It’s not trickling down: New data provides no evidence that the TCJA is working as its proponents claimed it would
The strongest economically-respectable argument from proponents of the Trump administration’s Tax Cuts and Jobs Act (TCJA) was that corporate tax cuts would eventually trickle down to workers’ wages. The theory goes that higher after-tax corporate profits are passed down to shareholders in the form of higher dividends. Higher dividends incentivize households to save more, or attract more savings from abroad. The increased savings push down interest rates, so that it’s easier for corporations to borrow money to invest in new plants and equipment. And this new capital stock gives workers more and better tools to work with, boosting their productivity, and eventually that increased productivity should boost wages.
We’ve explained plenty of times why, in practice, this theory was unlikely to hold (and that even this theory depends on the tax cut not being debt-financed to work—but the TCJA was indeed financed solely with debt). But the bottom-line linchpin for assessing if the TCJA is working as promised is the performance of investment. We now have 18 months of data on investment since the passage of the TCJA, plenty of time for its increased incentives for private investment to have taken hold. But the data doesn’t come close to supporting the story told by TCJA proponents.
On June 11, 2019, EPI participated in the Peter G. Peterson Foundation’s (PGPF) “Solutions Initiative.” This project entailed submitting our own model federal tax and budget plan. In a previous post, we described the big picture behind our proposals. And in a recent report, we described the size of the spending and revenue increases in our budget, while paying particular attention to the details of our proposals for raising revenues and the reasoning behind them.
But we also wanted to provide more specific scores for each proposal in the “Budget for Shared Prosperity.” Estimates for spending proposals were put together by EPI and reviewed by independent scorekeepers contracted by PGPF. Estimates for the tax policies in our budget were put together by the Tax Policy Center (TPC). More information on score-keeping can be found in the report for the “Solution’s Initiative.”
Table 1 provides 30-year scores for each of the proposals in the “Budget for Shared Prosperity” in billions of dollars, as well as the effect on debt and deficits. Table 2 provides the net effects of these proposals relative to CBO baseline as a percentage of GDP. And Table 3 provides the net effects of these proposals relative to CBO baseline in billions of dollars.
Today, Congress ended its legislative work for the summer. Members return to their districts after a busy week dominated by discussion of the Mueller report. While much of the focus of the 116th Congress has been on investigations of the Trump administration, the House of Representatives has passed several bills that would benefit working people. Just last week, the House passed the Raise the Wage Act which would raise the minimum wage to $15 an hour in 2025. This critical legislation would increase wages for over 33 million U.S. workers and lift 1.3 million people out of poverty–nearly half of them children. Workers in every congressional district in the country would benefit from this critical legislation. EPI recently released a map that shows the benefits of raising the minimum wage to $15 by 2025 by congressional district.
In March, the House passed the Paycheck Fairness Act, which would strengthen the Equal Pay Act of 1963 and guarantee that women can challenge pay discrimination and hold their employers accountable. Since the passage of the Equal Pay Act of 1963, millions of women have joined the workforce. However, more than five decades later, women are still earning less than their male counterparts. On average in 2018, women were paid 22.6 percent less than men, after controlling for race and ethnicity, education, age, and location. This gap is even larger for women of color, with black and Hispanic women being paid 34.9 and 34.3 percent less per hour than white men, respectively—even after controlling for education, age, and location. The Paycheck Fairness Act is crucial legislation in reducing these gender pay gaps and guaranteeing women receive equal pay for equal work.
Last month, Senator Warren (D-Mass.) and Representative Haaland (D-N.M.) introduced the Universal Child Care and Early Learning Act. The legislation sets out to tackle the two-pronged problem with the current early care and education (ECE) system in the Unites States today: affordability and quality. Current funding for the ECE system is insufficient because what parents can afford to pay is simply not enough to provide early educators with a fair wage and ensure high-quality care and education for young children.
The lack of affordability for families has been well-documented. EPI has consolidated information from a variety of sources and crunched the numbers on affordability for each state into handy child care fact sheets. There, you can see just how hard it is for families to pay for ECE for one, let alone two children. And, the problem of affordability isn’t limited to low-income families. In Arizona, the state with the median (middle) value of infant care costs across the nation, a typical family with children would have to pay 20 percent of their income for infant care. The cost is more than one year of in-state tuition for a four-year public college and greatly exceeds the recommended affordability standard of 7 percent.
The proposed legislation tackles affordability by setting limits on how much parents need to pay out of pocket for care. Those with incomes under 200 percent of the federal poverty line (about $40,000 for a two-parent one child family) are fully subsidized, while expenses are capped on a graduated basis up to 7 percent of income for the highest earners. This payment structure recognizes that affordability issues persist in not just the poorest of families but many middle-income families as well.
We recently published a deep-dive into the professional development of teachers—strengths, shortcomings, places for improvement. What we found, in short, was reason for optimism on a few fronts, substantial room for improvement on a much larger number of aspects—and also room for learning more about these systems of supports.
The lastest report of our “Perfect Storm in the Teacher Labor Market” series is devoted to examining the systems of professional supports available to teachers—i.e. the early career, ongoing professional development opportunities, and the learning communities they are part of.
Though in the report we keep the main two themes of “equity” and “quality” used in the teacher shortage series, this time, unlike in previous reports, we navigate grayer areas regarding the framing of the report and the straight correlations between the supports and the shortage. For one, because there is no set of supports deemed as ideal and universally valid in the field, because there is insufficient information about for whom, for what, and why these supports matter , and also because it is unlikely that lack of any specific resource or support can be a sole cause for expelling teachers from the classrooms or not attracting new ones to them (or at least these are less clear than in prior reports).
A recent analysis from the Penn Wharton Budget Model (PWBM) claims that expanding Social Security benefits along the lines of Rep. John Larson’s (D-Conn.) Social Security Act of 2100 (“the Act”) would slow economic growth. The model warrants a closer look, not just because it casts doubt on Social Security expansion, but because some of its dubious assumptions can be used against almost any policy that raises progressive taxes to pay for programs tilted in favor of low- and moderate-income Americans.
The Act, which has over 200 cosponsors, would increase payroll tax revenues to pay for expanded benefits while eliminating or greatly reducing Social Security’s long-term deficit. Among other things, the act would subject earnings above $400,000 to the Social Security payroll tax (earnings above $132,900 are not currently taxed); gradually raise the payroll tax rate; increase benefits in a progressive fashion;1 and change the consumer price index used for the cost-of-living adjustment to better match the higher inflation faced by seniors.
Raising the federal minimum wage to $15 an hour will be hugely beneficial to low-income Americans, according to a new report from the non-partisan Congressional Budget Office.
At the same time, the analysis forecasts the loss of around 1.3 million jobs. There are good reasons not to take this prediction seriously, as I explain below. But even taking CBO’s findings at face value, an overwhelming share of low-wage workers would benefit from the minimum wage increase.
The main takeaway from the CBO’s report is the estimate that a $15 minimum wage by 2025 would raise wages of up to 27.3 million low-wage workers, decrease income inequality, and reduce the number of families in poverty by 1.3 million. Overall, CBO found that low-wage workers as a group would benefit enormously from the minimum wage increase. According to CBO’s own findings, the increase to $15 would raise total annual earnings for low-wage workers by $44 billion.
When Senator Kamala Harris told former Vice President Joe Biden “that little girl was me,” she evoked a mostly-forgotten era, a half-century distant, when federal courts mandated busing of black children to schools in white neighborhoods.
The court orders were controversial and unpopular amongst almost all whites and many blacks, and yet: assemble a list of African Americans in their mid-to-late 50s or early 60s, and who are the most successful lawyers, political leaders, executives in the non-profit, corporate, and foundation sectors, or otherwise spread throughout the professional and managerial class, and you will find a disproportionate share were bused during the heyday of court-ordered school desegregation—roughly 1968 to 1980.
Masterful books, one by Susan Eaton (The Other Boston Busing Story, 2001) and another by a team led by Amy Stuart Wells (Both Sides Now, 2009) recount interviews with adults who had been bused for desegregation decades earlier. Eaton interviewed 65 African Americans who, as children, took part in a voluntary busing program that transferred students from Boston public schools to white suburbs where family sizes were declining, leaving schools with empty seats. Wells’s team interviewed 215 white and black adults who, as children, had been bused out of their segregated black schools in six cities—Austin (TX), Charlotte (NC), Englewood (NJ), Pasadena (CA), Shaker Heights (OH), and Topeka (KS).[*] The books have lost none of their relevance; indeed, if you are intrigued by Harris’ remark and you missed the Eaton and Wells books the first time around, this is a good time to get them from your local library or used bookstore and catch up.
On Friday, the release of Bureau of Labor Statistics (BLS) estimates of June job growth and unemployment will provide a first look at how the labor market has performed over the first half of the year. The unfortunate timing of the release for the Friday after the Independence Day holiday, however, means that EPI will have limited capacity to perform a full same-day analysis. But there are several things I will be tracking this Friday.
May’s noticeable slowdown in the pace of job growth, foreshadowed by the exceptionally slow pace of hiring reported by ADP last month, raised some concerns about whether an economic slowdown was imminent. The economy added 75,000 jobs in May which was significantly less than April’s growth of 224,000 and below the year-to-date average of 164,000 a month. With the June ADP estimates coming in much higher—102,000 private sector jobs added in June compared to 41,000 in May— we will be looking to see if there’s a similar rebound in the BLS estimates.
Overall, May’s unemployment rate, labor force participation rate, and share of the population with a job each signaled an economy basically treading water. However, there have been questions about whether the recent rise in the black unemployment rate is another potential sign of a slowing economy or just typical volatility in the data series. Last month, the black unemployment rate ticked down 0.5 percentage point to 6.2 percent after rising from 6.0 percent in November to as high as 7.0 percent in February. Over the same period of time, the white unemployment rate has remained relatively stable. Given that tighter labor markets have typically yielded disproportionate improvements for black workers and other historically disadvantaged groups, I will be tracking whether the June numbers provide any more clarity about what (if any) conclusions we can draw from the black unemployment rate.
What’s good for Wall Street is often bad for American workers and manufacturing: The overvalued dollar
A strong dollar is hurting American workers and main street manufacturers, as I explained last week in the New York Times. I discussed what can be done about it, which builds on a crucial plank of Elizabeth Warren’s American Jobs plan.
In order to rebalance U.S. trade, the dollar needs to fall 25–30 percent, especially against the currencies of countries with large, persistent trade surpluses such as China, Japan, and the European Union. This would help to address the trade deficits that have eliminated nearly 5 million good-paying American manufacturing jobs over the past two decades and some 90,000 factories. In fact, trade with low-wage countries has pulled down the incomes of 100 million non-college educated workers by roughly $2,000 per year.
This week, Ruchir Sharma of Morgan Stanley trotted out a bunch of very shaggy dogs in defense of a strong currency. But he never mentioned the real reason Wall Street loves a strong dollar. An overvalued greenback has enabled the cheap imports that fuel the massive profits of American giants ranging from Apple and Amazon to Costco and Walmart. And multinational corporations have used offshoring, and the threat of moving more plants abroad, to drive down U.S. wages and benefits, and to weaken domestic labor unions.
The Public Service Freedom to Negotiate Act provides public-sector workers the right to join in union and collectively bargain
In February 2018, teachers went on a statewide strike in West Virginia to demand just wages and better teaching and learning conditions. For nine days, schools across the state were closed as teachers, students, and community supporters protested at the state capital against the state government’s chronic underfunding of public education and the impact on the teachers and students. After a week and a half of striking, the West Virginia teachers received a pay increase, but more importantly, they sparked a movement that prompted public school teachers across the nation to strike in support for fairer pay and better working conditions.
The teachers in West Virginia and across the nation relied on the solidarity and support from their communities to win these fights, because in many states public-sector workers do not have the right to collectively bargain. Under current federal law, public-service workers do not have the freedom to join in union and collectively bargaining for fair pay, hours, or working conditions. There are more than two dozen states with laws that protect public-service workers’ right to join unions, but dozens more have lack any rights. Last year, the Supreme Court’s 5-4 decision in Janus v. AFSCME Council 31 overturned 40 years of precedent by barring unions from requiring workers who benefit from union representation to pay their fair share of that representation. And states continue to perpetrate the assault on public-service employees by either denying or undermining workers’ ability to act collectively in addressing workplace issues.
The federal government’s housing policies deepened segregation: A response to a critique of The Color of Law
In The Color of Law, I wrote that de facto residential segregation is a myth. The distribution of whites and blacks into separate and unequal neighborhoods in metropolitan areas nationwide was not accidental or merely the product of private activity, but was reinforced, created, and sustained by federal, state, and local policy to a sufficient extent to make these residential patterns a civil rights violation, or de jure segregation. The book describes how the Franklin D. Roosevelt and Harry S Truman administrations required residential segregation in their many housing programs. These two presidencies were the first in American history to invest federal funds in civilian housing.
Until now, reviewers of the book have accepted the book’s extensively documented historical account, as the subtitle summarizes: “a forgotten history of how our government segregated America.”
But now, Richard Walker, director of the Living New Deal, a campaign to promote the legacy of the Roosevelt administration’s public works projects, has written a critique of The Color of Law in the socialist magazine, Jacobin, and I’ve responded.
Immigration enforcement is funded at a much higher rate than labor standards enforcement—and the gap is widening
One clear way to understand the priorities of a government is to look at how it spends money. If it’s true as they say that “budgets are moral documents,” then this Congress and administration do not place much value on worker rights or working conditions. A comparative analysis of 2018 federal budget data reveals that detaining, deporting, and prosecuting migrants, and keeping them from entering the country, is the top law enforcement priority of the United States—but protecting workers in the U.S. labor market and ensuring that their workplaces are safe and that they get paid for every cent they earn is barely an afterthought.
In 2013, the Migration Policy Institute (MPI) made headlines with a report that highlighted the fact that appropriations for immigration enforcement agencies exceeded funding for the five main U.S. law enforcement agencies combined by 24 percent. A recent report from MPI updated the numbers, showing that after six years of skyrocketing spending, immigration enforcement agencies received $24 billion in 2018, or $4.4 billion more than they did in 2012 (in constant 2018 dollars). This amounts to “34 percent more than the $17.9 billion allocated for all other principal federal criminal law enforcement agencies combined,” which includes the Federal Bureau of Investigation, Drug Enforcement Administration, Secret Service, Marshals Service, and the Bureau of Alcohol, Tobacco, Firearms, and Explosives.
With $24 billion in federal spending and climbing, immigration enforcement has undoubtedly become the top law enforcement priority of the U.S. government and the Trump administration. Where do labor standards and worker rights fit in?
Data from the Bureau of Labor Statistics’ Employer Costs for Employee Compensation gives us a new chance to look at private sector workers’ nonproduction bonuses in 2018 and March 2019 to gauge the impact of the GOP’s Tax Cuts and Jobs Act of 2017. The bottom line is that bonuses in the most recent quarter, March 2019, remained very low at $0.72 per hour (in $2018), the same as in December 2018 and far below their $0.88 level in 2017 or the $0.90 level in 2018.
This is not what the tax cutters promised, or bragged about soon after the tax bill passed. They claimed that their bill would raise the wages of rank-and-file workers, with congressional Republicans and members of the Trump administration promising raises of many thousands of dollars within ten years. The Trump administration’s chair of the Council of Economic Advisers argued last April that we were already seeing the positive wage impact of the tax cuts:
Following the bill’s passage, a number of corporations made conveniently-timed announcements that their workers would be getting raises or bonuses (some of which were in the works well before the tax cuts passed). But as EPI analysis has shown there are many reasons to be skeptical of the claim that the TCJA, particularly its corporate tax cuts, would produce significant wage gains.
Focus on the boom, not the slump—The Fed’s new policy framework needs to stop cutting recoveries short: EPI Macroeconomics Newsletter
For the past six months the Federal Reserve has been soliciting input to guide a reassessment of its “monetary policy framework.” This reassessment has been pegged to the 10-year anniversaries surrounding the financial crisis of 2008–09 and the Great Recession. While the Fed’s policy framework deserves much scrutiny, focusing too narrowly on what it could have done differently during the crisis and its aftermath would be a bad mistake.
The Fed failure that inflicted real damage on low- and middle-wage workers over recent decades was generally not insufficient effort in fighting recessions. Instead, the mistake was cutting short recoveries before they had maximized opportunities for employment and wage growth. In short, the time to worry about Fed actions that do not protect the interests of low- and middle-wage workers is during economic booms, not during slumps.
This newsletter explains why the Fed should keep the following points in mind as it undertakes its reassessment:Read more
The teacher shortage is real and it exists for many reasons. The question is why do we lose so many young educators? What causes them to not enter teaching? Why do many leave their chosen field after just a few years? And how can we make teaching as financially rewarding as other fields when the reality is many localities do not have the funds to raise salaries?
Many colleges and universities now require educators to have a Bachelor’s degree prior to entering an education program. After getting a Bachelor’s degree future teachers have one more year to get teaching credentials or in many cases they can spend two more years getting a Master’s degree.
In other words: teachers face the unenviable choice of incurring greater debt prior to entering the workforce or changing majors and entering the workforce after only four years with less debt but also less credentials. This is a significant problem since students average $30,000 in college debt. Some of my colleagues owe something closer to $60,000 in debt. It is the passion, the call of teaching, the desire to make a difference that leads people into education not the paychecks.
When you consider teacher’s salaries you have to ponder how someone with this much debt can afford to take a starting position with the national average starting salary less than $40,000 in 2017! Why would anyone become a teacher?
It is not surprising that education programs are now considering changing course in Virginia to make education once again a four-year degree program. If we want the best people in education we need to make it affordable to get a degree. We also need to consider the portability of that degree. Some states work with surrounding states for reciprocity of licensure, however; a teacher usually has to take additional courses if he/she relocates too far away. This presents yet another drawback.
The world’s climate is changing at an alarming rate, and at the same time, investments to address the problem are some of the most promising opportunities to boost the economy—both immediately and in the face of any future recession.
However, if today’s investments fail to address climate change or align with the clean technologies of the future, we cannot build a competitive, prosperous, or fair economy for the long term. And it is equally true that if our climate solutions ignore working people and only reinforce today’s inequality, they will neither be lastingly effective, nor will we have any chance of building the support and momentum we need to see them become reality.
By contrast, acting on climate in ways that are focused on the needs, concerns and aspirations of working people and communities can bridge division, galvanize action, and drive sustained climate and economic progress.
This starts at all levels—local, state and national—with having working people, including labor, community, environmental, equity, and justice advocates, at the table. It requires a bold, inclusive worker-centered agenda that not only addresses our climate and environmental crises at the scale that science and equity demand but also addresses the underlying issues that leave so many Americans struggling paycheck to paycheck, and bearing the disproportionate costs of economic disruption and technological change.
We need to act now, and we also have powerful opportunities to respond to recession and economic distress.
We have the need and opportunity to act at scale. The urgency and breadth of the climate challenge has the potential to mobilize trillions in public and private investment across multiple sectors of the economy: energy, transportation, infrastructure, technology, and community resilience—just to name a few. Any one of these has the potential to be economically transformative, and could provide a major—or targeted—stimulus to the economy.
The next recession will create an opportunity to redefine the government’s role in the economy: Lessons from healthcare organizing
Healthcare in the United States, unlike in other rich nations, is sadly and dangerously tied to the business cycle—because most workers receive insurance coverage through their employers, job losses can be doubly devastating. That’s why it’s important to think about an eventual next recession as an opportunity to redefine the federal government role in the economy, and in the healthcare sector in particular.
It’s remarkable how far the healthcare debate has come in just a few short years and it’s not accidental. The last time Americans saw this level of public dialogue about changing the healthcare system was back in 2008, when Democratic candidates all vowed to reform the system and cover the growing masses of uninsured leading up to the historic election of President Barack Obama in 2008, as well as political trifecta for Democrats in Washington.
For over a year, advocates labored to pass the new law that would eventually expand coverage to 25 million more people, bringing the number of uninsured Americans to a historic low and ushering in the largest expansion of government healthcare since the passage of Medicare and Medicaid in 1965. Yet, despite its accomplishments and the popularity of individual provisions like pre-existing conditions protections and Medicaid expansion, the Affordable Care Act never reached consistent majority support from voters until President Donald Trump tried to repeal it in 2016.
The fight to save the ACA validated what healtchare advocates have known for years: when it comes to healthcare, most voters don’t like big change—especially changes that would take away healthcare or give the insurance industry more power to jack up prices, deny benefits and discriminate against the sickest people.
Trump’s relentless attacks on the Affordable Care Act and Medicaid turned healthcare into a key election issue in 2018, as well as a driver of Democratic success in regaining a majority in the House of Representatives. The tremendous attention to healthcare in the first two years of the Trump era opened a window into a much larger healthcare debate that serves as a proxy for an alternative vision of the economy and our democracy—one that challenges trickle-down economics and the supremacy of free market ideology.
Let’s start with the ending: It can be done. And, spoiler: It works.
“It,” in the new book Broader, Bolder, Better (Harvard Education Press, June 2019), is Integrated Student Supports (ISS), or “initiatives that provide wraparound services that attend to the early-childhood years along with nutritional support, physical and mental health care, and enriching after-school and summer activities in children’s K-12 years” (p.24). Authors Elaine Weiss and Paul Reville are devoted to decipher this “it”, or ISS, in a manner that can only be of help for all communities in the country, especially for those confronting similar challenges. They explain that ISS are not unique, but diverse in most respects. They exist in communities that are small and large, new and old, southern and northern, rural and urban, progressive and conservative. The 12 initiatives—working in school districts such as Joplin, Missouri; Kalamazoo, Michigan; Montgomery County, Maryland; Pea Ridge, Arkansas; or Vancouver, Washington; in part of them, including Austin, Texas; Durham, North Carolina; Boston, Massachusetts; Minneapolis, Minnesota; New York City, New York; or Orlando, Florida; or across multiple school districts, such as Eastern (Appalachian) Kentucky—that are described in the book in a systematic, transparent, cohesive, and constructive manner are success cases—models that can be used to create “whole-child systems of education” (p.24). The book classifies the cases by their various types of ISS strategy they employ, including community schools, Promise Neighborhoods, Bright Futures USA, and PROMISE Scholarships. They tailored the services and supports they needed to tackle their specific unmet needs, and found the components, wisdom, resources, and agreements needed to offer those services.
The 12 cases exemplify that these practices can be adopted elsewhere, provided certain commonalities are found. What the successful cases share includes, in the first place, that all communities deeply care about the root problem: poverty in any of its shapes and manifestations (pp. 3-21, and others). There’s no question that all of the communities want to break the vicious cycle that promises to link today’s merit and education performance with future wellbeing, but gluing students’ current social class to their educational opportunities and their progress in school really works more backwards than forward. The 12 communities also show a serious understanding of what it takes to redress the consequences of being born in poverty, i.e., that the efforts need to be holistic, continued, sufficient, and shared. The communities also present ISS provided as surpluses, not as deficits, helping overcome the old belief that poverty was sort of an excuse, sidelining it as the core driver of achievement gaps, as Elaine Weiss explained in the release event of the book at EPI. In addition, these communities, which heavily rely on evidence-based effective solutions, implemented systems to monitor the interventions—including systems that allowed for developmental, individualized, inputs, and outcomes. This information is essential because it is what demonstrates the success and the continuous benefits of doing this right. Lastly, knowledge and creativity are also typical as they can help trim down the exact menu of supports and services, as well as the ideal ISS strategy, that each community needs. Though the authors acknowledge that “no single system can serve as a template,” (p. 43), another view of this is that any could become such template for a given community, or that certainly all validate ISS as a model that works and can be implemented.
Today EPI is participating in the Peter G. Peterson Foundation’s “Solutions Initiative,” along with several other research and policy institutions. For this project, we submitted a model tax and budget plan. The revenues were scored by the Tax Policy Center (TPC) and the spending was scored by former officials of the Congressional Budget Office (CBO).
Normally in DC policymaking discussions, model tax and budget plans are constructed near-solely for the purpose of showing how a mix of tax increases and spending cuts can lead to lower budget deficits. But, while bending revenues closer to spending in a spreadsheet is a fairly trivial exercise, the real-world effects of changes in taxes and spending are often not trivial at all. To take just one example, the poverty rate of elderly households fell extraordinarily rapidly as Social Security spending rose in the mid-20th century. Ignoring this tremendous progressive achievement and instead seeing Social Security as just a budget line-item that can be trimmed to move expenditures and revenues closer together would be an extraordinarily myopic way to think about economic policy.
To ensure that we were keeping the big picture in mind while constructing our plan, we began by undertaking a diagnosis of the most-pressing economic problems facing the vast majority of U.S. households. We identified them as follows:
- Economic growth has been slow for almost two decades. The roots of this slow growth are too-slack aggregate demand for most of this period and anemic growth in productivity caused largely by weak private investment.
- Slow growth in recent decades has not been accompanied by any progress at all in reversing the huge upward redistribution of income that characterized previous decades—in fact, by many measures inequality has continued to rise.
- Taxes and spending in the United States are far smaller than in most other rich countries around the world. We expend far less fiscal effort in income support programs that fight poverty, social insurance programs that provide broad-based economic security, and public investments that spur growth.
- The most-glaring outcome of the small fiscal footprint in the U.S. economy is a health sector that is inefficient and unfair. Our health care system provides coverage to a smaller share of our population, delivers less health care, obtains worse health outcomes, and yet places a far greater economic burden on households than in almost any other rich country.
Misleading and biased research: Why a report on arbitration by a Chamber of Commerce affiliate is just plain wrong
We recently wrote a piece in the American Prospect analyzing a recent report on arbitration by the U.S. Chamber Institute for Legal Reform—an affiliate of the U.S. Chamber of Commerce—that we found to be misleading and riddled with errors. In this blog post, written especially for those policy wonks who can’t get enough, we share more details about what’s wrong with the report.
The report—touting arbitration’s supposed benefits for workers—arrived just in time to be cited at a House hearing last month. That’s unlikely to be the last of it. The report will surely be presented by corporate lobbyists to a coterie of undecided legislators—legislators who care about access to justice and who are genuinely concerned about the impact of forced arbitration, but who also want to be responsive to the concerns raised by businesses that use it. The danger is that these legislators will believe the report’s spurious conclusion that arbitration is better for workers and vote accordingly.
Some initial skepticism is obviously in order. With its history of opposing reforms like paid family leave, a higher minimum wage, and strong overtime protections, the U.S. Chamber of Commerce is not an institution that is generally known as a champion of workers’ rights. And the report (entitled “Fairer, Faster, Better”) was written by a consulting firm that’s published previous reports like “Regulations: the more is not the merrier” and “The Regulatory Impact on Small Business: Complex. Cumbersome. Costly.”
After decades of advocacy, New York stands at the brink of potentially passing the Farmworker Fair Labor Practices Act, a bill that would extend to the agricultural sector the right to organize and the right to overtime pay that most workers in other industries enjoy. Governor Cuomo has said he will sign the measure if it passes.
Democrats recently took leadership of the state senate and have a longstanding majority in the state assembly. Both chambers have an opportunity to take advantage of those majorities in a way that results in a historic improvement for the lives of workers who toil in difficult conditions for low pay in New York’s fields and dairies.
But victory is far from certain: plenty could happen between now and June 19, when New York’s legislative session ends. The New York Farm Bureau, unsurprisingly, is saying the bill “could dramatically change agriculture and hurt our rural economy.”
A new report from the Fiscal Policy Institute (FPI) shows how the bill will help farmworkers, be manageable for farm owners, and offer tangible benefits to local communities.
The bill will most obviously be a gain for farmworkers in New York. On average, it will increase weekly earnings by between $34 and $95 per week. That’s money that will also be spent in the local economy, helping boost local businesses (and adding to sales tax revenues).
Other states have enacted laws requiring that at least some overtime be paid to farmworkers after a certain number of hours. In California—the largest agricultural state by far with over $50 billion in cash receipts going to farms and ranches—the legislature and governor enacted a law in late 2016 that gradually phases in overtime pay for farmworkers beginning this year.
The law will eventually require that farmworkers be paid overtime after eight hours per day or 40 hours per week in 2022. While agribusiness has complained and fought against passage of the law for years, after five months of being the law in the state, there have not been any major negative impacts on business or production reported in California. If overtime for farmworkers can work in California, it can work in New York.
Farm owners have had some tough years, to be sure. But treating workers properly is a way of aligning interests so that legislators and New Yorkers can all feel good about supporting New York farms. The cost of providing overtime to farmworkers in New York is manageable. It would amount to 9 percent of net farm income if all of the costs came out of the bottom line. And, that’s not what would happen. In fact, the farm owners would see some benefits that would offset the costs, including decreased training and recruiting costs, and higher productivity.
A few people have worried that this would push up prices. Not so. In fact, FPI is not predicting that costs will go up at all: Farm owners say they can’t control prices, and we accept that idea in general, even if it may be an overstatement. But even if all of the costs were passed along to consumers, prices would increase just 2 percent.
And for those who do worry about price increases—even if there are no savings from increased productivity and even if the farm owners take no loss in profit—the increase in prices would be the equivalent of raising the price of apples at the farmer’s market from $1.50 to $1.53 per pound. Hardly a devastating difference.
It’s worth taking a moment to think about why farmworkers are currently exempted from the labor regulations that apply to other workers in the state. The history goes back to Jim Crow, and a time when most hired farmworkers were African American, as a recent report from the National Employment Law Project explains.
Today, the workers hired are also predominantly people of color, often immigrants, many are Latinos and Latinas, and some work without documentation. Increasing numbers are also temporary migrant “guest” workers in the H-2A visa program: in New York H-2A jobs certified went from 4,699 in 2013 up to 7,634 in 2018, accounting for about 14 percent of the 56,000 hired farm laborers in the state.
Why was it, again, that the rules that apply to other workers in New York State shouldn’t also apply to people who work on farms?
There are only two weeks left in New York’s legislative session and the living standards and labor standards of the state’s farmworkers hang in the balance. The legislature and governor should enact the Farmworker Fair Labor Practices Act, so New Yorkers can all feel good about buying local and supporting New York’s farms.
This week, ADP estimated that private sector employment increased by only 27,000 in May. The Bureau of Labor Statistics (BLS) will release their estimates of May job growth this Friday morning, and the extremely slow pace of hiring reported by ADP will have many people paying attention. The obvious question following the ADP numbers is just how worried should we be that a substantial economic slowdown is upon us?
While any single monthly data indicator should be taken with a large grain of salt, there are some real signs that the economy may be slowing a bit. The weak ADP report isn’t the first big hiccup in employment estimates in recent months. The BLS estimated just 56,000 jobs were created in February (46,000 for the private sector). The last three months of payroll employment showed an average increase of only 169,000 (154,000 private) compared to a much stronger 245,000 (240,000 private) in the previous three months.
EPI’s nominal wage tracker shows a distinct leveling off as well in very recent months. After pretty sharp and steady improvements in year-over-year wage growth between 2017 and 2018, wage growth gains seem to have tapered off. On average, wages grew 2.6 percent in both 2016 and 2017. In 2018, they grew an average of 3.0 percent over the year. Wages continued to rise in the latter half of 2018, and averaged 3.3 percent in the last quarter of the year. Wage growth has remained at 3.3 percent for the first four months of this year. In a stronger economy wage growth would be above 3.5 percent and if the recovery continues on course, I expect we will get there. To be at genuine full employment, wage growth would have to be at least 3.5 percent for a consistent period of time to allow labor share of corporate sector income to recover.
MIT economist Simon Johnson wants to ramp up federal investment on science and technology—and make sure taxpayers get a cash dividend in return
There is no shortage of creativity in the American economy—as long as we get away from the myth that denigrates public investments and puts private business on a pedestal.
That’s the message from MIT Sloan Economist Simon Johnson’s new book, “Jump-Starting America: How Breakthrough Science Can Revive Economic Growth and the American Dream,” which he presented during a talk and Q&A here at EPI this week.
Johnson, in a book co-authored with his colleague Jonathan Gruber, traces the history of America’s rapid economic ascent after World War II in part to heavy doses of public spending and incentives for scientific discovery and technological innovation.
He says the government’s abandonment of this commitment has not only chipped away at America’s economic and cultural leadership globally but also cost workers and firms enormously in terms of lost productivity, wages, and profits.
Johnson highlighted a decline in federal spending on research and development from a 1964 peak of 2 percent of gross domestic product (GDP) to just 0.7 percent today.
“Converted to the same fraction of GDP today, that decline represents roughly $240 billion per year that we no longer spend on creating the next generation of good jobs,” Gruber and Johnson write in the book.
We received some useful comments on the first reports of the teacher shortage series, both by email and through social media. One was particularly surprising—aside from slightly premonitory at that time (as its contents were related to a “to be released” report).
Ms. Whisler, a teacher herself according to her profile, wrote: “After 6 years of teaching high school social studies, my son is changing careers to become a firefighter. Less stressful he says.”
YES! after 6 years of teaching high school social studies my son is changing careers to become a firefighter. Less stressful he says
— Karen Whisler (@Kndrgrtn) March 28, 2019
Of course anecdotal evidence is not scientific evidence, but Ms. Whisler’s case felt enlightening. What could make teaching so stressful that would expel teachers out? How can teaching rank higher in stress than working as a firefighter? Regardless, would it matter if this were not a problem at a larger scale?
EPI released a report this week—Challenging working environments (“school climate”), especially in high-poverty schools, play a role in the teacher shortage—that describes the school climate and the scale for the shares of teachers facing such challenges. The school climate is shaped by multiple factors, including: the presence of barriers to teaching and learning, the stress and threats to safety, the relationships between teachers, administrators, and colleagues, the dismissal of teachers’ voices and knowledge, and teachers’ satisfaction and motivation. In short, the patters we describe for most of these indicators are tough in manners that would lead most of us to consider switching jobs, were we to face them. This is also seen, descriptively, for teachers, which implicates tough school climates in the teacher shortage. Some of the findings of our 4th report in our series examining the teacher shortage are as follows (see Figure A).
School climate indicators are tough across the board
|Parents struggle to be involved||21.5%|
|Students are not prepared to learn||27.3%|
|Have been threatened||21.8%|
|Have been physically attacked||12.4%|
|Stress and disappointments outweigh positives||4.9%|
|Staff cooperation is not great||61.6%|
|No significant role in setting curriculum||79.6%|
|No significant say over what I teach in class||71.3%|
|Not fully satisfied with teaching here||48.7%|
|Plan to quit teaching at some point||27.4%|
Note: Data are for teachers in public noncharter schools. See notes to Tables 1–6 for full definitions of the given indicators.
Source: 2015–2016 National Teacher and Principal Survey (NTPS) microdata from the U.S. Department of Education's National Center for Education Statistics (NCES)
Many teachers face the learning barriers their students arrive at school with. Just like these barriers impede children’s learning, they are also obstacles for teachers to do their jobs well. Between two and three in ten teachers see that students coming to school unprepared to learn (27.3 percent) or that parents struggle to be involved (21.5 percent) are serious problems for the school, and even a small share see students’ poor health as a problem (5.1 percent). The relationships between teachers, administrators, colleagues, and parents are described by teachers as being not fully supportive, and their voices and influence over school policy and in their classrooms as being often quieted or ignored. Significantly, even though most would think teachers have full autonomy in their classrooms, in tasks such as selecting content, topics or skills to be taught, textbooks and other instructional materials, less than 30 percent recognize they have a great deal of control of such aspects. About 12 percent teachers have been physically attacked by a student from that school and almost twice that have been threatened. These previous statistics may make the following data point look small—that about 5.9 percent of teachers strongly agree that the stress and disappointments in teaching are not worth it. However, it is not to be dismissed, because of its meaning and repercussions—for Ms. Whisler’s son and for everybody else. . We see that about half of the teachers express some level of dissatisfaction with being a teacher in their school (48.7 percent), more than one-quarter think about leaving teaching at some point (27.4 percent), and 57.5 percent are not certain that they would become teachers again if they could go back to their college days and make a decision again.
The Republican-controlled Senate has accomplished what it wished with a one sided tax giveaway to corporations and the super-rich—it has no interest in a legislative agenda left. Yet, while the economy continues to grow, there are sharp warning signs because of the exacerbation of income inequality in the United States that threaten the expansion’s sustainability. These yellow flags point to an economy that has little resiliency and so is very vulnerable to shocks.
Now is the time to create legislative markers, set legislative records and flesh out details of fixes that could be quickly passed should the political dynamics change in 2020. I would argue that, in this climate, it is necessary to triage such efforts, so as not to detract from other important legislative markers that must be passed by the Democratic controlled House of Representatives, so that in 2020 a clear set of programs is also ready to address ever-expanding inequality.
The urgency comes after the historic 2007-2009 downturn showed just how much the divide between Democrats and Republicans turned economic misfortune into a game of political opportunity. Americans found out it was a lie when they had repeatedly been told that Social Security privatization was a fine idea because if the stock market tanked, home prices dove and jobs disappeared Congress would respond to the needs of ordinary Americans. Instead, no consensus could be reached on policies to help workers. Income relief, to compensate for lost job opportunities, lost retirement savings, or devalued housing assets, became political fodder for a larger ideological battle aimed at narrow political victories.
The other problem we face is that the 2008 downturn was likely unique in its size. Because of the size of the housing market, a financial crisis rooted in the decline of the primary household asset is not likely to re-occur. Consequently, the economy is more likely to face a downturn the size of the one that took place in 2001. It should be noted, however, that the downturn in 2001 was accompanied by a huge tax cut, initially targeted at the wealthy, but balanced by a Democratic-controlled Senate to also benefit middle-income households for its initial years.
Still, with the tail winds of easing monetary policy following the stock market bubble burst from the dotcom calamity and the economic malaise following September 11 and the huge stimulus of a large tax cut, and a deficit propelled by massive expenditures for the Iraq War, it still took until March 2007 to get payroll numbers back up to their February 2001 level. So, if an unprecedented job loss in 2008-2009 could not generate a consensus to address a downturn, there is little chance a milder downturn will generate better behaviors.
If the current economic expansion which began in June 2009 makes it to this July, it will set a record for the longest period of U.S. economic growth—beating the 1991 to 2001 boom. Economic expansions don’t die of old age, however, so what might bring this one to an end?
With memories of 2008-2009 still fresh, some observers have focused on corporate debt as the likely culprit. It’s true that corporate debt has risen rapidly during the expansion, both in absolute terms and in relation to corporate profits. But low interest rates mean that debt service—interest payments on this debt relative to after-tax profit—is about 25 percent, where it usually is during periods of expansion and not a cause for worry. Bank regulators are concerned about the rapid growth of leveraged loans and weaker lender protections. But they appear to be correct in their assessment that leveraged lending, despite a 20 percent growth since last year to almost $1.2 trillion, “isn’t a current threat to the financial system.”
Still, recession or no recession, there will be pain.
A large and growing share of corporate debt is “speculative debt”—either leveraged loans used to acquire target companies and burden them with high debt levels or high risk junk bonds. Many companies with high levels of speculative debt on their books were acquired by private equity in a leveraged buyout, meaning the PE firm used high amounts of debt to buy them. This is debt the target companies, not their private equity owners, are obligated to repay.
Often, these PE-owned companies are required to issue junk bonds and further increase their indebtedness in order to pay dividends to their owners. A 100-day plan imposed on company managers at the time of the buyout lays out the steps that the company will need to take to service this mountain of debt. Reducing labor costs is a big part of these plans, whether by closing less profitable stores and establishments, laying off workers at those it continues to operate, or cutting pay and benefits. After it takes these steps to manage its debt, the company is on a knife-edge.
If all the assumptions made by the private equity firm when it persuaded creditors to lend it boatloads of money hold up, the company will avoid defaulting on its loans and going bankrupt. But if these assumptions are upended—say, by a slowdown in the economy, defaults and bankruptcies will spike. Creditors who have loaned billions of dollars to finance private equity-sponsored leverage buyouts will experience losses. Establishments will be shuttered, some companies will be liquidated, workers will lose their jobs, and communities will lose businesses that have played a key role in the local economy.
As of September 2017, more than 60 million American workers were subject to predispute arbitration “agreements” with their employers. This means that in exchange for the right to get or keep their job, they are forced to agree that if a dispute comes up in the future involving their employment, they won’t bring that dispute in court but will instead take it to a private arbitrator—usually in secret proceedings conducted behind closed doors, under terms dictated by the employer.
The percentage of workers whose employers require them to give up the right to go to court in exchange for their jobs has increased dramatically over the past 25 years, from just 2 percent in 1992 to over 55 percent in 2017. And that figure is climbing even higher in the wake of the Supreme Court’s 5-4 opinion in 2018 in Epic Systems Corp. v. Lewis, which said that employers can impose arbitration contracts on their workers even when one of the terms of the contract is that workers must bring their disputes one at a time and may not join forces with their colleagues to pursue claims collectively. A new report from EPI and the Center for Popular Democracy projects that by 2024, over 80 percent of private-sector, nonunionized workers will be subject to forced arbitration regimes that ban class or collective actions.
Despite its growing prevalence, many American workers still don’t know what arbitration is and don’t realize what rights they’re giving up when they sign the document (or click the button on a computer screen) saying they will resolve future disputes in this manner. But for the 14.7 million workers who belonged to a union in 2018, arbitration may not be such a foreign concept, because arbitration has been a fixture in most unionized workplaces for decades.
‘Schools are no longer just institutions of learning—we are the primary hub of care outside the family’
My colleague Elaine Weiss launched her new book Broader, Bolder, Better on the challenges facing teachers around the country at an EPI event this week by emphasizing the need for policymakers and researchers to listen to educators themselves rather than imposing their biases on the pros.
Truly moving remarks from guest of honor Joy Kirk, a middle-school teacher from Fredrick County, Va., made quite clear why that’s a sound strategy.
Kirk described the transition she has witnessed in the role of teachers and schools as anchors in the community over her 24 years of teaching, which began in urban Philadelphia before she moved to a more rural setting.
“Schools are no longer just institutions of learning. We are the primary hub of care outside the family,” she said, a stark reality considering the deeply under-resourced state of so many of the country’s schools.
“And for some of our students, we are their only safe place, because if you’re suffering violence at home, if you’re suffering upheaval, if your parents are constantly moving because they can’t hold a steady job—for whatever that reason is—your one safe place is your teacher’s classroom,” she said.
Weiss’s book is the culmination of years of research into how schools can proactively help to counter some of the social strains in various communities, by promoting innovative and targeted approaches to solve every day problems.
“Our book is grounded in community voice and celebrates teacher activism,” Weiss explains in a blog post. “It calls out the consequences of structural racism and urges community leaders to translate their daily witnessing of the impacts of poverty into partnerships with the schools that are on the front lines of combating it. It thanks the local and community leaders who are already walking this walk and asks all of us to find ways to further support them.”
A progressive strategy for addressing the next recession must include a deliberate, strategic focus on states and localities
No one can say with any certainty when the next recession will come, yet it’s clear that progressive advocates and policymakers should begin preparing now so they are ready to confront the challenges—and opportunities—a downturn presents.
As advocates, we should mobilize around two key strategies to respond to the next recession. The first strategy is to build demand at the state and local level for a large federal stimulus package that includes significant, lasting aid to the states. We should campaign actively against the notion advanced by the right wing and even moderate Democrats that there isn’t enough “fiscal space” to bail out workers and their communities during a recession. (Saying there’s not enough fiscal space is econ-speak for pretending the federal government doesn’t have the ability to run a deficit to support important programs in times of crisis).
The second strategy—which I will focus on here—is to ensure the progressive community has a strategic plan to mobilize communities and progressive state policymakers to develop a state-specific program for addressing the next recession. Governors and state legislators play an enormous role during a recession, and the policy and political choices they make in preparation for, during, and after a recession help determine how well communities weather a slump, and how quickly their state bounces back once the recession is officially over.