A couple of my EPI colleagues have recently shown and testified twice that raising the state minimum wage to $10.10 would greatly benefit Maryland workers. In my opinion, it’s not nearly enough of a raise, but it’s what’s on the table, and there’s no doubt it would help hundreds of thousands of workers. In any case, the legislative saga to make it a reality continues. On March 3, the Maryland House of Delegates’ Economic Matters Committee approved a number of changes to legislation proposed by Governor O’Malley to raise the minimum wage to $10.10. The changes weaken the law and exempt certain employers and industries from having to pay the increased wage. Two days later the full House considered over a dozen amendments—most of which were seeking to expand the committee’s exemptions—but none passed. That version of the bill was then passed by the House on March 7. What you should know is that the bill could have been much better, but a number of delegates in a Democratic-controlled House managed to greatly water down the scope and impact of the bill, and the bill also did not remove a number of exemptions that exist in current law.

The worst change to the originally proposed House version of the minimum wage law was the committee’s deletion of the provision that would index the minimum wage to inflation after 2016. That provision would have ensured that the bottom of the wage scale kept pace with the cost of living over time. Gov. O’Malley expressed his disappointment with this and plans to do all he can to get it reinserted during the remaining stages of the legislative process. Another unfortunate modification is a six-month extension of the time it will take for the minimum wage to reach its peak of $10.10. Workers earning the minimum wage are hurting now and earning near or below the poverty line; they need a raise as soon as possible, not one that’s slowly phased in through 2017.

Read more

This Saturday is the second anniversary of the U.S.-Korea Free Trade Agreement (KORUS), which took effect on March 15, 2012. President Obama said at the time that KORUS would increase US goods exports by $10 to $11 billion, supporting 70,000 American jobs from increased exports alone. Things are not turning out as predicted.

In first two years after KORUS took effect, U.S. domestic exports to Korea fell (decreased) by $3.1 billion, a decline of 7.5%, as shown in the figure below. Imports from Korea increased $5.6 billion, an increase of 9.8%. Although rising exports could, in theory, support more U.S. jobs, the decline in US exports to Korea has actually cost American jobs in the past two years. Worse yet, the rapid growth of Korean imports has eliminated even more U.S. jobs. Overall, the U.S. trade deficit with Korea has increased $8.7 billion, or 59.6%, costing nearly 60,000 U.S. jobs. Most of the nearly 60,000 jobs lost were in manufacturing.

Trade deals do more than cut tariffs, they promote foreign direct investment (FDI) and a surge in outsourcing by U.S. and foreign multinational companies (MNCs). FDI leads to growing trade deficits and job losses. U.S. multinationals were responsible for nearly one quarter (26.9 percent) of the U.S. trade deficit in 2011. Foreign multinationals operating in the United States (companies like Kia and Hyundai) were responsible for nearly half (44.2 percent) of the U.S. goods trade deficit in that same year. Taken together, U.S. and foreign MNCs were responsible for nearly three-fourths (77.1 percent) of the U.S. goods trade deficit in 2011.

Read more

Representative Dave Camp, the Republican Chairman of the House Ways and Means Committee, recently unveiled his long awaited comprehensive tax reform proposal. It is one of the very few serious congressional tax reform proposals in several years (Senators Wyden and Coates are probably the only others with a serious tax reform plan in recent years). Like any proposal of substance, there is much to like in Camp’s proposal and much to dislike. Much has been written on what is good and bad about it and more will undoubtedly follow. In this post, I’ll focus on the macroeconomic growth outcomes of the plan which are, after all, the whole point of what is supposed to make politically difficult “tax reform” worth it in the end. The bottom line is, estimates of the plan’s macroeconomic outcomes mostly tell us that dynamic scoring models are still not ready to be used as guides to policy.

The Camp plan reduces the statutory tax rate on corporations from 35 percent to 25 percent, reduces the statutory tax rate for most individuals (the top tax rate is reduced from 39.6 percent to 35 percent—a 12 percent reduction—but the rate reductions are far from simple to quantify), and eliminates many tax loopholes in order to reduce tax rates (all under the current Washington mantra of “lower rates and broaden the base”). The plan is revenue neutral over the next 10 years, but most likely increases deficits after that, because of various gimmicks that shift tax revenue inside the 10-year budget window. In addition to revenue neutrality, the plan aims to be distributionally neutral as well. (Non-economists may well wonder what the point of a revenue and distributionally neutral tax reform could possibly be. The answer suggested by many economists is the tax rate reductions made possible by tax reform will dramatically increase economic growth and employment.)

Read more

The Senate reached a deal yesterday on extending unemployment insurance benefits that expired at the end of 2013. It’s not perfect—it only lasts for six-months, the length of benefit eligibility remains too low, and a range of pretty silly “pay-fors” are included. These pay-fors are not earth-shakingly bad, but the idea that one needs to find offsets to pay for emergency unemployment benefits is truly bad policymaking. These benefits are supposed to be deficit-financed, because that’s what optimizes their “automatic stabilizer” properties.

But as far as DC policymaking goes, this is a deal I’d vote for in a second, obviously. Unemployment today stands at 6.7 percent. Before the Great Recession, we last saw unemployment this high in October 1993—and yes, the extended unemployment benefits program triggered by the 1990-1991 recession was still in effect in that month. And long-term unemployment (the reason extended benefits are relevant) remains at levels that dwarf anything we’ve seen pre Great Recession.

The arguments for extending these benefits are as clear a slam-dunk as exists in policymaking. Unemployment and long-term unemployment remain high. Extended benefits keep people actively searching for work instead of dropping out of the labor force entirely. And unemployment insurance is some of the most efficient economic stimulus there is. If we go all of 2014 without renewing benefits, the drag on the economy will likely cost us roughly 310,000 jobs over the year.

One question that often comes up is “what do people do when their benefits run out?” There is, of course, a myth that when UI benefits are exhausted, people simply stop enjoying their subsidized vacation and go find work. It’s not true (see this paper, among plenty of others that have looked at this effect). And the reason that it’s not true is simply because there remains a huge excess of unemployed workers relative to job openings. This ratio of job seekers to job openings has indeed improved a lot from the brutal levels reached during the height of labor market distress following the Great Recession, but it’s still a very ugly game of musical chairs for job seekers.

So what do people do when their UI benefits are exhausted? Some new research by Jesse Rothstein and Rob Valletta provides the depressing and completely predictable answer: they suffer. The probability of falling into poverty almost doubles following exhaustion of UI benefits.

It’s great that the Senates decided to do something useful for the American people yesterday. It’d be even better if the House followed their lead.

The Congressional Progressive Caucus (CPC) released their budget proposal yesterday. And, unlike other budget proposals, the CPC proposal recognizes and acts on the need for sustained investment in our future. As is well-known, unless Congress acts to change the Murray-Ryan budget, fiscal year 2015 overall spending levels are already set. But the policy debate over fiscal priorities has (rightly) continued. For example, President Obama released his proposed budget last week, in which he calls for $28 billion in increased nondefense discretionary spending over Murray-Ryan. It is worth taking a closer look at the various budget proposals and compare them to each other and with historical nondefense discretionary spending.

This blog post focuses on nondefense discretionary spending—the part of the budget containing much of our spending on infrastructure, education, and public research and development.* Increasing this spending is important due to years of underinvestment. The American Society of Civil Engineers estimates that over the next 10 years the gap between needed funding for infrastructure and what is planned to be spent is over $1.6 trillion (their overall grade on the state of current U.S. infrastructure is D+). The National Center for Education Statistics estimates that $200 billion is now needed for repairs, renovation, and modernization of public school facilities.

Read more

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?

Read more

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.

Read more

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.

Read more

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).

Read more

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.”

Read more