Information Technology Agreement is Another Job Killer
This week, U.S. Trade Representative Michael Froman announced a “breakthrough” agreement between the United States and China to expand the World Trade Organization’s (WTO) Information Technology Agreement (ITA), which eliminates tariffs among 54 countries in high-tech products. Froman enthusiastically noted that the ITA was last amended in 1996, when “most of the GPS technology… [and] high-tech gadgetry that we rely on in our lives didn’t even exist.” The United States has a massive and rapidly growing trade deficit in computers and electronic products and related electronic “gadgets.” The proposed expansion of the Information Technology Agreement will open the door to a massive increase in job-destroying imports of Chinese high-tech products.
The U.S. trade deficit in computers and parts increased from $19.9 billion before China entered the WTO in 2001, to an estimated $160 billion in 2014, as shown in the figure below. Job-destroying imports exceed job-supporting exports in this industry by more than 15 to 1. Further opening of the U.S. market to Chinese high tech products will cost hundreds of thousands of jobs. Growing U.S. trade deficits in computers and electronic products eliminated more than 1 million U.S. jobs between 2001 and 2011 alone. Currency manipulation by China (and other countries) acts as a subsidy to all of China’s exports of computers and other products, and as a tax on U.S. exports to China, and every country where U.S. firms compete with Chinese products. Froman is giving away access to U.S. hi-tech markets and seems unaware that the U.S. computer manufacturing and parts industry has been decimated by cheap, subsidized Chinese imports.
Is Even EPI Too Cautious on Wage Growth? Goldman Sachs Seems to Think So
The macroeconomic policy question du jour is when will the Federal Reserve begin raising short-term interest rates to slow economic recovery and reduce inflationary pressures? We at EPI have been pretty clear on when they should do this: not until wage-growth is much, much stronger.
Since the economic channel through which raising rates stems inflationary pressures is slower job growth, leading to a reduction in workers’ bargaining power and reduced wage growth, this makes data on what is actually happening to wage growth crucially important to Fed decision making.
EPI economists have been tracking this a lot recently and have shown how the Fed’s target for overall price inflation (2 percent) is consistent with wage growth of at least 3.5 percent. We calculate this simply by noting that trend productivity growth is likely at least 1.5 percent and pointing out that it takes wages costs in excess of productivity growth to spur any upward pressure on prices at all. We’ve also noted that the very large decline in the overall share of national income going to labor compensation (see Figure G here) means that the economy could afford an extended period of wage growth outpacing the sum of productivity and price inflation, to allow labor income to claw back some gains it lost to capital owners earlier in the recovery.
Yesterday, the macroeconomic team at Goldman Sachs implicitly argued that this 3.5-4 percent wage growth target is too cautious. In a research note released today (no link available, sorry), they argue that trend productivity growth in the non-farm business sector is 2 percent or higher, not 1.5.
Now, you need to discount a little of this (roughly 0.2 percentage points) to translate productivity in the non-farm business sector to total economy productivity, but the fact remains that even extraordinarily cautious estimates of labor productivity growth (i.e., ours) still means that wage-growth could almost double from today’s levels for an extended period before it puts enough upward pressure on wages to force the Fed to act.
Education Policy is Civil Rights Policy
In an article just published in the journal Race and Social Policy, I reviewed why education policy is inseparable from civil rights policy. Failure to recognize this connection is the greatest impediment to improving the academic performance of disadvantaged African American and other minority and low-income children.
For years now, education policymakers and advocates have attempted to close the black-white achievement gap by reforming schools. The primary vehicles have been greater accountability for schools and teachers, higher expectations for students, deregulation and semi-privatization by charter schools, and more recently, curricular reform with the Common Core.
All efforts, however, have come up short. The racial achievement gap remains.
Little-Known Temporary Visas for Foreign Tech Workers Depress Wages
At least 650,000 college-educated temporary foreign workers are employed in the United States through the H-1B visa program, mostly in the high-tech industry. The H-1B is a well-known guestworker program that is inadequately—but at least minimally—regulated, with an annual limit and a requirement that employers pay a “prevailing” wage. Other visa programs, like the L-1 and the F-1 Optional Practical Training (OPT) program, have almost no rules and receive little scrutiny, but are used to employ hundreds of thousands of foreign tech workers. Behind the scenes, the tech industry is pushing President Obama to expand them both as part of executive actions he’s considering on immigration. He should resist.
Here We Go Again: The Polluters and Poisoners Gear Up for the Next Congress
Twenty years ago, the radical wing of the Republican Party announced its “Contract With America,” a set of policies and actions Rep. Newt Gingrich and his caucus pledged to accomplish if they were elected to a majority in Congress. The Contract included eight internal reforms to change congressional operations (things like applying labor laws to Congress and putting term limits on committee chairmen) and ten bills affecting national policy that would be brought to the floor and voted on within the first 100 days of the new Congress.
Gingrich’s early battles ultimately ended in victory for the public and for the environmental and consumer protections he wanted to undo. Gingrich’s bills were made worse as they moved through committee and were amended in the House and Senate, finally resulting in what one senior Republican Senate staffer called “a revolution”—a system that would allow any corporation to escape enforcement through legal or procedural loopholes. Every regulation would be effectively voluntary, and the polluters and producers of unsafe products would have nothing to fear from the EPA, the Consumer Product Safety Commission, OSHA, or any other regulatory agency.
The vehicle for this revolution was one of the first bills considered and passed in the House in 1995, “The Job Creation and Wage Enhancement Act.” Its goal was to subject federal regulations—regardless of statutory mandates to the contrary—to new risk assessment and cost-benefit analysis requirements and to create multiple opportunities for businesses to block federal rules and interfere with their enforcement. Big chemical and pharmaceutical manufacturers didn’t want clean water laws interfering with their profits, the meat industry wanted to prevent new rules about bacteria and contamination, and construction companies didn’t want to have to comply with new workplace safety standards. The legislation would have stopped new rules in their tracks.
Jobs Growth Far from Strong: It Will Be 2018 Before the Economy Looks like 2007
What adjective should we use when we talk about job growth of 214,000 in October? Is it strong, weak, solid? Is it enough? Enough for what?
Take an amble with me through some calculations. If you don’t care to take a walk, the punchline is that if we extrapolate this rate of jobs growth into the future, it will be 2018 before we return to a labor market resembling the one we had before the recession began.
Now for the math. Employment fell dramatically through the recession and its aftermath. The economy has been consistently adding jobs over the last four and a half years. But, we are still experiencing a 6.1 million job shortfall. That’s the amount of jobs needed to keep up with the growth in the potential labor force, shown in the figure below.
Keep the Jobs Coming! People of Color Have Actually Benefited More from Job Growth This Year
Today’s jobs report from the Bureau of Labor Statistics shows that payroll employment has increased by more than 200,000 jobs for nine consecutive months (since February 2014) and the average rate of growth this year has been 232,000 jobs per month, compared to 197,000 jobs per month over the same period last year.
At this stage in the recovery, these numbers demonstrate an important point about the importance of pursuing full employment in lowering unemployment among people of color. The point to be made here is that the longer the economy continues to add jobs, the greater the impact on labor market outcomes for people of color. Over the past twelve months (since October 2013), African Americans and Hispanics have seen larger relative improvements than whites in all the major labor market indicators— unemployment rate, labor force participation, and employment-population (EPOP) ratio. And, most if not all of those improvements have taken place this year (since January 2014). The following chart shows these relative changes over the period of interest.
Starting with the unemployment rate, whites have seen a 1.5 percentage point decline since October 2013, compared to 2.1 and 2.2 percentage points for African Americans and Latinos, respectively. While improvements in the unemployment rate can be distorted by people leaving the labor force, this has not been the case for people of color. The labor force participation rates for African Americans and Latinos have increased over the past year, but declined for whites. In fact, as whites have left the labor force at a higher rate since January 2014, African Americans have entered at a greater rate.
Percentage-point change in unemployment rate, labor force participation rate, and employment-to-population ratio, by race and ethnicity, Oct. 2013–Oct. 2014
| Measure | Race/ethnicity | Oct. 2013–Oct. 2014 | Jan. 2014–Oct. 2014 |
|---|---|---|---|
| Unemployment rate | White | -1.5 | -0.9 |
| Black | -2.1 | -1.2 | |
| Hispanic | -2.2 | -1.6 | |
| Labor force participation rate | White | -0.1 | -0.5 |
| Black | 0.6 | 0.9 | |
| Hispanic | 0.7 | 0.3 | |
| Employment-to-population ratio | White | 0.9 | 0.2 |
| Black | 1.8 | 1.5 | |
| Hispanic | 2.2 | 1.3 |
Source: EPI analysis of Current Population Survey public data series
Sluggish Wage Growth Not Surprising Given the Slack in the Labor Market
The top line story coming out of today’s jobs report should be about wages. Nominal wage growth remains sluggish—far too slow to set a time frame for raising interest rates, or even start a conversation about it. For more on that, see the most recent monthly wages figure and quarterly data and this explainer.
Job growth, meanwhile, has been solid, but not strong. The unemployment rate is still slowly moving in the right direction. But, we are still far from the economy we had before the great recession began. At the rate jobs were added in October (214,000), it will be 2018 before we return to 2007 normalcy.
The employment-to-population ratio for prime-age workers is a great measure of the economy—and a favorite of my predecessor—which captures a variety of different labor market components. The employment-to-population ratio (or EPOP) is simply the share of the population with a job. This allows us to sidestep the issue of whether potential workers are in the labor force—though we know there are still a lot of missing workers out there (5.75 million at last count). Also, when we restrict our attention to prime-age workers (25-54 years old), it serves the important purpose of avoiding confounding changes in employment that are not due to labor market conditions, but are instead due to longer-run structural factors, such as baby boomers hitting retirement age.
From the figure below, it is clear that jobs are returning—EPOPs have been on the rise. Growing shares of prime-age workers are getting jobs. That is good news, but it’s clear how far we have to go—look at the sharp drop in the EPOP during the great recession. Then, it is clear that we are slowing climbing out, but we have far to go.
Economy Adds Jobs but We Need to Raise America’s Pay
In the BLS report this morning, overall jobs numbers were solid and the unemployment rate continued to show signs of improvement. However, the unfortunate downside of this morning’s release is that wage growth has continued to be sluggish. Average hourly earnings of all employees on nonfarm payrolls and average hourly earnings of production and nonsupervisory employees on private nonfarm payrolls saw 2.0 percent and 2.2 percent growth, respectively, over this last year.
Despite fears from some inflation hawks, the fact is that the weak labor market of the last seven years has put enormous downward pressure on wages, and there has been no significant pickup in nominal wage growth in recent years. Wage growth is far below the 3.5 percent rate consistent with the Federal Reserve Board’s inflation target of 2 percent, and far below the 4 percent rate that could easily be absorbed for a while to restore labor’s share of national income from its current historic lows.
This lackluster wage growth is a clear indicator that there’s still considerable slack in the labor market. With so many Americans looking for work—and millions more who would be looking for work if job opportunities were stronger—employers simply don’t have to offer wage increases to get and keep the workers they need. It’s a positive sign that the economy is growing, but it’s simply not enough for workers to feel the effects in their paychecks.
Year-over-year change in nominal average hourly earnings of all private nonfarm employees and private production/nonsupervisory workers, 2007–2014
| Month | All private employees | Production/nonsupervisory workers |
|---|---|---|
| Mar-2007 | 3.6% | 4.1% |
| Apr-2007 | 3.3% | 3.8% |
| May-2007 | 3.7% | 4.1% |
| Jun-2007 | 3.9% | 4.1% |
| Jul-2007 | 3.4% | 4.1% |
| Aug-2007 | 3.5% | 4.0% |
| Sep-2007 | 3.2% | 4.1% |
| Oct-2007 | 3.3% | 3.8% |
| Nov-2007 | 3.3% | 3.9% |
| Dec-2007 | 3.1% | 3.8% |
| Jan-2008 | 3.1% | 3.9% |
| Feb-2008 | 3.0% | 3.7% |
| Mar-2008 | 3.0% | 3.8% |
| Apr-2008 | 2.8% | 3.7% |
| May-2008 | 3.0% | 3.7% |
| Jun-2008 | 2.7% | 3.6% |
| Jul-2008 | 3.0% | 3.7% |
| Aug-2008 | 3.3% | 3.8% |
| Sep-2008 | 3.3% | 3.6% |
| Oct-2008 | 3.3% | 3.9% |
| Nov-2008 | 3.6% | 3.9% |
| Dec-2008 | 3.6% | 3.8% |
| Jan-2009 | 3.5% | 3.7% |
| Feb-2009 | 3.5% | 3.7% |
| Mar-2009 | 3.2% | 3.5% |
| Apr-2009 | 3.2% | 3.3% |
| May-2009 | 2.8% | 3.1% |
| Jun-2009 | 2.7% | 2.9% |
| Jul-2009 | 2.6% | 2.7% |
| Aug-2009 | 2.4% | 2.6% |
| Sep-2009 | 2.3% | 2.7% |
| Oct-2009 | 2.3% | 2.6% |
| Nov-2009 | 2.1% | 2.7% |
| Dec-2009 | 1.8% | 2.5% |
| Jan-2010 | 2.0% | 2.6% |
| Feb-2010 | 1.8% | 2.5% |
| Mar-2010 | 1.8% | 2.3% |
| Apr-2010 | 1.8% | 2.4% |
| May-2010 | 1.9% | 2.6% |
| Jun-2010 | 1.8% | 2.5% |
| Jul-2010 | 1.8% | 2.5% |
| Aug-2010 | 1.7% | 2.4% |
| Sep-2010 | 1.9% | 2.2% |
| Oct-2010 | 1.9% | 2.5% |
| Nov-2010 | 1.7% | 2.2% |
| Dec-2010 | 1.7% | 2.0% |
| Jan-2011 | 2.0% | 2.2% |
| Feb-2011 | 1.8% | 2.1% |
| Mar-2011 | 1.8% | 2.1% |
| Apr-2011 | 1.9% | 2.1% |
| May-2011 | 2.0% | 2.1% |
| Jun-2011 | 2.1% | 2.0% |
| Jul-2011 | 2.3% | 2.3% |
| Aug-2011 | 1.9% | 2.0% |
| Sep-2011 | 1.9% | 2.0% |
| Oct-2011 | 2.1% | 1.7% |
| Nov-2011 | 2.0% | 1.8% |
| Dec-2011 | 2.0% | 1.8% |
| Jan-2012 | 1.7% | 1.4% |
| Feb-2012 | 1.9% | 1.5% |
| Mar-2012 | 2.1% | 1.7% |
| Apr-2012 | 2.0% | 1.8% |
| May-2012 | 1.8% | 1.4% |
| Jun-2012 | 2.0% | 1.5% |
| Jul-2012 | 1.8% | 1.4% |
| Aug-2012 | 1.9% | 1.3% |
| Sep-2012 | 2.0% | 1.4% |
| Oct-2012 | 1.5% | 1.3% |
| Nov-2012 | 1.9% | 1.4% |
| Dec-2012 | 2.1% | 1.6% |
| Jan-2013 | 2.2% | 1.9% |
| Feb-2013 | 2.1% | 2.0% |
| Mar-2013 | 1.9% | 1.9% |
| Apr-2013 | 2.0% | 1.7% |
| May-2013 | 2.1% | 1.9% |
| Jun-2013 | 2.2% | 2.0% |
| Jul-2013 | 1.9% | 2.0% |
| Aug-2013 | 2.2% | 2.1% |
| Sep-2013 | 2.0% | 2.2% |
| Oct-2013 | 2.2% | 2.3% |
| Nov-2013 | 2.2% | 2.3% |
| Dec-2013 | 1.9% | 2.3% |
| Jan-2014 | 2.0% | 2.2% |
| Feb-2014 | 2.1% | 2.5% |
| Mar-2014 | 2.1% | 2.3% |
| Apr-2014 | 2.0% | 2.3% |
| May-2014 | 2.1% | 2.4% |
| Jun-2014 | 2.0% | 2.3% |
| Jul-2014 | 2.0% | 2.3% |
| Aug-2014 | 2.1% | 2.5% |
| Sep-2014 | 2.0% | 2.2% |
| Oct-2014 | 2.0% | 2.2% |
Note: Wage target consistent with Federal Reserve Board's 2 percent inflation target and 1.5% labor productivity growth assumption. Light shaded area denotes recession.
Source: Authors' analysis of Bureau of Labor Statistics' Current Employment Statistics, public data series.
What to Watch on Jobs Day: Nominal Hourly Earnings
On Friday, the Bureau of Labor Statistics will release the October numbers on employment, unemployment, and nominal wages. Consensus forecasts are that that unemployment rate will hold steady, while total employment continues to rise, likely adding over 200,000 jobs. If job growth continues on this trajectory, it will likely keep on the front burner debates over just how much “slack” remains in the labor market, and whether the Federal Reserve should begin raising rates sooner or later.
But the most reliable indicator of slack at this point is not employment growth or unemployment—it’s the nominal wage series. The numbers on nominal wage growth from the Employment Situation, and other related government data, are likely to be the single most important indicator driving the Fed’s decisions in coming months.
Despite fears from some inflation hawks, the fact is that the weak labor market of the last seven years has put enormous downward pressure on wages, and there has been no significant pickup in nominal wage growth in recent years.
The figure below shows year over year nominal wage growth from a variety of data sources.
Quarterly wage series, 2000Q1–2014Q3
| Average hourly earnings of production/nonsupervisory workers | Average hourly earnings of all private employees | CPS-ORG median* | ECI, wages and salaries, all private workers | ECEC, wages and salaries, all private workers | |
|---|---|---|---|---|---|
| Jan-2000 | 3.7% | ||||
| Apr-2000 | 3.8% | ||||
| Jul-2000 | 3.8% | ||||
| Oct-2000 | 4.2% | ||||
| Jan-2001 | 4.1% | ||||
| Apr-2001 | 4.0% | ||||
| Jul-2001 | 3.7% | ||||
| Oct-2001 | 3.3% | ||||
| Jan-2002 | 3.0% | 3.5% | |||
| Apr-2002 | 2.7% | 3.6% | |||
| Jul-2002 | 2.9% | 3.1% | |||
| Oct-2002 | 3.1% | 2.6% | |||
| Jan-2003 | 3.2% | 2.9% | |||
| Apr-2003 | 2.9% | 2.4% | |||
| Jul-2003 | 2.6% | 2.9% | |||
| Oct-2003 | 2.0% | 3.1% | |||
| Jan-2004 | 1.7% | 2.6% | |||
| Apr-2004 | 2.0% | 2.8% | |||
| Jul-2004 | 2.1% | 2.6% | |||
| Oct-2004 | 2.5% | 2.6% | |||
| Jan-2005 | 2.6% | 2.7% | 3.1% | ||
| Apr-2005 | 2.6% | 2.5% | 3.0% | ||
| Jul-2005 | 2.7% | 2.3% | 1.6% | ||
| Oct-2005 | 3.0% | 2.5% | 2.9% | ||
| Jan-2006 | 3.4% | 2.5% | 3.4% | ||
| Apr-2006 | 3.9% | 2.8% | 3.3% | ||
| Jul-2006 | 4.1% | 3.1% | 4.7% | ||
| Oct-2006 | 4.1% | 3.2% | 3.4% | ||
| Jan-2007 | 4.1% | 3.5% | 3.4% | ||
| Apr-2007 | 4.0% | 3.6% | 3.4% | 3.1% | |
| Jul-2007 | 4.1% | 3.4% | 3.3% | 2.1% | |
| Oct-2007 | 3.8% | 3.2% | 3.3% | 3.1% | |
| Jan-2008 | 3.8% | 3.1% | 3.2% | 3.1% | |
| Apr-2008 | 3.7% | 2.8% | 3.1% | 3.3% | |
| Jul-2008 | 3.7% | 3.2% | 2.9% | 3.9% | |
| Oct-2008 | 3.9% | 3.5% | 2.6% | 3.7% | |
| Jan-2009 | 3.6% | 3.4% | 1.8% | 2.0% | 2.9% |
| Apr-2009 | 3.1% | 2.9% | 1.3% | 1.6% | 2.5% |
| Jul-2009 | 2.7% | 2.4% | 1.2% | 1.4% | 1.6% |
| Oct-2009 | 2.6% | 2.1% | 1.4% | 1.4% | 0.2% |
| Jan-2010 | 2.5% | 1.8% | 1.0% | 1.5% | 0.7% |
| Apr-2010 | 2.5% | 1.8% | 0.8% | 1.6% | 0.7% |
| Jul-2010 | 2.4% | 1.8% | 0.4% | 1.6% | 1.2% |
| Oct-2010 | 2.2% | 1.8% | -0.1% | 1.7% | 1.2% |
| Jan-2011 | 2.2% | 1.9% | -0.2% | 1.6% | 1.4% |
| Apr-2011 | 2.1% | 2.0% | 0.2% | 1.6% | 1.4% |
| Jul-2011 | 2.1% | 2.0% | 0.7% | 1.7% | 1.2% |
| Oct-2011 | 1.8% | 2.0% | 0.6% | 1.6% | 2.5% |
| Jan-2012 | 1.5% | 1.9% | 0.6% | 1.9% | 2.0% |
| Apr-2012 | 1.6% | 1.9% | 1.6% | 1.8% | 2.3% |
| Jul-2012 | 1.4% | 1.9% | 1.5% | 1.8% | 2.3% |
| Oct-2012 | 1.4% | 1.8% | 1.8% | 1.8% | 0.9% |
| Jan-2013 | 1.9% | 2.0% | 2.8% | 1.7% | 1.1% |
| Apr-2013 | 1.9% | 2.1% | 2.3% | 1.9% | 1.0% |
| Jul-2013 | 2.1% | 2.1% | 2.3% | 1.9% | 0.9% |
| Oct-2013 | 2.3% | 2.1% | 2.0% | 2.0% | 2.2% |
| Jan-2014 | 2.3% | 2.1% | 1.5% | 1.7% | 2.4% |
| Apr-2014 | 2.3% | 2.0% | 0.4% | 1.9% | 2.7% |
| Jul-2014 | 2.3% | 2.0% | 0.7% | 2.2% |
Note: Wage target consistent with Fed 2% inflation target and 1.5% productivity growth assumption. CPS-ORG median is a six-month moving average.
Source: Author's analysis of Bureau of Labor Statistics' Current Establishment Survey, Current Population Survey (CPS), Total Economy Productivity (unpublished), Employment Cost Index (ECI), and Employment Costs for Employee Compensation (ECEC).
As you can see in the figure, even quarterly wage measures exhibit a fair amount of volatility. Taken together, however, it is clear that wage growth is far below the 3.5 percent rate consistent with the Federal Reserve Board’s inflation target of 2 percent, and far below 4 percent rate that could easily be absorbed for a while to restore labor’s share of national income from its current historic lows. It’s clear that Fed policymakers should continue its low interest rate policy until the wage data really turns around. For a longer analysis of the Fed target and what to watch for in upcoming months on wage growth, see this earlier explainer. On Friday, we will continue to track any changes in monthly nominal wages and put them in broader economic context.