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April Jobs Numbers Continue Slowing Trend Print
Written by Dean Baker   
Friday, 04 May 2012 10:30

The economy added 115,000 jobs in April, according to the latest Bureau of Labor Statistics' employment report. While the March number was revised up to 154,000, the 135,000 two-month average is well below the 252,000 average for the prior three months. The economy needs 100,000 jobs a month to keep pace with labor force growth

In spite of the slower job growth, the unemployment rate edged down again to 8.1 percent. However, this is not a case of the household survey showing a different picture than the establishment survey. As was the case last month, the drop in unemployment was entirely attributable to people leaving the labor force.

For a more in-depth analysis, check out the latest Jobs Byte.

Public Pensions as Stimulus and the Problem of Recession Deniers Print
Written by Dean Baker   
Friday, 04 May 2012 04:16

Most of the country is well aware of the fact that the United States is still suffering from the effects of the recession. The 8.2 percent unemployment rate is extraordinarily high. More importantly, the employment-to-population ratio, the percentage of people who hold jobs, is still almost 5 percentage points below its pre-recession level.

The fact that the country is still suffering from the recession is essential in assessing Andrew Bigg's dismissal of the idea that public pensions can provide stimulus to the economy. Biggs is a prominent conservative economist who served in the Bush administration and is now at the American Enterprise Institute.

Biggs ridicules the idea that public pensions can provide stimulus, deriding it as the "broken window" fallacy in economics. This is the idea that economic growth could be increased by breaking windows, because we would then have to spend money to repair the windows.

In fact, because the economy is still suffering from recession -- it has large amounts of unemployed workers and idle capacity -- breaking windows would in fact generate demand and employment right now. The main problem facing the U.S. economy at the moment is a lack of demand and anything that creates demand would in fact increase growth and jobs.



CEPR in the News April 2012 Print
Written by Dawn Lobell   
Monday, 30 April 2012 15:45

The following highlights CEPR's latest research, publications, events and much more.

CEPR on Low-Wage Workers
A recent CEPR paper on the low-wage labor force finds that the average low-wage worker today is both older and much better educated than in the past.  The paper’s authors, CEPR Senior Economist John Schmitt and Research Assistant Janelle Jones, point out that the minimum wage has not kept pace with increases in workers’ educational levels. Their research was mentioned in this column by Harold Meyerson in the Washington Post (the article also cites John’s March issue brief on the minimum wage). John’s January paper, “Low-Wage Lessons”, was featured in this recent piece on CBSNews.com’s Money Watch. 

In this CEPR blog post, John and Janelle looked at the data by state, finding that this same educational upgrading is evident across all 51 states (including the District of Columbia). John and Janelle also wrote a blog post highlighting low-wage Latino workers, finding that while Latinos are over-represented among low-wage workers,  they are still only about one-fourth of the total in that wage range; and even after the increase in immigrants over the last three decades, Latinos are still much better educated today than they were in 1979. And CEPR Senior Economist Eileen Appelbaum wrote about the impact of low-wage jobs on the economic recovery in this piece for U.S. News and World Report.

CEPR on the IMF and the World Bank
It’s spring in Washington, and that means IMF and World Bank meeting time. In conjunction with the Spring Meetings, CEPR Co-director Mark Weisbrot debated the Deputy Director of the European Department at the International Monetary Fund, Mahmood Pradhan, on the role of debt, fiscal policy, and the European Central Bank in the current European recession. This was the latest in a series of CEPR debates with senior IMF officials on austerity and alternatives to austerity in the eurozone crisis. Video of this latest debate is here; videos of past debates with IMF officials are here. Mark also discussed the IMF meetings with WBAI’s Wake Up Call (in New York). CEPR Co-director Dean Baker weighed in with his thoughts on the ECB in this Guardian op-ed.



Labor Market Policy Research Reports, April 23 - 27, 2012 Print
Written by Marie-Eve Augier   
Friday, 27 April 2012 15:00

Here is this week's roundup of labor-market policy research reports:

Center for Law and Social Policy

Refocusing Adult Education on Career and Postsecondary Success: An Analysis of Adult Education (Title II) Provisions in WIA Reauthorization Proposals
Marcie Foster

Center on Budget and Policy Priorities

President’s Budget Would Reduce Pell Grant Shortfall; Ryan Budget Would Nearly Triple It
Richard Kogan and Kelsey Merrick

House Bill Would Cut Medicaid Funding For Puerto Rico by About $5.5 Billion Through 2019
Edwin Park and Matt Broaddus

Recent Studies Find Raising Taxes on High-Income Households Would Not Harm the Economy: Policy Should Be Included in Balanced Deficit-Reduction Effort
Chye-Ching Huang



Growth in GDP Falls to 2.2 Percent in First Quarter Print
Written by David Rosnick   
Friday, 27 April 2012 10:50

Growth in the Gross Domestic Product (GDP) fell to 2.2 percent in the first quarter of 2012, according to the Bureau of Economic Analysis' latest report. GDP had increased at a 3.0 percent annualized rate in the fourth quarter of 2011 and 1.8 percent in the quarter before that, but an across-the-board fall in government consumption and investment subtracted 0.60 percentage points from overall economic growth.

The weak growth in GDP combined with weak job growth makes it clear the economy is not performing especially well. The economy should be capable of higher-than-normal growth coming out of a deep recession. From recent lows, there may be an increase in the pace of nonresidential investment. However, with the recent good weather providing a temporary boost to both consumption and investment and continued drag in the public sector, there is not much promise for sustained growth in the immediate future.

For a more in-depth analysis, see the latest GDP Byte.


Austerity, the Path to Prosperity? Print
Written by Alan Barber   
Wednesday, 25 April 2012 16:38

Rep. Paul Ryan sat down with Steve Forbes recently to have a "very serious" conversation about the U.S. economy. The architect of the House budget plan, Ryan stated in the interview that what America needs is “…prosperity, not austerity.” This is an interesting point for Ryan to make since austerity – deficit reduction via decreased government spending --  is exactly what the House budget calls for.

In the name of reducing deficits, Ryan’s budget calls for shrinking domestic discretionary spending – all categories of domestic spending outside of Social Security and health care -- to 3.75 percent of GDP by the year 2050. Since this includes defense spending, the plan has a bit of a problem. Defense currently makes up almost 4.0 percent of domestic spending. Since Rep. Ryan, has been extremely critical of even the minor cuts to the military in President Obama’s budget, it is safe to assume that any cuts to defense spending in his budget would be negligible at best.

Assuming the house budget only made a modest 1 percent cut to defense spending, bringing it to 3 percent of GDP, only about 0.75 percent of GDP would be left for funding the rest of the government (again, excluding Social Security and health care). That means less than one percent of GDP would be left to cover everything from Head Start to roads and bridges to Homeland Security. At the same time, the Ryan budget would slash taxes for the wealthiest while offering little or no relief for millions of low- and middle- income families who rely on many of the very programs being cut.

But of course this is done in the name of future prosperity. The thinking goes along the lines of ‘if we as a nation tighten our collective belt, cut back on spending and relieve ourselves of our debt burden, America’s economic engine will suddenly be reignited.’ Does it matter than we are in the midst of recovering from the deepest recession since the Great Depression? Well, yes, actually.



Labor Market Policy Research Reports, April 16 – 20, 2012 Print
Written by Marie-Eve Augier   
Friday, 20 April 2012 13:15

This week’s LMPRR features reports from CEPR, CLASP, CBPP and EPI:

Center for Economic and Policy Research

First Time Underwater: The Impact of the First-time Homebuyer Tax Credit
Dean Baker

Center for Law and Social Policy

Reauthorizing the Workforce Investment Act: The House Workforce Block Grant Bill Heads in the Wrong Direction
Evelyn Ganzglass and Neil Ridley

Center on Budget and Policy Priorities

Provision In House Reconciliation Bill Would Cause 350,000 People To Forgo Health Coverage And Could Jeopardize Health Reform
Judith Solomon and Robert Greenstein

OUT OF BALANCE: Cuts in Services Have Been States’ Primary Response to Budget Gaps, Harming the Nation’s Economy
Elizabeth McNichol

Economic Policy Institute

Public Investment: The Next ‘New Thing’ For Powering Economic Growth
Josh Bivens

Mr. Arithmetic Meets Mitt Romney and His Budget Cutters Print
Written by Dean Baker   
Thursday, 19 April 2012 09:16

It seems that Mitt Romney and his team are revving up for another big battle over the stimulus. They want to tell the story that the economy would be off to the races if only President Obama had not tried to boost growth with his stimulus package of spending increases and tax cuts. In their story all we have to do is cut wasteful government spending.

At this point, we might think the game was over. There has been extensive research on the impact of the stimulus on the economy by independent analysts.  The vast majority of it is consistent with the Obama administration's predictions that the stimulus created between 2-3 million jobs. (Of course we needed 12-13 million, but that is another story.)

For example, the Congressional Budget Office came up with an estimate along these lines in 2010. Using an entirely different methodology, last year two Dartmouth professors found job estimates that were consistent with the 2-3 million jobs number.

But Mitt Romney and his crew apparently want us to believe that we would be better off if the government had just stood back and let the economy continue to sink. Its main support for this claim is a series of studies by Harvard professor Alberto Alesina. These papers purport to show that governments that reduced their budget deficits had more rapid growth. Alesina found that the boost to growth from deficit reduction was strongest when the deficit reduction was accomplished by reducing spending rather than raising taxes. Alesina’s takeaway is that cutting government spending is the quickest route to recovery.

There are two important problems with Alesina’s work. First, he did not distinguish clearly between deficit reduction that was the result of economic growth and deficit reduction that was the result of deliberate policy. Second, he did not distinguish between deficit reduction that was carried through when an economy was operating near its potential and deficit reduction that took place when an economy was badly depressed, as is the case with the U.S. economy at present.



Krugman, CATO, and Inequality in Latin America Print
Wednesday, 18 April 2012 17:18

Paul Krugman has kicked off a debate in the blogosphere about the historic decline in inequality in Latin America over the last decade and the role of left-of-center governments.  This is a topic I have looked at in quite some detail and so naturally welcome any debate.  Citing a paper by Giovanni Andrea Cornia, Krugman tells us that:

"The region moved left politically circa 2000, partially turning its back on the Washington Consensus — and there has been a dramatic reversal in inequality trends."

It is clear that on average inequality has fallen in Latin America.  Krugman links to a graph from Cornia that shows average regional inequality, as measured by the Gini coefficient, decreasing during the last decade.

Well, as it turns out, Juan Carlos Hidalgo from the Cato Institute is none too pleased with Krugman’s analysis, claiming he has a “tortuous relationship with the facts.” 

Hidalgo starts off by asking if we can “assign the recent decline in inequality in Latin America to any specific ideology?” and cites a recent paper that argues “there was no strict correspondence between declining inequality and either the ideological profile of national governments or any specific redistributive initiatives.”

Yes, inequality has decreased in most Latin American countries, not just countries with left-of-center governments.  But what matters isn’t if centrist or rightwing governments haven’t reduced inequality while left-of-center governments have.  The relevant question is: have left-of-center countries reduced inequality more than the rest?



Labor Market Policy Research Reports, April 9 – 13, 2012 Print
Written by Marie-Eve Augier   
Friday, 13 April 2012 14:00

The following papers are highlights this week in labor market policy research:

Center for American Progress

Protecting Workers and Their Families with Paid Family Leave and Caregiving Credits: Why Social Security Should Guard Against 21st Century Economic Insecurities
Ann O’Leary

The Effects of Paid Family and Medical Leave on Employment Stability and Economic Security
Heather Boushey and Sarah Jane Glynn

The State of Communities of Color in the U.S. Economy: Still Feeling the Pain Three Years into the Recovery
Christian E. Weller, Julie Ajinkya, and Jane Farrell

Center for Economic and Policy Research

The Impact on Inequality of Raising the Social Security Retirement Age
David Rosnick and Dean Baker

Center on Budget and Policy Priorities

Chartbook: SNAP Helps Struggling Families Put Food On The Table


Marking Time: Black Board Participation in New York City, 2.0
John Morning

Economic Policy Institute

Medicaid Cuts in Ryan Budget Would Cost Jobs In Every State
Ethan Pollack

Low-Wage Workers By State Print
Written by Janelle Jones and John Schmitt   
Friday, 13 April 2012 12:15

In a recent CEPR brief, we examined the decades-long rise in the educational attainment of low-wage workers at the national level. The table and figures below (or after the jump) show this same educational upgrading is evident across all 51 states (including the District of Columbia).

The table shows the share of low-wage workers at four levels of educational attainment: less than a high school degree, a high school degree (but no more), some college (but not a four-year degree), and a college degree or more. As in our earlier post, we define a low-wage worker as anyone making $10.00 per hour or less (in inflation-adjusted 2011 dollars). To compensate for the small sample sizes in many states, we've pooled three years of data and compare 1979-1981 to 2009-2011.

So, for example, in 1979-1981, in Tennessee 45.1 percent of low-wage workers had less than a high school degree, 35.6 percent had a high school degree (but no more), 15.3 percent had some college education (but not a four-year degree), and 4.1 percent had finished college (or more). By 2009-2011, the share with less than a high school degree had fallen to 15.1 percent, while the share in each of the other education categories had increased: high school, up 8.6 percent; some college, up 15.6 percentage points; college or more, up 5.6 percentage points. Tennessee, by the way, was the state with the greatest drop over the period in low-wage workers with less than high school degree, from 45.1 percent to 15.1 percent. The District of Columbia, meanwhile, had the greatest increase in low-wage workers with at least a college degree: from 9.8 percent for the years 1979-1981, to 22 percent in 2009-2011.



College Aid Not Keeping Pace with College Costs Print
Written by Marie-Eve Augier   
Thursday, 12 April 2012 15:30

People who haven’t gone through the financial aid process (recently or at all) might think of financial aid as mostly about grants or scholarships. Financial aid, however, comes largely in the form of federal loans, which a student must pay regardless of whether they complete their degree or not. Grants and scholarships are awarded, but they have not kept pace with the rising costs of education. The average Pell Grant, for example, has increased from $929 in 1979 to $3,706 in 2009 -- a near 300% increase. This may sound like a lot but not when compared to the 548%, 807% and 620% increases in average annual tuition for (respectively) a 2-year, 4-year public and 4-year private college.

There is evidence to suggest that there has been a significant shift away from the ‘need-based’ philosophy of Pell Grants: the much more rapid growth of non-need-based aid like student loans, as shown in the graph, or the expansion of tax credits, which tend to disproportionately benefit middle- and upper-income families. As a result, according to the Federal Reserve Bank of New York, the average outstanding student loan balance per borrower is $23,300.


Source: Avery, C. and Turner, S. Student Loans: Do College Students Borrow Too Much - Or Not Enough?; Journal of Economic Perspectives, Volume 26, No. 1, Winter 2012, Pg. 165- 192

This means students from low-income families are not getting the help they need with funding their educations. (CEPR recently looked at the increase in the financial burden facing minimum-wage workers paying for college.) In fact, unmet need (i.e. expenses after expected family contribution and grant aid) of enrolled students averages 72% of family income (2007 dollars) for families in the lowest income quintile, versus 14% for those in the top quintile. In a recent report by the Education Trust of 1,186 four year colleges and universities, some 275 institutions required low-income students to pay more than 100% of family income.



Shoring Up Medicare and Reducing the Budget Deficit Is Not Double-Counting Print
Written by CEPR   
Thursday, 12 April 2012 14:15

A recent study by Charles Blahous, a public trustee for Medicare and Social Security, concluded the Affordable Care Act would contribute $340 billion to the deficit from 2012-2021, contrary to CBO's estimate it will reduce the deficit by $132 billion from 2012-2019. One of Blahous' main arguments in the study is the potential double-counting of increased Medicare payroll taxes toward making the Medicare Hospital Insurance (HI) program more solvent and reducing the deficit in the general fund. But as Dean Baker pointed out in a 2009 post from the Beat the Press archives, there is no double-counting.

The NYT had a thoroughly confusing article that seemed to imply that proponents of the health care bill were double-counting when they claimed that targeted savings in the Medicare program could both shore up the program and also be used to finance extending care to more people. In fact, as the article at one point correctly notes, there is no double counting.

The reality is that the government faces multiple budget constraints. Savings in the Medicare program allow it to meet two of them.

The law requires that spending in the Medicare Hospital Insurance (HI) program is financed exclusively raised through the HI tax (or interest on the bonds purchased with this money). If the HI tax produces insufficient revenue, then under current law, the program would cease to operate. In other words, Congress would either have to appropriate new money or change the structure of the program.

The targeted savings would reduce spending in the program. According to Medicare's chief actuary, these savings would give HI enough money to pay its bills through 2026 rather than the 2016 date when the program is now scheduled to face a shortfall.

Since Medicare is included in the overall budget, savings in the Medicare program also reduce the budget deficit. If there is a concern that we can only finance health care insofar as we are able to keep the budget deficit within certain limits, then the savings in Medicare will relax this constraint also.

There is no double-counting in this story. The government's budget is structured so this multiple constraints must be met. Savings in the Medicare program will allow for this.

More Musings on Modern Monetary Theory Print
Written by Dean Baker   
Monday, 09 April 2012 16:15

I had several people ask me in comments or e-mails whether I agreed with Modern Monetary Theory (MMT) that the government doesn't need to raise taxes to pay for spending or whether I agreed with Paul Krugman that it does. I won’t claim to know exactly Paul Krugman’s view on the topic, but let me reframe the issue somewhat in a way that may cause people to see differently what is in dispute.

I think that all MMTers believe that the government cannot literally spend without limits. In other words, we can push the economy to the point where inflation is a real problem. The MMT answer is to raise taxes to prevent inflation from getting out of control.

Now suppose we are in the world where we have pushed the economy to the point where inflation is a problem and we decide we want the government to spend more money on some great project. At that point, it would seem that MMTers would have to agree that we need tax increases to offset the impact of government spending in boosting the economy.

We don’t literally need the tax increases to pay for the spending. The Fed could simply create more money to finance the spending. However if we don’t want the spending to be inflationary, then it must be offset by a tax increase.

I think the difference between the MMTers and Krugman is largely on the frequency with which they believe that the economy is up against its capacity constraints so that inflation is a real issue. I don’t want to put words in Krugman’s blog, but my guess is that he believes that the U.S. economy is typically operating near its capacity, so that the story of needing tax increases to offset spending would in general apply.



Labor Market Policy Research Reports, April 2 – 6, 2012 Print
Written by Marie-Eve Augier   
Friday, 06 April 2012 14:30

The following papers are highlights this week in labor market policy research:

Center for American Progress

Taking Action on Clean Energy and Climate Protection in 2012: A Menu of Effective and Feasible Solutions
Jason Walsh and Kate Gordon

Center for Economic and Policy Research

Low-wage Workers Are Older and Better Educated than Ever
John Schmitt and Janelle Jones

Center on Budget and Policy Priorities

The Impact of State Income Taxes on Low-Income Families In 2011
Phil Oliff, Chris Mai, and Nicholas Johnson

Tax Foundation Figures Do Not Represent Typical Households’ Tax Burdens: Figures May Mislead Policymakers, Journalists, and the Public
Chuck Marr and Chye-Ching Huang

The Texas Economic Model: Hard For Other States to Follow and Not All It Seems
Elizabeth McNichol and Nicholas Johnson



Sharp Slowdown in March Jobs Numbers, Wages Remain Stagnant Print
Written by Dean Baker   
Friday, 06 April 2012 10:00

The economy added just 120,000 jobs in March, a sharp slowdown from the pace of the prior three months where growth averaged 246,000, according to the Bureau of Labor Statistics' latest employment report. The slowdown was pretty much across all sectors, with manufacturing, which added 37,000 jobs in March, being the major exception. In spite of the weak job growth, however, the unemployment rate edged down from 8.3 percent to 8.2 percent.

One very discouraging item in the report was a 0.1 hour drop in the length of the average workweek. The drop was driven largely by a decline of 0.3 hours in nondurable manufacturing, a sector where hours tend to be better measured. Wages continue to go nowhere. The average hourly wage has increased at just a 1.85 percent annual rate over the last quarter, which likely puts it behind inflation. The wage for production, non-supervisory workers, which better tracks the median wage, increased at just a 1.37 percent annual rate over this period.

For a more in-depth analysis, check out the latest Jobs Byte.

Three New Briefs Confirm It: The Minimum Wage is Way Too Low Print
Written by CEPR   
Thursday, 05 April 2012 13:45

Click here for a list of all of our most recent research, including these three issue briefs on the minimum wage.

Low-Wage Latino Workers Print
Written by Janelle Jones and John Schmitt   
Wednesday, 04 April 2012 11:15

For the past few weeks, CEPR has been beating the federal minimum wage drum with a series of issue briefs. In the latest brief, we describe how the increases in age and education of the low-wage workforce have not been recognized by the minimum wage. Several people have emailed us to ask how it is that the influx of primarily Latino immigrants since the 1980s has not pulled down the educational attainment of low-wage workers.

There are two important points here: First, Latinos are indeed over-represented among low-wage workers, but they are still only about one-fourth of the total in that wage range; and second, Latinos, even after the increase in immigrants over the last three decades, are still much better educated today than they were in 1979.

On the first point, here is the racial breakdown of low-wage workers (defined as earning $10 an hour or less in inflation-adjusted 2011 dollars):

Low-wage Workers, By Race, 1979 and 2011
















Source: Authors' analysis of CPS ORG.

Latinos were a much smaller share of the workforce in 1979 and made up only about 7 percent of low-wage workers in that year. The Latino population grew substantially in the intervening decades and Latinos are over-represented in low-wage jobs, but they were still only about one-fourth (23 percent) of low-wage workers in 2011.



Playing Inflation Games with Grandma: The Washington Consensus and the Chained CPI Print
Written by Dean Baker   
Wednesday, 04 April 2012 07:38

All the inside Washington types seem to agree, we should change the indexation of Social Security benefits to the chained consumer price index (CPI). This would supposedly make the annual cost-of-living adjustment (COLA) more accurate and save the government big bucks. Sounds great, right?

First of all, when all the inside Washington types agree on something, it is a good idea to hang on to your pocket books. Remember, these are the folks who thought it was great that everyone was becoming a homeowner in the middle of a housing bubble and that Alan Greenspan was the greatest central banker of all-time. In other words, inside Washington types are a group of people that mindlessly repeat the conventional wisdom and are largely incapable of original thought.

At the most simple level, the switch to a chained CPI is a way to reduce the annual COLA in Social Security by roughly 0.3 percentage points. That may sound trivial, but it is important to remember that this sum adds up over time. After ten years, this lower annual cost-of-living adjustment would imply a reduction in benefits of roughly 3 percent, after 20 years the reduction would be 6 percent, and after 30 years close to 9 percent. So this is real money.

This plan to lower the COLA raises two obvious questions. First would the new measure actually be more accurate, and second is a cut in Social Security benefits good policy?



Issue Brief Finds Low-wage Workers Are Older and Better Educated than Ever Print
Written by John Schmitt and Janelle Jones   
Monday, 02 April 2012 08:00

Relative to any of the most common benchmarks – the cost of living, the wages of the average worker, or average productivity levels – the current federal minimum wage of $7.25 per hour is well below its historical value. These usual reference points, however, understate the true erosion in the minimum wage in recent decades because the average low-wage worker today is both older and much better educated than the average low-wage worker was in the past.

All else equal, older and better-educated workers earn more than younger and less-educated workers. More education – a completed high school degree, an associate’s degree from a two-year college, a bachelor’s degree from a four-year college, or an advanced degree – all add to a worker’s skills. An extra year of work also increases skills through a combination of on-the-job training and accumulated work experience. The labor market consistently rewards these education- and experience-related skills with higher pay, but the federal minimum wage has not recognized these improvements in the skill level of low-wage workers.

Even if there had been no change in the cost of living over the last 30 years, we would have expected the earnings of low-wage workers to rise simply because low-wage workers today are, on average, older and much better educated than they were in 1979, when wage inequality began to rise sharply in the United States.



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