To achieve this goal, the budget would punish low- and middle-income people by reducing economic growth and jobs over the next 2 fiscal years, eroding the effectiveness of safety net programs, taking away health insurance coverage provided by the Affordable Care Act, and reducing public investments. If the Obamacare repeal and proposed savings from debt servicing are excluded, 95 percent of the House GOP budget cuts are targeted to just 38 percent of federal spending—the spending that includes public investments (education, infrastructure, research and development), Medicaid, unemployment benefits, and nutrition programs for needy children.
Besides the clearly significant, but hard to precisely quantify harm done to the general welfare, the House GOP budget resolution would damage economic growth in coming years in quite predictable ways. I estimate that the House GOP budget cuts would reduce GDP by 1 percent in FY2016 and decrease payrolls by 1.3 million jobs, relative to CBO’s baseline economic and budget projections. It gets even worse in FY2017—GDP would be reduced by almost 2.5 percent with payrolls decreasing by 2.9 million jobs.
It seems rather odd that the GOP would completely ignore the current state of the economy in designing their FY2016 budget. While the official unemployment rate is slowly falling and the economy is adding jobs every month, there continues to be a great deal of slack in the labor market. First, unemployment still remains high among some racial and ethnic groups. Second, the “jobs gap”—the number of jobs needed to restore the labor market to pre-Great Recession health—remains in the millions. Furthermore, there is only one job opening for every two job seekers. Finally, wages are stagnant for the majority of workers. Yet the budget appears to be designed to knock workers down and take away a hand up.
Fiscal austerity has been best described as a dangerous idea. The GOP seems bent on turning a dangerous idea into a health hazard.
Luckily, the Fed Still Seems Patient, if Not “Patient”
It was widely reported yesterday that the word “patient” was dropped from the Federal Reserve statement on monetary policy. But too much focus on this one word might lead one to miss the forest through the trees.
Yes, the Fed no longer is committed to official “patience.” In practice that’s their way of saying we could raise rates at any time in coming meetings without giving you (and by “you,” I mean “markets”) any more warning. This has been widely (and reasonably) interpreted to mean that such a rate increase is coming soon.
Such a rate increase would be a mistake. The labor market is clearly improving, with unemployment falling and job growth accelerating in 2014. But the point of raising interest rates shouldn’t, of course, be simply to sabotage the labor market anytime it starts generating lots of jobs and reducing unemployment. The point of rate hikes in the face of economic strength is supposed to be preventing incipient inflationary pressures. But there’s an important link in the chain between falling unemployment and accelerating inflation: wages have to start accelerating. Importantly, they need to start accelerating faster than the sum of the Fed’s inflation target plus productivity growth.
What’s the logic of this wage target? For one, note that nominal (i.e., not inflation-adjusted) wage growth that simply equals productivity growth puts no upward pressure on prices at all. Say that wages rise by 2 percent but productivity rises by 2 percent too. What has happened to the cost per unit of output? Nothing. Hourly wages are up 2 percent, but the amount produced in each hour of work has risen by 2 percent as well, so costs per unit of output haven’t budged. Assume trend productivity growth of around 1.5-2 percent, and this means that only nominal wage growth over 1.5-2 percent puts any upward pressure on prices at all.