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

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

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 " 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).


Hedge Funds and Private Equity: Transferring Wealth Up


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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CEPR's Eileen Appelbaum provides comments (PDF version) on the Internal Revenue Service (IRS) Proposed Rule: Disguised Payments for Services, which will affect the private equity industry.

I am writing to provide comments in support of the proposed regulations issued by IRS and Treasury under section 707(a)(2)(A) of the Internal Revenue Code relating to disguised payment-for-services transactions.

I am senior economist at the Center for Economic and Policy Research in Washington, DC and Visiting Professor of Management at the University of Leicester, UK. I have coauthored a highly regarded book on private equity (PE), Private Equity at Work: When Wall Street Manages Main Street, which provides a balanced examination of the industry but raises concerns about excessive financial engineering by PE firms.

The proposed regulations clarify existing provisions in the tax code that govern the circumstances in which management fee waivers, commonly employed by private equity firms, can be used. In a management fee waiver, a fund manager waives the fixed management fee and receives in its place a priority claim on the fund's gross or net profits from any accounting period equal to the foregone fee. Fee waivers are entirely tax motivated. They are intended to convert ordinary income from management fees into equivalent profit income taxed at the lower long-term capital gains rate and to defer income realization from the regular due date of the waived fee until distributions of the funds profits are subsequently made. However, fee waivers generally do not meaningfully alter the economic deal between the fund managers and their investors. In other words, a fee waiver inserted in the fund partnership agreement is mere window-dressing designed solely to achieve a tax result.

In 1984 Congress passed section 707(a)(2)(A) to address this precise situation. As the statutory text and legislative history makes abundantly clear, this provision disallows the claimed tax benefits from fee waivers in cases where the fund manager does not bear significant entrepreneurial risk. The proposed regulations confirm the intent of Congress and make clear that entrepreneurial risk is the key consideration in management fee waivers. Management fee waivers by private equity firms rarely, if ever, will satisfy this condition: there is little risk that the fund will have no accounting period in which the priority claim on gross or net profits can be exercised. The proposed guidance appropriately concludes that window-dressing provisions do not change the tax character of fixed compensation from ordinary income to capital gains.

The proposed regulations are intended to put an end to this abuse of the tax code which enriches private equity firm partners at the expense of the tax-paying public. It is not possible to say precisely how much tax revenue has been lost due to abusive fee waivers because the total amount of fee waivers by the private equity industry is not publicly available. However, we do know that a single PE firm (Bain Capital) claimed approximately $250 million of tax savings from abusive fee waivers over a 10-year period. With management fee waivers for at least the past 15 years used by an estimated third to a half of all U.S.-based private equity firms, the revenue loss to the IRS from taxpayer neglect of section 707(a)(2)(A) is likely to be in the billions of dollars. The general 3-year statute of limitations on enforcement imparts a certain urgency to the finalization of the proposed regulations and to speedy enforcement so that back taxes, penalties and interest can be collected by the IRS in cases of abusive use of management fee waivers. I strongly support the proposed regulations and recommend that they be quickly finalized and enforced.

Some observers have raised the possibility that, in response to the proposed regulations, fund managers may introduce clawback provisions into management fee waiver agreements to provide a facade of entrepreneurial risk. Toothless clawbacks would be just additional window dressing. To guard against this gamesmanship, the final regulations should make clear that fee waiver clawbacks must have real economic substance. I recommend that the final regulations explicitly require that, in order for a clawback obligation to be considered, the terms of the fee waiver clawback must oblige individual fund managers to personally guarantee the general partner's fee waiver clawback obligation, just as personal guarantees secure the general partner's carried interest clawback obligations.

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The California Fair Pay Act, authored by California State Senator Hannah-Beth Jackson, passed the state senate unanimously and was signed by Governor Jerry Brown in early October. The Act addresses wage discrimination between men and women and requires employers to justify differences in wages for employees who do similar work, using non-discriminatory qualities. The law strengthens the California Equal Pay Act of 1949 by allowing comparison of “substantially similar” work regardless of titles, and requires that employers have a valid reason (e.g. professional experience, education, seniority) for differences in pay. It also allows for open discussion of salaries in the workplace and protection from an employer’s retaliation. For some, this is the only way wage discrimination can be discovered.

As one might expect, the law has faced resistance from business interests. Sarah Ketterer published a piece in the Wall Street Journal titled “The Wage Gap Myth That Won’t Die.” Apart from boilerplate anti-regulation arguments, Ketterer casts doubt on the very existence of wage discrimination against women. She contends that if one takes into account that women on average work fewer hours per week and tend to work in different, lower paid occupations than men, the “gap” in pay disappears.

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This post was written by Eileen Appelbaum and Rosemary Batt, co-authors of "Private Equity at Work: When Wall Street Manages Main Street." The presentation accompanying this post is available here as a PowerPoint.

Performance of Private Equity Investments of the California Public Employees Retirement System: What are the Issues?

On November 16, the staff and board of CalPERS, the California Public Employees Retirement System, held a review of its investments in public policy. This presentation reviews the major issues the pension fund should consider.

We begin by noting three main points.

First, investments in private equity are riskier and more illiquid than investments in public equities (the stock market). Higher risk can only be justified if the investments result in higher returns than are possible with less risky investments. That is, investments in private equity should have higher returns than stocks — they should beat the market and yield a premium over passive investments in a stock market index by a large enough amount to be worth taking on the extra risk.

Second, private equity (PE) funds performed pretty well in the decade from 1995 to 2005, with the median fund launched in each of those years beating the Russell 3000, a stock market fund made up of companies similar in size to those in private equity portfolios. However, the median fund in every vintage launched in the years after 2005 has failed to beat the market. Investors in half the funds launched after 2005 would have done better investing in an index fund that mimicked the Russell 3000.

Third, CalPERS PE investments haven’t beaten its stock market benchmark in year-to-date, 3-year, 5-year, and 10-year windows. It does beat the stock market index in the 20-year time frame, but this is largely due to the stronger performance of PE funds a decade ago.

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During the 2007–2009 recession, inflation fell significantly. After a brief uptick in prices in late 2011 and early 2012, inflation again subsided. According to all three of the major price indices, inflation remains below the Federal Reserve’s target inflation rate of 2.0 percent, as shown in the figure below[i]:

Annual Inflation Rates, Three Most Common Price Indices

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The following reports on labor market policy were recently released:

Center for American Progress
Wisconsin, Unions, and the Middle Class
Brendan Duke, Alex Rowell

Economic Policy Institute
Looking Beyond the Topline Employment Number: Public-Sector Jobs Remain Depressed
Elise Gould

Center on Budget and Policy Priorities
Policy Basics: How Many Weeks of Unemployment Compensation Are Available?

Institute for Women’s Policy Research

Strong Job Growth in October Lowers Unemployment rate to 5 Percent: Women Gain 158,000 Jobs and Men Gain 113,000 Jobs

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The latest jobs report from the Bureau of Labor Statistics shows that the unemployment rate fell to 5.0 percent last month. This is the same rate as from the beginning of the recession in December 2007, and is also the CBO’s estimate of the long-term natural rate of unemployment.

There’s good reason to think that the unemployment rate is overstating the strength of today’s economy. This is because people only count as unemployed if they have actively searched for work within the past four weeks. If workers become discouraged over their job prospects and stop looking for work, the unemployment rate falls. A better measure of the labor market wouldn’t show the economy gaining strength due to the fact that workers were becoming depressed with their job prospects.

One way of correcting for this problem is to ask what the unemployment rate would be if people hadn’t given up the search for work. Normally, we’d expect people to not be working if they are older and retired or young and in school. However, there’s little reason to think that people aged 25 to 54 should have suddenly stopped searching for work for any reason other than discouragement over job prospects.

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Financial reform in the wake of the severe financial crisis of 2009 has been a significant step in improving financial stability and reducing the likelihood of similar meltdowns in the future. The economy still has not fully recovered; yet misguided efforts to water down recent reforms are already underway. Congressman Jeb Hensarling has proposed an amendment to the Highway Trust Fund bill that would do precisely this. Passage of the amendment would roll back reforms designed to protect the financial system in a context — the highway bill — that does not allow full debate in Congress and fails to provide an opportunity for citizens to make their views heard.

The Dodd-Frank financial reform act has proven its effectiveness in improving transparency and rooting out bad, possibly fraudulent, behavior by financial actors. The provisions of Dodd-Frank that subject larger private equity funds to regulatory oversight have been particularly important in this regard. Private equity fund advisors are lightly regulated in comparison with publicly-traded firms and advisors to mutual and other funds that trade shares of stock. Yet SEC examinations of PE fund advisors have found a shocking number of violations of the advisor-investor relationship, in which the funds were essentially picking the pockets of their investors.

One of the provisions of the Hensarling amendment would have the effect of excluding some of the larger PE funds from SEC oversight. It would allow private equity funds to exclude Small Business Investment Companies (SBICs) from the assets under management when determining whether the fund must register with the SEC. It would thus allow some PE funds that are currently required to register to escape regulatory oversight. In view of recent findings in SEC examinations of private equity fund advisors, this seems like an especially misguided roll back of financial reform.

Attaching amendments to unregulated legislation that weaken the financial system and undermine investor protections sets a dangerous precedent and undermines the democratic process.

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The following reports on labor market policy were recently released:

Center for American Progress
Economic Snapshot: October 2015
Christian E. Weller

Women and Families’ Economic Security in Iowa
Sarah Jane Glynn, Brendan Duke

Economic Policy Institute
Recovery of Hispanic Unemployment Rate Expands to Four More States in Third Quarter of 2015
Valerie Wilson

Wages for Top Earners Soared in 2014: Fly Top 0.1 Percent, Fly
Lawrence Mishel, Will Kimball

Child Care Workers Aren’t Paid Enough to Make Ends Meet
Elise Gould

Institute for Women’s Policy Research
Access to Paid Sick Time in Minneapolis, Minnesota
Jessica Milli

Urban Institute
Training TANF Recipients for Careers in Healthcare: The Experience of the Health Profession Opportunity Grants (HPOG) Program
Alyssa Fountain, Alan Werner, Maureen Sarna, Elizabeth Giardino, Gretchen Locke, Pamela Loprest

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This morning the Bureau of Labor Statistics released its newest jobs figures for the month of October. In the household survey, the unemployment rate fell to 5.0 percent, the lowest rate in over seven years. Perhaps more importantly, the unemployment rate today is now the same as it was at the beginning of the recession in December 2007.

Undoubtedly, this will be cheered as a positive development for the economy, and other things equal, a low unemployment rate is preferable to a high unemployment rate. But, unemployment is only part of the story of a weak labor market. There are other categories of non-employed workers which can be described as follows:

  • Discouraged Workers: Persons who have searched for a job within the past year but not the past four weeks and gave up their search because they were discouraged over their job prospects.

  • Marginally Attached Workers: Persons who have searched for a job within the past year but not the past four weeks. (Discouraged workers are a subset of marginally attached workers.)

  • Persons not in the labor force who would like a job: Persons who haven’t searched for a job within the past four weeks but report to the Bureau of Labor Statistics that they want to be employed.

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Earlier this year, CEPR released a report titled From Recession to Collapse: The Bush Administration and the Over-Valued Dollar. The report shows that the strong value of the dollar during the Clinton-Bush years led to large trade deficits which decreased demand in the economy and resulted in lost jobs.

The economics on this point is pretty simple. A stronger dollar makes imports from other countries cheaper and makes U.S. exports more expensive. So when the dollar strengthens, American producers end up selling less merchandise, leading to job losses in sectors specializing in tradable goods.

However, some media outlets seem to view a strong dollar as a positive. Reporting on the dollar sometimes takes for granted that the term “strong” has a positive meaning and that the term “weak” conversely has a negative meaning.

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The Labor Department reported the economy added 271,000 jobs in October. With slight upward revisions to the prior two months data, this brought the three month average to 187,000. This job growth was sufficient to push the unemployment rate down slightly to 5.0 percent. While the employment to population ratio edged up slightly to 59.3 percent, it is still below the 59.4 percent high for the recovery. The labor force participation rate is actually down 0.4 percentage points from its year-ago level.

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We at CEPR have been asked, “How is the Center for Economic and Policy Research different from the other progressive economic policy think tanks?” and, perhaps more importantly, “Why should anyone fund CEPR when it would be easier to consolidate giving and support one or two larger groups?”

We didn’t need to think long about how to answer these questions. We have consistently been out front of other think tanks and have staked out positions that others in the progressive community came to follow. This has happened on most of the major issues on which CEPR has worked, 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, 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 this — and much, much more — on a budget that is a fraction of that of the major progressive think tanks.

Being smaller than the others allows us to move quickly, which is in large part why we were able to be out front on these and other issues. Our reputation for accuracy is also an invaluable asset. That Dean Baker was one of the only economists to clearly warn of the housing bubble (in 2002) and the disaster that would follow its collapse gives CEPR a degree of credibility that few others can match in debates on macroeconomic policy.

While we may be small, we have an outsized presence in the media. An analysis that calculated the number of media hits per budget dollar for major think tanks showed CEPR again coming out on top in 2012 (we have consistently ranked number one). And our social media reach far surpasses that of other groups. Combined, CEPR’s various twitter accounts have over 50,000 followers, tens of thousands more than our “rivals.” This is important, as more and more people look to social media for a quick digest of the days’ news.

We’re proud of these and other accomplishments. But guess what? Being first doesn’t always get you the prize. There are some institutional funders out there who see CEPR’s small size as a liability rather than an asset. There are others who might support our policy positions, but give to other groups they perceive to be “safer” (i.e., they don’t rock the boat as much as we do). And others just give to the biggest name in the game. Just as income is not closely related to contributions to the economy, foundation giving does not necessarily correspond to performance. That’s not a complaint; it’s just the reality of the funding world. And it’s why we really need you, our individual donors — now more than ever. 

As The Guardian once said, CEPR is the David of the think tank world. We don’t want to be taken over or swallowed up by the Goliaths.  So please help us, especially this coming year. CEPR’s donations often fall off in an election year. Please give what you can, so that we can be assured to be around to hold all of those newly elected officials’ feet to the fire come 2017.

Thanks for your support,

Mark, Dean and CEPR staff

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In October 2009, the unemployment rate peaked at 10.0 percent. That same month, unemployment was 9.2 percent for white Americans and 15.8 percent for black Americans. While unemployment then began falling for whites, the black unemployment rate rose for another five months before it started declining. As of September 2015 the black unemployment rate was 9.2 percent, the same as the white unemployment rate from the peak of the recession.

Much reporting has focused on the fact that unemployment is higher for blacks than for whites. While this is an important point, it actually understates the level of racial inequality in the labor market for a number of reasons. One often overlooked point is that the experience of black unemployment is different than the experience of white unemployment.

This study shows the extent to which racial inequalities persist even amongst the unemployed. By a variety of measures unemployment is likely to be an even worse experience for black Americans than for whites.

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The RushCard is a prepaid debit card marketed to unbanked and underbanked populations — people not usually served by traditional banks and card issuers because they are categorized as high-risk and tend to be poorer. Started in 2003 by Russell Simmons, originally a hip-hop executive, the RushCard has faced criticism since its beginning mainly for charging excessively high fees. Criticism has mounted in recent weeks, as RushCard users reported that they were locked out of their accounts and could not use their cards for transactions, although the cards still allowed users to add money to them. This meant that people, some of whom had their paychecks directly deposited to their RushCards, were unable to access any money on their cards. People living paycheck-to-paycheck were unable to pay for rent or child care, buy food, or pick up medicine.

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