Evan Soltas asks some questions about how much slack remains in the economy, some directed at my recent deck on the issue (which has been edited—grabbed the wrong quarter as the trough for a couple of series—all that really changes is lower relative growth in business investment in the  current recovery).

Jared and Dean have largely answered his first question on quits, but since he re-poses it in his latest, here goes my answer, largely mirroring theirs—the quit-rate is actually about where it was in the middle of the recession. It’s headed generally up, but in the latest month’s data is back to where it was in September, so I can’t really look at this and think that slack is fading so fast we’ll run up against capacity constraints soon. As an aside, I’d just note that Evan occasionally implies that I’m arguing that there has been no reduction in slack since the recession. That’s not true—I don’t argue that anywhere.

Further, I’m not exactly sure what to make of his linear projection of unemployment combined with futures markets’ expectations of short-term rate hikes in coming years. He finds that combining the two imply short-term interest rates will still be very low even when unemployment is very low, and takes this as evidence that monetary policy is actually on a very (maybe even riskily?) accommodative path. But isn’t the more likely interpretation of these series simply that futures markets don’t believe his linear unemployment projection is likely to come to pass?

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Are African Americans disadvantaged—for example, having lower school achievement—because they have lower family incomes, on average, than whites, or because they continue to suffer from an American caste system based on race?

Both are involved. Certainly, in a color-blind society, African American students would have lower average achievement simply because a higher proportion of African American than white students have income and other socioeconomic disadvantages that depress their ability to take full advantage of schooling.

Therefore, policies that attempt to offset the disadvantages that impede the success of all lower class children, regardless of race or ethnicity, can benefit black children disproportionately. But we should not delude ourselves that by narrowing socioeconomic inequality, we have also significantly addressed racial subjugation, the continuing American dilemma.

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For decades, Americans’ wages have been stagnant—hardly growing at all, even as the economy becomes increasingly productive. Do you ever wonder why your paycheck is so thin? One reason might be that employers routinely ask workers to work long hours without extra compensation. President Obama has decided to fix this problem and will direct the U.S. Department of Labor to update its overtime regulations, which allow employers to deny overtime pay to millions of white collar workers who ought to receive it.

The salary threshold is supposed to be set at a level high enough to guarantee that regular employees can’t be misclassified by their employers as exempt executives, administrators or professionals, as a way to get around having to pay time-and-a-half for overtime work. Back in the days when the level was regularly adjusted, it was set at about $50,000-$60,000 a year in today’s dollars, which is reasonable and was high enough to protect most secretaries from being classified as exempt administrators, for example, and research assistants from being classified as exempt professionals. Today, the threshold is set at $455 a week, or $23,660 a year—$190 less than the poverty threshold for a family of four. Quite frankly, it’s a joke.

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The second installment of the Netflix original series, House of Cards, became available recently to the delight of binge watchers everywhere. In the backdrop of Frank Underwood’s (played by Kevin Spacey) uncompromising assent to power is a very relevant debate about trade policy with China. Specifically, one of the primary sources of tension between the two countries is the U.S.’ contention that China artificially keeps the value of their currency down to gain an advantage in trade. Defining currency manipulation is an ongoing debate, but Bergsten and Gagnon laid out their own criterion and found China to be one of the “most significant currency manipulators.” The effort to label China a currency manipulator falls by the wayside in Underwood’s duplicitous schemes to push his own personal agenda, but China’s currency manipulation has real effects on trade, and the United States can take real actions to reduce the trade deficit and create jobs. In fact, EPI’s Robert Scott just released a paper which found that ending currency manipulation across 20 of the most prominent practitioners (including the linchpin, China) would create between 2.3 million to 5.8 million jobs in the United States over the next three years.

So how is “currency manipulation” defined?  Bergsten and Gagnon categorize a country as a currency manipulator if it meets the following four criteria:

• They held federal exchange (FX) reserves that exceed six months of goods and services imports.
• They maintained a total (global) current-account surplus between 2001 and 2011.
• Their total FX reserves grew faster than their GDP between 2001 and 2011.
• They have gross national income in 2010 of at least $3,000 per capita, the median among 215 countries ranked by the World Bank (this criterion excludes low-incoming developing economies).

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It is remarkable that until this week, no American politician has had the guts or vision to speak out against one of the most destructive trends in our troubled labor market—the scourge of illegal unpaid internships. But thank goodness for Hillary Clinton, who, as reported by Politico, “spoke passionately about millennials, blasting businesses that take advantage of unpaid interns.”

The Fair Labor Standards Act makes most unpaid internships in for-profit businesses illegal because the so-called internships are usually nothing more than employment, with no special educational purpose or structure and no pay. The U.S. Department of Labor has made clear that interns must be paid at least the minimum wage unless the business that hires them meets six criteria:

1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
2. The internship experience is for the benefit of the intern;
3. The intern does not displace regular employees, but works under close supervision of existing staff;
4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

According to the National Journal, Clinton, who was addressing an audience at UCLA, “warned there is a “youth unemployment crisis” created by the weak economy they inherited, and stressed the need for more opportunities such as paid job training. She decried—to applause from the audience—businesses that have “taken advantage” of young people with unpaid internships.”

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Growing trade deficits have cost US workers millions of jobs over the past two decades, (these were good jobs in manufacturing industries).  Currency manipulation by more than 20 countries, of which China is by far the largest, is the single most important reason why U.S. trade deficits have not decisively reversed.  Currency manipulation lowers the value of foreign currencies, relative to the U.S. dollar, which acts like a subsidy to their exports, and a tax on U.S. exports to China and every other country where the U.S. competes with the exports of currency manipulators.

In an era of fiscal austerity, ending global currency manipulation is the best way to reduce trade deficits, create jobs, and rebuild the U.S. economy, as shown in Stop Currency Manipulation and Create Millions of Jobs.   Eliminating currency manipulation would reduce the U.S. trade deficit by between $200 billion and $500 billion in three years. This would increase annual U.S. GDP by between $288 billion and $720 billion and create 2.3 million to 5.8 million jobs. About 40 percent of the jobs gained would be in manufacturing.

Ending currency manipulation would not require any government spending – a key political virtue during this time of Congressional gridlock. In fact, it would reduce the federal budget deficit by up to $266 billion dollars per year as the extra economic activity and employment it creates boosts tax revenues and reduces safety net spending. Ending currency manipulation would create jobs in every state, with gains from 8,200 jobs (2.64 percent of total employment) in the District of Columbia to 687,100 jobs (4.18 percent of employment) in California. Ending currency manipulation would likely create jobs in every Congressional District, with gains of up to 24,400 jobs (7.05 percent of employment) in the 17^th District in CA.

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The Atlantic’s Derek Thompson wrote a great review of Claudia Goldin’s latest work on closing the wage gap at the upper level of the distribution. Goldin postulates that the final steps to closing the gender wage gap begin at the top rungs of the income distribution. Goldin examines MBA graduates’ earnings over their life span, and finds that the wage gap would start to close if firms didn’t have an incentive to disproportionately reward individuals “who worked long hours and who worked particular hours.” Men may be more able to choose to work long hours in a way that women, particularly in their first 10-15 years of work, may not choose to do for any number of reasons (most obviously: having kids), and whoever is willing to work these longer hours (usually men) gets disproportionately rewarded. To close the gap, Goldin calls for changes to the way jobs are structured—in short, greater work time flexibility.

While Goldin’s analysis is currently my favorite analysis for understanding gender wage inequality at the top—and I applaud her call to give high wage professionals more autonomy and encourage more flexible work schedules—her analysis doesn’t solve the question of how to close the wage gap for the majority of American workers, those who earn low- and middle-wages. (I’m also skeptical of the idea that there aren’t substantial incentives among those in power to keep the structure of high wage professions as it is or that work time flexibility will be enforced by companies even if it’s created.) For the majority of women, gender wage gaps are one way that women get the raw deal, but it is not the only way.

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In tomorrow’s jobs report, we could well see the headline unemployment rate nudge down to 6.5 percent. This is the threshold at which the Federal Open Market Committee (FOMC) of the Federal Reserve had indicated they may move the short-term policy rates they control up from zero, thereby providing less monetary stimulus to the recovery.

Easing back on this stimulus would be a mistake. The economy remains far from full employment, and the headline unemployment rate is far understating the degree of economic slack remaining in the economy. This is demonstrated by the 5.85 million “missing workers”—potential workers who, because of weak job opportunities, are neither employed nor actively seeking a job. Further evidence can be seen in the 7.7 million “jobs-gap”—the number of jobs needed to restore the labor market to its pre-Great Recession health. Subdued wage and price inflation measures provide yet more evidence. The year-over-year change in the “market-based” core price deflator for personal consumption expenditures fell to 1.1 percent for all of 2013. And just today, data on unit labor costs (a key predictor of inflationary pressures in the economy) indicated that these slightly fell in the last quarter of 2013.

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The President released his fiscal year 2015 budget stating that his goal is “to speed up growth, strengthen the middleclass, and build new ladders of opportunity into the middle class,” all while reducing budget deficits.

There is much to like in the budget proposal. Mr. Obama wants to expand the Earned Income Tax Credit for childless workers, which will encourage work and reduce poverty. He also provides additional funds for child care, education, research, and infrastructure. To pay for this he proposes to eliminate various tax loopholes for hedge fund managers and multinational corporations.

Seeing as how this budget proposal has virtually no chance of outmaneuvering the GOP blockade, its chief value is to demonstrate a vision of America that better addresses the core economic problems of the middle and working classes. And in this vein, the President’s budget could have been better.Read more