The official start of the recovery from the Great Recession began in June 2009. This coming Friday will mark the release of employment data for June 2013, allowing us to assess how this recovery stacks up against earlier recoveries 4 years in, as well as letting us diagnose obvious areas of economic weakness in the current recovery.

The figure below (also here) compares the current recovery to the three prior recoveries. Recessions are marked by the lines to the left of the zero point on the x-axis, while recoveries are to the right. The figure shows that job growth in the current recovery is slightly stronger than the job growth following the recession of 2001. However, it is slower than in the prior two recoveries and is in fact slower than in any other previous recovery dating back to World War II. Furthermore, jobs fell much further and faster during the Great Recession than in any other recession over that period, meaning that we are stuck in a much larger jobs-hole four years into recovery than in any previous business cycle. The fact that four years into the recovery we still have not yet come close to making up the jobs lost in the downturn, (much less the jobs needed to keep up with growth in the potential workforce over that time), is a grimmer situation than anything our labor market has seen in seven decades.

Read more

The interest rates on government-backed student loans are set to double if Congress does not act today. Currently, low- and middle-income students can take out federal loans—called Stafford Loans—at a rate of 3.4 percent. Today, under current law, this rate will increase to 6.8 percent—a rate that will make repayment on student debt much more difficult than it is already. PLUS loans, which are issued to parents and graduate students at a rate of 7.9 percent, will become more costly, as well. If Congress continues to stall, millions of college students will see their future loan obligations increase substantially, putting further strain on upcoming graduates who already face a bleak job market.

If this crisis sounds familiar, that’s because it is. Congress made the same deliberations last summer, and eventually extended the low interest rates for an additional year. This year, there is bipartisan agreement that a long-term solution—rather than yet another year-long extension—is needed. The question what long-term rate is appropriate for student debt is a complicated one—but allowing rates to double today would hurt both current and future students in an already ailing economy.  Unemployment for young college graduates is close to 9 percent and underemployment is near 18 percent. What’s more, for recent graduates, wages increased 1.5 percent cumulatively between 1989 and 2012. For men, the increase was 4.8 percent, but women actually saw their real earnings decrease by 1.6 percent in this time period.

Read more

Escalating CEO compensation is a major contributor to income inequality. Along with financial sector pay, growing CEO compensation has helped more than double the income share of the top 1 percent over the past three decades. Moreover, the fact that CEO pay has risen so quickly since the end of the Great Recession is an indicator that the top 1 percent is doing far better than ordinary Americans in the recovery.

One way to illustrate the increased divergence between CEO pay and an average worker’s pay over time is to examine the ratio of CEO compensation to that of a typical worker, the CEO-to-worker compensation ratio. Our new EPI paper, CEO Pay in 2012 Was Extraordinarily High Relative to Typical Workers and Other High Earners, presents this analysis of CEO compensation based on our tabulations of Compustat’s ExecuComp data. The ratio measures the distance between the compensation of CEOs in the 350 largest firms and the workers in the key industry of the firms of the particular CEOs.

The CEO-to-worker compensation ratio1 in 2012 of 272.9 is far above the ratio in 1995 (122.6), 1989 (58.5), 1978 (29.0), and 1965 (20.1), as shown in the figure below. This illustrates that CEOs have fared far better than the average worker over the last several decades. It is also true that CEO compensation has grown far faster than the stock market or the productivity of the economy.

Read more

Here’s what we read today. Did we miss something interesting? Share it in the comments.

• Why Liberals Should Oppose the Immigration Bill (New Republic)
• For true immigration reform, hire labor inspectors, not border guards (Newsday)
• Forced to Work Sick? That’s Fine With Disney, Red Lobster, and Their Friends at ALEC (Mother Jones)
• The U.S. will stop financing coal plants abroad. That’s a huge shift. (Washington Post)

We just launched a new website, inequality.is. I want to take an opportunity to tell you a little about it. What this website does is help everyday people see themselves in the economy.

My team here at EPI and at Periscopic worked hard to make inequality.is  fun, accessible and informative. Generally, people get that inequality exists, what we are trying to do is explain why it matters.

The website takes people through a series of pages where they can see themselves in the story of inequality. There’s a great video, narrated by Robert Reich, which tells the story of how inequality was and is being created.

The site begins with a look at the income distribution and users can visualize how much money the top 10% takes home in income versus the bottom 90%. That’s inequality.is/real.

inequality.is/personal lets users see themselves through the eyes of their particular demographic characteristics—age, gender, race/ethnicity, and education—and sees how average wages differ depending on your personal characteristics. Users can play with this interactive feature, putting in different comparisons and seeing how things are different.

Any differences found in the inequality.is/personal section are dwarfed by the differences between the vast majority of Americans and what’s happened with wages and incomes in the top 1%

Read more

The word “minimum” is not difficult to define. Several synonyms immediately come to mind: lowest, least, smallest, littlest…

So you might reasonably assume that the “minimum wage” is the lowest wage employers can legally pay their workers, right?

Wrong. Some 3.3 million workers are paid the sub-minimum wage—often called the “tipped minimum wage”—of only $2.13 per hour. For these workers, employers may claim a “tip credit,” by converting tips received by the worker into income. So long as this tip credit, when combined with the tipped minimum wage, adds up to the minimum wage, the employer need not pay more than $2.13 per hour. If tips fall short of this amount, the employer is supposed to make up the difference. The federal minimum wage is currently $7.25 per hour, so the maximum tip credit that an employer can claim is $5.12 per hour at the federal level. The law effectively transforms tips earned by the worker into a subsidy for the employer.

The tipped minimum wage hasn’t been raised in 22 years.

Read more

Early Thursday, the New York City council successfully overrode Mayor Bloomberg’s veto of a bill giving New York workers access to paid sick leave, at long last. The bill phases in over two years, beginning in April 2014 for businesses with 20 workers or more.

The bill’s passage after a three year battle comes after supporters were able to broker a deal with City Council Speaker Christine Quinn in March. New York will now be the fifth city in the United States to require private sector employers to provide a minimum amount of earned paid sick time to their employers, joining Portland, San Francisco, Seattle and Washington, DC (the  Philadelphia City Council has twice passed paid sick leave legislation. Philadelphia Mayor Michael Nutter has vetoed the bill both times). Connecticut remains the only state with this distinction. This is a big win for the people of New York City. Overall, it’s a wise investment for employers, workers and the general public.

Nearly 40% of the private sector workforce in the United States has no ability to earn paid sick time. Furthermore, access to paid sick days has historically been far more common among high-income workers, leaving low-income families with little protection when they get sick or need to visit the doctor. This important legislation not only protects workers from lost pay or potential job loss when they or their family members get sick, it also protects the public by keeping sick workers, who feel economically compelled to work, from spreading illness to co-workers and customers.

Furthermore, the great benefits of earned sick days far outweigh the costs. The costs to business are often overstated, when the reality is that earned paid sick days cost very little when compared to business sales, as we showed in the case of Connecticut (and as we testified before the New York City Committee on Civil Service and Labor in March of this year).

While the lack of a national paid sick days policy has continued to erode family economic security, the efforts of jurisdictions around the country that have stepped up for workers and their families serve as models for cities and states throughout the nation.

Greg Mankiw, in his defense of the top one percent (pdf), notes that “the key issue is the extent to which the high incomes of the top 1 percent reflect high productivity rather than some market imperfection,” and quickly turns to a discussion of CEO pay. Mankiw’s got a point—so let’s discuss whether or not CEO pay simply reflects compensation for ‘talent’ and productivity.

Mankiw does not present any evidence on whether CEO pay reflects high productivity: rather, he offers an argument that corporate governance is not problematic, using research by University of Chicago business school professor Steve Kaplan as his evidence. In fact, the chief claim that CEO pay tracks that of other talented workers also comes from Kaplan, who has a paper (not yet public) in the forthcoming  Journal of Economic Perspectives issue along with Mankiw’s contribution and a paper from me and my colleague Josh Bivens. In this post, as promised in a prior one on Mankiw’s data claims, I draw on the evidence presented in our paper to show that CEO pay has grown far faster than that of other very high wage earners (the top 1/1000^th) and that the CEO advantage relative to other very high wage earners has grown more than the college wage premium. We also demonstrate that Kaplan’s own data series shows the same pattern. A fair-minded review of these data, in our view, leads to the conclusion that the spectacular growth of CEO pay does not simply, or even primarily, reflect the market for talent, or some imagined increase in CEO productivity.

Read more

The Supreme Court yesterday did not, for the time being, prevent the University of Texas from continuing its affirmative action plan.

Nonetheless, like the voting rights decision issued today, the Fisher case decision was another setback for racial justice. For one thing, the Court invited another challenge after the case again goes through the lower courts. There, the University will have to prove that it could find no other way to get a diverse student body without explicitly considering race, and will have to prove that it used “good faith” in use of race to achieve diversity. If challengers can show that the University’s examination of applicants’ overall qualifications is really a cover for enrolling black and other minority students—for example, if it is more intent on having black students than violin players, or students from different parts of the state, or other “diverse” factors—affirmative action will be in trouble.

The University and its civil rights group allies have, from an understandable tactical need to defend affirmative action by whatever means are available, accepted a Supreme Court framework that undermines equal rights in the long run.

That framework is “diversity.” According to it, we pursue affirmative action not to remedy the legacy of slavery, Jim Crow, and continuing discrimination, not because equal opportunity for African Americans is an end in itself, but because

• having a diverse student body improves the educational experience for white students, and because
• it trains corporate and military leaders who will be more effective if they look like and have a better understanding of those they lead.

Forgotten has been the idea that African Americans are underrepresented at the University of Texas and at other elite institutions because, as Justice Ginsburg put it in her lonely dissent, they suffer from “the lingering effects of an overtly discriminatory past, the legacy of centuries of law-sanctioned inequality.” In reality, affirmative action is necessary not to make white students more comfortable in the presence of blacks, but to remedy those effects.

Read more

Seventy-five years ago today, President Roosevelt signed into law the historic Fair Labor Standards Act.  The Fair Labor Standards Act established the minimum wage, legislated a standard workweek, and outlawed oppressive child labor.  President Roosevelt called it, after the Social Security Act, “the most far-reaching, far-sighted program for the benefit of workers here or in any other country.”

Prior to the passage of the Fair Labor Standards Act, both adults and young children often worked brutally long hours only to earn starvation wages.  This was especially true during the Great Depression.  As the Depression endured, firms not only laid off hundreds of thousands of workers, but also implemented significant wage rate cuts.  Despite low wages, or perhaps because of them, many workers (including children) continued to work long hours in unjust conditions.  Workers often labored in what were essentially sweatshops, only to earn low wages.  While campaigning for a second term, President Roosevelt received a note from a young girl that read: “I wish you could do something to help us girls….We have been working in a sewing factory,… and up to a few months ago we were getting our minimum pay of $11 a week… Today the 200 of us girls have been cut down to $4 and $5 and $6 a week.”  Thousands of children, as young as seven years old, were denied a basic education and instead worked in mines, mills and factories for a pittance.  During his first re-election campaign, President Roosevelt publically committed to eliminating child labor and improving labor standards for all working Americans.

Roosevelt and Frances Perkins, U.S. Secretary of Labor from 1933 to 1945 and the first woman appointed to the U.S. Cabinet, devised the Fair Labor Standards Act with two goals in mind.  First, the administration aimed to improve job quality through the abolition of child labor, the establishment of a floor on wages, and a ceiling over hours worked.  Second, the administration hoped the Fair Labor Standards Act would create new jobs for millions of the nation’s unemployed by reducing overtime and forcing employers to hire more employees to compensate.  The ultimate version of the Fair Labor Standards Act, signed into law by President Roosevelt on June 25, 1938, established a 25-cent minimum wage (that would rise to 30 cents beginning in October 1939), introduced a 44-hour maximum work week (that would first fall to 42 hours in October 1939 and would then fall to 40 hours in October 1940), and set the general age of workforce entry at 16.

Read more