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

The Labor Department reported that the economy added 292,000 jobs in December. There were also upward revisions to job growth for the prior two months, bringing the three month average to 284,000. The growth was widely spread across industries, with construction adding 45,000, employment services adding 42,300, and health care 39,400. However there is still little evidence that the tighter labor market is translating into stronger wage growth. The average hourly wage reportedly fell by 1 cent in the month.

The household survey showed the unemployment rate remained at 5.0 percent, but the EPOP rose to 59.5 percent, the highest rate of the recovery. Over the last two months, employment reportedly grew by 732,000. While the monthly employment numbers are erratic, this could be evidence that people are finally re-entering the labor force as the labor market strengthens.

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The following newsletter highlights CEPR’s latest research, publications, events, and much more

—CEPR Co-director Dean Baker wrote extensively on the Federal Reserve this past month, both before and after the Fed announced that it was raising interest rates.  Dean wrote several op-eds prior to the Fed’s December meeting, including this one for Fortune, and he and he spoke about the impact of the expected rate hike on the Diane Rehm show. CEPR issued this statement on the Fed’s decision. Dean penned several op-eds after the announcement including this one for Al Jazeera. In this op-ed Dean reminded the presidential candidates that the Fed exists and In this piece for US News and World Report’s Debate Club he called the decision to raise rates a step in the wrong direction. Dean also teamed up with Josh Bivens of EPI and the folks at Fed Up to answer some frequently asked questions about the Fed. We were happy to see Senator Bernie Sanders pick up on this theme in a NYT column later in the month.

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The following is a presentations, "Domestic Outsourcing in the U.S.: A Research Agenda to Assess Trends and Effects on Job Quality," by Eileen Appelbaum (Center for Economic and Policy Research), Rosemary Batt (ILR School, Cornell University), Annette Bernhardt (IRLE/Labor Center, UC Berkeley), Susan Houseman (Upjohn Institute for Employment Research).

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The following reports on labor market policy were recently released:


Center for American Progress

Helping Firms by Helping Employees?
Nicholas Bloom, Raffaella Sadun, Daniela Scur, John Van Reenen

Economic Policy Institute
No Evidence of Labor Shortages but Congress Considering Giving H-2B Employers Access to More Exploitable and Underpaid Guest workers
Daniel Costa

Black Unemployment is Significantly Higher than White Unemployment Regardless of Educational Attainment
Valerie Wilson

Urban Institute
The Goals and Dimensions of Employer Engagement in Workforce Development Programs
Shayne Spaulding, Ananda Martin-Caughey

National Employment Law Project
Upholding Labor Standards in Home Care: How to Build Employer Accountability into America’s Fastest Growing Jobs
Sarah Leberstein, Caitlin Connolly, Irene Tung

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The American Enterprise Institute posted a peculiar blog post last week, echoing a similar, older post from the Cato Institute. The author attempted to make a connection between unemployment and minimum wage laws in Organization for Economic Co-operation and Development (OECD) European countries, creating a table that purported to show that those countries with legal minimum wages had higher youth and total unemployment than those that did not.

There are some problems with this data and its presentation. The first thing to note about the table, which is accompanied by a question asking whether one would rather live in a country with a minimum wage or not, is that it does not include every European country nor does it even include every European OECD-member country. The second issue is that much of the data is incorrect or not directly comparable. Some of the errors include: Portugal’s harmonized unemployment rate (via the OECD) is 14.13 percent in 2014, not 13.9 percent; Ireland’s youth unemployment rate is 23.93 percent not 26.9 percent; Finland’s youth unemployment rate is 20.42 percent not 19.3 percent. In addition, the minimum wage values appear to be exchange rate values that fluctuate somewhat arbitrarily, rather than the OECD minimum wage values adjusted for purchasing power parity (PPP) for the year 2014. (Adjusting for PPP takes into account the different costs of living.)

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Dear Friend,

As we do every December, we are once again asking you, our friends and supporters, to make an end-of-year donation to Center for Economic and Policy Research. Over the past few years we’ve tried several clever (at least to us) ways to convince you to send us some of your hard-earned cash. 

We’ve enlisted some unlikely famous figures to help out:

CEPR BUSH

CEPR PAILN

We’ve even recruited Dean’s dogs (Noodle and Biscuit) to help the CEPR cause:

Two dogs

(Note: No dogs were harmed in the making of this email.) Alas, this year we’re fresh out of clever gimmicks (and dogs). 

We’ve used up our creative bandwidth producing the reports, issue briefs, op-eds, articles and other publications you have come to expect from CEPR. We’ve just been too busy being out in front of other groups on a whole range of issues, including promoting financial transactions taxes, protecting Social Security against cuts (as opposed to limiting the size of cuts), pointing out that the Trans-Pacific Partnership and other pending trade deals are more about protecting patents than promoting trade, looking at how private equity is often a tax avoidance scheme that hammers workers, revealing how a lack of accountability has hampered reconstruction efforts in Haiti, holding the Federal Reserve accountable, showing that paid leave programs don’t hurt business, and how “neoliberal” economic policies led to a decades-long economic growth failure in Latin America. We accomplished all of this — and a whole lot more — on a budget that is a fraction of that of other think tanks.

But this is Washington, where being first — and being right — isn’t always rewarded. There are some institutional funders out there who see CEPR’s small size as a liability, despite the fact that we consistently rank number one in media hits per budget dollar of all the major think tanks. Moreover, our social media reach far surpasses that of much larger organizations. (Perhaps they have problems understanding the concept of “marginal,” as in how much impact you get with an additional dollar of funding.) Other funders might support our positions, but give to groups they perceive to be a “safer bet” (i.e., ones that don’t rock the boat as much as we do). And others just give to the biggest name regardless of effect or efficiency.   

That is why we need you, our individual donors, now more than ever. If you’ve already given to CEPR, thank you! Your support is invaluable. If you haven’t, please consider making a gift now. We are headed into an election year, which usually results in smaller contributions for groups like CEPR. At a time when many foundations are rethinking their grant making, we simply cannot afford to lose a dime of revenue. Please, give what you can, and help us to continue to be a “thorn in the side of orthodoxy” into 2016, and beyond.

Best Wishes for a Happy and Healthy Holiday Season,
Mark, Dean, CEPR staff…and the dogs

biscuit meme

(Okay, we couldn't resist one more...)

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Earlier this year, the Bureau of Labor Statistics (BLS) released a short report on wage inequality in the U.S. It gave detailed breakdowns of earnings by gender, age, education, state of residence, industry, and occupation.

The report also included data on access to leave benefits along the wage distribution. In general, high-wage workers have greater access to these benefits than low-wage workers.

We can break the various types of leave into three separate categories. First, there is unpaid family leave, which allows employees to take time off work to care for sick family members or newborns. Access to unpaid family leave is nearly universal: about 86 percent of all workers — and even 75 percent of low-wage workers — can take unpaid family leave. This can be seen in the figure below.

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The staff of CalPERS, the $288 billion California public employees’ pension fund, has had a bad couple of weeks. Just before Thanksgiving, they released long-awaited figures showing that over the 25 years since 1990, the pension fund paid more than $3.4 billion in performance fees to private equity firms — so-called carried interest that is taxed at the lower capital gains tax rate rather than as ordinary income. Private equity has persuaded public pension funds that these performance fees are warranted by the exceptional returns earned on PE investments, but the evidence is weak. Because PE investments are illiquid and risky, returns need to be high enough to be worth the risk. CalPERS’ benchmark is a stock market index of domestic and global stocks plus 3 percent, the typical private equity risk premium. Unfortunately, CalPERS’ PE investments failed to beat this benchmark in the past three-year, five-year and ten-year time frames. Indeed, over the 10-year period, CalPERS would have had the same returns by investing in the stock market index in its own benchmark without the added risk of investing in private equity.

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The Federal Reserve’s Federal Open Market Committee continues to debate whether it should raise short-term interest rates to prevent inflation. The effects of raising these interest rates cascade throughout the economy: rates for automobile loans and mortgages will rise and the economy will generally slow. But a slower economy means that fewer people have jobs and workers will have less bargaining power to demand higher wages. With inflation already low and the economy still recovering from the Great Recession, there are good arguments for the Fed keeping rates low.

Looking into the future, low rates will help the most marginalized and disadvantaged. For example, the gains from lower unemployment will disproportionately help black workers. History provides more reasons for keeping rates low: black workers were hit much harder than whites, Asians, or Hispanic/Latinos in both the 2001 and 2007 recessions. In addition, the incomplete recovery from the 2007 recession is on top of an incomplete recovery following the 2001 recession.

This is evident looking at the unemployment rate and employment rate (or EPOP ratio, employment-to-population ratio) of prime-age (25 to 54) blacks and whites for the 2001 and 2007 recessions. (Looking at prime-age workers, who are in an age group likely to be working, helps eliminate any demographic effects that might be also happening.)

The graph below shows the change in the unemployment rate on the y-axis and the change in the EPOP on the x-axis for the 2001 business cycle. As the recession progresses, the graph moves up and to the left (i.e. the employment rate declines and the unemployment rate increases); during the recovery, it moves down and to the right.

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Last week, CEPR released a report titled The Anomaly of U-3: Why the Unemployment Rate is Overstating the Strength of Today’s Labor Market. The report shows that the U-3 unemployment rate, also called the official unemployment rate, is out of line with eleven alternative measures of labor market slack.

Five of these measures — the U-1, U-2, U-4, U-5, and U-6 unemployment rates — are calculated at the state level. These five alternative measures allow us to examine the strength of each state’s job market. By all but one measure, the U-3 unemployment rate is overstating the strength of the economy in a clear majority of states. This can be seen in Table 1 below, which summarizes the results from Tables 2-7.

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In late 2007, the Federal Reserve (“Fed”) began pushing down interest rates in hopes of boosting the economy and providing job opportunities for American workers. The downside to lower interest rates is the risk of higher inflation; at the time, the Fed correctly believed that inflation wasn’t a problem, given that all measures of inflation were near their stated targets and falling.

The Fed made a hard push to boost employment by lowering the Federal Funds Rate — the rate at which banks can lend to each other overnight — from 5.25 percent in early 2007 all the way to 0.16 percent in December 2008. The Fed has kept the Federal Funds Rate near zero for the last seven years.

When the Fed meets on December 15–16, it will consider raising rates despite the fact that the labor market by at least one key measure is only about halfway recovered from the 2007–2009 recession. Moreover, inflation is hardly a problem in today’s economy. By all measures inflation is low, and projections of future inflation indicate that the Federal Reserve is likely to remain below its target rate of 2.0 percent.

So when the Fed votes on whether or not to raise interest rates next week, it will be choosing between reducing the risk of a potential future problem (inflation) and a very real present one (low employment). There is substantial disagreement amongst members of the Fed about which problem is more important.

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The Labor Department reported that the economy added 211,000 jobs in November. With modest upward revisions to the gains reported for the prior two months, the average growth over the last three months has been a strong 218,000.

Construction accounted for 46,000 of the new jobs, likely helped by unusually warm weather in the Northeast and Midwest. Restaurants added 31,500 jobs, retail added 30,700, and professional and technical services added 28,400. Job growth in the health care sector was relatively weak at 23,800. Other data in the establishment survey was less encouraging with a drop of 0.1 hour in the length of the average work week. This drop, combined with the weak reported growth in the hourly wage, led to a modest drop in the average weekly wage.

The unemployment rate remained at 5.0 percent. There was also no change in the labor force participation rate or the employment-to-population ratio, both of which remain far below pre-recession levels.

Other data in the household survey also are consistent with a weak labor market. The number of involuntary part-time workers jumped by 319,000 after large declines in the prior two months. There was no change in the average duration of unemployment spells, with the median duration edging downward slightly to 10.8 weeks. The percentage of unemployment due to voluntary job leavers edged up slightly to 10.0 percent. This is still a number consistent with a recession labor market, as are the duration measures and the share of involuntary part-timers workers.

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On Friday, the Bureau of Labor Statistics will release its latest jobs report. This month’s report is of special significance given that the Federal Reserve may raise interest rates in mid-December.

News reports typically cite three numbers from each jobs report: the unemployment rate, the number of jobs created, and the number of private-sector jobs created. By themselves, these figures provide an incomplete picture of the labor market. Here are five additional measures worth watching. Hyperlinks have been included so that anyone wishing to check these figures can do so easily on Friday.

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On November 24, CalPERS, the California public employee pension fund, released the long awaited figures on the amounts it has paid private equity firms in performance fees — so-called carried interest. For years, the pension fund failed to ask for or report these fees. This changed recently under pressure from unions, media and the tax-paying public which were highly critical of CalPERS claim that it could not track and did not know how much these fees cost it. As widely anticipated, the number is ginormous. Over the 25 years since 1990, CalPERS has paid $3.4 billion in carried interest to the PE firms in whose funds it has invested. In the last year, CalPERS paid $700 million in these performance fees. At this rate, it will pay private equity $17.5 billion in performance fees over the next 25 years, more than 5 times what it paid in the last 25.

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Earlier this week, Representative Keith Ellison (D-MN) and Representative Rosa DeLauro (D-CT) introduced a bill aimed at making diapers affordable. H.R. 4055, or the Hygiene Assistance for Families of Infants and Toddlers Act of 2015, will allow states to create pilot projects that provide diapers or subsidies for diapers to poor families.

Currently, families are unable to use money from nutrition programs (such as food stamps or WIC) to pay for diapers, and those receiving benefits from the Temporary Assistance for Needy Families program (TANF) often find that they also need to choose between diapers and other necessities. Community “diaper banks” work to distribute diapers to those who need them, but they can only satisfy a portion of the need.

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CEPR's Dean Baker is one of the 63 prominent economists who sent a letter to the heads of the Senate and House Appropriations Committees on Wednesday, urging full funding for the Bureau of Labor Statistics (BLS).

Signers of the letter include Angus Deaton, winner of the 2015 Nobel Prize in Economics, and come from across the political spectrum, such as the past chairs of the Council of Economic Advisers under President Obama (Austan Goolsbee) and President George W. Bush (Glenn Hubbard).

The BLS is the source of data that is relied upon by business leaders, the government, and experts in assessing the state of the economy. For example, the BLS generates the government's official measures of unemployment, which are the basis of CEPR's monthly Jobs Byte report.

Many of CEPR's analyses of the labor force rely upon BLS data. And as a service to fellow researchers and academics, CEPR also maintains user-friendly versions of BLS data at ceprDATA.org.

In their letter to Congress, Dean and his fellow economists point out that, "[t]he very nature of work in the U.S. economy is changing. Now is not the time to cut funding for the main institution charged with tracking these changes,” and caution that, "Hampering the BLS’s ability to gather and report timely, accurate, and relevant data causes ripple effects throughout the federal government, the business community, and the U.S. economy.”

They also note that the BLS's budget "...is down more than 10 percent since 2010. The Senate Appropriations Committee proposes another round of cuts for FY2016. Although House appropriators have called for a modest increase in BLS spending, their figure still falls $23 million short of the President’s request and does not come close to off-setting the funding shortfalls of the last five years."

You can read full text of the letter here. The organizers of the letter, the Economic Innovation Group, have also started a social media conversation about this topic with the hashtag #SaveTheData.

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The following reports on labor market policy were recently released:


Center for American Progress
Administering Paid Family and Medical Leave: Learning from International and Domestic Examples
Sarah Jane Glynn

Economic Policy Institute
Hiring Lags as Economy Slows Over the Summer
Alyssa Davis

Closing the Pay Gap and Beyond: A comprehensive Strategy for Improving Economic Security for Women and Families
Alyssa Davis, Elise Gould

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CEPR senior economist Eileen Appelbaum spoke about private equity's leveraged buyout strategies and their effects on American companies and workers at a Capitol Hill briefing on Tuesday titled, "Hedge Funds and Private Equity: Transferring Wealth Up."

Senator Tammy Baldwin (D-WI), Representative Nydia Velazquez (D-NY), and Senator Al Franken (D-MN) were the keynote speakers. The Senators spoke mainly about the current hot topic of the carried interest tax loophole, which is mostly used by private equity and hedge fund managers. Congresswoman Velazquez discussed the need for more hedge fund transparency, especially in light of the fiscal situation in Puerto Rico.

Click the images below to watch a video of the event, as well as to view the presentations of Eileen and one of her fellow panelists, Victor Fleischer (columnist for The New York Times).

Video:

Hedge Funds and Private Equity: Transferring Wealth Up

Slideshows:

Eileen Appelbaum presentationVictor Fleischer presentation

Other panelists included David Wood, Director of Initiative for Responsible Investment at the Kennedy School at Harvard, who talked about the concerns of pension trustees about private equity investments, and Eric LeCompte, Executive Director of the Jubilee USA Network, who spoke about how hedge funds in particular are affecting efforts to relieve poverty around the world. The event co-sponsors were Americans for Financial Reform, the AFL-CIO, and the American Federation of Teachers.

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In recent weeks there has been significant discussion about the effects of raising taxes on the rich. Think tanks, government institutions, and media outlets such as the Brookings Institution, the U.S. Treasury Department, the New York Times, the Washington Post, and Vox have all devoted significant coverage to the prospect of raising taxes on wealthy Americans.

The coverage has focused for the most part on the federal income tax. The federal income tax is a progressive tax that requires rich Americans to pay higher rates than the poor.

But the federal income tax is just one part of the larger overall tax code. Other parts of the tax code which are regressive generate as much or even more revenue than the federal income tax.

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