Most discussion in Washington of the projected long-term shortfall in the Social Security trust fund assumes that we can never raise the payroll tax. Many have advocated raising the cap on wages subject to the tax (currently just over $113,000), but raising the tax rate itself has largely been out of the question.
While there are good arguments for raising the cap (the increase in the share of income going over the cap due to the upward redistribution of income is a major reason for the projected shortfall), it is not obvious why increases in the tax rate at some future date should not be considered.
1. The Social Security disability standard is the strictest in the developed world – and most applications are denied.According to the OECD, the U.S. disability benefit system is the most restrictive and least generous of all member countries, except for Korea. Fewer than four in ten applicants are approved, even after all stages of appeal. Beneficiaries have severe impairments and illnesses like cancers, congestive heart failure, kidney failure, multiple sclerosis, emphysema, and severe mental illness. Medical evidence is the cornerstone of the disability determination process, and in most cases, medical evidence from multiple medical professionals is required to establish eligibility.
If the government had not been shut down on October 1, the Bureau of Labor Statistics (BLS) would be releasing the consumer price index (CPI) for September this morning. September’s data, together with the data for July and August, provide the basis for the annual cost of living adjustment (COLA) for Social Security.
While we do not yet have September’s data, based on the data from the prior two months, it is likely that the COLA will end up being either 1.5 or 1.6 percent, depending on exactly what the September data show. It is unfortunate that this number is not yet available.
In September, the Center for American Progress released a report on The State of Women in America, which ranks the 50 states by 36 indicators of the economic, health, and leadership circumstances of women. Authors Anna Chu and Charles Posner find that despite recent movements toward equality, women still trail behind men in the United States.
Poverty rates, wage gaps, and paid sick leave policies are among the many economic factors examined in the report. Based on these measures, women across the nation experience economic inequality. On average, women earn only 77 cents for every dollar a man is paid. African-American women earn an average of only 64 cents for every dollar that white men make; Hispanic women, only 53 cents for every dollar white men earn. Not surprisingly given these statistics, women also make up a majority of minimum-wage workers.
In "The Age of Oversupply" (Penguin Group, 2013), Daniel Alpert makes a compelling case that the United States and the world are stuck in a serious crisis of insufficient demand for the foreseeable future. According to Alpert, the result is likely to be a prolonged period of slow growth and high unemployment barring coordinated international efforts to counter the problem.
Before giving the outline of Alpert's argument, let me get out my baseball bat to beat home a simple point. Standard economic theory does not believe in a world in which demand is a problem except possibly for short periods of time during recessions. This means that we don't have to worry about having enough demand because the market will automatically adjust to keep the economy at the full employment level of output. If there is unemployment, then interest rates will fall enough to induce the additional investment, consumption, or net exports (slightly longer story) needed to bring the economy back to full employment.
The following highlights CEPR's latest research, publications, events and much more.
CEPR on the TPP CEPR’s recent paper, “Gains from Trade? The Net Effect of the Trans-Pacific Partnership Agreement on U.S. Wages” finds that the median wage earner would probably lose if the Trans-Pacific Partnership Agreement (TPP) were passed. In addition, recent estimates of the U.S. economic gains that would result from the TPP are very small — only 0.13 percent of GDP by 2025. Taking into account the un-equalizing effect of trade on wages, the paper finds that most workers are likely to lose — the exceptions being some of the bottom quarter or so whose earnings are determined by the minimum wage; and those with the highest wages who are more protected from international competition. Rather, many top incomes will rise as a result of TPP expansion of the terms and enforcement of copyrights and patents.
According to a new working paper by Texas A&M economists Jonathan Meer and Jeremy West, raising the minimum wage may have little or no effect on the level of employment, but it does hurt growth in employment for years after the increase goes into effect. In a recent column in the Washington Post, Robert Samuelson put it this way: “In the short run, even sizable increases in mandated wages may have moderate effects on employment, because businesses won't abandon their investments in existing operations. But companies that think themselves condemned to losses or meager profits won't expand.”
It’s fall in Washington DC, and once again threats of a government shutdown and a U.S. debt default are in the air. Meanwhile, throughout the rest of America, millions of people wake up not knowing how they are going to pay their bills or feed their children.
We expect that you share our frustration with the lack of progress on the many issues facing our country. So, we here at CEPR have decided to take matters into our own hands, and we are asking for your help:
We want to take over.
That’s right; we’re willing to take over the government’s responsibilities. Fund CEPR’s takeover, and we’ll make sure that the country’s economic policies are those that benefit the bulk of the population and not just the elites. We’ll make sure that workers are protected and allowed to organize and that they earn a living wage. We’ll pass progressive tax laws like the financial transaction tax and we’ll end Too Big to Fail. We’ll definitely protect Social Security and Medicare…we’ll even expand them.
The graph below adds an annotated political history to the iconic (and recently-updated) Piketty and Saez data on top income shares in the U.S. The events and legislative landmarks listed here are representative rather than exhaustive. And they are meant to suggest broad policy shifts rather than direct causal relationships. But the pattern is nevertheless clear. The share of the top one percent rose during eras of tax cutting, light financial regulation (or deregulation), and labor weakness. And inequality narrowed when policy pushed in the opposite direction.
In early September the Center for American Progress (CAP) released a report that found areas with large middle classes experience considerably more economic mobility than areas with small middle classes.
Using regional data assembled for a study prepared by Raj Chetty and others, CAP authors Ben Olinsky and Sasha Post found the size of an area's middle class to be the most important determinant of economic mobility: “For every percentage-point increase in the share of a region’s population who fall between the 25th percentile and the 75th percentile of the national household income distribution, children who begin at the 25th percentile of the income distribution will climb up nearly half a percentile.”
On average, more than 4 in 10 children born into low-income families maintain the same economic status for the rest of their lives. The same is true for kids born into upper-income families; nearly 4 in 10 children remain in the upper-income division.
However, a large middle class can help break down these class barriers and promote greater economic equality. Olinsky and Post argue that areas with a large middle class typically have better schools and other mechanisms that assist low-income kids in rising to the top.
A popular line of argument in Washington policy circles is that spending on seniors is crowding out spending on our kids. In this story we would be able to pay for good schools, early childhood education and daycare, and health care and child nutrition if only grandma and grandpa weren't sucking away all the money for their Social Security and Medicare. The remedy for these folks is to cut Social Security and Medicare and tell our seniors that they will have to get by on less.
While there is tons of money behind this argument (e.g. the myriad of Peter Peterson funded groups, the Washington Post news and editorial sections, and most of the rest of the elite punditry), it doesn't fit the data. The idea that there is some fixed sum available to support social welfareprograms, and it will either go to kids or to seniors, has no basis in reality. The share of GDP going to support social spending of various types has increased substantially over the post-World War II era. So this sum clearly has not been fixed in the United States.
At the federal level, Social Security and other forms of social spending accounted for less than 5 percent of GDP in 1950. Today they account for more than 12 percent. It's not clear why anyone would think that this sum is fixed for all eternity. (It's also worth noting that much of our spending on health care is wasted on excessive payments to doctors, drug companies, insurers, and other health care providers. It is seriously misleading to treat this waste as spending on the elderly.)
We get an even stronger story if we look at the situation across countries. It turns out that countries that spend a larger share of their GDP supporting their seniors also spend a larger share of their income supporting the young. The chart below shows spending per kid and spending per senior for the OECD countries, both divided by per capita income.
Yesterday the non-partisan Congressional Budget Office (CBO) released its 2013 Long-Term Budget Outlook, and it has some great news. Specifically, CBO is predicting substantially lower health care spending this year and 25 years into the future.
CBO states that it "now projects that federal spending for major health care programs would equal 8.0 percent of GDP in 2038 under current law, down from the previous projection of 8.7 percent." Specifically, "4.9 percent of GDP would be devoted to spending on Medicare... and 3.2 percent would be spent on Medicaid, CHIP, and the exchange subsidies."
The Census Bureau will be releasing new data on poverty this week and no one is expecting much by the way of good news. While the country made considerable progress in reducing the poverty rate in the sixties and seventies, there has been little show for the last three decades. The downturn has reversed any progress that we made over this period.
However this is not the story everywhere. Other wealthy countries have considerably lower poverty rates than the United States. There are a variety of factors that affect poverty rates but one that stands out is the power of unions. There is a very strong inverse relationship between the percentage of workers who are covered by a union contract and the poverty rate as measured by the OECD.
A simple regression shows that a 10 percentage point increase in the percentage of workers covered by a union contract is associated with a 0.7 percentage point drop in the poverty rate. (This result is significant at a 1.0 percent level.) This means that countries like Sweden, Belgium, and France, where the coverage rate is close to 90 percent, can be expected to have poverty rates that are more than 5.0 percentages points lower than in the United States, where the coverage rate is less than 15 percent. In the case of the United States this would imply a reduction in the poverty rate of almost a third from current levels.
Of course it would be overly simplistic to imply that an increase in unionization rates by itself would lower poverty. There are many other differences in the countries where large shares of the workforce are covered by union contracts. These countries all have paid parental leave for parents of small children. They also have much better provision of child care than the United States. They also have universal health care coverage.
There are many other important differences that could be important in reducing poverty in these countries. However in almost every case, unions were a major force in advancing the various policies that are associated with lower poverty. It would have been difficult to envision a scenario in which these policies would have been enacted with pressure from unions.
The same holds true with measures that have reduced poverty in the United States. The creation and expansion of Social Security, which has lowered the poverty rate among seniors to the same level as the adult population as a whole, would have been impossible without pressure from unions. Similarly programs that help young children, such as Head Start or promote education such as Pell Grants and subsidized student loans, passed with strong support from organized labor. Medicare, Medicaid, and SCHIP have always been strongly supported by unions and the Affordable Care Act would not have passed without a big push from the labor movement.
While some wealthy people may support foundations and charities that reduce or ameliorate poverty, the reality is the societies that have been most successful in reducing poverty have done so as a result of the policies pushed by organized workers. Such policies do not get passed into law in countries where workers lack power and charity from the rich does not make up the difference. People who really want to see a reduction in poverty should be applauding efforts to boost the power of unions in the United States.
There is one other point worth noting about the poverty comparisons in the graph. The OECD’s measure of poverty is constructed in a way that paints a brighter picture for the United States. A family is considered to be in poverty by this measure if its income is less than half of the median income in the country. (The median is the level of income where half of all families have more income and half have less.) In the United States, because the richest one percent is so far out of line with the rest of the country, the median income level is lower compared to the average than in other countries.
This means that half of the median income (the OECD’s cutoff for the poverty level) in the United States would be lower relative to the average income than in other countries. If the OECD constructed a poverty measure that was related to the average level of income, this measure would substantially raise the poverty rate in the United States relative to other countries.
Union coverage rates refer to the percentage of workers who are covered by a union contract. This often differs considerably from union membership rates. Union coverage rates are almost certainly a better measure of union power for most purposes. For example, in France the percentage of workers who are members of union is close to 10 percent, just about the same as in the United States. However few would dispute that unions are a considerably more important force in French politics than they are in U.S. politics. (The union coverage rate in France is 90 percent.)
UCLA’s Institute for Research on Labor and Employment (IRLE) has published its latest annual report on union membership in the city of Los Angeles, the state of California, and the United States as a whole. Some of their results, covering trends from 2005 through 2013, might surprise you.
As the economy continues to struggle, unionization rates have managed to hold their own or even improve somewhat relative to the situation before the recession. In 2005 and again in 2013, 12.5 percent of US workers were union members. Between the same two years, Los Angeles and California saw small increases in unionization rates; from 16.5 percent to 16.9 percent in California, and from 15.5 percent to 16.2 percent in Los Angeles.
The following highlights CEPR's latest research, publications, events and much more.
CEPR on Fast Food Workers and the Minimum Wage One argument frequently made against higher wages for fast-food workers is that the industry is dominated by teenagers and workers with less than a high school degree, who somehow “deserve” the low wages they receive. CEPR’s new issue brief, which analyzes government data on fast-food workers, however, tells a different story. As the paper’s authors CEPR Senior Economist John Schmitt and Research Associate Janelle Jones note in the paper, only about 30 percent of fast food workers are teenagers, and more than one-fourth are raising at least one child. In addition, over 70 percent of all fast-food workers have at least a high school degree and more than 30 percent have had at least some college education.
The paper received a great deal of attention from the press. Janelle was interviewed in this front-page piece in the Cleveland Plain Dealer. A chart from the paper was featured in this piece in the Washington Post, and the paper was mentioned in this article in the Atlantic as well as this one on MSN Money. John was interviewed on the paper by KPCC radio. The paper was cited in articles in the San Jose Mercury News and several other local newspapers.
CEPR’s work on the minimum wage and low wage workers in general continues to receive attention. CEPR’s work on low wage workers was cited in an op-ed in Al Jazeera on fast food workers. CEPR’s study on the minimum wage was linked to in a New York Times op-ed in favor of the striking fast food workers. CEPR’s work on low wage workers was cited in this piece by James Surowiecki in The New Yorker. This article in Salon, which was orignially posted on the Roosevelt Institute’s Next New Deal blog, cites two CEPR studies on the minimum wage.