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

The following reports on labor market policy were recently released:


Center for American Progress

To Fight Inequality, Support Women’s Work
Judith Warner

State Paid Leave Administration
Sarah Jane Glynn


Economic Policy Institute

Disability and Employment Revisited
Monique Morrissey


National Employment Law Project

Ban the Box: U.S. Cities, Counties, and States Adopt Fair Hiring Policies
Michelle Natividad Rodriguez, Nayantara Mehta

Fair Chance Hiring Best Practice: Delaying Inquires Until Conditional Offer
Michelle Natividad Rodriguez, Nayantara Mehta


Urban Institute

Negative Returns: How State Pensions Shortchange Teachers
Chad Alderman, Richard W. Johnson

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Dear readers,

By now you have probably heard of Martin Shkreli, the former hedge fund manager turned drug company CEO who raised the price of the prescription drug Daraprim from $13.50 per pill to $750.

While he has recently backpedaled and said that he would back off the huge price hike, the story highlighted the issue of the high cost of prescription drugs in this country. There is growing consensus that something needs to be done to prevent this and other forms of price gouging from happening in the future. But what? And how?

Martin Shkreli

 

Fortunately CEPR has the answer. CEPR Co-director Dean Baker has been writing on this issue for years. Dean has repeatedly called for public financing of drug trials and he has repeatedly shown that patent protection for pharmaceutical companies has contributed to growing economic inequality.

Patent monopolies can allow drug companies to charge prices that are 100 times or more the free market price. The Hepatitis-C drug Sovaldi sells in the United States for $84,000. The generic version is available in India for less than $1,000. State Medicaid programs can pay to send patients to India, along with one or more family members, and still have tens of thousands of savings that can be shared with beneficiaries. (Dean Baker)

Just this past week, he was in the New York Times’ Room for Debate with a piece titled “End Patent Monopolies on Drugs.” He also penned an op-ed that asked “Will President Obama Stand Up to the Drug Thugs?” As Dean points out over and over, the problem is government policy that redistributes wealth upwards, not simply the “free market” at work.

We are writing to ask you to contribute to CEPR so that we can continue to produce research and analysis that provides real policy solutions to issues like run-away prescription drug prices. As the tale of the former hedge fund manager/CEO shows, the people on the “other side” — those who reap enormous profits from prescription patents or who simply jack up the price of existing drugs because they can (we know Daraprim was off patent) — are the same people who shower lawmakers with contributions and keep the media coffers filled with advertising revenue. Meanwhile, non-profit groups like CEPR struggle to meet increasing expenses, relying only on foundation grants and donations from people like you to fund our entire operation.

Please click here and donate today. We are facing an uphill battle. But it is one worth fighting, and we need your help to continue the fight.

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Thanks for your support,

Dean, Mark, and CEPR staff

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Various news outlets have been reporting on the case of Farid Fata, the former hematologist and oncologist who has been sentenced to 45 years in prison after being found guilty of Medicare fraud. In many ways, the term “Medicare fraud” understates the severity of Fata’s misconduct: over the course of six years, Fata reportedly over-treated a number of his patients in ways that were harmful to their health, all for the sake of personal gain. In total, 553 of Fata’s patients received $35 million in needless chemotherapy. Some of the patients had cancer and were terminally ill; in these cases, Fata prolonged their misery with unnecessary chemo. Many were forced into bankruptcy to pay for this treatment. In other instances, Fata lied to perfectly healthy, cancer-free patients, telling them that they had cancer and needed chemotherapy. The results for many of his patients were disturbing (from Newsweek):

Fata also bamboozled patients into receiving additional doses of the immunosuppressive drug rituximab even after they were successfully treated for their lymphoma — in some instances, for as long as three years. By the time Fata was arrested, their immune systems had been permanently devastated. Others were left with decaying jaws and never-ending bouts of intense pain by the bone cancer–fighting drug Zometa.

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The following reports on labor market policy were recently released:


Economic Policy Institute

Wrong Question Answered Badly: Industry Data Can’t be used to Infer Individuals’ Productivity
Josh Bivens, Lawrence Mishel

Poverty Day Numbers Show the Need for Higher Wages
David Cooper

Income Stagnation in 2014 Shows the Economy is not Working for Most Families
Lawrence Mishel, Alyssa Davis


Center for Economic and Policy Research

The Fed’s Decision to Hold is a Victory for Workers
Dean Baker


National Employment Law Project

Ain’t No Sunshine: Fewer than One in Eight Unemployed Workers in Florida is Receiving Unemployment Insurance
George Wentworth, Claire McKenna


Institute for Women’s Policy Research

The Gender Wage Gap: 2014
Ariane Hegewisch, Heidi Hartmann


Center on Wage and Employment Dynamics

Contra Costa Country’s Proposed Minimum Wage Law: A Prospective Impact Study
Ken Jacobs, Annette Bernhardt, Ian Perry, Michael Reich


Center on Wisconsin Strategy

Putting Families First in Wisconsin: Analyzing Paid Leave Insurance Program
Laura Dresser, Chris Reynolds

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The following reports on labor market policy were recently released:


Economic Policy Institute

H-2B Wage Rule Loophole Lets Employers Exploit Migrant Workers
Daniel Costa

New Census Data Show No Progress in Closing Stubborn Racial Income Gaps
Valerie Wilson

The WAGE Act Will Help Strengthen Worker Protections, Raise Wages, and Improve Working Conditions
Ross Eisenbrey


National Women’s Law Center

Chart Book: The Women in the Low-Wage Workforce May Not Be Who You Think
Anne Morrison, Katherine Gallagher Robbins


Institute for Women’s Policy Research

Women Gain 107,000 Jobs in August and Men Gain 66,000 Jobs
IWPR

Access to Paid Sick Time in Prince George’s County, Maryland
Jessica Milli, Daria Ulybina

The Gender Wage Gap: 2014
Ariane Hegewisch, Heidi Hartmann


CLASP

Volatile Job Schedules and Access to Public Benefits
Liz Ben-Ishai

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Michael Hiltzik at the Los Angeles Times recently reported on the much-talked-about shortage of STEM workers, or workers in fields that predominantly deal with science, technology, engineering, and mathematics (STEM). He notes that many studies indicate that the shortage of STEM workers is imagined. He also discovered that many of the companies that complain about their inability to find STEM workers are, paradoxically, laying off large numbers of them.

It is difficult to believe that there is a shortage of these workers when there is a substantial amount of slack in the labor market. More than seven years after the start of the Great Recession, the employment-to-population ratio, or employment rate, is still down 2.5 percentage points for prime-age (25 to 54) workers.

Like other supposed labor shortages, if there were a real shortage, wages would be expected to grow. This is because employers would compete over a small number of workers, and they would need to raise wages to attract those workers.

The Bureau of Labor Statistics Occupational Employment Statistics program tracks the average wage of STEM occupations dividing them into four subdomains. These consist of a Health subdomain, a Social Science subdomain, an Architecture subdomain, and a Life and Physical Science, Engineering, Mathematics, and Information Technology subdomain (this last subdomain is where most technology workers would fall). The chart below shows the year-over-year nominal wage growth for the occupations in those four subdomains.

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It’s not news that the federal minimum wage in the United States is far below that of other rich countries. The Economist provided a new perspective on this by creating a nice chart that showed the minimum wage at exchange rate values versus GDP per capita at purchasing-power parity (PPP) of select countries. There is a strong trend upwards as GDP per capita increases, meaning that richer countries tend to have higher minimum wages.

The U.S. is a notable outlier in the chart, with the federal minimum wage of $7.25 an hour much lower than the trend would predict for a country as rich as the U.S. Indeed, many U.S. states have higher minimum wages, and the chart shows that these wages, while higher, follow a slower upward trend.

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A little over a month ago, while giving testimony before the U.S. House of Representatives, Federal Reserve (Fed) Chair Janet Yellen weighed in on whether or not monetary policy can be used to fight racial inequality in the economy:

“So, there really isn’t anything directly that the Federal Reserve can do to affect the structure of unemployment across groups, and unfortunately, it’s long been the case that African-American unemployment rates tend to be higher than those of on average among—in the nation as a whole. It reflects a number of different sources of disadvantage that are operative there.”

It’s true that many aspects of the racial divide in employment aren’t affected by monetary policy. The Fed can’t eradicate discriminatory hiring practices, racial inequality in the criminal justice system, or disparities in the quality of public schools. Nonetheless, it’s clear that the Fed can play at least some role in helping to create a more equal society.

The Federal Reserve has a dual mandate to pursue maximum employment and stable inflation. If the Fed were to raise interest rates—as some commentators are urging—it would have the effect of destroying jobs (and increasing the debt) for the sake of lowering inflation. This is despite the fact that inflation has been running below the Fed’s 2.0 percent annual target and is actually falling.

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There is considerable research showing that unions benefit the workers who join them, and this is especially so for lower paid workers, African Americans, immigrants, and women. Workers represented by unions get higher wages, and are also more likely to enjoy benefits like paid sick days, paid holidays, and paid vacation than their non-union counterparts.

Data from the Bureau of Labor Statistics show that 85 percent of unionized workers have access to paid sick leave, while only 62 percent of non-union workers have access. Unionized workers also have greater access to paid holidays (80 percent) compared to non-union workers (74 percent). The data show no gap in the percentage who enjoy paid vacation, but this is likely brought down by the large number of unionized teachers, who have school breaks but not discretionary paid vacation.

In addition to the benefits they win for their members, unions have taken the lead in promoting laws that benefit workers more generally. A notable item in this long history of advocating for all workers is the passage of the Fair Labor Standards Act (FLSA) in 1938. The FLSA made the forty-hour work week the law for most workers across the country. Workers who put in overtime were also entitled to a premium of at least 50 percent above their base pay. The FLSA also established the federal minimum wage.

These days, unions continue to fight for policies that benefit all workers. This is very clear looking at the adoption of laws guaranteeing paid sick leave. The United States is the only rich country in the world that does not guarantee paid sick leave on a national level. But in smaller jurisdictions where unions are well-represented there has been significant progress towards requiring employers to provide them. The same trend is evident with respect to paid family leave—leave for to provide care for family members or arrangements for their welfare—and for laws that raise the minimum wage above the federal minimum wage of $7.25.

The three graphics below show the laws across the country that guarantee paid sick leave and paid family leave, and the laws that mandate a minimum wage higher than the federal level by $0.50 or more. State-level jurisdictions are divided by color in three roughly equal groups based on the percent of workers in that jurisdiction who are represented by unions. (Click on the graphics for an interactive version. Clicking on the jurisdictions provides detailed information about the laws.)

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The union membership rate tracks the percentage of all workers who are members of a union. In 1955, the membership rate peaked at 35 percent. Union membership remained strong until the late 1960s. In 1970, the membership rate stood at 29.1 percent. Since then it has fallen steadily. The most recent data from the Bureau of Labor Statistics shows a nationwide membership rate of 11.1 percent. There have been a number of negative impacts that correlate with the decline in union density. One of the clearest is an increase in income inequality.

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The Wall Street Journal reported last Friday that private equity “firms’ stakes in a dozen publicly traded energy exploration-and-production companies have lost more than $18 billion in value since last summer, when oil prices began their slide from more than $100 a barrel.” These losses are just the tip of the iceberg. In addition to money-losing investments in publicly-traded companies, private equity funds sponsored by these PE firms have lost money on the privately held energy companies in their portfolios.

Now some of these funds are doubling down on their bets on the energy sector betting on the direction energy prices are likely to go. PE funds have raised hundreds of billions of dollars to make new energy investments—about $150 billion in 2013–2015 alone as the figure below shows—and they need to invest all that dry powder.

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The Labor Department reported that the economy added 173,000 jobs in August, somewhat less than most predictions. However, the prior two months' numbers were revised upward by 44,000, bringing the average gain over the last three months to 221,000. The big job gainers in August were health care with 40,500 jobs, restaurants with a gain of 26,100 jobs and the government sector with an increase of 33,000. Almost all of the gains in government employment (31,700) were in state and local education. This reflects a timing issue with many schools starting earlier than normal. These jobs will likely disappear in next month's report.

The unemployment rate dropped to 5.1 percent, as employment increased by 196,000. However the employment-to-population ratio was little changed at 59.4 percent. Other news in the household survey was mixed. The percentage of unemployment due to people voluntarily quitting their jobs fell slightly from 10.2 percent to 9.8 percent. This is extraordinarily low given the relatively low rate of unemployment. All the duration measures of unemployment increased in August, with the share of long-term unemployed rising from 26.9 percent to 27.7 percent, the second consecutive increase.

The average hourly wage rose by 8 cents in August. It has risen at a 1.9 percent annual rate in the last three months compared with the prior three months, down slightly from its 2.2 percent rate over the last year. There clearly is no evidence of accelerating wage growth in this report.

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The Labor Department’s decision to raise the threshold under which salaried workers are automatically eligible for overtime is long overdue. The failure to have this threshold at least keep pace with inflation has both led to many workers being wrongly denied protection under the Fair Labor Standards Act (FLSA) and created an invitation for employers to game the law.

First, it should be understood that the proposed $50,440 threshold is just keeping in line with inflation since 1975. Arguably the threshold should have risen in step with productivity growth, since average wages have risen mostly in step with productivity over the last four decades. (Median wages have not kept pace with productivity, which is a problem this rule change may help to correct.) If the overtime threshold had been adjusted in step with productivity growth over this period it would be almost $100,000 in 2016. There is no reason to believe that the 1975 threshold was seriously impeding business decisions at the time. Given the doubling of productivity over the last four decades, there would be even less reason to believe the $50,440 threshold would impede businesses operating in 2016.

The second point is that the failure to adjust the threshold leaves workers open to employers that decide to effectively flout the law. The FLSA was put in place to ensure workers would receive minimally fair treatment in both the wages they are paid and the hours they have to work. The minimum wage sets a pay floor below which workers should not have to work. The hours standard imposes a penalty on employers for requiring workers to put in unusually long hours, and compensates workers for this imposition.

With the current threshold of less than $24,000, employers are able to classify even very low-paid salary workers as supervisory and then require them to work 60, 70, or even 80 hours per week. In such cases, salaried workers may not only be deprived of the overtime premium to which they should be entitled, but they also are not getting paid at all for their additional hours of work. In extreme cases this could result in workers earning less than the minimum wage. For example, a worker earning a salary of $24,000 a year would be earning just $6.85 an hour if their employer typically demanded they work 70 hours a week.

Allowing for this evasion of the minimum wage is clearly inconsistent with the intent of the FLSA. It makes no sense to impose a minimum wage standard, but then allow a substantial segment of the workforce to be effectively excluded from its protection because they are salaried employees. This is the situation that exists with the current outdated threshold.

The current low threshold also encourages the sort of gaming by employers that economists all recognize as wasteful. It effectively tells employers that they can avoid paying overtime premiums to workers, and possibly even paying the minimum wage, if they pay their workers weekly salaries and classify them as supervisory employees. Laws should never be written so that those who which to avoid them need only find a simple legal subterfuge. The distinction between hourly and salaried employees should be made based on the nature of the work involved, not the fact that the latter payment structure makes it possible for employers to avoid the requirements of the FLSA.

This raises a final point. Clearly enforcement is a major problem with the hours standard, since the assumption in raising the threshold is that workers earning less than $4,000 a month are not in a meaningful sense supervisory. The employers who do not currently pay overtime to salaried workers in the band between the old and the new threshold ($23,660 to $50,440) are all claiming that these workers have major supervisory responsibilities. In principle this can be evaluated on an individual basis with the Labor Department making a determination as to whether this claim is warranted. As a practical matter, this imposes an enormous enforcement problem which would require inspectors to visit millions of workplaces and make detailed assessments of the job responsibilities of individual workers. This would require several orders of magnitude more inspectors than the Wage and Hours Division currently has at its disposal.

Changing this rule makes the enforcement issue much easier. The question is simply whether a worker earning less than the new threshold was paid an overtime premium whenever they worked more than 40 hours a week. At this level of simplicity the FSLA overtime rules becomes far more enforceable.

For these reasons the Labor Department should undertake this long overdue modernization. It would clearly keep with the intent of the law and make a big difference in the lives of tens of millions of working people and their families.

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The following reports on labor market policy were recently released:


Center for American Progress

How Overtime Rules Would Benefit Millennials     
Sunny Frothingham


Economic Policy Institute

More of the Same in the July State Jobs Report
David Cooper

How the Economy Has Performed for Workers this Year
EPI


Center for Economic and Policy Research

Young Black America Part Four: The Wrong Way to Close the Gender Wage Gap
Cherrie Bucknor


Institute for Women’s Policy Research

The Union Advantage for Women
Julie Anderson, Ariane Hegewisch, Jeff Hayes

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The stock market hovered at or near record highs throughout 2014, leading to high valuations for private equity-owned portfolio companies since prices for these companies are typically benchmarked to comparable publicly traded firms. With companies fetching high prices in this sellers’ market, PE funds were busy—in the words of Apollo chief Leon Black—selling everything that wasn’t nailed down. The result, according to PitchBook’s Benchmarking + Fund Performance report released yesterday, is that private equity funds returned a whopping $232.5 billion to pension funds and other limited partner investors last year.

According to PitchBook, private equity fundraising was highly successful in the first half of 2015 as investors counted up their winnings and recycled these gains into new PE funds. Unlike Donald Duck’s Uncle Scrooge sitting in his house counting up his money, however, pension funds and other private equity LPs are supposed to be sophisticated investors able to compare the returns from investing in private equity to other, less risky investment strategies. So, how do returns from investments in private equity compare with similar investments in the Russell 3000 stock market index? PitchBook conveniently provides that information as well.

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Women—and black women in particular—have seen significant improvements in high school completion rates since the turn of the century, almost cutting in half the black-white gap for women during that time, as I shared last month. But has that meant an increase in college entry and completion—especially since a college degree should demand higher wages in the labor market?

The second report in my Young Black America series of reports examined just that. I found that young black women and men are entering and completing college at higher levels than in the past. Yet, these gains haven’t been enough to noticeably close the gap between them and their white counterparts. From 1980 to 2013, women had higher college entry rates than men, with white women having the highest entry rates of all (see Figure 1). In 1980, 46.9 percent of 19-year-old white women had entered college (including community college). The college entry rate for white men was 41.0 percent and the rate for black women was 40.0 percent. Black men had the lowest entry rate of 25.9 percent, 14.1 percentage points lower than that of black women.

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The Federal Reserve Bank of Kansas City is now hosting its annual meeting of central bankers in Jackson Hole, Wyoming. The topic of the meeting’s symposium this year is “Inflation Dynamics and Monetary Policy,” addressing the inflation side of the Fed’s dual mandate to maintain high levels of employment and keep inflation low.

The Fed has recently been signaling that it may raise the federal funds interest rate, or the rate financial institutions use to lend to each other. This rate has been close to zero since the beginning of the Great Recession (the 20072009 recession) in order to encourage the expansion of the economy. Raising this rate slows down the economy because rates for mortgages and car loans, for example, tend to follow this short-term interest rate. This will reduce inflationary pressure but will also cost jobs and weaken the labor market.

While the official unemployment rate of 5.3 percent seems reasonably low, there is reason to believe this measure understates the weakness of the labor market. This is because workers left the labor force during and after the end of the Great Recession. The exit of these workers counterintuitively causes the unemployment rate to decline. But other measures of the labor market, like the employment-to-population (EPOP) ratio, is evidence that the labor market is persistently weak. In fact, the EPOP ratio for prime-age workers (workers aged 25 to 54) was still down by 2.6 percentage points since the beginning of the recession in 2007.

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The following reports on labor market policy were recently released:


Economic Policy Institute

Congress Must Act to Save the 190,000 to 640,000 U.S. Jobs at Risk Due to Chinese Currency Devaluation
Robert E. Scott


National Employment Law Project

Advancing a Federal Fair Chance Hiring Agenda: Local & State Reforms Pave the Way for Presidential Action
Maurice Emsellem, Michelle Natividad Rodriguez

The Case for Reforming Federal Overtime Rules: Stories from America’s Middle Class
Judith M. Conti

The Growing Movement for $15
Irene Tung, Paul K. Sonn, Yannet Lathrop


UCLA Institute for Research on Labor and Employment

The ‘Raise the Wage’ Coalition in Los Angeles: Framing Opportunity Against Corporate Power
Fernando Cortes Chirino


Center on Wage and Employment Dynamics

Estimated Impact of a Proposed Minimum Wage Law for Sacramento
Michael Reich, Annette Bernhardt, Ian Perry, Ken Jacobs


Center on Wisconsin Strategy

Meager Recovery in the Number of Jobs in Wisconsin
Center on Wisconsin Strategy

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Kevin Drum at Mother Jones took the Washington Post to task for their recent article on the supposed labor shortage for restaurant cooks. The article explains the shortage by citing rising housing costs and long commutes, poor working conditions, large student loan burdens, and a lack of career prospects. It says that these factors make restaurant jobs undesirable, especially for cooks.

Drum points out that the obvious solution to this problem is raising wages, and that the article never mentions it as a possibility. He says that “[m]aybe there are plenty of good entry-level cooks available” at a wage of $15 an hour instead of a wage of $10 to $12 an hour that the article cites. Drum is right that a higher wage would attract more applicants for these positions. They would also attract cooks and workers in other food service occupations back to the restaurant industry. This would mean that the “shortage” of cooks is probably not a real shortage after all.

Luckily, industry data can be used to look for evidence of wage growth. If there were a shortage, the data would show healthy wage growth. This is because employers would be competing over a smaller pool of workers, and they would use higher wages to attract those workers. If there is low or moderate wage growth, it’s likely that there is no real shortage.

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The following reports on labor market policy were recently released:


Economic Policy Institute

Manufacturing Job Loss: Trade, Not Productivity, Is the Culprit
Robert E. Scott

(In)dependent Contractor Misclassification
Francoise Carre


Institute for Women’s Policy and Research

How the New Overtime Rule Will Help Women & Families
Heidi Hartman, Kristin Rowe-Finkbeiner, Hero Ashman, Jeffrey Hayes, Hailey Nguyen

Women Gain 115,000 Jobs in July and Men Gain 100,000 Jobs
Institute for Women’s Policy Research (August 2015)


CLASP

Out of Sync: How Unemployment Insurance Rules Fail Workers with Volatile Job Schedules
Liz Ben-Ishai, Rick McHugh & Claire McKenna


Urban Institute

Recent Evidence on the ACA and Employment: Has the ACA Been a Job Killer
Bowen Garrett, Robert Kaestner


Center on Wisconsin Strategy

A District That Works: Policies to Promote Equity and Job Quality in our Nation’s Capital
Satya Rhodes-Conway, Peter Bailon, Sam Munger, Chris Reynolds

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