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.
I can’t tell you when or whether a recession is coming. But I can tell you what it means for a place like Ohio when one arrives and what Ohio needs from policymakers, state and federal, to be ready and to recover. After a generation of underinvestment in families, communities and sustainability, the upcoming downturn is a crucial moment to fix the economy by addressing gaping societal needs.
Four points are clear for Ohio and other places. First, recessions are much harder on some economies than on others—this goes for states, like Ohio, that are hit harder, and for communities, like manufacturing communities, poor rural communities, and much of the black community. Second, recessions start earlier and end later in America than in the financial press, in terms of pain they visit on people. In Ohio, we no longer fully recover from recessions, so each new downturn leaves permanent setback. Third, states have insufficient capacity to take on the challenges of a recession. Federal action is essential to get the recovery we need. Finally, recessions are not only economic challenges cured the instant unemployment creeps downward or some jobs come back. In fact, recessions cause long-term damage—to savings and earnings, yes—but also to children’s development, family stability, and long-term physical and psychological well-being.
Job loss and unemployment
First and most importantly, a recession means large scale job losses. This is often particularly severe in manufacturing states like Ohio. As many as 30 million Americans lost jobs during the Great Recession. In Ohio, we actually had not recovered jobs lost in the early 2000s recession by the time the Great Recession hit in 2007. More than 415,000 more jobs were slashed by February 2010 and the 2018 data revisions showed we again haven’t fully recovered—we need 16,300 jobs to reach pre-recession employment levels (reflecting population growth).
When the Broader, Bolder Approach to Education (BBA) was launched over ten years ago, EPI—Lawrence Mishel and Richard Rothstein, in particular—hoped it would have a major positive impact on the education policy field, but we could not have predicted how big that impact would turn out to be.
Over that decade, BBA became an anchor for the growing chorus of voices pointing to poverty’s impacts on teachers’ ability to do their jobs well and students’ capacity to learn effectively. We stood with teachers, principals, and school district leaders to push for policies that alleviated those impacts. We collaborated with leading scholars to produce seminal reports that revealed the major flaws of policy strategies that rely heavily on student test scores to make decisions. And we used the results of those reports to arm student and parent organizers with evidence to defend their schools from threatened closures and to advocate, instead, for their conversion in New York City, Newark, Chicago, and Philadelphia, to full-service community schools.
We have lifted up the voices of teachers, in those reports and elsewhere. In a series of blog posts, we collaborated with dedicated educators from across the country to document the impact of student and community poverty in their classrooms every day. We wrote about the shame hungry high school students feel and their teachers’ anger and frustration at their lack the resources to help. We illuminated the consequences of structural racism in the Mississippi Delta, where African American students still rely on leftover books and supplies that wealthier white students and the schools serving them literally dumped. We shined a spotlight on innovative strategies principals are employing in rural Appalachia to compensate for their students’ extreme social and economic isolation, like Skype mentoring and field trips that provide their first visit to a city, college, or prospective future job.
The next recession has not begun—and might not even be all that close at hand—but events where people are talking about the Next Recession have definitely started.
The event we co-sponsored last month on the next recession and essays from the panelists can be seen here. It’s worth checking out. A highlight was the keynote by Christina Romer, who served as the first chief economist for the Obama administration as it was taking office in the face of the Great Recession. Romer established a reputation as a firm advocate for fighting the recession with aggressive and sustained fiscal stimulus. In retrospect, her recommendations were clearly right, and if politics had let them win the day, tens of millions of Americans would have suffered far less in the past decade.
A conventional wisdom has emerged in recent years that an aggressive and sustained fiscal stimulus won’t be possible during the next recession. This argument is that the U.S. lacks the “fiscal space” needed to undertake this type of fiscal stimulus because its debt-to-GDP ratio is too high. During the first panel, a number of panelists and I made the case that this conventional wisdom is wrong; there is nothing to stop policymakers from undertaking needed fiscal stimulus during the next recession – except their own potential errors in judgment (this argument was also a theme of a paper I wrote for the event).
During her speech, Professor Romer made an argument that may have surprised some; she pointed to recent work she had done showing evidence that, in the past, high debt-to-GDP ratios really were associated with less-aggressive fiscal stimulus following financial crises. She pointed to this evidence for why she advocates reining in the growth of public debt as a key strategy for preparing for the next recession. She singled out the 2017 tax cut as a key example of what not to do when preparing for the next recession.
Trump and Kushner’s ‘merit-based’ immigration plan fails to propose the smart reforms needed to modernize and improve U.S. labor migration
One of the elements in the Jared Kushner immigration plan detailed by in Donald Trump’s speech on Thursday in the White House Rose Garden would change the proportion of green cards to vastly increase the share issued in the employment-based (EB) preference categories.
“Green cards,” as they’re commonly referred to, are immigrant visas that confer lawful permanent resident status on foreign citizens and allow new immigrants to remain in the United States permanently and obtain citizenship after five years. Trump has proposed to change the EB share of the total 1.1 million green cards issued every year from 12 percent to 57 percent and claims it would make the system more “merit-based.” This would be achieved by reducing the numbers of visas allocated based on family ties (66 percent in 2017) and the Diversity Visa lottery (4.6 percent in 2017) and increasing the EB category, and the EB visas would be renamed “Build America Visas” and prioritize advanced education and skills, and rank potential immigrants according to a new points system. Trump also noted that “we’d like to see if we can go higher” than 57 percent.
In reality, although only 12 percent of current green cards are allocated for new immigrants arriving with jobs or skills, many of the new green card holders coming to the United States through other categories are also well-educated, including in the family and diversity preferences. And within the EB categories, very few migrants are able to come to the United States as permanent immigrants with a path to citizenship if they work in lower-wage, lesser-skilled occupations. The EB third preference caps the number of “unskilled” workers at 10,000 per year, however that cap has been temporarily reduced to 5,000 since 2002, and only approximately half of that reduced cap has been used in the past five years. In other words, the system is already dominated by immigrants with skills and degrees and quite exclusionary towards those without them. We should rethink the system rather than double-down on it.
As some commentators and Democratic legislators have noted, the Trump/Kushner proposal is probably “dead on arrival” and unlikely to translate into legislation that can pass the House and Senate, in part because it lacks a proposal for legalizing the 11 million unauthorized immigrants or the subset of them that are protected by DACA and TPS. Nevertheless, it is worth examining because Trump is using the broadly-outlined plan devised by his son-in-law as a platform to unite the Republican party on immigration and show that they are “for” something on immigration, and not just against every conceivable type of immigration.
The film gives the audience a glimpse into the lives of several workers and their families as they struggle to balance their own health needs and that of their families without the ability to take time off from work. A lifelong activist and leading expert on work-family issues, Ellen offered up her wide breadth and depth of her experiences and expertise following the film, sharing the long fight across the country to improve workers ability to earn paid time off to care for themselves and their families in times of need.
In 1993, the United States passed the Family and Medical Leave Act (FMLA), which allows eligible employees to take up to 12 weeks of unpaid, job-protected leave within a calendar year for a serious health condition, the birth of a child or to care for a newly born, adopted, or foster child, or to care for an immediate family member with a serious health condition. While it’s important to celebrate that important milestone, federal action stopped 26 years ago.
Furthermore, because eligibility for FMLA is limited based on size of firm, work hours, and tenure at job, the FMLA only provides access to unpaid leave to an estimated 56 percent of the workforce. But the largest loophole in the FMLA is that it is unpaid, so many workers who would want to take advantage of it to care for themselves or a family member, simply cannot afford to.
Workers have to make difficult choices between their careers and their caregiving responsibilities precisely when they need their paychecks the most, such as following the birth of a child or when they or a loved one falls ill. This lack of choice can often lead workers to not take any leave or cut their leave short; about 45% of FMLA-eligible workers did not take leave because they could not afford unpaid leave and among workers who took time off for caregiving responsibilities, about one-third of leave-takers cut their time off short due to lost wages.
The failure to make a serious dent in high levels of economic inequality in recent years will make responding effectively to the next inevitable recession more difficult, both economically and politically.
Rising income and wealth inequality, combined with financial deregulation and the expanding financialization of the U.S. economy, led to the credit boom and crash that substantially deepened the resulting economic crisis in 2008. Fiscal stimulus during the Great Recession prevented the economy from collapsing completely but was still insufficient and phased out too soon. What’s more, instead of taking lessons from our experiences a decade ago and strengthening our recession-fighting tools, recent policies passed by Congress have focused on cutting taxes, reduced the perceived space we have to increase spending in a downturn and exacerbated income and wealth disparities in the United States.
First, let’s zoom out. Recessions aren’t just one-offs. They are part of the economic cycle. Aggregate demand in the economy expands and contracts over time and recessions occur during prolonged contractions, which are more likely when economic inequality distorts consumption and savings. Inequality also affects the time it takes to recover from recessions because it subverts our institutions and makes our political system ineffective. Lifting the economy out of a downturn requires decisive government action to boost spending and aggregate demand, which often runs counter to the primary interests of those with economic and political power. As entrenched interests continually hamstring the government’s capacity to respond to a recession, policymakers should act now to prepare for the next one by addressing inequality in the United States.
The Great Recession was associated with a dramatic reduction in the wealth of millions of Americans, particularly wealth in the form of home equity. The net worth of the typical household plunged by 40 percent, or about $50,000, as a result of the worst economic downturn since the Great Depression.1 Of course, these detrimental effects were not felt equally by all groups. Relative to white wealth, black wealth was hit especially hard by the Great Recession. Blacks saw their median net worth fall precipitously compared with whites (that is, in percentage terms, not in absolute terms).2 Between 2005 and 2009, the median net worth of black households dropped by 53 percent, while white household net worth dropped by 17 percent.3
Yet whether we look at the racial wealth gap before or after the Great Recession, the disparity between blacks and whites is persistent. According to the U.S. Census Bureau’s Survey of Income and Program Participation, in 2005 blacks had relative holdings of nine cents on the dollar compared with whites—this fell to just five cents in 2009 and inched up to six cents in 2011. In this sense, the Great Recession did not wipe out black wealth but decimated the very modest bit of wealth accumulated by blacks. While the economy continues to recover, and while some point to recent increases in the homeownership rate, we are alarmed by evidence that black college graduates may be falling even further behind in this new paradigm.4
First, we find that long-standing racial disparities in homeownership have worsened in the post-recession recovery. Second, we find that the Great Recession left black college graduates facing enhanced barriers in the housing market. While a bachelor’s degree is often framed as a reliable stepping stone on the path to economic security, our findings add to a growing literature that challenges that accepted wisdom. Research by Hamilton et al. finds that black households headed by a college graduate have less wealth than white households headed by someone who dropped out of high school.5
In particular, we use the Blinder-Oaxaca decomposition technique to demonstrate that the demographic and socioeconomic characteristics of college-educated blacks are explaining less and less of the racial difference in homeownership rates, in turn suggesting that structural barriers (including the criteria by which homes are financed), discrimination in lending and housing markets, and initial wealth itself are playing an increased and racially uneven role in the manner in which college-educated Americans are acquiring new homes.6
Disparities in homeownership rates, 2004 to 2017
The wizard of the White House roared last week, and markets quaked from Shanghai to London. In the face of Beijing’s refusal to meet U.S. demands on intellectual property theft and forced technology transfer, President Donald Trump is ramping up tariffs on Chinese imports.
This may prove to be another ploy to coerce a trade deal from China’s negotiating team. But while president can indeed impose draconian tariffs on imports from China, it still won’t solve the most fundamental trade problem for America: chronic trade deficits.
To be sure, China is a growing problem for the U.S. economy. Last year, the United States racked up a $419 billion goods trade deficit with China—almost half of the nation’s entire international goods deficit.
And the U.S. has lost at least 3.4 million good-paying jobs, including 136,100 jobs in Pennsylvania, mostly in manufacturing, due to growing trade deficits with China since it entered the WTO in 2001.
For a long time, the fundamental cause of this growing trade chasm with China was Beijing’s deliberate currency undervaluation. Between 2000 and 2013, China invested more than $4 trillion—nearly 40 percent of its current GDP—in foreign currency assets, primarily U.S. Treasury securities.
And it paid off, since it drove down the value of the Chinese yuan relative to the U.S. dollar. This served as a massive subsidy for Chinese exports and a tax on U.S. products shipped to China.
How to think about the job-creation potential of green investments: A boost to labor demand that will create some jobs, shift some others—and increase job-quality overall
A key dividing line between competing proposals to address climate change is the role of publicly financed and directed investments.
A recent open letter about policies that should be enacted to slow climate change from a group of prominent economists mentioned only carbon pricing, and, at least implicitly argued against publicly financed and directed investments by asserting that a carbon tax “should …be revenue neutral to avoid debates over the size of government.”
Alternatively, the central organizing principle around the “Green New Deal”—both the congressional resolution as well as the looser collection of ideas associated with the phrase–is that pricing carbon alone is not enough, and that a substantial degree of public planning and investment will be necessary to stop catastrophic climate change.
Here at EPI, we are firmly of the view that a robust package of publicly financed and directed investments should be part of a large portfolio of policies (which includes carbon pricing) for stopping climate change. Not every impediment to undertaking green investments is rooted simply in the too-low price of carbon. Public investments offer a way to cut through the Gordian knot of incentives and inertia that would slow green investments even in the presence of carbon pricing.Read more
Proof that teaching is increasingly becoming a profession under siege is mounting.
Many of us have relatives or friends who were dismissed from their schools during the recession or kept their jobs but faced cuts in school funding and other challenges affecting their work lives. News reports are replete with stories of teachers who quit or who are thinking about quitting. And the most recent PDK poll of American’s views of public education found that more than half of the parents surveyed said they do not want their children to become public school teachers—the largest share since the question was introduced in 1969 and the first time a majority of parents answered this way.
The U.S Department of Education closes the school year with the publication of the Teacher Shortage Areas. Researchers point to a lack of available individuals to fill teaching positions as a factor in the teacher shortage, which we explore in a series of reports being released this spring and summer. The shortage is estimated to exceed 110,000 teachers missing in the current school year, according to our colleagues at the Learning Policy Institute.
Why is the role of educating our children becoming so unpopular?
The explanations people would provide for the declining popularity of teaching are many and may vary depending on the respondent and her or his connection to the profession. Still, it is pretty likely that low teacher pay would be a common response, either as a single cause or as an important feature in a constellation of causes that includes disrespect from policymakers, underfunding (which leaves teachers without the supports to handle their day-to-day needs), and disinvestment in the professional supports that help teachers adapt to changing conditions, continue their professional education, and collaborate with one another—key elements of any professional occupation. It’s likely that explanations from teachers themselves would emphasize both the lack of professional supports that reflect a lack of appreciation for teaching as a professional like any other profession and the pay penalty they live with.
Federal law is supposed to be the backstop that protects the vulnerable when lower levels of government fail to act. But a recent proposal to establish a regionally-adjusted federal minimum wage would undermine this principle, codifying disparities into federal law that in many cases are not the result of benign economic forces.
For one thing, it is impossible to separate the prevalence of low wages in the South from the persistent racial hierarchies there. Fortunately, the historical record shows that federal lawmakers do not need to accept this legacy. Establishing a federal $15 minimum wage in 2024, as over 200 Congressional Democrats have proposed, is economically achievable nationwide.
For decades, lawmakers—particularly in southern states—have refused to raise minimum wages and have prohibited cities and counties from doing so. The proposed regionally-adjusted federal minimum would simply accept this outcome, locking in these areas’ low-wage status, and leaving behind millions of workers—particularly workers of color—in the process. The Economic Policy Institute estimates 15.6 million fewer workers would get a raise under the regional proposal compared with a universal $15 minimum wage, and over 40 percent of these excluded workers are people of color.
It is true that states and sub-state areas have varying wage and price levels and there are times when policies should take those differences into account. The good news is regional wage differences are far smaller today than in past decades. This means implementing a more livable national minimum wage is easier now than for previous generations.
Doing so will generate a universal federal minimum wage that states and cities can exceed if needed, so that no worker fails to receive a livable wage and policy gradually shifts upward those at the bottom of the wage scale. A uniform federal minimum wage would help combat inequality across both racial and gender lines.Read more
Our economy is out of balance. Corporations and CEOs hold too much power and wealth, and working people know it. Workers are mobilizing, organizing, protesting, and striking at a level not seen in decades, and they are winning pay raises and other real change by using their collective voices.
But, the fact is, it is still too difficult for working people to form a union at their workplace when they want to. The law gives employers too much power and puts too many roadblocks in the way of workers trying to organize with their co-workers. That’s why the Protecting the Right to Organize (PRO) Act—introduced today by Senator Murray and Representative Scott—is such an important piece of legislation.
The PRO Act addresses several major problems with the current law and tries to give working people a fair shot when they try to join together with their coworkers to form a union and bargain for better wages, benefits, and conditions at their workplaces. Here’s how:Read more
Over the last several years, the economy has continued on a slow-but-steady march to full employment. Along with improvements in nominal wage growth, we’ve seen evidence that more and more sidelined workers continue to pour into the labor market, seeking work and getting jobs. This growing labor force participation rate (LFPR), which has beaten many experts’ more pessimistic projections, is the subject of this jobs day preview post.
Projections of labor force participation changed dramatically once the Great Recession hit and many experts quickly decided that cyclical drop-offs in participation were actually structural trends. Think of cyclical changes as being short term, driven by the aggregate demand shortfall that caused the Great Recession and its aftermath. Structural changes are due to long-run trends, such as the aging of the workforce or the retirement of baby boomers. In and immediately following the Great Recession, there was a steady and deep decline in labor force participation. Even after the unemployment rate began to recover after a sharp spike, the participation rate continued to decline. That relationship is clearest when you look at the prime-age population, as I’ve pointed out before, but is true when you look at overall labor force participation and unemployment as well.
The figure below shows the relationship between the unemployment rate and the labor force participation rate between 1989 and 2019. It’s clear that the labor force participation rate continued to decline even as the unemployment rate started to recover in the aftermath of the Great Recession. Remember that to be counted as unemployed, you must be actively looking for work in the four weeks prior. With so many would-be workers falling off the official count of the unemployed, because the weak economy meant they did not believe there were job opportunities for them, many analysts began to question whether they would ever return.
The labor force participation rate continued to decline long after the unemployment rate began recovering in the aftermath of the Great Recession: Labor force participation and unemployment rates, ages 16 and older, 1989–2019
|Labor Force Participation Rate||Unemployment Rate|
Source: EPI analysis of Current Population Survey public data series
The purported benefits of the U.S.-Mexico Canada Agreement (USMCA, or NAFTA-2) for American workers are so tiny, one can hardly see them.
The U.S. International Trade Commission’s recent study of the economic impacts of the USMCA finds that it will have small, but positive, effects on U.S. output (GDP up 0.35 percent over six years), employment (176,000 jobs or 0.12 percent) and wages (up 0.27 percent). However, these projections are based on a number of questionable assumptions about the impacts of the trade deal, “assuming” for example that Mexico will adopt new labor legislation that will improve labor rights in that country, and “that these provisions are enforced” and Mexican union wages increase by 17.2 percent as a result. Furthermore, the ITC claims that U.S. wages will rise as a direct result of improved labor rights enforcement in Mexico, although that conclusion is not supported by the results of their own model.
These findings illustrate a much larger problem with the outdated modeling approach used by the ITC, which assumes that the purpose of trade and investment deals, such as the USMCA, is to reduce tariffs. However, the most important provisions of modern international economic agreements, such as the USMCA and the World Trade Organization, lay down rules governing matters such as foreign investment, services trade, government procurement, data transmission and storage, food and product safety standards, as well as labor rights and environmental standards. These rules govern how countries trade and businesses invest and how our economies are governed and regulated. At the end of the day, they determine who wins and loses, how income is distributed, the tradeoffs between corporate power and control, and whether the rights of workers, the public and the environment will be protected from transnational abuses from big business and big government.
Chapter 8 of the ITC report on the USMCA (p. 215) makes the following erroneous claim: The Commission estimates that the collective bargaining legislation will likely increase unionization rates and wages in Mexico and also increase Mexican output. This, in turn, would be expected to increase U.S. output and employment also, resulting in a small (0.27 percent) increase in U.S. real wages to attract the new workers.
This claim is not supported by the model results. Appendix F of the ITC report (Modeling the Labor Provisions, Table F.5 (p 327)) reports the results of a sensitivity analysis showing the impacts of various assumptions about the size of the Mexican union wage premium (17.5 percent, 32.7 percent, and 37.5 percent) on US macroeconomic variables, including GDP, total employment and wages. The first of these is the base case for the ITC’s overall estimates. These simulations resulted in no significant changes between the base case and alternatives (despite much higher assumed union wage premiums in Mexico) in the estimated impact of the USMCA on GDP (0.35 percent), wages (0.27 percent), or employment (176,000 jobs) in the United States, despite roughly doubling the assumed impact of collective bargaining on wages in Mexico (GDP and total U.S. employment increased very slightly in these simulations, by between 1/10 to 3/10 of 1 percent, as the Mexican wage premium was doubled).
Toxic Stress and Children’s Outcomes, a new report published jointly by the Economic Policy Institute and the Opportunity Institute, urges policymakers and educators to join health care researchers and clinicians in paying greater attention to the contribution of “toxic stress” to deterioration in children’s academic performance, behavior, and health.
The epidemiological research literature is rich with discussions of how toxic stress in children predicts depressed outcomes. And yet policymakers, educators, researchers, and clinicians have only recently begun to explore policies and interventions that might help to mitigate toxic stress and its effects on children.
“Stress” is a commonplace term for bodily chemical changes in response to frightening or threatening events or conditions. A normal response to a frightening or threatening situation is the production of hormones that can affect almost every tissue and organ in the body. Tolerable stress can contribute to better performance if individuals react by heightening their focus on the fright or threat without distraction.
But when frightening or threatening situations occur too frequently or are too intense, and when protective factors are insufficient to mitigate children’s stress to a tolerable level, these hormonal changes are deemed “toxic” and can impede children’s behavior, cognitive capacity, and emotional and physical health. Toxic stress produces not heightened focus but the opposite, a decrease in performance levels.
Last week, the New York Times published an article in “The Upshot” by Ernie Tedeschi, which argues that after accounting for state and local minimum wages, the United States currently has its highest average effective minimum wage ever at $11.80 per hour. The article correctly underscores how after 10 years of inaction at the federal level, so much of the policy work being done to boost wages for low-wage workers is happening at the state and local level. Yet, it is important to recognize that even with state and local governments taking action in many places, there are still millions of workers being paid significantly lower wages than the “average” minimum wage as calculated in the Upshot piece. In fact, raising the federal minimum wage to $11.80 would directly lift wages for 18.6 million workers, or 12.8 percent of the wage-earning workforce. Moreover, calculating the average effective minimum wage is very sensitive to how one defines the workforce affected by the policy. One would arrive at a much lower average minimum wage if considering the broader low-wage workforce for whom minimum wage policy is relevant.
The Upshot piece explores how the share of workers being paid exactly the federal minimum wage is relatively small. There are two reasons why this is the case. First, the article observes that 89 percent of minimum-wage workers are paid more than the federal $7.25, because 29 states and some 40+ cities and counties have set their own minimum wages above the federal floor. Higher state and local minimum wages—all of which can be found in EPI’s Minimum Wage Tracker—are the result of federal inaction and also due to the tremendous success of the Fight for 15 movement in raising awareness about low wages and pushing for minimum wage increases across the country.
Second, the share of workers being paid the federal minimum wage potentially overlooks millions of workers in states with low minimum wages who are earning only somewhat above the required federal minimum. For example, in Texas, a state stuck at the federal minimum wage, 2.7 percent of workers reported earning less than $7.50 per hour last year. But four times as many workers in Texas, or 11.0 percent, earned less than $10.00 per hour. This contrasts sharply with California, where there are higher state and local minimum wages: there, only 3.8 percent of the workforce reported earning less than $10.00 per hour last year. (These calculations use Current Population Survey data.)
Nevada state government has fiscal challenges–but granting state employees the right to bargain collectively does not add to them
A bill introduced in the Nevada State Senate (SB135) would allow state workers to collectively bargain over wages and benefits, a right they have been denied since 1965.
Opponents of public sector unions have begun making the usual arguments against granting Nevada state employees these rights. In two recent reports the Las Vegas Metro Chamber of Commerce (COC) and the Nevada Policy Research Institute (NPRI) make two essential arguments: granting state employees the right to bargain collectively will increase state spending and hence the tax burden on Nevadans, and these state employees are already overpaid, and collective bargaining rights would just make this worse. This logic ranges from myopic to misleading to outright false.
Take the first argument—that collective bargaining rights will reliably lead to higher state spending and a higher tax burden on Nevadans. The opposition to SB135 is trying to invoke a knee-jerk response from Nevadans to see higher spending as a bad thing always and everywhere; but what’s the evidence that Nevada’s spending has become bloated instead of inefficiently low? Take higher education. In the decade between 2008 and 2018 inflation-adjusted higher education spending per student in Nevada fell by 22.2 percent, a much worse performance than the national average. These cuts led directly to a staggering 56 percent increase in tuition for public universities over this same time period—one of the ten steepest tuition increases across the 50 states. Given this track record, the real problem facing Nevadans doesn’t seem to be ever-growing spending, but savage austerity that is sacrificing the future.
But maybe granting collective bargaining rights will radically overcorrect this problem and lead to Nevada becoming a profligate spender? It hasn’t happened in the K-12 education sector, where local government employees (including all teachers) currently have the right to bargain collectively. Even in this sector the downward pressure leading to inefficiently low spending has been ferocious. In a recent report card on education in Nevada, the Children’s Advocacy Alliance (CAA) gave the state an ‘F’ on funding, with low funding leading to some of the highest student-to-teacher ratios in the nation (48th out of 50). As recent teacher strikes over starved resources (not just pay) have shown in states like Oklahoma and West Virginia, lack of collective bargaining rights can lead to inefficiently low educational investments in states.
In short, the claim that collective bargaining rights always lead to bloated spending levels is a caricature. Instead, sometimes these rights provide a check (often insufficient) against relentless downward pressure on spending that leads to destructive cuts. The best empirical research linking public sector collective bargaining and state and local government spending finds mixed results, with the causal effect of collective bargaining rights in pushing up state spending either weak or non-existent. Given this evidence, the empirical claims made by opponents of SB135 about the magnitude of state spending increases that would occur should it pass are frankly absurd—they would require state employees’ compensation to rise by over 30 percent, with no beneficial effects on the state budget stemming from higher productivity or lower turnover or fewer state workers drawing public assistance benefits—all offsets that we know often accompany wage increases. The Chamber of Commerce study forecasts an even more outlandish increase—with total state spending forecast to rise more than the total amount spent on state employee compensation in the latest year of data.
Evidence that tight labor markets really will increase labor’s share of income: Economic Policy Institute Macroeconomics Newsletter
In a previous edition of this newsletter, I highlighted the labor share of income as a target variable the Fed should be monitoring to assess whether or not the U.S. labor market has returned to full health. Specifically, I argued that a period of above-trend growth in wages should be allowed if it leads to steady clawbacks in the share of national income that labor lost during earlier phases of the economic recovery and expansion. Figure A shows the evolution of labor’s share of income in the corporate sector in recent decades; it clearly documents that the post–Great Recession collapse in labor’s share has still largely not been reversed.1
Workers' share of corporate income hasn't recovered: Share of corporate-sector income received by workers over recent business cycles, 1979–2018
Notes: Shaded areas denote recessions. Federal Reserve banks’ corporate profits were netted out in the calculation of labor share.
Source: EPI analysis of Bureau of Economic Analysis National Income and Product Accounts (Tables 1.14 and 6.16D)
That newsletter wasn’t the first time I’ve stressed that the Fed should allow ever-tighter labor markets until the labor share of income normalizes or until there is an extended period of above-target price inflation. The argument, put simply, is this: If price inflation accelerates well before the clawback of labor’s share of income, this would be some evidence that structural changes (perhaps growing industrial concentration of product markets) have contributed to the fall in labor’s share, and that tighter labor markets by themselves will not be enough to return this measure to pre–Great Recession levels. However, if we don’t see this outbreak of extended above-trend price inflation well before any clawback, it means the Fed can and should strive to restore labor’s share by keeping labor markets tight.
In today’s newsletter, I follow up on those arguments, looking specifically at whether there really is a reliable positive effect of tight labor markets on labor income shares. If there is such a reliable effect, this provides a strong argument that the Fed should keep labor markets tight until labor’s share moves much closer to its pre-recession levels.
The big news in the Social Security trustees report released yesterday is that the Social Security Disability Insurance (SSDI) trust fund depletion date was extended 20 years, to 2052. Recent declines in SSDI applications and in assumed SSDI take-up going forward contribute to a small improvement in Social Security’s overall financial status, as did higher-than-projected mortality in recent years.
Other demographic factors—recent and projected declines in the birth rate and immigration—had negative effects on the program’s finances, though not enough to offset higher-than-expected mortality. However, when combined with the “valuation period” effect—the retirement of the large Baby Boomer cohort and subsequent slowdown in the growth rate of the working-age population—the demographic factors are essentially a wash—reducing the projected long-term deficit by .01 percent of payroll.
Economic factors included both positive and negative factors, but on balance increased the projected deficit by .04 percent of payroll. The positive factors include lower expected inflation, slightly higher long-term wage growth, and the current strong economy as a starting point for projections. The negative factors were lower productivity growth and interest rate assumptions. With the aforementioned positive effect of changes to disability experience and assumptions, which reduced the projected deficit by .07 percent of payroll, and minor technical adjustments, the overall effect was to shrink the projected deficit by .06 percent of payroll over the 75-year window.
Is this good news? Yes, in the sense that the annual release of the report often serves as an excuse for fearmongering. It’s more challenging to put a doom-and-gloom spin on an improved financial outlook—though some will inevitably try. One possible news hook is the fact that the combined “old age” and “disability” trust funds (often simply referred to as “the [combined] trust fund”) will start to shrink next year as more Baby Boomers retire. This is entirely proper and predictable—the Baby Boomers are the reason we built up the trust fund in the first place—but it has never stopped anyone from yelling “Social Security is going bankrupt!” in a crowded theater of bad ideas. (The challenge for the doomsayers, rather, is that they’ve been saying this ever since Social Security revenues minus the interest on trust fund assets weren’t enough to cover benefit payments, so this talking point has become a bit dull with time.)
And if you believe this, I’ve got a great deal to sell you: The economic impacts of the revised NAFTA (USMCA) Agreement
The North American Free Trade Agreement resulted in growing trade deficits with Mexico and steep U.S. job losses after it was implemented in 1994, increasing the bilateral trade gap by at least $97.2 billion and costing at least 682,900 jobs through 2010.
Can NAFTA 2.0 do any better?
The U.S. International Trade Commission’s (ITC) new report on the economic impact of the U.S.—Mexico–Canada Trade Agreement, released last week, projects that the revised NAFTA (USMCA) will have tiny impacts on the economy. The ITC estimates the deal will increase GDP by 0.35% when it is fully implemented (six years after it takes effect), or roughly 10 weeks of growth. Similarly, it projects that 175,000 jobs will be added in the domestic economy, a 0.1 percent increase in total employment (based on CBO projections for the economy in 2025), or roughly as many jobs as the economy adds in a normal month, over the next six years. And it claims real wages will rise about one-quarter of a percentage point (0.27 percent), roughly 4 percent of what workers are expected to gain, in real terms, over the next six years, if promised gains in output and employment are realized.
But there are strong reasons to doubt that these gains will be achieved. The ITC results show that the deal will yield remarkably small gains, and those gains rest on questionable assumptions about how the deal will help workers and the economy. Perhaps the most problematic finding in the ITC study (p. 25) was that labor provisions in the USMCA “would increase Mexico union wages by 17.2 percent, assuming that these provisions are enforced.” Given that unionization rates in the durable goods sectors of Mexican manufacturing are reported to be 20.2 percent (Table F.4), these would be massive impacts, indeed. Yet Mexican workers will not benefit unless there are mechanisms to ensure that labor rights enforcement does improve, but those provisions do not yet exist in the agreement.
Thus, it is not surprising to find that the AFL-CIO, other labor unions, and many members of Congress are demanding that “swift [and] certain enforcement tools” are included in the deal before it is submitted to Congress. These concerns also apply to segments of the agreement that pertain to the environment, access to medicines. Furthermore, the assumption that Mexican union wages will increase 17.2 percent seems especially heroic, within the 6-year adjustment period in the ITC model (p 23.), in light of the struggles that will be required to unionize such a large share of the labor force.
The ITC’s economic impact projections are built on a series of heroic assumptions that are built into its “computable general equilibrium (CGE) model.” The ITC model assumes the economy is always at full employment; that trade deals do not cause trade imbalances, job losses, growing income inequality, or downward pressure on the wages of most workers, and environmental damages;, and that the more expensive drugs, movies and software don’t otherwise harm consumers or the economy.
In particular, the ITC study assumes that the overall U.S. trade balance is unchanged by the deal (despite its significant changes in the rules of governing, trade, labor and the environment). Peter Dorman pointed out the problems with CGE models nearly two decades ago, as have many others, and yet the ITC staff, and other economists keep using them anyway.
For all the wrong reasons, the term “fiscal stimulus” became a dirty word in the wake of the Great Recession. Policymakers need to work hard to counter that perception before the next downturn hits.
President Barack Obama’s $800 billion spending plan is often criticized as having been ineffective. In reality, the plan played a crucial role in stemming a deepening economic slump, and if it fell short, it was because the aggressive one-time boost ultimately proved too small to counter the magnitude of the shocks at hand.
The fiscal boost during the latest expansion has been extraordinarily weak: Average annual fiscal impulse over five business cycles
|Peak-to-peak||3 years from trough|
Note: For each fiscal component (taxes, transfers, and government consumption and investment), the quarterly growth rate is multiplied by its share relative to overall GDP to get a quarterly contribution to growth. For taxes, this calculation is then multiplied by negative one—highlighting that tax cuts boost spending while tax increases slow spending. The figure shows these quarterly contributions expressed as annualized rates. Government consumption and investment spending is adjusted for inflation with the component-specific price deflator available in the NIPA data. For taxes and transfers, the price deflator for personal consumption expenditures (PCE) is used.
Source: EPI analysis of data from Tables 1.1.4, 2.1, 3.1, and 3.9.4 from the National Income and Product Accounts (NIPA) of the Bureau of Economic Analysis (BEA).
Speaking at EPI’s Next Recession event this past Thursday, Christina Romer, who was Chair of the Council of Economic Advisers during the crisis, asked “What made it possible to use fiscal policy so aggressively at that particular moment in time?”
Data from the Bureau of Labor Statistics’ Employer Costs for Employee Compensation gives us a chance to look at workers’ bonuses in 2017 and 2018, to gauge the impact of the GOP’s Tax Cuts and Jobs Act of 2017. Last year, our analysis showed that bonuses rose by $0.02 between December 2017 and September 2018 (all calculations in this analysis are inflation-adjusted). The new data show that bonuses actually fell $0.22 between December 2017 and December 2018 and the average bonus for 2018 was just $0.01 higher than in 2017.
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:
A flurry of corporate announcements provide further evidence of tax reform’s positive impact on wages. As of April 8, nearly 500 American employers have announced bonuses or pay increases, affecting more than 5.5 million American workers.
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, will produce significant wage gains.
Excessive wealth and power commanded by a small group of multi-millionaires and billionaires pose an existential threat to America’s economic vitality, democracy and civil society.
It’s well-known by now that the richest 1 percent of American households have essentially doubled the share of national income they claim since the late 1970s. Less well-known is that inequality has even risen sharply within the top 1 percent, with the top 10 percent of that overall group—or the top 0.1 percent—accounting for half of all income within the top 1 percent.1 In 2016, the latest year of available data, households with adjusted gross income (AGI) of over $2 million made up just over 0.1 percent of tax filers, but accounted for 100 times as much (10 percent) of total AGI.
The political clout of this topmost sliver of households is likely even more outsized then their share of overall income. This group’s incomes overwhelmingly stem from owning financial assets, not working in labor markets.2 This means that they benefit from the preferential tax treatment given to income from wealth relative to income from work. The Trump tax cut at the end of 2017 was tailor-made for very rich, as its largest cuts accrue to business owners—both corporate and non-corporate business.3
If you’ve been following the news in Georgia, you might think this is a reference to a tactic used by Georgia Secretary of State Brian Kemp to purge minorities from the state’s voter rolls right before the gubernatorial election he narrowly won against his Democratic opponent, Stacey Abrams. Not exactly, but both are related—and have civil rights implications.
Voter suppression efforts in Georgia and elsewhere have used a range of strategies to purge voters, including striking those whose names loosely matched those of dead people and felons and those whose names didn’t exactly match SSA or drivers’ license records (so much for consistency). In a legal challenge, civil rights groups noted that an estimated 80 percent of voters affected by the “exact match” policy were African American, Latino, or Asian American.
Now the Trump administration is reviving a failed policy of sending letters to employers informing them of apparent discrepancies between employee W-2 forms and SSA records. In this case, the ostensible goal is checking tax forms, not voter registrations, but both efforts use SSA data as a validity check and both disproportionately impact immigrants and people of color.
Wealth is a crucially important measure of economic health—it allows families to transfer income earned in the past to meet spending demands in the future, such as by building up savings to finance a child’s college education.
That’s why it’s so alarming to see that, today still, the median white American family has twelve times the wealth that their black counterparts have. And that only begins to tell the story of how deeply racism has defined American economic history.
Enter EPI Distinguished Fellow Richard Rothstein’s widely praised book, “The Color of Law,” which delves into the very tangible but underappreciated root of the problem: systemic, legalized housing discrimination over a period of three decades—starting in the 1940s—prevented black families from having a piece of the American Dream of homeownership.
The faith community has a long history of involvement in social movements for economic justice, bringing into focus the moral failings of our political and economic systems. I’m always struck when people say to me, “But you’re talking about morality, and we’re talking about money.” I answer, “You really think they’re different? You don’t recognize that a budget is a moral document? That policies are about moral decisions? That morality is not just about inspiration but about information?”
I realize that for some, the concept of a preacher writing for an economics blog might seem odd, but the link between what I do—as a pastor, architect of the Moral Monday movement and co-leader of The Poor People’s Campaign—and the research done by EPI is absolutely vital. One of the quickest ways for a movement to lose its integrity is to be loud and wrong. We’ve seen too many movements that have bumper sticker sayings but no stats and no depth. Researchers help to protect the moral integrity of a movement by providing sound analysis of the facts and issues at hand. Armed with this information, we’re able to pull back the cover and force society to see the hurt and the harm of the decisions that people are making.
In fact, I believe we find evidence of a relationship between religion, activism, and research that dates back to the prophets of the Bible. The prophets of the Bible were the social activists of their time. I say that because the only time prophets in ancient Israel rose to the fore was when the kings or the politicians and their court chaplains weren’t doing their job.
Internal Revenue Service (IRS) funding was in the news at the end of last year, after a series of articles by ProPublica detailed just how badly its resources had been gutted by cuts enacted by the Republican-controlled Congress. And the IRS remains in the news with ongoing pressure to release President Trump’s tax returns. Complaining about the IRS is a popular pastime for lots of Americans, and we would certainly agree that in recent years the IRS has spent too much time auditing low-income households—a recent ProPublica story notes, “the IRS audits Earned Income Tax Credit (EITC) recipients at higher rates than all but the richest Americans.” But the IRS needs mended not ended, with a large infusion of resources as well as a reorientation of its enforcement priorities. The reason for not giving up on having a functional IRS is simple: if we want a country where rich people and powerful corporations pay their fair share, we will need a higher-functioning IRS, and we should be willing to pay for it. The chart below shows the substantial budget and employment cuts at the IRS since 1994. IRS operating costs (in 2017 dollars) have declined 29 percent between 1994 and 2017 as a share of total returns filed. And those budget cuts have real consequences for IRS staffing; full time equivalent employees as a share of total returns filed has fallen by 42 percent since 1994.
IRS funding and employment have been cut drastically: IRS operating costs (in 2017 dollars) and average positions realized as a share of total returns, 1994–2017
|Average positions realized||Operating costs|
Source: EPI analysis of data from table 2.3.3 from the National Income and Product Accounts (NIPA) from the Bureau of Economic Analysis (BEA) and IRS data books, 1995–2017
Since 2011, GAO found that the shrinking IRS workforce has come largely in enforcement, leading to agency officials telling GAO that declining staff was a key contributor to scaled back enforcement activities. Shrinking IRS enforcement is a boon largely for rich individuals and corporations, who have far greater opportunities to dodge taxes through creative accounting.
The IRS has not always been so hamstrung. A too-brief spell of increased budget and staff capacity from around 2008 to 2011 led to about a threefold increase in audit rates on households making over $1 million, while audit rates overall increased by just 11 percent, as did audit rates for EITC recipients making under $25,000. Overall audit rates for EITC recipients increased by just 4 percent. In short, when resources were adequate, the IRS (properly) focused its enforcement gaze where the money was.
Congress and Trump discover bipartisanship on immigration—but only to increase H-2B visas for captive and underpaid migrant workers
Instead of taking action together to enact legislation that would provide a path to citizenship for the unauthorized immigrants who are in danger of losing their immigration protections and work authorization as a result of President Trump’s efforts to end Deferred Action for Childhood Arrivals (DACA) and Temporary Protected Status, Congress and the Trump administration have collaborated to increase in the size of the main temporary work visa program that U.S. employers use to fill low-wage non-agricultural jobs: the H-2B visa.
This year, employers and corporate lobbyists claimed—as they do every year—that 66,000 low-wage work visas were not enough to fulfill their demand for cheap, captive labor in the landscaping, construction, forestry, seafood, meat processing, traveling carnival, and hospitality industries. Members of Congress acquiesced to their demands by inserting language into the appropriations legislation that is now funding the government during fiscal year 2019, that gave the Department of Homeland Security (DHS) the authority to temporarily increase the annual limit of 66,000 visas by up to 63,500 additional visas. DHS ultimately decided last week to increase the H-2B annual limit by 30,000 visas, taking the total H-2B “cap” for 2019 to 96,000.
Migrant workers make important contributions to the U.S. economy, and it should go without saying that they deserve equal rights, fair pay, protections from retaliation, and a path to permanent residence and citizenship. Sadly, the H-2B program does not meet any of these standards. Instead, the H-2B program—like other U.S. temporary work visas programs—empowers employers to legally exert an unusual amount of control over migrant workers, who often arrive indebted to the labor recruiters who connect them to jobs in the United States. H-2B workers are in effect, captive, because their visa status is controlled by their employer—which means that if an H-2B worker isn’t paid the wage he or she was promised, or is forced to work in an unsafe workplace—the worker has little incentive to speak up or complain to the authorities. Complaining can result in getting fired, which leads to becoming undocumented and possibly deported. It also means not being able to earn back the money that was invested in order to get the job.
These problems, which are inherent in the H-2B program, are well-documented. There are numerous cases of litigation, media reports, government audits, and studies revealing how migrants employed through the H-2B program arrive in the United States with massive debt, are often exploited and robbed by employers, and even become victims of human trafficking. While these most-egregious examples are clear legal violations, much of the abuse and discrimination in the H-2B program is perfectly legal. First, employers control the workers’ immigration status. And second, employers have been allowed to underpay H-2B workers for years thanks to the way the H-2B wage rules work, which have included policy changes made through appropriations riders that have weakened the already-inadequate wage rules and de-funded enforcement. Since U.S. workers are forced to compete with vulnerable and underpaid H-2B workers, wages and working conditions for all workers in major H-2B occupations are degraded. As a result, there’s no question that the H-2B program needs major reforms to protect both migrant and American workers.
Table 1 below illustrates how the H-2B program allows employers to undercut U.S. wage standards. Table 1 shows the top 20 H-2B occupations in fiscal2017 by Standard Occupational Classification code, according to H-2B jobs certified by the U.S. Department of Labor (DOL), and the nationwide average hourly wage for all certified H-2B workers in each of the occupations. The 2017 average hourly wage rates for all workers in the occupation nationwide, according to the DOL’s Occupational Employment Statistics (OES) survey—which is used to set H-2B wage rates, making it an apples-to-apples comparison—is listed next to the H-2B wage. The final column shows the difference between the average hourly certified H-2B wage and the average hourly OES wage for the entire country; this is what employers save, on average, by hiring an H-2B worker instead of a worker who is paid the national average wage for the occupation.Read more
April 2nd is Equal Pay Day, a reminder that there is still a significant pay gap between men and women in our country. The date represents how far into 2019 women would have to work to be paid the same amount that men were paid in 2018. On average in 2018, women were paid 22.6 percent less than men, after controlling for race and ethnicity, education, age, and geographic division.
Even after extensive research has been done to show the gender pay gap exists (and persists), some skeptics refuse to believe the data. This infographic shows some of the most common criticisms of the gender wage gap and rebuts the “mansplainers” with data.