The U.S. trade deficit with Japan has increased steadily over the past four years, reaching $79.9 billion in 2012, an increase of $13.4 billion (20.2 percent) over the 2011 bilateral deficit of $66.5 billion. Two of the most important causes of persistent U.S.-Japan trade deficits are currency manipulation and Japan’s vast and impenetrable network of non-tariff trade barriers. Last month, the United States and Japan agreed on language that could allow Japan to join negotiations to enter the Trans-Pacific Partnership (TPP), a proposed free trade agreement with 10 other Asia-Pacific countries (a new round of negotiations on the TPP began in Singapore last week ). Unless Japan is willing to end its currency manipulation and informal trade barriers once and for all, it should not even be allowed to participate in the TPP negotiations.

The effect of trade flows on U.S. jobs is relatively straightforward: exports support U.S. jobs but the larger volume of imports displaces even more jobs. Trade deficits such as the one we have with Japan have cost the United States millions of jobs, most of them high-paying jobs in manufacturing. Signing trade deals is an ineffective way to create jobs, in large part because they usually result in higher trade deficits. Further, trade deals have traditionally not included effective means to deal with one of the biggest causes of our trade deficits: currency manipulation by our trading partners, which acts as an artificial subsidy to other countries’ exports, and a tax on U.S. exports. Japan has a history of currency manipulation, and recently-elected Prime Minister Shinzo Abe campaigned on his intention to stimulate the Japanese economy, in part by weakening the yen. Financial markets have responded to Mr. Abe’s wishes, and the yen has declined 18.8% since October, falling to 96 yen per dollar on March 12, 2013.1Read more

Earlier today, House Budget Committee Chairman Paul Ryan (R-Wis) released his Fiscal Year 2014 House Budget Resolution, The Path to Prosperity: A Responsible, Balanced Budget. Like Ryan’s fiscal 2012 and fiscal 2013 budget resolutions, this latest iteration is an austerity budget—it proposes aggressive near- and long-term spending cuts, which come on top of the austerity from sequestration spending cuts (which would be continued), the ratcheting down of discretionary spending caps, and the recent expiration of the payroll tax cut.

Ryan’s budget would reduce near-term primary spending (excluding net interest) by $42 billion in fiscal 2013, $121 billion in fiscal 2014, and $343 billion in fiscal 2015, all relative to CBO’s alternative fiscal scenario (AFS) current policy baseline.1 The fiscal 2013 spending cut represents the remainder of sequestration cuts scheduled for this year. Additionally, the Ryan budget would increase revenue by $58 billion in fiscal 2014 and $98 billion in fiscal 2015 by allowing the “business tax extenders” to expire. While tax increases have a much smaller drag per dollar than government spending cuts, this still contributes to the economic drag from the Ryan budget.

On net, we estimate that the Ryan budget would decrease gross domestic product (GDP) by 1.7 percent and decrease nonfarm payroll employment by 2.0 million jobs in calendar year 2014 relative to current policy. We estimate that the Ryan budget would increase the unemployment rate by between 0.6 percentage points and 0.8 percentage points. The Ryan budget would push the output gap—the difference between actual output and non-inflationary potential output, which registered $985 billion (5.9 percent of potential) as of the fourth quarter of 2012—from 4.4 percent under the AFS baseline back to 5.9 percent. By proposing a budget that would leave the output gap unchanged from 5.9 percent of potential GDP by the end of 2014, Ryan has essentially proposed that for at least two years the U.S. economy make zero relative progress in emerging from the current adverse economic equilibrium of depressed economic output, slow growth, high unemployment, and large cyclical budget deficits.Read more

What we read today:

• With Positions to Fill, Employers Wait for Perfection (New York Times)
• The War On Entitlements (New York Times)
• The children going hungry in America (BBC)
• McDonald’s Guest Workers Stage Surprise Strike (The Nation)
• The price of cheap labour (The Guardian)
  

On Tuesday, March 5, Sen. Tom Harkin (D-IA) and Rep. George Miller (D-CA) announced the introduction of The Fair Minimum Wage Act of 2013 to raise the minimum wage from $7.25 an hour to $10.10 an hour over the next three years. Once it reaches $10.10, the minimum wage would be raised automatically each year to account for inflation and ensure that it never loses its purchasing power. The bill also raises the wages of those who rely on tips, phasing in an increase until the “tipped minimum” – currently stuck at $2.13 an hour — reaches 70 percent of the regular minimum wage.

Harkin and Miller spoke eloquently about the need to make work pay, to reward people for the time and effort they put into serving or delivering food, caring for children and the elderly, and cleaning hotel rooms or office buildings.

Citing Economic Policy Institute calculations, Harkin estimated that 30 million workers would get a raise, including 17 million women. He pointed out that nearly 90 percent of minimum wage workers are adults, not teenagers, and that two-thirds are in low or moderate income households.

The two business people and two workers Harkin and Miller invited to the event made an enormous impression. Margot Dorfman, the President of the U.S.  Women’s Chamber of Commerce, reiterated her support for the minimum wage, denouncing the idea that raising the minimum wage would be bad for business. “Nothing could be farther from the truth,” she said. “Our sales depend on consumer demand. If people aren’t paid a fair wage they can’t afford to shop in our stores or buy our services.” Dorfman made it clear that the NFIB and US Chamber of Commerce don’t represent small business. “They’re looking out for the big corporations that want to pay workers as little as possible. They want the taxpayers to pay for their workers’ food stamps. That’s not the position of women-owned small businesses.”Read more

New research in economics suggests that raising the minimum wage will improve the health of many Americans, especially those with low income, and this improvement should help bend the cost curve for medical care.

In a paper published by the prestigious National Bureau of Economic Research, David Meltzer and Zhou Chen (from the University of Chicago and the Centers for Disease Control) analyze data from the Behavioral Risk Factor Surveillance System (BRFSS) from 1984-2006. The BRFSS interviews more than 350,000 adults each year, making it the largest health survey in the world. Meltzer and Chen test whether variation in the inflation-adjusted minimum wage is associated with changes in body mass indexes of adults. They find that gradual reductions over time in inflation-adjusted minimum wages across states explain about 10% of the increases in average body mass since 1970.

Additional evidence derives from a study by DaeHwan Kim and myself that used the Panel Study of Income Dynamics (PSID) to investigate whether increases and decreases in inflation-adjusted wages predict obesity. The PSID is a nationally representative sample of 5000 American families that have been followed since 1968 by the University of Michigan’s Survey Research Center. We find that low wages predict increases in the prevalence of obesity. This study was published in the Journal of Occupational and Environmental Medicine. Obesity is estimated to cost $190 billion in medical bills each year according to a recent study in the Journal of Health Economics. A 10% decrease in obesity would result in a $19 billion of savings every year, as estimated by Meltzer and Chen.Read more

What we read today:

• Discredited: How Employment Credit Checks Keep Qualified Workers Out of a Job (Demos)
• Colorado, other states show the way on immigration reform (Denver Post)
• 401(k): Pass or Fail? (Fox Business)
• Labour plans crackdown on employers exploiting migrants (The Guardian)

In the fourth quarter of last year, Nevada and California had the highest Asian American unemployment rates of the ten states with sufficient Asian American data for analysis. The Asian American unemployment rate in Nevada was 8.4 percent and 7.8 percent in California. The lowest Asian American unemployment rates were in New Jersey (4.2 percent) and Hawaii (4.5 percent). Rates for all ten states (and for other racial groups) can be found in this interactive feature.

Although we have data for only ten states, these ten states contain more than two-thirds of the Asian American labor force (see Figure D). Nearly half of all Asian American workers reside in California, New York, and Texas alone. Because Asian Americans are quite diverse socioeconomically, it would be useful to disaggregate the data by Asian ethnic group, but a number of data issues make disaggregation not feasible.

In four states—California, Florida, Maryland, and Texas—the Asian American unemployment rate is higher than one might expect. Generally, more educated populations have lower unemployment rates. In these four states, although data from the American Community Survey indicates that the Asian American labor force is better educated than the white labor force, the Asian American unemployment rate is equal to or higher than the white rate. Further research is necessary to understand why Asian Americans have such high unemployment rates in these states.

Following the President’s expression of support for a $9.00 minimum wage, Sen. Tom Harkin (D-Iowa) and Congressman George Miller (D-California) sent out a press release indicating their support for increasing the minimum wage to $10.10 (this proposal follows their 2012 effort to pass legislation supporting a $9.80 minimum wage).  Their proposal would increase the minimum wage via three incremental increases of $0.95, after which it would be indexed to inflation. The tipped minimum wage (the minimum wage paid to workers who earn a portion of their wages in tips) would also be increased in $0.85 increments from its current value of $2.13 per hour, where it has languished since 1996, until it reaches 70 percent of the regular minimum wage. At noon today, Senator Harkin and Congressman Miller will unveil the Fair Minimum Wage Act of 2013.

Raising the minimum wage would help reverse the ongoing erosion of wages that has contributed significantly to growing income inequality, while providing a modest stimulus to the entire economy, as increased wages contribute to GDP growth, which in turn leads to modest employment growth. Following are the major national findings of an upcoming EPI report on the impacts of a $10.10 minimum wage for the country and individual states.Read more

Teddy Wayne’s Sunday New York Times article about the exploitation of 20-somethings in the workplace (“The No-Limits Job”) should wake up a lot of young workers and their parents. There is something seriously wrong with a corporate culture that uses extremely low-paid or even unpaid labor and then treats the workers like they own them.

The low point in the article is probably the story of Dalkey Archive Press, of Champaign, Illinois, which not only employs unpaid interns but threatens them with “immediate dismissal” if they come in late or leave early without permission, are “unavailable at night or on the weekends,” or “fail to respond to e-mails in a timely way.” But as Wayne makes clear, round-the-clock, 24-7 internships can be exploitative even when paid.

One of my personal heroes, Ross Perlin, the author of Intern Nation, is interviewed by Wayne and warns about a sinister change in our culture that has made it acceptable to young people to give up their personal time and devote themselves to an employer, totally blurring the line between personal life and work while receiving almost no financial reward. This problem is worst in what Perlin calls the “rock-star professions”—film, TV, publishing, and media—and in creative industries like fashion, but the trend is spreading to other fields as well. Even un-hip businesses like manufacturers and law firms have begun to advertise for and employ unpaid labor, and failure to pay for overtime is endemic in white-collar work.

The Fair Labor Standards Act, which requires payment to employees of at least the minimum wage, is conveniently ignored by employers who rationalize their exploitation and illegality by arguing that the jobs are for the benefit of the interns, who usually do learn something and can put the experience on their resume. However, as Perlin explained in his book and Wayne’s article corroborates, a new phenomenon, the serial intern, is developing.Read more

What we read today:

• Automatic Reductions in Government Spending — aka Sequestration (Congressional Budget Office)
  
• Minimum Wage/Maximum Growth (The Innovation Files)
• How Much Does Race Still Matter? (New York Times)
• What’s So Bold about $9.00 an Hour? Benchmarking the Minimum Wage (Dissent)