Those hoping to chart a new course in economic policy that delivers real gains, not just cynical rhetoric, to American workers have been closely following electoral politics throughout the country. But elections aren’t the only way change can happen. A case in point is the search currently underway to replace William Dudley as the President of the Federal Reserve Bank of New York.
We have written plenty before about the importance of the Federal Reserve in determining whether or not American workers will have a chance to see serious wage growth in coming years. Put simply, the Federal Reserve controls the economy’s brakes. If they decide the pace of economic growth is fast enough to risk overheating, leading to an outbreak of accelerating inflation, they step on the brake. No other policy has a hope at creating jobs and delivering broad-based wage growth if the Fed uses this brake prematurely. Recent decades have seen exactly this premature use of brakes, and the result has been unemployment kept too high to give typical workers the economic leverage and bargaining power they need to achieve substantial wage gains.
Why has Fed often ridden the economy’s brakes too hard in recent decades? Mostly because they have a loud backseat driver that is terrified of any unexpected inflation: the nation’s financial sector. Unexpected inflation decreases the value of financial assets and transfers resources from creditors to debtors. Wealthy households and creditors—the prime clients of finance—want to avoid this kind of inflation-induced transfer at all costs. And the costs of avoiding it are high indeed. Excess unemployment, justified in the name of putting relentless downward pressure on inflation, is a key reason why inflation-adjusted wages for typical workers have nearly stagnated over most recent decades.
The United States, Canada, and Mexico are currently in talks over changes to the North American Free Trade Agreement (NAFTA). Renegotiating NAFTA offers an opportunity to create a new labor template based on long overdue and urgently needed labor standards that are consistently enforced and upheld. In order to accomplish this, we need to update and strengthen current language (based on the May 10, 2007 template). Among other things, there should be fewer limitations on the kinds of labor violations that are covered, and each signatory must be in compliance with the standards set forth prior to joining the agreement. The following recommendations constitute some of the steps needed to achieve these essential improvements to the labor chapter:
- Incorporate explicit references to labor standards reflecting the conventions of the International Labour Organization (ILO), including those concerning the freedom of association, collective bargaining, discrimination, forced labor, child labor, and workplace safety and health.
- Remove the footnote explicitly limiting the terms of the chapter to the ILO Declaration on Fundamental Principles and Rights at Work.
- Eliminate the requirement that labor violations under the agreement must be in a manner affecting trade or investment between the parties.
- Eliminate the requirement that labor violations must be sustained or recurring.
- Verify that labor standards in the agreement are being honored and enforced by the signatories prior to the agreement going into effect.
With today’s jobs report we can look at the entirety of 2017—putting the year as a whole in perspective and comparing 2017 with 2007, the last business cycle peak before the Great Recession began. Yesterday, I provided a fairly broad overview of the year with context since the last business cycle peak before the Great Recession (2007) and the last time the U.S. economy was at full employment (2000).
As the recovery has strengthened we’ve seen improvements in all measures of employment, unemployment, and wage growth. These measures tell a consistent story—an economy on its way to full employment, but not there yet. Taking a data-driven approach to policymaking would mean continuing to push, keeping interest rates low and letting the economy recover for Americans across genders, races, ethnicities, and levels of educational attainment.
Payroll employment growth in December was 148,000, bringing average job growth in 2017 to 171,000. The figure below shows average employment growth over the last several years. While more than enough to keep up with population growth and pull in workers from the sidelines, job growth in 2017 was noticeably slower than in recent years.
What to Watch on Jobs Day: Taking stock of the labor market, 10 years since the start of the Great Recession
The last jobs report of 2017 comes out on Friday, giving us a chance to step back and look at the entire year. Tomorrow’s jobs report also marks the 10th anniversary of the start of the Great Recession. My expectation is that the December data will confirm that, while by some measures the economy has almost recovered its immediate pre-Great Recession health, by other measures it is still notably weaker than in 2007, the last year before the Great Recession hit. Further, as I have often noted, 2007 should not be considered a benchmark for a fully healthy economy for America’s workers. Almost all labor market measures were notably weaker in 2007 than they were at the previous business cycle peak in 2000. There was very little reason to think that the U.S. economy in 2007 was at full employment. If one looks at the stronger business cycle peak of 2000 as a more appropriate benchmark, the economy in 2017 looks even weaker, and the case for continued policy support for faster growth is strengthened. Many working people are still not seeing the recovery reflected in their paychecks—and the economy will not be at genuine full employment until employers start offering workers higher wages.
In this post—and tomorrow when the December numbers come out—I’m going to look at average payroll employment growth over the last several years. Because there is always a bit of volatility in the monthly data—especially in the household series—taking a year-long approach allows us to smooth out the bumps and take stock of all the key measures: payroll employment growth, the unemployment rate, the employment-to-population ratio, and nominal wage growth.
The figure below shows average nonfarm employment growth for 2007–2016 and for the first 11 months of 2017. With an average of 174,000 new jobs being added each month, job growth in the first 11 months of 2017 was slower than in any year since 2011. But even at this slower pace of growth we are not only absorbing population growth, but also chipping away at the slack remaining in the labor market—namely workers who continue to be sidelined and who I expect will enter or re-enter the labor market as opportunities for jobs and better paying jobs expand. If December’s numbers are in line with payroll employment growth over the last several months, it will be more proof that the economy is continuing its slow but steady march towards full employment.
For the past six years, a group of brave young (and some not so young) former interns have been fighting for workplace protections, including the right to be paid. Not just to be paid properly—to be paid at all. I have had the privilege of representing many of them in their lawsuits. It has been quite a journey that, at this point, is going in the wrong direction.
At the beginning, the court of public opinion was decidedly against us. Anderson Cooper mocked our lawsuit against Fox Searchlight Pictures, which used unpaid interns on its Black Swan film production, placing it on his “RidicuList.”
But slowly the tide turned our way as more interns spoke up about the long hours they toiled for no pay and receiving little or no benefit in return. The New York Times reported that former interns were pushing back against exploitative internships. A social media campaign urging companies to #payyourinterns exploded.
The interns’ lawsuits raised a straightforward point: interns who do real work for private companies, whether menial or not, are protected by our nation’s labor laws and, therefore, should be paid at least minimum wage for the hours they work. The fact that many interns are students or work for relatively short durations should be irrelevant. Seasonal and temporary workers must be paid the minimum wage, so why should there be an exception for interns? The fact that some schools grant credit to some interns should not change the calculation either. Course credit is no substitute for pay and, for many interns, paying for the school credit is another out of pocket expense that they can ill afford. In fact, everyone seems to benefit from the transaction more than the interns—schools benefit by reaping tuition dollars without providing instruction and corporations benefit by substituting parts of their paid workforces with unpaid hours.
On Friday, the Trump administration’s appointees to the National Labor Relations Board (NLRB) once again made it more difficult for workers to join together and form a union, by overturning the Board’s standard for determining an appropriate bargaining unit, as established in 2011’s Specialty Healthcare case.
Under the National Labor Relations Act, private-sector workers who wish to be represented by a union can petition the NRLB to hold a union election. Federal labor law gives the Board wide discretion to determine the appropriate “bargaining unit,” the term for the group of workers that will vote in the election and will be represented by the union. In Specialty Healthcare, the Board established that once an appropriate unit of employees is identified based on the employees’ “community of interest,” an employer can only petition to add more employees to the unit if the employer can show the additional employees share an “overwhelming community of interest” with the workers who are already in the bargaining unit. This standard is important to prevent employers from attempting to manipulate or gerrymander the bargaining units in order to thwart their employees’ union elections. The NLRB’s standard for determining an appropriate bargaining unit in Specialty Healthcare has been unanimously upheld in all seven U.S. Courts of Appeals in which it has been challenged.
Since the NLRB issued its decision in Specialty Healthcare corporate special interests have assailed it as inviting the proliferation of “micro” units that will allow unions to form small pockets of unionized employees among an employer’s workforces. However, data on the median size of bargaining units disproves the argument that the standard would lead to the proliferation of so-called “micro-units”—the median size of bargaining units has hardly changed since the Board issued its Specialty Healthcare decision in 2011.
Why then were the Chamber of Commerce and other corporate interest groups committed to doing away with the Specialty Healthcare standard? They simply want to make it easier for employers defeat an organizing campaign, by manipulating who is in a bargaining unit. By overturning this rule, the Trump administration has once again shown that it wants to make it harder for workers to organize and join unions.
The arguments supporting corporate tax cuts are wrong, and territorial taxation will make things worse
Congressional Republicans are set to release the final version of their tax bill this evening. Pending more details, the final bill coming out of the conference committee looks increasingly like the Senate version of the bill, which makes Republican tax priorities clear. Most of the individual provisions in the bill are temporary, and the exceptions to this actually raise taxes on households—by tying tax brackets to a new, lower inflation rate and reducing the number of people receiving help buying health insurance through the Affordable Care Act. The end result for the Senate bill was that on average, households making under $75,000 would see a tax increase by 2027 according to the Joint Committee on Taxation.
On the other hand, the changes for corporations, such as lowering the corporate tax rate and shifting to a “territorial” tax system, are permanent. Since changes benefiting corporations are the only policies deemed worth keeping by Republicans (besides those that raise taxes on most families), it bears repeating that these cuts will not trickle down to typical workers, and arguments to the contrary are not credible.
The typical first argument peddled is that U.S. corporations are taxed at disproportionately high rates and this hurts U.S. workers through some vague notion of “competitiveness.” As we’ve detailed, “competitiveness” is a meaningless term and the evidence doesn’t support the idea that cutting corporate tax rates will help typical American workers. There is no international evidence that corporate tax cuts boost investment (which could potentially lead to higher wages), nor is there any evidence on the state-level that corporate tax cuts boost wages.
Yesterday, the National Labor Relations Board (NLRB) made it more difficult for millions of workers to join together and form a union, by overturning its joint-employer standard established in 2015’s Browning-Ferris Industries case.
It is hard in today’s economy to bargain for higher wages or better working conditions, especially if your direct employer doesn’t really make those decisions. Under President Obama, the NLRB tried to make it easier for employees by holding each employer responsible when they co-determine what a worker’s wages, hours, and working conditions will be. In yesterday’s decision, the Trump NLRB decided to make it harder than ever.
The NLRB’s latest decision is bad law resulting from a bad process. Ordinarily, before overturning major precedent, the Board invites the public to comment by filing amicus briefs. However, this time, they did not, and instead announced this reversal with no warning or notice. President Trump’s appointees to the Board were so keen to respond to the demands of the franchising industry, which wants a rule that franchisors like McDonald’s aren’t responsible unless they exercise direct control over a franchisee’s labor relations, that they reversed the joint-employer standard in a case where the standard wasn’t even an issue, and where the public had no opportunity to weigh in.
The Bureau of Labor Statistic’s released its employment situation report for November this morning, which had the economy adding 228,000 jobs and the unemployment rate holding steady at 4.1 percent. Labor force participation among prime-age workers, those 25-54 years old, increased slightly, while the prime-age employment-to-population (EPOP) ratio hit its highest point in this recovery. Meanwhile, year-over-year nominal wage growth is stalled at 2.5 percent, below where it should be and with no sign of inflationary pressures to weigh on the Federal Reserve’s decision whether to raise rates later this month.
Given the weather-related volatility this fall, it’s useful to provide some context on the topline employment growth figure. Over the last three months, average job growth was 170,000, while over the last six months, job growth averaged 178,000. An increase of about 90,000 is enough to keep up with population growth—so by any measure, smoothed or not, the economy is pulling more people off the sidelines and into the labor force. Even if the unemployment rate simply holds steady, absorbing more and more would-be workers at this point of the recovery is a sign of a healthy economy well on its way to full employment. There is no reason to think that much of the remaining slack, particularly among prime-age workers, won’t continue to be soaked up in a steadily improving economy.
The prime-age EPOP hit a high water mark this month, rising 0.2 percentage points, to 79.0 percent. The overall EPOP—including those above age 55 and below age 25—fell ever so slightly (0.1 percentage points). Unfortunately, this drop is due to losses among young workers, rather than older workers voluntarily retiring. While these differences are certainly important to note, I’d argue that the prime-age EPOP is a better measure of overall labor market health. In a stronger economy, we would expect a larger share of this population to be gainfully employed. As you can see in the figure below, the prime-age EPOP has now comfortably passed the low water mark of the last two business cycles, but still has a way to go before hitting full employment levels.
If corporate rate cuts don’t trickle down, the House tax plan will raise taxes on moderate-income households too
The headline distributional numbers for the Senate tax plan from the Joint Committee on Taxation (JCT) attracted much attention because they showed that households making under $75,000 would actually see a tax increase on average in 2027. Many have noted that the House bill is not as bad on this score, with the JCT analysis showing that “only” households earning between $20,000 and $30,000 will face a tax increase on average in 2027.
But behind the ostensibly better House distribution score is a major catch—low- and moderate-income households will face tax increases unless corporate tax cuts trickle down to them in the form of higher wages, which historically has not happened when corporations receive large tax cuts. The individual income taxes low- and moderate- income households pay through withholding on their paychecks and on tax forms each year will certainly increase by 2027.
The central mechanism of both versions of the Tax Cut and Jobs Act (TCJA) is easier to see in the Senate bill: permanent tax cuts for corporations, coupled with eventual individual income tax increases for low- and moderate-income households. By 2021, households making less than $30,000 will see individual income tax increases under the Senate tax bill. And the only individual income tax changes that are permanent are the repeal of the individual mandate from the Affordable Care Act (ACA) and indexing tax brackets to a slower growing measure of inflation, thereby pushing people into higher tax brackets more quickly. This means that on average every income category is paying more individual income taxes in 2027 under the Senate tax bill. These tax increases are used to pay for permanent tax cuts for big corporations.
What to Watch on Jobs Day: Labor market should continue to improve, with or without pending tax cuts
Tomorrow, the BLS will release the latest numbers on job creation and the labor market. Today, I’m going to take step back and provide some context for what we’ve seen so far this year, as we approach the 10th anniversary of the beginning of the Great Recession. I’m also going to provide some perspective on the tax bill wending its way through Congress, in light of steady progress in the labor market over the last several years. The bottom line is that (1) contrary to recent economic commentary surrounding the proposed tax cuts in Congress, it is not clear that we have reached genuine full employment yet and significant slack may still remain in the labor market , but (2) if we continue to see solid payroll employment growth in the months to come, we should expect to see continued strong progress in labor force participation, particularly among prime-age workers, and in wage growth—even in the absence of any fiscal stimulus from tax cuts. Any claims that these tax cuts, if they pass, will lead to significant improvement in the labor market or in wages need to be viewed in the context of an already steadily improving economy.
In January 2017, we released our autopilot economy tracker, as a way to set down key benchmarks for the U.S. economy. Think of it as providing a gauge of whether changes to policy are leaving any discernible mark on the economy’s trajectory. We look at where several economic indicators were headed before the year started, and where they would be if those trends simply continued. Take, for example, the prime-age employment to population ratio (EPOP). In the figure below, you can see clearly the progress that has been made over the last several years, and the continuation of that trend through this year with no discernible uptick in the pace of recovery. Steady improvements in the prime-age EPOP since January have tracked our predictions of an economy on auto-pilot fairly well, and we should expect this trend to continue into next year.
The House and Senate both passed versions of the Tax Cuts and Jobs Act (TCJA) in recent weeks. Both versions of the bill, which must now be reconciled and voted on again, are made up mostly of large, hugely regressive tax cuts that give disproportionate benefits to big corporations and the wealthiest Americans. While the regressivity of these bills by income class has been well-documented by now, we’ve been asked by a number of people about the likely distribution of tax cuts called for by the TCJA across racial groups. A fully fleshed-out and precise estimate of this racial distribution would take lots of time and effort to calculate, but a decent rough estimate can be made pretty quickly if we’re willing to use some plausible proxy data.
However, it is also crucially important to note that congressional Republicans have not just passed versions of the TCJA in recent weeks, they have also passed a budget resolution calling for steep cuts to key programs, in large part because they want this money to finance their tax cuts. Assessing the impact of tax cuts while ignoring likely spending cuts would lead to a radical underestimate of the effect of coming fiscal policy changes on typical Americans’ livelihoods. Given this, we also examine the likely distribution of the burden of financing the TCJA with spending cuts by income class and race.
The Urban-Brookings Tax Policy Center (TPC) has provided estimates of what share of the tax cuts would go to different income groups. The Survey of Consumer Finances (SCF) provides data on the share of households in each of various income groupings that are headed by white, African American, or Hispanic householders. The SCF is uniquely useful here because it has clear income percentile rankings all the way up to the top 1 percent. Merging the TPC and SCF data in this way is not a pure apples-to-apples comparison. The TPC data is arranged by “tax units” while the SCF data is arranged by households (while the SCF calls their unit of analysis “families”, it is much closer to the “household” definition used by surveys like the Census). A tax unit can contain more than one household. But, all this said, there still should be substantial overlap between the two data measures, and the TPC data on tax units should provide a useful overview of the distribution of tax cuts across households.
On December 2, the State Department announced—and multiple news outlets reported—the decision of the Trump administration to end U.S. participation in the Global Compact for Migration (GCM), a non-binding international agreement that is in the process of being negotiated by 193 member states of the United Nations. The GCM is an attempt to improve coordination and governance on migration, seek new solutions to challenges posed by increased migrant flows, and strengthen the contributions of migrants to sustainable development. Numerous groups working to advance migrants’ rights have condemned the U.S. withdrawal from the GCM process.
The State Department’s statement came on the eve of an important intergovernmental meeting in Puerto Vallarta, Mexico, to prepare the world’s governments for the negotiations during most of 2018. The Trump administration’s statement pointed to the New York Declaration of 2016, which kicked off the process for UN Member States to negotiate a Global Compact, as containing “numerous provisions that are inconsistent with U.S. immigration and refugee policies and the Trump Administration’s immigration principles.” UN Ambassador Nikki Haley further noted that “decisions on immigration policies must always be made by Americans and Americans alone.”
The GCM is a historic opportunity to improve the governance of migration. The compact is likely to address issues such as deportations, the rights of child migrants, and labor migration—but no one knows what will be in the final compact because there is no initial first or “zero” draft. In addition, the United States could decide not to support the final text if it fails to improve the status quo, and the GCM will be a non-binding agreement, meaning the United States is not required to comply with it under international law. As a result, Ambassador Haley’s statement that “the global approach in the New York Declaration is simply not compatible with U.S. sovereignty” is misleading.
Supporters of the Republican tax plan claim that business tax cuts, including cutting corporate tax rates and immediate expensing of non-structure investments will increase U.S. business investment and economic growth. However, this one-sided analysis ignores the impacts of financing the tax cut package by adding $1.5 trillion to federal budget deficits over the next decade. Past experience has shown deficit-financed tax cuts are associated with higher interest rates, an overvalued U.S. dollar and growing trade deficits.
A recent report from the Council of Economic Advisors claims that tax cuts and the immediate expensing of equipment (non-structural) investments will reduce the user cost of capital (UCC), “increasing firms’ investment, desired capital stock, and potential output.” In addition, they claim that lowering the UCC will lead “multinational corporations and foreign capital…to invest in the U.S. economy.” These arguments could have some merit if the plan were revenue neutral, and financed by closing loopholes and through other tax reforms. However, domestic and foreign businesses are unlikely to invest in the United States if there is inadequate demand for domestically produced goods. U.S. manufacturing and other traded goods industries (including agricultural products and other traded commodities) will be hard hit by the Republican tax plan, because it is financed through a large increase in the government budget deficit. Further, real-world evidence indicates that the UCC facing American corporations is already incredibly low yet business investment remains quite sluggish. In short, the UCC is not a current constraint on American investment, so efforts to reduce it further will miss the point in aiming to boost this investment.
Chad Aldeman at Bellwether Education Partners tweeted that my recent report on teacher pensions was “frighteningly bad.” Here’s what’s really frightening: a zombie lie about teacher pensions that won’t die.
Attacks on teacher pensions may not rank with global warming or mass shootings on the list of things keeping us awake at night, but they deserve way more attention than they get. Teacher pensions are the single most important tool for recruiting and retaining good teachers, and good teachers are the key to our future in a knowledge economy. Yet Aldeman is trying to mislead people into supporting Kentucky Governor Matt Bevin and others around the country who want to switch teachers to 401(k)-style plans.
Aldeman claims that “most teachers get a bad deal from teacher pensions.” Though my research, and earlier research from UC Berkeley, showed that the vast majority of teachers are well-served by their pensions, this recycled claim appears impervious to counter-evidence. As long as a billionaire with an agenda keeps funding the research, we’ll continue see elaborate variations on the same theme, all of which rely on the same statistical sleight-of-hand.
The average person understands “most teachers” to mean “most teachers teaching today” or at any given point in time. This is a commonsense interpretation, and the one used in my research. Aldeman’s methodology instead counts new teachers as they enter the system, giving them equal weight whether they teach for just one year or for a whole career. As I showed in my paper, even if slightly over half of new teachers leave before becoming eligible for employer-provided benefits, these short-term teachers, some of whom go on to earn pension benefits in different systems, represent only a tiny fraction of the teaching workforce.
Aldeman accuses me of callously ignoring the “lived experiences” of individual teachers to focus on a “snapshot” that ignores “anyone who was once a teacher and is no longer (a teacher).” This is nonsense. Aldeman is no more focused on individual teachers’ lived experiences than I am. He and I rely on the same experience studies based on the same pension participants—including teachers who leave. The only difference is how we weight participants. He gives equal weight to all new teachers who enter the system in a given period, and I give equal weight to all teachers active at any given point in time.Read more
In recent years we’ve used the tradition of arguing with cranky relatives over the holidays to arm people with evidence to bat back silly economic arguments that are made all year long. This year, most dinner table arguments will likely be about Roy Moore, Al Franken, and maybe Russia, and on those, well, you’re on your own.
But if debates do stray to economics, the topic is likely to be the tax bill being pushed by Republicans in Congress and the White House. If this bill becomes law, it would be a terrible shame. But until it does, the debate surrounding it is actually useful. It is by far the clearest sign that the Trump administration, while chaotic and unprecedented in many ways, is utterly conventional when it comes to making economic policy. The highest priority of Republicans in Congress in recent decades has been slashing taxes for rich households and corporations, and the Trump administration has thrown in completely with this effort.
The centerpieces of the bills passed by the House and voted out of the Senate Finance committee last week are large tax cuts for businesses, both corporate and non-corporate. The corporate rate cuts are by far the largest parts of both bills, and the corporate changes are the only parts of the Senate bill that remain permanent—almost all of the changes to the individual code phase out in 2025. Non-corporate businesses—or “pass-throughs”—receive very large cuts in both bills, but because pass-through income is taxed on individual tax returns rather than at the business level, these changes expire in the Senate bill in 2025, along with most other individual changes.
Federal law requires that people working more than 40 hours a week be paid 1.5 times their rate of pay for the extra hours, but exempts salaried workers who make above a certain salary threshold and are deemed to have “executive, administrative, or professional” duties. The salary threshold is meant to help protect salaried workers with little bargaining power—for example, low- or modestly-compensated front-line supervisors at fast food restaurants—from being forced to work unpaid overtime. But, at $455 per week (the equivalent of $23,660 per year), the overtime threshold has been so eroded by inflation that it is now less than the poverty rate for a family of four. If the rule had simply been adjusted for inflation since 1975, today it would be well over $50,000.
In 2016, the Department of Labor published a highly vetted, economically sound rule that would have increased the threshold to $913 per week ($47,476 per year). However, a district court judge in Texas ruled that the new overtime threshold is invalid. While the Trump DOL plans to appeal the judge’s flawed ruling, they will not defend the $47,476 threshold. Instead, they intend to propose a new threshold, and have asked the court to stay the appeal while they engage in new rulemaking.
DOL officials have repeatedly indicated that they would prefer a salary threshold far below $47,476—rolling back protections for millions of workers. It is likely that they are considering proposing a new threshold of around $31,000.
After the news that Hollywood producer Harvey Weinstein had been sexually harassing and assaulting women in the movie industry for decades, millions of women shared their stories with the hashtag #metoo. The social media campaign shined a light on a fact that to many women: sexual harassment is a daily fact of life in the workplace. Many American corporations foster—or at least tolerate—widespread, egregious sexual harassment of their workers, even all these years after U.S. law first recognized sexual harassment as a form of sex discrimination. As the Supreme Court considers the first case of its term, National Labor Relations Board v. Murphy Oil, we hope they have read the stories about Weinstein, Bill O’Reilly and other men, as well as the millions of people who spoke up online.
Just last week, a poll conducted by NBC News and the Wall Street Journal found that 48 percent of currently employed women in this country say that they have personally experienced an unwelcome sexual advance or verbal or physical harassment at work. And, while many corporations have announced zero-tolerance policies for harassment, employers are increasingly preventing workers who experience sexual harassment to join together to seek justice
Today, 24.7 million American workers have been forced to sign contracts that, as a condition of employment, require them to waive their rights to joining a class action lawsuit to address sexual harassment and other workplace disputes—instead these workers must act alone to resolve what is often systemic violations of employment protections. The National Labor Relations Board has determined that these arbitration agreements violate workers’ right under the National Labor Relations Act to join together for “mutual aid and protection.” Business interests—and the Trump administration—disagree. In Murphy Oil, the Supreme Court will decide whether workers have the right to come together to protect themselves from workplace issues like sexual harassment. The case could not be more relevant, or present the Justices with two more starkly divergent options.
Economists Anna Stansbury and Larry Summers released a new paper today, “Productivity and Pay: Is the Link Broken?” which explores the relationship between economic productivity and compensation.
We welcome further inquiry into the relationship between productivity growth, inequality, and the ability of typical workers to benefit from a growing economy—and what policies are needed to do that. The Stansbury/Summers analysis adds some light but also some confusion and, ultimately, makes oversized claims about the role of productivity, especially since minor changes in specification of one of the three variables—unemployment—both substantially weakens some of their results, and also highlights just what is being missed in this investigation.
What are the issues?
The iconic chart (data here) that Stansbury and Summers are investigating is one showing a typical workers’ hourly compensation (measured as the compensation for production/nonsupervisory workers, roughly 80 percent of payroll employment) grew in tandem with productivity in the 1948-73 period but diverged thereafter. We have presented decompositions of the wedges between productivity and compensation for a typical worker that identifies the contribution to the divergence of: 1) changes of labor’s share of income (gap between average productivity and average compensation); 2) changes in wage/compensation inequality (gap between typical worker’s compensation and average compensation); and 3) differences in price deflators used for productivity and compensation. We find in the most recent period, 2000-2014, that rising inequality—both compensation inequality and reductions in labor’s income share—explains eighty percent of the gap between productivity and a typical workers compensation.
This weekend, Americans will observe Veterans Day, honoring the 20.9 million men and women who have served in our nation’s armed forces. Over the last several years, many of these veterans have seen their job opportunities improve as the economy recovers from the Great Recession. Unfortunately, a large number of veterans are working in low-wage jobs. In fact, 1 out of every 5 veterans would benefit from raising the federal minimum wage to $15 an hour by 2024. In addition to raising the minimum wage, Congress should ensure that workers who have fought to preserve our freedoms return to workplaces where they have the freedom to join together to bargain for better wages and working conditions. On average, a worker covered by a union contract earns 13.2 percent more in wages and is much more likely to have health and retirement benefits than a peer with similar education, occupation, and experience in a nonunionized workplace in the same sector. A testament to the importance of union for wages and working conditions, veterans are disproportionately more likely to work in a unionized workplace. Compared to a 12 percent coverage rate overall, 16 percent of veterans—or 1.2 million veterans—are in a union or covered by a union contract.
Despite the benefits of collective bargaining for workers, unions have been under increasing attack. Since 2010, legislators in more than twenty states have introduced so-called “right-to-work” bills barring unions from requiring workers in the private sector who are represented by unions to pay the cost of that representation. In 2011 and 2012 alone, over a dozen states passed laws restricting public employees’ collective bargaining rights. It is worth noting that nearly 1 in 5 employed veterans, including 1 in 3 with a service-connected disability, work in the public sector. Private employers, too, have intensified their opposition to collective bargaining. During the union election process, it is standard practice for workers to be subjected to threats, interrogation, harassment, surveillance, and retaliation for union activity.
With today’s release of the Republican tax plan, the debate over tax policy has finally officially begun. The Trump administration’s Council of Economic Advisers (CEA) has been doggedly campaigning for corporate tax cuts by claiming, unconvincingly, that these cuts will off a cascade of economic changes that lead to higher wages for American workers. Earlier this week the CEA released a second report claiming to marshal evidence showing the benefits of corporate tax cuts for economic growth and wages. This post first notes a key flaw that undermines much of the CEA’s review of this evidence, and then moves on to data from U.S. states that demonstrates (yet again) that there is no reliable link between cutting corporate taxes and raising wages.
The key flaw undermining much of the CEA report from earlier this week is that they completely ignore how their tax cuts will be financed in the long-run. The economic theory relating corporate rate cuts to higher wages rests on these cuts leading to a drop in interest rates (or a related concept, the “user cost of capital”, or UCC) which in turn spurs businesses to invest in productivity-enhancing plants and equipment. The new report cites a number of papers that estimate the effect of a lower user cost of capital (UCC) on economic outcomes.
The first thing to note about these claims is that the size of the effect of a lower UCC on economic outcomes is a contested issue in macroeconomics. But even if it was not, and even if there were universal agreement that a lower UCC significantly boosted growth, there is no reason to believe that enacting the Republican tax plan announced today would result in a lower UCC.
Today is Latina Equal Pay Day, marking how far into 2017 a Latina worker would have to work in order to be paid the same wages as her white male counterpart was paid in 2016. As I illustrated in great detail, it is obvious that this wage gap between Latina workers and white non-Hispanic male workers is significant and persists across the wage distribution, within occupations, and among those with the same amount of education. Sizable gaps in the economic outcomes of various U.S. populations are striking and significant. This is one reason why it is imperative that the economy returns to full employment.
On Friday, the BLS will report the latest numbers on the labor market. Payroll employment growth was particularly weak (i.e. negative) the previous month due in part to the hurricanes, particularly in Texas. I expect there to be some bounce back in the October numbers. To uncover the meaningful trend, I would urge analysts to average the last two months rather than take either one as independent information. In order to just keep up with the working-age population growth, the U.S. economy needs to add at least 90,000 jobs a month. Given that September saw a drop of 33,000 jobs, I hope to see strong enough payroll growth in October that would be indicative of a return to the road to full employment.
The last time the U.S. economy was at genuine full employment was 2000 when the unemployment rate averaged 4.0 percent over the year and fell below 4.0 percent for five months, notably without sparking an inflationary spiral. While the overall unemployment rate is a useful metric, it masks important differences across the economy. The value of a full employment economy is even greater for workers with historically higher unemployment rates, for instance, young workers and workers of color. Young workers, for instance, experience unemployment rates about two times as high as prime-age workers and nearly three times as high as older workers.
Yesterday, Democratic lawmakers released another plank in their “Better Deal” agenda. The policy proposals included focus on strengthening workers’ collective voice and ability to negotiate for better wages and working conditions. These are critical components of any meaningful attempt to reform an economy that is rigged against working people. They are essential to creating a fair economy. And they stand in stark contrast to Republican efforts to further advantage those at the top with a tax proposal that would provide 80 percent of its benefits to the top 1 percent—households that currently have incomes of around $730,000 or more.
While the Republican tax proposals will do nothing to help boost workers’ wages or overall economic leverage, today’s “Better Deal” agenda would help to address these issues by promoting workers’ freedom to organize and bargain collectively. The steady decline in unionization over the last 40 years has led to rising inequality and stagnant wages for the American middle class. Not only do union workers earn higher wages, unions have strong positive effects on the wages of comparable nonunion workers, as unions help to set standards for industries and occupations.
Union membership and share of income going to the top 10 percent, 1917–2015
|Year||Union membership||Share of income going to the top 10 percent|
Sources: Data on union density follows the composite series found in Historical Statistics of the United States; updated to 2015 from unionstats.com. Income inequality (share of income to top 10 percent) data are from Thomas Piketty and Emmanuel Saez, “Income Inequality in the United States, 1913–1998,” Quarterly Journal of Economics vol. 118, no. 1 (2003) and updated data from the Top Income Database, updated June 2016.
NLRB’s $21 million settlement reminds us why working people need strong unions and robust labor law enforcement
On October 30, the National Labor Relations Board (NLRB) announced that it had reached a $21.6 million settlement with VIUSA, Inc. and the Teamsters Local 89. Established in 1935, the National Labor Relations Board is an independent federal agency that protects the right of private sector employees to join together, with or without a union, to improve their wages, benefits and working conditions. The NLRB conducts hundreds of union elections and investigates thousands of unfair labor practice charges each year.
In this case, workers who are represented by the Teamsters have been working at Ford’s assembly plant in Louisville, Kentucky since about 1952. Recently, Ford had awarded a contract to Auto Handling, Inc. to perform the vehicle processing and inventory management services at the plant. Auto Handling, and all of its predecessor employers, had employed the workers represented by the Teamsters and negotiated collective-bargaining agreements with the union. When Auto Handling’s contract with Ford ended in 2012, VIUSA won the new contract. But VIUSA sought to pay wages far below what Auto Handling had paid to its Teamsters-represented employees. VIUSA refused to hire any of the Teamsters workers who had submitted applications to keep their jobs, and instead hired a staffing agency (Aerotek, Inc.) to find other workers to fill these jobs, at lower wages.
Federal law protects unionized workers during the tumultuous times when the company they work for changes owners. As the Supreme Court has stated, “during a transition between employers, a union is in a peculiarly vulnerable position.” Fall River Dyeing & Finishing Corp. v. NLRB, 482 U.S. 27, 40 (1987). The law states that if the new employer maintains generally the same business and hires a majority of its employees from the predecessor employer, then it must recognize and bargain with the employees’ union. This makes sense, the Court explained, “when one considers that the employer intends to take advantage of the trained work force of its predecessor.” The Court has also stated, however, that a successor employer is not required to hire the employees of its predecessor, subject to the bedrock rule of labor law that it cannot discriminate against union employees in its hiring practices. This is an important rule because, as the Court explained, “with the wide variety of corporate transformations possible, an employer could use a successor enterprise as a way of getting rid of a labor contract.”
Latina workers have to work 10 months into 2017 to be paid the same as white non-Hispanic men in 2016
November 2nd is Latina Equal Pay Day, the day that marks how long into 2017 a Latina would have to work in order to be paid the same wages as her white male counterpart was paid last year. That’s just over 10 months longer, meaning that Latina workers had to work all of 2016 and then this far—to November 2nd!—into 2017 to get paid the same as white non-Hispanic men did in 2016. Unfortunately, Hispanic women are subject to a double pay gap—an ethnic pay gap and a gender pay gap. On average, Latina workers are paid only 67 cents on the dollar relative to white non-Hispanic men, even after controlling for education, years of experience, and location.
The wage gap between Latina workers and white non-Hispanic male workers persists across the wage distribution, within occupations, and among those with the same amount of education. Figure A below shows wages for Hispanic women and white non-Hispanic men at select points in their respective wage distributions. The 10th percentile Latina wage identifies the wage at which 10 percent of Latina workers earn less while 90 percent of Latina workers earn more. At the 10th percentile, Latina workers are paid $8.53 per hour, or 85 percent of the white male wage at the 10th percentile ($10.03 per hour). This wage gap—15 percent—is the smallest the gap gets, likely due to the wage floor set by the minimum wage. The gap rises to 41 percent at the middle of the wage distribution, and to 55 percent at the 95th percentile. That means that even the best paid Latinas are paid half as much as the best paid white non-Hispanic men.
Latinas are, thus, vastly over-represented in low-wage jobs and relatively under-represented in high-wage jobs. In fact, Latinas’ median wages are just above those of white men’s 10th percentile wage. In other words, nearly half of all Latina workers are paid less than the 10th percentile white male worker. Meanwhile, by comparing the white male median to the 80th percentile Latinas’ wages, you can see that more than half of white men are paid over $20 an hour while fewer than 20 percent of Latinas are. At the high end, only 1-in-20 Latina workers are paid more than white male workers at the 80th percentile.
Yellen can and should help rectify the big mistake Trump will make if he doesn’t reappoint her as chair of the Federal Reserve
Recent reports indicate that President Trump will not re-appoint Janet Yellen as the chair of the Federal Reserve’s Board of Governors (BOG). Instead, the reports indicate that he will appoint a current member of the BOG, Jerome Powell.
Choosing to pass over Yellen is an obvious mistake. Yellen is a world-recognized expert in macroeconomics and has enormous experience as a policymaker. Her performance as Fed chair has been widely and correctly praised. She takes the Fed’s mandate to maximize employment seriously and is data-driven. To be clear, I think she’s made a misstep or two in specific interest rate decisions, but in Yellen, those arguing with economic data have a real chance to be heard. Her recent speech at the Federal Reserve conference in Jackson Hole, Wyoming also provided an admirable signal that she continued to take the Fed’s role as chief financial sector watchdog seriously. This commitment to the Fed’s full employment mandate and its role as regulator of finance is exactly what we should want from a Fed chair. Replacing her in this role is, simply, a dumb mistake.
Jerome Powell has served seriously and well as a member of the BOG in recent years. He has been a consistent defender of the Yellen-charted path of the Fed. He is substantially better than the other non-Yellen candidates floated for the job.
But on the downside, Powell is a lawyer, not an economist (this is not a generic criticism—stay with me). In recent years, he has (correctly) followed the path of Yellen in making monetary policy decisions. If the Trump reshaping of the BOG that is underway surrounds Powell with less-wise voices, one worries that he could be swayed into charting a different path.
Newly available wage data show that the annual wages of those in the bottom 90 percent grew 0.5 percent from 2015 to 2016, and did so because wage growth disproportionately favored the vast majority of wage earners. At the same time, the highest earners, those in the top 0.1 percent, saw a 6.3 percent drop in their annual wages. How is that for a change! Annual wages averaged over all workers remained basically unchanged in 2016, but the share of all wages earned by the bottom 90 percent increased in 2016, resulting in improved wages for that group. Who says reducing inequality does not matter!
These are the results of EPI’s updated series on wages by earning group developed from Social Security Administration data. These data, unlike the usual source of our wage analyses (the Current Population Survey) allow us to estimate wage trends for the top 1.0 and top 0.1 percent of earners, as well as those for the bottom 90 percent and other categories among the top 10 percent of earners.
Looking back further, the top 1.0 percent of earners certainly fared well over the 1979 to 2007 period, seeing their annual wages grow by 156.2 percent (Figure A), with those in the top 0.1 percent seeing more than double that wage growth, 362.5 percent (Table 1). In contrast, wages for the bottom 90 percent only grew 16.7 percent in that time. Since the Great Recession, we have seen very modest wage growth across the board, with wages up just 4.0 percent over the nine years from 2007 to 2016. Wages fell furthest among top 1.0 percent of earners during the financial crisis, declining by 15.6 percent from 2007-09, but then recovered fully by 2015. The fall in top 1.0 and top 0.1 annual wages in 2016 leaves both groups with wages that are below pre-recession 2007 levels. Annual wages for the bottom 90 percent, meanwhile, fell slightly after 2007 and didn’t return to their 2007 level until 2014, and then grew roughly 4 percent since then.
Don’t believe the news of a new “top rate” in the forthcoming Republican tax plan: Their enormous “pass-through” loophole makes it largely irrelevant
House Republicans look set to unveil their tax bill on November 1. The “Unified Framework” previewing their plan included only three tax brackets: 12, 25, and 35 percent. But given that all independent analysis of their plan shows it adds enormously to deficits, they have publicly contemplated adding a fourth tax bracket above 35 percent to boost revenue. That top bracket may stay at the current 39.6 rate or be lower than the current rate while remaining above 35 percent. But when the tax plan is unveiled, no one should be tricked by this rate. The rate they choose doesn’t really matter all that much thanks to another loophole they’ve added, which all but ensures that that high income households won’t be paying more than 25 percent. They have disguised the loophole as helping small businesses since it’s targeted at so-called “pass-through income.” But while all small businesses are “pass-throughs”, not all pass-throughs are small businesses—lots of them include wildly rich businesses like hedge funds and private equity firms and boutique law firms. 86 percent of households with pass-through income already pay 25 percent or less—think of these as genuine small businesses. But 49 percent of all pass-through income goes to just the top 1 percent of households. This means that lowering the pass-through rate to 25 percent clearly makes this a tax cut for hedge funds, law firms, and private equity partners, not genuine small businesses. But from that egregiously tilted starting point, the loophole will still get worse, as it leads to rich individuals hiring accountants to re-classify other forms of income as pass-through income.
This means that rich households won’t be paying the top rate on ordinary income, wherever Republicans set it. Instead, their lawyers and accountants will ensure that the income they earn is routed through pass-through businesses like LLCs. This will allow rich households to pay a 25 percent top rate instead of 35 or 39.6.
International evidence shows that low corporate tax rates are not strongly associated with stronger investment
The Trump administration’s Council of Economic Advisers (CEA) released a paper last week arguing that cuts in the statutory corporate tax rate would lead to gains in business investment, productivity, and wages. I noted in a piece released yesterday why this was unlikely to be true.
The key piece of evidence the CEA claimed was “highly visible in the data” and showed the wage-boosting effect of corporate tax cuts was simply a graph that showed faster unweighted wage growth in just two years in a set of “low-tax” countries relative to a set of “high-tax” countries. I noted in my paper yesterday why this was so unconvincing: a serious test of this claim would look at corporate tax rate changes (not levels), would look over a longer time-period than four years, and would not allow three countries with a combined national income that is less than 0.4 percent of American national income to drive the results.
Moving beyond ACA repeal to address real health reform: Negotiating for lower drug prices under the Medicare Drug Price Negotiation Act
The Republican push to repeal the Affordable Care Act (ACA) seems to be on another hiatus, which is good news. At least some members of Congress are spending the time between efforts to gut the ACA pursuing socially useful reforms. For example, Senators Bernie Sanders (I-Vt.) and Patrick Leahy (D-Vt.), and Representatives Elijah Cummings (D-Md.), Lloyd Doggett (D-Texas), and Peter Welch (D-Vt.) have just announced they will introduce a bill that would instruct the Department of Health and Human Services (DHHS) to negotiate with pharmaceutical companies to get the lowest prices possible for drugs paid for by the federal government under Medicare.
The 2003 law that introduced a pharmaceutical benefit to the Medicare program by creating Part D specifically forbade such negotiation, thereby insuring that the program would be far more expensive than it had to be and that it would generate the maximum possible benefits for pharmaceutical corporations rather than the maximum benefits for America’s seniors. Crucially, the proposed bill to allow negotiation comes with real leverage—instructing the secretary to establish a formulary that will make it substantially harder for manufacturers that do not lower prices sufficiently to be reimbursed by Medicare. 1
A 2013 paper by Dean Baker estimates substantial savings from such a program. He finds that the federal government alone would save between $22–54 billion annually. Including the savings to households (who have to pay co-pays for drugs) and state governments would boost these projected savings to $30 to 70 billion annually. This is real money, even in health care terms.