Now you see them, now you don’t: Vanishing benefits for U.S. workers in NAFTA-2 (USMCA) deal
The purported benefits of the U.S.-Mexico Canada Agreement (USMCA, or NAFTA-2) for American workers are so tiny, one can hardly see them.
The U.S. International Trade Commission’s recent study of the economic impacts of the USMCA finds that it will have small, but positive, effects on U.S. output (GDP up 0.35 percent over six years), employment (176,000 jobs or 0.12 percent) and wages (up 0.27 percent). However, these projections are based on a number of questionable assumptions about the impacts of the trade deal, “assuming” for example that Mexico will adopt new labor legislation that will improve labor rights in that country, and “that these provisions are enforced” and Mexican union wages increase by 17.2 percent as a result. Furthermore, the ITC claims that U.S. wages will rise as a direct result of improved labor rights enforcement in Mexico, although that conclusion is not supported by the results of their own model.
These findings illustrate a much larger problem with the outdated modeling approach used by the ITC, which assumes that the purpose of trade and investment deals, such as the USMCA, is to reduce tariffs. However, the most important provisions of modern international economic agreements, such as the USMCA and the World Trade Organization, lay down rules governing matters such as foreign investment, services trade, government procurement, data transmission and storage, food and product safety standards, as well as labor rights and environmental standards. These rules govern how countries trade and businesses invest and how our economies are governed and regulated. At the end of the day, they determine who wins and loses, how income is distributed, the tradeoffs between corporate power and control, and whether the rights of workers, the public and the environment will be protected from transnational abuses from big business and big government.
Chapter 8 of the ITC report on the USMCA (p. 215) makes the following erroneous claim: The Commission estimates that the collective bargaining legislation will likely increase unionization rates and wages in Mexico and also increase Mexican output. This, in turn, would be expected to increase U.S. output and employment also, resulting in a small (0.27 percent) increase in U.S. real wages to attract the new workers.
This claim is not supported by the model results. Appendix F of the ITC report (Modeling the Labor Provisions, Table F.5 (p 327)) reports the results of a sensitivity analysis showing the impacts of various assumptions about the size of the Mexican union wage premium (17.5 percent, 32.7 percent, and 37.5 percent) on US macroeconomic variables, including GDP, total employment and wages. The first of these is the base case for the ITC’s overall estimates. These simulations resulted in no significant changes between the base case and alternatives (despite much higher assumed union wage premiums in Mexico) in the estimated impact of the USMCA on GDP (0.35 percent), wages (0.27 percent), or employment (176,000 jobs) in the United States, despite roughly doubling the assumed impact of collective bargaining on wages in Mexico (GDP and total U.S. employment increased very slightly in these simulations, by between 1/10 to 3/10 of 1 percent, as the Mexican wage premium was doubled).
Toxic stress and children’s outcomes
Toxic Stress and Children’s Outcomes, a new report published jointly by the Economic Policy Institute and the Opportunity Institute, urges policymakers and educators to join health care researchers and clinicians in paying greater attention to the contribution of “toxic stress” to deterioration in children’s academic performance, behavior, and health.
The epidemiological research literature is rich with discussions of how toxic stress in children predicts depressed outcomes. And yet policymakers, educators, researchers, and clinicians have only recently begun to explore policies and interventions that might help to mitigate toxic stress and its effects on children.
“Stress” is a commonplace term for bodily chemical changes in response to frightening or threatening events or conditions. A normal response to a frightening or threatening situation is the production of hormones that can affect almost every tissue and organ in the body. Tolerable stress can contribute to better performance if individuals react by heightening their focus on the fright or threat without distraction.
But when frightening or threatening situations occur too frequently or are too intense, and when protective factors are insufficient to mitigate children’s stress to a tolerable level, these hormonal changes are deemed “toxic” and can impede children’s behavior, cognitive capacity, and emotional and physical health. Toxic stress produces not heightened focus but the opposite, a decrease in performance levels.
Millions of workers are paid less than the ‘average’ minimum wage
Last week, the New York Times published an article in “The Upshot” by Ernie Tedeschi, which argues that after accounting for state and local minimum wages, the United States currently has its highest average effective minimum wage ever at $11.80 per hour. The article correctly underscores how after 10 years of inaction at the federal level, so much of the policy work being done to boost wages for low-wage workers is happening at the state and local level. Yet, it is important to recognize that even with state and local governments taking action in many places, there are still millions of workers being paid significantly lower wages than the “average” minimum wage as calculated in the Upshot piece. In fact, raising the federal minimum wage to $11.80 would directly lift wages for 18.6 million workers, or 12.8 percent of the wage-earning workforce. Moreover, calculating the average effective minimum wage is very sensitive to how one defines the workforce affected by the policy. One would arrive at a much lower average minimum wage if considering the broader low-wage workforce for whom minimum wage policy is relevant.
The Upshot piece explores how the share of workers being paid exactly the federal minimum wage is relatively small. There are two reasons why this is the case. First, the article observes that 89 percent of minimum-wage workers are paid more than the federal $7.25, because 29 states and some 40+ cities and counties have set their own minimum wages above the federal floor. Higher state and local minimum wages—all of which can be found in EPI’s Minimum Wage Tracker—are the result of federal inaction and also due to the tremendous success of the Fight for 15 movement in raising awareness about low wages and pushing for minimum wage increases across the country.
Second, the share of workers being paid the federal minimum wage potentially overlooks millions of workers in states with low minimum wages who are earning only somewhat above the required federal minimum. For example, in Texas, a state stuck at the federal minimum wage, 2.7 percent of workers reported earning less than $7.50 per hour last year. But four times as many workers in Texas, or 11.0 percent, earned less than $10.00 per hour. This contrasts sharply with California, where there are higher state and local minimum wages: there, only 3.8 percent of the workforce reported earning less than $10.00 per hour last year. (These calculations use Current Population Survey data.)
Nevada state government has fiscal challenges–but granting state employees the right to bargain collectively does not add to them
A bill introduced in the Nevada State Senate (SB135) would allow state workers to collectively bargain over wages and benefits, a right they have been denied since 1965.
Opponents of public sector unions have begun making the usual arguments against granting Nevada state employees these rights. In two recent reports the Las Vegas Metro Chamber of Commerce (COC) and the Nevada Policy Research Institute (NPRI) make two essential arguments: granting state employees the right to bargain collectively will increase state spending and hence the tax burden on Nevadans, and these state employees are already overpaid, and collective bargaining rights would just make this worse. This logic ranges from myopic to misleading to outright false.
Take the first argument—that collective bargaining rights will reliably lead to higher state spending and a higher tax burden on Nevadans. The opposition to SB135 is trying to invoke a knee-jerk response from Nevadans to see higher spending as a bad thing always and everywhere; but what’s the evidence that Nevada’s spending has become bloated instead of inefficiently low? Take higher education. In the decade between 2008 and 2018 inflation-adjusted higher education spending per student in Nevada fell by 22.2 percent, a much worse performance than the national average. These cuts led directly to a staggering 56 percent increase in tuition for public universities over this same time period—one of the ten steepest tuition increases across the 50 states. Given this track record, the real problem facing Nevadans doesn’t seem to be ever-growing spending, but savage austerity that is sacrificing the future.
But maybe granting collective bargaining rights will radically overcorrect this problem and lead to Nevada becoming a profligate spender? It hasn’t happened in the K-12 education sector, where local government employees (including all teachers) currently have the right to bargain collectively. Even in this sector the downward pressure leading to inefficiently low spending has been ferocious. In a recent report card on education in Nevada, the Children’s Advocacy Alliance (CAA) gave the state an ‘F’ on funding, with low funding leading to some of the highest student-to-teacher ratios in the nation (48th out of 50). As recent teacher strikes over starved resources (not just pay) have shown in states like Oklahoma and West Virginia, lack of collective bargaining rights can lead to inefficiently low educational investments in states.
In short, the claim that collective bargaining rights always lead to bloated spending levels is a caricature. Instead, sometimes these rights provide a check (often insufficient) against relentless downward pressure on spending that leads to destructive cuts. The best empirical research linking public sector collective bargaining and state and local government spending finds mixed results, with the causal effect of collective bargaining rights in pushing up state spending either weak or non-existent. Given this evidence, the empirical claims made by opponents of SB135 about the magnitude of state spending increases that would occur should it pass are frankly absurd—they would require state employees’ compensation to rise by over 30 percent, with no beneficial effects on the state budget stemming from higher productivity or lower turnover or fewer state workers drawing public assistance benefits—all offsets that we know often accompany wage increases. The Chamber of Commerce study forecasts an even more outlandish increase—with total state spending forecast to rise more than the total amount spent on state employee compensation in the latest year of data.
Evidence that tight labor markets really will increase labor’s share of income: Economic Policy Institute Macroeconomics Newsletter
In a previous edition of this newsletter, I highlighted the labor share of income as a target variable the Fed should be monitoring to assess whether or not the U.S. labor market has returned to full health. Specifically, I argued that a period of above-trend growth in wages should be allowed if it leads to steady clawbacks in the share of national income that labor lost during earlier phases of the economic recovery and expansion. Figure A shows the evolution of labor’s share of income in the corporate sector in recent decades; it clearly documents that the post–Great Recession collapse in labor’s share has still largely not been reversed.1
Workers' share of corporate income hasn't recovered: Share of corporate-sector income received by workers over recent business cycles, 1979–2018
Notes: Shaded areas denote recessions. Federal Reserve banks’ corporate profits were netted out in the calculation of labor share.
Source: EPI analysis of Bureau of Economic Analysis National Income and Product Accounts (Tables 1.14 and 6.16D)
That newsletter wasn’t the first time I’ve stressed that the Fed should allow ever-tighter labor markets until the labor share of income normalizes or until there is an extended period of above-target price inflation. The argument, put simply, is this: If price inflation accelerates well before the clawback of labor’s share of income, this would be some evidence that structural changes (perhaps growing industrial concentration of product markets) have contributed to the fall in labor’s share, and that tighter labor markets by themselves will not be enough to return this measure to pre–Great Recession levels. However, if we don’t see this outbreak of extended above-trend price inflation well before any clawback, it means the Fed can and should strive to restore labor’s share by keeping labor markets tight.
In today’s newsletter, I follow up on those arguments, looking specifically at whether there really is a reliable positive effect of tight labor markets on labor income shares. If there is such a reliable effect, this provides a strong argument that the Fed should keep labor markets tight until labor’s share moves much closer to its pre-recession levels.
Social Security trustees report shows modest improvement in financial outlook
The big news in the Social Security trustees report released yesterday is that the Social Security Disability Insurance (SSDI) trust fund depletion date was extended 20 years, to 2052. Recent declines in SSDI applications and in assumed SSDI take-up going forward contribute to a small improvement in Social Security’s overall financial status, as did higher-than-projected mortality in recent years.
Other demographic factors—recent and projected declines in the birth rate and immigration—had negative effects on the program’s finances, though not enough to offset higher-than-expected mortality. However, when combined with the “valuation period” effect—the retirement of the large Baby Boomer cohort and subsequent slowdown in the growth rate of the working-age population—the demographic factors are essentially a wash—reducing the projected long-term deficit by .01 percent of payroll.
Economic factors included both positive and negative factors, but on balance increased the projected deficit by .04 percent of payroll. The positive factors include lower expected inflation, slightly higher long-term wage growth, and the current strong economy as a starting point for projections. The negative factors were lower productivity growth and interest rate assumptions. With the aforementioned positive effect of changes to disability experience and assumptions, which reduced the projected deficit by .07 percent of payroll, and minor technical adjustments, the overall effect was to shrink the projected deficit by .06 percent of payroll over the 75-year window.
Is this good news? Yes, in the sense that the annual release of the report often serves as an excuse for fearmongering. It’s more challenging to put a doom-and-gloom spin on an improved financial outlook—though some will inevitably try. One possible news hook is the fact that the combined “old age” and “disability” trust funds (often simply referred to as “the [combined] trust fund”) will start to shrink next year as more Baby Boomers retire. This is entirely proper and predictable—the Baby Boomers are the reason we built up the trust fund in the first place—but it has never stopped anyone from yelling “Social Security is going bankrupt!” in a crowded theater of bad ideas. (The challenge for the doomsayers, rather, is that they’ve been saying this ever since Social Security revenues minus the interest on trust fund assets weren’t enough to cover benefit payments, so this talking point has become a bit dull with time.)
And if you believe this, I’ve got a great deal to sell you: The economic impacts of the revised NAFTA (USMCA) Agreement
The North American Free Trade Agreement resulted in growing trade deficits with Mexico and steep U.S. job losses after it was implemented in 1994, increasing the bilateral trade gap by at least $97.2 billion and costing at least 682,900 jobs through 2010.
Can NAFTA 2.0 do any better?
The U.S. International Trade Commission’s (ITC) new report on the economic impact of the U.S.—Mexico–Canada Trade Agreement, released last week, projects that the revised NAFTA (USMCA) will have tiny impacts on the economy. The ITC estimates the deal will increase GDP by 0.35% when it is fully implemented (six years after it takes effect), or roughly 10 weeks of growth. Similarly, it projects that 175,000 jobs will be added in the domestic economy, a 0.1 percent increase in total employment (based on CBO projections for the economy in 2025), or roughly as many jobs as the economy adds in a normal month, over the next six years. And it claims real wages will rise about one-quarter of a percentage point (0.27 percent), roughly 4 percent of what workers are expected to gain, in real terms, over the next six years, if promised gains in output and employment are realized.
But there are strong reasons to doubt that these gains will be achieved. The ITC results show that the deal will yield remarkably small gains, and those gains rest on questionable assumptions about how the deal will help workers and the economy. Perhaps the most problematic finding in the ITC study (p. 25) was that labor provisions in the USMCA “would increase Mexico union wages by 17.2 percent, assuming that these provisions are enforced.” Given that unionization rates in the durable goods sectors of Mexican manufacturing are reported to be 20.2 percent (Table F.4), these would be massive impacts, indeed. Yet Mexican workers will not benefit unless there are mechanisms to ensure that labor rights enforcement does improve, but those provisions do not yet exist in the agreement.
Thus, it is not surprising to find that the AFL-CIO, other labor unions, and many members of Congress are demanding that “swift [and] certain enforcement tools” are included in the deal before it is submitted to Congress. These concerns also apply to segments of the agreement that pertain to the environment, access to medicines. Furthermore, the assumption that Mexican union wages will increase 17.2 percent seems especially heroic, within the 6-year adjustment period in the ITC model (p 23.), in light of the struggles that will be required to unionize such a large share of the labor force.
The ITC’s economic impact projections are built on a series of heroic assumptions that are built into its “computable general equilibrium (CGE) model.” The ITC model assumes the economy is always at full employment; that trade deals do not cause trade imbalances, job losses, growing income inequality, or downward pressure on the wages of most workers, and environmental damages;, and that the more expensive drugs, movies and software don’t otherwise harm consumers or the economy.
In particular, the ITC study assumes that the overall U.S. trade balance is unchanged by the deal (despite its significant changes in the rules of governing, trade, labor and the environment). Peter Dorman pointed out the problems with CGE models nearly two decades ago, as have many others, and yet the ITC staff, and other economists keep using them anyway.
Ex-Obama economic adviser Romer says fiscal stimulus is central to combatting recessions
For all the wrong reasons, the term “fiscal stimulus” became a dirty word in the wake of the Great Recession. Policymakers need to work hard to counter that perception before the next downturn hits.
President Barack Obama’s $800 billion spending plan is often criticized as having been ineffective. In reality, the plan played a crucial role in stemming a deepening economic slump, and if it fell short, it was because the aggressive one-time boost ultimately proved too small to counter the magnitude of the shocks at hand.
The fiscal boost during the latest expansion has been extraordinarily weak: Average annual fiscal impulse over five business cycles
|Peak-to-peak||3 years from trough|
Note: For each fiscal component (taxes, transfers, and government consumption and investment), the quarterly growth rate is multiplied by its share relative to overall GDP to get a quarterly contribution to growth. For taxes, this calculation is then multiplied by negative one—highlighting that tax cuts boost spending while tax increases slow spending. The figure shows these quarterly contributions expressed as annualized rates. Government consumption and investment spending is adjusted for inflation with the component-specific price deflator available in the NIPA data. For taxes and transfers, the price deflator for personal consumption expenditures (PCE) is used.
Source: EPI analysis of data from Tables 1.1.4, 2.1, 3.1, and 3.9.4 from the National Income and Product Accounts (NIPA) of the Bureau of Economic Analysis (BEA).
Speaking at EPI’s Next Recession event this past Thursday, Christina Romer, who was Chair of the Council of Economic Advisers during the crisis, asked “What made it possible to use fiscal policy so aggressively at that particular moment in time?”
Bonuses are up one cent in 2018 since the GOP tax cuts passed
Data from the Bureau of Labor Statistics’ Employer Costs for Employee Compensation gives us a chance to look at workers’ bonuses in 2017 and 2018, to gauge the impact of the GOP’s Tax Cuts and Jobs Act of 2017. Last year, our analysis showed that bonuses rose by $0.02 between December 2017 and September 2018 (all calculations in this analysis are inflation-adjusted). The new data show that bonuses actually fell $0.22 between December 2017 and December 2018 and the average bonus for 2018 was just $0.01 higher than in 2017.
This is not what the tax cutters promised, or bragged about soon after the tax bill passed. They claimed that their bill would raise the wages of rank-and-file workers, with congressional Republicans and members of the Trump administration promising raises of many thousands of dollars within ten years. The Trump administration’s chair of the Council of Economic Advisers argued last April that we were already seeing the positive wage impact of the tax cuts:
A flurry of corporate announcements provide further evidence of tax reform’s positive impact on wages. As of April 8, nearly 500 American employers have announced bonuses or pay increases, affecting more than 5.5 million American workers.
Following the bill’s passage, a number of corporations made conveniently-timed announcements that their workers would be getting raises or bonuses (some of which were in the works well before the tax cuts passed). But as EPI analysis has shown there are many reasons to be skeptical of the claim that the TCJA, particularly its corporate tax cuts, will produce significant wage gains.
Restraining the power of the rich with a 10 percent surtax on incomes over $2 million*
Excessive wealth and power commanded by a small group of multi-millionaires and billionaires pose an existential threat to America’s economic vitality, democracy and civil society.
It’s well-known by now that the richest 1 percent of American households have essentially doubled the share of national income they claim since the late 1970s. Less well-known is that inequality has even risen sharply within the top 1 percent, with the top 10 percent of that overall group—or the top 0.1 percent—accounting for half of all income within the top 1 percent.1 In 2016, the latest year of available data, households with adjusted gross income (AGI) of over $2 million made up just over 0.1 percent of tax filers, but accounted for 100 times as much (10 percent) of total AGI.
The political clout of this topmost sliver of households is likely even more outsized then their share of overall income. This group’s incomes overwhelmingly stem from owning financial assets, not working in labor markets.2 This means that they benefit from the preferential tax treatment given to income from wealth relative to income from work. The Trump tax cut at the end of 2017 was tailor-made for very rich, as its largest cuts accrue to business owners—both corporate and non-corporate business.3
Cleaning up administrative records or targeting immigrants?
The Trump administration recently began implementing a “no-match” policy of flagging administrative records that don’t match what the Social Security Administration (SSA) has on file.
If you’ve been following the news in Georgia, you might think this is a reference to a tactic used by Georgia Secretary of State Brian Kemp to purge minorities from the state’s voter rolls right before the gubernatorial election he narrowly won against his Democratic opponent, Stacey Abrams. Not exactly, but both are related—and have civil rights implications.
Voter suppression efforts in Georgia and elsewhere have used a range of strategies to purge voters, including striking those whose names loosely matched those of dead people and felons and those whose names didn’t exactly match SSA or drivers’ license records (so much for consistency). In a legal challenge, civil rights groups noted that an estimated 80 percent of voters affected by the “exact match” policy were African American, Latino, or Asian American.
Now the Trump administration is reviving a failed policy of sending letters to employers informing them of apparent discrepancies between employee W-2 forms and SSA records. In this case, the ostensible goal is checking tax forms, not voter registrations, but both efforts use SSA data as a validity check and both disproportionately impact immigrants and people of color.
Housing discrimination underpins the staggering wealth gap between blacks and whites
Wealth is a crucially important measure of economic health—it allows families to transfer income earned in the past to meet spending demands in the future, such as by building up savings to finance a child’s college education.
That’s why it’s so alarming to see that, today still, the median white American family has twelve times the wealth that their black counterparts have. And that only begins to tell the story of how deeply racism has defined American economic history.
Enter EPI Distinguished Fellow Richard Rothstein’s widely praised book, “The Color of Law,” which delves into the very tangible but underappreciated root of the problem: systemic, legalized housing discrimination over a period of three decades—starting in the 1940s—prevented black families from having a piece of the American Dream of homeownership.
Research is vital to the moral integrity of social movements
The faith community has a long history of involvement in social movements for economic justice, bringing into focus the moral failings of our political and economic systems. I’m always struck when people say to me, “But you’re talking about morality, and we’re talking about money.” I answer, “You really think they’re different? You don’t recognize that a budget is a moral document? That policies are about moral decisions? That morality is not just about inspiration but about information?”
I realize that for some, the concept of a preacher writing for an economics blog might seem odd, but the link between what I do—as a pastor, architect of the Moral Monday movement and co-leader of The Poor People’s Campaign—and the research done by EPI is absolutely vital. One of the quickest ways for a movement to lose its integrity is to be loud and wrong. We’ve seen too many movements that have bumper sticker sayings but no stats and no depth. Researchers help to protect the moral integrity of a movement by providing sound analysis of the facts and issues at hand. Armed with this information, we’re able to pull back the cover and force society to see the hurt and the harm of the decisions that people are making.
In fact, I believe we find evidence of a relationship between religion, activism, and research that dates back to the prophets of the Bible. The prophets of the Bible were the social activists of their time. I say that because the only time prophets in ancient Israel rose to the fore was when the kings or the politicians and their court chaplains weren’t doing their job.
Progressive tax reform requires a healthy IRS
Internal Revenue Service (IRS) funding was in the news at the end of last year, after a series of articles by ProPublica detailed just how badly its resources had been gutted by cuts enacted by the Republican-controlled Congress. And the IRS remains in the news with ongoing pressure to release President Trump’s tax returns. Complaining about the IRS is a popular pastime for lots of Americans, and we would certainly agree that in recent years the IRS has spent too much time auditing low-income households—a recent ProPublica story notes, “the IRS audits Earned Income Tax Credit (EITC) recipients at higher rates than all but the richest Americans.” But the IRS needs mended not ended, with a large infusion of resources as well as a reorientation of its enforcement priorities. The reason for not giving up on having a functional IRS is simple: if we want a country where rich people and powerful corporations pay their fair share, we will need a higher-functioning IRS, and we should be willing to pay for it. The chart below shows the substantial budget and employment cuts at the IRS since 1994. IRS operating costs (in 2017 dollars) have declined 29 percent between 1994 and 2017 as a share of total returns filed. And those budget cuts have real consequences for IRS staffing; full time equivalent employees as a share of total returns filed has fallen by 42 percent since 1994.
IRS funding and employment have been cut drastically: IRS operating costs (in 2017 dollars) and average positions realized as a share of total returns, 1994–2017
|Average positions realized||Operating costs|
Source: EPI analysis of data from table 2.3.3 from the National Income and Product Accounts (NIPA) from the Bureau of Economic Analysis (BEA) and IRS data books, 1995–2017
Since 2011, GAO found that the shrinking IRS workforce has come largely in enforcement, leading to agency officials telling GAO that declining staff was a key contributor to scaled back enforcement activities. Shrinking IRS enforcement is a boon largely for rich individuals and corporations, who have far greater opportunities to dodge taxes through creative accounting.
The IRS has not always been so hamstrung. A too-brief spell of increased budget and staff capacity from around 2008 to 2011 led to about a threefold increase in audit rates on households making over $1 million, while audit rates overall increased by just 11 percent, as did audit rates for EITC recipients making under $25,000. Overall audit rates for EITC recipients increased by just 4 percent. In short, when resources were adequate, the IRS (properly) focused its enforcement gaze where the money was.
Congress and Trump discover bipartisanship on immigration—but only to increase H-2B visas for captive and underpaid migrant workers
Instead of taking action together to enact legislation that would provide a path to citizenship for the unauthorized immigrants who are in danger of losing their immigration protections and work authorization as a result of President Trump’s efforts to end Deferred Action for Childhood Arrivals (DACA) and Temporary Protected Status, Congress and the Trump administration have collaborated to increase in the size of the main temporary work visa program that U.S. employers use to fill low-wage non-agricultural jobs: the H-2B visa.
This year, employers and corporate lobbyists claimed—as they do every year—that 66,000 low-wage work visas were not enough to fulfill their demand for cheap, captive labor in the landscaping, construction, forestry, seafood, meat processing, traveling carnival, and hospitality industries. Members of Congress acquiesced to their demands by inserting language into the appropriations legislation that is now funding the government during fiscal year 2019, that gave the Department of Homeland Security (DHS) the authority to temporarily increase the annual limit of 66,000 visas by up to 63,500 additional visas. DHS ultimately decided last week to increase the H-2B annual limit by 30,000 visas, taking the total H-2B “cap” for 2019 to 96,000.
Migrant workers make important contributions to the U.S. economy, and it should go without saying that they deserve equal rights, fair pay, protections from retaliation, and a path to permanent residence and citizenship. Sadly, the H-2B program does not meet any of these standards. Instead, the H-2B program—like other U.S. temporary work visas programs—empowers employers to legally exert an unusual amount of control over migrant workers, who often arrive indebted to the labor recruiters who connect them to jobs in the United States. H-2B workers are in effect, captive, because their visa status is controlled by their employer—which means that if an H-2B worker isn’t paid the wage he or she was promised, or is forced to work in an unsafe workplace—the worker has little incentive to speak up or complain to the authorities. Complaining can result in getting fired, which leads to becoming undocumented and possibly deported. It also means not being able to earn back the money that was invested in order to get the job.
These problems, which are inherent in the H-2B program, are well-documented. There are numerous cases of litigation, media reports, government audits, and studies revealing how migrants employed through the H-2B program arrive in the United States with massive debt, are often exploited and robbed by employers, and even become victims of human trafficking. While these most-egregious examples are clear legal violations, much of the abuse and discrimination in the H-2B program is perfectly legal. First, employers control the workers’ immigration status. And second, employers have been allowed to underpay H-2B workers for years thanks to the way the H-2B wage rules work, which have included policy changes made through appropriations riders that have weakened the already-inadequate wage rules and de-funded enforcement. Since U.S. workers are forced to compete with vulnerable and underpaid H-2B workers, wages and working conditions for all workers in major H-2B occupations are degraded. As a result, there’s no question that the H-2B program needs major reforms to protect both migrant and American workers.
Table 1 below illustrates how the H-2B program allows employers to undercut U.S. wage standards. Table 1 shows the top 20 H-2B occupations in fiscal2017 by Standard Occupational Classification code, according to H-2B jobs certified by the U.S. Department of Labor (DOL), and the nationwide average hourly wage for all certified H-2B workers in each of the occupations. The 2017 average hourly wage rates for all workers in the occupation nationwide, according to the DOL’s Occupational Employment Statistics (OES) survey—which is used to set H-2B wage rates, making it an apples-to-apples comparison—is listed next to the H-2B wage. The final column shows the difference between the average hourly certified H-2B wage and the average hourly OES wage for the entire country; this is what employers save, on average, by hiring an H-2B worker instead of a worker who is paid the national average wage for the occupation.Read more
Equal Pay Day is a reminder that you can’t mansplain away the gender pay gap
April 2nd is Equal Pay Day, a reminder that there is still a significant pay gap between men and women in our country. The date represents how far into 2019 women would have to work to be paid the same amount that men were paid in 2018. On average in 2018, women were paid 22.6 percent less than men, after controlling for race and ethnicity, education, age, and geographic division.
Even after extensive research has been done to show the gender pay gap exists (and persists), some skeptics refuse to believe the data. This infographic shows some of the most common criticisms of the gender wage gap and rebuts the “mansplainers” with data.
The House makes way for equal pay with the passage of Paycheck Fairness Act
Yesterday, the House of Representatives took an important step toward ending gender-based pay discrimination by passing the Paycheck Fairness Act. The legislation, introduced by Rep. Rosa DeLauro (D-Conn.), would strengthen the Equal Pay Act of 1963 and guarantee that women can challenge pay discrimination and hold their employers accountable. The legislation specifically requires employers to prove that pay disparities are based on factors other than sex; protects employees against retaliation for discussing salaries with colleagues; prohibits employers from seeking the salary history of prospective employees; removes obstacles in the Equal Pay Act of 1963 to allow workers to participate in class action lawsuits that challenge systematic pay discrimination; creates a negotiations and skills training program for women and girls; and improves the Department of Labor’s tools to enforce the Equal Pay Act of 1963.
Over fifty years ago, the Equal Pay Act of 1963 was enacted to prohibit pay discrimination on the basis of sex by requiring employers to pay women and men equally for equal work. Since the passage of the Equal Pay Act of 1963, millions of women have joined the workforce. However, more than five decades later, women are still earning less than their male counterparts. On average in 2018, women were paid 22.6 percent less than men, after controlling for race and ethnicity, education, age, and location. This gap is even larger for women of color with black and Hispanic women being paid 34.9 and 34.3 percent less per hour than white men, respectively—even after controlling for education, age, and location. Any way you slice it, women experience a gender pay gap.
There are many policies that can reduce gender pay gaps including raising the minimum wage, strengthening collective bargaining rights, and providing paid family and sick leave, among others. The passage of the Paycheck Fairness Act in the House is just one step toward reducing these gender pay gaps and guaranteeing women receive equal pay for equal work.
Why NAFTA’s 2.0 current labor provisions fall short
One year ago, we were hopeful that renegotiating NAFTA represented the first real opportunity in 25 years to finally rewrite the labor template currently relied on for trade agreements. After all, since NAFTA was implemented, hundreds of thousands of U.S. jobs have been outsourced to Mexico by companies taking advantage of workers who do not enjoy the fundamental human rights to form their own free and independent unions, engage in meaningful collective bargaining, be free from discrimination and forced labor, and work in safe and healthy workplaces.
In anticipation of the renegotiations, numerous recommendations for improving and enforcing labor standards were submitted—all of which are instrumental in removing corporate incentives to transfer work to Mexico. Specific recommendations for improving the labor template of current U.S. agreements included these five general suggestions:
- Incorporate explicit references to labor standards and interpretation of those standards through various cases and reports reflecting specific rules adopted by the UN’s 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.
The search for America’s missing teachers
Our schools are not only temporarily without teachers because of teacher strikes for better working conditions and more investment in education. Some schools are chronically short of teachers: they can’t find teachers able and willing to work at current wages and conditions.
The estimated teacher shortage of about 110,000 teachers may seem small in a labor force of about 3.8 million. But its sudden appearance after years of teacher surpluses and its consequences are certainly a large cause for concern. Teacher shortages depress student performance, reduce teachers’ effectiveness, alter the cohesion of the school, and consume economic resources that could be better deployed elsewhere. These consequences also make it more difficult to build a solid reputation for teaching and to professionalize it, further perpetuating shortages. Finally, the teacher shortage reflects school districts’ failure to make the kinds of investments (in smaller class sizes, in resources to meet the needs of students, and in teacher development) that the expanding teacher protest movement seeks.
EPI has published the first in a series of reports that will document some of the reasons why the demand for teachers is outstripping the supply. In our report we argue that when issues such as teacher qualifications and equity across communities are taken into consideration, shortages are more concerning than we thought.
If we consider the declining share of teachers who hold the credentials associated with teacher quality and effective teaching (they are fully certified, took the standard route into teaching, have more than five years of experience, and they have an educational background in the subject they teach), the teacher shortage grows. If we compare the share of these teachers in high-needs schools (schools with a large share of students from families living in poverty) with other schools, we see that the shortages there are even more severe in those high-needs schools.
Teacher strikes blanket the nation as a labor of love meets economic hardships
School districts around the country, faced with a historic shortage of teachers, should be scrambling to offer those educators higher pay and better working conditions. That’s what the economics of supply and demand would dictate.
Instead, we are seeing a spread of teachers’ strikes and protests, with Denver and Oakland among the latest in a series of protest waves spreading from West Virginia to Los Angeles.
The gap between the estimated number of additional teachers needed in U.S. public school classrooms and the number that are available to be hired grew from zero to over 110,000 in just the last few years.
What gives? The lack of reaction from policymakers shaping the education landscape is emblematic of a broader disrespect for teachers as professionals over time. Teachers face a curious social situation—clearly and deeply needed but demonstrably undercompensated and poorly supported at work. The spate of recent strikes suggests conditions have reached a breaking point as teachers are forced to take on second and third jobs to make ends meet, and to spend money out of their own pockets to supply classrooms.
Our new analyses for EPI suggest that breaking point is here. This week, we released the first in a series of reports on the growing teacher shortage and the working conditions and other factors behind it. Our research shows that, when we account for the shrinking share of teachers who hold credentials associated with more effective teaching, especially in high-poverty schools, the teacher shortage is worse than estimated. The reports of the series will also show that low relative pay, tough working conditions, and a lack of supports for teachers aren’t isolated problems in a handful of districts but challenges being reported by teachers nationwide. The depth and breadth of the crisis shows that the education industry—i.e., the nation’s state and local departments and boards of education—urgently need to rethink how they cultivate, train, recruit, and support teachers.
Predicting wage growth with measures of labor market slack: It’s complicated
Why have wages grown so slowly in recent years despite relatively low unemployment rates? This puzzle has dominated economic commentary.
Figure A below, for example, shows a scatterplot of quarterly nominal wage growth (measured against the same quarter in the previous year) and unemployment rates since 2008. The trendline showing the relationship between these variables demonstrates it’s very weak—both statistically and economically insignificant.
Unemployment does not predict wage growth after 2007 : Unemployment rate and annual change in nominal wage growth, 2008–2018
Note: Data are quarterly, with nominal wage changes measured from the same quarter in the previous year.
Source: Unemployment rates are from the Bureau of Labor Statistics (BLS) Current Population Survey and wages are the average hourly earnings of production and nonsupervisory workers from the BLS Current Employment Statistics.
In this newsletter, I address a number of questions raised by this weak relationship between unemployment rates and wage growth since 2008. My key conclusions are:
- Since 2008, the share of adults between the ages of 25 and 54 who are employed (or the “prime-age EPOP”) has predicted wage growth better than the unemployment rate.
- But even the prime-age EPOP has done a poor job at predicting wage growth since 2008 compared with both its own predictive power pre-2008 and the predictive power of the unemployment rate in earlier periods.
- The prime-age EPOP’s advantage in predicting wage growth seems to have started even a bit before the Great Recession, around 2001.
- Because both the unemployment rate and the prime-age EPOP have seen a large reduction in their predictive power regarding wage growth since 2008, efforts to explain this decline in predictive power should involve looking to the unique features of the Great Recession: very high rates of unemployment combined with very low rates of inflation.
- While both the unemployment rate and the prime-age EPOP are likely to be fine statistical predictors of wage growth moving forward, there has been a steady decline in how responsive wage growth is to a given change in either. In short, workers have seemingly needed ever-tighter labor markets (measured by quantity-side variables like the unemployment rate and the prime-age EPOP) to generate a given amount of wage growth.
Higher returns on education can’t explain growing wage inequality
Steep and rising wage inequality is too often blamed on growing demand for workers with higher levels of educational attainment—the more schooling you have, the more you’ll be paid. But our research shows the rising gulf in pay has little to do with rising returns to education.
A prevalent story explains wage inequality as a simple consequence of growing employer demand for skills and education—often thought to be driven by advances in technology. According to this explanation, because there is a shortage of college-educated workers, the wage gap between those with and without college degrees is widening. The expected boost to workers’ pay from a four-year college degree is known as the “college premium.”
Despite its great popularity and intuitive appeal, this story about recent wage trends driven more and more by a race between education and technology does not fit the facts well, especially since the mid-1990s. The growing inequality of note is that between the top (or very top) and everyone else. The pulling away of the very top cannot be explained by education differences, but rather the escalation of executive and financial sector pay.
Even when looking at the relative changes in the 95th percentile of wage earners compared to the 50th percentile of wage earners, and comparing that gap with the college wage premium from 2000 to 2018, it is clear that gains in the college wage premium have been very modest and far less than the continued steady growth of the 95/50 wage gap. Therefore, it is highly implausible that the growth of unmet employer needs for college graduates has driven wage inequality.
The evidence suggests the demand for college graduates has grown far less in the period since the mid-1990s than it did before then. This is difficult to square with contentions that automation or changes in the types of skills employers require have been more rapid in the 2000s than in earlier decades. Rather, automation has been slower in the recent period than in earlier decades as seen in the pace of productivity, capital, information equipment, and software investment—and in the speed of changes in occupational employment patterns.
A close look at recent increases in the black unemployment rate
Everything from weather to furloughs made it hard to draw any major conclusions from this month’s employment report, but one recent worrisome trend persisted—a continued increase in unemployment for black workers.
The Labor Department’s February employment report showed job growth effectively stalled last month, rising just 20,000. That was much lower than anticipated and substantially weaker than the prevailing trend of the last few years. The average over the last three months came in at a more solid 186,000, likely a better reflection of underlying trends, given the unusually harsh weather in February. At the same time, wages grew 3.4 percent over the year, the highest so far in the economic recovery from the Great Recession.
Turning to the separate household survey, the unemployment rate ticked down to 3.8 percent, while the labor force participation rate and the employment-to-population ratio (EPOP) held steady. The overall unemployment rate has sat at or below 4.0 percent for the last 12 months, averaging 3.9 percent over the year. The black unemployment rate, on the other hand, averaged 6.4 percent over the last year and has been increasing in recent months. For comparison, white unemployment tracked the drop in overall unemployment in February and has averaged 3.4 percent over the last year.
What to Watch on Jobs Day: Stronger wage growth as prime-age labor force participation continues to climb
Wage growth has continued to be the number one indicator to track in the monthly jobs report. Nominal wage growth has been slowly climbing over the last several months. Over the last three months, year-over-year wage growth averaged 3.3 percent, up from 3.2 percent the prior three months, and 2.8 percent the six months before that. Wage growth has still yet to reach levels fast enough—and for long enough—to reach full employment and restore labor’s share of corporate-sector income. At the pace of growth we’ve seen in recent months, however, I’m optimistic that the economy will continue on track toward genuine full employment.
One of the reasons I’m optimistic is that more and more workers are returning to the labor force. And, the vast majority of the newly employed are coming from out of the labor force, so lots of those workers who have (re)entered the labor force are getting jobs. I’m unconcerned by the slight increase in the unemployment rate over the last couple of months. The unemployment rate has sat at or below 4.0 percent for nearly a year. As the labor force participation rate continues to recover, the unemployment rate may rise, but those increases will be for the right reasons as more workers grow optimistic about their chances in the labor market.
In the figures below, I take a closer look at the labor force participation rate and the share of the population with a job. I’m going to focus on trends in the prime-age population, with attention to 25- to 54-year-olds to remove any possible confounding factors due to retiring baby boomers at the top end or longer years of schooling at the bottom end. The figure below shows the prime-age labor force participation rate (LFPR) in blue and the prime-age employment-to-population ratio (EPOP) in green. The prime-age LFPR is the share of the prime-age population either with a job (employed) or actively looking for work (unemployed). The prime-age EPOP is the share of the prime-age population with a job (employed). The denominator is the prime-age population for both lines and the space in between can be roughly thought of as the unemployment rate. (Technically, the unemployment rate is 1 – EPOP/LFPR and the space between the lines is the number of unemployed people as a share of the population, but they track each other well.)
Record U.S. trade deficit in 2018 reflects failure of Trump’s trade policies
The U.S. Census Bureau reported that the U.S. goods trade deficit reached a record of $891.3 billion in 2018, an increase of $83.8 billion (10.4 percent). The broader goods and services deficit reached $621.0 billion in 2018, an increase of $68.8 billion (12.5 percent). The rapid growth of U.S. trade deficits reflect the failure of Trump administration trade policies, as well as the negative impacts of tax cuts and spending increases, which have sharply increased the federal budget deficit, and tightening of U.S. monetary policy, resulting in upward pressure on interest rates and the real value of the dollar.
The IMF predicts that the U.S. current account deficit—the broadest measure of U.S. trade in goods, services, and income—will nearly double between 2016 and 2022. Unless these trends are offset by a rapid decline in the value of the U.S. dollar, rapidly rising trade deficits could be devastating for U.S. manufacturing, likely giving rise to massive job loss on the scale experienced in the 2000–2007 period, when 3.5 million U.S. manufacturing jobs were lost.
The U.S. goods trade deficit with China reached a new record of $419.2 billion in 2018, up from $375.6 billion in 2017, an increase of $43.6 billion (11.6 percent). United States trade with China is dominated by the deficit in manufactured products. Although the United States has imposed tariffs of 10 to 25 percent on $250 billion in imports from China (about half of total U.S. imports from that country), China has played its ‘ace-in-the-hole’ by allowing it’s currency to fall by roughly 10 percent against the dollar. As a result, the U.S. trade deficit with China increased faster (11.6 percent) than the U.S. deficit with the world as a whole (10.4 percent). While the United States and China are poised to negotiate a deal to end their trade dispute, the proposed deal amounts “much ado about nothing much,” as Paul Krugman puts it. It will do little to reduce the massive imbalance in U.S.–China trade flows.
When will ‘Buy American’ really mean buy American?
Our government’s procurement policy falls far short of its potential to encourage and support good jobs in domestic manufacturing. We need to strengthen domestic sourcing requirements for publicly funded programs, including those intended to repair our failing infrastructure. While the recently issued “Executive Order on Strengthening Buy-American Preferences for Infrastructure Projects” is an improvement over the status quo, it falls far short of making the substantive improvements that are needed to make sure that “Buy American” actually means buying American.
To begin, the EO does nothing to strengthen domestic content requirements that agencies use to determine if a good is “domestically sourced”—that is, actually made in the United States. Many Americans would be startled to learn that a product requires only 51 percent U.S. content to be considered domestically made under the Buy American Act, which applies to federal government procurement. This does not even take into account the substantial transformation test, when a product is deemed domestic even if it is “made at least in part from materials manufactured in another country,” a special concern for the federal government’s procurement of the equipment and construction materials that are required for infrastructure projects.
In contrast, the Federal Trade Commission requires that the entire product be made substantially domestically in order to satisfy its definition of “Made in the U.S.A.,” although much more must be done to ensure that the FTC rules are effectively enforced.
There’s nothing radical about Elizabeth Warren’s proposal for universal childcare
The right-wing punditry machine has gone into full spin cycle as Democratic presidential candidates throw their hats into the ring, ready to brand any initiative that might ameliorate the lot of working families as radical or, worse in American political parlance, “socialist.”
That has certainly been the case with Senator Elizabeth Warren’s proposal for universal child care. But there’s nothing radical or socialist about her plan, which represents a sensible, evidence-based, practical, and much-needed strategy that tackles several critical national crises in one neat package. And it doesn’t even take money away from the GOP’s sacred cows of military spending and border security.
What crises do Warren’s proposal address? Let’s review:
First, and perhaps foremost, the majority of American families currently struggle to get their young children into child care that is decent, let alone of high quality. And for a substantial subgroup in the bottom quintile of the wage distribution, “struggle” is an understatement. For example, a 2015 EPI study showed that a single parent with one child who worked full-time for the minimum wage would not be able to sustain a modest but adequate lifestyle due to the high cost of child care.
Warren’s plan, which would make high-quality care free for families living at up to 200 percent of the federal poverty line and institute a sliding scale above that, with no family paying more than seven percent of their income, would do away entirely with that problem. Families that currently must choose among rent, food, and keeping their toddlers safe can now have all three, and middle-class families can invest in other child development activities and resources. Sounds a lot better than a wall already.
Stark black–white divide in wages is widening further
One of the most striking features of U.S. racial inequality is just how stubborn the wage gap between black and white workers has remained over the last four decades.
That trend was evident in EPI’s new State of Working America (SWA) Wages report, which highlights trends in wages across the wage distribution, by education, as well as by gender, race, and ethnicity.
Overall, the findings indicate wages are slowly improving with the growing economy, but wage inequality has grown and wage gaps have persisted, and in some cases, worsened. In this post, I will highlight one particular worsening wage gap and look at it from multiple dimensions. Since 2000, by any way it’s measured, the wage gap between black and white workers has grown significantly.
The findings here support the important research by Valerie Wilson and William M. Rodgers III, which shows that black–white wage gaps expanded with rising wage inequality from 1979 to 2015. Where their report is incredibly comprehensive, the trends outlined here are rudimentary, but reinforce the same basic truths.
In the figure below, I’ve collected some of the main findings on the black–white wage gap found both in the latest SWA report as well as the SWA data library. Using various measures, I compare wages for black and white workers over the last 18 years, highlighting the gaps in wages in 2000, the last time the economy was closest to full employment, 2007, the last business cycle peak before the Great Recession, and 2018, the latest data available.
Against these benchmarks, I illustrated the growth in the average gap; the gap for low-, middle-, and high-wage workers; the gap for workers with a high school diploma, a college degree, and an advanced degree; and a regression-adjusted wage gap (controlling for age, gender, education, and region).
Black women’s labor market history reveals deep-seated race and gender discrimination
The black woman’s experience in America provides arguably the most overwhelming evidence of the persistent and ongoing drag from gender and race discrimination on the economic fate of workers and families.
Black women’s labor market position is the result of employer practices and government policies that disadvantaged black women relative to white women and men. Negative representations of black womanhood have reinforced these discriminatory practices and policies. Since the era of slavery, the dominant view of black women has been that they should be workers, a view that contributed to their devaluation as mothers with caregiving needs at home. African-American women’s unique labor market history and current occupational status reflects these beliefs and practices.
Compared with other women in the United States, black women have always had the highest levels of labor market participation regardless of age, marital status, or presence of children at home. In 1880, 35.4 percent of married black women and 73.3 percent of single black women were in the labor force compared with only 7.3 percent of married white women and 23.8 percent of single white women. Black women’s higher participation rates extended over their lifetimes, even after marriage, while white women typically left the labor force after marriage.
Differences in black and white women’s labor participation were due not only to the societal expectation of black women’s gainful employment but also to labor market discrimination against black men which resulted in lower wages and less stable employment compared to white men. Consequently, married black women have a long history of being financial contributors—even co-breadwinners—to two-parent households because of black men’s precarious labor market position.
Black women’s main jobs historically have been in low-wage agriculture and domestic service.1 Even after migration to the north during the 20th century, most employers would only hire black women in domestic service work.2 Revealingly, although whites have devalued black women as mothers to their own children, black women have been the most likely of all women to be employed in the low-wage women’s jobs that involve cooking, cleaning, and caregiving even though this work is associated with mothering more broadly.
Trump’s national emergency declaration over the border wall is dangerous and not justified by the facts
Where, exactly, is the national emergency?
Both houses of Congress have now passed appropriations legislation to fund the government for the fiscal year, and it’s become clear they will not provide President Donald Trump with the full $5.7 billion he requested to fund construction of a wall on the southern border.
Trump has been so desperate to fund his signature campaign promise that he’s gone so far as to shut down the government over it for over a month, which caused federal employees to suffer and billions of dollars-worth of economic losses. In response to failing to get the money from Congress, Trump is declaring a national emergency to achieve the same ends by different means.
An emergency declaration, the president hopes, will allow him to access alternative streams of funding that will go towards funding the wall’s construction. Reuters reports the Trump administration expects to be able to allocate about $7 billion from two defense funds and a Treasury forfeiture fund as a result of an emergency declaration. This would be an extreme step that is unjustified by the facts because there is no ongoing national emergency at the southern border under any reasonable definition of the term.
Many on the right and left are unhappy with the legislation passed by Congress. Some conservative pundits and advocates are unhappy that it does not provide larger funding increases for immigration enforcement, going as far as saying that it will lead to “open borders.”
Some progressive legislators and advocates are opposing the legislation because it funds too much immigration enforcement and does little to rein in Immigration and Customs Enforcement (ICE) and Customs and Border Patrol (CBP), especially in light of recent internal criticisms of mismanagement, abuses of detainees, and policies that are being challenged in the courts for being inconsistent with domestic and international law. (The Democratic legislators in opposition, however, do not support another shutdown, and prefer that Congress pass a continuing resolution that would keep the government funded at current levels.) Trump expressed displeasure even before the legislation passed, noting earlier this week that the provisions included were “not doing the trick.”