Inflation and all of its main drivers sharply decelerated in the last half of 2022. This was the case even though the pace of economic growth accelerated in the second half of the year and unemployment remained very low.

The Federal Reserve’s “dual mandate” is meant to balance the risks of inflation versus the benefits of fast growth and low unemployment. Right now, the benefits of low unemployment are enormous, and the risks of inflation are retreating rapidly. If the Fed lets the current recovery continue apace by not raising interest rates further at this week’s meeting, 2023 could turn out to be a great year for the economic fortunes of American families.

It is time for the Fed to stand pat on interest rate increases and wait to see how the lagged effects of past increases enacted in 2022 will filter through to the economy. Continuing to raise rates in the early stretches of 2023 will be a clear mistake and pose an unneeded threat to growth in the next year. In particular, the Fed should note the following:

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On Tuesday, the Bureau of Labor Statistics released state employment and unemployment data for December 2022, giving us a full picture of employment changes in the past year.

Nationwide, the U.S. economy added 4.5 million jobs in 2022, the second-strongest year for job growth in the past 40 years (after 2021), and a testament to the success of pandemic relief and recovery measures. Although the private sector has recovered quickly, public-sector employment—particularly in state and local government—remains weak. With billions of dollars in relief funds for state and local recovery yet to be spent, this is a once-in-a-generation opportunity to reimagine and rebuild the public sector. State and local lawmakers should seize it.

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U.S. Treasury Secretary Janet Yellen announced last week that the federal government had reached the statutory debt limit and that her department had begun “extraordinary measures” to meet required spending obligations. It is estimated that by July these extraordinary measures will no longer be able to keep some spending obligations from being missed.

The fact that the statutory debt limit can inject such chaos into the American political system and economy is truly odd. The debt limit measures nothing coherent and has no relationship to any serious measure of the economic burden imposed by the nation’s debt. It has as much relevance to the nation’s objective economic health as today’s horoscope. Yet if it’s allowed to bind, disaster would result. And if the price of convincing House Republicans to raise the debt limit is large cuts to federal spending, this still ensures grave damage to the economy and vulnerable families.

The debt limit—and particularly its relationship to the objective economic facts of the nation’s fiscal health—is poorly understood by too many. In this post, we make the following points about the debt limit in the current moment:

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Social Security payroll taxes are not collected on earnings over a set cap. In 2021, this cap was $142,800, so workers making more than this enjoyed the benefit of zero Social Security taxes on all earnings in excess of this cap.

However, rising income inequality is skewing this tax structure even further to the benefit of top earners and diminishing funding for the crucial retirement program so many Americans rely on.

Social Security’s payroll tax—of which employees pay 6.2% and employers 6.2% each—has a cap that rises with growth in the national average wage index compiled by the Social Security Administration (SSA). In 2023, for example, the cap is set at $160,200. But since wage growth for top earners continues to outpace average wage growth, a growing share of total earnings is spilling over the cap and escaping taxation, eroding Social Security revenues.

Significant reforms to Social Security made in 1983 set the cap at a level so that 90% of all earnings would be subject to taxes. Over time, rising inequality meant that this share shrank as more earnings for higher-wage workers spilled over the cap. In 2020 and 2021, the share of earnings subject to Social Security taxes hit the lowest levels since before the 1983 reform. In fact, by 2021, the share of earnings subject to Social Security taxes was at the lowest level in nearly 50 years (since 1972).

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Today, the U.S. Department of Homeland Security (DHS) announced a streamlined process that provides clarity on how migrant workers who are victims of, and witnesses to, labor and employment violations can come forward to request temporary protections, including protection from deportation through deferred action and employment authorization. This is a positive step that will protect the rights of workers to be treated and paid fairly and to organize and join unions, and allow them to assist labor standards enforcement agencies with their investigations.

EPI has joined hundreds of other immigrant and worker rights organizations to call on DHS to clarify the process for how migrant workers engaged in labor disputes can request status protections. This will help workers and whistleblowers overcome their very rational fears about coming forward to report labor and workplace violations. EPI has also called for DHS to grant deferred action and parole to migrant workers in labor disputes with more frequency and regularity across a broad range of disputes, and in response to a broad swath of labor and workplace violations. This action by DHS deserves praise, and I look forward to its swift implementation.

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The crisis of low pay is widespread throughout the United States and will remain so until federal and state policymakers prioritize the economic hardships of low-wage workers. Even after the rapid inflation of the past 18 months and the recent unprecedented wage growth for lower-wage workers, 21 million workers are still paid less than $15 per hour.

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The American Rescue Plan Act (ARPA) of 2021 created a $350 billion state and local fund to help fight the pandemic and support an economic recovery. Sadly, more than $150 billion remains unspent and is sorely needed to bolster public-sector employment and the care economy.

The ARPA dollars earmarked as part of the State and Local Fiscal Recovery Fund (SLFRF) have fueled transformative investments across the country, but there’s more to be done now.

As 2023 begins, state and local governments should prioritize spending relief funds on three critical areas that are incredibly important for the welfare of children and families:

• rebuilding the public sector
• expanding access to paid leave
• bolstering our systems of care through increasing access to quality child care and elder care, and supporting the workers who perform that work.

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Below, EPI economists offer their initial insights on the jobs report released this morning, which showed 223,000 jobs added in December and wage growth slowing. 

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Today, the U.S. Federal Trade Commission (FTC) released a proposed rule that, if finalized, would ban noncompete agreements. EPI research has found that at least 36 million workers—27.8% of the private-sector workforce—are required to enter noncompete agreements, which are employment provisions that ban workers at one company from working for, or starting, a competing business within a certain period of time after leaving a job.

In response, EPI president Heidi Shierholz shared a Twitter thread applauding the proposed rule. 

From EPI president, Heidi Shierholz (@hshierholz):

This morning the @FTC released a proposed rule that, if finalized, will ban noncompete agreements. It is REALLY good. 1/ https://t.co/KlnlFHzIjS

— Heidi Shierholz (@hshierholz) January 5, 2023

The research on this is clear. Noncompetes are ubiquitous, they reduce wages, keep workers from finding better opportunities, and reduce the formation of new firms. 3/ https://t.co/NsnAmuwkkY

— Heidi Shierholz (@hshierholz) January 5, 2023

In other words, noncompetes are about reducing competition, fullstop. That’s bad for workers and bad for consumers. This rule would be an important step in creating an economy that works for everyone. 5/ https://t.co/HT8Mjc3NsY

— Heidi Shierholz (@hshierholz) January 5, 2023