Many of the policy recommendations from the Kerner Commission remain relevant 50 years later
In 1967, young black men rioted in over 150 cities, often spurred by overly aggressive policing, not unlike the provocations of recent disturbances. The worst in 1967 were in Newark, after police beat a taxi driver for having a revoked permit, and Detroit, after 82 party-goers were arrested at a peaceful celebration for returning Vietnam War veterans, held at an unlicensed social club.
President Lyndon Johnson appointed a commission to investigate. Chaired by Illinois Governor Otto Kerner (New York City’s mayor John Lindsay was vice-chair), it issued its report 50 years ago today. Publicly available, it was a best-seller, indicting racial discrimination in housing, employment, health care, policing, education, and social services, and attributing the riots to pent-up frustration in low-income black neighborhoods. Residents’ lack of Fambition or effort did not cause these conditions: rather, “[w]hite institutions created [the ghetto], white institutions maintain it, and white society condones it… [and is] essentially responsible for the explosive mixture which has been accumulating in our cities since the end of World War II.”
The report warned that continued racial segregation and discrimination would engender “two societies, one black, one white—separate and unequal.” So little has changed since 1968 that the report remains worth reading as a near-contemporary description of racial inequality.
Of course, not everything about race relations is unchanged. Perhaps most dramatic has been growth of the black middle class, integrated into mainstream corporate leadership, politics, universities, and professions. We’re still far from equality—affirmative action remains a necessity—but such progress was unimaginable in 1968. Today, 23 percent of young adult African Americans have bachelor’s degrees, still considerably below whites’ 42 percent but more than double the black rate 50 years ago.
In the mid-1960s, I assisted in a study of Chicago’s power elite. We identified some 4,000 policymaking positions in the non-financial corporate sector. Not one was held by an African American. The only black executives were at banks and insurance companies serving black neighborhoods. Today, any large corporation would face condemnation, perhaps litigation, if no African American had achieved executive responsibility.
How new Fed Chair Jerome Powell should get ready for the next recession
New Federal Reserve Chair Jerome Powell testified before Congress this week, roughly a month after replacing Janet Yellen. The key question many have is whether or not a change in personnel will mark a break with past policy. If it does, and if the Fed starts crediting arguments for raising interest rates that they correctly rejected before, then today’s low unemployment rate might be unfortunately short-lived.
Under Yellen’s leadership, the Fed was notably “dovish” in that it strove to keep monetary policy expansionary with the goal of pushing unemployment down, rather than contractionary in the service of guarding against an outbreak of inflation. Her replacement, Jerome Powell, served on the Fed’s Board of Governors with Yellen between 2012 and early 2018. Powell was by most accounts supportive of the policy path blazed by Yellen, so in that sense a radical change in the Fed’s stance would be surprising. But Yellen wasn’t just a dovish vote on the Fed, she was an intellectual leader in the defense of expansionary monetary policy over the past decade. As a highly respected academic macroeconomist and policymaker, Yellen had the ability and confidence to push back hard on weak arguments about why the Fed should reverse course and begin worrying about containing inflation rather than pushing down unemployment.
One of these weak arguments is that the Fed needs to raise rates faster and sooner so that when the next recession hits, there will be enough “room” to lower them. Proponents of this argument point out that in previous recessions the Fed lowered the short-term “policy” interest rates that it controls by 3–5 percentage points in an effort to restart growth. Today these rates are at 1.5 percent, and, they really can’t go much below zero for any extended period of time. This “zero lower bound” (ZLB) on interest rates is driven by the fact that once these rates hit zero, wealth-holders will just stop demanding bonds and will be happy to hold cash instead. This means that further Fed purchases of bonds to lower rates will have no effect. What hitting the ZLB means for policy is that we could enter the next recession without the ability of the Fed to lower policy rates as far as they have in the past.
While the constraints put on monetary policymaking by the ZLB are real, raising rates now to clear out room for cutting them later remains a silly idea. First, raising rates sooner and further doesn’t just give the Fed more interest rate “room” to fight the next recession, it also makes the next recession more likely. Post-war recessions have largely occurred because of asset market bubbles popping or the Fed raising rates too far and too fast.
An analogy might help point out the absurdity of this. Say that your house is a cool 50 degrees and you hike the thermostat to your desired temperature of 70 degrees. After the heat has been running for a while, the house has warmed to 60 degrees, and your roommate argues you should turn the thermostat off because if the room gets really cold again, you’ll want “room” to warm it by cranking the thermostat up again.
Does this make sense? Of course not. So long as one believes that the economy has not warmed up to its optimal setting, then one should not be using policy tools to cool it back down. Is there a convenient summary measure that can guide us as to whether or not the economy is running hot enough? There are lots, actually, but let’s use the Fed’s own announced measure: 2 percent price inflation. The economy has been running beneath this 2 percent inflation target for years now, and there is little evidence of any acceleration. Further, if one excludes rental prices, then inflation has been even lower. Fighting rent inflation (which occurs due to low supply of housing units relative to demand) by raising interest rates which will curtail home-building would be perverse.
So, the economy is by the Fed’s own definition not running hot enough, yet they’ve already begun raising rates to cool it off, backed in part by arguments that this is necessary because one day they might want to try to heat it back up. This is a terrible way to prepare for the next recession.
Growth (or not) in real wages
There is no starker metric for our unequal age than the stagnation of American wages over the last generation. Since 1973, productivity has grown about 75 percent, while the compensation of the typical worker has grown only about 12 percent. Since 1979, the hourly median wage has grown less than 10 percent in real dollars, or an average annual raise of barely 4 cents. While wages grew for many workers in 2017, wage growth is still far slower—and more unequal—than where it needs to be.
The interactive graphic below shows the change in real (inflation-adjusted) wages by wage decile, with drop-down filters for gender, race, educational attainment, and time period. This affords comparison of the wage gains (or losses) experienced by particular workers, and comparison across the full 1979–2017 span, or its constituent business cycles. The choice of “African-American” and “1979–1989,” for example, charts how black workers fared during the dismal 1980s; the choice of “BA or higher” and “2009–2017” charts how well-educated workers fared during the long recovery from the Great Recession.
There are a lot of moving pieces here—including shifting economic opportunities, changes in educational attainment, policy drifts and shifts, and five recessions that swallow up almost 6 of the 39 years since 1979. But here are four key takeaways:
Ron Blackwell (1946–2018)
Ron Blackwell, a friend to EPI since its early days, died on February 25.
Ron had a long career in the labor movement, starting with the Amalgamated Clothing and Textile Workers Union in New York, moving to the AFL-CIO in Washington, D.C. until he retired in 2012.
Raised in Alabama, he was a steadfast defender of the rights of working people and a life-long enemy of economic injustice in its many forms.
He pioneered in the design and management of campaigns to use the financial and pension assets of labor unions as a tool of organizing and collective bargaining.
Having studied economics and political economy at the New School, he understood how elite decisions hidden from the public can destroy efforts by ordinary people to better their lives. His was a relentless voice urging the labor movement to demand a seat at the table of economic policy. He also played an important role in efforts to create international labor solidarity in a world of globalizing capital.
Above all, Ron Blackwell was the rare man of principle who actually had the courage of his convictions. As a young man, he chose to go to prison rather than submit to those who were waging the unjust and terrible war in Vietnam. In his years as a labor advocate, he was quick to spot hypocrisy among political leaders, who—as the late mineworkers’ leader John L. Lewis once put it—“supped at labor’s table and sheltered in labor’s house” but then, “cursed with equal impartiality both labor and its adversaries.”
Ron told it like it was.
EPI, the labor movement, and the country have lost a valiant warrior in the struggle for justice.
50 years after the riots: Continued economic inequality for African Americans
Anniversaries of major events are nearly irresistible opportunities to reflect on the past, often with the hope that there has been some progress. So it is this year, 50 years after the Kerner Commission Report on Civil Disorders found systemic inequality and racial discrimination to be at the root of riots across America.
In a new report, Janelle Jones, John Schmitt and I present statistics showing what life was like for African Americans in this country 50 years ago compared to now. That document is a straightforward, unfiltered presentation of the facts, covering a wide range of economic, social, and health outcomes. In the spirit of reflection, I want to use this blog post to focus on racial economic inequality in the labor market, which directly affects approximately 20 million African Americans who get up every day and either go to work or go to find work.
The bottom line is simple. Despite decades of policies, programs, protests and outstanding achievements by African American men and women in many aspects of American life, race far too often remains a deciding factor in the economic status of African Americans relative to whites.
Great strides have been made toward raising educational attainment among African Americans and closing the education gap relative to whites, especially with regard to completing high school. In 1968, just over half (54.4 percent) of African American adults age 25-29 were high school graduates, compared to nearly three-quarters (75.0 percent) of whites. In 2016, 92.3 percent of African American adults age 25-29 were high school graduates with 22.8 percent having gone on to complete a bachelor’s degree or higher (up from 9.1 percent in 1968). Among whites, 95.6 percent are high school graduates and 42.1 percent have a bachelor’s degree or higher (up from 16.2 percent in 1968).
Sen. Hatch’s H-1B bill and other guestworker proposals should be kept out of Senate immigration debate
In the context of this week’s immigration debate in the Senate, Republican Senators will push for the reforms in the Secure and Succeed Act of 2018, which reflect the White House’s policy priorities for immigration. It’s likely, however, that one or more Senators will try to attach legislation to increase the number of temporary migrant workers who lack adequate wage and worker protections onto any bill that emerges. The thrust of any guestworker proposals that may arise will be to widen the essentially lawless zone in the labor market that has been carved out by the proliferation of temporary work visa programs, which put American and permanent immigrant workers into competition with temporary migrants who are denied all opportunity to bargain meaningfully for higher wages. This week’s debate in the Senate should prioritize providing a path to citizenship for DREAMers, not opportunistically expanding the share of workers in America who are not protected by labor standards.
As the Los Angeles Times recently suggested, there may be an attempt to include a bill from Sen. Orrin Hatch (R-Utah) that would triple the number of college-educated temporary migrant workers who are employed in the H-1B visa program—a flawed guestworker program used mainly to outsource jobs in information technology and send high-tech jobs offshore. Hatch’s bill is known as I-Squared, and although Hatch is trying to sell it as an increase in “merit-based” immigration, it is primarily an attempt to increase the number of temporary migrant workers the tech industry can hire at low wages.
There is no question in anyone’s mind that the United States will always need to attract the best and brightest workers from abroad, and many employers claim the H-1B visas is a tool to achieve that. But any migrant workers who enter the U.S. labor market must do so with equal rights, fair pay, and a quick path to permanent residence and citizenship that the worker controls—not the employer. Unfortunately, the H-1B guestworker program fails to meet any of those requirements. Hatch’s I-Squared bill would exacerbate the problems the H-1B program creates by vastly increasing the number of H-1B workers while failing to fix the three main problems with the H-1B program: first, employers are allowed to legally underpay H-1B workers compared to similarly situated U.S. workers; second, employers do not have to recruit U.S. workers before hiring H-1B workers, allowing them to ignore the U.S. workforce altogether; and third, the H-1B program allows employers to replace U.S. workers with much lower-paid H-1B workers—a deplorable practice that has occurred far too many times—and the laid-off workers are often forced to train their own H-1B replacements as a condition of their severance pay.
Senate must pass legislation this week to legalize DREAMers but avoid unnecessary immigration enforcement measures and green card reductions
Spurred on by President Trump’s ending of the Deferred Action for Childhood Arrivals (DACA) initiative in September 2017, on Monday the Senate began an “open-ended” debate on immigration, which is set to only last for this week. The debate is centered around possible legislation to legalize and provide a path to citizenship for the up to 1.8 million unauthorized immigrants who entered the United States as minors, known as DREAMers, including the 700,000 current recipients of DACA. Without the protection of DACA or new legislation, DACA recipients will be left without the ability to attend college or work legally, leaving them unable to access labor and employment law protections because they’ll fear deportation. Passing a bill that legalizes DACA recipients and DREAMers is an urgent priority that Congress should focus on, but the debate will unfortunately spend far too much time this week on adding new immigration enforcement measures and cutting the number of permanent immigrant visas (also known as “green cards”).
The White House and some Republican senators have made it clear that in return for DREAMer legalization, they’d like a large expansion in immigration enforcement and cuts to the number of immigrants that can become permanent residents and American citizens in the future. It is obvious to any rational observer that President Trump intentionally created a crisis for DREAMers by ending DACA as a way to achieve these immigration policy goals—which reflect the misguided and draconian priorities of his administration and Republicans on the hard-right—in exchange for ending the crisis Trump created. Both Republican Senators Tom Cotton (R-Ariz.) and Majority Leader Mitch McConnell (R-Ky.) have expressed their support for Iowa Senator Chuck Grassley’s Secure and Succeed Act of 2018—which is based on the White House’s proposed framework for an immigration deal that includes DREAMer legalization—and both believe it’s the only piece of legislation that can become law. Other Republican Senators who have co-sponsored the Secure and Succeed legislation include Joni Ernst (R-Iowa), John Cornyn (R-Texas), Thom Tillis (R-N.C.), David Perdue (R-Ga.), and James Lankford (R-Okla.).
The Trump administration’s infrastructure plan remains empty talk and will be paid for by cuts to programs that help working people
The Trump administration has released another variation of their long-dormant infrastructure plan. Just like the previous version, the plan amounts to empty talk. To understand why, one must examine the fiscal year 2019 budget proposal, released alongside their infrastructure proposal. While the administration trumpets an infrastructure plan, their budget radically cuts federal investments.
Even their trumpeting of the stand-alone infrastructure plan is hugely misleading. Instead of the $1 trillion being claimed by the administration (already pared back from the $1.5 trillion they claimed they’d be investing in infrastructure in earlier discussions), the plan only calls for $200 billion in federal funds. Finding the rest of the $1 trillion will be left overwhelmingly to states and localities, despite the fact that they already bear the brunt of paying for public infrastructure spending. In total, state and local governments account for 77 percent of public infrastructure spending in the United States. They account for 62 percent of capital investment and 88 percent of operations and maintenance. It is odd to argue that the United States needs a substantial infrastructure push to deal with past underinvestment, and then to propose that the same system that yielded this underinvestment—relying too much on state and local governments—should just be continued. If we want a real investment in infrastructure, continuing to kick the problem to state and local governments won’t solve anything.
The Trump administration will claim that their plans are different because they will leverage the private sector. This claim doesn’t change anything. Private entities will not build infrastructure for free, but will expect a return on investment. That means state and local governments will have to pay for the infrastructure with taxes, tolls, or other user fees. And if state and local governments predictably dodge the task of financing and funding projects directly, public-private partnerships come with their own set of problems, as natural monopoly characteristics can leave the private partner in a position to hike tolls and degrade service quality.
No, the stock market isn’t throwing a tantrum because the economy is “overstimulated”
Conventional wisdom is firming up quickly around the story that recent stock price declines are a result of the market realizing (in proper Wile E. Coyote fashion) that the economy has overheated. This conclusion is far too premature and ignores plenty of contrary evidence.
The story goes that the 2.9 percent year-over-year wage growth in last Friday’s jobs report is a signal that a tsunami of inflation is heading our way. This would force the Fed to step in and stop the inflationary wave by sharply hiking interest rates. Higher interest rates, in turn, can depress stock prices both by restraining overall growth and by attracting people towards buying bonds rather than stocks. The fiscal stimulus provided by the Tax Cuts and Jobs Act (TCJA) and new higher spending caps is thought to add fuel to an already raging economic fire (side note: the TCJA is expensive in budgetary terms, but is so inefficient as fiscal stimulus that its effect is very easy to overstate).
People have gotten way ahead of the facts on this. Yes, the unemployment rate is low, but it’s certainly been this low or lower for a longer span of time without the economy overheating. In 1999 and 2000, the unemployment rate averaged 4.1 percent for two years (and sat below 4 percent for five months), and core inflation nudged up for sure but never broke 2 percent (and the Fed had not even specified a 2 percent target in those years).
Increased U.S. trade deficit in 2017 illustrates dangers of ignoring the overvalued dollar
The U.S. Census Bureau reported that the annual U.S. trade deficit in goods and services increased from $504.8 billion to $566.1 billion from 2016 to 2017, an increase of $61.2 billion (12.1 percent). The rapid growth of the overall U.S. trade deficit reflects the failure of Trump administration trade policies to materially affect trade flows in its first year, and its failure to address currency misalignment and prolonged overvaluation of the U.S. dollar.
The U.S. goods trade deficit increased from $752.5 billion in 2016 to $810.0 billion in 2017, an increase of $57.5 billion (7.6 percent). The U.S. goods trade deficit is dominated by the trade deficit in manufactured products (including re-exports), which increased from $648.7 billion in 2016 to $699.8 in 2017, an increase of $51.1 billion (7.9 percent). Rapidly growing trade deficits in manufactured goods are a threat to future employment in this sector, which remains a large employer despite decades of policy-inflicted decline.
The U.S. trade deficit with China reached a new record of $375.2 billion in 2017, up from $347 billion in 2016, an increase of $28.2 billion (8.1 percent). China is a particular source of concern in trade in steel and aluminum, industries in which that country has accumulated massive amounts of subsidized, and often state-owned excess production capacity, over the past two decades. The president needs to promptly take trade action in pending national security investigations in these sectors.
The remainder of the goods trade deficit is composed of trade in petroleum and other energy products, and miscellaneous transactions. The United States also had a small trade surplus in agricultural commodities, which reached $22.1 billion (including re-exports) in 2017. The U.S. surplus in services trade declined from $247.7 billion in 2016 to $244.0 billion in 2017, a decline of $3.7 billion (1.5 percent).
EPI responds to Amazon’s claims that their fulfillment centers raise local employment
Last week, Janelle Jones and I released a new study showing that opening an Amazon fulfillment center does not actually boost overall employment in the county where it opens. Analyzing data for counties in 19 states containing Amazon fulfillment centers, we found that within two years, the opening of such a facility leads to a 30 percent increase in warehouse and storage employment in the surrounding county. However, this does not lead to an increase in overall employment in the county.
In response to our study, Amazon circulated a comment arguing that “Amazon’s investments led to the creation of 200,000 additional non-Amazon jobs” and “counties that have received Amazon investment have seen the unemployment rate drop by 4.8 percentage points on average.”
Both of these claims are misleading. First, although it’s true that unemployment fell during the economic recovery in places that Amazon opened fulfillment centers, unemployment also fell substantially in places without an Amazon presence at all. Nationally, over 2010–2016, unemployment fell by 4.7 percentage points—essentially the same as the 4.8 percentage point fall Amazon touts—even though most areas of the country did not have an Amazon warehouse. Amazon is simply riding the tide of the national economic recovery. Unlike the analysis that Amazon presented, our study actually accounts for employment changes that are happening regardless of Amazon during the recession and recovery, by controlling for national, regional, and state-specific employment shocks.
The bottom line on Trump and the economy: We’re not in good hands
If you follow the news, it’s hard to avoid the constant claims that President Trump has made, taking credit for a strong economy. This claim raises a bunch of questions, but a tl;dr assessment of the Trump economy in 2018 is pretty simple: It’s good, but not great. The Trump administration deserves zero credit for its pockets of strength. And everything they’ve done on economic policy indicates that they will be terrible macroeconomic managers, and will bungle any challenge that comes their way in the next few years.
The longer version of this is below.
The economy going into 2018: Good, but not great
By almost any measure, the economy today is stronger than it has been in a decade. But that’s a really low bar! This decade began with the worst economic crisis since the Great Depression, and the economy’s growth has been severely hamstrung ever since. After eight-and-a-half years of steady recovery, the unemployment rate today sits at 4.1 percent, lower even than its pre-Great Recession level. This is unambiguously good news. But other measures of health in the job market tell a bit less-rosy story.
For example, the share of “prime-age” adults (between the ages of 25 and 54) with a job remains below its pre-Great Recession peak even after years of improvement. We would need to add millions more jobs to push it back to levels it reached in the not-so-distant past of the early 2000s. Wage growth also remains distressingly weak, and this wage weakness has blunted the incentive for employers to make productivity-enhancing investments. After all, there’s not much point in spending money to economize on labor costs when workers are cheap and easy to find.
Why economics tells us that crediting the TCJA for wage increases is just PR
After the passage of the GOP Tax Cuts and Jobs Act (TCJA) in December, multiple companies announced decisions to give out bonuses or raise wages for workers and claimed that these decisions were driven by the corporate tax cuts embedded in the TCJA. Since proponents of the tax bill sold it to the public based on claims that corporate rate cuts would trickle down to typical workers, it’s no surprise those proponents would point to these companies’ announcements and claim vindication for their claims. And far too much reporting took the claims of corporations at face value, though some recent exceptions stand out as being much better at evaluating those claims.
While we’re not surprised by the cynicism of these corporate claims, that doesn’t change the fact that there is absolutely no economic evidence to think they’re true. What these companies are doing amounts to nothing more than PR. As we’ll detail, immediately handing out bonuses and raises is simply not how the economic theory that links corporate tax cuts to wage growth works. And we aren’t the only ones pointing this out. Companies are engaged in a clear campaign to gin up support for unpopular corporate tax cuts by crediting each new check they write to those tax cuts.
We’ve spent plenty of time detailing why we think corporate tax cuts won’t actually end up raising wages in the real-world, but even the theory that links corporate tax cuts to wages looks nothing like the campaign corporations are currently engaged in.
Here’s how that economic theory actually works: Corporate tax cuts increase the after-tax returns to owning capital like stocks and bonds. These higher after-tax returns induce households to save more. Higher after-tax profitability incentivizes firms to invest more and the new savings needed to finance these investments come from increased household savings in response to higher returns. The resulting investments in plant and equipment give workers better tools with which to do their jobs, and this boosts productivity (how much income or output is generated in an average hour of work). In turn, these increases in productivity are seamlessly translated into across-the-board wage growth.
The Trump administration’s attempt to dismantle the fiduciary rule: A year in review
February 3, 2018 marks one year since President Trump issued a Presidential Memorandum to “review” the fiduciary rule. This was just two weeks into his administration, a clear signal that undermining this common sense rule is a top priority for the administration.
If fully implemented, the fiduciary rule would require that financial professionals presenting themselves as investment advisers act in their clients’ best interests. The rule is needed because “conflicted” advice leads to lower investment returns, causing real losses for workers saving for retirement—an estimated $17 billion a year—for the clients who are victimized. The rule would prohibit common practices such as steering clients toward investments that pay the adviser a commission but provide the client a lower rate of return. It was exhaustively researched by the Department of Labor and debated over several years, survived several court challenges, and was completed in 2016. It was supposed to be implemented on April 10, 2017.
However, unscrupulous players in the financial industry are working to kill the rule so they can continue fleecing retirement savers—and the Trump administration is doing everything it can to help them out. Here’s the rundown of the fiduciary rule shenanigans from Trump’s first year:
February 3, 2017: President Trump issues a Presidential Memorandum ordering the Labor Department to needlessly reexamine the fiduciary rule.
UN Secretary General’s report on migration highlights the need for government action and cooperation, but lacks key guidance on labor migration
The United Nations Secretary General (UNSG) released a report in January 2018 titled Making migration work for all, that laid out four “considerations” to guide governments negotiating a Global Compact for Migration, an agreement to promote more “safe, orderly, and regular” international migration. The four considerations focus on how to maximize migration’s benefits, increase labor migration, address the legitimate security concerns of unauthorized migration, and address issues arising as a result of mixed flows of migrants and refugees.
The report is aimed primarily at governments that are major destination countries for migrants, urging them to open doors wider to legal migrant workers, protect migrant workers during recruitment and employment abroad, and during their return to their home countries or re-integration there, and to offer protection to vulnerable migrants who are not refugees but nevertheless require some form of protection.
While the report offers many thoughtful and useful recommendations, there are no priorities among the long list of “shoulds” and no analysis of the trade-offs between competing recommendations. For example, is there competition or are there trade-offs that must be balanced between opening doors wider to migrant workers and protecting the rights and labor standards of local, destination country workers? Can both be done while ensuring that migrant workers are fully protected?
What to Watch on Jobs Day: How the Trump administration stacks up against an economy on autopilot
Friday marks the first full year of Bureau of Labor Statistics Employment Situation reports since the beginning of the Trump administration. Put simply, overall economic growth and the labor market are healthier today than they’ve been in years, and President Trump and his supporters have been quick to claim credit for this relative health. These are ridiculous claims. An analogy might help. A person’s health is a function of many variables: genetics, diet, exercise, and environmental factors, for example. Eventually, of course, almost everyone will at some point in their life need access to quality medical care to remain healthy. But, noting that somebody is healthy at a given point in time says nothing about whether their doctor is competent or not. The Trump administration was handed an economy and a labor market whose health had improved radically (if too slowly) over the preceding eight years, and which was trending steadily in an even better direction. Macroeconomic trends tend to have lots of momentum, so we shouldn’t be shocked that this recovery has continued. But nothing the Trump administration has done has boosted its trajectory.
Friday’s jobs report will give us an opportunity to look at the last year in the context of what we would have expected from an economy that was completely on autopilot, just moving along its preexisting trajectory.
EPI’s Autopilot Economy Tracker focuses on four key measures: the unemployment rate, the prime-age employment-to-population ratio, wage growth, and payroll employment growth. Here I’ll take each in turn—I’ll look again on Friday to see what story the newest data tell.
Providing unpaid leave was only the first step; 25 years after the Family and Medical Leave Act, more workers need paid leave
February 5, 2018 marks the 25th anniversary of the Family and Medical Leave Act (FMLA), which allows eligible employees to take up to 12 weeks of unpaid, job-protected leave within a calendar year for a serious health condition, the birth of a child or to care for a newly born, adopted, or foster child, or to care for an immediate family member with a serious health condition. While it’s important to celebrate this important milestone, stopping there on the national level has been a huge mistake. Because eligibility is limited based on size of firm, work hours, and tenure at job, the FMLA only provides access to an estimated 56 percent of the workforce. But the largest loophole in the FMLA is that it is unpaid, so many workers who would want to take advantage of it to care for themselves or a family member, simply cannot afford to.
Only 13 percent of private-sector workers have access to any paid family leave, which means that 87 percent do not. Due to this widespread lack of paid family leave, workers have to make difficult choices between their careers and their caregiving responsibilities precisely when they need their paychecks the most, such as following the birth of a child or when they or a loved one falls ill. This lack of choice can often lead workers to not take any leave or cut their leave short; about 45 percent of FMLA-eligible workers did not take leave because they could not afford unpaid leave and among workers who took time off for caregiving responsibilities, about one-third of leave-takers cut their time off short due to cover lost wages.
The distribution of workers with paid family leave is skewed toward higher-wage workers. As shown in the figure below, workers in the top 10 percent of the wage distribution are six times more likely to have paid family and medical leave to care for themselves or a family member when coping with a serious health condition or to care for a new child in their family than workers in the bottom 10 percent. This bears repeating: only 4 percent of the lowest-wage workers have access to paid family leave. The disparities are stark, but even among the highest paid workers, only about one-fourth have paid family leave.
Year one of the Trump administration: Normalizing itself by working for the top 1 percent
Tomorrow, President Trump is set to deliver his first State of the Union speech, in which he will likely provide a triumphalist account of the economic policy changes made during the first year of his presidency. But despite big talk on the campaign trail about how he would stand up for the forgotten working man (for Trump, it was always men who were left behind), the first year of the Trump presidency has been no triumph for typical American workers. Instead the big winners over the past year have been the already rich.
This really shouldn’t come as a surprise. Trump’s was crystal clear in his inaugural address about who he considers the cause of American workers’ disempowerment: foreigners. This diagnosis is stunning not just in how wrong and bigoted it is, but how cynically it attempts to distract from the privileged group that really was reaping gains that should have been broadly shared—the top 1 percent and their enablers. His agenda of continuing the upward redistribution of income to this top 1 percent while scapegoating immigrants and allegedly nefarious foreign governments is essentially the orthodoxy among the Republican Congressional majority, and it will do nothing to help America’s workers.
The cynicism is clearest when considering the signature piece of legislation signed by Trump, the Tax Cuts and Jobs Act (TCJA). The TCJA provides a number of temporary tax cuts to households, most of which will accrue to those at the top of the income distribution. But it saves its permanent tax cuts for the nation’s corporations, whose profits eventually flow overwhelmingly to the richest households in America. By 2027, when the household tax cuts have expired but the corporate tax cuts remain, the top 1 percent will see 83 percent of the gains from the TCJA. Corporations have been so giddy about the windfall they’ve reaped from the TCJA that they’ve mounted an absurdly transparent public relations campaign on its behalf, claiming that every bonus and wage increase they have bestowed since its passage was somehow the result of it—even those that occurred before the TCJA actually took effect. This is, needless to say, not how economics argues that tax cuts can potentially boost wages. It’s also important to note that in any given year about half of all workers see raises, and nearly 40 percent receive bonuses. In short, it is extremely likely that not a single worker who wasn’t a high-placed CEO or corporate manager has seen a raise because of the TCJA. And if they got a bonus this year because of the TCJA, it was a likely a one-time attempt by their employer to sneak in a deductible expense before the tax cuts made these deductions less profitable, and no future TCJA-linked bonuses will be seen again.
White House framework calls for a vast increase in immigration enforcement on the backs of DREAMers, while only legalizing 16 percent of the undocumented population
Yesterday the White House one-page framework for a legislative deal to provide a permanent immigration status to DACA recipients was made public, which is in addition to the four-page memo released on January 9 that included the Department of Homeland Security’s priorities for an “immigration deal.” The new one-page memo includes a long list of far-reaching demands to “reform” the immigration system, in exchange for remedying the crisis that President Trump himself imposed on the nearly 700,000 immigrants who were brought to the United States as children by their parents, and who voluntarily availed themselves to the U.S. government after they were promised that they would be protected and not deported by the Obama administration.
President Trump’s latest demands for major changes to the U.S. immigration system include additional legal authority to deport unauthorized immigrants, $25 billion in new funding for more border security and immigration enforcement agents, an end to the diversity visa program, and cuts to permanent immigrant visas for family reunification, among other things. All of this would be in exchange for putting up to 1.8 million DACA recipients and DREAM Act-eligible immigrants on a path to citizenship.
It is notable that the Trump administration is willing to extend the possibility of legalization and citizenship beyond just the current 700,000 DACA recipients, but doing so would still only legalize 16 percent of the total unauthorized immigrant population (1.8 million out of 11.3 million). DACA recipients and potential DREAMers themselves have made it clear that they reject a path to citizenship if it means that their parents and the millions of unauthorized immigrants left behind will be terrorized through a vastly expanded national deportation apparatus and additional border militarization, plus sharp cuts to future immigration levels.
Lessons from today’s GDP report: Long-expected rebound in productivity finally seems to be happening, and no reason for Fed to raise rates in their next meeting
The Bureau of Economic Analysis (BEA) reported this morning that gross domestic product (GDP—the widest measure of economic activity) grew at a 2.6 percent annualized rate in the last quarter of 2017. This was down slightly from the 3.2 percent growth rate of the third quarter of 2017.
Today’s data also lets us examine how the economy grew over the year that ended in December 2017. Between the end of 2016 and the end of 2017, the economy grew by 2.5 percent. This is a faster rate of growth than what prevailed in either 2015 (2.0 percent) or 2016 (1.8 percent), but it is far from unprecedented. Growth was faster in both 2013 and 2014, for example (2.7 percent growth in both of those years).
Importantly, the recent pickup in GDP growth is largely the result of faster productivity growth. Employment growth actually slowed in 2017 while output growth rose, which implies a pickup in productivity (the amount of economic output generated in an average hour of work). As I wrote almost a year ago, this pickup in productivity growth should not come as a surprise—productivity growth has been extraordinarily slow in recent years but it generally reverts to long-run averages. Further, the source of recent productivity growth weakness was clear—it was a continuing casualty of the enormous shortfall of demand caused by the Great Recession and its subsequent slow recovery. As the economy worked off this demand shortfall, it was always quite likely that a rebound in productivity growth would follow.
Davos is Trump’s kind of town
The global punditry is all a twitter this week with the prospect of Donald Trump going to Davos—the chic winter gathering place of the world’s rich and powerful.
The media narrative is that this will be a titanic clash of opposites. Populist, “America First” Trump confronting the high-minded capitalist builders of the global economy.
“It’s going to be a hell of a show,” a Vox writer assures us. “Fox in the Globalist Henhouse?” headlines the New York Times. The internationalist intellectual Niall Ferguson explains that: “Trump is as loathed by the elites of Western Europe as he is by the elites of Manhattan.”
No doubt many of Manhattan’s rich and powerful would agree with Trump’s Secretary of State (the former CEO of Exxon) that the president is a moron. But so what? Rather than drain the Washington swamp he pumped it even more full of Wall Street financiers, international business interests and lobbyists from virtually every sleazebag business interest in the country.
The TCJA, combined with a cynical PR campaign from the GOP and the corporate world, could hit American families hard in the 2019 tax season
Republican congressional leaders and President Trump have made loud claims about how great the recently passed Tax Cuts and Jobs Act (TCJA) will be for typical American families. When will these families be able to conclusively judge the truth of these claims? Not for a long while. The changes from the new tax law took effect on January 1. Companies now have to figure out how much to change workers’ tax withholdings to comply with the new law. To do that, they need guidance from the Internal Revenue Service (IRS).
But this is the same IRS that has seen its budget cut by 18 percent and its workforce cut by 14 percent since 2010. And it’s the same IRS that would send home over half of its workforce if the government shuts down again. While a deal was reached to end the current shutdown, that deal only funds the government through February 8th. All as the 2018 tax filing system ramps up and 2017 tax returns flood into the agency.
Typically, this shouldn’t be much of an issue. A shutdown would usually only push back the timing of withholding changes. The IRS would understandably take more time to issue guidance, and companies would simply implement the new withholdings later in the year.
But the Trump administration has already been pressuring the IRS to aim for speed over accuracy in new withholdings. Further, they would love companies to err on the side of withholding too little and boosting workers’ take-home pay, even if this meant that these workers have to make large payments back to the government in 2019. After all, the salience of the TCJA is as high as it’s going to be, and this administration is not shy at all about putting political expedience over smart policy. And telling workers that the tax cut is already working for them is awfully expedient in a mid-term election year. If the administration continues to focus on speed, then what was already a risk of under-withholding would be augmented by a government shutdown.
Unrigging the economy to grow the middle class: Pennsylvania takes the lead on overtime
Yesterday, Pennsylvania Governor Tom Wolf became the first state executive to take action to provide workers overtime protections that help guarantee fair pay for hard work, since a 2016 federal rule to do this at the national level was blocked in the courts by corporate interests. As part of his “Jobs That Pay” initiative, Wolf proposed a state rule change that will modernize the state’s overtime policies, providing new or strengthened overtime protections to 460,000 more middle-income workers by 2023 and ultimately putting close to $53 million more each year into Pennsylvanians’ paychecks.
The Keystone Research Center (KRC), a member of the Economic Analysis and Research Network (EARN), advocated for the Wolf administration to take this action. Stephen Herzenberg, KRC economist and executive director, applauded Wolf’s leadership.
On overtime pay, the governor has authority to act without the state legislature. On another vital measure to improve the lives of working families, raising the minimum wage, legislative action is required—and Pennsylvania still lags its neighboring states. Unlike these six contiguous states, the Pennsylvania legislature has failed to increase the minimum wage above the federal level of $7.25.
State and local policymakers should beware preemption clauses
On January 12, 2018, the Maryland legislature successfully overrode Governor Hogan’s veto of a bill granting Maryland workers access to paid sick days across the state. This is great news—it means that nearly 700,000 workers who previously lacked access to paid sick days will no longer have to choose between their health and their paycheck, or even their job. The Maryland legislature’s victory comes after other states, such as Oregon and Rhode Island passed statewide paid sick days laws in in 2015 and 2017.
There is no federal law that provides workers with the right to earn paid leave for sick days or to take time off to care for an ill family member—the federal Family Medical Leave Act simply allows workers to take up to 12 weeks of unpaid leave. In the absence of federal action, with Maryland, nine states have passed paid sick days laws, and five states (and the District of Columbia) have passed paid family leave laws. Local governments, however, have taken up the cause of providing workers with this fundamental need: at least 30 cities and two counties have enacted their own paid leave ordinances in various forms.
But state governments have begun blocking local government efforts to give workers the opportunity to earn paid time off for paid sick days and/or paid family leave through the use of “preemption laws.” “Preemption” in this context refers to a situation in which a state law is enacted to block a local ordinance from taking effect—or dismantle an existing ordinance. The figure below shows that at least 20 states have passed paid leave preemption laws.
Paid leave preemption is on the rise: States passing laws preempting local paid leave laws, January 2004–July 2017
Note: In each column, blue boxes represent paid leave preemption laws passed in the given year. Gray boxes represent paid leave preemption laws in effect (passed in previous years).
Source: EPI analysis of preemption laws in all 50 states
Maryland grants access to paid sick days to 700,000 workers and their families
Today, the Maryland legislature successfully overrode Governor Hogan’s veto of a bill granting Maryland workers access to paid sick days at long last. Coalition group Working Matters estimates that nearly 700,000 workers who previously lacked access to paid sick days will no longer have to choose between their health and their job.
While inaction on paid sick days at the national level continues to erode families’ economic security, a group of cities and states are stepping up for working people and serving as models for jurisdictions throughout the country. Maryland is the latest example and the ninth state to guarantee a minimum amount of paid time for eligible workers to care for themselves or their family when they are sick or need medical care.
Roughly 32 percent of the private sector workforce in the United States has no ability to earn paid sick time. Furthermore, access to paid sick days has historically been far more common among high-wage workers, leaving low-wage workers and their families with little protection when they get sick or need to visit the doctor. This important legislation not only protects workers from lost pay or potential job loss when they or their family members get sick, it also protects the public by keeping sick workers, who feel economically compelled to work, from spreading illness to co-workers and customers.
In a paper released last year, we highlighted some of the costs to workers and their families when they are not given the opportunity to earn paid sick time. By examining estimated spending on essential items for families who lack paid sick days today, we quantified how this lack threatens the economic security of low- and moderate-income families.
Fighting for public sector union rights 50 years after MLK’s assassination
The night before his assassination in April 1968, Dr. Martin Luther King spoke before a group of striking sanitation workers in Memphis, Tennessee as they prepared for a march for civil rights, union recognition, and economic justice. The movement behind the strike started earlier that year, when two Memphis garbage collectors, Echol Cole and Robert Walker, were sucked in by a malfunctioning compactor mechanism on a garbage truck and crushed to death. On the same day, when a heavy rainstorm hit, the city sent 22 black sewer workers home without pay while their white supervisors were retained with a full-day’s pay. 12 days later, more than 1,100 black men from the Memphis Department of Public Works went on strike, demanding recognition of their union, better safety standards, and a decent wage. The sanitation workers were led by garbage-collector-turned-union-organizer, T. O. Jones, and supported by the American Federation of State, County, and Municipal Employees (AFSCME).
Memphis Mayor Henry Loeb fought to break the workers’ strike, and “refused to take dilapidated trucks out of service or pay overtime when men were forced to work late-night shifts. Sanitation workers earned wages so low that many were on welfare and hundreds relied on food stamps to feed their families.” As Michael K. Honey writes in Going Down Jericho Road: The Memphis Strike, Martin Luther King’s Last Campaign, one of the things Loeb was most fervent about opposing was the dues-checkoff provisions that the sanitation workers wanted in their union contract. The workers on strike in Memphis knew that a dues checkoff—whereby union members voluntarily authorize the employer to make regular deductions from an employee’s wages to pay their union dues—was crucial to the union’s survival, especially given that Tennessee had passed a so-called “right-to-work” law, which allowed nonunion members to refuse to pay their fair share of dues but still collect the same benefits as union members. Loeb surely knew that the powers conferred to workers in the union contract—including an increase in black sanitation workers’ wages, protections for black workers from race-based employment discrimination, and a procedure for the black sanitation workers to file grievances against their white supervisors—would become wholly ineffective if the union could not collect dues to support its basic operations. More than once, the city had offered to settle the strike on the condition that dues checkoff be prohibited from their contract—but workers persisted, knowing that the “dues checkoff remained crucial, for without it, the union would not survive.” One of the cofounders of the Community on the Move for Equality, Reverend Malcom Blackburn, even embodied dues checkoff in his call to action.
Our analysis of January 1 state minimum wage changes understated the total increase in wages for workers throughout the country
In December, we published a “snapshot” estimating that 4.5 million workers throughout the country were likely to receive a raise at the beginning of the year as a result of higher state minimum wages going into effect. We estimated that these increases would raise the annual income of affected workers by roughly $5 billion. Subsequently, Mark Perry at the American Enterprise Institute published a blog post critiquing those estimates. He claimed our research methods were flawed and opaque, and that the wage increases for workers impacted by state minimum wage increases in 2018 will be much smaller than our original $5 billion. All of these claims are wrong.
In regards to our research methods, we do make one modeling decision that may strike some as overly optimistic: we assume that new minimum wage levels will largely be enforced. But in regards to the size of minimum-wage-driven raises in 2018 our methods contain one hugely conservative choice. We didn’t fully account for minimum wage changes in New York, and subsequently left out significant wage increases going to workers in New York City and its surrounding counties. We’ll say some more on both of these issues below.
It’s worth noting first that while EPI does not typically publish methodological statements for snapshots—they’re short pieces with a single, informative graphic with minimal accompanying text—the methodology employed in our December snapshot is the same methodology we have used for years in modeling the impact of higher state and federal minimum wages. We’ve published this methodology multiple times, the most recent being this past April in appendix B of our analysis of the proposal to raise the federal minimum wage to $15 by 2024.
The search for the next president of the New York Federal Reserve is a big deal
Those hoping to chart a new course in economic policy that delivers real gains, not just cynical rhetoric, to American workers have been closely following electoral politics throughout the country. But elections aren’t the only way change can happen. A case in point is the search currently underway to replace William Dudley as the President of the Federal Reserve Bank of New York.
We have written plenty before about the importance of the Federal Reserve in determining whether or not American workers will have a chance to see serious wage growth in coming years. Put simply, the Federal Reserve controls the economy’s brakes. If they decide the pace of economic growth is fast enough to risk overheating, leading to an outbreak of accelerating inflation, they step on the brake. No other policy has a hope at creating jobs and delivering broad-based wage growth if the Fed uses this brake prematurely. Recent decades have seen exactly this premature use of brakes, and the result has been unemployment kept too high to give typical workers the economic leverage and bargaining power they need to achieve substantial wage gains.
Why has Fed often ridden the economy’s brakes too hard in recent decades? Mostly because they have a loud backseat driver that is terrified of any unexpected inflation: the nation’s financial sector. Unexpected inflation decreases the value of financial assets and transfers resources from creditors to debtors. Wealthy households and creditors—the prime clients of finance—want to avoid this kind of inflation-induced transfer at all costs. And the costs of avoiding it are high indeed. Excess unemployment, justified in the name of putting relentless downward pressure on inflation, is a key reason why inflation-adjusted wages for typical workers have nearly stagnated over most recent decades.
Renegotiating NAFTA is an opportunity to get trade policy right
The United States, Canada, and Mexico are currently in talks over changes to the North American Free Trade Agreement (NAFTA). Renegotiating NAFTA offers an opportunity to create a new labor template based on long overdue and urgently needed labor standards that are consistently enforced and upheld. In order to accomplish this, we need to update and strengthen current language (based on the May 10, 2007 template). Among other things, there should be fewer limitations on the kinds of labor violations that are covered, and each signatory must be in compliance with the standards set forth prior to joining the agreement. The following recommendations constitute some of the steps needed to achieve these essential improvements to the labor chapter:
- Incorporate explicit references to labor standards reflecting the conventions of the International Labour Organization (ILO), including those concerning the freedom of association, collective bargaining, discrimination, forced labor, child labor, and workplace safety and health.
- Remove the footnote explicitly limiting the terms of the chapter to the ILO Declaration on Fundamental Principles and Rights at Work.
- Eliminate the requirement that labor violations under the agreement must be in a manner affecting trade or investment between the parties.
- Eliminate the requirement that labor violations must be sustained or recurring.
- Verify that labor standards in the agreement are being honored and enforced by the signatories prior to the agreement going into effect.