Greg Mankiw’s paper in the Journal of Economic Perspectives’ symposium on the top one percent is generating plenty of commentary. Josh Bivens and I have a contribution in that symposium and some new evidence that casts doubt on one of Mankiw’s key claims: that the doubling of the income share of the top one percent reflects the increased economic contributions, or productivity, of those in the top one percent. Specifically, Mankiw claims “that changes in technology have allowed a small number of highly educated and exceptionally talented individuals to command superstar incomes in ways that were not possible a generation ago.” Mankiw’s evidence for this is pretty thin, and we offer contrary evidence. This will take two blog posts, this one addressing the correspondence of growing educational wage disparities and the rise of the top one percent and the next one focused on executive pay.

Before getting down to business, let’s dispose of the distracting discussion by Mankiw and others (e.g. Chrystia Freeland) that we are discussing the incomes of superstar ‘innovators’ like Steve Jobs or J.K. Rowling. The majority of those in the top one percent are financial sector professionals and executives, not ‘innovators.’ Moreover, it is the growth of financial sector and executive incomes, as Jon Bakija and co-authors document, that explains roughly two-thirds of the income growth of the top 1.0 or top 0.1 percent (an analysis we argue understates the role of executives and finance). Besides, as Dean Baker points out, even superstar innovators benefit from a government set system that skews rewards upwards.

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The public isn’t stupid.  They realize that if hundreds of thousands of foreign guestworkers are brought in by businesses to take jobs in IT, engineering, and the sciences, there will be fewer opportunities for them and their children. A new poll published June 20 by the National Journal asks, “Should Congress allow for MORE guest workers or FEWER guest workers in this industry?” The three industries are agriculture, high-tech and construction. The respondents split with respect to agriculture, but by a big majority—55 to 34—they want fewer high-tech guestworkers, and by even bigger numbers—61 to 30—fewer guestworkers in construction.

Sadly, on this and almost any issue that corporate America lobbies intensely, members of Congress mostly fail to represent the views and interests of their constituents; they take the side of the corporations that make big donations to their campaigns, to independent expenditures on elections, and to the political parties. Only a principled few are willing to stand up to Microsoft, Facebook, Apple and Intel.

The result is that the new immigration bill will triple the flawed and misused H-1B guestworker program and shut off opportunities for hundreds of thousands of young people here who thought an engineering, math or computer science education would be the ticket to economic security and a rewarding career. It does less damage to U.S. construction workers, though it doubles the number of H-2B visas, which have been used to bring in construction guestworkers, and creates a new W-visa guestworker category, for which 15,000 visas a year are designated.

Rhode Island state treasurer Gina Raimondo is running for governor on the strength of the pension reform she spearheaded in in 2011. The hitch? The new plan—a hybrid between a traditional defined benefit (DB) pension and a 401(k)-style defined contribution (DC) plan—actually increases costs for taxpayers while leaving most state employees and teachers worse off, as Robert Hiltonsmith lays out in a new EPI briefing paper.

Raimondo managed to pull off this sleight of hand because she did save taxpayers money—not through the new hybrid plan, but by slashing pension benefits already earned by workers and retirees, a move that is being challenged in court. These cuts came on top of cuts made in earlier rounds, which in a companion brief I estimate amount to a 34 reduction in benefits for a prototypical career worker, with some workers experiencing cuts of 40 percent or more.

Why introduce a poorly-designed hybrid that costs more without benefiting workers? Good question. Hybrids are hot in policy circles, mostly for good reason. Many private-sector employers aren’t in a position to take on long-term pension obligations, yet 401(k)s have proven to be a disastrous substitute, raising costs and placing inordinate risk onto workers, even the few who manage to play their cards exactly right. EPI (pdf) and others have estimated that DC plans cost roughly twice as much as DB plans to provide a similar level of retirement security.

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As The Huffington Post has reported, Senator Bernie Sanders (I-Vt.) is introducing three amendments to the Senate’s comprehensive immigration bill (S.744). Two are intended to create and open up jobs for young people, and the third would prohibit large companies that have announced mass layoffs from hiring temporary foreign workers. Sanders is rightly concerned about youth unemployment (which averaged 16.2 percent nationwide last year, and 13.1 percent in Vermont) and the massive expansion of current temporary foreign worker programs and the creation of new ones in the Senate bill. He’s also correct to see the connection between these two phenomena.

On the Senate floor Tuesday, Sanders discussed the inconsistency between the country’s persistently high youth unemployment and the Summer Work Travel (SWT) program. The SWT program was created to facilitate cultural exchanges, by allowing foreign college students to work and travel in the United States. But over time it has become a large guestworker program run by the State Department without the necessary basic rules to protect workers. Unlike other programs that allow foreign residents to work here temporarily, the SWT program does not require that guestworkers be paid a prevailing wage, or require employers to first recruit, or even advertise, jobs to U.S. workers before they can hire guestworkers on J-1 nonimmigrant visas.

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In his latest Bloomberg column, Ezra Klein has a nice feature of my recent paper on income inequality growth in the United States and the role of tax policy. Klein’s dichotomy of the income inequality debate splits the “fatalists” from the “redistributions,” with differing views on government’s role in widening income inequality. Downplaying government’s complicity and scope for policy, Klein’s fatalists chalk up income inequality growth to market forces and factors like globalization, technological change, and job polarization. (See Larry Mishel, John Schmitt, and Heidi Shierholz refute this latter argument.) The redistributionists, on the other hand, believe that government policy has contributed to income inequality and policy should be reoriented to instead push back against post-tax, post-transfer income inequality growth.

With regard to the fatalists, one cannot dispute on objective grounds that changes in federal tax and transfer policies between 1979 and 2007 have exacerbated post-tax, post-transfer income inequality growth, up 33 percent over this period, versus market-based income inequality growth of 23 percent (both measured by the Gini index). Moreover, the role of tax policy changes in exacerbating post-tax and post-transfer inequality is understated in these measures because of the phenomenon of “bracket creep”—top incomes rise faster than the inflation adjustment for tax brackets, subjecting more income to taxation at top rates—which innately increases the redistributive nature of the tax and transfer system over time. But while tax and transfer policy should have been pushing harder against inequality growth instead of exacerbating it, there are practical limits to how much increased redistribution can mitigate strong market trends.

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So some papers that will make up a symposium in the summer issue of the Journal of Economic Perspectives about the rise of the top 1 percent of incomes are hitting the airwaves. Larry Mishel and I are contributing one as well, The Pay of Corporate Executives and Financial Professionals as Evidence of Rents in Top 1 Percent Incomes. Greg Mankiw mounts a self-described “defense” of the top 1 percent here (PDF), Miles Corak writes about the implications of inequality for mobility here (PDF), and Alvaredo, Atkinson, Piketty and Saez examine the top 1 percent in historical and international perspectives here (PDF).1

Our argument (shocker) is that the rise of the top 1 percent of incomes is not simply the result of a competitive, well-functioning market rewarding skills and capital to the precise degree necessary to elicit their supply. Instead, lots of the rise in top 1 percent of incomes is about the creation and/or redistribution of economic rents.

We highlight the two occupations that dominate the top 1 percent—corporate executives and finance professionals—and review the voluminous data and research literature that strongly suggests that these occupations exercise substantial market power over their own pay, and that their pay exceeds the contribution they make to economic output. We also provide new evidence that CEO compensation has grown far more than that of other top wage earners, those in the top 0.1 percent of the wage structure. The current pay gap between CEOs and other top earners is much greater than during the 1947-79 period and has grown far faster than the college-high school wage premium since 1979. This is evidence that directly contradicts the claim that CEO pay has been largely set by the market for talent.

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Who in America is willing to work 100 hours a week without getting paid for those brutally long hours (not to mention without the time-and-a-half pay required for overtime)? The answer should be, “no one.” But for undocumented immigrants, who don’t have the right to take above-board, normal jobs, almost any job, no matter how abusive or how low the pay, is better than nothing—especially if they owe debts to criminal smugglers who know where their families live.

According to the New York Times, fourteen 7-Eleven franchises have been charged with raking in $180 million since 2000 in illegal profits from underpaying employees, and another 40 franchises are under investigation. Employees who should have been paid as much as $1000 a week were paid only $300-$500 while being forced to live in unregulated, substandard boardinghouses operated by the stores’ owners.

It took 13 years for an employee to finally complain about wage theft and call in the authorities to break up the illegal operation. That’s a good measure of the fear and intimidation that keeps the undocumented in the shadows and lets greedy employers get away with paying sweatshop wages.

Clearly, legalization of the undocumented will improve the labor market in the United States by bringing abused workers out of the shadows and starting the process of lifting wages. However, this will work better and faster if Congress also provides the right enforcement resources, including the Labor Department wage and hour inspectors and attorneys needed to investigate and prosecute cheating businesses and the criminals who run them. The U.S. spends $18 billion a year on border security and immigration enforcement, and will spend even more if the Senate’s proposed comprehensive immigration law, S.744, is enacted. It seems clear to me that some of those funds should be redirected to the Labor Department and its never-ending battle against wage theft and exploitation.

The abuse of temporary foreign workers in the United States has been well documented, from the Bracero program of the 1960s to the recent cases of seafood workers in Maryland (PDF) and Louisiana, fast-food workers in Pennsylvania, and forestry workers in Georgia. The wrongs to workers are sometimes nothing short of criminal: wage theft, violence and threats of violence, even peonage.

But harm is done to U.S. workers, too, before temporary “guest” workers are ever brought to the U.S.  The businesses that could and should be recruiting and hiring workers here in the U.S. at decent wages are shunning them to hire more exploitable, more desperate foreigners. The law and regulations that govern guestworker programs, most notably the H-2B non-immigrant visa program, are ignored or circumvented, leaving U.S. workers jobless while people from thousands of miles away do jobs the local workers are able and willing to do.

The law and regulations forbid the admission of any H-2B guestworker to the U.S. unless the employer attests that U.S workers capable of performing the job are not available and that the employment of foreign workers will not adversely affect the wages and working conditions of similarly employed U.S. workers. The Department of Labor and the various State Workforce Agencies are charged with verifying that the jobs of U.S. workers are protected, but they have failed to do so.

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A few articles that our experts found interesting recently:

• A New Guide for Understanding Our Inequality (Inequality.org)
• Fight the Future (New York Times)
• Housing discrimination persists in U.S. in more subtle ways, HUD report says (Washington Post)
• It’s Not a Housing Boom. It’s a Land Grab (Color Lines)
• No More Captive Workers (Roll Call)
• Young, black and buried in debt: How for-profit colleges prey on African-American ambition (Salon)

Fred Hiatt trots out the standard centrist argument for cutting the already-stingy system of American social insurance (Social Security, Medicare, Medicaid): we need to cut this spending to preserve the “good” spending that he likes—non-defense discretionary (NDD in budget jargon) spending.

I agree with him that lots of NDD spending is good—it includes the general business of running the non-defense portions of the government as well as programs like Head Start, and it also includes a substantial chunk of public investment financed by the federal government. So yes, let’s preserve this.

But this claimed tension between spending on Social Security and Medicare versus NDD spending is plain false. We recently looked at various competing budget proposals to see what their implications were for NDD spending and public investment at the end of the budget window. Paul Ryan’s budget, which takes a chainsaw to the social insurance programs also saw the biggest squeeze on NDD spending and public investment. President Obama’s budget, which included damaging cuts to Social Security and was couched in the language of protecting public investment, still saw NDD and public investment spending reach historic lows by the end of the budget window. The Congressional Progressive Caucus Back to Work budget had no cuts to social insurance and yet had substantially higher NDD spending and public investment than all other plans. Read more