Thomas Piketty and Tax Day
This morning, EPI will welcome economist Thomas Piketty to lead a panel discussion on wealth, income, and inequality. The event will be live-streamed here.
In his much talked-about book “Capital in the Twenty-First Century,” recently translated from the original French and currently a New York Times best-seller, Piketty argues that without dramatic policy changes—conducted cooperatively across international borders—wealth inequality in developed countries will only continue to increase.
One such policy change that Piketty has endorsed—and one that is quite pertinent on Tax Day—is a major increase in the top marginal income tax rate. Along with co-authors Emmanuel Saez and Stefanie Stantcheva, Piketty has written that the revenue-maximizing top tax rate is 83 percent, more than double today’s top rate here in the U.S.
Dramatically increasing the top rate is a proposal EPI has previously supported. In the context of base-broadening tax reform that aims to increase both federal revenue and tax progressivity, raising rates makes even more sense. Indeed, raising rates can be seen as a complement to, not a substitute for, broadening the base. As the tax code squeezes out opportunities for tax avoidance schemes, the revenue-maximizing top rate would increase because high-income households would have fewer chances to change their behavior in such a way as to lessen their tax liability.
Additional federal revenue is clearly needed. Even as the federal deficit continues to fall in the near term, the major parts of the federal budget (Social Security, federal health care programs, defense) continue to increase in cost, squeezing priorities like education and infrastructure to a smaller and smaller slice of the pie. Worse, Congress looks to be actively searching for ways to give the additional revenue garnered in the deal to avert the “fiscal cliff” away, mostly to corporations. Meanwhile, what individuals pay in taxes remains extremely low, compared to historic standards.
So on this Tax Day, let’s see if we can take a lesson from EPI’s guest speaker Thomas Piketty and talk about a tax policy that usually goes unmentioned—the need for tax reform that broadens the base and raises the rates.
The Gender Gap on Television
Media Matters for America released a report this week showing that only a handful of female economists appeared on evening cable news shows in the last 12 months. They found that more than 90 percent of the economists that appeared on television in the past year were men.
EPI has five outstanding female economists: Emma Garcia, Elise Gould, Monique Morrissey, Heidi Shierholz and Valerie Wilson. All have PhDs and all are terrific at explaining the economy.
EPI experts both male and female do get interviewed very often—which shows just how helpful EPI research can be. Heidi Shierholz recently discussed the incredibly hard odds for job seekers with Marketplace’s Sabri Ben-Achour, drawing on her analysis that shows that job seekers outnumbered job openings by 2.5-to-1 in February.
It’s easy to see how Heidi’s analysis made this story come alive. Now we just need to convince more television producers.
Something To Keep An Eye On: College Enrollment Has Dropped Substantially Since 2012
Here is some surprising and unpleasant news: enrollment rates have dropped in each of the last two years, a sharp divergence from several decades of growth. The figure below shows enrollment rates in the first quarter of every year since 1985 for people age 20-24. (Note: enrollment here is technically for college, university, or high school enrollment, but very few people age 20-24 are enrolled in high school.) Enrollment was on a general upward trend since 1985, but peaked in 2012 and has since dropped in each of the last two years. The fact that this is a two-year drop suggests that it isn’t just a one-year fluke in a volatile series.
The dotted line shows the linear trend based on 1989-2007 data (the trend line since 2007 thus shows what enrollment rates would have been in the last seven years if they had simply continued on their long-run path over this period). The data are somewhat variable year-to-year, but this shows that between 2007 and 2013, there was no meaningful departure from the long term trend, but that by 2014, enrollment was substantially below the long-run trend. This drop in enrollment rates is worrisome, particularly to the extent that it is due to students being forced to drop out of school, or never enter, either because the lack of decent work in the weak recovery meant they could not put themselves through school or because their parents were unable to help them pay for school due to their own income or wealth losses during the Great Recession and its aftermath.
The Maryland Minimum Wage Increase Is a Strong Accomplishment, but Not Without Some Failings
The Maryland state legislature took an important step Monday toward restoring the value of an honest day’s work, by raising the state minimum wage to $10.10 per hour. I’ve estimated that this increase will lift wages for nearly half a million Maryland workers, and spur an additional $456 million in otherwise unrealized output for the Maryland economy. Maryland is now the second state to raise its minimum to $10.10 per hour, matching the level set by Connecticut last month. Maryland joins 23 other states, plus the District of Columbia, that will have minimum wages higher than the federal minimum wage of $7.25 by next year. It will also join 7 other states, plus the District of Columbia, that will have minimum wages higher than $9 per hour by 2017.
While the Maryland bill is unquestionably a step in the right direction—and a praiseworthy accomplishment for all those that worked toward its passage—the final version of the bill does have a number of shortcomings that should not be overlooked.
Inflation is always eating away at the purchasing power of the dollar, so any time the minimum wage is raised in stages over several years, the purchasing power of the eventual wage is less (in real terms) than the proposed nominal dollar value. In the Maryland minimum wage proposal’s original conception, the bill would have raised the state minimum wage to $10.10 by July of 2016. Taking account for projected inflation over the next three years, this would have been equal to a minimum wage of about $9.67 in today’s dollars. Unfortunately, legislators chose to stretch out the increases over a longer period of time, thereby reducing the real value of the eventual increase. The bill that was passed will reach $10.10 by July 2018—a projected real value of $9.25 in today’s dollars. This may not seem like a big difference, but for a full-time minimum wage worker, it’s a loss of about $875 in real annual income.
Long-Term Unemployment Is Elevated Across All Education, Age, Occupation, Industry, Gender, And Racial And Ethnic Groups
Today’s Economic Snapshot shows that long-term unemployment is elevated for workers at every education level. The table below provides additional breakdowns of long-term unemployment by age, gender, race/ethnicity, occupation, and industry. For each category, the table shows the long-term unemployment rate in 2007, the long-term unemployment rate in 2013, and ratio of the two. It demonstrates that while there is considerable variation in long-term unemployment rates across groups—which is always true, in good times and bad—the long-term unemployment rate is substantially higher now than it was before the recession started for all groups. The long-term unemployment rate is between 2.9 and 4.3 times as high now as it was six years ago for all age, education, occupation, industry, gender, and racial and ethnic groups. Today’s long-term unemployment crisis is not at all confined to unlucky or inflexible workers who happen to be looking for work in specific occupations or industries where jobs aren’t available. Long-term unemployment is elevated in every group, in every occupation, in every industry, at all levels of education.
As Congress Votes on Budget Proposals, It Is Also Voting on Whether It Understands the Economy
Later today and tomorrow, the House of Representatives will consider and vote on six different budget proposals—those put forth by the House leadership of both the Democratic and Republican parties, as well as by the Obama administration, the Congressional Progressive Caucus (CPC), the Congressional Black Caucus, and the Republican Study Committee.
We already know that only the Republican budget, authored by House Budget Committee Chair Paul Ryan (R-Wisc.), will pass in the House—and even then, it won’t become law—but it is still important to understand what these proposed budgets call for. While it’s true that a budget proposal is a statement of values, it is also the reflection of its supporters’ understanding of the economy.
The chart below shows the cuts and increases to various parts of the budget, as called for by the proposals made by Chairman Ryan, House Budget Committee Ranking Member Chris Van Hollen (D-Md.), and the CPC. Chairman Ryan includes deep cuts to just about every budget function, and doubles down on the unspecified sequester cuts. Rep. Van Hollen’s budget gets rid of the onerous sequestration spending cuts but otherwise primarily stays the course. Meanwhile, the CPC’s budget calls for immediate stimulus spending in order to meet its stated goal of returning the economy to full employment over the next three years.
Equal Pay Transparency
In honor of Equal Pay Day, my colleagues Heidi Shierholz and Hilary Wething suggest a number of ways to close the pay gap between men and women, including raising the minimum wage, enacting mandatory paid leave, helping workers unionize, shoring up employment law enforcement, enacting immigration reform, and passing the Paycheck Fairness Act. I would add another modest idea: requiring employers to disclose relative pay rankings so workers can tell if they are paid more or less than comparable workers. This would allow future Lilly Ledbetters to quickly find out if they are being discriminated against. Like Heidi and Hilary’s suggestions, it would also put upward pressure on the pay of all lower-paid workers rather than closing the pay gap by dragging down the wages of lower-paid men.
Employers will likely cite privacy concerns and administrative costs as reasons to oppose such a measure. But the law need not require that actual wages or salaries be disclosed, just relative rankings. In any case, Congress has already placed more onerous burdens on unions, who have to disclose employee compensation in excruciating detail. You can also look up the pay of congressional staff, White House staff, and the highest-paid nonprofit employees, among others. Since the American Enterprise Institute recently used pay disclosure to tweak the White House, maybe they can join forces with us on this effort.
In the meantime, President Obama is taking meaningful steps in the right direction, signing two executive orders today that ban federal contractors from retaliating against employees who discuss their pay and requiring them to provide the government with data on employee compensation by sex and race.
Equal Pay Day: A Reminder that Women (and Men!) Deserve More
Today is Equal Pay Day, a reminder that women and men are not always compensated at the same rate. While the widely reported statistic that women, on average, earn 77 cents to every man’s dollar has been is a great indicator that women are put in situations every day that for a variety of reasons mean they earn less, it has been criticized for not measuring individuals of similar characteristics, such as age, occupation, education, or experience. To try to get a better understanding of the gender wage gap among specific age groups, and given that many high school and college seniors are on the brink of graduating and entering the labor force, I thought it would be interesting look at the gender wage gap by age and education, to see how women and men fare as they enter today’s unsteady labor market.
The figures below show the entry-level wages of young college and high school graduates, as they appear in a presentation my colleague, Elise Gould, gave for a recent Senate Briefing on the Equal Rights Amendment (check it out! It’s a really good overview of the gender wage gap at various points in the wage distribution, and documents the gender wage gap by age and education). Both figures show the progress recent high school and college educated young women have made in closing the gender wage gap. In 1979, women with a high school degree made 74 cents to their male counterpart’s dollar, and women with a college degree made 79 cents. By 2013, the gap has narrowed for both groups: both high school and college educated entry-level working women make 84 cents to a man’s dollar.
To close the gender wage gap, women need to see real wage growth faster than their male counterparts. The best type of narrowing occurs when both women and men see real annual wage growth. It is possible for the gender wage gap to close because women see real wage increases, while men’s wages stagnate, but this isn’t the good kind of narrowing.
On the whole, college educated women have experienced the good closing of the gender wage gap. Between 1979 and 2013, both young college educated men and women wages saw real wage growth, but women’s wages grew slightly faster than their male counterparts (although neither groups experienced wage growth throughout the 2000s).
Conversely, the narrowing of the wage gap for high school graduate men and women occurred for all the wrong reasons. Both men and women saw real wage declines over the 1979-2013 period; high school men make 27.5 percent less in 2013 than they did in 1979, and high school women make 16.6 percent less. Because high school educated men fared much worse than their female counterparts, the gender wage gap narrowed.
We should be defining success in closing the gender wage gap by women catching up to men while both men and women share in overall growth. Congress has some great tools at their disposal to do this. Passing the Paycheck Fairness Act would be a great first step. In addition to prohibiting wage discrimination among women and men, the Paycheck Fairness Act incentivizes greater transparency between employers and employees, by collecting pay information data and providing information on how to reduce pay disparities for employers and labor organizations.
Similarly, President Obama’s executive orders to prohibit federal contractors from punishing employees for discussing their pay, and to require that contractors provide data on their employees’ compensation, will effectively provide greater transparency between employees and employers regarding pay rates. Greater transparency will in turn help employees advocate for equal pay, and fairly and substantively shift bargaining power towards employees to set stronger wage standards—ultimately closing the gender wage gap in a productive and fair way.
How to Make the Labor Market Work for Women
Today is Equal Pay Day, which means that policymakers, including the president, are talking about how to close the gender wage gap. In 2013, the typical female worker made $15.10 an hour, while the typical male worker made $18.11 an hour. And the gap in wages between women and men extends beyond those at the middle; it affects earners at all wage levels. High-wage women make less than high-wage men, and low-wage women make less than low-wage men.
A key backdrop to any discussion of how gender wage gaps have evolved is the fact that since the 1970s, the country has seen dramatically rising wage inequality among both men and women. Between 1979 and 2013, the median woman’s wages grew 21.7 percent, but the 95th percentile woman saw her wages grow more than three times that fast, while the 10th percentile woman saw her wages decline. Among men, high-wage workers also saw strong growth—the 95th percentile man saw his wages grow 40.1 percent over this period—but the entire bottom 60 percent of the male wage distribution saw wage losses. The forces holding back wage growth for low- and moderate-wage men—factors such as declining unionization, the erosion of other labor standards and institutions, the lack of full employment, trade agreements that eroded labor standards, and skyrocketing executive and finance professional pay that left less for everyone else—were also holding down the wage growth of low- and moderate-wage women. However, gains made by women over this period in educational attainment, work experience, and occupational upgrading (i.e., moving into higher-paying occupations) more than overcame these adverse forces (at least until the last decade, when the entire bottom 60 percent of female wage earners also saw wage losses).
How has the gender wage gap evolved over time? In short, while still large, it is smaller than it used to be. In the late 1970s, after a long period of holding fairly steady, the gap in wages between men and women began improving as women’s gains in education, work experience, and occupational upgrading, along with greater legal protections against discriminatory pay, began boosting their pay. Since the 1970s, the gender wage gap has improved at all parts of the wage distribution, meaning that low-wage, middle-wage, and high-wage women all saw stronger wage growth over this period their male counterparts.
Third Way’s Surprising Retirement Proposal
After getting into hot water for criticizing Sen. Elizabeth Warren for wanting to expand Social Security, self-styled centrist Democrats Jonathan Cowan and Jim Kessler of Third Way are testing the retirement waters again by proposing, in a New York Times op-ed, to expand savings in IRAs.
This by itself would not be blog-worthy, since every Wall Street-friendly policy wonk wants workers to put more money into IRAs. What surprised me, though, was that they propose requiring employers to contribute 50 cents per hour in these accounts. This amounts to $1,000 per year for full-time workers, and, unlike many proposals, could actually make a difference to workers’ retirement security if savings aren’t siphoned off with high fees. Cowan and Kessler’s default investment would be a low-fee lifecycle fund overseen by a Thrift Savings Plan-like board. Though TSP’s lifecycle funds, which are composed of index funds, are too aggressive—the share invested in stocks ranges from 86% to 52% during the accumulation phase—at least they’re not obvious rip-offs like many 401(k) and IRA investment options.
Cowan and Kessler take pains to assure readers that their proposal has nothing in common with President George W. Bush’s plan to privatize Social Security. But it’s not clear whether they have renounced their previous support for Social Security cuts. If not, they don’t explain why we should shrink a well-functioning social insurance system in order to expand an individual savings system that leaves families financially exposed when breadwinners die or are disabled, financial markets tank, or inflation rises. Under the Third Way plan, retirees could also outlive their savings if they opt out of the default annuity. In the end, back-door privatization may not be that much better than a frontal assault.