EPI Journal—Winter 2007

Cover story:

The Agenda for Shared Prosperity: A new policy to address the middle-class squeeze

by Ross Eisenbrey, Mark Levinson, and Lawrence Mishel

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Cover Story from Winter 2007 EPI Journal 

The Agenda for Shared Prosperity

A new policy to address the middle-class squeeze

by Ross Eisenbrey, Mark Levinson, and Lawrence Mishel

In May 2006 EPI began developing an Agenda for Shared Prosperity that will provide America with a comprehensive, accessible, and inspiring economic agenda that will reduce economic insecurity and provide broadly shared prosperity.

The Agenda for Shared Prosperity will address the growing gap between America’s promise and its problems. The United States is rich in resources, with an energetic and entrepreneurial population, a $13 trillion economy, the world’s most advanced technologies, and a democratic system that is an inspiration for the world. But for most of the past quarter century, conservative economic policies have left the nation with stagnant living standards for the overwhelming majority, increased inequality that is polarizing our society and distorting our democracy, and growing insecurity for most families.

Thanks to economic policies that have shifted bargaining power away from the vast majority and toward employers and the most well off, rising productivity no longer raises pay and living standards for most working families. The steep drop in unionization rates (from 25% in the late 1970s to under 13% today); the failure to raise the real value of the minimum wage, let alone raise it in accordance with productivity (its value has declined by over 25% since the late 1960s); macroeconomic policy that has kept the unemployment rate too high for most of the last 30 years; unfettered globalization and offshoring that increasingly puts U.S. workers in competition with workers around the world; economic deregulation and the privatization of government services; and escalating pay for CEOs have all contributed to stagnant wages and growing inequality.An agenda of accelerated globalization and greater national saving, as some urge, will neither create needed growth nor reconnect pay and productivity.

Since 1980 the U.S. economy has grown at an annual average rate of slightly over 3% a year. But the benefits of this growth have gone overwhelmingly to the richest 10% of families and primarily to the upper 1%. The typical family’s income has risen modestly in this time period, with nearly all of the growth occurring in the late 1990s. Incomes for working families, however, are now lower than they were in 2000. Millions of Americans feel that their jobs, incomes, homes, access to education, health insurance, and retirement funds are ever more at risk. Inequality has risen to heights not seen since before the Great Depression—an America that once grew together is now growing apart.

Sadly, nearly half of all parents believe their children will not have a higher standard of living than they currently enjoy. America can do much better.

Alternatives to failed economic policies

Responding to this quiet crisis, the Agenda for Shared Prosperity is based on a simple idea: the success or failure of our economy is measured, not by the value of the stock market or the size of the gross domestic product, but by the extent to which the living standards of the vast majority of Americans are rising. The Agenda will offer alternatives to the failed conservative economic policies, whose implicit assumption is, in Jared Bernstein’s phrase, “YOYO” (You’re On Your Own). YOYO economics holds that the way to solve the economic challenges we face—from Social Security to health care to globalization to inequality—is a tax cut, a private health savings or retirement account, or further government cutbacks.

The Agenda will challenge the superficial assertion that global forces, technology, and competition have rendered the people of the United States helpless to do anything but adjust individually to the outcomes of an unregulated market. We will propose and promote ideas that are honest enough to gain public credibility, inspiring enough to give hope, and ambitious enough to match the scale of our problems.

The Agenda for Shared Prosperity will produce a monograph providing a narrative about the economy— how we got where we are and what economic challenges we face—and an agenda to restore broadly shared prosperity and lessen economic anxieties. It will explain the policies—government retrenchment, deregulation, privatization, deunionization, globalization—behind this failure, and it will outline a bold policy agenda to address the serious problems the nation faces.

Starting in January 2007, policy “white papers” addressing health care, retirement security, work and family, globalization, and other critical issues will be released on a regular basis. These white papers will survey key economic challenges and offer policies that address them. There will also be numerous, shorter “topic papers” on more specialized issues, intended to supplement and provide knowledge that the longer white papers draw upon. For instance, the policy white paper on globalization will address the skewed exchange rates that fuel our current trade deficits, but a more detailed analysis of the problems caused by the misalignment of exchange rates and policy options and consequences will be covered in a special topic paper.

A Web site will provide access to all papers and offer links to other relevant material. In addition, there will be briefings that inform policy makers and public forums that provide opportunities for general discussion and debate on these issues.

We are inheritors of a tradition that believes government has an important role to play in stimulating economic growth, lessening inequalities and economic insecurities, providing affordable and accessible health care, ensuring retirement income security, respecting the rights of working people to organize to improve their condition, and helping families balance work and family life. In the tradition of the nation’s founders, the abolitionists, the progressives and populists, the New Deal, Fair Deal, New Frontier, and Great Society, the labor, civil rights, and women’s movements, and the economic and social progress of the late 1990s, we foresee a new generation of social and economic reform in America.

The Agenda will make its debut on January 11. Senator James Webb (Dem., Va.) will be the keynote speaker, Jacob Hacker (Yale University) will present a health care proposal to provide affordable and universal coverage, and Jeff Faux (EPI Distinguished Fellow) will present ways to manage globalization so that it benefits working people here and abroad. Video, audio, and other information will be available at www.SharedProsperity.org. 

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EPI Journal—Winter 2006

Cover story:

The boom that wasn’t—Bush’s tax cuts jeopardize tomorrow’s living standards

by EPI Research Director Lee Price

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Cover story:

The Economy Is a Values Issue
by EPI President Lawrence Mishel

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The discussion of the 2004 presidential election is just the most recent reminder of a curiosity in American politics: “values” issues are always social issues but never economic ones. Yet how the disadvantaged among us are treated is clearly a reflection of who we are as a people. How workers are treated on the job—their safety, their working conditions, their remuneration—also speaks volumes about our values as a nation. How we care for the elderly and the disabled, our response to child poverty, and our compassion for the less fortunate are measures of our society’s values, and they are social problems that can be addressed by economic policy.

Of course, economists contend that economics is a science. “Tell me what you want to do and I will tell you the best way to do it” is the economist’s usual stance. (Or, as one economist remarked, his role is to say, “Tell me what you want and I’ll tell you why you can’t have it.”) Clearly, this framework leaves no room for values. The underlying assumption is that unfettered markets, free and unrestricted by government or private institutions such as unions, produce the best outcomes, except in a few very specific situations: externalities (such as pollution imposed on society but not reflected in producers’ costs), monopolies, and other “market failure” cases from Econ 101.Some economists, such as Martin Feldstein (leader of the premier economic research organization, the National Bureau of Economic Research) have contended that inequality is not a proper concern for economists, who should be focused only on determining how to maximize the output of goods and services.

It is important to examine whether unfettered markets are the appropriate means of organizing our economy, both in terms of the values we seek to see reflected in our society and for achieving our economic goals. One’s view of the proper role of individuals, institutions, and government in the economy is determined, in large part, by one’s assessment of the merits of unfettered markets. The U.S. economic policy debate is in fact dominated by the assumption that unfettered markets work best, a view that’s applied to our domestic economy and to that of other countries through international financial institutions that the United States controls.

Yet there is plenty of room for applying values to the economy: an economy can be structured in many different ways and still achieve the same amount of efficiency, i.e., produce the same outputs with the same inputs. This was the conclusion of a book that Rebecca Blank edited for the National Bureau of Economic Research (NBER) a decade ago. Major European countries, for example, have a set of policies that are far different from ours: a strong social insurance system, government provision of health care, higher taxes, and far less inequality. Yet these countries have seen faster productivity growth—the gain in economic efficiency—than the United States for most of the last four decades. At first, this trend was mainly a process of “catching up” to the United States, the technological leader. However, many of these countries have now surpassed the United States in productivity.

It seems impolite in America to mention this, but we live in a class society. There are various groups differentiated by their income and power, and the positions of these groups are strongly maintained over time. It’s not that there isn’t any upward and downward mobility; it’s just that there’s not enough of it to make having a favorable, or unfavorable, class position seem like a temporary arrangement.

There has been a dramatic upward shift in income over the last few decades, coupled with a growing gap between those at the very top and those at the bottom of the income scale. In fact, inequality has grown far more in the United States over the last three decades than at any time in the last century, and far more than in any other advanced country.

Using some data from NBER researchers Thomas Pikkety and Emanuel Saez, it is possible to illustrate how large both the income redistribution and the scale of inequality in America have become:

• The top 1% of families earned 9.3% of all income in 1980. By 2000, this income share had increased to 19.6%. Correspondingly, the income share of the bottom 90% declined from 66% to 53.9%. There were small gains (1.9 percentage points) in the income shares of the remaining group, the 90th to 99th percentiles.
• From 1980 to 2000, the incomes of the upper 1% increased 179%, while those of the bottom 90% increased by only 8%.
• In 1970, the ratio of top executive earnings to that of the average worker was 38.6 to 1. This ratio increased to 101.1 by 1980, to 222 by 1990, and to 1,046 in 1999.

Because of this inequality, low-income families in the United States are not better off than low-income families in some countries that have lower incomes than in the United States. And even though we think of ourselves as a mobile society compared with Europe, recent research indicates that the United States has less class mobility than previously believed, and less than in European countries. It is also the case that class mobility has not increased over the last few decades.

Even if income were distributed according to merit or to the value of one’s skills, we would still need to care for society’s most disadvantaged and guarantee them a decent standard of living. Moreover, children do not start off with the same amount of resources—monetary assets, or family “social capital”—and a child’s economic outcome depends at least as much on background as on effort or character.

The social class you belong to really matters—it determines your health, how long you live, where you live, your exposure to crime, your success in school, and the likely success of your children. A task force of the American Political Science Association has recently concluded that inequality in income and resources translates into inequalities in participation and effectiveness in our democracy.

This inequality and how it is addressed in the United States is a clear example of the intersection of economics and values issues. Economic policy is just as much of a “values issue” as any of those that are more frequently discussed. Moreover, the teachings of the various faiths have much to say on economic matters. I daresay that there’s no reason to believe that “free markets” provide us with the type of society our faiths guide us to have in terms of the lives of the poor, the treatment of workers, and the solidarity of our communities.

This essay appeared in different form as “Dismal Scientists” in The American Prospect Online, May 27, 2004. The article draws on Is the Market Moral? by Rebecca Blank and William McGurn, published by the Brookings Institution and the Pew Forum on Religion and Public Life.

For additional information on the link between values and the economy, see Viewpoints on www.epinet.org to read a speech by Lawrence Mishel entitled Unfettered markets, income inequality, and religious values given at the Pew/Brookings Institution Forum on Religion and Public Life on May 19, 2004.

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A Tale of Two Economies

by EPI President Lawrence Mishel

After two and a half years of persistent employment losses, the overall output of goods and services (i.e., the gross domestic product, or GDP) grew extraordinarily quickly in the third quarter (June to September) and employment has increased four months in a row. Based on this performance, many analysts have declared the economy “fixed” and have opined that we have “turned the corner.”  The political implications, we are told, are that the economy will not be a major election issue in 2004.

Not so fast. Although the economy has clearly improved, America’s working families are still facing sizeable economic problems, and these problems are highly unlikely to be resolved over the next year. Because of these persistent economic problems, roughly half of all Americans in October believed that the economy was still in a recession and 69% believed the state of the economy was either “poor” or “not good.” These polls, taken after the economic “turnaround,” show that Americans are still skeptical about the overall state of the economy.

Should we believe the people or the economists? As usual, the people know something that economists do not, which is that the economy they live in is composed of shrunken paychecks, fears of job loss, and reduced opportunity. Although it is true that production has been growing for more than two years, the United States has also just experienced the sharpest loss of jobs this far into a business cycle since the Great Depression, with nearly 2.9 million private-sector jobs lost (see EPI’s JobWatch.org Web site for further information about recent job and wage trends). There are now three unemployed workers for every job vacancy, and nearly half of all Americans personally know someone who has lost their job. We are a long way from a healthy labor market characterized by strong real-wage improvements and unemployment steadily dropping toward the 4% level we enjoyed in 2000. In economic terms, there is a huge difference between developments in the overall output of goods and services and what is happening in the labor market.

The much ballyhooed job growth—averaging 82,000 new jobs per month over the last four months—only looks good compared to the persistent job losses of the prior two and a half years. However, this level of job growth is not enough to absorb the 150,000 new workers expected to enter the labor market each month. Nor is it enough job growth to reduce unemployment and underemployment to any great extent over the next year—that would require an increase of about 300,000 new jobs each month. The current job creation rate of 82,000 jobs per month also falls far short of the 306,000 jobs each month that the Bush Administration projected would occur starting in June 2003 as a result of its tax cut package. Between June and November 2003, the economy generated 1.26 million fewer jobs than the 1.5 million jobs that the president’s Council of Economic Advisers told us to expect.

Employers have responded to the economic downturn by suppressing the growth of, or reducing, wages and benefits. Jobs are being sent overseas, including many white-collar technical and computer-related jobs not previously at risk. In workplaces across the country, jobs are being lost from layoffs or attrition, while the remaining workforce is pressed to maintain or increase production in order to boost productivity. All this restructuring has led to a strong profit resurgence, with income growth in this recovery tilted far more toward profits and away from wages than in any other postwar recovery. The hourly wages of most workers are now rising more slowly than inflation. Moreover, job quality is declining, as the new jobs created pay 13% less
than the jobs lost.

Given the current economic landscape, what will happen over the next year? Economic forecasters predict a 4.0% rate of GDP growth and about 145,000 jobs created each month. Unemployment will likely stay around the current level of 6%. Although more rapid growth is possible in 2004, there is at least as much chance that our trade imbalances, record consumer debt burden, and sluggish wage growth will lead to slower than expected growth. If employers continue to pursue an overall “speedup” and continual cost restructuring, then job growth will be even less satisfactory and we will not see a decrease in unemployment and a boost in real wages in the near future. If so, working families in 2004 will likely continue to feel pessimistic and vulnerable and will not share Wall Street’s sense of growing prosperity.

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EPI Journal—Fall 2003

Cover story:

Overtime protection in jeopardy

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Overtime protection in jeopardy

EPI leads opposition to proposed rule changes

On March 31, 2003, the Department of Labor (DOL) published a proposal to amend the overtime regulations under the Fair Labor Standards Act of 1938. The DOL’s press release that accompanied the proposal described it as a modernization of archaic rules that would extend overtime protection to 1.3 million low-wage workers, provide new clarity on overtime rules, and reduce litigation. The only downside for workers, according to the DOL, was the loss of overtime protection for 644,000 more highly paid white-collar employees.

On further examination, however, it became apparent that the Department of Labor was misleading the public. The proposal makes sweeping changes in the regulation designed to deny overtime pay to broad categories of workers. Far from clarifying the regulation, the proposal introduces new and highly ambiguous terms and removes most of the quantitative measures that limit the current exemptions.

The proposal denies overtime protection to workers who hold a “position of responsibility” or whose job requires a “high level of skill or training.” Other changes dilute the definition of an exempt professional in ways that will deny coverage to workers ranging from cooks and chefs to reporters, nurses, and dental hygienists. Workers who have never completed college, or even earned an associate’s degree, could become exempt as “learned professionals” or “creative professionals” and lose the right to receive overtime pay.

With the help of lawyers, former Department of Labor investigators, and human resource specialists, a team of EPI researchers analyzed the effects of the proposed rule and determined that the DOL not only grossly underestimated how many workers would lose overtime coverage, but also overestimated how many low-wage workers would be newly protected. We estimate that more than eight million workers will lose their right to overtime pay, more than 10 times as many workers as will benefit from the proposal’s increase in the income threshold below which workers are automatically covered.

We discovered that the DOL, either intentionally or through sloppy work, included approximately 600,000 blue-collar workers who are already entitled to overtime pay in its estimate of how many low-wage workers would gain coverage. The DOL also assumed that all of the remaining 700,000 salaried white-collar workers earning less than $22,100 a year are currently not eligible for overtime. In fact, the DOL never did a survey of these workers’ job duties and has no way of knowing whether any of those workers currently qualify for overtime protection. In all likelihood, in fact, very few workers making $15,000 a year (let alone $9,000 or $10,000) are bona fide executives, professionals, or administrators who are legitimately exempt under current law.

EPI’s analysis has helped provoke a nationwide outcry against the proposed rule and has had a tremendous impact on how Congress perceives FLSA changes. EPI researchers and policy analysts, including Jared Bernstein, Sarah Harding, and Ross Eisenbrey, have participated in dozens of television and radio interviews, spoken to scores of print journalists, and participated in several public debates on the merits of the proposed rule.

Bipartisan legislation was introduced in both the House and Senate to block the parts of the proposal that would deny coverage to workers who are currently protected. In July, the House narrowly defeated this attempt to block the proposal by a vote of 210-213. But in September, following several news conferences highlighting the EPI analysis and a Senate hearing at which EPI Vice President Ross Eisenbrey testified, the Senate voted 54-45 in favor of an amendment offered by Senator Tom Harkin to deny the Department of Labor any funds to issue a rule that would cause workers to lose overtime protection.

On Wednesday, October 1, the House approved a motion to instruct its negotiators to agree to the Harkin amendment, reversing its earlier position by a vote of 221-203. This vote would have ensured that any changes to the current FLSA regulations would not deny coverage to workers who currently receive overtime. However, despite the disapproval of both houses of Congress, the Bush Administration has announced its intention to proceed with the proposed rule. The president’s advisors have recommended that he veto the Labor, Health and Human Services, and Education appropriations bill if the Harkin amendment is retained.

The stakes in this legislative battle are enormous. U.S. workers are already among the most overworked and highly stressed in the industrialized world, working longer hours on average than workers in every European country as well as Japan. Workers covered by the Fair Labor Standards Act’s overtime protections are much less likely to work long hours than those who are exempt. Whereas only 20% of covered, nonexempt employees work more than 40 hours a week, 44% of exempt employees work overtime. And exempt workers who are ineligible for overtime protections are three times more likely to work at least 50 hours a week.

Eliminating overtime protection for an additional eight million workers will increase the stress on American families, decrease the hours parents have available for school activities with their children, reduce the time available for community activities, and reduce family incomes. Those employees who work regular overtime generally earn 20% or more of their weekly wage in overtime pay. The loss of that income will have dramatic effects on the standard of living of many workers and their families. It also stands to reason that the net impact on employment will be negative as the elimination of overtime pay makes it cheaper for employers to require that employees work longer hours than it would be to spread the work among additional employees. As the nation faces a prolonged jobs crisis and lagging consumer demand, the Department of Labor’s proposal to eliminate overtime pay for millions of workers is especially ill timed and destructive. 

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EPI Journal—Winter 2003

Cover story: 

Generating growth and jobs: a stimulus plan for 2003
By Lawrence Mishel

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Take back the tax cut

by Jeff Faux

As the new year begins, the economic future seems more uncertain than usual. We don’t know when the recession will end. Nor do we know when the war on terrorism will end-or even how we will know when it is over.

But there are a couple of assumptions that we can safely make.

First, whenever the recession ends, the U.S. economy is unlikely to return to the boom conditions of the last half of the 1990s. In the wake of the collapse of major companies like Enron and the loss of some five trillion in stock market value, it will take years to arouse the animal spirits of speculation that pumped up the economic bubble.

Second, intense competition from a deregulated global economy and the domination of short-term financial horizons will continue to fray the bonds of loyalty and commitment between employers and workers.

As a result, all the problems we were wrestling with before the boom will reappear. Slower growth will mean greater unemployment-particularly for those at the bottom of the wage ladder. With a safety net that is increasingly torn, hardship will spread. The long-term trend toward rising inequality, which was interrupted by the tight labor markets of 1996-2000, will resume. The health care crisis will get worse-not only will the number of uninsured and underinsured grow, but the cost of health care and the shifting of that cost to individuals will continue.

And with the bursting of the stock market bubble, the heady expectations that ordinary workers could speculate themselves to retirement security have deflated. The assets of many 401k plans are back to where they were in the early 1990s. With the disappearance of defined benefit plans, a growing crisis in retirement income is in the offing.

By now, it is obvious that the free market cannot solve these problem, and that government intervention in needed. One would think we would be in a good position to meet this need. In the 1990s, Clinton and the Congress worked single-mindedly to transform fiscal deficits into surpluses-and put off critical investments in education, public health, and transportation in the process. Now, the post-September 11 demands for spending on national security-including more foreign spending-will add to the list of unmet public needs.

From this perspective, George W. Bush’s $1.3 trillion tax cut over 10 years is as irresponsible a fiscal act as we have seen in our lifetimes. Already, the tax cut, on top of slower growth, has turned the forecast of surpluses into deficits until at least 2005. In other words, in the face of enormous increased public needs, the U.S. government will be borrowing money in order to pay for a tax cut that went overwhelmingly to upper-income Americans.

Repealing the tax cut ought to be the No. 1 public policy objective of progressives. But the obstacle is not just the president. The final tax cut of $1.3 trillion was a compromise between the president’s original $1.6 billion and the Democratic congressional leadership’s $900 billion.

The Democrats’ willingness to concede the tax cut principle is testimony to the effectiveness of the conservative campaign against government of the last 20 years. One dramatic symbol was Bill Clinton’s declaration in 1996 that “the era of big government is over.” But as the horrible events of September 11 revealed, it is far from over. In response, Congress and the White House tossed aside the balanced budget fetish and created a new homeland defense bureaucracy, nationalized the private sector business of airport security, and provided a $15 billion bailout to airlines on the grounds that the economy would be damaged if they were allowed to fail.

Of course, the bailout did not extend to the workers who lost their jobs and their health care. And that is the point. To a large degree the anti-government campaign has always been a smokescreen, obscuring the work of economic conservatives on behalf of their business clients. The big corporations and rich investors who invest in the laissez-faire think tanks spend even more money on big-time lobbyists who roam the halls of Congress and government agencies in search of subsidies, tax breaks, and influence.

So, the first step for political leaders in this uncertain climate is to get back their courage and tell the American people what the polls show they already know-accessible health care, retirement with dignity, and a rising standard of living for all require the leadership of democratic government.

Then, they should take back George W. Bush’s tax cut.

Return to EPI Journal Winter 2002