Senate Democratic budget overly focused on deficit reduction

Senate Budget Committee Chairman Patty Murray (D-WA) introduced, and the Senate passed, a Senate Democratic FY2014 budget resolution, which would purportedly place the public debt ratio on a more-than-sustainable trajectory down to 70.4 percent of GDP by fiscal 2023. The Murray budget deserves credit for mitigating the macroeconomic drags posed by sequestration, modestly increasing infrastructure investment and proposing substantial revenue increases. But in the end, the budget’s fixation with ten-year deficit reduction targets would result in premature near-term austerity.

The Murray budget proposes to raise an additional $923 billion in revenue over the next decade relative to current law. It also assumes that temporary tax provisions that would cost $954 billion to continue over the decade will either expire or be paid for—so against a current policy baseline in which these “tax extenders” are continued, the budget would raise $1.9 trillion.1 Revenue increases exert an economic drag, particularly while the economy remains weak, but are much less damaging per dollar than spending cuts. The Murray budget would use these revenue increases to partially replace the front-loaded, poorly designed sequester; in that context, the tax increases would help avert near-term austerity that is much more damaging. The budget would also slightly increase government spending in 2013 and 2014 relative to current policy—which assumes the sequester is repealed—and raise tax revenues in 2014.2Read more

Striking J-1 students want justice from McDonald’s and U.S. State Department

The student workers who recently went on strike at McDonald’s in Harrisburg, Pennsylvania took a big chance. They could have been fired and then deported from the country. Instead, they got their boss fired and got a meeting with the head of the State Department program that brought them to the U.S. But they aren’t finished: they want to make sure that what happened to them never happens to foreign students again.

My colleagues and I met with four of the young workers last week, who came from Peru, Paraguay, Chile and Argentina. All had been recruited into the State Department’s J-1 summer work travel visa program by GeoVisions, a State Department-approved sponsor, which promised them three months of steady wages for slinging Big Macs, decent housing and a cultural experience, followed by a month of travel wherever they wanted to go.

What they and 14 other students got was an unpredictable mix of work hours—as little as four hours in a week for some and 25 hours in a row for others. They were required to live in the basements of homes owned by their boss, Andy Cheung, who packed six into one house and eight into another, jammed together with little privacy—only a curtain to separate the beds of four young men from four women. They were cheated on wages they earned, overcharged for their housing and forced to walk to work on highways instead of riding in free transportation they’d been promised. At least one was actually in debt to Cheung after almost 3 months of work.Read more

Manufacturing employment: Nothing to see here, move along…

Dylan Matthews at Wonkblog posts a graph from Robert Lawrence and Lawrence Edwards that purports to show manufacturing employment declines are simply a capitalist inevitability. It’s essentially this graph:


So, if manufacturing employment is always shrinking as a share of overall employment, the implicit argument is that nothing– say very large trade deficits that characterized the past decade and a half in the American economy – can really affect this trend one way or the other.Read more

Aggressively targeting a full recovery is the least risky thing you can do: Back to Work Budget edition

A common theme has emerged in recent punditry and economic analysis: policymakers should begin withdrawing support for growth and jobs because the economy is rapidly improving. In recent months one can find several examples of commentators urging the Federal Reserve to abandon its efforts to boost activity and jobs and begin tightening to forestall (so far completely hypothetical) inflation. And any call for fiscal support for job creation on a real scale is greeted with hand-wringing about its riskiness—as can be seen in much reaction to the  Congressional Progressive Caucus’s “Back to Work” fiscal 2014 budget alternative (BTWB, henceforth), which would invest $2.1 trillion in job creation measures over 2013-2015.

For example, David Brooks criticized the BTWB on the (incorrect) grounds that the economy “is finally beginning to take off…[as there is no longer] a large and growing gap between the economy’s current output and what it is capable of producing.” And a recent column by Ezra Klein contained concerns from Moody’s Analytics chief economist Mark Zandi that the BTWB  targets job growth too aggressively, meaning that: (a) the overall economy has recovered enough (or surely will) that it doesn’t need this boost; and (b) that recovery has been and will be sufficiently fast that even the estimates of how much fiscal support will boost jobs and growth are overstated.

We strongly disagree. The economy remains deeply depressed, and the coming year will see a significant drag on already inadequate growth from further fiscal contraction (sequestration on top of deepening discretionary spending cuts and expiration of the payroll tax cut). Given this, there’s no reason at all to think that fiscal expansion would be less effective than in the past 3-4 years, and there is certainly no reason to gamble on a robust recovery without policy help.Read more

David Brooks is wrong on the CPC’s Back to Work budget

David Brooks recently wrote a misguided column criticizing the Congressional Progressive Caucus’ Back to Work fiscal 2014 budget, which the House voted on yesterday. I am proud that EPI budget analysts and I worked closely with the CPC on the proposal’s development and analysis, so I want to clarify where Brooks went wrong.

Brooks and I disagree in two major areas: differing evaluations of the state of economic recovery and prospects for growth, and the role of rich people and the government in generating growth.

Brooks sees an economy that “is finally beginning to take off” and no longer has “a large and growing gap between the economy’s current output and what it is capable of producing.” In contrast, I see an economy with 7.7 percent unemployment, and unemployment projected by the Congressional Budget Office to be roughly 7 percent by the end of 2015. Current unemployment is comparable to that of the worst month of the early 1990s recession and substantially higher than that of the worst month of the early 2000s recession.

Furthermore, the U.S. economy in late 2012 was running $985 billion (5.9 percent) below potential output for the year—which is equivalent to each person losing $3,100 (annually). I will grant Brooks that this “output gap” is not currently growing larger. Nevertheless, the gap has not changed much in two years (it was 6.1 percent in the second half of 2010) and is now much higher than the worst quarters of the recessions in the 1970s, 1990s, and early 2000s (5.0, 3.6, and 2.1 percent respectively). In short, the gap is no longer “large and growing”; it is just “large and not shrinking” and looks relatively stable. The depressed economy is suppressing wage growth (there have been no improvements in wages and benefits for the large majority of American workers for more than ten years!) and we are scarring a generation of young people—both those in school as well as those searching for the bottom rungs of a career ladder. This state of affairs is unacceptable and, therefore, government policy should not accept it.Read more

To chain or not to chain

In an effort to obtain a Grand Bargain on deficit reduction, the Obama administration has offered to accept a Republican proposal for a new inflation index—a chained CPI—in setting the annual cost of living adjustment (COLA) for Social Security benefits. This new inflation index would also apply to the indexation of income tax brackets. Since a chained CPI is expected to show lower inflation, the change in indexation will mean lower COLAs and greater revenues over time. This is the first of two posts articulating why accepting a chained CPI for calculating the Social Security COLA is a bad policy choice. The other post will address the chained CPI proposal in the context of Social Security policy. This post addresses whether a chained CPI is simply a “technical fix,” as some maintain, to obtain an accurate measure of inflation. I pay particular attention to my disagreements with my friends at the Center on Budget and Policy Priorities (CBPP).

A better measure of inflation?

Let’s be straight, a chained CPI is not a more accurate measure of inflation for setting the COLA for Social Security beneficiaries. There is a good argument to be made for any given reference population that a chained CPI index is more accurate than an unchained index. However, this “any given reference population” is an important caveat: applying a chained CPI for average consumers to calculate price increases faced by Social Security beneficiaries is not an improvement in accuracy since the expenditures of Social Security beneficiaries, especially the elderly, are very different than the average consumer. As experts have pointed out, indices based on the spending patterns of workers or the general population likely understate the impact of cost increases faced by Social Security beneficiaries because seniors and disabled people spend a greater share of their incomes on out-of-pocket medical expenses than do other consumers, and health costs have risen faster than overall inflation in recent decades. This has been documented in the Bureau of Labor Statistics’ (BLS) CPI-E inflation measure which uses consumption weights specific to the elderly and had 0.2 percent faster inflation from 1982 to 2007 than the measure currently used to index Social Security benefits.

So, what this means is that there are two known biases to current Social Security COLA indexation, the failure to chain expenditures (which overstates inflation) and the failure to adopt weighting particular to Social Security beneficiaries (which understates inflation). Yet too many inside the Beltway only seem interested in correcting the first. And why this narrow focus? The only rationale for imposing a new inflation measure on the elderly that only addresses the chaining bias is to reduce benefits.Read more

What we read today

What we read today (and yesterday):

House Democratic budget would also boost employment

House Budget Committee Ranking Member Chris Van Hollen (D-MD) has introduced the House Democratic FY2014 budget alternative, which would lessen the near-term economic drags left in place by the lame-duck budget deal. While understandably less ambitious in terms of job creation than the Congressional Progressive Caucus’s “Back to Work” budget, the Van Hollen budget deserves credit both for financing some renewed fiscal expansion to boost growth and for fully averting the macroeconomic drags posed by sequestration.

The Van Hollen budget adopts job creation proposals from the president’s jobs package (in his fiscal 2013 budget request), financing $174 billion in stimulus spending over fiscal 2013—2015.1 These stimulus provisions include $55 billion for rehiring teachers and modernizing K-12 schools, $37 billion in infrastructure investments, and $19 billion for a targeted tax credit for businesses that increase payroll, among other policies. Relative to current budget policy (which assumes the sequester is repealed), the Van Hollen budget would increase government spending in fiscal 2013 and 2014, as well as cut taxes in 2013.2

On net, we estimate that the Van Hollen budget would boost GDP growth by 0.4 percent and increase employment by roughly 450,000 jobs in 2013, relative to current policy. A smaller economic boost of 0.1 percent of GDP and roughly 110,000 jobs would be expected in 2014. Note that CBO’s baseline forecast shows employment rising by 1.5 million jobs between the fourth quarter of 2013 and the fourth quarter of 2014; these estimates do not suggest that 340,000 jobs would be lost between 2013 and 2014, simply that employment would rise faster and higher than otherwise projected over the next two years.

The Van Hollen budget also replaces sequestration, whereas the current policy baseline presupposes the repeal of sequestration—in keeping with budgetary scorekeeping conventions of the past two years—but which is by no means certain. We previously estimated that sequestration would reduce growth by 0.6 percent and employment by 660,000 jobs in 2013, with the drag growing to 0.8 percent and 910,000 fewer jobs in 2014. So relative to a world in which sequestration remains in effect, the Van Hollen budget would boost employment by more than 1.1 million jobs in 2013 and just over 1.0 million jobs in 2014.Read more

CEOs explain how H-1B visa hurts U.S. competitiveness

As the “Gang of Eight” senators reportedly continue to work diligently on drafting bipartisan legislation to comprehensively reform U.S. immigration laws, one of the key issues they will try to resolve is how to manage future flows of educated temporary and permanent immigrants who will work in the science, technology, engineering, and math (STEM) fields. A key topic of contention will be the H-1B visa, the principal guest worker program for educated workers in STEM fields. That’s why on March 14 a briefing was held on Capitol Hill to inform Senate staffers about the H-1B program’s impacts on the labor market and job opportunities for U.S. workers in STEM fields. The briefing offered facts and perspectives about the H-1B that are usually ignored or overlooked by the media; including from CEOs who use the program.

Yesterday Politico reported how the briefing would provide balance to the heavy lobbying by the tech industry in favor of the H-1B program. The industry is looking to triple or quadruple the number of guest worker visas available, using the proposed “I-Squared Act” as the model, and without any regard to the reality that unemployment for college-educated STEM workers is still double what it was before the recession. While (if enacted) the I-Squared Act would vastly expand the H-1B program, it does nothing to remedy the loopholes in the program that permit employers to hire a guest worker without first having to recruit qualified and available U.S. workers, and allow the majority of H-1B workers to be vastly underpaid relative to U.S. workers in the same occupation and local area.

Computerworld reported today on two other key messages that came out of the briefing: American students are being discouraged from pursuing STEM careers and many U.S. companies are at a competitive disadvantage thanks to guest worker programs. This absurd result occurs in part because nearly half of the available visas are granted to offshore outsourcing companies with a business model that transfers high tech American jobs overseas. Although globalization is a reality and here to stay – which means some jobs will inevitably relocate from country to country as economic and market conditions shift – the H-1B program is unnecessarily facilitating an exodus of STEM jobs that could just as easily remain in the United States.

The tech industry isn’t lobbying to remedy any of these alarming flaws in the H-1B program, because companies benefit directly from the status quo in the form of the artificially low salaries they are allowed to pay H-1B workers, as well as from an expanded labor pool that keeps wages from increasing for all STEM workers. Yesterday’s briefing offered a range of perspectives on the H-1B program to help explain this: it was moderated by Rochester Institute of Technology professor and engineer Ron Hira, and included the president of the International Federation of Professional and Technical Engineers, an H-1B worker from the Philippines, and two tech company CEOs—Brian Keane of Ameritas Technologies and Neeraj Gupta of Systems in Motion—both of whom have used the H-1B program in the past to hire guest workers (and in the case of Gupta, to send jobs offshore).

Before the briefing took place, Politico wrote that Keane and Gupta would “present a contrast to the defense [of the H-1B program] echoed by most tech industry representatives at a recent House Judiciary subcommittee hearing.” This was correct, and Keane and Gupta’s opening statements are worth reading because they offer unique insight into how the H-1B program is abused and exploited by employers of STEM workers, and they offer compelling reasons why the program should undergo major reforms. Also, they provide smart recommendations on how to fix the H-1B program, and suggest it could be valuable to the American economy and contribute to innovation in STEM fields if it were operating as intended. Both statements are available for download below.

READ: Opening statement of Brian Keane, CEO, Ameritas Technologies

READ: Opening Statement of Neeraj Gupta, CEO, Systems in Motion

Path to Prosperity? How about Path of Austerity

Paul Ryan’s FY2014 budget alternative was released earlier this week, and though titled Path to Prosperity, a more appropriate title would be “Path of Austerity.” Ryan’s budget alternative dwarfs the austerity already hitting the economy, such as the expiration of the payroll tax cut, the Budget Control Act spending caps, and the sequestration cuts that just went into effect. His plan would slash spending by $5.7 trillion relative to CBO’s current law baseline and $4.6 trillion relative to his current policy baseline (which removes CBO’s unrealistic extrapolations of war and emergency spending). As my colleague Andrew Fieldhouse detailed in an analysis earlier this week, cuts of this magnitude would have negative impacts on both economic growth and employment. But Ryan’s budget would also have huge impacts on the actual programs themselves, and by extension the people who rely on those programs.

Ryan’s budget doesn’t stretch all to far from his FY2013 budget alternative last year in terms of tone or policy prescriptions, though this year he does propose fully eliminating the projected deficit in ten years. He does this almost exclusively by targeting spending (and to the chagrin of some of his conservative allies, he does not repeal some recent changes to revenue under current law—namely revenue raised under the American Taxpayers Relief Act and some revenue raisers included in the Affordable Care Act).Read more

Big win for workers in Portland and (hopefully) Philadelphia

Yesterday, Philadelphia City Council voted 11-6 in support of providing its workers with earned paid sick days. While the mayor has yet to sign and has vetoed similar measures in the past his signature would make Philadelphia the largest city with paid sick day legislation (a distinction they will hopefully hold for only a short time, since New York City is also considering paid sick days legislation).

On Wednesday, the Portland, Oregon, City Council voted unanimously to guarantee earned paid sick time to Portland’s workers. The mayor is expected to sign the bill. With the bill’s passage, Portland will join San Francisco, Seattle, and Washington, DC as the fourth city in the United States to require private sector employers to provide a minimum amount of earned paid sick time to their employers. Connecticut remains the only state with this distinction. In the case of Portland, the law applies to firms of all sizes, though the smallest of firms (five or fewer workers) are not required to pay for the time off.

The votes in Portland and Philadelphia mean big wins for the people of those cities. Overall, it’s a wise investment for employers, workers, and the general public. I testified last week in Annapolis, Maryland, to that fact in hearings before the Senate Finance Committee and the House Economic Matters Committee.

Nearly 40% of the private sector workforce in the United States has no ability to earn paid sick time. Furthermore, access to paid sick days has historically been far more common among high-income workers, leaving low-income families with little protection when they get sick or need to visit the doctor. This important legislation not only protects workers from lost pay or potential job loss when they or their family members get sick, it also protects the public by keeping sick workers, who feel economically compelled to work, from spreading illness to co-workers and customers.

Furthermore, the great benefits of earned sick days far outweigh the costs. The costs to business are often overstated, when the reality is that earned paid sick days cost very little when compared to business sales, as my colleague Doug Hall and I showed in the case of Connecticut.

Unfortunately, the lack of a federal policy has continued to erode family economic security, but the efforts of jurisdictions around the country that have stepped up for workers and their families serve as models for cities and states throughout the nation.

What we read today

Is Japan really ready for free trade?

The U.S. trade deficit with Japan has increased steadily over the past four years, reaching $79.9 billion in 2012, an increase of $13.4 billion (20.2 percent) over the 2011 bilateral deficit of $66.5 billion. Two of the most important causes of persistent U.S.-Japan trade deficits are currency manipulation and Japan’s vast and impenetrable network of non-tariff trade barriers. Last month, the United States and Japan agreed on language that could allow Japan to join negotiations to enter the Trans-Pacific Partnership (TPP), a proposed free trade agreement with 10 other Asia-Pacific countries (a new round of negotiations on the TPP began in Singapore last week ). Unless Japan is willing to end its currency manipulation and informal trade barriers once and for all, it should not even be allowed to participate in the TPP negotiations.

The effect of trade flows on U.S. jobs is relatively straightforward: exports support U.S. jobs but the larger volume of imports displaces even more jobs. Trade deficits such as the one we have with Japan have cost the United States millions of jobs, most of them high-paying jobs in manufacturing. Signing trade deals is an ineffective way to create jobs, in large part because they usually result in higher trade deficits. Further, trade deals have traditionally not included effective means to deal with one of the biggest causes of our trade deficits: currency manipulation by our trading partners, which acts as an artificial subsidy to other countries’ exports, and a tax on U.S. exports. Japan has a history of currency manipulation, and recently-elected Prime Minister Shinzo Abe campaigned on his intention to stimulate the Japanese economy, in part by weakening the yen. Financial markets have responded to Mr. Abe’s wishes, and the yen has declined 18.8% since October, falling to 96 yen per dollar on March 12, 2013.1Read more

Ryan proposes another path to fewer jobs and slower growth

Earlier today, House Budget Committee Chairman Paul Ryan (R-Wis) released his Fiscal Year 2014 House Budget Resolution, The Path to Prosperity: A Responsible, Balanced Budget. Like Ryan’s fiscal 2012 and fiscal 2013 budget resolutions, this latest iteration is an austerity budget—it proposes aggressive near- and long-term spending cuts, which come on top of the austerity from sequestration spending cuts (which would be continued), the ratcheting down of discretionary spending caps, and the recent expiration of the payroll tax cut.

Ryan’s budget would reduce near-term primary spending (excluding net interest) by $42 billion in fiscal 2013, $121 billion in fiscal 2014, and $343 billion in fiscal 2015, all relative to CBO’s alternative fiscal scenario (AFS) current policy baseline.1 The fiscal 2013 spending cut represents the remainder of sequestration cuts scheduled for this year. Additionally, the Ryan budget would increase revenue by $58 billion in fiscal 2014 and $98 billion in fiscal 2015 by allowing the “business tax extenders” to expire. While tax increases have a much smaller drag per dollar than government spending cuts, this still contributes to the economic drag from the Ryan budget.

On net, we estimate that the Ryan budget would decrease gross domestic product (GDP) by 1.7 percent and decrease nonfarm payroll employment by 2.0 million jobs in calendar year 2014 relative to current policy. We estimate that the Ryan budget would increase the unemployment rate by between 0.6 percentage points and 0.8 percentage points. The Ryan budget would push the output gap—the difference between actual output and non-inflationary potential output, which registered $985 billion (5.9 percent of potential) as of the fourth quarter of 2012—from 4.4 percent under the AFS baseline back to 5.9 percent. By proposing a budget that would leave the output gap unchanged from 5.9 percent of potential GDP by the end of 2014, Ryan has essentially proposed that for at least two years the U.S. economy make zero relative progress in emerging from the current adverse economic equilibrium of depressed economic output, slow growth, high unemployment, and large cyclical budget deficits.Read more

What we read today

In support of the Fair Minimum Wage Act

On Tuesday, March 5, Sen. Tom Harkin (D-IA) and Rep. George Miller (D-CA) announced the introduction of The Fair Minimum Wage Act of 2013 to raise the minimum wage from $7.25 an hour to $10.10 an hour over the next three years. Once it reaches $10.10, the minimum wage would be raised automatically each year to account for inflation and ensure that it never loses its purchasing power. The bill also raises the wages of those who rely on tips, phasing in an increase until the “tipped minimum” – currently stuck at $2.13 an hour — reaches 70 percent of the regular minimum wage.

Harkin and Miller spoke eloquently about the need to make work pay, to reward people for the time and effort they put into serving or delivering food, caring for children and the elderly, and cleaning hotel rooms or office buildings.

Citing Economic Policy Institute calculations, Harkin estimated that 30 million workers would get a raise, including 17 million women. He pointed out that nearly 90 percent of minimum wage workers are adults, not teenagers, and that two-thirds are in low or moderate income households.

The two business people and two workers Harkin and Miller invited to the event made an enormous impression. Margot Dorfman, the President of the U.S.  Women’s Chamber of Commerce, reiterated her support for the minimum wage, denouncing the idea that raising the minimum wage would be bad for business. “Nothing could be farther from the truth,” she said. “Our sales depend on consumer demand. If people aren’t paid a fair wage they can’t afford to shop in our stores or buy our services.” Dorfman made it clear that the NFIB and US Chamber of Commerce don’t represent small business. “They’re looking out for the big corporations that want to pay workers as little as possible. They want the taxpayers to pay for their workers’ food stamps. That’s not the position of women-owned small businesses.”Read more

Raising the minimum wage could improve public health

New research in economics suggests that raising the minimum wage will improve the health of many Americans, especially those with low income, and this improvement should help bend the cost curve for medical care.

In a paper published by the prestigious National Bureau of Economic Research, David Meltzer and Zhou Chen (from the University of Chicago and the Centers for Disease Control) analyze data from the Behavioral Risk Factor Surveillance System (BRFSS) from 1984-2006. The BRFSS interviews more than 350,000 adults each year, making it the largest health survey in the world. Meltzer and Chen test whether variation in the inflation-adjusted minimum wage is associated with changes in body mass indexes of adults. They find that gradual reductions over time in inflation-adjusted minimum wages across states explain about 10% of the increases in average body mass since 1970.

Additional evidence derives from a study by DaeHwan Kim and myself that used the Panel Study of Income Dynamics (PSID) to investigate whether increases and decreases in inflation-adjusted wages predict obesity. The PSID is a nationally representative sample of 5000 American families that have been followed since 1968 by the University of Michigan’s Survey Research Center. We find that low wages predict increases in the prevalence of obesity. This study was published in the Journal of Occupational and Environmental Medicine. Obesity is estimated to cost $190 billion in medical bills each year according to a recent study in the Journal of Health Economics. A 10% decrease in obesity would result in a $19 billion of savings every year, as estimated by Meltzer and Chen.Read more

What we read today

Asian American unemployment highest in Nevada and California; disadvantages in four states

In the fourth quarter of last year, Nevada and California had the highest Asian American unemployment rates of the ten states with sufficient Asian American data for analysis. The Asian American unemployment rate in Nevada was 8.4 percent and 7.8 percent in California. The lowest Asian American unemployment rates were in New Jersey (4.2 percent) and Hawaii (4.5 percent). Rates for all ten states (and for other racial groups) can be found in this interactive feature.

Although we have data for only ten states, these ten states contain more than two-thirds of the Asian American labor force (see Figure D). Nearly half of all Asian American workers reside in California, New York, and Texas alone. Because Asian Americans are quite diverse socioeconomically, it would be useful to disaggregate the data by Asian ethnic group, but a number of data issues make disaggregation not feasible.

In four states—California, Florida, Maryland, and Texas—the Asian American unemployment rate is higher than one might expect. Generally, more educated populations have lower unemployment rates. In these four states, although data from the American Community Survey indicates that the Asian American labor force is better educated than the white labor force, the Asian American unemployment rate is equal to or higher than the white rate. Further research is necessary to understand why Asian Americans have such high unemployment rates in these states.

A $10.10 minimum wage would give economy (and more low-wage workers) a bigger boost

Following the President’s expression of support for a $9.00 minimum wage, Sen. Tom Harkin (D-Iowa) and Congressman George Miller (D-California) sent out a press release indicating their support for increasing the minimum wage to $10.10 (this proposal follows their 2012 effort to pass legislation supporting a $9.80 minimum wage).  Their proposal would increase the minimum wage via three incremental increases of $0.95, after which it would be indexed to inflation. The tipped minimum wage (the minimum wage paid to workers who earn a portion of their wages in tips) would also be increased in $0.85 increments from its current value of $2.13 per hour, where it has languished since 1996, until it reaches 70 percent of the regular minimum wage. At noon today, Senator Harkin and Congressman Miller will unveil the Fair Minimum Wage Act of 2013.

Raising the minimum wage would help reverse the ongoing erosion of wages that has contributed significantly to growing income inequality, while providing a modest stimulus to the entire economy, as increased wages contribute to GDP growth, which in turn leads to modest employment growth. Following are the major national findings of an upcoming EPI report on the impacts of a $10.10 minimum wage for the country and individual states.Read more

For 20-somethings, the no-limits, no-pay job

Teddy Wayne’s Sunday New York Times article about the exploitation of 20-somethings in the workplace (“The No-Limits Job”) should wake up a lot of young workers and their parents. There is something seriously wrong with a corporate culture that uses extremely low-paid or even unpaid labor and then treats the workers like they own them.

The low point in the article is probably the story of Dalkey Archive Press, of Champaign, Illinois, which not only employs unpaid interns but threatens them with “immediate dismissal” if they come in late or leave early without permission, are “unavailable at night or on the weekends,” or “fail to respond to e-mails in a timely way.” But as Wayne makes clear, round-the-clock, 24-7 internships can be exploitative even when paid.

One of my personal heroes, Ross Perlin, the author of Intern Nation, is interviewed by Wayne and warns about a sinister change in our culture that has made it acceptable to young people to give up their personal time and devote themselves to an employer, totally blurring the line between personal life and work while receiving almost no financial reward. This problem is worst in what Perlin calls the “rock-star professions”—film, TV, publishing, and media—and in creative industries like fashion, but the trend is spreading to other fields as well. Even un-hip businesses like manufacturers and law firms have begun to advertise for and employ unpaid labor, and failure to pay for overtime is endemic in white-collar work.

The Fair Labor Standards Act, which requires payment to employees of at least the minimum wage, is conveniently ignored by employers who rationalize their exploitation and illegality by arguing that the jobs are for the benefit of the interns, who usually do learn something and can put the experience on their resume. However, as Perlin explained in his book and Wayne’s article corroborates, a new phenomenon, the serial intern, is developing.Read more

What we read today

Does the Immigration Innovation Act Help Offshore Outsourcing Firms? Financial Advisory Firm Says Yes

Supporters of the Immigration Innovation Act, dubbed the “I-Squared Act,” claim that legislation to dramatically increase the annual quota for H-1B guest worker visas is urgently needed to keep and create jobs in America. But the I-Squared Act will do just the opposite.

The headline in the leading news daily in India – the Times of India – had this assessment: “Proposed H-1B legislation to help Indian IT [companies]…”

CLSA, a leading financial advisory firm that analyzes the offshore outsourcing industry for investment clients, believes I-Squared will spur the sector’s growth. The firm finds the proposed legislation is “encouraging for Indian IT companies,” most of which are outsourcing companies with a business model that sends high tech American jobs overseas. The report says that passage of such a bill will make it much easier for the outsourcing industry to use the H-1B visa to bring in foreign guest workers from abroad, thus reducing the need for “hiring of locals in [the] US” at higher wages. In other words, if the bill passes, firms could more easily bypass and replace qualified American workers with hundreds of thousands of cheaper H-1B guest workers.

Given the policy proposals by some senators, CLSA has advised clients to “overweight” the Indian IT outsourcing sector in their portfolios. This is a reversal of fortune mostly based on the prospect that the U.S. government will make it possible for the outsourcers to get access to three to four times more guest workers per year.Read more

Sequestration was never about fiscal responsibility

As a follow-up to my earlier blog post on the responsibility for and consequences of sequestration, I want to underscore that the entirety of the Budget Control Act (the resolution to the 2011 debt ceiling crisis, which created the sequester) was about shrinking government, not fiscal responsibility. As I previously noted, sequestration will harm the economy, and perversely increase the debt-to-GDP ratio to 76.3 percent by the end of fiscal 2013, from 76.1 percent without sequestration. And by defunding public investment (a key driver of long-run economic growth) and delaying economic recovery, thereby incurring more long-run economic scarring, sequestration will leave a poorer country to service larger relative debts.

But even ignoring the macroeconomic damage wrought by sequestration, this across-the-board meat cleaver approach to cutting spending is often fiscally imprudent even on a programmatic level.

For instance, the Office of Management and Budget estimated that the Internal Revenue Service tax enforcement department would see $436 million dollars of budget authority sequestered in fiscal 2013. (This estimate predates the lame duck deal’s two-month delay, although the fiscal 2014 cut would be larger.) But by all estimates, marginal increases in funding for tax enforcement pay for themselves multiple times over. In fiscal 2012, IRS enforcement raised $50.2 billion in revenue, or $2.3 million per enforcement agent. Former George W. Bush administration IRS Commissioner Mark Everson estimated that every additional dollar spent would return $4 in revenue, for $3 in deficit reduction (Sawickey et. al 2005). That would imply that the full fiscal 2013 cut could add $1.3 billion to the budget deficit.Read more

GOP sequester position derails recovery (again)

As “sequestration” spending cuts seem increasingly likely to take effect tomorrow, and the blame game escalates over responsibility for the fallout, some incorrect revisionist history as well as (silly) pox-on-both-houses punditry merit comment.

If sequestration takes effect, it will be because congressional Republicans put draconian spending cuts in play, and have subsequently refused to replace those cuts with more sensible deficit reduction. And should sequestration take effect, this would not be an isolated case of economic policy malpractice: Congressional Republicans have consistently hamstrung efforts that economists overwhelmingly agree would have meaningfully helped lower the unemployment rate and instead advanced policies projected to decelerate near-term growth.

My colleague Josh Bivens and I recently chronicled at length the numerous, varying ways Congressional Republicans have deliberately obstructed a stronger economic recovery over the past four years. 1 This economic and budgetary obstructionism, in turn, has been a considerable factor explaining why U.S. economic growth has decelerated since mid-2010 and is currently far too slow to push the economy back to full health in the next few years, already more than five years after the start of the Great Recession.

What follows is a not-so-quick history of how we got to this week’s deadline.Read more

What we read today

New Investigation Finds Alarming Conditions at Three Apple Suppliers

The Hong Kong based group SACOM released a report today of a new investigation of working conditions at three Apple factories in China. The investigation uncovered extensive labor rights abuses, including extremely long work hours, employees forced to work off the clock for no pay, continuing hazards to worker safety, and verbal abuse and humiliation of workers by supervisors. The report, issued on the eve of Apple’s annual shareholder meeting, calls into question the accuracy of Apple’s claims of labor rights progress in its supply chain.

SACOM interviewed 130 workers employed at Foxlink, Pegatron and Wintek, three key suppliers of parts used in the assembly of iPhones, iPods and Macs.

Of note, the report found that poor conditions have led to turnover rates so high that the factories are resorting to the use of contracted labor on a massive scale, hiring so-called “dispatch” agencies to provide workers who are employed by the agencies, not the factories. This arrangement makes workers especially vulnerable because they enjoy few protections under Chinese labor law. SACOM found that dispatch workers comprise as much as 80% of the workforce at these factories.

The findings in the SACOM report include:

Excessively long work hours remain common. During peak production periods, workers can work up to 14 hours per day and receive only one or two days off over a period of nearly three months. Working 70-100 hours per week is common during peak periods, far in excess of what is permitted by Chinese law (49 hours) and even above the maximum allowed under Apple’s own code of conduct (60 hours).Read more

What we read today

Problems in the high tech labor market

If you want to understand the high tech labor market in the United States, a good place to start might be one of these stories about a lawsuit in the U.S. District Court in California.

These stories trace the progress of legal actions against some of America’s best-known tech companies over their attempts to suppress their employees’ wages through anti-competitive “no-poaching” agreements.  The Department of Justice found evidence that Intel, Adobe Systems, Google, Apple, Pixar, and Intuit made  secret agreements not to call each others’ employees with job offers, thereby reducing job opportunities and salaries in the industry. DOJ induced the six companies to settle an anti-trust suit in 2010 with a promise not to engage in similar restraints on trade in the future. The companies paid no damages and admitted no violations of anti-trust law, but the employees who had been hurt by the practices were not satisfied.

Employees filed suit against the six companies and Lucasfilm in federal court alleging an illegal conspiracy to restrain wages and salaries and seeking damages.  When the companies tried to have the suit dismissed, the district court judge sided with the plaintiffs, and in January, according to, Judge Lucy Koh ruled that the case should proceed to trial and that Apple CEO Tim Cook, Google Chairman Eric Schmidt and Intel chief Paul Ottelini may be questioned by plaintiffs’ attorneys about their roles in the alleged conspiracy. The trial, reportedly, will take place in November.

I recommend keeping this case in mind when it comes time to evaluate the companies’ claims that their interest in bringing skilled guestworkers to the U.S. has nothing to do with getting cheaper labor. Never mind that the H-1B visa, which ties employees to a single employer for 6 years or more, is a bigger restraint on employee mobility than a no-poaching agreement.

Obama and Abe should address currency manipulation and Japanese trade barriers

When President Obama and Japanese Prime Minister Abe meet on Friday, currency manipulation and Japan’s unfair trade policies must be addressed. The Yen has declined 13% in the past three months, in part because Mr. Abe has pledged to weaken monetary policy to spur growth. A weaker Yen lowers the cost of Japanese imports in the U.S. and raises the cost of U.S. exports in Japan and other countries where our products compete. While a more expansionary domestic monetary policy is an appropriate tool for a country stuck far below economic potential because of demand shortfalls, Japan has also displayed a historic pattern of intentionally lowering the value of their own currency vis-à-vis the U.S. dollar by buying U.S. denominated assets. Because the first-order effect of this direct currency manipulation is to create demand for Japan at the expense of the U.S., which is also currently starved of demand, this is not responsible policy for a country as large and important in global trade markets as Japan.

Currency manipulation is the single most important cause of growing U.S. trade deficits and Japan has a well established reputation as a currency manipulator. Japan has expressed a desire to join the proposed Trans-Pacific Partnership (TPP), a regional free-trade agreement with 10 other countries.  The TPP should include language to end currency manipulation by Japan and other trading partners.  Elimination of currency manipulation by China, Japan and other countries could create 2.2 to 4.7 million jobs, expand U.S. GDP and reduce the federal deficit, according to a recent EPI report.

The U.S. trade deficit with Japan increased from $66.4 billion in 2011 to $79.9 billion in 2012, an increase of $13.4 billion (20.2 percent).1 Growing trade deficits lead to job losses and growing unemployment or weaker growth in the United States.Read more