Luckily people seem to be taking the correct lesson from Friday’s job report: the economic recovery is (yet again) assuredly not on track. The first three months of 2013 saw average job gains of 168,000, down from the 183,000 monthly average for 2012.

This is a real shame, because there are some real reasons to think that 2013 could have turned out better than 2012 in the economy. Housing has stopped dragging on growth, and the state and local sector has gone from utter freefall to almost-stabilization.

Take the improvement from 2011 to  2012 in both of these—this combined boost was roughly 0.5% of GDP. Imagine for a second that this rate of improvement characterized 2013 as well—we’re a full half-point of GDP ahead of the game, right?

Sadly, we have DC policymakers who have decided to stomp on any improvement with steep cuts and the repeal of the payroll tax cut without any useful replacement. As we estimated here, the combined effect of the payroll tax cut ending and the sequester (and spending cuts baked into the cake even before the sequester kicked in) are likely to subtract more than 1.5% off of GDP growth for the year.1

Frustrated about the slow pace of recovery? Blame those in Congress insisting on damaging cuts.

1 Note that the number for the sequester in that table is slightly high—the 2-month deferral negotiated in December will slightly reduce its drag in 2013).

These days, Republicans in Congress jostle for the right flank like crazed jockeys determined to race as fast as possible even if showboating by the outer rail costs them the prize. They often appear to be paying more attention to upcoming horse auctions (Republican primaries) than winning the purse.

If Republicans’ mix of grit and speed at the expense of strategy has its opportunity costs, the Democrats’ habit of playing follow-the-leader has them tripping over themselves while failing to notice how far they drifted rightward as they try to cajole Republicans to join them in what they still believe to be the center of the track.

Hasn’t anyone noticed that the shortest route is by the inner rail, which is wide open? Especially when it comes to popular social insurance programs, good progressive policy also happens to be good politics. Well, Bernie Sanders has figured this out, but he can’t be everywhere.

Now that the president’s plan to offer up Social Security cuts in his budget has been officially “leaked,” it’s too late to get him to change his mind and time to revolt. There’s not much new to say on the topic of a chained CPI, since even supporters have all but conceded that it’s a benefit cut rather than a technical fix, as Larry Mishel recently noted. But if progressives need a prod to break their habit of loyalty to a misguided but beleaguered president, Dean Baker at CEPR has pointed out that a COLA cut would have a bigger impact on low-income beneficiaries than the recent tax increases in the American Taxpayer Relief Act had on the wealthy. If Democrats go along with this, progressives need to break with the party and follow Senator Sanders’ independent lead.

If the Laffer curve hypothesis is the first commandment of the modern conservative movement, then its economist namesake, Arthur Laffer, is its chief apostle. Laffer argued that it is theoretically possible to raise more government revenue by lowering tax rates, thereby offering a “free lunch” for legislators. The understandable political allure of Laffer’s suggestion is directly responsible for a three-decade experiment with “supply-side” economics, an experiment whose failure has eroded inflation-adjusted incomes and living standards of the vast majority.

But the Laffer curve is merely an economic model, one originally sketched out on a napkin. The model has zero scope for informing good public policy without rigorous, accompanying empirical research on behavioral responses to tax changes.

And modern economic research isn’t on Laffer’s side.

Laffer’s proposition is based on the simple observation that the government will collect zero revenue if the tax rate is at either zero or at 100 percent. A revenue maximizing rate must lie between these bounds, and the Laffer curve is typically depicted as a symmetrical, concave function between these revenueless rates (implying a revenue maximizing rate of 50 percent).Read more

Here’s what we found fascinating today:

• A Simple, Legal Way to Help Stop Employment Discrimination (The Atlantic)
• Lack of paid sick leave is unhealthy for America (Washington Post)
• As OSHA Emphasizes Safety, Long-Term Health Risks Fester (New York Times)
• Will Ware be stuck with the bill? (Salon)

As I wrote earlier, one of the great things about the Chamber of Commerce and AFL-CIO agreement on a new W-visa program is that it doesn’t open up a large flow of indentured workers as other programs do. Those brought in work under the same laws and have the same rights as other workers, and they are able to obtain legal status and a path to citizenship. They can also switch jobs so they’re not indentured to one employer. Now the comments are coming in that the caps on the number of visas are too low. There will be 20,000 in the first year rising to 75,000 in the fourth year, and thereafter determined by a commission staffed by labor market experts but capped at 200,000.

Rick Newman, Chief Business Correspondent at U.S. News & World Report, writes that these limits are too strict and cites an American Enterprise Institute expert saying, 200,000 is “a really, really low number.” Newman explains:

“Some context explains why. There are roughly 135 million working Americans, so 200,000 immigrants per year would amount to a tiny fraction of the total labor force. Construction alone employs about 5.8 million people, with peak employment hitting 7.7 million in 2007.”

It is easy to see why this analysis is wrong. The comparison should not be to the total workforce but to those who are similarly skilled and working in the same occupations as the W-visa workers. Even more important, the flow of new workers each year should be compared to the newly available jobs for such workers each year.Read more

A number of reports this weekend revealed that the AFL-CIO and the U.S. Chamber of Commerce have come to an agreement on a new foreign worker program to be included in comprehensive immigration legislation being drafted in the Senate. I applaud the months of hard work by business and labor, who managed to negotiate a deal that will, on balance, be fair to both foreign workers recruited to work in the United States as well as workers already in the country.

If the agreement becomes law, a new foreign worker program—the “W” visa program—will be created for lesser-skilled, non-seasonal occupations that don’t require a college degree. But unlike current U.S. temporary foreign worker (“guestworker”) programs, it will include many new and necessary worker protections. Also, a new Bureau of Immigration and Labor Market Research will be established to inform Congress about the impact of immigration on the labor market. As Matt Yglesias pointed out yesterday, many aspects of the agreement are exactly what the Economic Policy Institute has been proposing for years.

Here are some of the key components of the proposed program:Read more

There are reports that the AFL-CIO, representing all unions, and the Chamber of Commerce have reached an agreement on a new temporary foreign worker visa program to be included in the comprehensive immigration package being negotiated in the Senate. The new W-Visa will be created for employers to petition for foreign workers in lesser-skilled, non-seasonal non-agricultural occupations. This is a good thing, and not simply because the framework for the program draws heavily on the policies developed by former Secretary of Labor Ray Marshall working with my EPI colleague Ross Eisenbrey and others at EPI.

There was always a danger that business groups would be successful in their efforts to vastly expand programs that exploit temporary guestworkers and depress wages and labor standards for all workers. In fact, that’s the way current programs work. Another danger was that disputes in this arena would derail the broader immigration reform effort, particularly when it comes to regularizing the undocumented workforce.

Many details are not available or will have to be developed. Nevertheless, what we do know suggests that this will be a modestly scaled program that protects the workers involved and does not undercut wages. Indeed, the program is not for “temporary” workers or for “guests” at all: rather, workers (not their employers!) will be able to petition for permanent status after one year. This is a huge improvement, since current procedures for green cards give a key role to the employer, which obviously gives them great power over a worker seeking permanent resident status. Providing a path to permanent status—and eventually citizenship—makes sense to me because I always wondered why, if there’s a shortage, we need a “guest” rather than a worker?Read more

Happy Friday. Here’s what we read today:

• The North Atlantic Macroeconomy: Let It Bleed?: We Are Live At Project Syndicate (Brad DeLong)
• It’s a bad time to be a worker who isn’t flexible. But does that explain the weak job market? (Washington Post)
• The Ivy League Was Another Planet (New York Times)
• Need for Networking Puts Black Job Seekers at Disadvantage (Wall Street Journal)
• Fines Slashed In Grain Bin Entrapment Deaths (NPR)
• When workers die: “And nobody called 911″ (Salon)
• Consider the Source: 100 Years of Broken-Record Opposition to the Minimum Wage (NELP)
• Mario Draghi’s Economic Ideology Revealed? (Social Europe Journal)

Secretary of State John Kerry bought into the hype around trade in a speech this week in Paris when he claimed that the proposed U.S.–EU trade and investment agreement could help Europe emerge from the economic crisis. Kerry claimed that the proposed U.S.–EU trade agreement “may be one of the best ways of helping Europe to break out of this cycle [and] have growth.” As I’ve explained before, trade agreements do not create jobs. This is not some proprietary EPI view on trade – it is a standard view straight out of economics text books.

The issue is simple: it is trade balances—the net of exports and imports—that can affect jobs. Unless trade agreements promise to reduce our too-high trade deficit, they will have no positive effect on jobs. Even worse, past trade agreements have actually been associated with larger trade deficits in their aftermath.

This is mainstream (neo-classical) trade theory, as explained by Paul Krugman in “Trade Does Not Equal Jobs.” Responding (in 2010) specifically to claims that the Korea–U.S. trade agreement could be a driver of recovery, he pointed out that in macroeconomic terms, the United Sates had too little spending on domestically-produced goods and services, with spending defined by:

Y = C + I + G + X –M

Read more

It’s clear that the sequester will do plenty of damage to domestic priorities like education, R&D, national parks, regulatory agencies, etc by bringing non-defense discretionary spending down to historic lows. But at least it will begin reducing the debt right away and help put the federal government on a more sustainable fiscal path, right?

Unfortunately, no. It turns out that the sequester will likely cause the debt ratio (public debt as a share of GDP) to rise rather than fall in the next couple of years. This is because there is a strong interaction between fiscal policy and the economy when the economy is weak and underperforming (i.e. operating below potential output), which the Congressional Budget Office projects it will be until mid-2017. A weak economy means a higher deficit: a high level of unemployment both depresses tax revenue and forces more people to rely on the social safety net (e.g. unemployment insurance, Medicaid, food assistance, etc). As the economy expands closer to potential output, the deficit falls because people move from the social safety net back into employment, resulting in lower spending and higher revenues.

This relationship also works in reverse: fiscal policy choices have a significant impact on the economy when it is operating below potential. Expansionary fiscal policy (i.e. spending increases or tax cuts) injects demand into the economy, causing a boost of economic activity and job creation. Contractionary fiscal policy, such as spending cuts or tax increases, drains demand from the economy and creates a drag on growth.Read more