Stagnant GDP at the Start of 2015 is the Latest Evidence That the Economy Hasn’t Reached Escape Velocity
The Commerce Department estimates that U.S. gross domestic product (GDP, the widest measure of overall economic activity) was near stagnant in the first three months of 2015, growing at only a 0.2 percent annualized rate. This is a clear deceleration from the 2.2 percent growth rate in the previous quarter. Final sales (GDP minus the volatile inventory components of GDP) actually declined in the first quarter.
Most of this deceleration is likely transitory—due in part to particularly bad weather in the first quarter. Growth in the rest of 2015 will most likely be faster than previously projected, as the economy bounces back from this weak start to the year. Yet data on GDP in recent years confirms that the U.S. economy has not reached escape velocity—growth rates have not broken past the 2-2.5 pace that normally is associated with rapid declines in economic slack. Because growth has been steady for years, it might be tempting for some policymakers to shrug their shoulders and declare that this is the “new normal” and the best we can do. The economic evidence clearly suggests otherwise—this economy still needs active measures to boost demand to achieve a full recovery. At a minimum, this means the Federal Reserve should put off interest rate increases for the rest of 2015.
Here are a few recent reports about the grim toll of industrial fatalities and the hazards workers are exposed to every day, from the Cal-OSHA Reporter and other sources. Hopefully, they will remind you why we need a strong federal enforcement effort and much better programs of workers compensation for occupational injuries and illnesses. A recent NPR/ProPublica report was a wake-up call about how state legislatures are gutting the programs that compensate employees for lost limbs, lost eyes and damaged hearing, compensate them for lost wages, and pay for the medical care of injured workers.
Bumble Bee Foods facing criminal charges over worker death: “Los Angeles County District Attorney Jackie Lacey on April 27 announced that Bumble Bee Foods LLC and two others are facing criminal charges related to willfully violating worker safety rules and causing the 2012 death of an employee who became trapped inside an industrial oven at the company’s Santa Fe Springs plant.”
OSHA: York workers exposed to asbestos: “A York County company is facing a nearly half-million-dollar fine for allegedly failing to protect employees from asbestos. The York City-based First Capital Insulation Inc. allowed workers to remove asbestos improperly, failed to make sure employees’ respirators fit correctly and did not decontaminate employees and their clothing before they left a work site, the Occupational Safety and Health Administration stated in a news release this week.”
Police: Man dies in Oklahoma City industrial accident: “Oklahoma City police say a worker has died at an area commercial printing business after being trapped under a piece of machinery.”
Worker killed in cinder block wall collapse, Ramsey police say: “A 56-year-old construction worker was killed in a wall collapse at a Ramsey, New Jersey building on Wednesday, officials said.”
Last week, the president claimed that critics who say that the Trans-Pacific Partnership (TPP) “is bad for working families… don’t know what they are talking about.”
But the truth is, there is an emerging consensus that globalization has put downward pressure on the wages of most working Americans, and has redistributed income from the bottom to the top. My colleague Josh Bivens has shown that expanded trade with low-wage countries has reduced the annual wages of a typical worker by $1,800 per year. Given that there are roughly 100 million non-college-educated workers in the U.S. economy, the scale of wage losses suffered by this group likely translates to roughly $180 billion. Trade and investment deals such as the Korea-U.S. Free Trade Agreement (completed by President Obama), and the agreement to bring China into the World Trade Organization in 2001 (negotiated by President Clinton), have contributed these lost wages. It’s not surprising that one commentator concluded that “the Trans-Pacific Partnership trade deal is an abomination,” precisely because of its impacts on “low-skilled manufacturing workers and income inequality.”
Over the last year, and, in fact, over the last five years, nominal wage growth has been slow—slow by historic standards and slow relative to wage growth that would be consistent with the Fed’s 2 percent overall price inflation target. Hourly wage growth has run at about 2 percent a year and, as we’ve discussed in great length, 2 percent hourly wage growth is far below the 3.5-4 percent target growth that is consistent with the Fed’s target of 2 percent price inflation and a 1.5 to 2.0 percent trend in productivity growth.
Wage growth that exceeds this 3.5 to 4 percent target for a period of time is not an economic problem to be solved. Rather, it is a normal pattern of the labor share of corporate sector income finally recovering its pre Great Recession levels. If last month’s weak job growth is just a blip and healthy job growth continues in the next year, this should eventually lead to a labor market tight enough to finally provide workers with the bargaining power necessary to bid up their wages.
There has been some discussion that the sluggish wage growth we’ve seen since the recovery began in 2009 is driven in large part by the mix of jobs being created, as if we have lower wages simply because the economy is adding more low-wage jobs. Earlier in the recovery there was likely some truth to this, as lower-wage sectors saw the first pickup in job growth. However, over the last year jobs have been created throughout the economy in high-, low-, and middle- wage sectors. The evidence suggests that the economy has been adding jobs in proportion to the rate that those jobs already exist in the economy.
It’s a scary thing when powerful government officials misuse their power, and especially when they misuse it to afflict the needy and comfort the comfortable. This appears to be what’s happening now as the chairmen of the two congressional tax-writing committees seek to change the tax status of various worker centers that have annoyed politically active corporations like Walmart, Darden Restaurants, and McDonalds.
I am not a tax lawyer and can’t say with any certainty whether a worker center formed to provide services such as job training, education, and legal assistance to low wage workers should suddenly be transformed from a 501(c)(3) charity into a labor organization if it challenges wage theft or other labor problems caused by a store or corporation. I don’t think the law should operate that way, but the law has a lot of problems.
What I can say is that it’s a shame that Sen. Orrin Hatch and Rep. Paul Ryan are spending their time on a matter of importance only to huge corporations that need no help from Congress in crushing worker organizations, fighting wage increases, and profiting immensely from weak labor standards and high unemployment. As their letter to IRS Commissioner John Koskinen shows, Ryan and Hatch don’t like the fact that worker centers have exercised their constitutionally protected right to “protest and picket against targeted businesses.”
One of the protests the congressmen cited was a Restaurant Opportunity Center protest over the takeover of Olive Garden restaurants by a hedge fund, Starboard, that wanted to cut labor costs by $48 million and transfer the savings to the pockets of investors. The workers and the worker center weren’t asking for the right to be the exclusive bargaining representative: they just didn’t want their wages cut and didn’t want to be changed from waged employees to tipped employees. But Ryan and Hatch want the IRS to investigate the workers.
Right to Work (RTW) laws weaken unions by depriving them of the funding they need to be effective, and workers, both union and non-union alike, in RTW states have lower wages. No one really disputes the first fact—workers in non-RTW states are more than twice as likely (2.4 times) to be in a union or protected by a union contract. And wages in RTW states are far lower—almost 16 percent on average. This isn’t surprising, since RTW’s proponents are anti-union hate groups and business organizations that oppose every effort to help workers organize or raise wages. In fact, their key pitch to legislators (outside of campaign contributions) is that RTW will lower labor costs, improve the “business climate,” and encourage out-of-state businesses to relocate.
So it was surprising to see the Heritage Foundation challenge the notion that RTW has no effect on a state’s wage levels. Yes, they say, wages are lower in RTW states, but it isn’t because of RTW. If true, it would leave proponents with no argument for RTW except its core purpose—weakening unions.
But in fact, it’s not true. EPI senior economist Elise Gould and co-author Will Kimball examined the Heritage report and found it to be deeply flawed. Heritage’s finding depends on statistical tricks—the removal of relevant and standard labor market controls such as the worker’s industry, and the inclusion of nonstandard and irrelevant worker characteristics and state-level amenities. Using only standard and relevant factors in the regression analysis yields a consistent finding: wages in RTW states are 3.1 percent lower than those in non-RTW states, after controlling for a full complement of individual demographic and socioeconomic factors as well as state macroeconomic indicators. This translates into RTW being associated with $1,558 lower annual wages for a typical full-time, full-year worker.
President Obama has been vociferously defending the Trans-Pacific Partnership (TPP) recently. He insists that it will be good for the American middle class and that TPP’s critics arguing otherwise are wrong. But in this case he’s wrong and the TPP critics are right: there is no indication at all that the TPP will be good for the American middle class.
I tried to take this on in very wonky terms in this long-ish report here, and in this post I’ll try to boil it down a bit.
The basic argument for why the TPP is likely to be a bad deal for the middle class is pretty simple. For one, even a genuine “free trade agreement” that was passed with no other complementary policies would actually not be good for the American middle class, even if it did generate gains to total national income. For another, the TPP (like nearly all trade agreements the U.S. signs) is not a “free trade agreement”—instead it’s a treaty that will specify just who will be protected from international competition and who will not. And the strongest and most comprehensive protections offered are by far those for U.S. corporate interests. Finally, there are international economic agreements that the United States could be negotiating to help the American middle class. They would look nothing like the TPP.
Even genuine “free trade” would likely be hard on the American middle class
Most (not all, but most) of the countries that would be included in the TPP are poorer and more labor-abundant than the United States. Standard trade theory has a clear prediction of what happens when the United States expands trade with such countries: total national income rises in both countries but so much income is redistributed upwards within the United States that most workers are made worse off. This is sometimes called “the curse of Stolper-Samuelson”, after the theory that first predicted it. And there is plenty of evidence to suggest that it’s not just a theory, but a pretty good explanation for (part of) the dismal performance of wages for most American workers in recent decades and the rise in inequality. And the scale of the wage-losses are much, much larger than commonly realized—it’s not just those workers who lose their jobs to imports. Instead, the majority of American workers (those without a 4-year college degree) see wage declines as a result of reduced trading costs. The intuition is simply that while waitresses and landscapers might not lose their jobs to imports, their wages are hurt by having to compete with trade-displaced apparel and steel workers.
The House is set today to begin consideration of an ill-conceived bill inappropriately entitled “Death Tax Repeal Act of 2015.” This bill would repeal the estate tax, a tax which only affects estates worth more than $5.4 million—the wealthiest 0.2 percent of estates in the county. Although only very few—and by definition the wealthiest—American estates are affected by the estate tax, these estates are large enough that its repeal will reduce tax revenues by $269 billion over the next 10 years. It is rather disconcerting that the Republican-led Congress wants to increase federal debt by $269 billion to give the wealthiest a tax break but can’t find $168 billion to fund the Highway Trust Fund to repair our crumbling roads and bridges.
Repealing the estate tax also has other serious adverse effects. First, the tax provides an incentive to the wealthiest Americans to leave part of their estate to charity since charitable contributions are tax deductible. Repealing the tax could dramatically reduce charitable giving as wealthy individuals decide to leave their vast estates to heirs rather than charities.
Second and more important, repeal of the estate tax goes against the founding ideals of our country as best summed up by the economist Richard T. Ely when he wrote on the estate tax in 1888:
One of the principles which controlled the action of Jefferson and other founders of this republic, was the abolition of hereditary distinctions and privileges, and their aim was to force each one to rely on his own exertions for his own fortune, desiring to give to all as nearly as practicable an equal start in the race of life.
It has also been urged by others that one of the most dangerous tendencies of our times is the increasing aggregation of wealth in a few hands. This scheme is a slight corrective, which is in harmony with the spirit of our institutions.
Today is Equal Pay Day, a reminder that a significant pay gap still exists between men and women in our country. At the median in 2013, a woman working full-time, full year was paid only 78.3% of what a man working full-time, full-year earned. Equal Pay Day is April 14 because it marks how far into the next year women would have to work to earn the same amount that men earned in the previous year.
But while comparing median full-time, full-year workers is interesting, it is also worth looking at what the wage gap looks like at different points of the male and female hourly wage distributions. Last week, I looked at the pay gap throughout the wage distribution, and found that the gap was highest at the top. Women at the bottom 10th percentile of earners made 91 percent of men’s hourly wages. At the median, women earn 83 percent of men’s hourly wages. But at the 95th percentile, women earn only 79 percent of men’s wages.
We can also look at gender wage gaps by education level. The figure below shows the gender wage gaps at several levels of educational attainment. Even among the most educated workers—those with an advanced degree—large wage-gaps persist, with women making only 74 percent of men’s hourly wages. For those with a college degree, women make about 78 percent of male earnings.
Women earn less than men at every level of education: Hourly wages by gender and education, 2014
|Less than high school||$13.37||$10.44|
Source: EPI analysis of Current Population Survey Outgoing Rotation Group microdata
Although women have come a long way in terms of equality and the gender pay gap since the Equal Pay Act was signed in 1963, there is still a long way to go. Even (and sometimes especially) among the most educated and highest-earning women, significant wage gaps remain. One of the agenda items of our initiative to Raise America’s Pay is to end discriminatory practices that contribute to such gender inequalities. We need consistently strong enforcement of antidiscrimination laws in the hiring, promotion, and pay of women and minority workers. This includes greater transparency in the ways these decisions are made and ensuring that the processes available for workers to pursue any violation of their rights are effective. Wage gaps between men and women are one more way that the rules of the American labor market short changes too many working families.
This post originally appeared in The Huffington Post.
This week, Senator Hatch will reportedly introduce “fast track” (trade promotion authority) legislation in the Senate, to help President Obama complete the proposed Trans-Pacific Partnership (TPP), a trade and investment deal with eleven other countries in Asia and the Americas. “Fast Track” authority would allow the President to submit trade agreements to Congress without giving members of Congress the opportunity to amend the deal. Experience has shown that these trade and investment deals typically result in job losses and downward pressure on the wages of most American workers. The last thing America needs is renewal of fast track and more trade and investment deals rushed through Congress.
The administration has claimed that the TPP will create jobs, but it will not. There are other policies that have attracted bipartisan support, including ending currency manipulation and rebuilding infrastructure that could each create millions of U.S. jobs. President Obama has limited political capital to expend with the Republican-controlled Congress and he must choose his policies wisely.
Trade and Jobs?
For more than twenty years, both Democratic and Republican administrations have claimed that free trade agreements like the U.S. – Korea Free Trade Agreement (KORUS) and the North American Free Trade Agreement (NAFTA) would lead to growing U.S. exports and stimulate creation of goods jobs in the United States. Bill Clinton claimed that NAFTA would create 200,000 jobs in its first two years and a million jobs in five years. President Obama claimed that KORUS would “support 70,000 American jobs” because the agreement would “increase exports of American goods by $10 billion to $11 billion.”
Claims that trade and investment deals would support domestic job creation have proven to be empty promises. Expanding exports alone is not enough to ensure that trade adds jobs to the economy. Increases in U.S. exports tend to create jobs in the United States, but increases in imports lead to job loss—by destroying existing jobs and preventing new job creation—as imports displace goods that otherwise would have been made in the United States by American workers. Thus, it is changes in trade balances—the net of exports and imports—that determine the number of jobs created or displaced by trade and investment deals like NAFTA and KORUS.
This piece originally ran in The American Prospect.
We think of America as the land of opportunity, but the United States actually has low rates of upward mobility relative to other advanced nations, and there has been no improvement in decades. Creating more opportunity is therefore a worthy goal. However, when the goal of more opportunity is offered instead of addressing income inequality, it’s a dodge and an empty promise—because opportunity does not thrive amid great inequalities.
It is important to distinguish between opportunity (or mobility) and income inequality. Concerns about mobility relate to strengthening the chances that children who grow up with relatively low incomes will attain middle-class or higher incomes in their adulthood. To address income inequality, on the other hand, is to focus on whether low- and middle-income households improve their share of the economic growth generated in the next two decades. Rising inequality is best illustrated by the fact that while the top 1 percent only received 9 percent of household income in 1979, this group gained either 38 percent (using the CBO’s comprehensive measure) or 60 percent (using tax data on market-based incomes) of the income growth between 1979 and 2007. That is, the top 1 percent received four to six times its expected share of all the income growth.
The opportunity dodge is popular with centrist and conservative politicians. Conservatives, for the most part, consider income outcomes to be the result of meritocracy. “I don’t care about income inequality per se; I care about opportunity inequality,” Arthur Brooks, head of the American Enterprise Institute recently said. “I want everybody to have a chance to be mobile, to rise, for everybody to have a chance to earn success.” Likewise, Jeb Bush’s highly touted speech to the Economic Club of Detroit keyed in on “the opportunity gap.” Left unsaid is that groups losing out from income inequality are judged to have not exerted sufficient effort, to have inadequate skills, or to have pursued counterproductive behaviors (such as not getting married).
As I noted in earlier blog posts, Andrew Biggs of the American Enterprise Institute and retired Towers Watson executive Sylvester Schieber have been leading a chorus of retirement crisis deniers, based in large part on the claim that income surveys don’t count lump-sum distributions from retirement accounts. While no one denies that the Census Bureau’s Current Population Survey income measures don’t include these distributions, it has always been clear from other survey data—notably the Federal Reserve’s Survey of Consumer Finances—that savings in these accounts are so unequally distributed that they make little difference to most retiree households.
Starting in 2014, the Census Bureau began asking some survey respondents about lump-sum distributions as well as other questions designed to better capture income from interest-earning accounts and other sources. Preliminary results are in, and they don’t support Biggs and Schieber’s vision of sugar plums for retiree households. The median income of households 65 and older increased from $35,611 to $37,252—less than 5 percent—a far cry from the 60 percent difference Biggs and Schieber were throwing about. This is less than the increase seen by households age 45-54, whose median income rose from $67,141 to $70,802, presumably because income from retirement sources increased less than income from other interest-earning accounts.
Biggs and Schieber, usually impressively quick on the draw, have been noticeably silent.
The widespread, flagrant abuse of the H-1B visa, which allows employers to hire non-immigrant foreign workers for IT jobs and other skilled work, is drawing bipartisan attention in Congress. In particular, the case of Southern California Edison (SCE), which used two Indian outsourcing firms to replace 400-500 well-paid U.S. workers with cheaper guestworkers, has caught the attention of leaders from both parties. 10 senators sent a letter to the Obama administration calling for an investigation by the Departments of Justice, Homeland Security, and Labor.
As we have pointed out many times, the biggest users of the H-1B visa are not small businesses looking for a rare scientist or information technology wizard. Rather, they are big corporations like Disney, SCE, and Northeast Utilities that want to reduce their labor costs by hiring younger, cheaper foreign workers. They hire “body shops” like Tata, Infosys and Wipro to import Indian college graduates to replace U.S. workers who might be paid $30,000 or $40,000 more. And it’s legal! It’s wrong and it’s appalling, but it’s legal.
Microsoft, Google, and the other high tech companies that want to increase the number of H-1B visas available to private employers by 120,000 or so claim they can’t find the tech workers they need in the U.S. and don’t have access to enough foreign workers. There is not much evidence to support their claim. But one thing is clear: if the H-1B visa weren’t used to replace U.S. workers, there would be a lot more available to Microsoft et al. Congress should reform the H-1B and prevent its abuse before it gives any thought to expanding the number of visas available.
This post was updated at 5:43 pm to reflect additional analysis.
Today, the Washington Post fact checker, Glenn Kessler, claimed that Public Citizen’s analysis of the Korean Free Trade Agreement (KORUS) is based on flawed economics and faulty math. Kessler accepts the White House claim that the employment effect of the KORUS should be based only “on a gain in merchandise exports,” and then claims that “the most appropriate way to look at export flows would be on an annual basis, which shows a net gain of about $2.3 billion. That’s theoretically a gain of 15,000—a far cry from the loss of 85,000 [jobs],” as estimated by Public Citizen. By ignoring imports, Kessler completely ignores one of the most important factors in the effects of trade on employment.
Imports reduce the demand for domestic goods and services. This is a fundamental assumption in introductory (and applied) macroeconomics. By ignoring it, Kessler denies his readers critical information needed to evaluate Public Citizen’s claim.
The Fact Checker approach (and the White House’s KORUS trade and job estimate) is a form of bookkeeping which counts only the credits and ignores the debits. It would earn a failing grade in any basic accounting class. Kessler spends a lot of time talking about things that make job and export calculations difficult (overall economic health, and the state of the business cycle), and yet he glosses over the impact of imports. It’s really important to calculate the jobs impact of both exports and imports, and it’s easy to do.
I’ve written before about how one of the recurring myths following the Great Recession has been that recovery in the labor market has lagged because workers don’t have the right skills. The figure below, which shows the number of unemployed workers and the number of job openings in February by industry, is the best way to rebut this idea. If today’s labor market woes were the result of skills shortages or mismatches, we would expect to see some sectors where there are significantly more unemployed workers than job openings, and others where there are significantly more job openings than unemployed workers. What we find when looking at the data is that there are more unemployed workers than jobs openings in most industries.
Last year, the graph showed that the number of unemployed workers exceeded job openings in all industries, but there have been some signs of tightening in February. For several months now, health care and social assistance was the only sector where those workers appeared to be facing a tighter labor market. Now, it appears that they are not alone: finance and insurance and wholesale trade both have job seekers and job openings close to on par with each other.
This within-sector tightening is a small sign of good news in February’s JOLTS report. Unfortunately, other sectors have seen little-to-no improvement in their job-seekers-to-job-openings ratios. There are, for example, still five-and-a-half unemployed construction workers for every job opening. In other words, despite claims from some employers, there is no shortage of construction workers.
In fact, while the market does appear to be improving for some types of unemployed workers, there are no significant worker shortages anywhere in the economy. Taken as a whole, these numbers demonstrate that the main problem in the labor market is a broad-based lack of demand for workers—not available workers lacking the skills needed for the sectors with job openings.
The hires, quits, and layoffs rates all held fairly steady in the February Job Openings and Labor Turnover Survey (JOLTS) report.
As you can see in the figure below, layoffs shot up during the recession but recovered quickly and have been at prerecession levels for more than three years. The fact that this trend continued in February is a good sign. That said, not only do layoffs need to come down before we see a full recovery in the labor market, hiring needs to pick up. The hires rate was unchanged in February. It has been generally improving, but it still remains below its prerecession level.
The voluntary quits rate fell slightly from 2.0 in January to 1.9 in February, the same rate it had been for both November and December. In February, the quits rate was still 9.2 percent lower than it was in 2007, before the recession began. A larger number of people voluntarily quitting their jobs indicates a strong labor market—one where workers are able to leave jobs that are not right for them and find new ones. Before long, we should look for a return to pre-recession levels of voluntary quits, which would mean that fewer workers are locked into jobs they would leave if they could. But we are not there yet.
Hires, quits, and layoff rates, December 2000–February 2015
|Month||Hires rate||Layoffs rate||Quits rate|
Note: Shaded areas denote recessions. The hires rate is the number of hires during the entire month as a percent of total employment. The layoff rate is the number of layoffs and discharges during the entire month as a percent of total employment. The quits rate is the number of quits during the entire month as a percent of total employment.
Source: EPI analysis of Bureau of Labor Statistics Job Openings and Labor Turnover Survey
The employment situation for March showed downward revisions to payroll employment in both January and February and a considerably slower growth in jobs in March. This morning’s Job Openings and Labor Turnover Survey (JOLTS) report generally corroborates that story—the recovery hasn’t stalled, but it isn’t doing much better than simply chugging along.
The total number of job openings reached 5.1 million in February; the number of unemployed workers fell to 8.7 million. Taken together, the result was a slight drop in the job-seekers-to-job-openings ratio. In February, there were 1.7 times as many job seekers as job openings. This ratio has been declining steadily from its high of 6.8-to-1 in July 2009, as shown in the figure below.
The job-seekers ratio, December 2000–February 2015
|Month||Unemployed job seekers per job opening|
Note: Shaded areas denote recessions.
Source: EPI analysis of Bureau of Labor Statistics Job Openings and Labor Turnover Survey and Current Population Survey
What’s notably missing from the story are the millions of workers who have been sidelined because of weak job opportunities. When the number of unemployed workers fell in February, the numbers of missing workers ticked up. While it’s important not to put too much weight into any one month’s number, it’s unlikely that a continued fall in the job-seekers-to-job-openings ratio is sustainable in the near term as more workers enter or re-enter the labor force when job opportunities grow.
Millions of potential workers sidelined: Missing workers,* January 2006–March 2015
* Potential workers who, due to weak job opportunities, are neither employed nor actively seeking work
Note: Volatility in the number of missing workers in 2006–2008, including cases of negative numbers of missing workers, is simply the result of month-to-month variability in the sample. The Great Recession–induced pool of missing workers began to form and grow starting in late 2008.
Source: EPI analysis of Current Population Survey public data series
This piece originally appeared in The Hill.
The April Fool is anyone who reads Alex Nowrasteh’s column about H-1B guest-workers and believes his bunk. If he had actually read the paper he cites about the effect of H-1B workers on American productivity he’d know that his claims are ludicrous. The paper doesn’t find that H-1B workers “have increased American productivity by 10 to 25 percent from 1990 to 2010”; it makes that estimate for the entire foreign STEM workforce, which includes one hundred thousand foreign students in the Optional Practical Training program who graduated with STEM degrees from U.S. schools, L-1 visa holders, and 300,000…
As I wrote earlier today, while it may be too soon to sound the alarm, this morning’s Employment Situation Report should give us pause. The bottom line is this: only 126,000 jobs added in March and the downward revision of 38,000 jobs in February, together make for disappointing numbers. While it’s important not to put too much stock in a couple months of data—especially since February and March’s job creation numbers were likely dampened by the unusually large amount of snow that blanketed the country those two months—policymakers should be wary of any signs of any slowdown from the solid job growth over the previous year.
Other indicators make it clear that there is still ample slack in the labor market, most notably in the continuing trend of inadequate wage growth—private sector hourly wages are up only 2.1 percent over the year. The chart below looks at both private sector wages and the wages of production and nonsupervisory workers over the last several years, and it’s clear that wages according to either measure are far below target.
There was, however, one positive wage sign: a mild acceleration in quarter over quarter hourly wages. The annualized increase between 2014 Q4 and 2015 Q1 was 2.8 percent, reasonably faster than trend 2.0 percent. Despite this mild acceleration, we need to see even faster growth, and for a longer time, before we can say the economy is truly working for working people. The slow growth of private sector wages coupled with a few months of disappointing jobs growth mean that the Federal Reserve should not be thinking about tapping the brakes any time soon.
Nominal wage growth has been far below target in the recovery: Year-over-year change in private-sector nominal average hourly earnings, 2007–2015
|All nonfarm employees||Production/nonsupervisory workers|
* Nominal wage growth consistent with the Federal Reserve Board's 2 percent inflation target, 1.5 percent productivity growth, and a stable labor share of income.
Source: EPI analysis of Bureau of Labor Statistics Current Employment Statistics public data series
Hardcore fans of EPI’s labor market indicators will notice a change today. Our estimate of the number of “missing workers”—potential workers who are no longer classified as in the labor force but who will likely be working or looking for work if the labor market improvement continues—has been revised.
Our earlier estimates were built in large part upon projections for labor force growth contained in a paper published by the Bureau of Labor Statistics in 2007. These projections examined labor force participation rates for age-specific groups of both men and women between 1986 and 1996 and between 1996 and 2006. The paper then projected age- and gender-specific labor force participation rates for 2016.
We used these projected rates to see what labor force participation “should” be in each month between 2006 and 2016, and interpreted shortfalls between the actual participation rate and these projections as how much participation was depressed due to economic weakness, as opposed to structural changes in the labor force, like the retirement of baby boomers. We chose to look at pre-2008 projections precisely because we wanted these projections to be free of any cyclical drag imposed by the Great Recession.
But looking again at these projections recently, we noticed some slightly worrying features. For one, the labor force participation rate for men 25-34 fell significantly in both the 1986-1996 and 1996-2006 periods, yet was projected to rise substantially between 2006 and 2016. Further, the unemployment rate in 1986 was 7.0, the unemployment rate in 1996 was 5.4, and the unemployment rate in 2006 was 4.6 percent. This means that the trends estimated in the BLS projections may be buoyed up by cyclical effects. The BLS projections made no attempt to parse trends in participation rates that were driven by long-run trends versus cyclical weakness in the economy.
Eleven Atlanta educators, convicted and imprisoned, have taken the fall for systematic cheating on standardized tests in American education. Such cheating is widespread, as is similar corruption in any institution—whether health care, criminal justice, the Veterans Administration, or others—where top policymakers try to manage their institutions with simple quantitative measures that distort the institution’s goals. This corruption is especially inevitable when out-of-touch policymakers set impossible-to-achieve goals and expect that success will nonetheless follow if only underlings are held accountable for measurable results.
There was little doubt, even before the jury’s decision, that Atlanta teachers and administrators had changed answers on student test booklets to increase scores. There was also little doubt that Atlanta’s late superintendent, Beverly Hall, was partly responsible because she had, as a state investigation revealed, “created a culture of fear, intimidation and retaliation” that had permitted “cheating—at all levels—to go unchecked for years.”
What the trial did not explore was whether Dr. Hall herself was reacting to a culture of fear, intimidation, and retaliation that her board, state education officials, and the Bush and Obama administrations had created. Just as her principals’ jobs were in jeopardy if test scores didn’t rise, her tenure, too, was dependent on ever rising test scores.
Holding educators accountable for student test results makes sense if the tests are reasonable reflections of teacher performance. But if they are not, and if educators are being held accountable for meeting standards that are impossible to achieve, then the only way to meet fanciful goals imposed from above—according to federal law, that all children will make adequate yearly progress towards full proficiency in 2014—is to cheat, using illegal or barely legal devices. It is not surprising that educators do just that.
The recent budget negotiations in Congress are a reminder that policymakers can actively slow (or if they choose, speed up) recovery by depressing (or increasing) demand. As the budget talks continue, it is important to remember that more stimulus, not austerity, would have aided in the labor market recovery, and would still be a powerful way to grow the economy.
Austerity at all levels of government continues to be a drag on the economy. The effects of austerity are widespread. Cuts to safety net programs (like SNAP), for instance, not only hurt families, but also decrease demand which would spur on job growth. One clear, direct effect, meanwhile,is the lack of public sector jobs, particularly at the local level—think teachers.
As shown in the figure below, public sector jobs are still nearly half a million down from where they were before the recession began. And, this fails to account for the fact that we would have expected these jobs to grow with the population—taking that into consideration, the economy is short 1.8 million public sector jobs. This shortfall in jobs in turn removes the multiplier effect on private sector demand, snowballing into an even slower recovery.
The National Retail Federation Hates the Proposed Overtime Rules (Even Though No One Knows What They Are)
The National Retail Federation (NRF) doesn’t know what the U.S. Department of Labor’s new rules concerning exemptions from overtime protections will be, but they know they’re against them. Claiming to speak on behalf of managers who might be affected by the not-yet-released rules, NRF says: “Retail managers say the proposed changes to the federal Fair Labor Standards Act regulations show the Department greatly misunderstands their roles in the workplace and would effectively strip retail managers of their salaried status, generating negative consequences for the entire industry.”
But unless someone has leaked the proposed rule to them, NRF is just making things up! What are “the proposed changes to the federal Fair Labor Standards Act regulations” that the managers disapprove? NRF doesn’t say. Equally important, what did NRF tell the managers it surveyed? Why do “75 percent of respondents” say “the changes would diminish the effectiveness of training and hinder managers’ ability to lead by example”? I personally doubt very much the proposed rule, if it is ever issued, will say anything about training.
Some of the NRF report’s “key findings” are pretty wild. For example, “Duties and salary are not effective litmus tests for successful management.” The Fair Labor Standards Act requires employers to pay an overtime premium to all employees, including managers, unless they are bona fide executives, administrators, or professionals. The definition of “executive” has always, since the FLSA was enacted in 1938, used duties tests and the salary level to determine who is a bona fide executive. That is the case today, so the “key finding” is nonsense. The question for the Department of Labor is what salary level is an executive salary? Is it $70,000 a year, or is it the current $23,660 threshold set by the Bush administration in 2004?
What to Watch on Jobs Day: Weather-Related Revisions, Thoughts on Austerity, Missing Workers, and Nominal Wages
As another Jobs Day approaches, there are a few things I’ll be thinking about and watching for: the top line payroll employment numbers and whether the February number will get revised downward (because of the weather); the effect that proposed budget cuts could have (and the harmful effects that austerity has had so far on the economic recovery); whether more people enter the labor force in March as job opportunities appear to be on the horizon and what that does to our missing workers number (and the official unemployment rate); and, of course, what’s happening with nominal wages (and the patience of the Fed).
While payroll employment has picked up in the last year, February’s numbers—295,000 new jobs—came in a little higher than expectations. It’s possible that revisions may lower that number slightly, because of the unseasonably large amounts of snow that fell mid-month. However, we should not put too much stock into any small deviations from trend. Job growth has been solid, and as long as it stays that way, a return to pre-recession labor market health is about two years away.
I’m optimistic for stronger growth and a faster recovery, but the recent budget talks are a reminder that policymakers can actively slow (or if they choose, speed up) recovery by depressing (or increasing) demand. As the budget debate continues in Congress, it is important to remember that more stimulus, not austerity, would have aided in the labor market recovery. Austerity at all levels of government continues to be a drag on the economy. One clear direct effect of austerity is that public sector jobs are still nearly half a million down from where they were before the recession began. And, this fails to account for the fact that we would have expected these jobs to grow with the population—taking that into consideration, the economy is short 1.3 million public sector jobs. This shortfall in jobs in turn removes the multiplier effect on private sector demand, snowballing into an even slower recovery. Furthermore, cuts to public programs (like SNAP) not only hurts families, but also lower the demand needed to spur on job growth.
Earlier this week, I had the opportunity to present findings from my recent report, The Impact of Full Employment on African American Employment and Wages, at the Center on Budget and Policy Priorities’ Full Employment forum. This blog post is taken from my opening remarks, which you can watch on C-SPAN.
Talking about the labor market each month has become a bit like taking my children on a road trip—every couple miles one of them is asking, “Are we there yet?” In the case of the labor market, this question commonly refers to whether or not the economy has fully recovered. In both cases, my typical response is, “No, not yet.” If you’re familiar with either of these situations you know that answer usually leads to another question: “How much longer?” The answer to that question ultimately depends on the intended destination.
Clearly, going to a neighborhood park requires less time in the car and is cheaper than going to Busch Gardens. However, it’s also true that the payoff for these two destinations is not the same. Similarly, I would argue that full employment is a better destination with a better payoff than full recovery, and this is especially true for African Americans. The distinction is this: A full recovery is simply a return to pre-Great Recession labor market conditions. Whether or not that’s a good outcome depends on how well you were doing in 2007—while the national unemployment rate in 2007 was 5.6 percent, the black unemployment rate was 8.3 percent. On the other hand, full employment raises the bar to the point at which anyone who is willing and able to work at the prevailing wage rate can find a job.
(Update of a blog post from March 14, 2014).
March 15th was the third anniversary of the U.S.-Korea Free Trade Agreement (KORUS). President Obama said that the agreement would support 70,000 U.S. jobs. This claim was supported by a White House fact sheet that claimed that the KORUS agreement would “increase exports of American goods by $10 to $11 billion…” and that they would “support 70,000 American jobs from increased goods exports alone.” Things are not turning out as predicted. Far from supporting jobs, growing goods trade deficits with Korea have eliminated more than 75,000 jobs between 2011 and 2014.
Expanding exports alone is not enough to ensure that trade adds jobs to the economy. Increases in U.S. exports tend to create jobs in the United States, but increases in imports lead to job loss—by destroying existing jobs and preventing new job creation—as imports displace goods that otherwise would have been made in the United States by domestic workers. Thus, it is changes in trade balances—the net of exports and imports—that determine the number of jobs created or displaced by trade and investment deals like KORUS.
In the first three years after KORUS took effect, U.S. domestic exports to Korea increased by only $0.8 billion, an increase of 1.8 percent, as shown in the figure below. Imports from Korea increased $12.6 billion, an increase of 22.5 percent. As a result, the U.S.trade deficit with Korea increased $11.8 billion between 2011 and 2014, an increase of 80.4 percent, nearly doubling in just three years.
Should We Force Integration on Those Who Don’t Want It?, and Other Commonplace Questions about Race Relations
Last week, Stuart Butler and Jonathan Grabinsky of the Brookings Institution published a web-memorandum describing “Segregation and Concentrated Poverty in the Nation’s Capital.” It showed that racial segregation has not diminished in Washington, D.C. over the last 20 years and that few blacks in the city live in low-poverty neighborhoods, while most whites in the city do so. It noted that such segregation blocks economic mobility for African Americans.
I write here not so much to discuss their memorandum as the comments that followed it on the memo’s web page. One asked,
“Who is forcing this segregation? Could it just maybe be a voluntary choice of the individuals involved? Could it be basic human nature to be with those more like yourself??? Do you think we should force integration on all Americans regardless of what they want???… Why is it the business of government to decide who lives where??”
Another observed that African Americans in the Washington metropolitan area are
“…moving to segregated areas of Maryland which does not help the situation. Even though mandating a move [to integrated neighborhoods] might be a good social engineering experiment I’m sure it will be quickly looked on as gerrymandering.”
And another said that it is obvious that
“there are negative consequences to a person’s decision NOT to invest in their own human capital, to develop marketable skills or to become educated… [L]et’s not get fooled by the notion that “segregation” is a cause. We are all self-educated! It’s just that some of us decided not to participate in that effort. … I don’t have a whole lot of sympathy for anybody that decides to follow that path – nor do I think the rest of us should have to pay for it!”
These are very commonplace reactions to discussions of racial segregation, by those who are relatively well-informed and those who are not, and by liberals and conservatives alike. These issues deserve to be aired, explored, and resolved.
The first commenter asks, reasonably, “Why is it the business of government to decide who lives where?” Perhaps it is not, but the commenter fails to realize that it was government that decided that blacks should live in ghettos. We should think of efforts to desegregate as only a demand that government undo the enduring effects of its previous unconstitutional decisions about who should live where. The second commenter is partly correct that desegregation policy would be “social engineering.” What she fails to realize is that it would only be reverse social engineering, attempting to undo the harm previously committed by government’s successful and multi-faceted efforts to engineer segregation.Read more
As I’ve noted before, as trade agreements and other legislation (Trade Promotion Authority, or TPA) get debated, you’ll see more and more bad arguments in favor of them. Just yesterday, a study from Third Way claimed that trade agreements signed after 2000 have led to reductions in the U.S. trade deficit. They label these post-2000 trade agreements as “higher standard” trade agreements.
My guess it would be news to lots of policymakers that, say, the Central American Free Trade Agreement (CAFTA) and the Australia-U.S. FTA, signed in the mid-2000s during the George W Bush administration, and the Korea-US and Panama-US agreements, signed in 2012 and 2013 respectively, all qualify as simply indistinguishably “high-standard.” For instance, those who follow issues of labor standards, say, would argue that CAFTA had far less effective labor protections than these later agreements.
Leaving that aside, Third Way claims that because bilateral trade balances between the United States and the signatory countries improved after the treaties were enacted, that this means these agreements are “working.” This is really facile analysis. To see why, just note that the large majority (about 75%) of the total improvement in bilateral trade deficits following trade treaty enactment that Third Way identifies occurred with a set of countries that signed trade agreements between 2004 and 2006: Singapore, Chile, Australia, El Salvador, Guatemala, Honduras, Nicaragua, Morocco and Bahrain. The real action is the first three, which account for nearly all the improvement in this groups’ bilateral trade balance improvement between treaty enactment and 2014.
What’s the significance of this? Well of course the sum of trade balances with those countries improved between 2004-06 and 2014—the overall U.S. trade deficit fell from over $1 trillion on average in those years to just over $900 billion today.*
There was nothing magic at all about those trade treaties that drove improvement in the nation’s trade balance—what happened between the mid-2000s and today was the Great Recession, which compressed imports and reduced trade deficits. Add to this the improvement in the U.S. oil trade balance (which I don’t think anybody claims has been influenced by trade treaties) and you really don’t need to invoke trade treaties at all to explain improving trade balances between 2004-06 and 2014.
*Update: I’m reporting numbers that used the same deflation choice Third Way used – converting to $2014 using the CPI-U-RS. This isn’t quite the right way to deflate these, but wanted my numbers to be comparable.
This piece originally appeared in The Hill.
The annual federal budget debate typically doesn’t excite many folks outside the Washington beltway. And with good reason—the Republican budget process is intended to lull the public to sleep by staying short on details and long on damaging provisions that will hurt low-income and middle-class families.
But folks should pay attention to the debate because budgets have consequences—and if done right, they can truly move our country forward. The “People’s Budget,” which we both helped prepare, is a bold and responsible alternative to the Republican plans that take from working families while giving more to corporations and the wealthy.
The GOP budgets proposed in Congress would cut about $5 trillion over the next decade. The overwhelming burden would fall on programs that boost working families: education, Medicare and Medicaid, college aid, job training, medical research and rebuilding roads and bridges. Tens of millions of Americans would lose health insurance and millions more would lose food stamps or be priced out of college.
Republicans push these devastating cuts as a path to a balanced budget. But their budgets have been widely panned by experts as being based on “magic asterisks.” While they’re comfortable putting the squeeze on working families who will be most affected by these cuts in benefits and services, they refuse to ask corporations and the wealthy to contribute one thin dime to the effort. In fact, not one tax loophole is closed by their budgets.
The Senate Judiciary Committee explored important economic questions this week. Should businesses be able to lay off qualified U.S. tech workers and replace them with lower paid foreign workers? Is there a shortage of skilled Science, Technology, Engineering and Math (STEM) workers—or an oversupply? And even if there is such a shortage, should we import temporary non-immigrant labor from abroad, or would it be better to let the free market work long enough for wages to rise and more students to be attracted to these fields?
The committee’s Republican and Democratic members disagreed with each other without regard to party labels. No senator, in fact, seemed more concerned about the rights of U.S. workers and their economic outcomes—and more skeptical of claims made by the business community—than Sen. Jeff Sessions of Alabama, a conservative, anti-union Republican. Two Democrats, Sen. Amy Klobuchar (D-MN) and Sen. Chuck Schumer (D-NY) took the side of big business, along with Sen. Orrin Hatch (R-UT), Sen. John Cornyn (R-TX) and Sen. Jeff Flake, while Sen. Dick Durbin (D-IL) and Sen. Chuck Grassley (R-IA) defended the interests of U.S. workers.
Most Americans probably think it is illegal to lay off an U.S. worker and replace him with a temporary foreign worker. Yet Prof. Ron Hira and several other witnesses testified that this is not just a common practice, it is the primary use of the H-1B visa program. (Hira points out that most of the top 10 users of the H-1B visa are firms that outsource and offshore U.S. IT jobs.) When Ben Johnson of the American Immigration Council said replacing U.S. workers should not be prohibited, Sens. Hatch, Klobuchar, and Flake all agreed; in fact, they voted in 2013 to remove language from the immigration bill that would have made it illegal to use the H-1B visa to replace U.S. workers. And all three are sponsors of the “I-Squared” bill, which would triple the number of temporary non-immigrant foreign workers replacing Americans.