SoftBank: Great press, bad for manufacturing, services, and the economy

Last week, President-elect Donald Trump took to Twitter to claim that Masayoshi Son, CEO of SoftBank of Japan, had agreed to invest $50 billion in the United States toward businesses and create 50,000 new jobs, and that “Masa said he would never do this had [Trump] not won the election!” As usual, the claim that Trump negotiated this deal is disputed, since SoftBank had announced plans to create a $100 billion technology investment fund, together with a public investment fund of Saudi Arabia, in October, before the election.

Worse yet, this deal is lose, lose, lose for the domestic economy. First, this inflow of foreign capital will bid up the U.S. dollar, which will reduce the competitiveness of U.S. manufacturing by making imports cheaper and exports more expensive. This will increase the U.S. trade deficit and reduce employment in U.S. manufacturing. The U.S. dollar has gained about 25 percent in the past two-and-a-half years, and one-fifth of that increase has occurred since the election. As a result, the trade deficit in manufactured goods increased sharply in 2015 and is poised for another increase after the recent run-up in the dollar. Meanwhile, the United States has lost 78,000 manufacturing jobs since the first of the year due, in part, to the rising trade deficit.

Second, foreign investment in the U.S. economy is dominated by foreign purchases of existing U.S. companies. Between 1990 and 2005, foreign multinational companies (MNCs) acquired or established domestic subsidiaries that employed 5.25 million U.S. employees. The vast majority (94 percent) of jobs associated with those investments were in existing firms acquired by foreign MNCs. However, 4 million of those jobs disappeared through layoffs or divestiture of part or all of those companies, as shown in my 2007 paper, The Hidden Costs of Insourcing. A classic example was the acquisition of IBM’s PC business by Chinese computer maker Lenovo in 2005. Lenovo shut down PC production in the United States and substituted PCs made in China and elsewhere in Asia. So PC production jobs in the United States disappeared.

Read more

We can’t meaningfully integrate schools without desegregating neighborhoods

This article first appeared on the NAACP Legal Defense Fund‘s website.

A bill introduced in the New York City Council proposes to establish “an office of school diversity within the human rights commission dedicated to studying the prevalence and causes of racial segregation in public schools and developing recommendations for remedying such segregation.”

But it is not reasonable, indeed it is misleading, to study school segregation in New York City without simultaneously studying residential segregation. The two cannot be separated.

School segregation is primarily a problem of neighborhoods, not schools. Schools are segregated because the neighborhoods in which they are located are segregated. Some school segregation can be ameliorated by adjusting school attendance boundaries or controlling school choice, but these devices are limited and mostly inapplicable to elementary school children, for whom long travel to school is neither feasible nor desirable. We have adopted a national myth that neighborhoods are segregated “de facto;” i.e., because of income differences, individual preferences, a history of private discrimination, etc. In fact, neighborhoods in NYC are segregated primarily because of a 20th century history of deliberate public policy to separate the races residentially, implemented by the city, state, and federal governments. Just a few examples:

Read more

How the Fed can fix one way the economy really is rigged: Restore the pursuit of full employment as their job number one

The election of Donald Trump alerted many to what should have been obvious long ago: the U.S. economy has failed to deliver the goods to vast swathes of American families for decades. In the context of Trump’s election, this economic failure was often characterized as being unique to white working-class voters in the upper Midwest. But this is wrong. Income growth has been sluggish, and hourly wage growth near-zero, for low and middle-income families across-the-board in recent decades. And many measures of racial income and wage gaps have actually worsened in recent years. In short, the income not going to white working-class residents of the upper Midwest has not been accruing to black and Latino workers; it’s instead just been funneled to the very top of the income distribution.

It’s not just politically important to realize that the economy’s failure to deliver income growth is not just a niche problem of white working-class voters in former manufacturing regions. This realization should also tell us something important about the economics of how to fix this. Too many have jumped to the conclusion that there’s just not much we can do for those workers that have been left behind in recent decades, because their troubles are mostly driven by huge, untamable forces like technological change and globalization. Here’s the astute economics writer Adam Davidson on Slate’s Political Gabfest podcast:

I know Hillary Clinton’s economic team fairly well, and I’m very impressed by them. They really are top-notch economists and economic policy thinkers. They don’t have anything for a 55-year-old laid-off factory worker in Michigan or northeastern Pennsylvania. Or whatever. They don’t have anything to offer them. And so I think it’s intuitively understandable that a screaming, loud, wrong answer is more compelling than a calm, reasonable, accurate, right answer: Your life is going to be worse for the rest of your life.

Read more

Andrew Puzder fails every test for a Labor Secretary

President-elect Donald Trump announced that he plans to nominate fast food CEO Andrew Puzder to head the Department of Labor (DOL). Puzder, who makes millions as a low-wage employer, fails every test for a Labor Secretary. DOL’s mission is to improve the wages and working conditions of working Americans, but Puzder wants to keep wages low and threatens to replace his fast food chain’s employees with robots if the minimum wage rises enough to crimp his profits.

He’s opposed to the new overtime rule that gave the right to time and a half pay to millions of salaried employees earning less than $47,476 a year. Walmart has already raised its managers’ pay, as did about half of all big retailers, even before the rule was supposed to take effect on December 1. But Puzder wants to kill it so he can keep working low-paid employees without paying them a dime extra for their overtime hours.

Read more

Heed union leader’s truth-telling on Trump/Carrier deal and judge on policy, not theatrics

Last week I argued that the Trump-brokered deal with Carrier industries to keep 700 jobs in Indiana shouldn’t be treated as a triumph, but instead as a sellout of those unlucky workers who hadn’t managed to make themselves useful as PR props for Trump. And yesterday somebody with actual credibility on this—Chuck Jones, a union leader who represents the Carrier employees—buttressed this argument.

One key point here is pretty simple: “doing deals” company-by-company, rather than instituting good policy rules across-the-board, will do nothing for American workers except pit them against each other. The Trump administration’s effectiveness in helping American workers should be judged on policy, not theatrics.

The biggest reason why this is true is that deals don’t scale-up against a recovering economy. A quick example: in the first quarter of 2009 (the first three months of President Obama’s presidency) 2.5 million workers were laid-off. In the most recent three months, 1.5 million workers were laid-off. What does this tell us?

First, that even in normal economic times, there is a ton of churn in the economy. Why do these 700 workers go to the front of the line in getting help from Trump while the other 1.4993 million are left on their own? An ironic note here is pointed out by Harold Meyerson: Trump never would have even heard of the planned Carrier move without the union (and Chuck Jones).

Read more


North Carolina voters’ anger about privatized infrastructure projects should serve as a warning to policymakers

Donald Trump’s preliminary plans for an infrastructure spending bill include a heavy role for private sector financing. We have argued elsewhere that this raises troubling questions. If our arguments have not yet persuaded policymakers on the dangers of wholly outsourcing infrastructure investment to private developers, perhaps they will be convinced by the result of a public-private partnership (P3) in North Carolina—an exercise in privatization that may have helped swing that state’s gubernatorial race.

Prior to the election, there was some speculation about whether or not an unpopular public-private partnership (P3) infrastructure deal in Charlotte would affect its outcome. The Charlotte Observer explains why initial indications suggest that this unpopular toll road did indeed likely sink the incumbent Governor McCrory’s bid for reelection. The issue is simple: North Carolina voters saw that the P3, which was sold on the basis of having a more innovative and competitive private sector direction, instead just became pure crony capitalism. The company got profits and excessive control in dictating what should be publicly-accountable decisions about public investments. North Carolina residents got tolls and are likely on the hook for taxpayer-funded bailouts. All in all, it is a clear cautionary tale about relinquishing control of infrastructure investments.

The Charlotte P3 financed the building, operating, and maintaining of new tolled express lanes on I-77. With mayors and governors usually hoping that ribbon-cutting on new infrastructure projects will be a boon to their campaigns, it may be surprising that additional lanes to alleviate congestion in a growing region would help sink a campaign. However, as is always the case with P3s, the devil is in the details.

Read more

Public-sector compensation should be a model for the private sector—instead, it’s under attack

With a raised hand, my daughter’s teacher can magically line up 20 kindergarteners who are running circles around a loud gym. She’s at school when I drop my daughter off in the morning and still on the job—calling us and other parents from the subway—as my family sits down to dinner. She says she never wanted to do anything else in her life besides teach, and her enthusiasm is infectious: my daughter wants to be a teacher when she grows up.

I encourage my daughter’s aspirations, even though teachers are underpaid and their jobs are challenging, especially in today’s high-stakes testing environment. But teachers have good insurance if they get sick or become disabled, and they are able to enjoy their hard-earned retirements. Though they’re paid significantly less than other workers with bachelors’ or advanced degrees, they’re part of close-knit school communities where almost everyone from custodians to principals is paid a livable wage with good benefits.

Read more

What Ben Carson should learn about housing segregation

President-elect Donald Trump proposes to nominate Ben Carson to head the Department of Housing and Urban Development (HUD). Mr. Carson has expressed opposition to the Obama administration’s new HUD requirement that cities and suburbs develop plans to end their segregation or face possible loss of federal funds. He calls this “social engineering,” and says that such well-intentioned programs have unintended consequences that their proponents later come to regret. Instead, he says, emphasis should be placed on revitalizing distressed minority neighborhoods in central cities.

What Mr. Carson’s view ignores is that the racial segregation of every metropolitan area in the nation is also the result of “social engineering”—the purposeful efforts of federal, state, and local governments to create and enforce the residential separation of the races. What the Obama administration has begun are plans to undo this social engineering. Failing to continue these plans doesn’t avoid social engineering—it perpetuates it.

Read more

Overtime ruling is wrong on the precedent, as well as the facts

Judge Amos Mazzant, the judge who blocked enforcement of the Department of Labor’s new overtime rule, said many things that aren’t true in his opinion, including misstatements of historical fact such as when a minimum salary for exemption was first included in the regulations (it was right from the beginning, in 1938, not two years later). But Mazzant gets judicial precedent wrong, too.

The decisions of the 5th Circuit Court of Appeals control in Judge Mazzant’s Texas district. Importantly, the 5th Circuit ruled in 1966, in Wirtz v. Mississippi Publishers Corp, that the salary level test for exemption is rationally related to the determination of whether an employee is employed in a bona fide executive capacity. In a case against a publisher that claimed its executives were exempt even though it paid them less than the minimum salary for exemption, the Court of Appeals forcefully rejected the argument that the regulations are so ambiguous as to make the salary requirement arbitrary and capricious.

Read more


Memo to inflation hawks: We are not at full employment

Please don’t be distracted by the drop in the unemployment rate today to 4.6 percent—which, incidentally, fell largely because of a drop in labor force participation. The most accurate measure of labor market slack (and thus, the most accurate indicator of when the Federal Reserve should raise interest rates) continues to be nominal wage growth, and all signs point to an economy continuing to recover. Wage growth should be much faster in a full employment economy, according to the Fed’s stated targets for inflation, which, last I checked, remains at 2 percent and long-term trend productivity growth, which has been running about 1.5 percent. (The recent slowdown in productivity could arguably be because of the low cost of labor and, therefore, reduced incentives to invest in capital and would likely rebound as labor markets get genuinely tight and start pushing wage-growth up.) Taken together, we are looking at target wage growth above 3.5 percent.

But year-over-year nominal wage growth came in at 2.5 percent last month. The figure below shows some indications of a pickup in the last few months, but no one should be counting their chickens until they are hatched. At 2.5 percent, growth noticeably slowed compared to last month’s high water mark of this recovery at 2.8 percent, or the previous month’s 2.7 percent. Yes, wage growth is now faster than it was in the first 5+ years of the recovery, when it averaged 2.0 percent. But, it doesn’t reflect full employment wage growth, or even the wage growth we experienced before the Great Recession hit – by no means a full employment economy.

Read more

The injunction against overtime has real consequences for people’s lives

The decision of a judge in Texas to block the Department of Labor’s new regulations guaranteeing overtime pay to millions of workers is a legal travesty, so poorly reasoned that it invites questions about the judge’s motivation. The decision is more than just bad law, however, it is also a financial blow to people who had every reason to expect that their lives were about to be made a little easier.

The new rules, which were set to take effect today, on December 1, would have required employers to pay time and a half the regular rate of pay for each hour worked beyond 40 in a week to any employee paid less than $47,476 a year. Prior to the Obama rule, employees earning as little as $23,660 could be called “executive” or “administrative” and denied overtime pay even if they spent the majority of their workweek scrubbing floors or stocking shelves. There are 12.5 million salaried workers earning between $23,660 and $47,476, and every one of them would be entitled to overtime pay under the new rule.

People all across America who have been working 5, 10, or even 20 hours of overtime a week without any extra compensation had been told by their employers that that their long hours were about to end, thanks to the Department of Labor’s new overtime rules. Or they were told that they were going to be paid extra for their extra hours of work, or that, at least, they were going to get salary increases to make those kinds of long hours more financially rewarding. Now, many employers have put those plans on hold. At EPI we’ve heard from a number of the affected workers.

Read more

What to Watch on Jobs Day: The economy is still moving towards full employment. The Fed should keep their foot off the brake so it can get there.

Friday is the last Jobs Report before the Federal Reserve’s final meeting of the year, when they decide whether to hold the course or raise rates. Rumor has it that the Federal Reserve might act in anticipation of a sizeable (if inefficient) short-run fiscal boost that could come if the incoming administration passes a planned tax cut mostly for the wealthy. But, there’s no reason to pre-emptively slow the economy down, given that we’re starting from less-than-full employment.  Besides, there will be time to slow it down if and when the tax cut happens. Right now the priority should be keeping the economy on track and moving it forward.

The economy has continued to approach full employment, and signs of tightening are beginning to shine through, but we’re not there yet. The overall unemployment rate has come down, but remains elevated for workers of color and fails to reflect the sheer numbers of workers on the sidelines waiting to get in the game. The prime-age employment-to-population ratio has only recently surpassed the lowest point of the last two business cycles, not yet reaching the lowest point of the last one. That said, the economy continues to proceed in the right direction. Nominal wage growth has finally picked up a bit in the last year as workers see a slight increase in their bargaining power reflected in their paychecks.

Staying the course is the best action. Labor market tightness, leading to stronger wage growth as employers need to increase wages to attract and retain the best workers, should be the goal of policymakers, not a perceived danger to be stomped out.

The moral of the Trump/Carrier deal is clear: if you’re useful to Trump, he might be willing to throw other workers overboard to help you

Donald Trump is getting lots of mileage out of the alleged deal that has been struck to keep a Carrier plant from moving to Mexico from Indiana. If any of the reporting about the deal is correct, however, Trump clearly sold out the working class that he claims his deal helped.

First, let’s be clear—if it’s true that 1,000 jobs are kept in the U.S. and these workers are not laid off, that’s great for them and any relief and gratitude they feel about this deal is justified. Losing a job is terrifying, particularly in a country where policy titled towards the already-rich keeps good jobs scarce and makes losing a job so economically devastating.

But, let’s also be equally clear that even if this was somehow a good deal from a public policy perspective, it’s an entirely not-scalable approach to solving the challenges of globalization. A world in which your job depends on whether or not you’re useful as a public relations prop for the President is not a recipe for broad-based security.Read more

Ruling against overtime is wrong in so many ways

Judge Amos Mazzant’s opinion to block the Department of Labor’s new overtime rule is poorly reasoned and factually inaccurate. Judge Mazzant does not know the history of the Fair Labor Standards Act and he appears not to understand Chevron deference, a rule constructed by the U.S. Supreme Court to guide judicial review of federal agency regulatory decisions.

Let’s begin with Judge Mazzant’s astonishing unfamiliarity with the FLSA. Judge Mazzant incorrectly implies on page 2 of his Opinion that the initial regulations that accompanied the enactment of the FLSA in 1938 did not include a salary test:

“The Department’s initial regulations, found in 29 C.F.R. § 541, defined ‘executive,’ ‘administrative,’ and ‘professional’ employees based on the duties they performed in 1938. Two years later, the Department revised the regulations to require EAP employees to be paid on a salary basis.”

In fact, it was not “two years later” but right from the get-go on October 20, 1938 that the Secretary defined the exemption for executive and administrative employees to require a minimum salary of “not less than $30 (exclusive of board, lodging, or other facilities) for a workweek.”

Read more

Already a big gap between Trump’s promises to the middle class and his policies

During his campaign, President-elect Donald Trump promised that he would take the side of American workers against economic elites when evaluating policy. Yet, the policy proposals he put forth during the campaign had nothing in them that would actually help working- and middle-class Americans. Now that more plans and potential cabinet appointments are coming into focus, it looks worse than many of us thought even before the election. Across a broad range of crucial issues, the incoming Trump administration appears likely to betray the promises he made to the American middle class. Here’s a rough sketch of how.


Trump’s tax policy proposals are crystal clear about who will benefit the most—and it’s not working- or middle-class families. Despite crowing during the campaign about raising taxes on “hedge fund guys,” the tax plan Trump released raises one small tax on hedge fund guys (eliminating the so-called carried interest loophole), and then gives them a hundred times more back in the form of lower taxes everywhere else. The top 1 percent will get 47 percent of the total benefits in the Trump tax plan, while the bottom 60 percent will get just 10 percent. Worse, large numbers of working-class taxpayers will see tax increases under Trump. Yes, increases. Because that money is needed to make sure that private equity managers can see their top tax rates moved down to 15 percent.

Read more

Trump’s infrastructure plan is not a simple public-private partnership plan, and won’t lead to much new investment

President-elect Donald Trump has indicated that one of his first priorities will be a plan to boost infrastructure investment. Normally, this would be welcome news for those of us who have been arguing for years that increased public investment—including but not limited to infrastructure investments—should be a top-tier economic priority. Further, it also seems like a rare opportunity for bipartisanship—after all, Hillary Clinton made infrastructure investment a priority of her campaign’s policy platform, as well.

The still-sketchy details of Trump’s plan, however, are a cause for concern. What we know is that the plan is to provide a tax credit equal to 82 percent of the equity amount that investors commit to financing infrastructure. In the coming days, this will invariably be described as creating public-private partnerships (P3s). P3s are a standard model for financing infrastructure that can in theory be used with little downside compared to direct public provision. However, this description of the Trump plan is both not that comforting and incorrect. It’s not comforting because the real-world record of P3s is much spottier than textbook models would suggest. And it’s not accurate because Trump’s plan isn’t as simple as encouraging new P3s. It is instead (at least in its embryonic form), simply a way to transfer money to developers with no guarantee at all that net new investments are made.

Let’s start with describing what a textbook P3 would look like and what the rationale for using it would be. P3s are long-term contracts between the state and private companies to build and maintain infrastructure. They can be thought of as sitting somewhere between standard public provision and full privatization of infrastructure. Say that a state or local government wants to build a new road, but is constrained for some reason (usually simpleminded anti-tax politics) from raising the money to publicly finance it. It’s important the democratically elected and accountable government ensure the project is in the public interest. Having done this, the government can then negotiate with private financiers and developers to get the project built. To reduce costs and provide incentives for development, tax breaks are sometimes provided to holders of bonds issued by the private entities, and the private entities also receive a revenue stream of some kind in exchange for their investment. Often this is an explicit user fee, like a toll for using a road.

Read more

CBO inflates its estimates of employer compliance costs

CBO released a report on the economic impact of repealing the Department of Labor’s new overtime rule, which raises the salary level for exemption from $23,660 a year to $47,476, thereby making about 4 million employees newly eligible for overtime pay and strengthening the right to overtime pay for about 8.5 million more. CBO concludes that repealing the new rule would have no appreciable effect on employment, would cut the pay of about 900,000 salaried employees who would lose the right to be paid for overtime they actually work, and would increase employer profits.

CBO’s analysis differs in significant ways from the Department of Labor’s, which predicted much greater pay raises for newly eligible workers and much lower compliance costs for employers. CBO exaggerates the extent to which repealing the rule would increase employer profits because it inflates the compliance costs that employers would avoid if the rule were repealed.

Read more


How will a Trump administration lift wages for the vast majority of Americans?

President-elect Donald Trump succeeded, in part, through an appeal to working class voters who have seen their incomes stagnate or fall for decades, the jobs they depended on moved off-shore, and their hopes for a secure retirement dwindle.

Trump correctly told them that U.S. trade treaties contributed to these problems and that the Trans-Pacific Partnership would only make matters worse. However, these trade treaties are just one way that policy has indeed been rigged to suppress wages for the vast majority of Americans. Millions of working Americans of all races are struggling, while the benefits of growth have gone only to people at the very top of the income ladder.

Working class Americans want what everyone wants: good jobs and hope for a better future. Now, the Trump administration and a GOP congress will have to deliver. How will a Trump administration lift wages for low and middle income Americans? As EPI has been promoting for decades, there are specific policies that will raise wages. The only way to raise wages for the vast majority of American workers is to give workers more power. For far too long, employers have held all the cards.

Trump has called for a higher minimum wage. A truly bold increase in the minimum wage would lift pay for the bottom quarter or more of the workforce.

Read more

The TPP is a back door for dumped and subsidized imports from China; it would enhance, not limit, China’s influence in the region

President Obama has built his closing case for the Trans-Pacific Partnership on a political argument, saying “…we can’t let countries like China write the rules of the global economy. We should write those rules.” But it is both arrogant and wrong to think that the United States has the power to shape the rules governing China’s relationship to TPP signatories. As of today, China has already established deeper trade ties than the United States with the TPP nations. Further, congressional approval of the TPP would actually lock in those advantages for China. China has a large trade surplus with the TPP countries, and crucial terms of the agreement (specifically weak rules of origin (ROO) requirements, which we’ll talk about in detail below) would provide a back-door guarantee for China and other non-TPP members to duty-free access to U.S. and other TPP markets. This would be especially significant for autos and auto parts, as well as other key products. TPP exporters are not going to turn away from their suppliers in China just because they signed a trade deal with the United States.

The United States has a massive trade deficit with China that has taken on added significance in the light of the proposed TPP agreement between the United States and 11 other Pacific Rim countries. While China is not party to the TPP, it is a major force behind a larger East Asian co-production system that uses unfair trade (dumping, subsidies, excess capacity, export restrictions, and more), coupled with currency manipulation and misalignment, to make U.S. goods more costly and thus less competitive in China, the TPP and in other markets.

The United States also had a large trade deficit with the TPP countries in 2015 that cost 2 million U.S. jobs. Flawed trade and investment deals, such as the North American Free Trade Agreement (NAFTA), plus the currency manipulation and unfair trade by some TPP members account for many of those lost jobs (note that Mexico and Canada are TPP countries). In addition, analysis developed here demonstrates that a substantial share of these TPP job losses can be directly linked to trade between China and the other members of the TPP. Specifically, most of the TPP countries run large trade deficits with China while running large, offsetting trade surpluses with the United States. Thus, it appears that at least some TPP producers are buying parts and components from China and re-exporting them in the form of finished goods to the United States.

Read more

Setting a higher bar for the economy—and policymakers

There was some good news in this morning’s Employment Situation Report. The economy added 161,000 new jobs in October—enough to bring in players off the bench. Perhaps most significantly, nominal wage growth increased 2.8 percent over the year, another step-up over the pace of growth in recent years and a sign of a tightening labor market, where workers may be starting to gain some leverage. All in all, last month was a solid step closer to full employment, but we still have not reached it yet. It’s important to remember that these positive highlights don’t mean we are at full employment. That’s why the Federal Reserve made the right decision to leave rates alone earlier this week. The economy continues to move in the right direction, but considerable slack remains and the recovery has yet to be fully realized in all parts of the economy or for all workers.

This month and this year, the economy has hit some milestones, but I’d argue that those are relatively low bars for success. For example, for the first time this recovery, the prime-age employment-to-population ratio (EPOP) exceeded its low point of the last two business cycles. As seen in the figure below, prime-age EPOP hit 78.2 percent in October, just surpassing its level in February 1993 of 78.1 percent. Is it good that the prime-age EPOP is rising? Yes, but, prime-age EPOPS remain below the low point of the last recession, let alone levels that could constitute a full employment economy. That’s what I mean by a “low bar.” But, the uptick last month is a good sign and I look forward to continued progress on this key measure.

Read more

What to Watch on Jobs Day: A steadily improving, but still-weak labor market for the next president

Amidst lots of questions about the economy heading into the presidential election next week, I thought it would be appropriate to provide a brief analysis of where the economy is today. Since the Great Recession and aftermath, the labor market has improved at a remarkably consistent and steady rate. But as steady and long-lived as the recovery has been, it has not yet been fully cemented into a healthy, full employment economy. The improvement is easy to document. It can be obviously seen in the underlying growth in total payroll employment and precipitous drop in the unemployment rate. The still-unhealed damage is illustrated by remaining slack that has led to still slower than targeted nominal wage growth and underperforming prime-age employment-to-population ratio.

For its part, aside from a tap last December, the Federal Reserve has been keeping their foot off the brakes, letting the labor market soak up the slack. They should continue to do so until it’s all gone. In the last year, the labor force participation rate has risen, while the unemployment rate held steady. So, yes, the economy is on the right track. And, if payroll employment stays on course, the unemployment rate will start coming down again even as missing workers continue to enter or re-enter the labor force. And, as this happens, workers and would-be workers will be in shorter supply, finally giving them the leverage to bid up their wages.

Read more

What the UK decision implies for Uber drivers in the U.S.

This blog was first posted at OnLabor. 

As Jon reported this morning, an employment tribunal in London has concluded that Uber drivers are not self-employed independent contractors, but rather Uber workers. The tribunal’s decision is available here, and I recommend it: it’s full of details regarding the relationship between Uber and its drivers. And although legal tests differ across jurisdictions, what the U.K. tribunal found has clear relevance for the question of whether Uber drivers in the U.S. meet the definition of “employee” under U.S. labor and employment laws. To put it bluntly, what the tribunal finds clearly confirms the conclusion that Uber drivers are employees under U.S. standards. The opinion is 40 single spaced pages, but here are some (and just some) of the relevant findings that led the tribunal to conclude that drivers are workers under UK law:

Read more

Fed should hold steady—the economy had “room to run” over past year and may well have more in the next year

The Fed’s Federal Open Market Committee (FOMC) will debate again this week whether or not they should raise interest rates to slow the economic recovery in an effort to forestall potential inflation.

The debate over when the Federal Reserve should begin raising its short-term policy interest really began in earnest in September 2015. In the month before the FOMC met in September 2015, futures markets put the odds of a rate hike at over 50 percent. It is likely that all that kept the hike from happening in September of that year was the surprise financial market declines in China, which spilled over into the American stock exchanges for a spell. In December 2015, after this short-term drama passed, the Fed raised rates for the first time in seven years.

In the debate that accompanied the run-up to the September 2015 meeting, those arguing for further patience from the Fed (like this author) argued that there remained lots of slack remaining in the labor market, and that this slack would contain inflationary pressures. One source of slack identified was a potential firming-up of labor force participation, which had dropped considerably over the recovery.

Read more

Strong across-the-board wage growth in 2015 for both bottom 90 percent and top 1.0 percent

Annual inflation-adjusted earnings of the top 1.0 percent of wage earners grew 2.9 percent in 2015, and the top 0.1 percent’s earnings grew 3.4 percent, according to our analysis of the latest Social Security Administration wage data. What is relatively unique about 2015 was that the 3.4 percent wage growth for the bottom 90 percent matched that of the top 0.1 percent. This strong wage growth for the bottom 90 percent reflects both the lull in inflation (up just 0.1 percent) and the failure of wage inequality to continue its growth in 2015. Annual wages of the bottom 90 percent now stand 3.5 percent above what they were pre-recession in 2007, with all of that growth essentially occurring in 2015. The top 1.0 percent’s earnings have surpassed their previous high point, attained in 2007, by a mere 0.2 percent, recovering from the steep 15.6 percent fall during the financial crisis from 2007–09. High earners between the 90th and 99.9th percentile have seen the strongest growth since 2007, with earnings rising 7.7 percent. It’s only the earnings of the top 0.1 percent that remain below 2007 levels (down 5.1 percent).

Wage inequality has grown tremendously over the longer-term period from 1979 through 2015. The annual earnings of the top 1.0 percent rose 156.7 percent from 1979 to 2015 while the very top 0.1 percent enjoyed earnings growth of 338.8 percent. In contrast, the bottom 90 percent of wage earners had annual earnings grow by just 16.7 percent over the 1979–2007 period and an additional 3.5 percent between 2007 and 2015 for a cumulative annual earnings growth of 20.7 percent over the thirty-six years from 1979 to 2015.

Read more

Oregon Measure 97 would provide short and long-run boost to Oregon economy

The national recovery since the end of the Great Recession has been needlessly held back by spending cuts at all levels of government. Figure A below compares the growth in per capita spending by federal, state, and local governments in this recovery with previous recoveries.

Figure A

Fiscal austerity explains why recovery has been so long in coming: Change in per capita government spending over last four business cycles

1982Q4 1991Q1 2001Q4 2009Q2
-6 90.83817
-5 96.46779 91.33168
-4 96.72548 97.80345
-3 96.51523 96.35624 94.05089
-2 97.21731 98.09825 98.14218 94.4813
-1 98.26435 98.92533 97.98324 96.68474
100 100 100 100
1 100.3829 100.7468 101.5275 99.84022
2 100.9558 100.4456 102.3723 99.50632
3 101.005 100.9653 102.8023 100.7222
4 99.79553 102.3054 103.3013 101.0192
5 100.4771 102.4831 103.1351 101.1242
6 101.715 102.7714 104.3665 100.3432
7 102.037 102.2554 104.5556 98.88213
8 103.485 101.9195 104.6451 98.15822
9 104.602 101.724 105.4192 97.23836
10 106.0107 102.011 105.8382 96.86414
11 107.6073 101.868 105.804 95.9267
12 107.6288 101.2959 105.4445 95.78736
13 108.7749 101.4328 106.1767 95.40735
14 110.4932 102.1325 106.3521 94.83589
15 112.3029 101.9209 106.5289 94.21625
16 111.6476 102.6275 106.0185 93.90439
17 112.0741 102.8173 107.5423 93.62299
18 112.6221 102.3836 107.6773 93.04895
19 112.3952 101.1486  107.8776 93.22292
20 113.0807 101.9359 108.2144 93.60604
21 113.3476 103.2437 109.1187  94.245
22 113.3408 102.7047 109.0787 94.14226
23 113.108  102.7598 109.5846 95.09063
24 114.405 103.1194 109.8789 95.43504
25 114.9973 103.4402 95.722
26 116.1049 103.3562 95.86387
27 116.8758 103.2392 96.35498


ChartData Download data

The data below can be saved or copied directly into Excel.

Note: For total government spending, government consumption and investment expenditures deflated with the NIPA price deflator. Government transfer payments deflated with the price deflator for personal consumption expenditures. This figure includes state and local government spending.

Source: EPI analysis of data from Tables 1.1.4, 3.1, and 3.9.4 from the National Income and Product Accounts (NIPA) of the Bureau of Economic Analysis (BEA)

Copy the code below to embed this chart on your website.

As tight as federal spending growth has been in recent years, the bulk of the differences between the current recovery and previous ones shown in Figure A actually stems from state and local spending decisions. These state-level spending cutbacks have held down growth substantially.

States, unlike the federal government, are generally constrained in their ability to boost spending by the need to raise revenue. But as a general rule, government spending boosts economic activity in a weak economy more than tax cuts drag on activity. (In economist jargon, spending increases have higher “multipliers” than revenue increases.)

Read more

A women’s economic agenda for the 45th U.S. president: Investing in the infrastructure to support a 21st century economy

Progress on closing the gap between men’s and women’s wages in the U.S. economy has been glacially slow in recent decades—and gender wage parity has become a top priority for those committed to ensuring the economic security of American women. This priority is absolutely essential. No matter how you cut it, the gender wage gap is real and it matters. That said, pay parity cannot be the only goal for those looking to improve the economic lot of American women. In recent decades, the hourly pay of typical male workers has essentially stagnated even as the economy has grown. Closing only the gap between typical female and typical male workers threatens to ensure parity in this stagnation, not parity in progress. To achieve parity in progress, gains in reducing gender wage gaps must be paired with gains in closing another gap: the gap between economy-wide productivity and the wages of all typical workers. This is an ambitious goal, but it’s the only one that ensures genuine economic security for American women and the families that rely on them.

Here, I hope to draw out the importance of taking a holistic approach to improving the lot of women, men, and families across society. I can summarize my argument in three major points:

  1. The gender wage gap exists and progress closing it has been agonizingly slow, particularly in recent years. And, when combined with wage penalties faced by workers of color, it leads to wages for women of color being drastically lower than for white men.
  2. Rising inequality has kept the vast majority of men’s and women’s wages from rising as fast as gains in economy-wide productivity over the last four decades.
  3. Solutions need to close both the gender and inequality wage gaps and invest in a policy infrastructure to support all workers’ efforts to balance demands of work and home.

Read more

White House issues call to action on non-compete clauses

Labor mobility is fundamental to the ability to earn good wages. The improvement in incomes and living standards over the centuries is tied tightly to the growing ability of workers to quit the job they have and take another. And it is a timeless truth that employers will try to find new ways to hamper their employees’ legal right to leave. Increasingly, they are turning to non-compete clauses that they slip into the fine print of employment contracts. Thirty million U.S. employees, many of them relatively low wage workers, are bound by non-competes.

Peasants in medieval times were generally not permitted to leave the land on which they were born, and throughout Europe and Russia they were essentially owned by the owner of the land, their lord and master. The use of indentured servitude in the cities was a less onerous but still heavy burden on young workers, who were forced to work for years with little or no compensation for a single master, whose abuse or mistreatment usually had no remedy.

Slavery is the most extreme example of a legal limitation on labor mobility and the most destructive. Slavery in the United States not only brutalized and impoverished the enslaved, it dragged down the wages of anyone forced into competition with them. Slavery’s effects on free labor were an additional reason beyond simple morality for Abraham Lincoln and the free soil movement to oppose slavery. How could free construction workers, for example, demand higher wages if their employer’s competitor was using unpaid, enslaved labor?

Read more

Buried in the fine print: Forced arbitration

This article first appeared on the American Constitution Society (ASC) Blog.

From First Lady Michelle Obama’s speech in New Hampshire to accusations by Fox News’ Gretchen Carlson against Roger Ailes, sexual harassment and sexual assault have been dominating the headlines for months.

Also in the news has been the topic of forced arbitration agreements that limit victims’ ability to have their day in court. Very much a part of the Wells Fargo scandal has been the bank’s argument that it shouldn’t have to face its clients at trial.

These two stories actually have more in common than is often mentioned. First, of course, Fox tried to shut down Carlson’s suit by saying her contract’s arbitration clause prevented her from using that public forum. Few realize how common it is for women and men who allege harassment at work to be shunted into a secretive process that often prioritizes the interests of the employer.

Read more

Lawsuit filed to block Fair Pay and Safe Workplaces Executive Order

One of President Obama’s most important contributions to better pay and working conditions in the United States is his executive order on Fair Pay and Safe Workplaces, which he issued two years ago and is finally taking effect this month. The order, which addresses wage theft and on-the-job hazards, including sexual harassment and race discrimination, affects 25 million employees working for businesses that provide goods and services under contract to the federal government – businesses that range from janitorial services to ship builders.

The first provisions are set to take effect in two weeks – unless a lawsuit filed in Texas by various business groups succeeds in delaying or blocking enforcement of the rules.

Why is the Executive Order Needed?

The federal government purchases over $500 billion in goods and services from the private sector, and the firms it deals with employ about 20 percent of the nation’s total workforce. It is important that the government chooses to deal with honest employers and that, when given a choice of two otherwise similar contractors, it chooses to do business with the one that demonstrates superior integrity and a greater inclination to obey the law. That is common sense.

Read more

Race tax harms African Americans

In Quartz, I described a rarely noticed but devastating development that is undermining African American working and middle class families—a racially disparate property tax system that, in many cities, extorts a premium from African American homeowners. This premium can be so large that families lose homes when cities foreclose on properties where taxes have become unaffordable.

This discriminatory race tax has arisen because homes in African American neighborhoods that lost value following the housing price bubble collapse in 2008 have, in the subsequent recovery, been slower to recover value than properties in white neighborhoods. In most cities, assessors are required to re-assess properties on a regular basis, but when they have failed to do so, homeowners in African American neighborhoods wind up paying more tax relative to their home values than homeowners in white neighborhoods.

Read more