Last week, Dylan Matthews wrote that, “You can always rely on the Economic Policy Institute for really depressing charts about just how far behind the U.S. middle class is falling.” In an attempt to show our positive side, here’s a new video, from our friends at the Topos Partnership, that explains the economy in terms everyone can understand.
The video makes the case that helping low wage workers helps everyone, and it does it without depressing charts or regression analyses. Given that today’s weak labor market is due to a severe demand shortage, raising wages at the bottom and middle can indeed boost economy-wide demand. When the economy is closer to full-employment, raising wages at the bottom and middle may not necessarily lead to higher GDP, but increasing the minimum wage and strengthening labor standards creates a floor that raises living standards for everyone. That, to us, is the very definition of a better-working economy.
NPR’s Planet Money had a good story this week about problems with the official measure of poverty, noting the general consensus among academics, researchers, and policy analysts alike that the federal poverty line has some fundamental flaws.
For one, the poverty line doesn’t take into account geographic differences—ignoring the widely varying regional prices for necessities like rent and child care. In New York City for example, where Marion Matthews, the single mom in the NPR story lives, rent and child care for a one-adult-one-child family can cost $2,544 per month, but only costs $923 per month in Simpson County, Mississippi.
Furthermore, the federal poverty line is calculated using a method that is obsolete given recent and historical trends in the U.S. economy. The current methodology was designed in 1963, and it basically set the poverty line at three times the cost of a basic food budget. Since then, the line has been only updated to account for overall inflation. Thus, for example, it doesn’t accurately reflect the increasing share of family budgets going towards housing and health care and the decreasing share going to food.
Besides these problems in calculating the right threshold for poverty, the current methodology does not account for resources that help raise living standards, such as food stamps and tax credits.
On February 13, 2012, Apple announced that it would be relying on inspections by the Fair Labor Association as a path to ending labor rights abuses in its supply chain, leading to front page coverage in the New York Times. Six weeks later the FLA released a report documenting a range of serious labor rights violations at three Foxconn factories making Apple products, most of them previously reported by independent investigators whose findings Apple had largely ignored. Apple, Foxconn and the FLA pledged that these violations would be addressed through reforms to be implemented by July 2013.
That deadline has now passed, strangely unremarked upon by Apple and its chosen labor rights monitor, and Apple has not made good on its commitments. It is clear from interim verification reports by the FLA and from independent assessments that progress in Apple’s supply chain has fallen far short of the sweeping change promised early last year, particularly in the areas of unpaid compensation, inadequate wages, illegal overtime, violations of workers’ rights to freedom of association, and the scope of the reform efforts within Apple’s full (and massive) supply chain. The FLA’s August 2012 and May 2013 interim reports claimed great strides, but included concrete findings that often belied this positive spin (as we discussed here and here).
The FLA reports helped obscure a number of disturbing realities.
It was fifty years ago the March on Washington for Jobs and Freedom took place. The demand for a higher minimum wage was part of a package of demands seeking economic justice for workers through government intervention in the labor market. At that time, the wage floor was $1.15 and marchers were demanding a raise to $2.00. Today, that 50 year old demand would be worth about $13.39 when adjusted for price changes.
“To Work with Dignity” with my co-author Steven Pitts is the first in a series titled “The Unfinished March” that the Economic Policy Institute is releasing to review the demands, analyze the progress made, and determine the unfinished steps necessary to fully achieve each of the goals of the 1963 March.
Juliet Lapidos had a nice editorial in The New York Times on Saturday that took on the issue of unpaid internships—based on the recent news about Sheryl Sandberg’s Lean In foundation using Facebook to find a “part-time, unpaid” intern “with editorial and social chops” as well as “Web skills.” Lapidos reports that the ensuing uproar made the foundation reconsider and promise to pay the rather skilled employee they were looking for. Given that an estimated two-thirds of unpaid interns are women, and given that unpaid internships on average lead to much poorer employment prospects than do paid internships (fewer job offers and much lower salary offers), Lean In’s attempt to exploit this sketchy alternative to paid employment was embarrassing. The way to help young women get ahead is to pay them for their work, for their “editorial chops” and for their web skills, not to exploit them.
Lapidos made an important point about what’s needed to change the culture that makes this exploitation seem OK. A recent spate of lawsuits has brought the law to the attention of many employers for the first time, and it is dawning on some of them that there is a risk to cheating young workers out of the minimum wage. But interns looking for references for their resumes are unlikely to sue, and most cases–even if meritorious–don’t involve enough back pay to be worth a private lawyer’s time. What’s needed is energetic enforcement by the U.S. Department of Labor and the various state departments of labor. Very little effort would be required to make a difference. If investigators scanned Craigslist they could find plenty of cases to prosecute, and with appropriate publicity and media attention it wouldn’t take long for employers to catch on and clean up their act.
As Lapidos put it, “proper enforcement of labor law shouldn’t depend on exploited interns’ willingness to suffer through courtroom ordeals.” That’s what we pay government lawyers for.
The March on Washington fifty years ago was the first of many marches I would make: for civil rights; against one war, then another; against poverty; for women’s rights; for gun control; for the environment; and now back to celebrate the first.
They merge a bit in my memory. I’m not totally sure who all was with me at which event. I definitely remember sweltering in a suit and tie to help bring a white middle-class look to that first March for Jobs and Freedom.
I was inspired by King’s speech. But I was also inspired by practically everyone who spoke that day. To my young earnest policy wonk mind others seemed to be more on the specific agenda message than he was. Certainly I had no sense that his speech would be so historic. Nor that the March would be.
I was a volunteer foot soldier in Dr. King’s army: registering black voters in Virginia, picketing against discrimination in housing and hiring practices, helping get white faces to meetings and rallies. In 1965, I joined the march from Selma to Montgomery Alabama, where unlike the earlier Washington march, real fear walked with us.
This activism didn’t come naturally. I came from a family of white working poor—mostly indifferent to the oppression of the “Negroes.” We had our own problems paying the rent and putting food on the table. And, at least subconsciously, we were vaguely aware that the subjugation of black people kept us from joining them at the absolute bottom of the economic ladder.
David Autor and David Dorn had an op-ed in the NYT this weekend, outlining their case that technology has been the primary headwind for middle-class living standards over the past generation. We tend to have a different view; we think that the cumulative effect of economic policy decisions made over this time-span has been the real barrier to decent growth in middle-class living standards.
The first question lots of people have upon hearing this dispute is “does it actually matter?” Autor and Dorn accept (and document) just how rough a go it has been for middle-wage/middle-income workers and clearly accept that the rise in inequality that has seen rewards flow away from the middle-class is a problem that needs to be rectified. Who cares why they think it happened if they’re on-board with attempts to fix it?
The answer to this is simple and important: the diagnosis matters because it implies a prescription. In Autor and Dorn’s NYT piece, the only real policy solution they nod to is boosting the share of workers with higher education, noting that “the payoff for college and professional degrees has soared.” And if one believes that technology is boosting demand for high-skill workers and that’s why middle-wage jobs are suffering, this policy solution does make sense. But in fact, the payoff to a college degree has actually been pretty flat for more than a decade now. Wages for those with an advanced degree have done better, but this group is just over 10 percent of the workforce—which is a key reason why Autor and Dorn note that boosting the share of workers with college or advanced degrees can’t be a “comprehensive solution to our labor market problems.”
Here are a few articles we read recently. What did you read today?
- Should White House interns be paid? (The Week)
- Unfinished Work: Walter Reuther and the March on Washington (Dissent)
- The Socialists Who Made the March on Washington (The American Prospect)
- No More Second Chances for Larry Summers (The Nation)
- Professor Pants-on-Fire (The Nation)
- Five speakers to pay attention to at Jackson Hole (MarketWatch)
On Wednesday, Larry Mishel and Heidi Shierholz released a paper tracking wage-growth over the past decade. It’s familiar but still sad news—the vast majority of American workers have seen essentially stagnant or worse wage-growth over that time.
One angle on poor wage-growth over the past couple of years deserves some attention: the vastly disproportionate share of income-growth that has flowed to corporate profits (and other forms of capital income) rather to wages and (and other forms of labor income).
The figure below shows the share of total corporate sector income claimed by capital income – data that allows for the clearest measure of how much this capital income growth (profits, essentially) has crowded-out labor income growth (wages, essentially). This is the cleanest cut at this issue because in the corporate sector, all income is classified as either labor or capital income. (In the rest of the economy, categories like proprietors’ incomes that are a mix of capital and labor incomes muddy the waters a bit.)
The Cato Institute recently released a wildly misleading report by Michael Tanner and Charles Hughes, which essentially claims that what low-wage workers and their families can expect to receive from “welfare” dwarfs the wages they can expect from working. Using state-level figures, their paper implies that single mothers with two children are living pretty well relying just on government assistance, with Cato’s “total welfare benefit package” ranging from $16,984 in Mississippi to $49,175 in Hawaii. They then calculate the pretax wage equivalents in annual and hourly terms and compare them to the median salaries in each state and to the official federal poverty level. Tanner and Hughes find that welfare benefits exceed what a minimum wage job would provide in 35 states, and suggest that welfare pays more than the salary for a first year teacher or the starting wage for a secretary in many states.
So what makes this so misleading?
For one, Tanner and Hughes make the assumption that these families receive simultaneous assistance from all of the following programs: Temporary Assistance for Needy Families (TANF), Supplement Nutrition Assistance Program (SNAP), Medicaid, Housing Assistance Payments, Low Income Home Energy Assistance Program (LIHEAP), Women, Infants, and Children Program (WIC), and The Emergency Food Assistance Program (TEFAP). It is this simultaneous assistance from multiple sources that lets the entire “welfare benefits package” identified by Cato add up to serious money. But it’s absurd to assume that someone would receive every one of these benefits, simultaneously.
No week seems to go by without an imbalanced attack on regulatory protections by a trade association, a “think-tank,” a member of Congress, or a journalist. These attacks frequently feature a reference to the growth in the Code of Federal Regulations, even though it is a meaningless measure of whether we’re overregulated. In offering another bill to diminish regulation, Sen. Angus King, for example, wrote yesterday that, “According to a recent study by the Progressive Policy Institute, the number of pages of federal regulations has increased by 138 percent since 1975, from 71,224 pages to 163,301 in 2011.”
That might sound like a lot of pages, but if you’re not using methylene chloride, polyvinyl chloride or hexavalent chromium, the hundreds of pages devoted to regulating those chemicals have no effect on you or your business. The same goes for IRS transfer pricing regulations, the Department of Agriculture’s beef slaughtering regulations, or OSHA’s crane safety regulations. No one in a small retail business, the tourism industry, or Maine’s lobster industry cares about or need worry about any of them.
Like most of his colleagues, Sen. King denounces “excessive and unnecessary regulations” without identifying examples. If he has a legitimate example, he should let the secretary of the appropriate agency know about it, or work to repeal it legislatively.
Instead, he and his colleague, Sen. Roy Blunt, propose the creation of a 9 member commission that would identify regulations “in need of streamlining or repeal.” The commission would report their recommendations to Congress in the form of a bill that would be “fast-tracked” (protected from many of the normal motions and procedures) and that could not be amended. This proposal is flawed in a number of ways.
A new paper released today by EARN (the Economic Analysis and Research Network) looks at what states can do to create strong state economies that support high wage jobs for their people. Is it low taxes, well educated workers, or something else?
When we look at data from across the country, two clear conclusions emerge:
- There is no correlation between the overall level of taxation in a state and the ability of the economy to support high wage jobs (see figure A in this post);
- There is a very strong correlation between how well educated a state workforce is and the ability of the economy to support high wage jobs (see figure B).
Looking at this graph of overall tax levels and median earnings (a measure of wages that includes both hourly and salaried employees) one might suspect that there are just too many differences between states to see a clear correlation on any one variable.
There is no significant correlation between overall tax levels and high-wage economies: Median hourly wage, and state and local taxes as a share of state personal income, by state, 2010
|State||State and local tax revenue as a share of state personal income||Median Hourly Wage (2012 dollars)|
Source: Authors' analysis of Current Population Survey Outgoing Rotation Group microdata and Tax Policy Center's Tax Facts data
Bankruptcy Judge Should Respect Michigan’s Constitution Even If Michigan Governor Rick Snyder Doesn’t
Gov. Rick Snyder is corrupting Detroit’s recovery even before it begins. By ignoring the state’s constitution and its protection for accrued public employee pensions, Snyder is undermining the rule of law and adopting the kind of “ends justify the means” reasoning that usually precedes violations of public trust. Snyder has violated his oath to uphold and defend the state’s constitution by asking a federal court to reduce the pensions of Detroit’s public employees, including many who risked their lives for years in service of the city.
The Michigan constitution is unambiguous. Section 24 states:
“The accrued financial benefits of each pension plan and retirement system of the state and its political subdivisions shall be a contractual obligation thereof which shall not be diminished or impaired thereby.”
Yet, Gov. Snyder has set in motion a bankruptcy process whose aim is to do exactly what the constitution forbids – to diminish that contractual obligation and pay Detroit’s pensioners and retirees less than the full financial benefits they earned.
One can only hope that U.S. Bankruptcy Court Judge Steven Rhodes will rule, instead, that Emergency Manager Kevyn Orr and Gov. Snyder did not have the authority to file a bankruptcy petition that would unconstitutionally impair the city’s pension obligations.
So much is wrong in Stephen Richter’s NYT op-ed today, called “What Really Ails Detroit,” starting with his grossly inaccurate timeline. Richter says Detroit’s (and the United States’) “day of reckoning” came in the 1970s when American car manufacturers began facing competition on their home soil for the first time. That’s 20 years after the Big 3 started to abandon Detroit for the suburbs and Detroit began to hemorrhage its white population. As I said in an earlier blog post, “Between 1947 and 1958, the Big Three built twenty-five new plants in the Detroit metropolitan area, all of them in suburban communities, most more than fifteen miles from the center city. As the jobs moved away, so did the city’s residents. From 1.85 million in 1950, the city’s population declined to 1.62 million in 1960 and 1.51 million in 1970.” That’s a loss of more than 300,000 residents in two decades. The exodus of white residents (the entire decline was accounted for by whites, since the number of black residents increased), of jobs, and of wealth has never stopped. Detroit now has a population under 700,000, but the white population has declined by more than 1.4 million since 1950.
What ails Detroit is not the skills gap that Richter posits, but abandonment by its white population and by the owners of capital, starting with the auto industry, but including retail corporations, insurance companies and almost everyone else who had previously invested in the city. Detroit’s unemployment rate is the highest of any of the 50 largest cities because almost no one is investing there. When corporations do invest, as Chrysler did with its new Jefferson North assembly plant, they will find plenty of employees with the skills to make manufacturing a success again.
Once Again, American Manufacturing Suffers from Lots of Things, but Excess Blue-Collar Pay Isn’t One of Them
In a NYT column today titled “What Really Ails Detroit,” Stephen Richter repeats a common story much beloved by serious-sounding pundits who don’t know much economics: that the thirty year run of broadly-shared growth after World War II was only possible because of “the absence…of any real competition from other nations,” and that American workers’ troubles since then are their own fault for not getting smart enough to compete on the global stage. He asserts that even as this international competition increased, “companies like General Motors continued to shower blue-collar workers with handsome pay and benefits,” hobbling their ability to compete, even as they refused to upskill sufficiently to compete in the global economy.
This narrative is really common—common enough to see if it holds up to any serious data scrutiny.
Start with claims that excessive blue-collar pay destroyed manufacturing. For a paper examining those claims, check this out (pdf). Spoiler alert: it’s not. Inflation-adjusted hourly wages for production workers in U.S. manufacturing peaked in 1978 and were about 8 percent lower in 2007, while manufacturing productivity rose by well over 100 percent in that period.
Here are a few articles we read recently. What did you read today?
- Walmart’s big lie: No, it doesn’t create jobs! (Salon)
- What to Expect on October 1 (Huffington Post)
- Immigration debate ensnares foreign workers (USA Today)
- Inequality is hindering economic growth (Baltimore Sun)
- Walmart’s ‘Worst Nightmare’ Competition Has Cashiers And Produce Clerks With $1 Million Pensions (Daily Kos)
- Civil Forfeiture: A Fiction the Offends Due Process (pdf, Regent University)
This piece originally ran in the Huffington Post.
Within the next few years, China will surpass the United States as the world’s largest economy.
Anticipating the impact of this milestone on our national psyche, the US policy class has been assuring Americans that there is nothing to worry about. Hardly a week goes by without a major media story suggesting China is an economic paper tiger: its economy is imbalanced, its leaders are corrupt, its banks are over extended, etc. Anyway, the stories routinely note, it will be decades before China catches up to us in per capita income.
Yet in the balance of global power, size matters. Many countries have higher per capita incomes than the United States (e.g., Norway, Qatar, Singapore). It is the large scale of the American economy that has made us the dominant political power in the world. Our big economy supports a big military, foreign aid, and allows policymakers to use access to our huge consumer and financial markets to buy allies and votes in the UN.
Unfortunately, it has also allowed us to borrow from the rest of the world to finance a chronic trade deficit. China, with whom we have the largest deficit, is as a consequence our largest creditor, holding over $1.2 trillion in US IOUs.
In a recent blog on the Detroit bankruptcy, I noted that Detroit’s Emergency Manager, Kevyn Orr, may have inflated pension liabilities by lowering the assumed return on pension fund assets. Because most of the cost of pension benefits comes from investment earnings, this can double or even triple the cost of these benefits (Orr quintupled the cost, which suggests other factors are involved).
Public pension fund actuaries use an expected rate of return rooted in historical experience—in practice, usually slightly lower than realized returns over the long run. Some financial economists are critical of this practice, and argue that, although expected returns on risky assets take into account the possibility of losses due to default risk and the like, they don’t factor in risk aversion—the fact that most investors prefer guaranteed returns over volatile ones even if the average expected return is the same in both cases. In the critics’ view, this means contributions to fund future pension benefits should be based on yields on “risk-free” government bonds in order to avoid shifting risk from current to future generations of taxpayers. (A variation of this argument, which seems contradicted by present circumstances, is that pension benefits are guaranteed and should therefore be discounted using a guaranteed rate of return.)
Detroit’s current citizens and the public employees who serve them are not the cause of Detroit’s fiscal problems. They are the victims of forces beyond their control, including globalization, capital flight and racism. No one can, with any seriousness, blame Detroit’s librarians, social workers, garbage collection workers or street cleaners for the city’s catastrophic loss of population and tax base, the long decline and near-collapse of the Big 3 auto companies, or the 1967 riots, which launched a frantic exodus of businesses, white residents, and money from the City of Detroit to the suburbs.
As the suburbs grew and new highways encouraged sprawl in the 1950s and 1960s, Detroit’s manufacturing employment base and population—and especially its white population—began to decline. As Thomas Sugrue has pointed out, between 1947 and 1958, the Big Three built twenty-five new plants in the Detroit metropolitan area, all of them in suburban communities, most more than fifteen miles from the center city. As the jobs moved away, so did the city’s residents.
From 1.85 million in 1950, the city’s population declined to 1.62 million in 1960 and 1.51 million in 1970. By 1980, white flight was nearly complete: whites, who made up 83% of the population in 1950, were only 34% of the population, one million fewer than in 1950. The terrible riots in 1967 accelerated the movement of white families to the suburbs, but a combination of opportunity and racism had spurred hundreds of thousands to leave Detroit well before the U.S. Army occupied it. The hostility of whites toward blacks, their fear, and economic self-interest as they understood it led them to refuse to live in integrated neighborhoods, spurring them to sell their homes and abandon the city.
Here’s what we read today. Share what you’re reading in the comments.
- How She Lives On Minimum Wage: One McDonald’s Worker’s Budget (Forbes)
- Super Size the Minimum Wage (Slate)
- GOP’s Long-Predicted Comeuppance Has Arrived (Talking Points Memo)
- WATCH: The Daily Show pits Fox News against fast-food workers (The Week)
Originally published in the Current Newspapers, July 31, 2013.
The ongoing battle between Walmart and workers is about the role that workers play in our city and our nation. We need to ensure that workers also benefit when economic growth continues and corporations produce more profit, higher stock prices and ever-escalated CEO compensation. The fight over Walmart is not about a better minimum wage. It’s about livable wages, and the role of Walmart in the economy. We need profitable, efficient companies like Walmart to pay decent wages, and taxpayers shouldn’t be subsidizing them when their CEOs and other top executives are making hundreds of millions of dollars a year.
As America’s largest company, Walmart has a huge impact. Not just in Washington, D.C., but in every community with a Walmart. Walmart brings down wages everywhere. Its low wages require public subsidy of its workers, since Walmart workers make so little that they must rely on Medicaid and other public assistance programs to make up the difference between their insufficient salaries and what it really costs to make ends meet.
Walmart can afford to pay workers more. The Walton family has a combined wealth greater than the bottom 48.8 million American families combined — 41.5 percent of all U.S. families. One of Walmart’s closest competitors, Costco, pays an average wage of about $20 per hour. Walmart could pay its top executives less and pay workers more, or it could raise workers’ wages and still make plenty of money for the Walton heirs by passing costs on to consumers. Researchers at the University of California at Berkeley figured out that if every Walmart in the U.S. had a minimum wage of $12 per hour and passed the entire additional cost on to consumers without taking anything out of Walmart’s profit margins, it would increase prices by a mere 1.1 percent, or $0.46 per shopping trip for the average Walmart shopper.
This past Tuesday, I had the opportunity to participate in a half-day workshop on immigration reform sponsored by the AFL-CIO and the Economic Policy Institute in Washington, DC. The focus of the session was on why a roadmap to citizenship for America’s undocumented residents was an essential component of reform, a topic that is increasingly relevant as certain House Republicans argue for creating a legalization process that would exclude citizenship as the ultimate endpoint.
Speaking at the event were Senator John McCain and Congressman Xavier Becerra (they were clearly the main draws!), as well as a selection of economists, activists, and business leaders. I was expecting a wonkish discussion about policy—and, as one of the two economists sharing our views, that was certainly my anticipated contribution.
Instead, it was an extremely moving event, particularly when Senator McCain’s eyes teared as he recounted a reenlistment ceremony for U.S. soldiers he attended in Iraq, one where some immigrant soldiers who were slated to receive citizenship that day were represented only by their empty boots, having just lost their lives defending a country they were still hoping to fully join.
Now that the Senate has confirmed the appointments of a full slate of members of the National Labor Relations Board (the quasi-judicial body that decides labor relations cases and protects the right of workers to organize unions), the 18-month long fight over the president’s nominations looks ridiculous. Despite precipitating a mini constitutional crisis over the president’s right to make recess appointments, and coming close to the parliamentary equivalent of nuclear war in the Senate, the end result is little different than if the Senate had simply confirmed President Obama’s original nominees. On the other hand, a lot of damage has been done along the way.
For those who haven’t followed closely, Senate Republicans filibustered the nominations of two Democrats, Sharon Block and Richard Griffin, who strongly support the National Labor Relations Act’s mission of encouraging collective bargaining. They were targeted because Republicans sought to demonize the Board and President Obama over a case involving Boeing’s decision to open new facilities in South Carolina. In that case, the NLRB filed a complaint against Boeing because company officials had described the decision to locate the plant in South Carolina as punishment for the Machinists union’s exercise of its legally protected right to strike. Even though no Board member ever ruled on the case, which Boeing and its union eventually settled, Sen. Lindsay Graham and others made it a cause celebre and fabricated an election campaign story that President Obama was trying to prevent investment in right-to-work states like South Carolina. Sen. Graham even suggested that the NLRB should be put out of business.
For the past three years, Washington policymakers have been fixated on reducing budget deficits. And currently, short- and medium-term deficit projections have plummeted, due both to changes in legislation as well as revisions due to technical factors. In May, for example, the Congressional Budget Office revised the deficit projections that it had released in February, reducing its fiscal year 2013 deficit projection by 24 percent, or $200 billion. Similarly large reductions apply in each subsequent year, reducing the ten-year cumulative deficit estimate by $618 billion. As a consequence of smaller deficit projections, the CBO anticipates that the federal debt held by the public will be 73.6 percent of GDP by 2023—1.5 percentage points less than it is this year, and more than four percentage points less than CBO’s previous forecast for 2023.
Both the revised longer-term outlook and the unexpectedly rapid reduction in the near-term deficit have prompted some to change their tone on the urgency of further deficit reduction. Earlier this week, the Center for American Progress brought together a panel of experts to discuss the shifted outlook and what it means for debt-reduction policies in the current climate.
Detroit’s emergency manager, Kevyn Orr, claims Detroit owes $3.5 billion (pdf) to its public pension funds. This is more than five times the $640 million the funds’ actuaries estimated in 2011,1 (pdf) vaulting pensioners into the ranks of the city’s major creditors, which isn’t a good place to be. It also contributes to Orr’s claim that Detroit owes a total of $18 billion—half to retirees and workers—and that bankruptcy is the city’s only recourse.
Despite obvious socioeconomic explanations for Detroit’s woes—the Great Recession walloped a city already suffering from deindustrialization and a flight to the suburbs—it sounds plausible that Detroit’s wounds are partly self-inflicted. After all, this is a city whose former mayor can’t seem to stay out of jail. And there’s certainly a history of elected officials around the country neglecting pension contributions to avoid raising taxes to pay for public services. So the idea that Detroit lowballed its obligations to workers and retirees has the ring of “truthiness,” to borrow Stephen Colbert’s phrase.
But pension obligations don’t blow up in your face like airbags, and politicians can’t make reputable actuaries like Gabriel Roeder Smith cook the books. When politicians want to save money by shortchanging pensions, they just don’t contribute what the actuaries tell them to contribute. This may be irresponsible, but it’s fairly transparent.
Some months ago it became known that Federal Reserve Chairman Ben Bernanke was likely to step down as the end of his second term of appointment drew near. Initially, Federal Reserve Vice-Chair Janet Yellen appeared the favorite to succeed Bernanke, but now it seems as though Larry Summers has become the Obama administration’s preferred candidate. Summers’ candidacy raises grave political and policy concerns.
The case for Larry Summers rests on claims that he is a seasoned, crisis-tested, and known policy maker. His experience includes a stint as treasury secretary in the late 1990s and a stint as director of the National Economic Council from 2009-2011, where he oversaw the stimulus and recovery program. He is also a known quantity on Wall Street, where he has earned millions in speaking and consulting fees. Add in his academic credentials as an economics professor at Harvard, and Summers appears to be a model candidate – experienced in government and trusted by financial markets.
But digging deeper, the flaws begin to show. Many critics have pointed out that Summers led the charge for financial deregulation in the 1990s. Worse yet, he opposed updating regulation to deal with financial innovation, as exemplified by his opposition to derivatives regulation in 1998.
Expectations for July’s employment report, which will be announced on Friday, are for yet another month of tepid growth. In fact, it is likely that job growth in July was even slower than it has been in recent months. This is bad news for the economy, considering that even if the 196,000 average job growth of the last three months kept up, it would still take more than five years to close the 8.3 million jobs gap in the labor market.
Meanwhile, the employment report contains a whole host of indicators above and beyond the job creation and unemployment numbers, which can give clues about where the economy is headed. For instance, in June average hourly wages increased by 10 cents, the largest monthly increase in over 4.5 years. That sizeable increase, however, was likely an anomaly and is unlikely to be repeated. The high unemployment of the last five plus years continues to exert strong downward pressure on wage growth.
Over the past year, discussion of the conditions faced by workers in Apple’s supply chain has focused almost exclusively on what changes have, or have not, occurred at certain factories of its largest supplier, Foxconn. In light of the deplorable working and living conditions faced by Foxconn employees, many of which persist despite some reports to the contrary, that discussion is warranted. But it only covers part of the story: less than one-fifth of the workers in Apple’s supply chain are employed at the three Foxconn factories receiving the most public scrutiny. An illuminating new report and a video by China Labor Watch (CLW) underscore that labor rights violations would likely be found to be even worse if one were able to get an in-depth view of Apple’s entire supply chain.
The CLW study examined three Pegatron factories with more than 70,000 workers combined. Pegatron is Apple’s second largest supplier, and CLW gathered information by placing undercover investigators at the factories. The study describes 86 labor rights violations, including relying on scurrilous dispatch labor companies that exploit placed workers, widespread hiring discrimination, the significant misuse of underage workers and pregnant women, low wages, forced and uncompensated overtime, and harsh working and living conditions. It discusses 17 specific commitments in Apple’s supplier code of conduct that Pegatron violates.
According to various media outlets, President Obama will propose, in a speech today, changes to the corporate income tax “so long as the initial revenue generated goes toward job creation.” Increasing corporate tax revenue to fund job creation, infrastructure improvements, and strengthening U.S. manufacturing is very welcome news. The not so welcome news is he is proposing a revenue-neutral corporate tax reform with a one-time corporate tax revenue increase by granting a tax break on foreign earnings of U.S. corporations. The proposed tax break appears to be a low tax on all $2 trillion of deferred foreign earnings. This one-time revenue increase will be used to pay for job creation and infrastructure improvements.
U.S. corporations are holding almost $2 trillion overseas. This income is not subject to the U.S. corporate tax until it is brought back to the U.S. or “repatriated”—this loophole is known as deferral. A common misperception is the firms will pay 35 percent of the repatriated earnings to the federal government. However, because of various deductions and other loopholes (some legitimate, some not), the multinational ultimately pays considerably less to the government. Also, the corporations get a credit for foreign taxes paid. This deferral of taxes on overseas profits is one of the costliest corporate tax loopholes, reducing tax revenue by up to $50 billion per year.