Apple’s key Chinese supplier is Foxconn, made famous by the rash of suicides committed by its employees, who live packed into dorms, far from home, working brutal schedules of overtime (sometimes as much as 80 hours a month, on top of the core 160 hours), subjected to verbal abuse and humiliating punishment by supervisors, and systematically cheated on wages.

When labor rights groups in China and Hong Kong exposed these conditions and the New York Times  published a front-page exposé, Apple hired the Fair Labor Association (FLA) to help it improve conditions—and its corporate image. In a public report, Apple committed itself to a broad range of reforms, and has made some headway on several fronts, according to the FLA.

But many observers are skeptical because Apple and Foxconn have put off most of the reforms that would actually cost them some money. The FLA could not, for example, get the companies to agree to comply with Chinese law limiting maximum overtime hours until the summer of 2013, and the companies continue to subject Foxconn workers to 60 hours of overtime per month—nearly twice the amount of overtime permitted by law. The companies also pledged only to study whether the workers were right in their complaints that wages are too low to meet basic needs. And most telling, there is no indication the companies have kept their public promise to pay back wages to the hundreds of thousands of employees Foxconn systematically cheated by working them “off the clock.” Read more

Louisiana politicians have been getting bad advice from their state’s economists about the Department of Labor’s guest worker regulations. Rep. Rodney Alexander (R-La.) posted a story on his website about the supposedly enormous negative impact of a new Department of Labor regulation that would raise the wages of U.S. and foreign workers employed by companies that import H-2B guest workers. Alexander and Sen. Mary Landrieu (D-La.) both voted to block the new wage rule from taking effect.

The outsized impact estimates come from a March 23, 2012 report by three Louisiana State University economists, entitled Economic Impact on Louisiana Agricultural Industries of the Proposed Change to the Wage Methodology for the Temporary Non-Agricultural Employment H-2B Program. A careful look at the report shows that the estimates are certainly wrong.

The report’s authors, Kurt M. Guidry, J. Matthew Fannin, and Michael E. Salassi, assume that if wages increase, net income (sales revenue minus wages) will simply decrease proportionately. Rather than increase prices and pass them along to consumers, or mechanize certain operations to reduce the wage bill, or improve productivity through better hiring, training, or management, seafood companies and landscaping contractors will lose $1 of income for each $1 of higher wages. That is an unreasonable assumption, which the report applies to about a dozen different industries, from agricultural aviation and forestry to hotels and food service. Read more

Republicans in Congress have been engaged in a two-year long assault on the government’s regulatory powers, attacking everything from the Clean Air Act and mercury pollution controls to the National Labor Relations Board’s enforcement powers. Their actions have been directed by business groups like the Chamber of Commerce, which publish seemingly-credible reports with big numbers about regulation’s supposed negative impact on the economy, relentlessly shifting blame away from themselves for the failure of wealthy corporations to create jobs in the United States instead of in China, Mexico and Bangladesh.

The latest installment in this wave of faux reports comes from the Manufacturers Alliance for Productivity and Innovation. Yesterday, they released a commissioned report on the costs of regulation that was so slanted and sloppy it seems like a parody. The authors throw out a bunch of big numbers with no supporting data and then—“extrapolating”—pretend that they can reasonably estimate how much regulations have reduced manufacturing activity. But the fact, of course, is that manufacturing employment has risen  over the last two years—for the first time in a decade—just when the supposed cumulative impact of regulations should have been taking its biggest toll.

The authors acknowledge that they made no attempt to estimate the benefits  of regulation, either to the public in general, workers, consumers, or the industries themselves. Read more

Yesterday, David Brooks channeled a deeply flawed presentation by the Third Way to argue that while the federal government used to spend money on things that improved national “dynamism” it now just spends on “entitlements.”

A word of (very) muted praise for Brooks—he does lament that too much spending goes on tax loopholes, and he’s largely right there.

But, he spends most of his time, and, Third Way spends all their time, arguing that there is something deeply damaging about the fact that federal spending on Social Security, Medicare, and Medicaid is now a bigger part of the budget than public investments. There’s little economic basis for this angst.

You’d have to look hard to find a bigger fan of public investments than me. But, the economic benefits of Social Security, Medicare, and Medicaid are absolutely enormous. They provide a service (insurance against risk, and people value insurance quite highly) much more efficiently than do private-sector providers. Read more

David Leonhardt on the New York Times‘ Economix blog is spurring an interesting conversation about what has caused the slowdown in income growth. Though not explicit, what Leonhardt is asking people to explain is the sluggish growth in median household income since 2000, when incomes for working-age households fell over the 2000–2007 business cycle (the first time in any cycle in the post-war period) and then were battered by the great recession we’re still effectively in. This is what we are referring to in the forthcoming The State of Working America  (out on Sept. 11) as the “lost decade.”

The heart of the matter is the ongoing failure of wages and benefits for typical workers (including those with a college degree!) to see any improvements, even though productivity (the ability of the economy to provide higher pay) has grown appreciably. I want to focus on one issue raised in this discussion, the role of rising health care costs on wage growth, an issue we examine (in the new book) more thoroughly than I have seen before. The issue is the extent to which rising employer health care costs have squeezed wage growth and contributed to rising wage inequality. An earlier paper tackled this issue as well.

The relationship between employer health insurance costs and wages is that employers set the growth of compensation, and when health costs rise, there is simply less compensation available for wage growth. This assumes that higher health spending by employers offsets the possibility of higher wages dollar-for-dollar. (Although this is likely not the case, I will assume it for our purpose here; there is also the issue that there are other benefits beyond health that could provide an alternative to wages in soaking up increased health costs.)

The potential squeeze of health care on wages can be measured simply by examining employer health care costs as a share of total wages; the faster that share grows, the more there is a squeeze on wages. Read more

We cannot remedy the large racial achievement gaps in American education if we continue to close our eyes to the continued racial segregation of schools, owing primarily to the continued segregation of our neighborhoods. We pretend that this segregation is nobody’s fault in particular (we call it “de facto” segregation), and that therefore there is nothing we can or should do about it. Instead, we think that somehow we can devise reform programs that will create separate but equal education. One after another of these programs has failed—more teacher accountability and charter schools being only the latest—but we persist.

The presidential campaign can be a reminder, though, of the opportunities we’ve missed and continue to miss. Forty years ago, George Romney, Mitt’s father, resigned as Secretary of Housing and Urban Development after unsuccessfully attempting to force homogenous white middle-class suburbs to integrate by race. Secretary Romney withheld federal funds from suburbs that did not accept scatter-site public and subsidized low and moderate income housing and that did not repeal exclusionary zoning laws that prohibited multi-unit dwellings or modest single family homes—laws adopted with the barely disguised purpose of ensuring that suburbs would remain white and middle class.

Confronted at a press conference about his cabinet secretary’s actions, President Nixon undercut Romney, responding, “I believe that forced integration of the suburbs is not in the national interest.” This has since been unstated national policy and as a result, low-income African Americans remain concentrated in distressed urban neighborhoods and their children remain in what we mistakenly think are “failing schools.” Nationwide, African Americans remain residentially as isolated from whites as they were in 1950, and more isolated than in 1940. Read more

This Week with George Stephanopolous  yesterday was dominated by a panel discussing the deeply silly question of, “Is the U.S. going bankrupt?”

It’s a silly question for one because it conflates issues with the federal budget deficit (which the show was entirely about) with the U.S. economy writ large. I know this is news to far too many pundits but the budget deficit and the U.S. economy are not the same thing. And if you look at the broader perspective of the U.S. economy, it’s clear that it’s not “going broke.” On average, the U.S. economy over any long period of time has been (and will be, absent some catastrophe) growing acceptably fast. Unfortunately, very few American households have actually experienced this “average” growth, since incomes at the very top have grown extraordinarily rapidly and absorbed vastly disproportionate shares of income growth in recent decades. So, if This Week  wants to devote a very serious show obsessing about the dangers of growing inequality, then I’ll be happy to give them a round of applause for devoting time to an actual, identifiable economic problem.

And even in its own poorly-defined terms (i.e., the outlook for the federal budget deficit), the show was mostly a bust.

For one, nobody reminded the panel or its viewers that the large increase in budget deficits in recent years have been driven entirely by the Great Recession (and its aftermath) and the explicitly temporary policy responses passed in its wake. This is important to know. In 2006 and 2007—even after the Bush tax cuts, wars fought with no dedicated funding and the passage of a deeply-inefficient Medicare drug program that also had no funding source—budget deficits averaged around 1.5 percent of total GDP, levels that no economist would argue are evidence of a crisis. Read more

Dylan Matthews over at Wonkblog used some data we provided to point out “one big flaw” in a report (written by Anthony Carnevale and two co-authors for the Georgetown Center on Education and the Workforce (GCEW)) touting the value of a college education in the recession and recovery. The flaw is, “it doesn’t separate out people who only have a bachelor’s from the 11.3 percent of workers who have an advanced degree beyond a bachelor’s,” when it talks about “college graduates.” Matthews notes that:

“While those with only a BA still did much, much better than people with a high school degree or only some college, they still saw job stagnation during the recession. The only group that continued to gain jobs were those with advanced degrees. Fully 98.3 percent of job gains among those with at least a bachelor’s were realized by those with advanced degrees…”

I want to dig into the issues raised by the GCEW report and the general discussion of the value of a college degree. It is important to separate out two dimensions to the value of a college degree that are frequently conflated, as this report does. One issue is whether an individual will be relatively better off if he or she obtains a college degree and the second issue is the benefit to the economy of a greatly boosted share of the workforce with a college degree (say, if we had 40 or 50 percent rather than the current 33.2 percent with a college degree or further education).

I am totally in favor of policies which facilitate every person’s ability to obtain (and complete) a college degree or other advanced training or skills (i.e., apprenticeships, associate degrees). Those who do advance their education and skills will, on average, be better off in terms of their incomes, employment, health, and be more engaged citizens than those who have not been able to pursue greater education and skills. So, on issue number one there need not be any debate. More education and skills can also be essential for improving social mobility and opportunity and generating a more inclusive economy.

However, if the entire workforce had college educations, we still would have unemployment over 8 percentRead more

As this week brings us both the announcement of Paul Ryan as Mitt Romney’s running mate and Social Security’s 77th birthday (today, August 14), it seems appropriate to focus our lens on Social Security from Ryan’s perspective.

Ryan has long championed the privatization of social insurance programs. His last two budget blueprints put forth in fiscal 2012 and 2013—both called The Path to Prosperity—would turn Medicare into a system of vouchers that individuals could use to buy private insurance. These vouchers would not keep pace with rising health care costs, forcing seniors to bear an increasingly greater burden of their health care costs in years to come.

Privatization of government programs seems to be a theme with Ryan. On Social Security, Ryan—a Social Security recipient himself as a young man—helped lay the groundwork for George W. Bush’s push to privatize Social Security, as described in a recent New Yorker profile of the congressman. Ryan worked with former Sen. John Sununu (R-NH) to create a plan which was centered on the creation of personal savings accounts. Under the plan, a portion of an individual’s payroll tax contribution would be diverted from the OASDI trust fund into an individual account, which would then be invested. Such a diversion of funds would have decreased Social Security’s revenue and required a transfer of funds from the rest of the budget to fund benefit obligations, as this Center on Budget and Policy Priorities analysis reported. In other words, the Ryan-Sununu plan to bring long-term solvency to Social Security would have required the federal government to borrow heavily to finance promised benefits.

We all know how the story ended: President Bush spent significant political capital promoting a somewhat more cautious version of this plan, going on a “Social Security Road Tour” that ultimately went nowhere. Ryan didn’t end his quest there, however.Read more

France recently pushed ahead of the European Union in implementing a financial transactions tax (FTT). Championed by both France and Germany, the European Union has been moving toward an FTT for several years, albeit with strong resistance from the United Kingdom. The new French FTT is fairly narrow in its base: 0.2 percent on the sale of stock of publicly-traded French companies valued above €1 billion (most FTT proposals would apply varying rates to range of assets—stocks, bonds, options, futures, and swaps—to minimize tax distortions and arbitrage opportunities). What’s unusual about France’s move is their additional high-frequency trading (HFT) tax, targeting algorithmic computer trades executed within half a second, as detailed by Steven Rosenthal on TaxVox.

The timing of France’s HFT tax is quite apropos given Knight Capital Group’s near-fatal $440 million trading loss from a software glitch triggering a wave of unintended trades (a cash lifeline from outside investors kept the firm afloat while severely diluting existing shares). Citing computer errors marring Facebook’s NASDAQ IPO, the Associated Press  observed this week that, “Problems such as the one Knight caused last week have been occurring more regularly as the stock market’s trading systems come under increasing pressure from traders using huge computer systems.”

Indeed, remember the 2010 flash crash? In a bizarre spectacle on May 6 of that year, the Dow Jones Industrial Average—already down 4 percent for the day—abruptly plunged another 5-6 percent in a matter of minutes, hitting a floor down 992.6 points (-9.1 percent) from opening, and then rapidly rebounded. By the ring of the closing bell, the Chicago Board of Option Exchange’s Volatility Index for the S&P 500—a prime gauge of market fear—had surged 31.7 percent from the previous day’s close, the sixth-largest volatility spike this tumultuous decade. The Securities and Exchange Commission and the Commodities Futures Trading Commission Read more