Blog postings by CEPR staff and updates on the latest briefings and activities at the Center for Economic and Policy Research.

Many have a renewed interest in the shrinking of manufacturing and other traditional blue-collar jobs since Donald Trump won the 2016 presidential election. White working class voters in several large Midwestern states that Democrats had previously carried voted for Trump by large margins. The Blue-Collar Jobs Tracker (BCJT), launched by CEPR, will track the progress of the Trump administration in bringing back these jobs both to the country as a whole and in the states that saw the biggest job loss in the last quarter century. For this analysis, the industries tracked are manufacturing, mining, and construction.[1]

The National Trend in Blue-Collar Employment

In 1970, blue-collar jobs were 31.2 percent of total nonfarm employment. By 2016, their share had fallen to 13.6 percent of total employment. While blue-collar jobs have been declining as a share of total employment over this whole period, this was mostly due to the growth in total employment. The number of blue-collar jobs did not change much through most of this period. In 2000 there were 24.6 million blue-collar jobs, only slightly below the peak of 25.0 million in 1979. However the numbers plunged in the next decade due to the impact of the exploding trade deficit and the 2008-2009 recession. Blue-collar jobs fell to 17.8 million in 2010 and have since rebounded modestly to 19.6 million in the most recent data.

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Millionaires are getting a late valentine from Social Security in 2017. The taxes that support the program — which provides retirement, disability, and survivor benefits to millions of Americans —only apply to the first $127,200 that someone makes at their job (up from $118,500 in 2016). Wage income above this $127,200 cap is not subject to the tax. So, someone who makes $1,000,000 a year would stop paying into the program on February 16th.

But the vast majority of the population makes under $127,200 per year, and so they pay the 6.2 percent Social Security payroll tax for the entire year. This means that those that make over $127,200 have a lower effective tax rate than those that make under the cap. Put another way, the poorer have a higher tax burden, as a percentage of their income, than the rich when it comes to Social Security. (CEPR's new report details who would pay more if the tax cap of $127,200 were scrapped.)

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Last summer the Center for American Progress released a report on the problems with the Unemployment Insurance (UI) system in the United States. They cited, among other things, the historically low number of jobless workers who received UI benefits in 2015 – just 27 percent. The two main criteria that determine a worker’s eligibility for benefits are the duration of their unemployment (most states cap UI at 26 weeks) and that they lost their job involuntarily[1].

However, during severe recessions, workers may be unemployed for much longer than 26 weeks, as was the case in the recent downturn. An analysis of trends in unemployment shows that long-term unemployment is one of the main reasons for the decrease in the percentage of the unemployed receiving benefits.

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According to Vox and the Washington Post, the Trump Administration is considering an Executive Order that would have a profound impact on the current system of lawful, family-based immigration. To understand what’s at stake, it’s helpful to first know some of the legal and historical background. Under current law, immigrants seeking a visa to become lawful permanent residents on family-based and certain other grounds can have their applications denied if they are found “likely to become a public charge.” In very rare cases, green card holders living in the United States may be deported if they become public charges during their first five years in the United States.

Who is a public charge? The term is an archaic one. It pre-dates federal immigration law and was typically used in the 1800s to refer to someone (regardless of their citizenship or immigration status) who was a “charge” of the state. In short, someone the government had taken charge of — typically in an almshouse — in a sense roughly akin to being a ward under the control and care of the government.

The power to deny entry to immigrants who were deemed likely to become public charges was first added to federal immigration law in 1882, a few months before the adoption of the Chinese Exclusion Act. As immigration historian Hidetaka Hirota documents in a timely new book, the origins of federal immigration law denying entry on public-charge grounds were in cultural and class prejudice, particularly against Irish immigrants.

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In 2012, Republican presidential candidate Mitt Romney famously commented that 47 percent of Americans were “dependent on government” because they didn’t pay any federal income taxes. He went on to explain that his job was “not to worry about those people.”

Journalists and other public figures often claim that only the rich pay taxes, supporting this with the argument that the rich pay the vast majority of federal income taxes. However, federal income taxes are just one part of the broader tax code. When we consider other types of federal taxes as well as state and local taxes, it becomes clear that the overall tax code isn’t extremely progressive – in other words, it doesn’t “soak the rich,” and it certainly doesn’t let the poor off the hook.

The aforementioned “47 percent” do pay substantial state and local taxes, but even ignoring these taxes, it’s worth noting that income taxes represent just half of all federal tax revenue:

buffie tax code 2017 02 06 table 1

In fiscal year 2013 – the last year for which we have full federal, state, and local data – the federal government raised over $2.6 trillion in total tax revenue. It also raised an additional $134 billion in funds from other sources, most notably customs duties, remittances from the Federal Reserve, and miscellaneous fees and fines. About $1.3 trillion of revenue came from the progressive federal income tax, while another $274 billion came from the progressive corporate profits tax. Estate and gift taxes, which are also progressive, accounted for $19 billion, equivalent to just 0.7 percent of federal tax revenue.

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When people pay their insurance premiums every year, they are hoping that those premiums will cover future expenses. Specifically, that their health insurance companies will cover their bills if they fall ill, their car insurance companies will cover their bills if they get into an accident, etc. While any one individual may pay more or less in premiums than they receive in benefits, the insured population as a whole should generally break even.

However, there is one avenue through which the entire insured population can lose out: overhead costs. Higher overhead costs leave consumers paying more in premiums even when they aren’t receiving more in benefits. In this sense, insurance companies with high overhead costs are similar to expensive middlemen.

Relative to the size of the economy, Americans are paying more in insurance overhead than they did forty years ago. The figure below shows consumer spending on “net insurance” – overhead costs for insurance companies – from 1975 to 2015 for the four major types of insurance. (Because we don’t have a measure of “net insurance” for life insurance companies, total costs are used as a proxy.)

buffie overhead 2017 02 01
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The unemployment rate inched up by 0.1 percent in January to 4.8 percent, as the economy reportedly added 227,000 jobs. The modest change in the unemployment rate was also associated with a rise in the employment-to-population ratio (EPOP) to 59.9 percent. This is equal to the previous high for the recovery in March of last year. The jobs growth figure was somewhat higher than had generally been expected, but is somewhat offset by the fact that the two prior months' numbers were revised down by 39,000.

While the rise in the EPOP is good news, it is still well below pre-recession levels. The drop remains low even when looking at prime-age workers (ages 25-54), with the EPOP for prime-age men 2.7 percentage points below its pre-recession peaks and the EPOP for women down 1.5 percentage points. The EPOP for African Americans hit a new high for the recovery, at 57.5 percent. While these data are erratic, the January figure is more than a full percentage point above the year-round average for 2016.

Other data in the household survey were mixed, notably there was a substantial decline in the share of unemployment due to voluntary quits. The January percentage was 11.4 percent, 1.1 percentage point below its November peak.

The payroll job increases were driven by a jump of 45,900 in retail and 36,000 in construction. The January job gains were likely in part attributable to weather, as there were few serious snowstorms in the northeast and Midwest in the period preceding the reference week.

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During the height of the 2008-2009 recession, there was considerable debate about the origins of the soaring unemployment rate. The New York Times and other major media outlets said that the problem was mostly low demand, pointing out that there were more people searching for jobs than companies searching for workers. During the recession, companies decreased their monthly hiring by about a third, despite the fact that the number of Americans searching for work had more than doubled.

The data mostly indicate that workers weren’t choosing to stay unemployed; rather, they were losing their jobs and having trouble finding new ones. This can be seen most clearly by looking at the ratio of unemployed job losers to unemployed job leavers. Unemployed job losers are out of work because they lost their previous job; unemployed job leavers are out of work because they voluntarily left their last job. In 2006, there were roughly four unemployed job losers for every one unemployed job leaver; by early 2010, that ratio had shot up to nearly 11-to-1. This indicates that the vast majority of the drop in employment during the recession was due to companies laying off workers, not to workers leaving their jobs. Moreover, this phenomenon held true for every major demographic group, as can be seen in the figure below:

buffie rawlins dont blame 2017 01 27 01

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Opponents of amendments to the 1990 Clean Air Act (CAA) argued that increased regulations would damage the economy, leading to a loss of jobs and output. However, the legislation’s passing produced nowhere near the economic devastation predicted. Instead, projections by the Environmental Protection Agency (EPA) expect the benefit of the CAA amendments to reach a cumulative total of 2.0 trillion dollars by 2020 or a bit less than 0.5 percent of GDP for this period. For comparison, the estimated cost of complying with CAA regulations is 65 billion dollars or less than 0.02 percent of GDP over this thirty year period. That is $30.77 of benefit for every dollar spent on regulation.

rawlins clean air act 2017 01 fig 1

In 2020 alone, the amendments are expected to prevent over 230,000 early deaths. Those prevented deaths come in the form of decreased adult and infant mortality from exposure to the ozone and fine particle pollution. They also estimate a decrease in chronic bronchitis, acute myocardial infarction, and asthma exacerbation. The amendments will decrease emergency room visits by 120,000, prevent 5,400,000 missed school days, and 17,000,000 lost work days.

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A surge in the trade deficit held GDP growth to just 1.9 percent in the 4th quarter of 2016, bringing the growth rate for the full year to 1.9 percent, the same rate as 2015. The growth rate in final demand in the quarter was even worse, at 0.9 percent, as inventories accumulation added a full percentage point to growth in the quarter. The 2016 GDP growth brought the average for the eight years of the Obama administration to 1.8 percent.

A striking aspect of this report is the weak evidence of any inflationary pressures in spite of the tightening labor market in recent years. The overall GDP deflator increased at a 2.1 percent annual rate in the 4th quarter. The core personal consumption expenditure deflator targeted by the Federal Reserve Board rose at just a 1.3 percent annual rate. There is no evidence of any upward trend in this measure which remains well below the Fed's 2.0 percent target rate.

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In October of 2009, the national unemployment rate peaked at 10 percent; as of December 2016, it was down to 4.7 percent. The Federal Reserve Board voted last month to raise interest rates in part due to this low rate, and the decrease in unemployment has generally been hailed as a sign of recovery. But how accurately do those numbers reflect the current employment situation for most workers? This post looks at prime-age employment rates for several different demographic groups to create a clearer picture of how the recession and recovery affected American workers.

The unemployment rate only includes workers who have been actively seeking jobs during the last four weeks. However, due to the severity and duration of the most recent recession, many prospective workers simply gave up looking and were not counted in the unemployment rate. To account for these “missing workers”, this post analyzes the employment rate instead of the unemployment rate. By using the prime-age employment rate – the employment rate for workers ages 25 to 54 – it avoids any bias attributable to the aging of the population.

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As Dean Baker notes, the NYT has a story up today on the drop in women’s labor force participation rates since 2000. It’s a useful piece, but incorrectly notes that "men dominate the disability rolls." In fact, 49 percent of people receiving Social Security Disability Insurance as worker beneficiaries are women, and women are 47 percent of adults with disabilities receiving Supplemental Security Income. Finally, while Temporary Assistance isn’t a disability program per se, substantial numbers of parents receiving Temporary Assistance have a disability, and nearly all of them are mothers.

Part of the confusion here may be due to the fact that men who are out of the labor force are more likely than women to give an illness or disability as the reason. But many more women are out of the labor force, and as the table below shows, the absolute number of women reporting not working due to a disability (3.6 million) is slightly larger than the number of men (3.5 million). 

Finally, it’s important to note that disability benefits have not been an important factor contributing to declines in men’s or women’s labor force participation. As Dean notes, the real problems here are on the demand side of the labor market, as well as weak labor market institutions and the absence of work-family supports like quality, affordable child care and paid family leave.

 
Prime-Age Adults Who Did Not Work in 2015 by Reason and Sex
  Men
(Number)
Percentage Women
(Number)
Percentage
Ill or disabled 3,526,717 53% 3,567,269 23%
Taking care of home/family 814,162 12% 9,232,809 60%
Going to school 1,121,192 17% 1,318,703 9%
Retired 659,918 10% 769,744 5%
Other 584,916 9% 397,325 3%
Total 6,706,905 100% 15,285,850 100%

Source: IPUMS CPS ASEC (2016).

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The Labor Department reported little change in the unemployment or employment rates in December, as job growth slowed slightly to 156,000 in the month. The unemployment rate edged up from 4.6 percent to 4.7 percent, but this is well within the margin of error of the survey. The overall employment-to-population ratio (EPOP) remained unchanged at 59.7 percent. The same is true for the EPOP for prime-age workers, which remained at 78.2 percent for the third consecutive month. This is more than 2 full percentage points below the pre-recession peak and almost four percentage points below the 2000 peak.

Some good news in the report is that involuntary part-time employment continues to edge down, while more people are choosing to work part-time. The number of people working part-time, for economic reasons, fell slightly to 5,600,000 in December. It is now down by almost 2.2 million from December of 2013, before the key provisions of the Affordable Care Act took effect. By contrast, the number of people choosing to work part-time has continued to rise, presumably because they no longer need to get insurance from their employer. It now stands at 21,250,000, more than 2.4 million above its pre-recession level.

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While the U.S. is the birthplace of the Internet, it currently falls behind other countries in making high quality broadband connections widely available.

The OECD’s overview on broadband connectivity shows the U.S. provides costlier and lower quality broadband than other countries. Furthermore, the U.S. trails most other countries in percentage of people with broadband subscriptions.

Broadband costs
The figure above illustrates the number of broadband subscriptions per 100 inhabitants in a series of high-income OECD countries. Switzerland tops the list, with almost 52 subscriptions per 100 residents. On the other end of the spectrum, only 31 percent of inhabitants have a broadband subscription in the U.S. The only country with a lower broadband subscription rate is Japan, at 30 percent.

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The International Monetary Fund (IMF) recently released two papers assessing the impact of an aging population on productivity growth, one looks at Europe, the other one at Japan. Their argument is simple: an aging population also means an overall older and less productive workforce.

The IMF’s Japan study supports this finding by showing that prefectures that are aging faster experienced slower economic growth than prefectures with higher population growth. They make the point that the faster aging is to blame for the slower growth; however, this does not take into account that young people tend to move to urban areas where there is  higher productivity growth.

If we compare countries rather than regions,  this link is no longer apparent. Looking at population and productivity growth for a series of OECD countries, there is no obvious connection between these two measures.

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Trump and CEPR

Okay, we aren’t really expecting his endorsement, but we do need your help in fighting his agenda. If you’ve already made your end-of-the-year donation to CEPR, many thanks!

If you haven’t, please consider making a gift today so that we can fight hard for a just economy in 2017.

Thanks for your support,
Dean, Mark, and CEPR Staff

P.S.: Dean's book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer is available for download for free (shh!), or you can order a copy for yourself or a friend. Just click here or on the photo below.

Rigged, by Dean Baker

*Trump photo by Michael Vadon, with modifications, available under Creative Commons.

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The Federal Reserve announced after their December meeting that “in view of realized and expected labor market conditions and inflation” it will raise interest rates to ¾ of a percentage point, anticipating further hikes throughout 2017.

The statement released by the Fed cited solid job gains and the decline in unemployment amongst their reasoning behind the interest hike. However, as this analysis of the last employment report from CEPR points out, the decline in unemployment was partly due to people leaving the labor force, rather than finding jobs. Furthermore, the employment-to-population ratio for prime-age workers is 2 percentage points lower than before the recession, and 4 percentage points lower than its peak in 2000.

The current labor market, while substantially recovered from the Great Recession, is still significantly weaker than in 2000 and even 2007. We can recall the pressure on the Fed to raise interest rates in 1996, based on fears of inflation. However, Alan Greenspan, then chair of the Fed, did not succumb to that pressure and held rates steady. The result was that between 1996 and 2000, over 11.6 million jobs were added without causing inflation to shoot up.

There is little evidence of any acceleration in the inflation rate regardless of which index is used.

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Since there are many more wage earners than people with substantial stock holdings in the division of corporate income between wages and profits, most people stand directly to gain from a smaller profit share. Nonetheless, there is an argument for a higher profit share (and a lower wage share) if companies will invest more when their profits rise. In that case, higher investment would lead to more growth, which would benefit workers as well, even if their share of income might be somewhat lower. However, as this post shows, the data do not backup up this argument.

Corporate profits before-tax are currently only one percentage point higher as a share of GDP than in 1970. However, after-tax profits are now about 2 percentage points higher compared to their 1970 levels.

merling investment figure1 2016 12
The figure above illustrates before- and after-tax corporate profits as a share of GDP since 1970.[1] Until the 1980s, the spread between before- and  after-tax profits was significantly larger, with a difference of about 3 percent of GDP. This difference has since decreased to about 2 percent of GDP, as corporate taxes have fallen sharply relative to GDP. After tax profits comprised 5 percent of GDP in 1970, and peaked at over 8 percent between 2012 and 2014 before declining in the past two years.

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The following reports on labor market policy were recently released:


The Center for Law and Social Policy

Juggling Time: Young Workers and Scheduling Practices in the Los Angeles County Service Sector
CLASP, UCLA Labor Center


Demos

The Parent Trap: The Economic Insecurity of Families with Young Children
Amy Traub, Robert Hiltonsmith, Tamara Draut

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A common story is that rapid automation is taking away jobs. If humans were being replaced by robots and machines, we would be seeing rapid productivity growth. Since automation generally replaces low-skill jobs, the impact on productivity growth would be significant.

However, if we look the average productivity growth in the past 10 years, the data show we are actually in a period of slow growth.
merling productivity growth 1 2016 12The figure above shows the average yearly productivity growth for 4 periods in the post Word War II era. Between 1948 and 1973, productivity growth averaged 3.3 percent a year. This was followed by a period of slow growth between 1974 and 1995, when growth averaged only 1.5 percent per year. Productivity increased at a rapid pace again from 1996 until 2005, when it picked up at an average rate of 3.1 percent per year. The current period, starting in 2006, records the lowest productivity growth since 1948, at an average rate of only 1.3 percent per year.

Given that productivity growth is at its lowest post-war level, the story that automation is a large threat looming over the job market is not supported by the data.

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As we do every December, we here at CEPR are reaching out to ask that you consider making an end of the year donation to support our work. Usually this entails regaling you with a list of all our accomplishments over the past year.

But this year we decided to do something different (which, given the extraordinary events of this past year, we felt was fitting). We want to talk candidly and honestly about the challenges we progressives face, and discuss where we need to go from here. 

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