Overtime ruling is wrong on the precedent, as well as the facts
Judge Amos Mazzant, the judge who blocked enforcement of the Department of Labor’s new overtime rule, said many things that aren’t true in his opinion, including misstatements of historical fact such as when a minimum salary for exemption was first included in the regulations (it was right from the beginning, in 1938, not two years later). But Mazzant gets judicial precedent wrong, too.
The decisions of the 5th Circuit Court of Appeals control in Judge Mazzant’s Texas district. Importantly, the 5th Circuit ruled in 1966, in Wirtz v. Mississippi Publishers Corp, that the salary level test for exemption is rationally related to the determination of whether an employee is employed in a bona fide executive capacity. In a case against a publisher that claimed its executives were exempt even though it paid them less than the minimum salary for exemption, the Court of Appeals forcefully rejected the argument that the regulations are so ambiguous as to make the salary requirement arbitrary and capricious.
Memo to inflation hawks: We are not at full employment
Please don’t be distracted by the drop in the unemployment rate today to 4.6 percent—which, incidentally, fell largely because of a drop in labor force participation. The most accurate measure of labor market slack (and thus, the most accurate indicator of when the Federal Reserve should raise interest rates) continues to be nominal wage growth, and all signs point to an economy continuing to recover. Wage growth should be much faster in a full employment economy, according to the Fed’s stated targets for inflation, which, last I checked, remains at 2 percent and long-term trend productivity growth, which has been running about 1.5 percent. (The recent slowdown in productivity could arguably be because of the low cost of labor and, therefore, reduced incentives to invest in capital and would likely rebound as labor markets get genuinely tight and start pushing wage-growth up.) Taken together, we are looking at target wage growth above 3.5 percent.
But year-over-year nominal wage growth came in at 2.5 percent last month. The figure below shows some indications of a pickup in the last few months, but no one should be counting their chickens until they are hatched. At 2.5 percent, growth noticeably slowed compared to last month’s high water mark of this recovery at 2.8 percent, or the previous month’s 2.7 percent. Yes, wage growth is now faster than it was in the first 5+ years of the recovery, when it averaged 2.0 percent. But, it doesn’t reflect full employment wage growth, or even the wage growth we experienced before the Great Recession hit – by no means a full employment economy.
The injunction against overtime has real consequences for people’s lives
The decision of a judge in Texas to block the Department of Labor’s new regulations guaranteeing overtime pay to millions of workers is a legal travesty, so poorly reasoned that it invites questions about the judge’s motivation. The decision is more than just bad law, however, it is also a financial blow to people who had every reason to expect that their lives were about to be made a little easier.
The new rules, which were set to take effect today, on December 1, would have required employers to pay time and a half the regular rate of pay for each hour worked beyond 40 in a week to any employee paid less than $47,476 a year. Prior to the Obama rule, employees earning as little as $23,660 could be called “executive” or “administrative” and denied overtime pay even if they spent the majority of their workweek scrubbing floors or stocking shelves. There are 12.5 million salaried workers earning between $23,660 and $47,476, and every one of them would be entitled to overtime pay under the new rule.
People all across America who have been working 5, 10, or even 20 hours of overtime a week without any extra compensation had been told by their employers that that their long hours were about to end, thanks to the Department of Labor’s new overtime rules. Or they were told that they were going to be paid extra for their extra hours of work, or that, at least, they were going to get salary increases to make those kinds of long hours more financially rewarding. Now, many employers have put those plans on hold. At EPI we’ve heard from a number of the affected workers.
What to Watch on Jobs Day: The economy is still moving towards full employment. The Fed should keep their foot off the brake so it can get there.
Friday is the last Jobs Report before the Federal Reserve’s final meeting of the year, when they decide whether to hold the course or raise rates. Rumor has it that the Federal Reserve might act in anticipation of a sizeable (if inefficient) short-run fiscal boost that could come if the incoming administration passes a planned tax cut mostly for the wealthy. But, there’s no reason to pre-emptively slow the economy down, given that we’re starting from less-than-full employment. Besides, there will be time to slow it down if and when the tax cut happens. Right now the priority should be keeping the economy on track and moving it forward.
The economy has continued to approach full employment, and signs of tightening are beginning to shine through, but we’re not there yet. The overall unemployment rate has come down, but remains elevated for workers of color and fails to reflect the sheer numbers of workers on the sidelines waiting to get in the game. The prime-age employment-to-population ratio has only recently surpassed the lowest point of the last two business cycles, not yet reaching the lowest point of the last one. That said, the economy continues to proceed in the right direction. Nominal wage growth has finally picked up a bit in the last year as workers see a slight increase in their bargaining power reflected in their paychecks.
Staying the course is the best action. Labor market tightness, leading to stronger wage growth as employers need to increase wages to attract and retain the best workers, should be the goal of policymakers, not a perceived danger to be stomped out.
The moral of the Trump/Carrier deal is clear: if you’re useful to Trump, he might be willing to throw other workers overboard to help you
Donald Trump is getting lots of mileage out of the alleged deal that has been struck to keep a Carrier plant from moving to Mexico from Indiana. If any of the reporting about the deal is correct, however, Trump clearly sold out the working class that he claims his deal helped.
First, let’s be clear—if it’s true that 1,000 jobs are kept in the U.S. and these workers are not laid off, that’s great for them and any relief and gratitude they feel about this deal is justified. Losing a job is terrifying, particularly in a country where policy titled towards the already-rich keeps good jobs scarce and makes losing a job so economically devastating.
But, let’s also be equally clear that even if this was somehow a good deal from a public policy perspective, it’s an entirely not-scalable approach to solving the challenges of globalization. A world in which your job depends on whether or not you’re useful as a public relations prop for the President is not a recipe for broad-based security.Read more
Ruling against overtime is wrong in so many ways
Judge Amos Mazzant’s opinion to block the Department of Labor’s new overtime rule is poorly reasoned and factually inaccurate. Judge Mazzant does not know the history of the Fair Labor Standards Act and he appears not to understand Chevron deference, a rule constructed by the U.S. Supreme Court to guide judicial review of federal agency regulatory decisions.
Let’s begin with Judge Mazzant’s astonishing unfamiliarity with the FLSA. Judge Mazzant incorrectly implies on page 2 of his Opinion that the initial regulations that accompanied the enactment of the FLSA in 1938 did not include a salary test:
“The Department’s initial regulations, found in 29 C.F.R. § 541, defined ‘executive,’ ‘administrative,’ and ‘professional’ employees based on the duties they performed in 1938. Two years later, the Department revised the regulations to require EAP employees to be paid on a salary basis.”
In fact, it was not “two years later” but right from the get-go on October 20, 1938 that the Secretary defined the exemption for executive and administrative employees to require a minimum salary of “not less than $30 (exclusive of board, lodging, or other facilities) for a workweek.”
Already a big gap between Trump’s promises to the middle class and his policies
During his campaign, President-elect Donald Trump promised that he would take the side of American workers against economic elites when evaluating policy. Yet, the policy proposals he put forth during the campaign had nothing in them that would actually help working- and middle-class Americans. Now that more plans and potential cabinet appointments are coming into focus, it looks worse than many of us thought even before the election. Across a broad range of crucial issues, the incoming Trump administration appears likely to betray the promises he made to the American middle class. Here’s a rough sketch of how.
Taxes
Trump’s tax policy proposals are crystal clear about who will benefit the most—and it’s not working- or middle-class families. Despite crowing during the campaign about raising taxes on “hedge fund guys,” the tax plan Trump released raises one small tax on hedge fund guys (eliminating the so-called carried interest loophole), and then gives them a hundred times more back in the form of lower taxes everywhere else. The top 1 percent will get 47 percent of the total benefits in the Trump tax plan, while the bottom 60 percent will get just 10 percent. Worse, large numbers of working-class taxpayers will see tax increases under Trump. Yes, increases. Because that money is needed to make sure that private equity managers can see their top tax rates moved down to 15 percent.
Trump’s infrastructure plan is not a simple public-private partnership plan, and won’t lead to much new investment
President-elect Donald Trump has indicated that one of his first priorities will be a plan to boost infrastructure investment. Normally, this would be welcome news for those of us who have been arguing for years that increased public investment—including but not limited to infrastructure investments—should be a top-tier economic priority. Further, it also seems like a rare opportunity for bipartisanship—after all, Hillary Clinton made infrastructure investment a priority of her campaign’s policy platform, as well.
The still-sketchy details of Trump’s plan, however, are a cause for concern. What we know is that the plan is to provide a tax credit equal to 82 percent of the equity amount that investors commit to financing infrastructure. In the coming days, this will invariably be described as creating public-private partnerships (P3s). P3s are a standard model for financing infrastructure that can in theory be used with little downside compared to direct public provision. However, this description of the Trump plan is both not that comforting and incorrect. It’s not comforting because the real-world record of P3s is much spottier than textbook models would suggest. And it’s not accurate because Trump’s plan isn’t as simple as encouraging new P3s. It is instead (at least in its embryonic form), simply a way to transfer money to developers with no guarantee at all that net new investments are made.
Let’s start with describing what a textbook P3 would look like and what the rationale for using it would be. P3s are long-term contracts between the state and private companies to build and maintain infrastructure. They can be thought of as sitting somewhere between standard public provision and full privatization of infrastructure. Say that a state or local government wants to build a new road, but is constrained for some reason (usually simpleminded anti-tax politics) from raising the money to publicly finance it. It’s important the democratically elected and accountable government ensure the project is in the public interest. Having done this, the government can then negotiate with private financiers and developers to get the project built. To reduce costs and provide incentives for development, tax breaks are sometimes provided to holders of bonds issued by the private entities, and the private entities also receive a revenue stream of some kind in exchange for their investment. Often this is an explicit user fee, like a toll for using a road.
CBO inflates its estimates of employer compliance costs
CBO released a report on the economic impact of repealing the Department of Labor’s new overtime rule, which raises the salary level for exemption from $23,660 a year to $47,476, thereby making about 4 million employees newly eligible for overtime pay and strengthening the right to overtime pay for about 8.5 million more. CBO concludes that repealing the new rule would have no appreciable effect on employment, would cut the pay of about 900,000 salaried employees who would lose the right to be paid for overtime they actually work, and would increase employer profits.
CBO’s analysis differs in significant ways from the Department of Labor’s, which predicted much greater pay raises for newly eligible workers and much lower compliance costs for employers. CBO exaggerates the extent to which repealing the rule would increase employer profits because it inflates the compliance costs that employers would avoid if the rule were repealed.
How will a Trump administration lift wages for the vast majority of Americans?
President-elect Donald Trump succeeded, in part, through an appeal to working class voters who have seen their incomes stagnate or fall for decades, the jobs they depended on moved off-shore, and their hopes for a secure retirement dwindle.
Trump correctly told them that U.S. trade treaties contributed to these problems and that the Trans-Pacific Partnership would only make matters worse. However, these trade treaties are just one way that policy has indeed been rigged to suppress wages for the vast majority of Americans. Millions of working Americans of all races are struggling, while the benefits of growth have gone only to people at the very top of the income ladder.
Working class Americans want what everyone wants: good jobs and hope for a better future. Now, the Trump administration and a GOP congress will have to deliver. How will a Trump administration lift wages for low and middle income Americans? As EPI has been promoting for decades, there are specific policies that will raise wages. The only way to raise wages for the vast majority of American workers is to give workers more power. For far too long, employers have held all the cards.
Trump has called for a higher minimum wage. A truly bold increase in the minimum wage would lift pay for the bottom quarter or more of the workforce.
The TPP is a back door for dumped and subsidized imports from China; it would enhance, not limit, China’s influence in the region
President Obama has built his closing case for the Trans-Pacific Partnership on a political argument, saying “…we can’t let countries like China write the rules of the global economy. We should write those rules.” But it is both arrogant and wrong to think that the United States has the power to shape the rules governing China’s relationship to TPP signatories. As of today, China has already established deeper trade ties than the United States with the TPP nations. Further, congressional approval of the TPP would actually lock in those advantages for China. China has a large trade surplus with the TPP countries, and crucial terms of the agreement (specifically weak rules of origin (ROO) requirements, which we’ll talk about in detail below) would provide a back-door guarantee for China and other non-TPP members to duty-free access to U.S. and other TPP markets. This would be especially significant for autos and auto parts, as well as other key products. TPP exporters are not going to turn away from their suppliers in China just because they signed a trade deal with the United States.
The United States has a massive trade deficit with China that has taken on added significance in the light of the proposed TPP agreement between the United States and 11 other Pacific Rim countries. While China is not party to the TPP, it is a major force behind a larger East Asian co-production system that uses unfair trade (dumping, subsidies, excess capacity, export restrictions, and more), coupled with currency manipulation and misalignment, to make U.S. goods more costly and thus less competitive in China, the TPP and in other markets.
The United States also had a large trade deficit with the TPP countries in 2015 that cost 2 million U.S. jobs. Flawed trade and investment deals, such as the North American Free Trade Agreement (NAFTA), plus the currency manipulation and unfair trade by some TPP members account for many of those lost jobs (note that Mexico and Canada are TPP countries). In addition, analysis developed here demonstrates that a substantial share of these TPP job losses can be directly linked to trade between China and the other members of the TPP. Specifically, most of the TPP countries run large trade deficits with China while running large, offsetting trade surpluses with the United States. Thus, it appears that at least some TPP producers are buying parts and components from China and re-exporting them in the form of finished goods to the United States.
Setting a higher bar for the economy—and policymakers
There was some good news in this morning’s Employment Situation Report. The economy added 161,000 new jobs in October—enough to bring in players off the bench. Perhaps most significantly, nominal wage growth increased 2.8 percent over the year, another step-up over the pace of growth in recent years and a sign of a tightening labor market, where workers may be starting to gain some leverage. All in all, last month was a solid step closer to full employment, but we still have not reached it yet. It’s important to remember that these positive highlights don’t mean we are at full employment. That’s why the Federal Reserve made the right decision to leave rates alone earlier this week. The economy continues to move in the right direction, but considerable slack remains and the recovery has yet to be fully realized in all parts of the economy or for all workers.
This month and this year, the economy has hit some milestones, but I’d argue that those are relatively low bars for success. For example, for the first time this recovery, the prime-age employment-to-population ratio (EPOP) exceeded its low point of the last two business cycles. As seen in the figure below, prime-age EPOP hit 78.2 percent in October, just surpassing its level in February 1993 of 78.1 percent. Is it good that the prime-age EPOP is rising? Yes, but, prime-age EPOPS remain below the low point of the last recession, let alone levels that could constitute a full employment economy. That’s what I mean by a “low bar.” But, the uptick last month is a good sign and I look forward to continued progress on this key measure.
What to Watch on Jobs Day: A steadily improving, but still-weak labor market for the next president
Amidst lots of questions about the economy heading into the presidential election next week, I thought it would be appropriate to provide a brief analysis of where the economy is today. Since the Great Recession and aftermath, the labor market has improved at a remarkably consistent and steady rate. But as steady and long-lived as the recovery has been, it has not yet been fully cemented into a healthy, full employment economy. The improvement is easy to document. It can be obviously seen in the underlying growth in total payroll employment and precipitous drop in the unemployment rate. The still-unhealed damage is illustrated by remaining slack that has led to still slower than targeted nominal wage growth and underperforming prime-age employment-to-population ratio.
For its part, aside from a tap last December, the Federal Reserve has been keeping their foot off the brakes, letting the labor market soak up the slack. They should continue to do so until it’s all gone. In the last year, the labor force participation rate has risen, while the unemployment rate held steady. So, yes, the economy is on the right track. And, if payroll employment stays on course, the unemployment rate will start coming down again even as missing workers continue to enter or re-enter the labor force. And, as this happens, workers and would-be workers will be in shorter supply, finally giving them the leverage to bid up their wages.
What the UK decision implies for Uber drivers in the U.S.
This blog was first posted at OnLabor.
As Jon reported this morning, an employment tribunal in London has concluded that Uber drivers are not self-employed independent contractors, but rather Uber workers. The tribunal’s decision is available here, and I recommend it: it’s full of details regarding the relationship between Uber and its drivers. And although legal tests differ across jurisdictions, what the U.K. tribunal found has clear relevance for the question of whether Uber drivers in the U.S. meet the definition of “employee” under U.S. labor and employment laws. To put it bluntly, what the tribunal finds clearly confirms the conclusion that Uber drivers are employees under U.S. standards. The opinion is 40 single spaced pages, but here are some (and just some) of the relevant findings that led the tribunal to conclude that drivers are workers under UK law:
Fed should hold steady—the economy had “room to run” over past year and may well have more in the next year
The Fed’s Federal Open Market Committee (FOMC) will debate again this week whether or not they should raise interest rates to slow the economic recovery in an effort to forestall potential inflation.
The debate over when the Federal Reserve should begin raising its short-term policy interest really began in earnest in September 2015. In the month before the FOMC met in September 2015, futures markets put the odds of a rate hike at over 50 percent. It is likely that all that kept the hike from happening in September of that year was the surprise financial market declines in China, which spilled over into the American stock exchanges for a spell. In December 2015, after this short-term drama passed, the Fed raised rates for the first time in seven years.
In the debate that accompanied the run-up to the September 2015 meeting, those arguing for further patience from the Fed (like this author) argued that there remained lots of slack remaining in the labor market, and that this slack would contain inflationary pressures. One source of slack identified was a potential firming-up of labor force participation, which had dropped considerably over the recovery.
Strong across-the-board wage growth in 2015 for both bottom 90 percent and top 1.0 percent
Annual inflation-adjusted earnings of the top 1.0 percent of wage earners grew 2.9 percent in 2015, and the top 0.1 percent’s earnings grew 3.4 percent, according to our analysis of the latest Social Security Administration wage data. What is relatively unique about 2015 was that the 3.4 percent wage growth for the bottom 90 percent matched that of the top 0.1 percent. This strong wage growth for the bottom 90 percent reflects both the lull in inflation (up just 0.1 percent) and the failure of wage inequality to continue its growth in 2015. Annual wages of the bottom 90 percent now stand 3.5 percent above what they were pre-recession in 2007, with all of that growth essentially occurring in 2015. The top 1.0 percent’s earnings have surpassed their previous high point, attained in 2007, by a mere 0.2 percent, recovering from the steep 15.6 percent fall during the financial crisis from 2007–09. High earners between the 90th and 99.9th percentile have seen the strongest growth since 2007, with earnings rising 7.7 percent. It’s only the earnings of the top 0.1 percent that remain below 2007 levels (down 5.1 percent).
Wage inequality has grown tremendously over the longer-term period from 1979 through 2015. The annual earnings of the top 1.0 percent rose 156.7 percent from 1979 to 2015 while the very top 0.1 percent enjoyed earnings growth of 338.8 percent. In contrast, the bottom 90 percent of wage earners had annual earnings grow by just 16.7 percent over the 1979–2007 period and an additional 3.5 percent between 2007 and 2015 for a cumulative annual earnings growth of 20.7 percent over the thirty-six years from 1979 to 2015.
Oregon Measure 97 would provide short and long-run boost to Oregon economy
The national recovery since the end of the Great Recession has been needlessly held back by spending cuts at all levels of government. Figure A below compares the growth in per capita spending by federal, state, and local governments in this recovery with previous recoveries.
Fiscal austerity explains why recovery has been so long in coming: Change in per capita government spending over last four business cycles
| 1982Q4 | 1991Q1 | 2001Q4 | 2009Q2 | |
|---|---|---|---|---|
| -6 | 90.83817 | |||
| -5 | 96.46779 | 91.33168 | ||
| -4 | 96.72548 | 97.80345 | ||
| -3 | 96.51523 | 96.35624 | 94.05089 | |
| -2 | 97.21731 | 98.09825 | 98.14218 | 94.4813 |
| -1 | 98.26435 | 98.92533 | 97.98324 | 96.68474 |
| 0 | 100 | 100 | 100 | 100 |
| 1 | 100.3829 | 100.7468 | 101.5275 | 99.84022 |
| 2 | 100.9558 | 100.4456 | 102.3723 | 99.50632 |
| 3 | 101.005 | 100.9653 | 102.8023 | 100.7222 |
| 4 | 99.79553 | 102.3054 | 103.3013 | 101.0192 |
| 5 | 100.4771 | 102.4831 | 103.1351 | 101.1242 |
| 6 | 101.715 | 102.7714 | 104.3665 | 100.3432 |
| 7 | 102.037 | 102.2554 | 104.5556 | 98.88213 |
| 8 | 103.485 | 101.9195 | 104.6451 | 98.15822 |
| 9 | 104.602 | 101.724 | 105.4192 | 97.23836 |
| 10 | 106.0107 | 102.011 | 105.8382 | 96.86414 |
| 11 | 107.6073 | 101.868 | 105.804 | 95.9267 |
| 12 | 107.6288 | 101.2959 | 105.4445 | 95.78736 |
| 13 | 108.7749 | 101.4328 | 106.1767 | 95.40735 |
| 14 | 110.4932 | 102.1325 | 106.3521 | 94.83589 |
| 15 | 112.3029 | 101.9209 | 106.5289 | 94.21625 |
| 16 | 111.6476 | 102.6275 | 106.0185 | 93.90439 |
| 17 | 112.0741 | 102.8173 | 107.5423 | 93.62299 |
| 18 | 112.6221 | 102.3836 | 107.6773 | 93.04895 |
| 19 | 112.3952 | 101.1486 | 107.8776 | 93.22292 |
| 20 | 113.0807 | 101.9359 | 108.2144 | 93.60604 |
| 21 | 113.3476 | 103.2437 | 109.1187 | 94.245 |
| 22 | 113.3408 | 102.7047 | 109.0787 | 94.14226 |
| 23 | 113.108 | 102.7598 | 109.5846 | 95.09063 |
| 24 | 114.405 | 103.1194 | 109.8789 | 95.43504 |
| 25 | 114.9973 | 103.4402 | 95.722 | |
| 26 | 116.1049 | 103.3562 | 95.86387 | |
| 27 | 116.8758 | 103.2392 | 96.35498 |
Note: For total government spending, government consumption and investment expenditures deflated with the NIPA price deflator. Government transfer payments deflated with the price deflator for personal consumption expenditures. This figure includes state and local government spending.
Source: EPI analysis of data from Tables 1.1.4, 3.1, and 3.9.4 from the National Income and Product Accounts (NIPA) of the Bureau of Economic Analysis (BEA)
As tight as federal spending growth has been in recent years, the bulk of the differences between the current recovery and previous ones shown in Figure A actually stems from state and local spending decisions. These state-level spending cutbacks have held down growth substantially.
States, unlike the federal government, are generally constrained in their ability to boost spending by the need to raise revenue. But as a general rule, government spending boosts economic activity in a weak economy more than tax cuts drag on activity. (In economist jargon, spending increases have higher “multipliers” than revenue increases.)
A women’s economic agenda for the 45th U.S. president: Investing in the infrastructure to support a 21st century economy
Progress on closing the gap between men’s and women’s wages in the U.S. economy has been glacially slow in recent decades—and gender wage parity has become a top priority for those committed to ensuring the economic security of American women. This priority is absolutely essential. No matter how you cut it, the gender wage gap is real and it matters. That said, pay parity cannot be the only goal for those looking to improve the economic lot of American women. In recent decades, the hourly pay of typical male workers has essentially stagnated even as the economy has grown. Closing only the gap between typical female and typical male workers threatens to ensure parity in this stagnation, not parity in progress. To achieve parity in progress, gains in reducing gender wage gaps must be paired with gains in closing another gap: the gap between economy-wide productivity and the wages of all typical workers. This is an ambitious goal, but it’s the only one that ensures genuine economic security for American women and the families that rely on them.
Here, I hope to draw out the importance of taking a holistic approach to improving the lot of women, men, and families across society. I can summarize my argument in three major points:
- The gender wage gap exists and progress closing it has been agonizingly slow, particularly in recent years. And, when combined with wage penalties faced by workers of color, it leads to wages for women of color being drastically lower than for white men.
- Rising inequality has kept the vast majority of men’s and women’s wages from rising as fast as gains in economy-wide productivity over the last four decades.
- Solutions need to close both the gender and inequality wage gaps and invest in a policy infrastructure to support all workers’ efforts to balance demands of work and home.
White House issues call to action on non-compete clauses
Labor mobility is fundamental to the ability to earn good wages. The improvement in incomes and living standards over the centuries is tied tightly to the growing ability of workers to quit the job they have and take another. And it is a timeless truth that employers will try to find new ways to hamper their employees’ legal right to leave. Increasingly, they are turning to non-compete clauses that they slip into the fine print of employment contracts. Thirty million U.S. employees, many of them relatively low wage workers, are bound by non-competes.
Peasants in medieval times were generally not permitted to leave the land on which they were born, and throughout Europe and Russia they were essentially owned by the owner of the land, their lord and master. The use of indentured servitude in the cities was a less onerous but still heavy burden on young workers, who were forced to work for years with little or no compensation for a single master, whose abuse or mistreatment usually had no remedy.
Slavery is the most extreme example of a legal limitation on labor mobility and the most destructive. Slavery in the United States not only brutalized and impoverished the enslaved, it dragged down the wages of anyone forced into competition with them. Slavery’s effects on free labor were an additional reason beyond simple morality for Abraham Lincoln and the free soil movement to oppose slavery. How could free construction workers, for example, demand higher wages if their employer’s competitor was using unpaid, enslaved labor?
Buried in the fine print: Forced arbitration
This article first appeared on the American Constitution Society (ASC) Blog.
From First Lady Michelle Obama’s speech in New Hampshire to accusations by Fox News’ Gretchen Carlson against Roger Ailes, sexual harassment and sexual assault have been dominating the headlines for months.
Also in the news has been the topic of forced arbitration agreements that limit victims’ ability to have their day in court. Very much a part of the Wells Fargo scandal has been the bank’s argument that it shouldn’t have to face its clients at trial.
These two stories actually have more in common than is often mentioned. First, of course, Fox tried to shut down Carlson’s suit by saying her contract’s arbitration clause prevented her from using that public forum. Few realize how common it is for women and men who allege harassment at work to be shunted into a secretive process that often prioritizes the interests of the employer.
Lawsuit filed to block Fair Pay and Safe Workplaces Executive Order
One of President Obama’s most important contributions to better pay and working conditions in the United States is his executive order on Fair Pay and Safe Workplaces, which he issued two years ago and is finally taking effect this month. The order, which addresses wage theft and on-the-job hazards, including sexual harassment and race discrimination, affects 25 million employees working for businesses that provide goods and services under contract to the federal government – businesses that range from janitorial services to ship builders.
The first provisions are set to take effect in two weeks – unless a lawsuit filed in Texas by various business groups succeeds in delaying or blocking enforcement of the rules.
Why is the Executive Order Needed?
The federal government purchases over $500 billion in goods and services from the private sector, and the firms it deals with employ about 20 percent of the nation’s total workforce. It is important that the government chooses to deal with honest employers and that, when given a choice of two otherwise similar contractors, it chooses to do business with the one that demonstrates superior integrity and a greater inclination to obey the law. That is common sense.
Race tax harms African Americans
In Quartz, I described a rarely noticed but devastating development that is undermining African American working and middle class families—a racially disparate property tax system that, in many cities, extorts a premium from African American homeowners. This premium can be so large that families lose homes when cities foreclose on properties where taxes have become unaffordable.
This discriminatory race tax has arisen because homes in African American neighborhoods that lost value following the housing price bubble collapse in 2008 have, in the subsequent recovery, been slower to recover value than properties in white neighborhoods. In most cities, assessors are required to re-assess properties on a regular basis, but when they have failed to do so, homeowners in African American neighborhoods wind up paying more tax relative to their home values than homeowners in white neighborhoods.
What to Watch on Jobs Day: The teacher gap, and how today’s unemployment masks continued weakness in the economy
On Friday, the Bureau of Labor Statistics will release the September numbers on the state of the labor market. As usual, I’ll be paying close attention to the prime-age employment-to-population ratio (EPOP) and nominal wages, which are two of the best indicators of labor market health. Friday’s report will also give us a chance to examine the “teacher gap”—the gap between local public education employment and what is needed to keep up with growth in the student population.
The unemployment rate has fallen steadily over the last six years, and many have said that the current rate of 4.9 percent means we are back (or at least very close) to full employment—meaning that pushing unemployment any lower would cause inflation to accelerate above the Federal Reserve’s preferred 2 percent target. That is why some observers are calling upon the Fed to raise rates—before workers see the economic recovery translate into consistently strong nominal wage growth.
But the headline unemployment rate (which is notably higher than previous labor market peaks) continues to understate slack in the labor market. Today’s 4.9 percent unemployment rate is associated with much lower prime-age EPOPs—the share of the working age population who is actually working—than in the recent past. To make that comparison, let’s look at where prime-age EPOPs were in the last two business cycles when the overall unemployment rate was 4.9 percent. The graph below shows that the prime-age EPOP averaged 80.9 percent in the three months the unemployment rate hit 4.9 percent in 1997 and 79.5 percent in the two months unemployment hit 4.9 percent in 2005. On average, those five months saw a 2.5 percentage point higher prime-age EPOP (80.3 percent) than the average 77.8 percent we’ve seen in the five months with 4.9 percent unemployment this year.
Don’t Be Fooled: The TPP Is Not About National Security
This blog was first posted at The Globalist.
During the 1993 U.S. congressional debate over the North American Free Trade Agreement, a Democratic Congressman with a solid pro-labor voting record asked me why I thought NAFTA would be bad for working people.
After I had given my answer, he responded: “Well, you may be right about the economics.” “But we have a 2000-mile border with Mexico. The President told me we need NAFTA to make it secure.”
Who can argue against national security?
NAFTA was the economic model for the ever more corporatist trade deals that followed, including the currently proposed 12-nation Trans-Pacific Partnership.
The arguments for NAFTA also set the pattern for the debates over those deals. Whenever the economic case crumbles, “national security” becomes the fallback rationale.
After a quarter century of off-shored jobs and depressed wages in the wake of corporate-driven trade de-regulation, the claim that the Trans-Pacific Partnership will make life better for American workers is so discredited that both Hillary Clinton and Donald Trump are opposed.
$916 million losses aside, there are many ways Trump could avoid paying taxes
This weekend, the New York Times broke the story that Republican presidential nominee Donald Trump claimed a $916 million loss in 1995, possibly allowing him to avoid paying federal income taxes for as long as 18 years. The ability to use a large, one-time loss to reduce future income tax liability is not, on its face, all that objectionable—it simply allows individuals to smooth out their tax liability and avoid being penalized for having a volatile income.1 But Trump’s refusal to release his tax returns continues to obscure the numerous other potential loopholes that can be exploited by those at the top that are more arbitrary and objectionable.
Take one loophole that is especially relevant to Trump and real estate developers: “like-kind exchange.” Like-kind exchange allows investors owning real estate to defer, and coupled with another loophole in our tax code eventually avoid, paying capital gains taxes.
To see how, consider an investor who owns a stock and would like to invest in another stock. Selling their stock will trigger capital gains taxes. Not so for real estate. Instead, like-kind exchange rules allow investors like Trump to defer paying taxes on their capital gains if they’re exchanging the real estate for broadly defined like-kind property.
Freeing corporate profits from their fair share of taxes is not the deal America needs
There’s obviously plenty to criticize regarding Donald Trump’s claims and characterizations about the problems facing the U.S. economy during last night’s debate. But one thing that stuck out clearly was his peddling the myth that profits of U.S. corporations are “trapped” offshore by U.S. tax policy, and that these profits “can’t” be returned to the United States “until a deal is struck.” Now, Trump’s presentation of this argument during the debate was a characteristic dumpster fire of incoherence, but on the substance he was actually just trying to explain what has become a depressing conventional wisdom.
So, let’s provide a quick explainer about why these profits are not “trapped” abroad and why the only deal that needs to be cut is closing a loophole in the U.S. corporate income tax.
This loophole allows U.S. multinational firms to defer paying the corporate income tax on profits earned overseas until these profits are “repatriated,” or returned to shareholders in the United States. By now, about $2.4 trillion in profits sits offshore, and there would be about $700 billion in taxes if it were repatriated. Obviously this deferral is a huge deal.
September Fed decision was the right one for communities of color
At the conclusion of their most recent meeting, the Federal Open Market Committee (FOMC) decided against a September interest rate hike. Their decision is consistent with conclusions drawn in a recent analysis by our colleague Josh Bivens. Using the Fed’s own economic projections and other historical data, he makes the case that even a small increase in interest rates is far more likely to slow the economy and deter progress in reducing unemployment than holding interest rates steady is likely to trigger accelerating inflation. Their decision also lets jobseekers breathe a temporary sigh of relief—particularly people of color, who have seen the strongest labor market gains over the last couple years, but who still face extremely high rates of unemployment in some parts of the country.
The table below shows unemployment rates by race and ethnicity for each of the 12 metro areas with a Federal Reserve Bank, as well as other large metro areas across the country with sizable black or Latino populations. We only present unemployment rates for metro areas where the sample size was large enough to generate a reliable estimate for a particular race or ethnic group. These data show that nationally, the black unemployment rate has declined 3.1 percentage points over the last two years, compared with a 2 percentage points decline for Hispanics and a 1.2 percentage point improvement for whites. Although double-digit rates of black unemployment were more of a norm just two years ago than now, African Americans are still suffering from staggering unemployment, with rates higher than 10 percent in Chicago, Detroit, and Philadelphia. With the exception of Dallas, Latinos are more likely to be unemployed than whites in each of the selected metro areas, but Hispanic unemployment rates remain most elevated in Philadelphia and Chicago.
Raising rates, even a little, will slow the economy and slow progress in reducing unemployment
This week the Federal Open Market Committee (FOMC) will meet to decide whether or not to raise interest rates. By now this is a familiar debate. Some (call them hawks) argue that rate hikes are needed to slow the pace of economic growth and slow progress in reducing unemployment in the name of combating potential inflation. Others (call them doves) argue that we should not tighten until we’re absolutely sure that genuine full employment has been locked in. The past years’ evidence argues strongly that the doves are right.
Let’s start with the Fed’s own projections, which some Fed officials recently pointed to during a meeting with the Fed Up coalition to claim that interest rate increases were not meant to slow the economy or raise unemployment.
The table below shows the Fed’s current projections for the unemployment rate and other variables. They forecast that it will move from today’s 4.9 percent to 4.7 percent in the last three months of this year, and then fall further, to 4.6 percent for 2017 and 2018. After this it rises (after some unspecified time) to its long-run equilibrium of 4.8 percent. This 4.8 percent long-run rate is essentially the Fed’s estimate of the “natural rate of unemployment”—the lowest rate the economy can stay at without sparking an acceleration of inflation (this acceleration terminology is key: it’s not just inflation rising from 1.5 percent to 2.5 percent, it’s inflation that rises from 1.5 percent to 2.5 percent to 3.5 percent to 4.5 percent and so on). Importantly, in the Fed’s forecast, the unemployment rate falls over the next three years even as the projected federal funds rate is moved steadily up. By 2018, the 4.6 percent unemployment coincides with a 2.4 percent federal funds rate (it is just 0.25 percent today).
Nationwide increases in income are visible at the state level
Earlier this week the Census Bureau released data from the Current Population Survey (CPS) showing strong national income growth in 2015. State income data from the American Community Survey (ACS), which the Census Bureau released today, show similar results across the United States, with a 3.8 percent increase in real (inflation-adjusted) median household income for the country as a whole. This translates to an increase of $2,062 in the annual income of the typical U.S. household. (The ACS has a different sample and covers a somewhat different timeframe than the CPS, leading to slightly different estimates between the two surveys.) Real median household income increased in 39 states and the District of Columbia between 2014 and 2015.
Between 2014 and 2015, the largest percentage gains in household income occurred in Montana, where the typical household income grew by $3,146—an increase of 6.7 percent. Tennessee (6.4 percent), Oregon (5.9 percent), Massachusetts (5.7 percent), Rhode Island (5.7 percent), Wisconsin (5.6 percent), Hawaii (5.5 percent), New Hampshire (5.5 percent), District of Columbia (5.4 percent), Wyoming (5.4 percent), Kentucky (5.1 percent), and Vermont (5.1 percent) all had increase of 5 percent or more. In 11 states, median household income was unchanged over the year. There were no states that had a statistically significant decrease in median household income.
After years of wage stagnation, incomes have finally started to recover. The labor market recovery in 2015 included lower unemployment, more hours of work, and strong inflation-adjusted wage growth.
Poverty rates decrease throughout the states in 2015
The poverty rate fell in many states between 2014 and 2015, according to this morning’s release of state poverty statistics from the American Community Survey (ACS). In 23 states, there were decreases in the poverty rate, with 6 states reaching their 2000 levels. 27 states and the District of Columbia saw no significant change in the poverty rate, and there were no states that had a statistically significant increase in their poverty rate.
In 2015, the national poverty rate, as measured by the ACS , fell 0.8 percentage points, to 14.7 percent. (The ACS has a different sample, and thus slightly different estimates, than the Current Population Survey, which provided Tuesday’s national data.) Vermont saw the largest decline in its poverty rate (1.9 percentage points), followed by Tennessee (1.6 percentage point) and South Carolina (1.3 percentage point). The lowest poverty rates were in New Hampshire (8.2 percent) and Maryland (9.7 percent). While poverty did not rise in any state in 2015, there were still two states with poverty rates above 20 percent: New Mexico (20.4 percent) and Mississippi (22.0 percent).
Widespread income growth at the national level, driven by improvements in labor market conditions, was key to the reduction of poverty across the states. At the same time, minimum wage increases in many states and cities boosted wages for many of the country’s lowest-paid workers. These factors, combined with the absence of any real inflation, provided a welcome reversal to the stagnation in wages and incomes that has prevented improvements in living standards since the late 1990s. Additionally, government programs, including Social Security, housing subsidies, and unemployment insurance, kept millions above the poverty line. While poverty remains far too high in virtually every state, today’s data suggest that many states are heading in the right direction.