When Can We Be Sure Labor Force Participation Is Healthy Again?
The good news is, today’s jobs report was positive overall. February’s gain of 295,000 jobs continues a favorable trend. At this rate, economy will return to pre-recession labor market health in about two years.
One thing about this month’s report was different, however. As I noted yesterday, my expectation for coming months was for the unemployment rate to hold steady, or at least fall relatively slowly, given the underlying pace of job growth. This was because I expected more prime-age workers to re-enter the labor market as it improved. Given this, I was a little surprised by the 0.2 percentage point drop in the unemployment rate last month. This drop in unemployment was primarily because the labor force shrank, as employment growth in the household survey was just 96,000. (Admittedly, the household survey is far more volatile than the establishment survey, so month-to-month changes should be taken with a grain of salt.)
My guess is that the overall trends I highlighted yesterday are more likely to hold in coming months: participation will firm up, making the unemployment rate fall less slowly than the pace of job growth might normally make us expect. That’s what we saw in January and I think that trend will continue in the upcoming months, even if it didn’t hold this month.
What to Watch on Jobs Day: Wages and the Labor Force
When the February Employment Situation report is released tomorrow, I will be looking at three particular numbers: nominal wage growth, labor force participation, and the unemployment rate. Yes, I will also be looking at the overall jobs numbers, long-term unemployment, and everything else, but I am watching these three gauges in particular for indications of the strength of the recovery’s impact on workers.
While the economy has continued to add jobs, the most watched indicator—particularly by Federal Reserve policymakers and those who monitor the Fed’s actions—is wages. Nominal (non-inflation adjusted) average hourly wages for private sector workers has been rising slowly, at around 2 percent, the last several years. There has been lots of talk of when the Federal Reserve should raise interest rates in order to keep inflation at bay, even though, in this economic environment, there is no need to even begin talking about setting a date to slow the economy down. Wages are simply showing no signs of producing inflationary pressures.
We track nominal wage growth every month, and it’s abundantly clear that this indicator is far below target. What’s more, slowing down the economy prematurely would be especially deleterious to lower-wage workers and to workers of color. We need to give the economy a real chance to recover, and give workers a chance at decent wage increases, before we slow the economy down by raising interest rates. Remember that wage growth has been sluggish for many years, so in order for workers to make up that lost ground wages needs to start rising at a good clip.
The Fed’s “Hammer” Can Be Used to Great Effect to Improve Prospects for Minority Workers
Update: Binyamin Appelbaum has made a useful change to his article that I comment on below, noting that Black workers do indeed stand to benefit disproportionately from any demand boost that keeps overall unemployment rates falling in coming years. Again, however, I think that while he makes an important point, it still doesn’t strike me as right to frame it as about the limits of monetary policy. His point (as I read it) is that the gap in unemployment rates between Black and White workers is an economic problem that policymakers should seek to end, but this end-goal of no racial unemployment gap at all cannot be achieved with any single policy lever.
But while an expansionary monetary policy is not a sufficient condition to erase the racial unemployment gap, it is a necessary condition. That is, the first step towards tearing down racial bias in hiring is to rob employers of the economic power they can use to indulge this bias. And the best way to rob them of this economic power is to have tight labor markets that force employers to compete to hire workers. So, macroeconomic policy (which is dominated by the Federal Reserve) is just crucial to meeting the long-run goal of ending racial unemployment gaps.
Finally, while the existence of a racial unemployment gap in both good and bad times is a terrible problem, it’s an even bigger problem when the respective White and Black unemployment rates are 5.3 and 11.3 percent (like they were in 2014) than when they are 3.5 and 7.6 percent (like they were in 2000). So while ending the racial unemployment gap entirely should be the long-game, we also need to be keenly aware of what can alleviate economic pain in the short run. And that short-run is just dominated by what the Fed decides to do.
Simply put, the most effective policy lever to reduce the black unemployment rate in the next few years is for the Fed to keep its foot off the economic brakes by keeping short-term interest rates low until we see real signs of healthy wage growth for American workers.
Binyamin Appelbaum gets one deeply wrong in the New York Times, riffing off a report released by the Center for Popular Democracy with (full disclosure) data assistance from EPI and concludes with a version of the old saying that the Fed’s “hammer” can’t effectively address non-nail problems like excessive unemployment.
Appelbaum notes that the report shows that Black unemployment rates are significantly higher than White (or overall) unemployment rates in both recessions and recoveries. Fair enough. And if his conclusions had simply been that because the gap persists in both booms and busts that monetary policy alone cannot completely erase these unemployment gaps, that would also have been fair enough.
But instead he pushed this idea way too far, and ended getting something completely wrong. In his words (brackets and emphasis added by me):
“The same factors [that keep unemployment rates higher for Black workers in both good times and bad] help to explain why black workers are quicker to lose jobs and slower to return to work. Any given level of economic stimulus, as a result, helps black workers less than it helps white workers.”
This is totally backwards. Because Black unemployment is almost exactly double White unemployment in both recessions and booms, this means that Black workers are indeed “quicker to lose jobs” during recoveries, but they are actually faster, not “slower” to return to work. And any given level of economic stimulus reduces Black unemployment by twice as many percentage points as it reduces White unemployment, helping Black workers more than it helps White workers. In short, as the CPD report shows, the stakes regarding at what pace the economy improves and overall unemployment falls are highest for Black workers. And this means that the stakes regarding Fed decisions are highest for Black workers.
California’s Nurse-to-Patient Ratio Law Reduced Nurse Injuries by More Than 30 Percent
In 2004, California enacted a nurse-to-patient ratio law. To this day, California is the only state with a nurse-to-patient ratio law. On most hospital wards, the law mandates a minimum ratio of one nurse for every five patients; within Intensive Care Units, the ratio is one to two (1:2). These mandated ratios are typically higher than the prevailing ratios prior to 2004. In fact, nurse employment rose approximately 15 percent after 2004 as a result of the law. The intent of the law was to improve care for patients and although no consensus has yet been reached, studies have shown that the law has improved patient care in a variety of domains.
My colleagues and I addressed a different research question: Could the law have improved safety for the nurses themselves? We found that it did; occupational injury and illness rates dropped over 30 percent. This is important, in part, because the nursing occupation generates more occupational injuries to women than any other occupation. We used data on work injuries resulting in at least one day of work loss among registered nurses and licensed practical nurses. These data were drawn from the Bureau of Labor Statistics Survey of Occupational Injuries and Illnesses. This Survey, authorized by the OSHA law, has been collecting information on occupational injuries and illnesses from 160,000 to over 250,000 private establishments since the1970s.
Our data were annual injury and illness rates (cases per total number of employed) from 1999 through 2009. We used the difference-in-differences approach. The rates before 2004 were subtracted from the rates after 2004 within California. This California subtracted difference was then compared to a similar subtracted difference before and after 2004 for the other 49 states. In scientific language, California was the “intervention group” and the other 49 states were the “control group.” The subtracted difference for California was more than 30 percent larger than the difference for the other 49 states for both registered nurses and licensed practical nurses.
There are many mechanisms whereby greater numbers of nurses taking care of the same number of patients may result in fewer nurse injuries. For example, many nurses injure their backs they try to move patients. The nurse may weigh 130 pounds and the patient weighs 200 pounds. Back injuries have been shown to be much less frequent when two nurses lift a patient, rather than one.
Although the study did not address costs, it is likely that the law resulted in lower worker’s compensation costs because employment grew by 15 percent whereas injuries per employed nurse dropped by 30 percent.
Our results suggest that other state legislatures should consider the benefits to nurse safety that could result from enacting laws setting minimum nurse-to-patient ratios.
Business Roundtable Study Fails the Laugh Test: The U.S. Trade Deficit has Cost Millions of U.S. Jobs
The United States had a goods and services trade deficit of approximately $463.5 billion in 2013, which cost millions of U.S. jobs. Contrary to the well agreed-upon fact that trade deficits lead to job loss, the Business Roundtable (BRT) has sponsored a study which claims to show that U.S. goods and services trade (both imports and exports) supported nearly 40 million U.S. jobs in 2013. They achieve these results with a highly distorted model which looks at what would happen if all U.S. exports and imports of goods and services were eliminated “by imposing prohibitive duties against” U.S. goods and service trade.
The silliness of this approach is obvious. The BRT study arrives at its conclusions by assessing how many people would be out of work if the vast majority of workers involved in producing or using traded goods just stopped working. But that’s not how the economy works in the real world. If one assumes away 30 percent of the U.S. economy, one of course assumes away about 30 percent of the jobs. It’s irrelevant to the policy question of whether our trade should be balanced, and it falsely assumes that imports have the same positive employment impacts as exports, when, in fact, imports tend to reduce domestic employment by reducing domestic production.
Using a simple and straightforward macroeconomic model described here, I estimate that the U.S. trade deficit resulted in a net loss of 5.3 million U.S. jobs in 2013. Claims that U.S. trade deficits supported millions of U.S. jobs cannot be justified with any reasonable set of macroeconomic models or assumptions.
The BRT study also claims that two massive, proposed trade and investment deals (the Trans-Pacific Partnership or TPP, and the Transatlantic Trade and Investment Partnership or TTIP) would benefit the U.S. economy. It supports the claim by imagining what would happen if all trade with these countries were eliminated—a proposal no one has made. Any serious debate must focus on how the deals will affect trade at the margin, whether they will do more to stimulate exports or imports, and whether they will increase or decrease U.S. trade deficits. Most other major trade investment deals, including those with Mexico, Korea, and China, have resulted in growing trade deficits and job losses, so the burden of proof is on those who support these deals to show that they will have different outcomes. The study sheds no light on these questions because its assumptions are fatally flawed.
The fact is, the United States had a goods and services trade deficit of approximately $135 billion in 2013 with the European Union and members of the proposed Trans-Pacific Partnership. This trade deficit made up 29.2 percent of the total U.S. trade deficit in 2013, and was responsible for approximately 1.5 million of the total of 5.3 million U.S. jobs displaced by the U.S. trade deficit in 2013.
Right-To-Work Laws: Designed To Hurt Unions and Lower Wages
The fact that unions are responsible for workplace benefits, higher wages, and the right to overtime pay is the very reason Wisconsin Governor Scott Walker, the Koch Bothers, and other corporate interests hate them. Walker hates unions so much he compared them to ISIL terrorists, so it’s no wonder that he and Wisconsin’s Republican legislature are rushing through a “right-to-work” (RTW) bill.
RTW laws were originally designed by business groups in the 1940s to reduce union strength and finances, and over the years they’ve been successful. As Melanie Trotman of the Wall Street Journal pointed out to me this morning, none of the 10 states with the highest rates of unionization are right-to-work. The Illinois Economic Policy Institute calculates that RTW reduces union coverage by 9.6 percentage points, on average. Unsurprisingly, weakening unions leads to lower wages and salaries for union and non-union workers alike. Heidi Shierholz and Elise Gould showed that RTW is associated with a $1,500 reduction in annualized wages, on average, even when the analysis takes into account lower prices in those states. (On average, wages in RTW states are nearly $6,000 less.)
Nevertheless, RTW supporters look at the very recent experience of Michigan and Indiana, which passed RTW laws in 2013 and 2012, respectively, to argue that RTW doesn’t inevitably lead to wage reductions. It’s a misguided argument, since no critic claims that the effects of RTW are immediate: It takes a little time for RTW to reduce dues collections, weaken union finances, undermine organizing, and weaken the bargaining position of workers. The law hasn’t even begun to apply to many contracts in Michigan.
New Data Add Fuel to Arguments Against the Trans-Pacific Partnership
In December I showed that growing trans-Pacific trade deficits would set the stage for growing trade-related job displacement. New data released this month show that the U.S. trade deficit with the countries in the proposed Trans-Pacific Partnership (TPP) increased to an unexpectedly large $265.1 billion in 2014, as shown in the updated graph, below. This increase is further proof that U.S. workers don’t need another job-killing trade deal, which would undoubtedly grow the trade deficit even more.
In addition, new developments are likely to increase opposition to the deal being crafted behind closed doors by negotiators from the United States and 11 other countries. In a remarkable op-ed in the Washington Post, Senator Elizabeth Warren identifies a key way in which the proposed TPP is a dangerous and unnecessary corporate giveaway. The TPP would create special tribunals, or dispute resolution panels, that would allow corporations and foreign investors (but not public interest groups or unions) to challenge U.S. laws “without ever setting foot in a U.S. court.” These deals give corporations special rights to force countries to roll back critical regulations. Right now, for example, Philip Morris is using the process to try force Uruguay to halt new anti-smoking regulations that are designed to improve public health. As Warren concludes, if these dispute panels are included in the final TPP, the only winners will be giant, multinational corporations.
The TPP would also do nothing to combat currency manipulation, which is a major driver of U.S. trade deficits with TPP countries including Japan, Malaysia, and Singapore. Ending currency manipulation could reduce U.S. trade deficits and increase GDP—creating between 2.3 to 5.8 million jobs—but U.S. Trade Representative Froman has said that it has not been discussed in TPP negotiations.
It’s increasingly clear that the TPP, like past trade and investment deals, would be a bad deal for U.S. workers. The president should not try to push this deal through, and Congress should not approve it.
Don’t Be Fooled by the Rise in Real Wages in January
The Bureau of Labor Statistics released Real Earnings for January 2015 today, which lets us look at trends in real (inflation adjusted) wages over the month and year. We shouldn’t be fooled by month-to-month changes in the real hourly earnings series. According to the report, real hourly wages for private nonfarm employees rose 1.2 percent between December 2014 and January 2015, but the series is volatile so we should not read too much into one month trends. Furthermore, month-to-month inflation fell 0.7 percent, which should put those inflation adjusted earnings series into perspective.
Meanwhile, real wages grew 2.4 percent over the year (between January 2014 and January 2015). While on its surface, this bump up may seem like a positive sign, this higher-than-trend number is largely due to deflation over the year, as the CPI-U, or Consumer Price Index for All Urban Consumers, fell 0.2 percent.
Taken another way, wages unadjusted for inflation (i.e., nominal wages) grew 2.2 percent over the year, very much in line with what we’ve seen for the last five years. You can see from the figure below—pulled from EPI’s nominal wage tracker—that nominal wages have been growing around 2.0 percent a year since 2010. January’s rise in nominal wages is not out of line with this trend.
To the policymakers at the Federal Reserve, nominal wage growth should be 3.5-4.0 percent—consistent with inflation plus productivity growth. Given this, it is clear that the Federal Reserve should not take action to slow the economy down. In fact, the labor market and the economy could withstand wage growth even higher than 4 percent, because while profits are still at record highs, labor’s share of corporate sector income has yet to rise in this recovery.
Nominal wage growth has been far below target in the recovery: Year-over-year change in private-sector nominal average hourly earnings, 2007–2015
| All nonfarm employees | Production/nonsupervisory workers | |
|---|---|---|
| Mar-2007 | 3.6427146% | 4.1112455% |
| Apr-2007 | 3.3234127% | 3.8461538% |
| May-2007 | 3.7257824% | 4.1441441% |
| Jun-2007 | 3.8575668% | 4.1267943% |
| Jul-2007 | 3.4482759% | 4.0524434% |
| Aug-2007 | 3.5433071% | 4.0404040% |
| Sep-2007 | 3.2337090% | 4.1493776% |
| Oct-2007 | 3.2778865% | 3.7780401% |
| Nov-2007 | 3.3203125% | 3.8869258% |
| Dec-2007 | 3.1113272% | 3.8123167% |
| Jan-2008 | 3.1067961% | 3.8619075% |
| Feb-2008 | 3.0464217% | 3.7296037% |
| Mar-2008 | 3.0332210% | 3.7746806% |
| Apr-2008 | 2.8324532% | 3.7037037% |
| May-2008 | 3.0172414% | 3.6908881% |
| Jun-2008 | 2.6666667% | 3.6186100% |
| Jul-2008 | 3.0000000% | 3.7227950% |
| Aug-2008 | 3.2794677% | 3.8263849% |
| Sep-2008 | 3.2747983% | 3.6425726% |
| Oct-2008 | 3.3159640% | 3.9249147% |
| Nov-2008 | 3.5916824% | 3.8548753% |
| Dec-2008 | 3.6303630% | 3.8418079% |
| Jan-2009 | 3.5310734% | 3.7183099% |
| Feb-2009 | 3.4725481% | 3.6516854% |
| Mar-2009 | 3.1775701% | 3.5254617% |
| Apr-2009 | 3.2212885% | 3.2924107% |
| May-2009 | 2.8358903% | 3.0589544% |
| Jun-2009 | 2.7365492% | 2.9379157% |
| Jul-2009 | 2.5889968% | 2.7056875% |
| Aug-2009 | 2.4390244% | 2.6402640% |
| Sep-2009 | 2.2977941% | 2.7457441% |
| Oct-2009 | 2.3383769% | 2.6272578% |
| Nov-2009 | 2.0529197% | 2.6746725% |
| Dec-2009 | 1.8198362% | 2.5027203% |
| Jan-2010 | 1.9554343% | 2.6072787% |
| Feb-2010 | 1.8140590% | 2.4932249% |
| Mar-2010 | 1.7663043% | 2.2702703% |
| Apr-2010 | 1.7639077% | 2.4311183% |
| May-2010 | 1.8987342% | 2.5903940% |
| Jun-2010 | 1.7607223% | 2.4771136% |
| Jul-2010 | 1.8476791% | 2.4731183% |
| Aug-2010 | 1.7070979% | 2.4115756% |
| Sep-2010 | 1.8867925% | 2.2447889% |
| Oct-2010 | 1.8817204% | 2.5066667% |
| Nov-2010 | 1.6540009% | 2.1796917% |
| Dec-2010 | 1.7426273% | 2.0169851% |
| Jan-2011 | 1.9625335% | 2.2233986% |
| Feb-2011 | 1.8262806% | 2.1152829% |
| Mar-2011 | 1.8246551% | 2.1141649% |
| Apr-2011 | 1.9111111% | 2.1097046% |
| May-2011 | 2.0408163% | 2.1041557% |
| Jun-2011 | 2.1295475% | 2.0493957% |
| Jul-2011 | 2.2566372% | 2.2560336% |
| Aug-2011 | 1.9434629% | 1.9884877% |
| Sep-2011 | 1.9400353% | 1.9864088% |
| Oct-2011 | 2.1108179% | 1.7169615% |
| Nov-2011 | 2.0228672% | 1.8210198% |
| Dec-2011 | 1.9762846% | 1.8210198% |
| Jan-2012 | 1.7060367% | 1.3982393% |
| Feb-2012 | 1.9247594% | 1.5018125% |
| Mar-2012 | 2.1416084% | 1.7080745% |
| Apr-2012 | 2.0497165% | 1.7561983% |
| May-2012 | 1.7826087% | 1.4425554% |
| Jun-2012 | 1.9548219% | 1.5447992% |
| Jul-2012 | 1.7741238% | 1.3853258% |
| Aug-2012 | 1.8630849% | 1.3340174% |
| Sep-2012 | 1.9896194% | 1.3839057% |
| Oct-2012 | 1.4642550% | 1.2787724% |
| Nov-2012 | 1.8965517% | 1.4307614% |
| Dec-2012 | 2.1102498% | 1.6351559% |
| Jan-2013 | 2.1505376% | 1.8896834% |
| Feb-2013 | 2.1030043% | 2.0408163% |
| Mar-2013 | 1.8827557% | 1.8829517% |
| Apr-2013 | 1.9658120% | 1.7258883% |
| May-2013 | 2.0504058% | 1.8791265% |
| Jun-2013 | 2.1729868% | 2.0283976% |
| Jul-2013 | 1.9132653% | 1.9736842% |
| Aug-2013 | 2.2118248% | 2.1265823% |
| Sep-2013 | 2.0356234% | 2.1739130% |
| Oct-2013 | 2.2495756% | 2.2727273% |
| Nov-2013 | 2.1573604% | 2.2670025% |
| Dec-2013 | 1.9401097% | 2.3127200% |
| Jan-2014 | 1.9789474% | 2.2055138% |
| Feb-2014 | 2.1017234% | 2.4500000% |
| Mar-2014 | 2.1419572% | 2.2977023% |
| Apr-2014 | 1.9698240% | 2.2954092% |
| May-2014 | 2.0510674% | 2.3928215% |
| Jun-2014 | 1.9599666% | 2.2862823% |
| Jul-2014 | 2.0442219% | 2.2828784% |
| Aug-2014 | 2.1223471% | 2.4789291% |
| Sep-2014 | 1.9950125% | 2.2761009% |
| Oct-2014 | 1.9510170% | 2.2222222% |
| Nov-2014 | 1.9461698% | 2.1674877% |
| Dec-2014 | 1.6549441% | 1.6216216% |
| Jan-2015 | 2.1982742% | 1.9607843% |
* Nominal wage growth consistent with the Federal Reserve Board's 2 percent inflation target, 1.5 percent productivity growth, and a stable labor share of income.
Source: EPI analysis of Bureau of Labor Statistics Current Employment Statistics public data series
Obama Has Options on Immigration: Litigation Will Delay Executive Actions, But Won’t Stop Them
Twenty-six states, led by Texas, have convinced federal district court Judge Andrew Hanen to temporarily enjoin two important executive immigration actions—DAPA and the expansion of DACA—which President Obama announced in November of last year. DAPA is the “Deferred Action for Parental Accountability” initiative, which would grant a temporary reprieve from deportation, along with work authorization (known as an employment authorization document or “EAD”) for up to 3.7 million unauthorized immigrants if they have been present in the United States since 2010, are not an enforcement priority, and are the parent of a child who is a U.S. citizen or legal permanent resident. DACA is “Deferred Action for Childhood Arrivals,” announced in 2012, which grants similar relief from deportation and an EAD, but was created to protect younger unauthorized immigrants who entered the United States as minors. The original version of DACA from 2012 is not at issue in the litigation—only the expansion of DACA announced by the president, which could cover an estimated additional 300,000 persons.
I do not believe the 26 states will win on the merits of the case—either in the Fifth Circuit Court of Appeals or at the U.S. Supreme Court—and thereby end DAPA or expanded DACA, though some scholars and lawyers are arguing that they will. But it’s important to be clear about what Judge Hanen’s ruling means exactly. First, he ruled that states like Texas were likely to be harmed by the DAPA and expanded DACA initiatives because of the costs imposed on states by federal requirements when states issue driver’s licenses to unauthorized immigrants. Because of this potential harm, which could be redressed by the court ruling to stop DAPA/expanded DACA, Judge Hanen reasoned the states had standing to sue the government. Then, his legal reasoning justifying the injunction—which halts DAPA and expanded DACA while the merits of the case are litigated—was based on the states’ complaint that the government failed to comply with certain procedural rules in the Administrative Procedure Act (APA) when creating DAPA/expanded DACA. Because Judge Hanen believes the states are likely to win on their APA claim, he halted the government’s future implementation of DAPA and expanded DACA.
Judge Hanen’s opinion does not enjoin the Department of Homeland Security’s (DHS) immigration enforcement priorities or other executive immigration actions announced on November 20, 2014. Only the affirmative application process for deferred action under DAPA and expanded DACA are temporarily halted from getting underway. Yet even if the states ultimately prevail on the merits of their claims, it will only be a temporary victory, because the president has alternative means available to him that are legal and would achieve all or most of the goals of his DACA and expanded DACA initiatives. Read more
Wages Stagnated or Fell Across the Board in 2014—With One Notable Exception
Yesterday, I released a report that looked at the most recent reliable data on Americans’ wages—by decile and by educational attainment, through 2014. These data are illuminating, because they let us look beneath the hood on the overall wage story, going beyond the topline trends that are usually covered by the media.
The recovery has entered a period of solid job growth. That good news shouldn’t be overstated—if we continue to see 2014’s average rate of job growth, it will still be 2017 before we return to pre-recession labor market health—but the economy has been adding jobs at a respectable clip. However, decent wage growth has yet to be seen.
From 2013 to 2014, real, inflation-adjusted hourly wages stagnated or fell across the board, with one notable, revealing exception.
Let’s start at the top of the wage distribution: those workers with the most education and the highest wages. Over the last year, real wages at the top of the wage distribution fell—by 0.7 percent at the 90th percentile and 1.0 percent at the 95th percentile. Real wages fell for workers with a 4-year college degree—a drop of 1.3 percent—and even more for those workers with an advanced degree—a decline of 2.2 percent. This sends a clear message: If even these groups of highly educated workers facing the lowest rates of unemployment are seeing outright wage declines, there is clearly lots of slack left in the American labor market, and policymakers—particularly the Federal Reserve—should not try to slow the recovery down in an effort to keep wage and price inflation in check. They’re both already firmly in check even for the most privileged workers.