Wage Growth Continues to be Sluggish
While the BLS reported positive overall jobs numbers for September, one notable downside of this morning’s release is that wages grew not at all in the last month. Average hourly earnings of all employees on nonfarm payrolls were little changed (a one cent decline) and average hourly earnings of production and nonsupervisory employees on private nonfarm payrolls saw zero growth. That said, I’d caution reading too much into one month’s numbers because monthly changes can be volatile and longer term trends are more indicative of the overall health of the economy. The fact is that wage growth for both series has been hovering just above 2 percent over the last year.
As shown in the figure below, wage growth is far below the 3.5 percent rate consistent with the Federal Reserve Board’s inflation target of 2 percent. It’s clear that Fed policymakers should abandon notions of slowing the economy. (For a longer analysis of what to watch for in upcoming months on wage growth, see this explainer.)
Walton Family Net Worth is a Case Study Why Growing Wealth Concentration Isn’t Just an Academic Worry
Earlier this year, economist Thomas Piketty caused a stir with a book arguing that the future in advanced economies could see a relentless concentration of wealth among a small sliver of families, whose fortunes would increasingly dwarf those of the typical citizen. The last couple of weeks have seen the release of a couple of key barometers of wealth inequality in America, and combining them, it’s easy to see that this hypothesis of ever-concentrating wealth seems likely indeed. In the past month, the Federal Reserve released its triennial Survey of Consumer Finance (SCF) for 2013, while Forbes magazine released their annual list of the 400 wealthiest Americans.
The SFC is the most comprehensive and high-quality measure of Americans’ wealth up and down the distribution. It makes a special effort to sample very high wealth American households, but actually explicitly excludes listed members of the Forbes 400 (for reasons of confidentiality). The Forbes 400, as is well known, puts a dollar value on the net worth of the 400 wealthiest Americans. There is plenty of material in these releases to assess the current state of wealth inequality in America.
Take one example, that we’ve calculated before: comparing the family wealth of six of the wealthiest members of the Walton family (reported at just under $145 billion in 2013) with the number of American families that you could add together and still have their net worth come in less than the 6 Walton heirs: 52.5 million, or 42.9 percent of American families.
Some have objected to this statistic on the grounds that the negative net worth families (11.5 percent of all American families) somehow shouldn’t count in this calculation. So, try another statistic: how many families that held the median wealth would you need to add together to equal the holdings of the six Walton heirs: more than 1.7 million. The median wealthholder in the United States, remember, has more wealth than half of all American families and less wealth than half (around $81,200 in 2013).
So, what this statistic means is that you’d essentially need a large city’s worth of these typical American families to equal the wealth of the six Walton heirs. And this number has grown steadily over time, as the figure below shows. The falling wealth of the median family (driven largely by the housing bubble burst) and the steadily rising wealth at the very top—including the Walton heirs—have combined to make the gap between them larger and larger over time.
Myths and Facts about Corporate Taxes, Part 1: Do American Corporations Pay the Highest Taxes in the World?
It’s become conventional wisdom that American corporate tax rates are the highest in the developed world, leaving American businesses at a competitive disadvantage—and that the only solution is fundamental tax reform (a phrase used by both Republicans and Democrats). Just yesterday, the Washington Post reported offhandedly that U.S. businesses “currently labor under the highest corporate tax rate in the developed world.” The fact is there are a lot of myths about the corporate tax code—myths that are repeated by corporations that stand to benefit from them. So, let’s look at the facts.
Myth: American corporations pay more in taxes than their competitors in any other country.
Fact: Any claim that the United States has the highest corporate tax rate in the world should be accompanied by a clarification that the rate American companies actually pay, on average, is comparable to what their foreign competitors pay.
Yes, the tax rates on the books (the “statutory” rates) in the United States are high relative to our international peers, but the U.S. corporate tax code has become so riddled with loopholes—and American corporations so adept at exploiting them—that the total amount of taxes actually paid by U.S. corporations (the “effective” corporate tax rate) is far less.
The Government Accountability Office found that large, profitable American corporations pay an effective rate of less than 13 percent in U.S. federal taxes; when state and foreign taxes are included, the rate only increases to 17 percent—a far cry from the statutory 39 percent. Meanwhile, the Congressional Research Service found that the effective rate here is nearly identical to the weighted average of corporate taxes in the world’s other most developed economies. (EPI’s Thomas Hungerford found the same thing.)
What to Watch on Jobs Day: Nominal Wages, Teacher Gap, and Upward Revisions
Tomorrow, the Bureau of Labor Statistics will release the September numbers on employment, unemployment, and nominal wages. While the report contains a host of data, there are three particular numbers I’m going to be watching closely.
First, the overall employment numbers from the payroll survey were lower than expected last month. Consensus estimates had projected job growth of about 230,000, but they came in at only 142,000. The consensus so far for September is again in the low 200,000s. So, two key things to watch: whether there are any upward revisions to the August employment numbers and whether the September numbers come in below consensus two months in a row. Last month, I suggested that slow job growth should make those arguing that policymakers need to worry about an overheating economy and inflationary pressures reconsider. Tomorrow, we will get some more information that can inform the question of whether we are at a new lower trend, which I hope not, or whether last month was a blip in a jobs picture that has otherwise been consistent for much of this year.
Second, with kids heading back to the classroom, it’s worth re-examining the teacher gap—the gap between actual local public education employment and what is needed to keep up with growth in the student population. During the recession, thousands of local public education jobs were lost, and those losses continued deep into the official economic recovery (as did public sector jobs in general). The costs of a significant teacher gap are measurable: larger class sizes, fewer teacher aides, fewer extracurricular activities, and changes to the curriculum. And, in sheer numbers, the teacher gap can explain a non-trivial part of the overall jobs gap. On Friday, I will compare where jobs in public education should be, using the precession ratio, student population growth, and the most recent jobs numbers.
Third, I’ll continue to track nominal wages. Last month, Josh Bivens and I explained how very far we are from the kind of wage growth that would suggest that the Federal Reserve can put the brakes on the economy. On Friday, we will put the latest nominal wage trends in perspective, both historically and against target level wage growth. These numbers on nominal wage growth are likely to be the single most important indicator in coming months driving Federal Reserve decisions.
What’s Up (or Down) With the Boomers’ Retirement Savings?!
The recent release of the Federal Reserve’s triennial Survey of Consumer Finances has many retirement researchers scratching their heads. As expected, GenXers’ savings (shaded blue lines in Figure 1) benefited from the rebound in stock prices and the economic recovery. Meanwhile, Silent Generation retirees (dashed red and yellow lines) saw a surprisingly large bounce in retirement savings. But Baby Boomers (solid purple, black and green lines) who were approaching retirement when the housing bubble burst saw weak gains or even losses between 2010 and 2013. Those who were born between 1949 and 1954, for example, saw a decline in mean retirement account savings from $176,000 in 2010 to $167,000 in 2013 (values are in 2013 dollars rounded to the nearest $1,000). This is far below the $199,000 their predecessors—older Boomers born between 1943 and 1948—had accumulated at the same age in 2007.
It’s not news that the Boomers’ retirement savings took a hit during the downturn. What’s more surprising is that they have fared so poorly in the recovery compared to younger workers and retirees. One explanation is simply that the Boomers, unlike older retirees, were hit by both the stock and labor market downturns and didn’t benefit as much from the subsequent rebound in stock prices as younger workers who were heavily invested in stocks through target date funds.
Mean retirement account balances by birth cohort , 1989–2013
| 1931–1936 | 1937–1942 | 1943–1948 | 1949–1954 | 1955–1960 | 1961–1966 | 1967–1972 | 1973–1978 | |
|---|---|---|---|---|---|---|---|---|
| 1989 | $56,383 | $44,937 | $30,369 | $27,428 | $7,419 | |||
| 1992 | $68,060 | $75,678 | $44,749 | $22,920 | $12,552 | $7,176 | ||
| 1995 | $64,254 | $90,781 | $75,262 | $50,090 | $22,642 | $16,480 | ||
| 1998 | $113,886 | $114,908 | $91,373 | $64,166 | $48,084 | $29,458 | $11,059 | |
| 2001 | $124,634 | $162,156 | $155,809 | $91,203 | $75,722 | $40,706 | $18,841 | |
| 2004 | $111,834 | $149,322 | $158,827 | $128,848 | $81,818 | $54,205 | $27,100 | $11,640 |
| 2007 | $109,709 | $164,654 | $199,218 | $161,187 | $114,482 | $69,036 | $41,928 | $18,436 |
| 2010 | $80,091 | $138,102 | $209,317 | $175,697 | $138,713 | $85,454 | $48,472 | $25,864 |
| 2013 | $88,944 | $168,828 | $214,277 | $166,597 | $154,630 | $103,838 | $75,433 | $46,593 |
Source: EPI's analysis of the Federal Reserve's Survey of Consumer Finance
TIP: For apples-to-apples comparisons, look at how successive 6-year birth cohorts fared at 6-year intervals (2013, 2007, and 2001), ignoring intervening surveys.
LA Hotel Workers Win $15.37 Minimum Wage: a New Day for Labor in the United States?
The Los Angeles City Council’s vote to raise the minimum wage for hotel workers is another herald of big changes coming in the way the United States deals with low wages and inequality. The Council voted 12 to 3 to raise the minimum wage for workers at large hotels to $15.37 an hour by 2017, which is more than the national median wage for women ($15.10 in 2013). Mayor Eric Garcetti will sign the bill after it receives a confirming second vote next week.
The LA County AFL-CIO, UNITE HERE Local 11 (the LA area union of hospitality workers), and the Los Angeles Alliance for a New Economy, which led the campaign, don’t intend to rest on their laurels and will push for an across-the-board minimum wage increase to $13.25 an hour, far above the national minimum wage of $7.25 an hour. Mayor Garcetti strongly supports that bill, too.
As in Seattle, where a union-led coalition won a $15 minimum wage, the people of Los Angeles realize that many businesses will not share revenues fairly with their workers unless they are required to do so. Even businesses that want to pay their employees a living wage feel constrained by their competitors: How can they compete with a competitor paying its workers $5.00 an hour less? The only way to break through these constraints is to reset labor standards to a level that provides a decent living. As Franklin Roosevelt said when he first sent minimum wage legislation to Congress in 1933: “No business which depends for existence on paying less than living wages to its workers has any right to continue in this country… By living wages, I mean more than a bare subsistence level. I mean the wages of decent living.”
Now It’s Explicit: Fighting Inflation Is a War to Ensure That Real Wages for the Vast Majority Never Grow
Remember that episode of The West Wing when Josh Lyman announced a secret plan to fight inflation? That was great. Turns out that Dallas Federal Reserve Bank President Richard Fisher has a secret paper telling us how to fight inflation: stop progress in reducing unemployment so that nominal wages never grow fast enough to actually boost living standards (or, never grow fast enough to boost real wages).
Last week, Fisher argued that a so-far unpublished (i.e. secret) paper by his staff showed that “declines in the unemployment rate below 6.1 percent exert significantly higher wage pressures than if the rate is above 6.1 percent.”
In the interview, Fisher mostly characterized this as a Phillips curve that is flat at unemployment rates higher than 6.1 percent, but which starts to have a negative slope below this rate, meaning that future declines in unemployment should be associated with higher rates of wage-growth. However, if you’re really thinking in terms of a stable Phillips Curve, this means that we can simply choose what unemployment/wage-inflation combination we’d like without worrying about accelerating inflation. Currently, nominal wage-growth is running around 2-2.5 percent. But as we’ve shown before, even the Fed’s too-conservative 2 percent inflation target is consistent with nominal wage growth of closer to 4 percent. So we have plenty of room to move “up” Fisher’s Phillips Curve before hitting even conservative inflation targets.
2013 ACS Shows Depth of Native American Poverty and Different Degrees of Economic Well-Being for Asian Ethnic Groups
Thursday’s release of 2013 American Community Survey (ACS) data allows us to fill in the blanks for minority populations that were not covered in Tuesday’s Census Bureau report on income, poverty, and health insurance coverage in 2013. ACS is an annual nationwide survey that provides detailed demographic, social, and economic data for smaller populations like Native Americans and the thirteen distinct ethnic groups that make up the Asian population.
Together with the 2013 Income, Poverty, and Health Insurance Coverage report, the 2013 ACS data provide a more complete picture of the economic status of America’s various racial and ethnic groups. This information helps to address the sense of “invisibility” felt by many of these groups, provides critical information for the states and local communities where these populations are concentrated and expands the scope for evaluating the impact of national policies.
Between 2012 and 2013, the real median household income for Native Americans increased 2.3 percent to $36,641. This was 70 percent of the national average in 2013 and $3,066 (-7.7 percent) lower than the group’s 2007 pre-recession level.
ACS Data Show Almost No Improvement in State Poverty Rates
The American Community Survey (ACS) poverty data that were released by the Census Bureau earlier today showed that poverty rates were essentially unchanged from 2012 to 2013 in virtually every state.1 Only six states had significant changes in their poverty rates: Colorado (-0.7 percentage points), New Hampshire (-1.3 percentage points), New Jersey (+0.6 percentage points), New Mexico (+1.1 percentage points), Texas (-0.4 percentage points), and Wyoming (-1.7 percentage points). All other states had no significant change from their 2012 poverty rates.
The increases in poverty in New Jersey and New Mexico are the most troubling, although the lack of any significant decrease in most other states is also deeply frustrating. As shown in the figure below, North Dakota is the only state where the poverty rate has fallen back down to pre-recession levels. In every other state nationwide, poverty rates remain significantly above their 2007 levels.
The failure to see any significant reduction in poverty over the last several years is a direct consequence of the continued weakness in the labor market. (It’s not surprising that poverty has fallen in North Dakota given that the state’s unemployment rate has averaged 3.3 percent from the start of the recession to today.) At the same time, however, policymakers have directly stymied poverty reduction by cutting back on unemployment insurance. If we want to start bringing poverty rates down, we need to restore the labor market back to full health, lift wages, and start sharing economic growth more broadly.
1. The ACS data also showed no significant change in the national poverty rate. This differs from the official national poverty rate generated from the Current Population Survey (CPS) that was released earlier this week, which did show a significant decrease in the share of families in poverty. This discrepancy is due to differences in the way the two surveys treat household members not related to the head of household, and the fact that the ACS data reflect a slightly different timeframe than the CPS. See here for further explanation.
Across the States, Some Modest Improvements, But Incomes are Still Below Where They Were at the Start of the Millenium
This morning the Census Bureau released its annual report on income and poverty within states, with data from the American Community Survey (ACS). This report follows the release earlier this week of national income and poverty statistics. Not surprisingly, the state report tells much the same story as the national data: for the typical U.S. family, incomes in most states were largely unchanged from where they were the year before—and still well below their levels from over a decade ago.
Between 2012 and 2013, median household income rose significantly in 14 states, while the remaining 36 states, plus the District of Columbia, had no significant change. The table below shows the states that had statistically significant year-over-year increases in median household income. The ACS data, which reflect a slightly different time period than the national income data gathered from the Current Population Survey, also showed a small, but significant increase in median income for the nation as a whole.
States with significant year-over-year changes in median household income, 2013 to 2012
| State | 2012 | 2013 | Change |
|---|---|---|---|
| United States | $51,915 | $52,250 | 0.6% |
| Alaska | $68,577 | $72,237 | 5.3% |
| California | $59,184 | $60,190 | 1.7% |
| Colorado | $57,430 | $58,823 | 2.4% |
| Florida | $45,578 | $46,036 | 1.0% |
| Kentucky | $42,230 | $43,399 | 2.8% |
| Michigan | $47,447 | $48,273 | 1.7% |
| Minnesota | $59,747 | $60,702 | 1.6% |
| Missouri | $45,919 | $46,931 | 2.2% |
| Ohio | $47,454 | $48,081 | 1.3% |
| Oklahoma | $44,903 | $45,690 | 1.8% |
| Tennessee | $43,504 | $44,297 | 1.8% |
| Texas | $51,198 | $51,704 | 1.0% |
| Utah | $57,841 | $59,770 | 3.3% |
| Wyoming | $55,569 | $58,752 | 5.7% |
Source: Adapted from Noss, Amanda. 2014. Household Income: 2013. U.S. Census Bureau. http://census.gov/content/dam/Census/library/publications/2014/acs/acsbr13-02.pdf
While these modest improvements are welcome, the reality is that household incomes have yet to recover from the recession virtually anywhere. Only four states (Alaska, Wyoming, North Dakota, and South Dakota), plus the District of Columbia have regained their levels from 2007, and most states has not seen income growth in over a decade. The figure below shows median household incomes, by state, in 2000 and 2013. The overlapping bars show that in the vast majority of states, median incomes are still well below where at the start of the millennium. Only Maryland, Alaska, Wyoming, North Dakota, Iowa, South Dakota, Montana, Louisiana, West Virginia, and the District of Columbia have managed to regain or surpass their median income levels from 2000.
As my colleagues Larry Mishel and Josh Bivens explain, “to get household incomes rising, we need to get real wages of the typical worker to rise, something we haven’t seen for more than a decade.” The policies that can help do this are not solely the province of federal lawmakers. A case in point: the only states that saw any wage growth over the past year where those that raised their state minimum wages.
