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.
Okay, all of you socialist nationalized health care loving Obama backers are going to have to own up to the evils of the Affordable Care Act (ACA). We now have the full six months of data for the first half of 2013. This is the period when employers thought they would be subject to sanctions for not covering workers who put in 30 hours a week or more. (The administration announced the suspension of this provision on July 2.)
It turns out that the percentage of workers who are putting in 26-29 hours (just under the 30-hour cutoff) is up. The share went up from 0.61 percent of the workforce in 2012 to 0.64 percent of the workforce in 2013, an increase that corresponds to slightly more than 40,000 workers who have work schedules that put them just below the threshold as shown in the table below.
Usual Weekly Hours
35 hrs and up
Source: Authors' analysis of Current Population Survey.
This may look like it is confirming exactly what opponents of the ACA warned against. Employers are responding to the threat of sanctions and cutting back workers’ hours, exactly as several prominent business owners had promised they would do.
However a closer examination shows that the data don’t quite support this story. The percentage of workers putting in 25-29 hours is up, but so is the percentage of the workforce that puts in 35 hours a week or more. In fact, the share of the workforce that reports working just over the limit, either at 30 hours a week or 31-34 hours a week, is up also.
It turns out that the big declines are in the percentage of workers who put in 1-19 hours a week, 20-24 hours a week, or who report that their hours typically vary. The data indicate that fewer workers are in these low or “hours varied” categories and more workers report falling into all the categories at 25 hours a week or above.
These changes are all small and mostly not statistically significant. They also reflect the influence of many factors other than Obamacare. But the data certainly provide no evidence supporting the claim that the shortening of workweeks has been a widespread phenomenon.
Just to be clear, it is likely that the 30-hour sanction cutoff will have a modest but measurable effect on hours through time as employers adjust schedules and new businesses open. And any movement away from employer-based insurance will eliminate an important overhead cost that discouraged firms from shortening hours and hiring more workers.
Some would view this as a positive development since the United States is currently an outlier in that workers put in far more hours on average than they do in other wealthy countries. Many workers would value more time off in the form paid vacations, family leave or paid sick days. However it was unreasonable to think that employers would suddenly move to restructure their workplace in large numbers just to avoid the relatively modest sanctions associated with the ACA. And the latest numbers indicate that the data agree with this assessment.
Notes on data:
1) Analysis of the Current Population Survey, Monthly Basic Data, Jan-Jun 2012 and Jan-Jun 2013.
2) Looks at everyone who reported usually working, including 'hours varied' and '0 hours'
3) Calculated only for main job
4) Excludes self-employed who are not incorporated and people working without pay
The graphic below plots monthly jobs for every state, for the last four business cycles. The lines start 3 months prior to the onset of the recessions beginning in 1981, 1990, 2001 and 2007. Job losses or gains are indexed at "1" for the starting month of each national recession, and then run forward for 70 months (67 months, through July 2013, for the 2007 recession). The states are in blue (you can mouse over the lines to identify them) and the national numbers are in red. The dropdown menu allows you to narrow in on any combination of states.
First, and perhaps most starkly, it illustrates the uniformity of the 2007 downturn. While there are sharp state and regional differences (especially after 1981 and 1990) in the earlier recessions, 2007 was an equal opportunity crash. The states are clustered together as the descend into the recession, and as they climb slowly through the recovery. Only the energy boom outliers (the Dakotas, Texas, West Virginia, and Alaska) and Washington, DC escape the full brunt of the downturn. And only a few states hit hard by the housing crash (Florida, Arizona, Nevada) or the collapse in demand for consumer durables (Michigan) do significantly worse than the rest.
Second, it underscores the depth and duration of the latest downturn. In the earlier recessions, most states are "above water" after 24 or 30 months. Fully four years (48 months) after the 2007 crash, only the outliers noted above (ND, SD, TX, AK, WV and DC) had returned to their pre-recession job numbers. Five years in, only these and six others (UT, NY, OK, LA, MA) had reached that point. At 67 months (July 2013), only four more (IA, OK, NE, MT) had struggled above the line—leaving 35 states with fewer jobs than they had when Mike Huckabee was the Republican frontrunner to succeed George W. Bush.
In a post for PBS NewsHour's The Business Desk, Dean Baker takes on Paul Solman on what the government can do to address unemployment. Solman responded to Dean here, and Dean responded this morning on Beat the Press.
Paul Solman takes me and my grumpy friend Paul Krugman to task for insisting that there is a growing consensus within the economics profession that we are not suffering from structural unemployment. Krugman and I used our blogs to complain about Aug. 2's segment in which Brooks suggested structural unemployment was the economy's main problem and that there was little that could be done about it.
The United States currently has about 9 million fewer people working than if it had continued on its trend of growth from 2002 to 2007.
The question is whether the unemployment problem is a lack of demand due to a loss of $8 trillion in housing bubble wealth, or whether there are structural problems that would prevent most of these 9 million people from being re-employed even if the demand were there. Krugman and I support the former idea; those who see unemployment as structural are in the latter camp. Here's another way to think about the problem. Imagine someone found a $1 trillion bill in the street and decided that, as a public service, she would spend the money over the next 12 months to boost the economy. For simplicity, let's assume that she decides to divide her $1 trillion so that it is spent in exactly the same way that the economy's current $16 trillion in annual spending is spent.
In my view, this $1 trillion of new spending would cause output to increase by roughly 6 percent. (I'm ignoring multiplier effects to keep things simple.) Employment would also rise by roughly the same amount, filling the bulk of the 9-million-jobs hole. In other words, this would be great news for the country.
In a post for PBS NewsHour's The Business Desk, Dean Baker takes on on the economics media for their budgetary transgressions.
The New York Times budget reporters must have been celebrating this week. After all, they managed to confuse Paul Krugman, the New York Times columnist and Nobel Prize-winning economist, with their own budget reporting. That's quite an accomplishment. For those who missed it, Krugman wrote a column criticizing House Republicans for their plan to cut the food stamp program in half by trimming $40 billion from its budget. He might have gotten this information from an article like this one in the Times, whose first sentence told readers:
"A plan by House leaders to cut $40 billion from the food stamp program -- twice the amount of cuts proposed in a House bill that failed in June -- threatens to derail efforts by the House and Senate to work together to complete a farm bill before agriculture programs expire on Sept. 30."
The problem with this description of the Republican plan is that the proposed cut of $40 billion is supposed to be over a 10-year budget window, not a single year. (The Republicans want to cut the food stamp budget by 5 percent, not 50 percent.) This information is not reported anywhere in the article. As a result, even a very intelligent and extremely knowledgeable person like Krugman could read through the piece and be off by a factor of 10 in his understanding of the size of the proposed cuts.
While Krugman was quick to catch and apologize for his mistake, this episode should prompt some new thinking among budget reporters and editors. If the New York Times is flunking accurately conveying information to Krugman, whom exactly do they think they are informing with their budget reporting?
Despite renewed interest by some in breaking up the large banks, thanks to government bailouts most of the large financial institutions responsible for the financial crisis are bigger - and more profitable - than ever. And, as CEPR showed , their too-big-to-fail (TBTF) status means that they will get subsidies on an ongoing basis by getting funds at below market interest rates.
Meanwhile here at CEPR we continue to scrape along, relying on the generosity of individuals - many of whom are suffering themselves because of the shoddy practices of the large banks – to fund our work. We do receive funding from some foundations and we are very grateful for that support. But many of our supporting foundations have also seen their funds cut, and changes to corporate boards of other foundations mean that many progressive organizations like CEPR are left out in the cold. We make do with what we’ve got – quite effectively we might add – but still, every year it becomes more and more difficult to meet our budget. This year has been particularly hard as we’ve lost some major sources of support.
So, we give up. We decided that if you can’t beat ‘em, join ‘em. We’ve decided to adopt a TBTF policy of our own. The CEPR-TBTF Subsidy. And we need your help to get it up and running. Please give what you can. Help CEPR become too big to fail. Help us to continue to be able to call out the people responsible:
“The Wall Street gang must really be partying these days. Profits and bonuses are as high as ever as these super-rich takers were able to use trillions of dollars of below-market government loans to get themselves through the crisis they created. The rest of the country is still struggling with high unemployment, stagnant wages, underwater mortgages and hollowed-out retirement accounts, but life is good again on Wall Street” (Dean Baker, 2013).
Not only do we call out those responsible, we also back up what we say with numbers and facts and solid research. If we’re silenced, progressives will lose a valuable ally in the fight against growing inequality.
P.S. We’re also following in the banks’ footsteps by offering a FREE PRIZE for “opening” your CEPR TBTF “account”. Everyone who donates $75 or more will receive an advance chapter of Dean Baker and Jared Bernstein’s upcoming book on the benefits of full employment. The book won’t be available to the general public until the fall. Donate and get yours today!
In recent weeks, fast-food workers have gone on strike in sevenU.S. cities. Their demand for a $15-per-hour minimum wage in their industry – about $30,000 per year for a full-time worker, typically with no benefits – has underscored just how low the $7.25 federal minimum wage is relative to what workers need to get by.
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.
An analysis of government data on fast-food workers, however, tells a different story.
First of all, only about 30 percent of fast-food workers are teenagers. Another 30 percent are between the ages of 20 and 24. The remaining 40 percent are 25 and older. (All the data we present here are from the government’s Current Population Survey, where we have combined data for the years 2010 through 2012 in order to provide a large enough sample for analysis.) Half of fast-food workers are 23 or older. Many teenagers do work in fast-food, but the majority of fast-food workers are not teenagers.
Given the age structure of fast-food workers, it shouldn’t be surprising that the same government data show that more than one-fourth are raising at least one child. Among those age 20 and older, more than one-third are raising children.
In today’s world, understanding the relations between employers and workers in different national contexts means placing that relationship in the context of global financial and product markets, global production chains, and national and global employment institutions. A new textbook – "Comparative Employment Relations in the Global Economy," edited by Professors Carola Frege of the London School of Economics and John Kelly of Birkbeck, the University of London – does just that.
Eileen Appelbaum and John Schmitt contributed a chapter to this text book that examines Employment Relations and Macroeconomic Performance. The gap that opened up between the U.S. and other wealthy countries in job creation and unemployment has led economists to search for an explanation of this development. The standard explanation builds on the notion that labor market ‘rigidities’ prevent countries from achieving full employment and seeks the causes of variations in the unemployment rate in differences in labor market institutions. Eileen and John find this view unpersuasive. Their review of labor market institutions leads to two main conclusions: first, that constellations of labor market institutions matter, so that there is more than one path to good outcomes; and second, that differences in macroeconomic policies play an important role in determining labor market outcomes.
The book should be an important resource for those in the CEPR family who teach or are students in programs in employment relations, management, political economy, labor policy, industrial and economic sociology, regulation and social policy.