While the headlines are dominated by White House leaks and personnel scandals, the Trump administration and Republicans in Congress have been quietly helping the financial industry siphon off your retirement savings. First, the administration announced that it was reviewing a rule scheduled to take effect in April requiring financial advisors to work in their clients’ best interests. Yes, you read that correctly. Some people presenting themselves as financial advisors can now legally steer you to rip-off investments, a glaring problem the Obama administration addressed in a commonsense rule six long years in the making.
The rule, backed by the Consumer Federation of America, Senator Elizabeth Warren, Vanguard founder John Bogle, and others, applies to brokers, plan consultants, and others advising participants in 401(k)-style plans and IRAs who don’t already adhere to a fiduciary standard. Among other things, it prohibits financial professionals from pretending to offer disinterested retirement advice while working on commission and from steering retirement savers to higher-cost investments when similar but lower-cost options are available. Importantly, the rule protects job-leavers from being lured into rolling over their pensions and 401(k)s into higher-cost IRAs, at a time in their life when many people are vulnerable to bad advice.
How can anyone argue against the fiduciary rule with a straight face? The financial services industry counters that if some clients don’t get bad advice, they may not be able to afford advice at all. This is like dietitians arguing that clients may not be able to afford nutritional advice if it’s not paid for by Coca Cola. The industry also says the rule could put some people out of business, which isn’t reason to oppose it—it goes without saying that we shouldn’t prop up a business model where survival is dependent on fleecing savers.
Brad DeLong is far too lenient on trade policy’s role in generating economic distress for American workers
Brad DeLong posted a widely-read piece on Vox a couple of weeks ago effectively exonerating globalization and trade policy from accusations that it has contributed to economic distress for low- and moderate-wage American workers. He doubled-down on specific claims this week in a piece at Project Syndicate. Below I’ll assess some of his claims in a bit of detail, but here’s a “too-long; didn’t read” checklist of how I grade the accuracy of some of his main claims:
- Putting pen-to-paper on trade agreements contributed nothing to aggregate job loss in American manufacturing. This is almost certainly true.
- The aggregate job loss we have seen in manufacturing is due to automation plus declining domestic demand for manufactured goods, period. This is mostly false. Trade deficits, especially with China in the last 15-20 years, have contributed significantly to overall manufacturing job-loss..
- The source of these rising trade deficits is mostly an overvalued U.S. dollar, which has nothing to do with trade policy. It’s true that an overvalued dollar is what’s behind rising trade deficits, but saying that has nothing to do with trade policy is semantics. Call it macroeconomic policy if you want, but the way an overvalued dollar hurts Americans is through its impact on trade flows.
- The trade agreements we have signed are mostly good policy and have had only very modest regressive downsides for American workers. This is false.
- Globalization writ large has been tough on some American workers and policymakers have failed to compensate losers. This is true, but I think DeLong underestimates the number of losers and the size of their losses.
So, let me dive deeper into each one of these arguments:
The racial wealth gap: How African-Americans have been shortchanged out of the materials to build wealth
Wealth is a crucially important measure of economic health. Wealth allows families to transfer income earned in the past to meet spending demands in the future, such as by building up savings to finance a child’s college education. Wealth also provides a buffer of economic security against periods of unemployment, or risk-taking, like starting a business. And wealth is needed to finance a comfortable retirement or provide an inheritance to children. In order to construct wealth, a number of building blocks are required. Steady well-paid employment during one’s working life is important, as it allows for a decent standard of living plus the ability to save. Also, access to well-functioning financial markets that provide a healthy rate of return on savings without undue risks is crucial.
Failures in the provision of these building blocks to the African-American population have led to an enormous racial wealth gap. The racial wealth gap is much larger than the wage or income gap by race. Average wealth for white families is seven times higher than average wealth for black families. Worse still, median white wealth (wealth for the family in the exact middle of the overall distribution—wealthier than half of all families and less-wealthy than half) is twelve times higher than median black wealth. More than one in four black households have zero or negative net worth, compared to less than one in ten white families without wealth, which explains the large differences in the racial wealth gap at the mean and median. These raw differences persist, and are growing, even after taking age, household structure, education level, income, or occupation into account.
Wisconsin Governor Scott Walker recently visited the White House, prompting speculation that the Trump administration might be looking to follow Walker’s model of anti-unionism. But following Walker’s model means betraying the very people who put President Trump in office: frustrated working-class Americans.
In 2011, at the urging of the billionaire Koch brothers, Walker pushed through a law that effectively eliminated the right to collective bargaining for state and local government employees. School teachers and custodians, child case workers, and road repair crews all lost the right to bargain for decent wages and benefits. Walker portrayed his action as standing up for hard-working nonunion taxpayers in the private sector who were being bled dry by the Cadillac pensions of fat and lazy public employees. In fact, however, Walker’s bill was just one more part of a playbook written by corporate lobbyists to make the rich even richer and our economy even more unequal.
Public employees are working- and middle-class, and all of them suffered dramatic health insurance cutbacks. But when the state cut people’s benefits, what did they do with the savings? They certainly didn’t give it to hard-working families struggling to make ends meet in the private sector. Instead, more than half the savings were doled out in tax cuts to the richest 20 percent of the population. While Walker gave the rich— those who needed the least help— an extra $680 per year per person, those struggling to get by in the poorest fifth of Wisconsin families got less than $50 each. Walker’s model is not taking from the haves and giving to the have-nots: it’s taking from working people and giving to the elite.
Valentine’s Day is next week, and with it one of their busiest days of the year for America’s restaurant workers. For the servers and bartenders who rely on tips for the bulk of their income, the influx of couples celebrating romance with extravagant meals and expensive bills holds the promise of a nice payout. Unfortunately, for restaurant staff in most states, their windfall may not be as big as it seems. In fact, by the end of the week, their Valentine’s Day pay may turn out to have been nothing more than minimum wage. This is because in 42 states and the District of Columbia, there is a separate lower minimum wage for tipped workers, allowing restaurants (and other employers of tipped workers) to subtract a portion of their employee’s tips from the base wage paid by the house. In 18 of these states, restaurants can pay tipped workers as little as $2.13 per hour so long as—over the course of the week—the combination of tips plus the base wage averages out to at least the regular minimum wage.
Setting aside the fact that in almost every state the regular minimum wage is far too low, consider the challenges this separate lower minimum wage creates for tipped workers. The bulk of their paycheck is up to the whims of the customer, and research has shown that quality of service often has little to do with what the customer chooses to tip. Weekly, let alone monthly, income is harder to anticipate, making planning and budgeting more difficult. (Imagine trying to evaluate a mortgage offer or a car loan payment schedule if you have little ability to forecast your monthly income.) Racial bias has been shown to affect tipping, and worker advocacy groups argue that the pressure to ensure customer satisfaction, particularly in a workplace where customers are consuming alcohol, forces restaurant workers to suffer high rates of sexual harassment. Furthermore, although the law requires that employers make up the difference so that tipped workers receive at least the minimum wage, this does not always happen in practice.
President Trump’s nominee for Secretary of Labor, Andrew Puzder, has a new date for his confirmation hearing—February 16, a week from tomorrow. This marks the fifth time the Senate Committee on Health, Education, Labor, and Pensions (HELP) will attempt to consider Puzder’s nomination. While much speculation surrounds the repeated delays, today’s announcement makes one thing clear—President Trump and Senate Republicans are doubling down on a nominee whose policy positions are bad for U.S. workers. Now, senators will have an opportunity to show where they stand.
When HELP Committee members finally get a chance to question Puzder on his positions and plans for the Labor Department, they should demand that he explain his views on minimum wage. Puzder has claimed that increasing the minimum wage costs jobs; senators should ask him how he explains that California has a higher minimum wage than the federal minimum wage yet has seen faster economic growth—including in the restaurant industry—than the country as a whole. Senators should ask Puzder if he knows how many Americans were killed at work before the Occupational Safety and Health Act was enacted in 1970. Does he know how many workers are killed each year now, in an economy twice as big? Still far too many, but fewer than before—demonstrating the importance of meaningful workplace safety standards. Finally, senators should demand that he explain his own company’s record of wage and hour and OSHA violations.
President Trump’s insistence on advancing Puzder as his nominee for labor secretary reveals that his agenda is to pursue an economy that works great for corporate owners and those at top, but does not work for low-and middle- income families. After decades of wage stagnation and weakened worker protections, we need a labor secretary who will advocate for a strong minimum wage and meaningful worker protections. The Senate now has a chance to demand that workers get a secretary who will guard their rights and advance an agenda that works for them. We will see if they agree that America’s workers deserve better than Mr. Puzder.
The U.S. Census Bureau reports that the annual U.S. trade deficit in goods and services increased slightly from $500.4 billion in 2015 to $502.3 billion in 2016, an increase of $1.9 billion (0.4 percent). This reflects a $14.4 billion (5.5 percent) decline in the services trade surplus and a $12.5 billion (1.6 percent) decrease in the goods trade deficit. However, the small increase in the overall goods and services trade deficit, and its downward trend over the past decade, mask important structural shifts in U.S. trade.
Falling petroleum prices and rising domestic petroleum production and exports have obscured surging imports of nonpetroleum goods (NPGs) —the vast bulk of which are manufactured products—into the United States since 2013. The trade deficit in NPGs, which has the most impact on workers and communities, has increased sharply. The U.S. trade deficit in petroleum goods declined by $22.7 billion (32.8 percent) in 2016, while the trade deficit in NPGs increased by $16.4 billion (2.5 percent), continuing the sharp run-up in the NPG trade deficit since 2013.
The U.S. trade deficit in NPGs is now at an all-time high (shown with dark blue bars in the figure below) while the overall U.S. balance of trade in goods and services (shown with light blue bars) has fallen sharply from a peak of $761.7 billion in 2006 to $502.3 billion in 2016—obscuring the much larger (and more important) trade deficit in NPGs.
By now, anyone following Andrew Puzder’s nomination to be the secretary of labor knows that the restaurant chain he leads has a long history of cheating its workers out of wages they earned. Not just the franchisees that own the bulk of the Carl’s Jr. and Hardees restaurants, but CKE itself, the franchisor corporation, has been found guilty of wage theft and compelled to pay back tens of thousands of dollars of wages stolen from workers earning poverty level wages. The U.S. Department of Labor, which he seeks to head, is the agency that busted Puzder’s corporation.
Today, the New York Times reports that Puzder violated immigration laws, too, not in his role as CEO of the restaurant chain, but in his private life. For years, Puzder employed a housekeeper who was not authorized to work in the United States, and also failed to pay employment taxes.
Puzder wants to be the chief enforcer of the nation’s labor laws, but his history of flouting those laws makes it clear that he is unfit for the job. Puzder’s violations of immigration law make him a strange choice to be a cabinet officer in President Donald Trump’s administration, given the president’s near hysteria about the presence of undocumented immigrant workers in the United States.
Don’t fix what isn’t broken: Why Betsy DeVos’ radical agenda for U.S. public education makes no sense
As the Senate prepares to vote on the nomination of Betsy DeVos, President Trump’s pick for secretary of education, it is critical to confront a key (but not always explicit) assumption. DeVos asserts that “U.S. schools are failing,” and many senators assume that to be the case. But is this true? And if so, in what ways? Answering these questions is very important, as strategies to fix failing schools should be very different from those designed to improve schools that are already doing well.
A new analysis of changes in U.S. student performance over the past decade strongly suggests that our nation’s schools are not failing. Rather, they have made real progress on two related issues we care deeply about: boosting student achievement and closing race-based achievement gaps. This analysis, by economists Martin Carnoy of Stanford University and EPI’s Emma Garcia, uses a reliable and valid gauge—reading and math scores on the National Assessment of Educational Progress (NAEP), commonly known as “the Nation’s Report Card.”
The University of Michigan and most of its alumni long for a national champion football team, or at least a team that can beat Ohio State. What the school and its publicly-elected Regents are willing to pay to get such a team is alarming, especially when compared with its willingness to pay for scholars and researchers.
Michigan is committed to paying head coach Jim Harbaugh’s top three assistants $1 million each per year. Harbaugh got an eye-popping $7 million contract to leave the NFL and restore glory to Michigan’s wolverines. But these are millionaire assistant coaches.
The Associated Press and the Detroit Free Press report that the defensive coordinator, Don Brown, and the offensive coordinator, Tim Drevno, have been retained with contracts worth more than $10 million combined over the next five years. The passing coordinator, Pep Hamilton, was lured from the Cleveland Browns with a four-year, $4.25 million deal.
Michigan is a state whose biggest city’s infrastructure is nightmarishly bad, whose school buildings are crumbling, and which only recently emerged from bankruptcy. Another large city, Flint, is in receivership and saved money by cutting corners on the safety of its water supply, leading to the poisoning of thousands of children and other residents.
But the state can afford to make its top school’s assistant coaches millionaires.
Why can’t it then pay overtime to its postdoctoral researchers or give them raises to $47,476 as it planned to before a federal judge blocked the Department of Labor’s overtime rule from taking effect? The University of Michigan was a leader in the campaign to fight the overtime rule, claiming it couldn’t afford to pay its PhD researchers for the 15-20 hours of overtime they work in an average week. University officials claimed U of M couldn’t even afford to give the postdocs raises of $3,000-$5,000 to put them above the threshold that permits exemption from overtime pay.
But it can afford to make millionaires of the assistant coaches.
This says something appalling about how far the University of Michigan and its current leaders have strayed from the mission of the university, which is one of the oldest public research universities in the nation. They value winning football games far more than they value the core research done by the university’s young scholars. They have little respect for either the researchers or the work they do.
As an alumnus of the University of Michigan Law School, it makes me sick.
Read more on this topic: Universities oppose paying their postdocs overtime, but pay coaches millions of dollars.
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.
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.
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.
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|
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.
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.”
The Missouri legislature is poised to pass bills to weaken unions and clear the way for corporate dominance in the state. So-called “right-to-work” laws force unions to represent employees who pay nothing toward the costs of collective bargaining. It’s bad enough that these laws allow them to get the benefits of higher wages and better fringe benefits without paying their fair share. What’s worse is that these laws force unions to defend non-dues payers when they need to be defended against unjust discipline or being fired. Arbitration can cost thousands of dollars, including the cost of hiring lawyers.
These bills won’t lead to more manufacturing plants or better jobs or anything good. They lead only to weaker unions, less bargaining power for Missouri workers, and lower wages.
Wages are 3.1 percent lower in so-called “right to work” (RTW) states, for union and nonunion workers alike—after correctly accounting for differences in cost of living, demographics, and labor market characteristics. The negative impact of RTW laws translates to $1,558 less a year in earnings for a typical full-time worker.
Washington University in St. Louis professor Jake Rosenfeld finds that the dramatic decline in union density since 1979 has resulted in far lower wages for nonunion workers, an impact larger than the 5 percent effect of globalization on their wages. Specifically, nonunion men lacking a college degree would have earned 8 percent or $3,016 annually, more in 2013 if unions had remained as strong as they were in 1979.
Between 1979 and 2013, the share of private sector workers in a union has fallen from about 34 percent to 11 percent among men, and from 16 percent to 6 percent among women. The authors note that unions keep wages high for nonunion workers for several reasons: union agreements set wage standards and a strong union presence prompts managers to keep wages high in order to prevent workers from organizing or their employees from leaving. Moreover, unions set industry-wide norms, influencing the moral economy.
Rosenfeld’s report shows that working class men have felt the decline in unionization the hardest; their paychecks are noticeably smaller than if unions had remained as strong as they were almost 40 years ago. Rebuilding collective bargaining is one of the tools we have to reinvigorate wage growth, for low and middle-wage workers.
That’s why the so called “right-to-work” efforts make no sense. We need workers to have more bargaining power, to negotiate for higher wages. The RTW laws are designed by the business lobby to benefit corporate titans.
One wonders why state legislators go along with them when they hurt the vast majority of their constituents.
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.
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|
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.
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.
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.
In 2011 and 2012 two states, New Hampshire and Indiana, debated the same bill: so-called “right-to-work” legislation, pushed by corporate lobbyists and the American Legislative Exchange Council (ALEC), designed to weaken unions financially and pave the way for greater corporate dominance of state politics. New Hampshire’s governor vetoed the bill in 2011. Indiana, by contrast, enacted it in 2012. It is instructive to compare the two states. By almost any measure, the economy of New Hampshire is stronger and its citizens are better off, on average, than the citizens of Indiana. Right-to-work did not improve the Indiana economy relative to New Hampshire’s, and no one should be fooled into thinking that passing right-to-work now will improve the New Hampshire economy.
So-called “right-to-work” laws prohibits unions and employers from agreeing to collective bargaining agreements that require employees covered by the agreement to pay their fair share of the costs of negotiating and enforcing it. The only right that “right-to-work” creates is the right for free riders to get the benefit of higher union wages and protections against unfair discipline without contributing any dues or fees for that privilege.
EPI published two reports critical of the New Hampshire legislation, one in 2011 and another in 2012, pointing out that the only real purpose and effects of these laws are lowering wages and weakening unions. As the figure below suggests, such laws do nothing to create jobs, and they don’t give anyone a right to work, but they are associated with lower wages—lower on average by more than 3 percent, or $1,500 per worker.
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.
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.
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.
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.
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.