Are “We” Broke?
In an op-ed in today’s New York Times Stephen King, chief economist for HSBC, writes a deeply confused column that seems designed solely to sound serious and informed while scaring readers into thinking the U.S. economy cannot “afford” decent living standards for most Americans. Dean Baker notes a bunch of problems with the column here, but there are a couple of other things worth pointing out.
King lists globalization as the first influence that allowed rapid living standards growth in the past. He contends, however, that the pace of global integration will begin slowing and will provide less of a spur to growth in the future. I’m not sure what it is about international economics that makes people think they can make wild claims and no evidence must ever be brought to bear, but, there is a deep literature on the gains from international trade, and it’s just not true that they were a first-order driver of (aggregate) American income growth in recent decades. Further, while growing trade has likely (slightly) boosted aggregate U.S. incomes, it has (especially in recent decades) also led to significant changes in the distribution of income, outright lowering wages for most American workers. To put it simply, a reduction in the pace of American integration through trade and investment into the global economy would actually be good for most workers’ living standards (if not good for aggregate U.S. income).
Hitting the Debt Ceiling: An Anti-Stimulus at Least Twice as Large as the Stimulus in the Recovery Act
This blog post has been updated.
Several days ago Paul Krugman made a good point—while it’s really hard to be precise about how much it would hurt to slam into the constraint of the debt ceiling, we do know clearly that it would indeed hurt.
Say that Treasury decided to prioritize debt payments (and even say that interest on the debt doesn’t increase at all, which is unlikely), and cutback on other spending to levels that can be supported by incoming revenues rather than borrowing. This would by itself lead to a shock to GDP of well over 5 percent of GDP (annualized) when accounting for both the decline in spending (about 4 percent of GDP) and a modest multiplier.
Union Membership and the Income Share of the Top Ten Percent
In a previous post and economic snapshot, I and others noted the historical symmetry of the rise and fall of union density across the last century and its uncanny mirror image—the fall and rise of the share of income going to the top ten percent. The juxtaposition of the two lines suggests less a direct causal relationship than an emblematic one—between the trajectory of the workers’ bargaining power on the one hand, and trajectory of rent-padded top incomes on the other.
Updating this data through 2012 only confirms this dismal pattern. Union membership fell to 11.3 percent in 2012, and to a measly 6.6 percent in the private sector. As the last business cycle battered working Americans, the very rich just got richer—hoarding all of the income gains of the recovery, and reaching income shares unseen in the last century (19.3% for the top one percent, 35.8 percent for the top five percent, and 48.2 percent for the top ten percent).
Union membership and share of income going to the top 10%
| Year | Union membership | Share of income going to the top 10 percent |
|---|---|---|
| 1917 | 11.0% | 40.3% |
| 1918 | 12.1% | 39.9% |
| 1919 | 14.3% | 39.5% |
| 1920 | 17.5% | 38.1% |
| 1921 | 17.6% | 42.9% |
| 1922 | 14.0% | 43.0% |
| 1923 | 11.7% | 40.6% |
| 1924 | 11.3% | 43.3% |
| 1925 | 11.0% | 44.2% |
| 1926 | 10.7% | 44.1% |
| 1927 | 10.6% | 44.7% |
| 1928 | 10.4% | 46.1% |
| 1929 | 10.1% | 43.8% |
| 1930 | 10.7% | 43.1% |
| 1931 | 11.2% | 44.4% |
| 1932 | 11.3% | 46.3% |
| 1933 | 9.5% | 45.0% |
| 1934 | 9.8% | 45.2% |
| 1935 | 10.8% | 43.4% |
| 1936 | 11.1% | 44.8% |
| 1937 | 18.6% | 43.4% |
| 1938 | 23.9% | 43.0% |
| 1939 | 24.8% | 44.6% |
| 1940 | 23.5% | 44.4% |
| 1941 | 25.4% | 41.0% |
| 1942 | 24.2% | 35.5% |
| 1943 | 30.1% | 32.7% |
| 1944 | 32.5% | 31.6% |
| 1945 | 33.4% | 32.6% |
| 1946 | 31.9% | 34.6% |
| 1947 | 31.1% | 33.0% |
| 1948 | 30.5% | 33.7% |
| 1949 | 29.6% | 33.8% |
| 1950 | 30.0% | 33.9% |
| 1951 | 32.4% | 32.8% |
| 1952 | 31.5% | 32.1% |
| 1953 | 33.2% | 31.4% |
| 1954 | 32.7% | 32.1% |
| 1955 | 32.9% | 31.8% |
| 1956 | 33.2% | 31.8% |
| 1957 | 32.0% | 31.7% |
| 1958 | 31.1% | 32.1% |
| 1959 | 31.6% | 32.0% |
| 1960 | 30.7% | 31.7% |
| 1961 | 28.7% | 31.9% |
| 1962 | 29.1% | 32.0% |
| 1963 | 28.5% | 32.0% |
| 1964 | 28.5% | 31.6% |
| 1965 | 28.6% | 31.5% |
| 1966 | 28.7% | 32.0% |
| 1967 | 28.6% | 32.1% |
| 1968 | 28.7% | 32.0% |
| 1969 | 28.3% | 31.8% |
| 1970 | 27.9% | 31.5% |
| 1971 | 27.4% | 31.8% |
| 1972 | 27.5% | 31.6% |
| 1973 | 27.1% | 31.9% |
| 1974 | 26.5% | 32.4% |
| 1975 | 25.7% | 32.6% |
| 1976 | 25.7% | 32.4% |
| 1977 | 25.2% | 32.4% |
| 1978 | 24.7% | 32.4% |
| 1979 | 25.4% | 32.4% |
| 1980 | 23.6% | 32.9% |
| 1981 | 22.3% | 32.7% |
| 1982 | 21.6% | 33.2% |
| 1983 | 21.4% | 33.7% |
| 1984 | 20.5% | 34.0% |
| 1985 | 19.0% | 34.3% |
| 1986 | 18.5% | 34.6% |
| 1987 | 17.9% | 36.5% |
| 1988 | 17.6% | 38.6% |
| 1989 | 17.2% | 38.5% |
| 1990 | 16.7% | 38.8% |
| 1991 | 16.2% | 38.4% |
| 1992 | 16.2% | 39.8% |
| 1993 | 16.2% | 39.5% |
| 1994 | 16.1% | 39.6% |
| 1995 | 15.3% | 40.5% |
| 1996 | 14.9% | 41.2% |
| 1997 | 14.7% | 41.7% |
| 1998 | 14.2% | 42.1% |
| 1999 | 14.2% | 42.7% |
| 2000 | 13.6% | 43.1% |
| 2001 | 13.7% | 42.2% |
| 2002 | 13.5% | 42.4% |
| 2003 | 13.0% | 42.8% |
| 2004 | 12.6% | 43.6% |
| 2005 | 12.5% | 44.9% |
| 2006 | 12.0% | 45.5% |
| 2007 | 12.1% | 45.7% |
| 2008 | 12.5% | 46.0% |
| 2009 | 12.4% | 45.5% |
| 2010 | 11.9% | 46.4% |
| 2011 | 11.8% | 46.6% |
| 2012 | 11.3% | 48.2% |
Data on union density follows the composite series found in Historical Statistics of the United States; updated to 2012 from unionstats.com. Income inequality (share of income to top 10%) from Piketty and Saez, “Income Inequality in the United States, 1913-1998, Quarterly Journal of Economics, 118(1), 2003, 1-39. Updated and downloadable data, for this series and other countries, is available at the Top Income Database. Updated September 2013.
What We Read Today
Here’s what we read today. Share what you’re reading in the comments.
- Will work for free: How unpaid internships cheapen workers of all ages (PBS Newshour)
- Looting the Pension Funds (Rolling Stone)
- I worked all week for free?!: The horrifying, true story of $0 paychecks (Salon)
- Why I Miss Pork-Barrel Politics (Slate)
- Government Shutdown Jeopardizes WIC Program (Huffington Post)
- Mr. Zuckerberg Goes to Washington (Dissent)
- Rep. Jeff Denham: U.S. must provide a ‘pathway to citizenship’ (Modesto Bee)
Growing Together, Growing Apart
The September release of the Census Bureau’s income and poverty numbers (and I link to them here only to remind us all that the federal shutdown has made the unavailable) add one more data point to a lost decade punctuated by the recessions of 2001 and 2007, and also to a longer trajectory—stretching back to the 1970s—of starkly unequal income growth.
That growing inequality is underscored by plotting the Census data (reporting average family income by income percentiles) alongside the top incomes estimates of Thomas Piketty and Emmanuel Saez (recently updated through 2012).
There are some bumps in the “crosswalk” between these data sources1 and, for this reason, I include the “top 5 percent” estimate from both. That aside, the big picture is at once familiar and depressing. Over the long postwar era (1947-2012), we see steady and shared income growth running into the 1970s—and then suddenly fanning out as the top incomes (in green) take off. Over that long half-century, incomes (in real, inflation adjusted 2012 dollars) at the 20th percentile do not quite double; those for the top .01 percent of earners grow almost tenfold.
The Good and the Bad in Obamacare’s Mandates
EPI has posted items recently on both the individual mandate and the employer mandate contained in the Affordable Care Act (or the ACA, or Obamacare). The summary version of these posts is simply: individual mandate, good; employer mandate, potentially flawed, not operative yet.
The longer versions follow.
On the individual mandate, we noted that it makes health reform more efficient than it would be without any such anti free-rider provision. And since the GOP hates efficient health reform, they have predictably made attacking it a center-piece of their, um, “strategy” in the most recent fiscal showdown.
On the employer mandate we noted two things. First, the claim that there has been a large shift towards part-time work since the passage of the ACA is just not true. Sure, some employers have cut hours in recent years, but the overall trend is toward a decline in the share of workers who are involuntarily part-time. Second, this failure to see any discernible shift towards part-time work makes sense given that the employer mandate in the ACA has been delayed for a year—meaning that employers will pay no penalty before 2015.1 Of course, this fact doesn’t mean that no employers are cutting hours while falsely blaming the ACA.
Washington Post Editorial Board Pegs Minimum Wage to 1959 Living Standards
A stunning reminder that elite opinion is far from where it needs to be on wages is a Washington Post editorial from last month recommending a minimum wage of just $8.00 in 2015, up from the $7.25 level set in 2009. The Post’s editorial board, in fact, argued that a full-time, full-year worker should earn an income that is two-thirds of the poverty line for a family of four—a level set in 1959. The poverty line, however, is fixed only by inflation and does not reflect any general improvements in overall living standard. So, while economic productivity has more than doubled since 1959 (it rose 150 percent in fact), what we consider a poverty income has remained the same. In effect, the Washington Post’s editorial board is saying a low-wage worker should earn one-third less than a poverty-level income based on living standards two-thirds of a century earlier. Note that $8.00 in 2015 is a wage roughly nine percent less (inflation-adjusted) than what a low-wage worker (at 10th percentile) earned in 1973, despite the fact that low wage workers are far more educated and productive now than then.
No Jobs Day
Given the shutdown of the federal government, the September employment and unemployment figures were not released as scheduled. With no new data, it is useful to step back and look at the broader employment situation.
Regardless of what happened in September, we know roughly where the labor market is based on prior months’ data, and it’s not good. The labor market needs to add more than 8 million jobs to get back to the pre-recession unemployment rate, and at the growth rate we’ve seen for the last few months, we won’t fill that gap before the end of the decade. The unemployment rate has decreased substantially since its peak of 10% in the fall of 2009, but the vast majority of that decrease has not been because unemployed workers have found work. Instead, the unemployment rate declined because millions of jobless workers simply stopped looking for work, or never even started, because job opportunities are so weak (and if a jobless worker is not actively seeking work, they are not counted as unemployed). The weak employment situation has translated into very weak wage growth, since employers simply do not have to pay sizeable wage increases to get and keep the workers they need when workers do not have other options. In other words, we have an anemic recovery due to an ongoing shortfall in demand, and the US labor market remains depressed.
For more on the effects of the shutdown, a blog post from EPI Policy and Research Director Josh Bivens provides some useful perspective on its macroeconomic impact in the context of a weak, fragile recovery.
Basket Cases
Most Americans can be forgiven if they have lost the thread of today’s debate over the government shutdown—it has shifted radically in a pretty short time. Just a few weeks ago, the budget debate was primarily over the automatic spending reductions, known as sequestration. The administration and most congressional Democrats want to cancel the sequester for the next two or three years to keep fiscal policy from dragging too heavily on the still-fragile recovery. The Congressional Budget Office projects that canceling the sequester for 2014 could increase GDP by 0.2 percent to 1.2 percent, and employment could be 300,000 to 1.6 million higher. Republicans, on the other hand, want the sequester to remain in place (though they do want a special carve-out to keep it from cutting defense as heavily as its projected to in 2014). They also want to reduce mandatory spending (a category dominated by Social Security, Medicare and Medicaid, though which also includes a number of other income support programs like unemployment insurance). House Republicans have already voted for a five percent reduction in spending on SNAP, the nation’s most important nutrition program for low-income adults and children.
As the end of the 2013 fiscal year approached not a single appropriations bill had been passed. While both the House and the Senate passed budget resolutions this year, the Republican leadership in the House refused to allow a conference committee to reconcile differences between the two to proceed. Given the failure to pass an appropriations bill, a continuing resolution (CR) was needed to temporarily fund the government or the government would shut down. On the first day of the new fiscal year, the government shut down because no CR had been enacted.
Obamacare Isn’t Causing an Increase in Part-Time Employment, In One Chart
One of the more baffling messages in the current debate over the economy and “Obamacare” is the hue and cry over the trend in part-time employment. The fact is that since the end of the Great Recession, the trend in part-time employment has been down, not up. The black line in the chart below shows the share of part-time workers in the labor force. The light blue region shows the level of workers who are part-time due to economic reasons. The navy blue region show the level of workers who are part time due to “non-economic” reasons (health, child care responsibilities, etc.). The vertical bars denote recessions, from peak to trough.
During the past two recessions part-time employment clearly increased, while such employment was either flat or falling after the end of the recessions. (Note that the official end date of a recession is the point at which the economy stops getting worse. It does not mean the economy has recovered yet, and the current economy clearly has not.)