What to Watch on Jobs Day: President Trump inherits a slowly but steadily recovering economy
When the January jobs numbers come out on Friday, I expect we will see an economy that is continuing to slowly, but steadily recover from the Great Recession. By all measures, the labor market is on the road to (but not yet arrived at) full employment. Further, the economy the Trump administration has inherited shows no obvious risks like a wildly overvalued stock or housing market, as such there’s no particular reason to expect it to be thrown off track.
Regardless of which party is in power, we will continue to track the state of the labor market and what it means for people across demographic and educational and socioeconomic circumstances on these pages. Up-to-date and accurate reporting is only possible through the work of the Bureau of Labor Statistics (BLS). The latest BLS commissioner, Erica Groshen, has ended her four year term, during which she continued the proud tradition of both Republican and Democrat BLS commissioners in overseeing high-quality, transparent, and independent data collection and analysis. BLS data allow researchers, policymakers, the media, and consumers to better understand and interpret the goings on of the labor market. The statistics generated by the BLS allow us to form a clear picture of the economy.
Over the recovery, we’ve continued to see confirming evidence from multiples data series that the economic recovery is widespread but incomplete. Recently, there has been talk about what the “true” unemployment rate is. The BLS has an “official” unemployment rate, which is the number of people classified as unemployed—if they do not have a job, have actively looked for work in the prior 4 weeks, and are currently available for work—divided by the number of people in the labor force (the sum of the employed and unemployed). If you want to get more details on this, see BLS’s very clear page of definitions. This “official” measure is also referred to as the U-3. But the BLS actually has six different measures of labor market underutilization, U-1 through U-6.
Fed likely to stand pat today on interest rates: Right call, but important to understand why
The Federal Reserve is widely expected to keep the interest rates it controls unchanged today, after raising rates at its last meeting of the Federal Open Market Committee. This decision would be welcome. It’s important, however, to not just applaud the decision, but to explain why it was the right one: Much of the commentary in the run-up to today’s meeting stresses “uncertainty” as the reason for the Fed’s expected decision. This view implicitly takes the Fed’s main job as calming jittery financial markets.
In reality, the most compelling reason for the Fed to stand pat and give the economy “room to run” (in Chair Yellen’s phrase) is not found in financial markets, but in labor markets. In these labor markets there are no signs at all that wage growth is accelerating at a rate that would spur overall price inflation over the Fed’s 2 percent target. Some measures of wage growth have seen some good pick-up in recent months, but even these remain below what wage growth should be in a healthy economy. Meanwhile, some recent measures of wage growth show continued flatness, and are putting a substantial downward drag on overall price growth. Last week’s data on gross domestic product showed that on the Fed’s key price barometers—“core” prices for consumption goods (excluding volatile food and energy)—saw inflation decelerate rapidly, to 1.3 percent over the last three months.
This is inflation far below the Fed’s stated 2 percent long-run target. Consistently missing the inflation target from below is actually a more-damaging mistake than allowing inflation to exceed the target for a short spell. And until there are signs that labor market tightening has led to genuine full employment that is generating nominal wage growth of 3.5 percent consistently, it is not time to raise interest rates.
Trump leaving LGBTQ nondiscrimination executive order in place signals approval of reasonable mandates for federal contractors
Last night, the White House said that President Trump would leave in place the Obama administration’s executive order that prohibits federal contractors and subcontractors from discriminating against employees on the basis of sexual orientation or gender identity in hiring, firing, pay, promotion, and other employment practices.
It goes without saying that not revoking workplace protections for LGBTQ workers is an extraordinarily low bar for supporting LGBTQ workers. A president who truly supported LGBTQ workers would be pushing for broader legislation that prohibits discrimination, like the 2015 Equality Act, which would provide clear, fully-inclusive non-discrimination protections for LGBTQ people.
Trump’s jobs goals would require massive immigration or forcing elderly Americans to work at unprecedented rates
On the White House website, the Trump administration announced a new goal of adding 25 million new jobs over the next ten years, an extraordinarily audacious, or simply innumerate, target. If their plan were successful, it would require raising employment rates well above what we can realistically hope for given the aging of the population and historical evidence on these rates. Now I happen to love optimistic agendas, but to the extent that this goal is not fantasy based on “alternative facts,” it can mean only one of two things: either the United States needs an enormous influx of immigrants, or a much higher share of the elderly population needs to be put to work.
The addition of 25 million new jobs would bring the number of employed from 152 million to about 177 million workers, which the administration hopes to achieve in ten years. Note that this is a very generous interpretation of the administration’s target, because the Congressional Budget Office (CBO) already projects 2027 employment to be higher by about 8 million, largely due to population growth. In other words, CBO’s projections imply that business-as-usual management of the economy would accomplish one-third of the administration’s goal without any extra effort. Normally when evidence-based policymakers talk about potential new jobs they want to create, they frame this in terms of jobs above already-established baselines. But, let’s grade the Trump proposal on the generous curve I noted above.
So if the administration gets 8 million jobs for free, where would the remaining 17 million jobs come from? One simple way to make some progress toward the employment goal is to significantly increase immigration. Given that the Trump administration is more focused on limiting access to the United States rather than expanding the role of immigrants, I can likely dismiss increased immigration as part of their grand plan.
Using the Congressional Budget Office (CBO) economic projections, Figure 1 shows that the administration essentially wants to increase the employment-to-population ratio (EPOP) to 64.1 percent by 2027. At first glance, this might not sound too hard – the United States achieved these rates in the late 1990s and early 2000s. But because the population is aging and the elderly work at much lower rates than younger workers, we naturally expect significantly lower employment rates in the future even if the economy is operating at or above full employment targets. Largely because of demographic changes like the aging of the population, the CBO projects the 2027 EPOP to be only 58.1 percent in that year.
Employment-to-population ratio for ages 16 and over, 1979-2027
| Year | Actual employment | Administration goal of 25 million new jobs | Age-specific high points | CBO baseline projection |
|---|---|---|---|---|
| 1979 | 59.9 | |||
| 1980 | 59.2 | |||
| 1981 | 59 | |||
| 1982 | 57.8 | |||
| 1983 | 57.9 | |||
| 1984 | 59.5 | |||
| 1985 | 60.1 | |||
| 1986 | 60.7 | |||
| 1987 | 61.5 | |||
| 1988 | 62.3 | |||
| 1989 | 63 | |||
| 1990 | 62.8 | |||
| 1991 | 61.7 | |||
| 1992 | 61.5 | |||
| 1993 | 61.7 | |||
| 1994 | 62.5 | |||
| 1995 | 62.9 | |||
| 1996 | 63.2 | |||
| 1997 | 63.8 | |||
| 1998 | 64.1 | |||
| 1999 | 64.3 | |||
| 2000 | 64.4 | |||
| 2001 | 63.7 | |||
| 2002 | 62.7 | |||
| 2003 | 62.3 | |||
| 2004 | 62.3 | |||
| 2005 | 62.7 | |||
| 2006 | 63.1 | |||
| 2007 | 63 | |||
| 2008 | 62.2 | |||
| 2009 | 59.3 | |||
| 2010 | 58.5 | |||
| 2011 | 58.4 | |||
| 2012 | 58.6 | |||
| 2013 | 58.6 | |||
| 2014 | 59 | |||
| 2015 | 59.3 | |||
| 2016 | 59.7 | 59.7 | 59.7 | 59.73844 |
| 2017 | 60.10455 | 59.8 | 59.92828 | |
| 2018 | 60.50909 | 59.9 | 59.99178 | |
| 2019 | 60.91364 | 60 | 59.80045 | |
| 2020 | 61.31818 | 60.1 | 59.37108 | |
| 2021 | 61.72273 | 60.2 | 59.09788 | |
| 2022 | 62.12727 | 60.3 | 58.88157 | |
| 2023 | 62.53182 | 60.4 | 58.67118 | |
| 2024 | 62.93636 | 60.5 | 58.47261 | |
| 2025 | 63.34091 | 60.6 | 58.29248 | |
| 2026 | 63.74546 | 60.7 | 58.13271 | |
| 2027 | 64.15 | 60.8= | 58.06227 |
Notes: Author’s calculations using the Current Population Survey and CBO January 2017 10-Year Economic Projections. Census 2014 National Population Projections for 2027 are assumed for age groups 16-19, 20-24, 25-54, 55-64, and 65 and over, and the employment high points are defined over the last 50 years.
In contrast, Figure 1 also shows in orange an ambitious target that both accounts for demographic changes but assumes each of five broad age groups reaches its historical high point of employment over the last fifty years. Under a bold scenario like this one, although the employed share of the population would grow significantly over the CBO baseline to 60.8 percent, it nevertheless would fall short of the administration goal by more than 9 million jobs.
The administration’s goal clearly requires the economy to outperform all of its previous achievements, once we adjust for demographics. Since the American population is aging —the age 65 and over share of the population is expected to rise from 19.3 percent in 2016 to 24.1 percent in 2027—the administration would need elderly individuals to work at much higher rates than they do now. In fact, if elderly individuals are not going to work at rates higher than the one they are working at today, the only way to meet the administration’s goal requires all other groups of workers to attain employment rate gains of 4.4 percentage points above their prior historical peaks, which is probably unrealistic. If other age groups don’t raise their employment rates above prior peaks, we would need the employed share of the elderly to soar to 32.3 percent in 2027 from 18.6 percent in 2016.
Having the elderly work more is problematic for two reasons. First and foremost are our social priorities: shouldn’t a growing rich country make it easier, not harder, for its older citizens to retire? Second, older individuals are already working more in record numbers. Figure 2 shows the dramatic recent rise in share of the population ages 65 and above that is working.
Employment-to-population ratio for ages 65 and over, 1979-2016
| year | Employment-to-population ratio |
|---|---|
| 1979 | 12.6 |
| 1980 | 12.2 |
| 1981 | 11.9 |
| 1982 | 11.5 |
| 1983 | 11.3 |
| 1984 | 10.7 |
| 1985 | 10.4 |
| 1986 | 10.6 |
| 1987 | 10.8 |
| 1988 | 11.2 |
| 1989 | 11.5 |
| 1990 | 11.4 |
| 1991 | 11.1 |
| 1992 | 11.1 |
| 1993 | 10.9 |
| 1994 | 11.9 |
| 1995 | 11.7 |
| 1996 | 11.6 |
| 1997 | 11.8 |
| 1998 | 11.6 |
| 1999 | 11.9 |
| 2000 | 12.5 |
| 2001 | 12.6 |
| 2002 | 12.7 |
| 2003 | 13.5 |
| 2004 | 13.9 |
| 2005 | 14.5 |
| 2006 | 15 |
| 2007 | 15.5 |
| 2008 | 16.1 |
| 2009 | 16.1 |
| 2010 | 16.2 |
| 2011 | 16.7 |
| 2012 | 17.3 |
| 2013 | 17.7 |
| 2014 | 17.7 |
| 2015 | 18.2 |
| 2016 | 18.6 |
Note: Author’s calculations using the Current Population Survey.
Some of the increase in work among the elderly population is due to rising life expectancies and (hopefully) better health among some segments of older Americans. But another important factor is the destruction of retirement savings brought on by the bursting asset bubbles of the 2001 and 2007-2009 recessions. Unfortunately for many of those who planned to be retired, inadequate savings due to a retirement system that does not work for most workers has pushed them into the labor market. As a result, it is as likely the case today that too many older Americans are compelled to work, not too few. Employment goals like the administration’s that are unrealistic at best or exacerbate harmful trends at worst are not a step in the right direction.
In the end, the goal of 25 million new jobs likely just reflects simple ignorance of the Trump administration. The United States economy created almost 2.5 million jobs in 2016, so a natural guess for the next 10 years might just be to multiply this by 10. But the 2.5 million jobs gained in the most recent year were buoyed by continuing to work off the excess of unemployed workers created by the Great Recession. Further, the growth of the labor force over the next 10 years will continue to decelerate rapidly. This is the obvious fact that the Trump administration forecasts likely miss.
8 years of the Lilly Ledbetter Fair Pay Act
This Sunday, January 29th, marks the eighth anniversary of the Lilly Ledbetter Fair Pay Act, which helps to prevent pay discrimination. While there is no silver bullet to end gender and racial pay disparities (though we have some ideas here and here), ensuring that workers can use the legal system to receive equal pay for equal work is crucial. The Lilly Ledbetter Fair Pay Act lets workers do just that, by giving them the right to file suit 180 days after the last pay violation and not only 180 days after the initial pay disparity.
The research is conclusive: pay differentials exist and sometimes to a grave degree. Women of color face an extra penalty in the labor market and that shows up in their significantly lower wages. Typical black women are paid 65 cents on the typical white male dollar, while Hispanic women are paid a mere 58 cents on the dollar.
Furthermore, wage gaps are a problem across the wage distribution and among workers of every education level. As you can see in the chart below, women are paid less than men at every level of education. Among workers with a high school degree, women are paid 78 percent of what men are paid (or 78 cents on the dollar). Among workers who have a college degree, the share is 75 percent, and among workers who have an advanced degree, it is 73 percent.
Racial gaps in wages, wealth, and more: a quick recap
Recently, I had the opportunity to present some key facts on 1A, a new NPR news program, about the state of black America. Drawing heavily upon research by my colleague Valerie Wilson and her co-author William Rodgers III, I reported on the economy for black workers and the overall disparities that remain, and, in some cases, continue to worsen. Since that hour went by fast (and you might have missed it), I want to reiterate some of those points briefly here.
Black-white wage gaps are larger today that they were 35 years ago. For both men and women who work full time, the regression adjusted racial wage gap has widened since 1979. The figure below shows that, relative to the average hourly wages of white men with the same education, experience, metro status, and region of residence, black men make 22.0 percent less, and black women make 34.2 percent less.
Adjusted average hourly wage gaps relative to white men by race and gender, 1979—2015
| All white women | All black women | All black men | |
|---|---|---|---|
| 1979 | 37.8% | 42.3% | 16.9% |
| 1980 | 36.8% | 41.1% | 17.7% |
| 1981 | 35.7% | 40.2% | 17.5% |
| 1982 | 34.3% | 39.6% | 19.2% |
| 1983 | 33.1% | 38.3% | 17.7% |
| 1984 | 32.1% | 38.4% | 18.1% |
| 1985 | 32.3% | 38.1% | 20.3% |
| 1986 | 31.3% | 36.9% | 18.6% |
| 1987 | 30.5% | 36.0% | 18.6% |
| 1988 | 30.0% | 36.7% | 18.5% |
| 1989 | 28.1% | 35.3% | 20.0% |
| 1990 | 27.1% | 34.7% | 19.8% |
| 1991 | 25.7% | 32.2% | 19.8% |
| 1992 | 24.3% | 31.9% | 20.9% |
| 1993 | 23.1% | 30.9% | 20.3% |
| 1994 | 23.0% | 32.2% | 19.1% |
| 1995 | 23.9% | 31.5% | 20.3% |
| 1996 | 23.7% | 33.9% | 22.7% |
| 1997 | 24.0% | 33.5% | 22.3% |
| 1998 | 23.7% | 31.8% | 19.8% |
| 1999 | 24.4% | 32.1% | 19.7% |
| 2000 | 24.7% | 31.9% | 19.7% |
| 2001 | 23.6% | 33.0% | 21.9% |
| 2002 | 22.5% | 32.7% | 20.6% |
| 2003 | 23.0% | 31.5% | 21.8% |
| 2004 | 23.0% | 31.3% | 21.2% |
| 2005 | 22.4% | 32.3% | 23.0% |
| 2006 | 23.1% | 31.3% | 21.7% |
| 2007 | 22.8% | 32.4% | 23.2% |
| 2008 | 22.7% | 32.4% | 23.6% |
| 2009 | 22.9% | 32.0% | 23.1% |
| 2010 | 21.8% | 31.6% | 21.1% |
| 2011 | 20.8% | 31.8% | 21.0% |
| 2012 | 22.1% | 33.5% | 21.4% |
| 2013 | 22.0% | 32.6% | 22.2% |
| 2014 | 21.3% | 32.2% | 22.8% |
| 2015 | 22.5% | 34.2% | 22.0% |
Note: The adjusted wage gaps are for full-time workers and control for racial differences in education, potential experience, region of residence, and metro status.
Source: EPI analysis of Current Population Survey (CPS) Outgoing Rotation Group microdata
President Trump’s alternative facts have foreigners and bureaucrats, not the top 1 percent, reaping the gains from economic growth
It’s no secret that we at EPI have been skeptical about President Trump’s commitment to a policy agenda that would deliver the goods for low and middle-income Americans. His campaign proposals were nearly across-the-board great for high-income households and corporate business, but bad for most American workers. His nominees for key economic posts have been consistently hostile to policies that boost bargaining power for low and middle-wage workers. And now we have his inaugural speech, in which he specifies the groups he thinks have won and lost over recent decades in the American economy.
This speech is clarifying in that he identifies foreigners and “a small group in our nation’s Capital [sic]” as the big winners. Totally absent from his speech is the “small group” that has actually done very well and whose gains genuinely crowded-out potential growth for the vast majority of American households: the top 1 percent.
It’s unclear what evidence Trump could be referring to when decrying that “small group in our nation’s Capital” as the winners in recent decades. Since the recovery from the Great Recession began, for example, federal spending has grown more slowly than in nearly every other post-war recovery.
The increased diversity of New York City union construction employment
This blog post presents some early findings of a forthcoming report* on the race and ethnic diversity of construction employment—union and nonunion—in New York City, updating some of my research released in 2013. The issues were clarified in the earlier research:
“Construction is a sector that has historically excluded black workers—including the unionized portion of the industry. Giving minority workers access to good jobs is an important part of closing our large and persistent racial wage inequities, so this is a critical issue. It was on this basis that many progressives have been hostile to infrastructure spending in the past: it provided jobs in a sector where it was well known and documented that black workers had been excluded from opportunities. Some people, such as National Black Chamber of Commerce CEO Harry C. Alford, contend that ‘construction sites are still close to Jim Crow.’
It is worth asking whether and to what extent construction work is racially exclusionary, especially the unionized sector as Alford also contends. After all, there have been changes over the years, with unions increasing the number of minorities admitted into apprenticeship programs, and undertaking project labor agreements that incorporate community agreements that bring excluded populations into the industry. What does the current situation look like and how does the union sector compare to the nonunion sector? It turns out that, at least in one of our largest and heavily unionized cities, New York City, Alford’s characterization is quite outdated.”
Another reason women will march on Saturday—for better wages and greater economic security
As thousands of women gather on the National Mall to advocate for women’s rights, here’s one issue that policymakers can address: wage growth. By closing the gender wage gap and eliminating the inequality that has kept nearly all workers’ pay from rising with productivity, we could raise women’s median hourly wages by 69 percent—from $15.67 to $26.47.
Over the last several decades, women have entered the workforce in record numbers and made great strides in educational attainment. Nevertheless, when compared with men, women are still paid less, are more likely to hold low-wage jobs, and are more likely to live in poverty. Typical women are paid only 83 cents for every dollar paid to a typical man. Gender wage disparities are present at all wage levels and within education categories, occupations, and sectors—sometimes to a grave degree. For example, relative to white non-Hispanic men, black and Hispanic women workers are paid only 65 cents and 58 cents on the dollar.
Closing the gender wage gap is absolutely essential to helping women achieve economic security. But in order to bring genuine economic security to American women and their families, we must do more. In particular, we must reverse the decades-long trend of stagnant wages for the vast majority of workers. Indeed, while the gender wage gap has persisted, hourly wage growth for the vast majority of workers has stalled, as the benefits of increased productivity have accrued to those at the top. This is the result of intentional policy decisions that have eroded the leverage of the vast majority of workers to secure higher wages.
Paid sick leave provides economic and health security to over a million federal contract workers
Due to an executive order by President Obama, all federal contractors with new contracts (or renewals) after January 1, 2017 are required to provide paid sick leave to theirs employees. The Department of Labor estimates that this final rule will provide paid sick leave to about 1.15 million workers employed by federal contractors. Similar in magnitude to the DOL estimates, our research indicates that paid sick leave for federal contractors will improve job quality for many hundreds of thousands of workers across the country. As the rule reaches all federal contractors, our estimates suggest that between 694,000 and 1,053,000 employees of federal contractors will directly benefit by receiving additional paid sick leave, including an estimated 450,000 to 775,000 who would receive no paid sick leave without it.
The rule on paid sick days helps protect employees of federal contractors by giving them the ability to earn paid sick time to care for their own medical needs, a family member’s medical needs, or for purposes related to domestic violence, sexual assault, or stalking. Evidence from the private sector and the states and cities with paid sick leave laws demonstrates that paid sick days improve employee retention, reduce workplace contagion and injury, and increase productivity. The cost savings associated with paid sick days serve the purpose of the final rule to promote economy and efficiency in federal contracting. Furthermore, as with existing state and local paid sick leave laws that are very similar to the final rule, the proposed rule will benefit workers, their families, and public health.
Low-wage workers are less likely to have access to paid sick days: Percent of private industry workers with access to paid sick days, by wage group, 2016
| Category | Share of workers who have access to paid sick days |
|---|---|
| Bottom 25% | 39% |
| Second 25% | 65% |
| Third 25% | 75% |
| Top 25% | 84% |
| Bottom 10% | 27% |
| Top 10% | 87% |
Source: Bureau of Labor Statistics' National Compensation Survey--Employee Benefits in the United States, July 2016 (Table 6)
Paid sick days for federal contract workers will also help level the playing field between those fortunate enough to have such benefits and those who aren’t so lucky. According to the latest data, 36 percent of private sector workers do not have access to paid sick leave. Fortunately, state and local public policies continue to make a difference for working families, and the rate of coverage has increased over the last year, from 61 to 64 percent of private sector workers. Particularly of note is the rate of increase for low-wage workers who increased their coverage from 31 to 39 percent. Unfortunately, access to paid sick leave remains vastly unequal, as shown in the figure below. Only 27 percent of the lowest wage workers (the bottom 10 percent) have the ability to earn paid sick time to care for themselves and their family as opposed to 87 percent of the highest wage workers (the highest 10 percent).
Because there are federal contractors across the economy, workers in certain sectors are likely to see the biggest boost in their sick time coverage. While the order will be executed uniformly, those sectors with lower rates of coverage are most likely to see a greater change in benefits for their workers. We estimate that over half of federal contract workers in accommodation and food services; administrative and support and waste management; arts, entertainment, and recreation; and retail trade will gain coverage.
Why taxpayers are getting a bargain from public-sector workers
The American Enterprise Institute’s Andrew Biggs reacted to my critique of his Yankee Institute study on public-sector pay in Connecticut with a lengthy response (see also my related blog post). I take this as a good sign: Maybe facts do matter, even in the Trump era.
Before delving into methodological issues, however, I’ll answer one pointed question Biggs had: No, my critique of his research wasn’t commissioned by labor unions, though EPI does receive about a quarter of its funding (27 percent, to be precise) from unions, who helped found EPI and are represented on our board. Most of the rest of our funding comes from foundations.
As it happens, Biggs’s study was brought to my attention by an advocacy group, Connecticut Voices for Children, that receives most of its funding from community foundations and almost none from unions. Connecticut Voices asked for my help in understanding Biggs’s methodology. Since this ended up taking longer than expected, I decided to write a report for which EPI didn’t receive any dedicated funding. I did share a late draft with an expert in public-sector compensation at the National Education Association in Washington, who had no influence on my analysis. I actually think my job would have been easier and the report better if I’d consulted with union representatives in Connecticut, though I understand why Biggs might not agree.
Now that I’ve come clean, I’d be curious to know who commissioned Biggs’s report and who he received feedback from—AEI board member and Education Secretary nominee Betsy DeVos, by any chance?
Sen. Tom Cotton misses the mark on immigration and wages
Senator Tom Cotton’s (R-Ark.) recent NY Times op-ed on immigration—“Fix Immigration. It’s What Voters Want.”—gets a few things right, but the ultimate analysis is off the mark. Cotton’s thesis is that immigrants have flooded the labor market to such an extent that immigration is largely to blame for decades of wage stagnation. Immigration does sometimes have negative impacts on American workers—and we need to be clear about who the economic winners and losers are—but contrary to Cotton’s claims, there is scant evidence that immigration overall has kept wages low. Furthermore, Cotton ignores the real reasons wages have failed to rise for so many American workers.
But first, credit where credit is due.
Sen. Cotton deserves credit for calling out businesses that warn of looming labor shortages in low-skilled jobs despite any observable evidence that this is imminent (while research shows the opposite has been true during at least the past decade). Cotton claims, however, that these businesses mainly support immigration so that they can add additional workers to the labor market in order to lower wages. There’s a kernel of truth in that, but in reality, employers care more about hiring workers without power or a voice in the workplace; that’s what puts downward pressure on wages in low-skilled jobs.
Most Americans do want immigration fixed. They reject a system that leaves families terrified of separation because they fear deportation of undocumented moms, dads, brothers, and sisters, even if they’ve resided in the United States for decades and have jobs and (otherwise) clean criminal records. Cotton doesn’t mention any of this. He instead laments a “generation-long influx of low-skilled immigrants that undermines American workers.”
The real problem isn’t immigration, it’s a legal framework that leaves all low-wage workers and millions of migrant workers—both authorized and unauthorized—vulnerable to wage theft and exploitation. We have allowed employers to race to the bottom toward lower and lower labor standards.
The Obama legacy on wages
The closing days of the Obama years give us a chance to assess the president and his administration across a range of issues. Given that we at EPI have repeatedly called broad-based wage growth the central economic challenge of our time, it seems appropriate for to assess the administration’s performance in pushing policies to generate this growth.
We have generally organized the policies that would boost wages for most workers into three broad buckets: generating full employment and a “high-pressure” labor market, supporting or creating institutions and standards that boost workers’ bargaining power, and providing a countervailing force against the power of the top 1 percent to claim excess shares of economic growth.
Economic and political context
Before we assess the Obama administration along the key dimensions highlighted above, it’s crucial to provide the larger economic and political context of the past eight years. Even if an administration did everything right on policy efforts to boost wages, wages still might not rise if the overall economy was damaged when the incoming administration inherited it. This is clearly the case for the Obama administration. In February 2009, the first full month of the Obama administration, the economy had been in recession for 13 months, and the severity of the economic crisis was accelerating. In the six months ending in February 2009, the economy lost 650,000 jobs each month on average.
The economy has made great strides since the recession began, but there is still work to be done
Today’s jobs report gives us an opportunity to compare how the economy is treating Americans today compared with December 2007, when the recession began. As the recovery has strengthened we’ve seen improvements in all measures of employment, unemployment, and wage growth. All measures indicate a consistent story—an economy on its way to full employment, but not there yet. Taking a data-driven approach to policymaking would mean continuing to push, keeping interest rates low and letting the economy recover for Americans across genders, races, ethnicities, and levels of educational attainment.
In December, the unemployment rate edged up slightly to 4.7 percent because of a small but positive increase in the labor force participation rate. The unemployment rate peaked at 10.0 percent during the recession, and at 4.7 percent it is now below where it was before the recession began (5.0 percent). Meanwhile, the unemployment rate for black workers hit 7.8 percent in December. This is its lowest point so far in the recovery, but it’s still slightly above its pre-recession low in August 2007 (7.6 percent). Likewise, the unemployment rate for Hispanic workers (5.9 percent) has stagnated for much of the year and remains significantly above its pre-recession low point of 4.7 percent in October 2006. The underemployment rate—which adds in workers who are part-time for economic reasons and those marginally attached—was 9.2 percent in December and still hasn’t reached its pre-recession level (8.8 percent). So, while the economy is the strongest it’s been in years, there are still a lot of workers sitting on the sidelines and underutilized, and a lot of communities that are not feeling the full extent of the recovery.
What to watch on Jobs Day: The year in review
The last jobs report for 2016 comes out tomorrow, giving us a chance to step back and put the entire year in context. Because there is always a bit of volatility in the monthly data—especially in the household series—taking a year-long approach allows us to smooth out the bumps and take stock of all the key measures: payroll employment growth, the unemployment rate, the employment-to-population ratio, and nominal wage growth.
This week’s jobs report will also give us a great vantage point to compare December 2016 to December 2007, the last peak year before the Great Recession hit. The unemployment rate continues to fall, and is now far below where it was at its peak (10.0 peak), and even below where it was when the recession began (5.0 percent). The prime-age employment-to-population ratio has been digging its way out of a deep hole over the last several years as well, but progress in this measure has been slower. It is expected to improve as the economy strengthens and more would-be workers return to the labor market and find jobs. Nominal wage growth has also seen some improvements recently, increasing from an average rate of growth of about 2.0 percent in the first few years of the recovery to 2.5 percent average growth over the last year, but it’s still well below levels consistent with the Fed’s target inflation and trend productivity growth.
If December’s numbers are in line with payroll employment growth over the last several months, it will be further evidence that the economy is continuing its march towards full employment. Unfortunately, the return to a full employment economy—one where additional demand in the economy will not create more employment—has been slower than necessary. It faces an uphill battle against a relentless pursuit of austerity at all levels of government and, after rightfully holding off for the most part, Federal Reserve policymakers appear to be putting on the brakes prematurely. For the recovery to truly reach all workers and their families across the country—across race, ethnicity, and levels of education—we need to get back to full employment.
It remains to be seen what, if anything, President-elect Trump will do to strengthen the economy for working people. On net, it could go either way. But all measures, the next president is inheriting an economy far stronger than the last and one that, if left alone, will continue to heal.
401(k)s are an accident of history
401(k)s were never intended to replace pensions, so it should be no surprise that they aren’t up to the task. This has been pointed out before, but it’s nice to be reminded that even the people who came up with the 401(k) concept now “lament the revolution they started,” to quote an excellent article by the Wall Street Journal’s Timothy W. Martin.
This is the kind of negative coverage that keeps the folks at the Investment Company Institute busy. Students of spin may want to check out the industry lobby’s latest effort, which obscures the dismal record of 401(k) plans by lumping them in with traditional pensions. It also focuses on retired seniors, ignoring the growing number who can’t afford to stop working.
Careful readers will note that even the ICI’s rosy report shows that decades into the 401(k) revolution seniors received $105 billion dollars in pension income and only $29 billion from 401(k)-style plans in 2014. Admittedly, this is based on somewhat unreliable household survey data and ignores the fact that many well-off 401(k) and IRA participants treat retirement savings plans as tax shelters and avoid withdrawing money from them as long as possible. Still, it’s a stretch to suggest that the looming retirement crisis is a mirage caused by poor data (see also here and here).
Why unemployment will keep dropping in 2017
This post originally appeared on Fortune.com.
The economy has been steadily recovering from the 2007–08 Great Recession and is expected to continue heading toward full employment in the next year or two. Many signs suggest that we are not there yet—notably below-target wage growth and still-depressed labor force participation. The prime-age labor force participation rate—the share of the population 25–54 years old that is either working or looking for work—remains 1.7 percentage points below its pre-recession level.
Unfortunately, the return to a full employment economy—one where additional demand in the economy will not create more employment—has been slower than necessary, as it faces an uphill battle against the relentless pursuit of austerity at all levels of government. But if the economy continues growing anywhere near its current rate of about 175,000 to 200,000 additional jobs per month, the labor market in 2017 will absorb new and returning workers and the unemployment rate could easily get below 4.5% for the year.
Over the last several years, the unemployment rate has seen a steady fall from a high of 10% in 2009 down to a recent low of 4.6% last month. In recent months, there has been a tug of war between a lower unemployment rate and an increase in labor force participation. For instance, last month, the drop in the number of unemployed workers was mostly due to a fall in the size of the labor force. As the economy gains strength, more would-be workers are expected to return (or enter) the labor market as job prospects improve. Over the past year, slight improvements in unemployment have been made even as participation has increased.
The new year brings higher wages for 4.3 million workers across the country
At the start of the new year, 19 states increased their minimum wages, lifting the pay of over 4.3 million workers.[i] This is the largest number of states ever in a given year to increase their minimum wages absent an increase in the federal minimum wage. In seven of these states (Alaska, Florida, Missouri, Montana, New Jersey, Ohio, and South Dakota) the increases were due to inflation indexing, where the state minimum wage is automatically adjusted each year to match the growth in prices, thereby preventing any erosion in the real value of the minimum wage. The increases in the remaining 12 states were due to legislation or ballot measures approved by voters.
The table below shows the values of the minimum wage increases and the number of workers directly affected in each state. Due to relatively low inflation in 2016, small inflation-linked increases of only 5 cents will occur in four states (Alaska, Florida, Missouri, and Ohio). The largest increases were the result of ballot measures passed in Arizona (a $1.95 increase) and Washington (a $1.53 increase). In these and other states instituting legislative increases, a significant portion of the wage-earning workforce will directly benefit from the increase in the minimum wage: Arizona (11.8 percent), California (10.7 percent), Washington (10.7 percent), Massachusetts (9.2 percent), and Connecticut (7.6 percent). It should be noted that these estimates likely understate the total numbers of affected workers, because they do not include workers who are paid just above the new minimum wage. Many of these workers will also receive a wage through “spillover effects,” as employers adjust their overall pay ladders.
The Obama legacy: creating more, better jobs
This post originally appeared on TalkPoverty.org.
During his 2016 presidential campaign, president-elect Donald Trump promised that if he was elected, “the American worker will finally have a president who will protect them and fight for them.” Creating good-paying and high-quality jobs is definitely a worthwhile goal for the president to increase Americans’ living standards and decrease poverty.
Despite the president-elect’s claim that there are “no jobs,” the labor market has improved at a remarkably steady rate as the country worked its way out of the deep recession. During the past six years, there has been job growth each and every month, and a 5 percentage point drop in the unemployment rate. In part, that’s due to President Obama’s Recovery Act, which stimulated growth, provided aid to states, and invested in infrastructure. The rescue of the auto industry saved at least 1 million jobs, and kept an entire region out of a severe depression.
In 2015, most Americans finally started to feel the benefits of the recovery. Income rose for the typical American household, and the poverty rate saw one of the largest single-year declines in almost 50 years—primarily due to improvements in the labor market.
UN Special Rapporteur offers sharp criticism of American temporary foreign worker programs
On December 19, one day after International Migrants’ Day, Maria Grazia Giammarinaro, the United Nations Special Rapporteur on Trafficking in Persons, Especially Women and Children, issued a statement regarding her official visit to the United States to assess the country’s state of affairs on human trafficking. During her trip, Giammarinaro met with government officials, diplomats, trafficking survivors, and representatives from civil society. While she praised the United States for developing “an impressive number of laws and initiatives which focus on the protection of victims,” especially the Victims of Trafficking and Violence Protection Act and its subsequent reauthorizations, she offered up sharp and insightful criticisms of the nonimmigrant visa programs that temporarily authorize migrants to work in the United States:
The legal framework governing temporary visas for migrant workers, especially H-2A visa for temporary or seasonal agricultural work and H-2B visa for temporary or seasonal non-agricultural work visas, is of particular concern as it exposes applicants to the risk of exploitation, including human trafficking. Workers holding these temporary visas are tied to a specific employer who can exercise extensive control over them. Employers often confiscate passports, withhold wages, terminate contracts arbitrarily and threaten employees with job loss and deportation. Some live in deplorable housing conditions, commute long distance and enjoy low benefits. This is a serious problem in itself, but it is exacerbated by the fact that concerned workers may fear that if they report abuses, they will be deported or denied future visa applications. This situation creates vulnerabilities to labour exploitation, such as unsafe working conditions and isolation, especially in rural areas where there are fewer service providers. In order to prevent further harm, it will be essential to amend the regulation governing these temporary visas, as well as to those of Exchange visitor (J-1) and domestic workers (G-5) visas, and make visa “portable” to allow workers to change abusive employers.
In time for Christmas: a “progressive” Social Security plan Scrooge would love
Donald Trump ran a campaign that rejected Republican orthodoxy on a variety of issues. He consistently and emphatically rejected the party line on slashing social insurance programs like Medicare and Social Security. And yet, Congressional Republicans are ploughing ahead with plans to gut these benefits. The latest proposal, from House Social Security Subcommittee Chairman Sam Johnson (R-Texas), actually slashes benefits even more than would be sufficient to close Social Security’s projected shortfall. The extra savings generated by these cuts is used to reduce taxes on higher-income households.
Johnson attempts to camouflage the draconian nature of his plan with targeted benefit increases for low earners. Despite this window dressing, as many low earners will see cuts as will see increases, according to the Social Security Actuary’s analysis of the plan. This hasn’t stopped budget hawks from touting its supposed progressivity, pointing to a benefit formula more tilted in favor of low earners and an increase in the special minimum benefit going to those with steady work histories. However, for most workers, including many low earners, these provisions are more than offset by benefit cuts.
The first major plank of the Johnson plan revises the overall benefit formula for retirees. By itself, this provision would increase benefits for roughly half of workers (the 51 percent with earnings below 90 percent of the average wage index) while reducing them by a greater amount for the other half. Johnson also introduces a revised special minimum benefit that would increase benefits for around 37 percent of workers. However, other provisions increase the normal retirement age (equivalent to an across-the-board cut) and enact a range of other cuts. On net, only one in four workers (26 percent) would come out ahead from Johnson’s plan, while 70 percent would see benefit cuts, with some workers seeing cuts of up to 74 percent based on the examples modeled in the Chief Actuary’s analysis.
Criminal justice policy is education policy
In a new report, Mass Incarceration and Children’s Outcomes, we argue that criminal justice policy is education policy, and should be high on educators’ lists of concerns.
Several police killings of young men in African American neighborhoods, as well as the national racial polarization exposed in the recent presidential campaign, have called increased attention to our unresolved racial inequalities, including the disproportionate numbers of African American men who are in jail or prison. In the last months of his administration, President Obama responded to excessive federal prison sentences with a stepped up rate of commutations.
President-elect Trump, in contrast, has advocated a nationwide policy of “stop-and-frisk,” a police practice concentrated in low-income minority neighborhoods that invariably leads to the arrest and eventual imprisonment of men, African American men in particular, for non-violent victimless crimes.
“Stop and frisk,” as well as excessive sentencing for minor crimes, are not primarily federal policies, and once in office, Mr. Trump will have little influence over them. These are policies and practices of local and state governments, and reform is no less realistic or urgent now than it was before the presidential election.
SoftBank: Great press, bad for manufacturing, services, and the economy
Last week, President-elect Donald Trump took to Twitter to claim that Masayoshi Son, CEO of SoftBank of Japan, had agreed to invest $50 billion in the United States toward businesses and create 50,000 new jobs, and that “Masa said he would never do this had [Trump] not won the election!” As usual, the claim that Trump negotiated this deal is disputed, since SoftBank had announced plans to create a $100 billion technology investment fund, together with a public investment fund of Saudi Arabia, in October, before the election.
Worse yet, this deal is lose, lose, lose for the domestic economy. First, this inflow of foreign capital will bid up the U.S. dollar, which will reduce the competitiveness of U.S. manufacturing by making imports cheaper and exports more expensive. This will increase the U.S. trade deficit and reduce employment in U.S. manufacturing. The U.S. dollar has gained about 25 percent in the past two-and-a-half years, and one-fifth of that increase has occurred since the election. As a result, the trade deficit in manufactured goods increased sharply in 2015 and is poised for another increase after the recent run-up in the dollar. Meanwhile, the United States has lost 78,000 manufacturing jobs since the first of the year due, in part, to the rising trade deficit.
Second, foreign investment in the U.S. economy is dominated by foreign purchases of existing U.S. companies. Between 1990 and 2005, foreign multinational companies (MNCs) acquired or established domestic subsidiaries that employed 5.25 million U.S. employees. The vast majority (94 percent) of jobs associated with those investments were in existing firms acquired by foreign MNCs. However, 4 million of those jobs disappeared through layoffs or divestiture of part or all of those companies, as shown in my 2007 paper, The Hidden Costs of Insourcing. A classic example was the acquisition of IBM’s PC business by Chinese computer maker Lenovo in 2005. Lenovo shut down PC production in the United States and substituted PCs made in China and elsewhere in Asia. So PC production jobs in the United States disappeared.
We can’t meaningfully integrate schools without desegregating neighborhoods
This article first appeared on the NAACP Legal Defense Fund‘s website.
A bill introduced in the New York City Council proposes to establish “an office of school diversity within the human rights commission dedicated to studying the prevalence and causes of racial segregation in public schools and developing recommendations for remedying such segregation.”
But it is not reasonable, indeed it is misleading, to study school segregation in New York City without simultaneously studying residential segregation. The two cannot be separated.
School segregation is primarily a problem of neighborhoods, not schools. Schools are segregated because the neighborhoods in which they are located are segregated. Some school segregation can be ameliorated by adjusting school attendance boundaries or controlling school choice, but these devices are limited and mostly inapplicable to elementary school children, for whom long travel to school is neither feasible nor desirable. We have adopted a national myth that neighborhoods are segregated “de facto;” i.e., because of income differences, individual preferences, a history of private discrimination, etc. In fact, neighborhoods in NYC are segregated primarily because of a 20th century history of deliberate public policy to separate the races residentially, implemented by the city, state, and federal governments. Just a few examples:
How the Fed can fix one way the economy really is rigged: Restore the pursuit of full employment as their job number one
The election of Donald Trump alerted many to what should have been obvious long ago: the U.S. economy has failed to deliver the goods to vast swathes of American families for decades. In the context of Trump’s election, this economic failure was often characterized as being unique to white working-class voters in the upper Midwest. But this is wrong. Income growth has been sluggish, and hourly wage growth near-zero, for low and middle-income families across-the-board in recent decades. And many measures of racial income and wage gaps have actually worsened in recent years. In short, the income not going to white working-class residents of the upper Midwest has not been accruing to black and Latino workers; it’s instead just been funneled to the very top of the income distribution.
It’s not just politically important to realize that the economy’s failure to deliver income growth is not just a niche problem of white working-class voters in former manufacturing regions. This realization should also tell us something important about the economics of how to fix this. Too many have jumped to the conclusion that there’s just not much we can do for those workers that have been left behind in recent decades, because their troubles are mostly driven by huge, untamable forces like technological change and globalization. Here’s the astute economics writer Adam Davidson on Slate’s Political Gabfest podcast:
I know Hillary Clinton’s economic team fairly well, and I’m very impressed by them. They really are top-notch economists and economic policy thinkers. They don’t have anything for a 55-year-old laid-off factory worker in Michigan or northeastern Pennsylvania. Or whatever. They don’t have anything to offer them. And so I think it’s intuitively understandable that a screaming, loud, wrong answer is more compelling than a calm, reasonable, accurate, right answer: Your life is going to be worse for the rest of your life.
Andrew Puzder fails every test for a Labor Secretary
President-elect Donald Trump announced that he plans to nominate fast food CEO Andrew Puzder to head the Department of Labor (DOL). Puzder, who makes millions as a low-wage employer, fails every test for a Labor Secretary. DOL’s mission is to improve the wages and working conditions of working Americans, but Puzder wants to keep wages low and threatens to replace his fast food chain’s employees with robots if the minimum wage rises enough to crimp his profits.
He’s opposed to the new overtime rule that gave the right to time and a half pay to millions of salaried employees earning less than $47,476 a year. Walmart has already raised its managers’ pay, as did about half of all big retailers, even before the rule was supposed to take effect on December 1. But Puzder wants to kill it so he can keep working low-paid employees without paying them a dime extra for their overtime hours.
Heed union leader’s truth-telling on Trump/Carrier deal and judge on policy, not theatrics
Last week I argued that the Trump-brokered deal with Carrier industries to keep 700 jobs in Indiana shouldn’t be treated as a triumph, but instead as a sellout of those unlucky workers who hadn’t managed to make themselves useful as PR props for Trump. And yesterday somebody with actual credibility on this—Chuck Jones, a union leader who represents the Carrier employees—buttressed this argument.
One key point here is pretty simple: “doing deals” company-by-company, rather than instituting good policy rules across-the-board, will do nothing for American workers except pit them against each other. The Trump administration’s effectiveness in helping American workers should be judged on policy, not theatrics.
The biggest reason why this is true is that deals don’t scale-up against a recovering economy. A quick example: in the first quarter of 2009 (the first three months of President Obama’s presidency) 2.5 million workers were laid-off. In the most recent three months, 1.5 million workers were laid-off. What does this tell us?
First, that even in normal economic times, there is a ton of churn in the economy. Why do these 700 workers go to the front of the line in getting help from Trump while the other 1.4993 million are left on their own? An ironic note here is pointed out by Harold Meyerson: Trump never would have even heard of the planned Carrier move without the union (and Chuck Jones).
North Carolina voters’ anger about privatized infrastructure projects should serve as a warning to policymakers
Donald Trump’s preliminary plans for an infrastructure spending bill include a heavy role for private sector financing. We have argued elsewhere that this raises troubling questions. If our arguments have not yet persuaded policymakers on the dangers of wholly outsourcing infrastructure investment to private developers, perhaps they will be convinced by the result of a public-private partnership (P3) in North Carolina—an exercise in privatization that may have helped swing that state’s gubernatorial race.
Prior to the election, there was some speculation about whether or not an unpopular public-private partnership (P3) infrastructure deal in Charlotte would affect its outcome. The Charlotte Observer explains why initial indications suggest that this unpopular toll road did indeed likely sink the incumbent Governor McCrory’s bid for reelection. The issue is simple: North Carolina voters saw that the P3, which was sold on the basis of having a more innovative and competitive private sector direction, instead just became pure crony capitalism. The company got profits and excessive control in dictating what should be publicly-accountable decisions about public investments. North Carolina residents got tolls and are likely on the hook for taxpayer-funded bailouts. All in all, it is a clear cautionary tale about relinquishing control of infrastructure investments.
The Charlotte P3 financed the building, operating, and maintaining of new tolled express lanes on I-77. With mayors and governors usually hoping that ribbon-cutting on new infrastructure projects will be a boon to their campaigns, it may be surprising that additional lanes to alleviate congestion in a growing region would help sink a campaign. However, as is always the case with P3s, the devil is in the details.