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

This might not be the best time to be alive if you worry about things like racism or climate change, but 2018 is undeniably a great time to run a multinational corporation. Ironically, Facebook’s Mark Zuckerberg helps illustrate why life is great for CEO’s of multinationals, even as the corporate behemoth he founded is experiencing a public relations crisis and a falling stock price.

Why? Because in 2018, basically the only international rules that apply to corporations are those that benefit them.

For years, pragmatic observers of international trade have worked to illuminate the intentionally boringly titled process known as “Investor-State Dispute Settlement,” or ISDS, that is embedded in modern trade deals. ISDS creates extrajudicial panels whereby multinational corporations can seek to invalidate a country’s laws by a shadowy and opaque process.

In other words, under contemporary trade deals, corporations like Facebook have the right to challenge laws or regulations that Facebook doesn’t like in countries where Facebook is not headquartered.

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The percentage of unemployment due to people who voluntarily quit their jobs jumped to 13.1 percent in March, the highest level since May of 2001. This statistic is a good measure of workers' confidence in the labor market, since it means that they are prepared to leave a job even before they have new one lined up. Until this month, the quit rate had been unusually low (mostly under 11.0 percent) given the levels of unemployment we were seeing. The March level is more consistent with an unemployment rate near 4.0 percent.

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Last month, we did an analysis that examined the impact of a provision of the Affordable Care Act limiting the amount of CEO pay that could be deducted from profits to $500,000.

In the years after it took effect, this provision raised the cost of CEO pay to employers (i.e., shareholders) by more than 50 percent. Prior to 2013, shareholders of health insurance companies effectively paid just 65 cents on every dollar of CEO compensation, since their taxes would fall by 35 cents for every dollar they paid out. After 2013, they would be paying 100 cents of every dollar.

If CEO pay bears a close relationship to their value to the company, this change in the tax code should have led to some reduction in their pay. Using a wide variety of specifications, controlling for growth in profits, revenue, stock price, and other relevant factors, we found no evidence that the pay of health insurance CEOs fell at all in response to the limit on deductibility.

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Foxconn Project

In late 2017, Foxconn, the Wisconsin Economic Development Corporation (WEDC), and Wisconsin Governor Scott Walker came to an agreement where Wisconsin will provide almost $4.5 billion in incentives and Foxconn will build a large manufacturing facility in Point Pleasant Wisconsin. Governor Walker has presented this agreement as a win for the people of Wisconsin that will generate billions of dollars of investment and thousands of high paying jobs. The incentives package is among the largest subsidies provided for a foreign based firm.

Foxconn is an electronics manufacturing company based in Taiwan and is associated with serious anti-worker management practices. The incentives package includes $2.85 billion in statewide tax incentives, $764 million in local government incentives, $139 million in state sales tax exemptions, and another $717 million in construction costs and grants. The deal also includes an expedited environmental permitting process and a dedicated liaison at the WEDC. In return, Foxconn must invest at least $9 billion in capital, and employ 10,200 people at an average compensation of $59,600, including benefits. Both Foxconn and Walker claim that overall 13,000 people will be employed and $10 billion will be invested. Foxconn has made similar promises in the past. In 2013 they claimed that they were going to build a $30 million plant and hire 500 people in Harrisburg Pennsylvania. Despite seeking incentives from Pennsylvania and already having a local office, the plant was never built. All said, Foxconn continues to make demands of the Wisconsin government as time progresses.

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The big jump in the price of energy commodities in January was partially reversed in February with a 0.9 percent drop. This brought the overall inflation rate for the month to 0.2 percent, the same as the core rate. Over the last year, the overall CPI has risen by 2.2 percent, while the core rate has risen by 1.8 percent.

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The prime-age (ages 25-54) employment rate rose 0.3 percentage points in February to 79.3 percent, a new high for the recovery. It rose 0.5 percentage points for men and 0.2 percentage points for women.

The employment-to-population ratio (EPOP) for prime-age men now stands 1.2 percentage points above its year-ago level, while the rate for women is 0.7 percentage points above its year-ago level.

This is consistent with the view that there are still many workers who are outside the workforce, but will return in response to a strong labor market. The implication is that there is still considerable slack in the labor market and there is little reason for the Federal Reserve to rush forward with interest rate hikes.

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In his January State of the Union address, President Trump called for $1.5 trillion in infrastructure spending over the next decade. If that amount materialized, it could go a long way toward meeting the nation’s infrastructure needs. But the release on February 12 of his detailed plan for raising and allocating those funds dashed any hope that this administration would address the nation’s acute need for infrastructure investment.

The meagerness of the federal contribution — just $200 billion over ten years, or less than 0.1 percent of GDP over that period — was already clear from the State of the Union. Half of those funds are allocated to an Incentive Program intended to support surface transportation and airports, passenger rail, ports and waterways, flood control, water supply, hydropower, water resources, drinking water facilities, wastewater facilities, storm water facilities, and brownfield and Superfund sites. Just listing everything the President’s plan claims to address for a federal expenditure of just $100 billion makes the inadequacy of the plan obvious. But there’s more.

The Incentive Program requires states and localities to put up 80 percent of the cost of any project in order to get a federal match of 20 percent. This turns the traditional approach to infrastructure investment on its head. The federal government typically provides 80 percent of the funding for such projects. It is wishful thinking to imagine how cash-strapped states and cities — already on the hook for extensive local infrastructure spending — will be able to find new public sources of financing, especially now that the recent Republican-passed tax law has severely limited their ability to raise taxes to pay for such undertakings.

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A 3.0 percent jump in energy prices in January caused the overall Consumer Price Index (CPI) to rise by 0.5 percent in the month. This brought its year–over–year increase to 2.1 percent. However, core inflation remained modest, rising 0.3 percent in the month, with the year–over–year rate at just 1.8 percent.

Even this 1.8 percent rise is overwhelmingly due to the role of shelter. The core index, excluding shelter, has risen by 0.8 percent over the last year. There is no evidence whatsoever of accelerating inflation in the core index outside of shelter. Since the rise in the price of shelter is primarily the result of the limited supply of land in desirable areas, the inflation in this sector is not the result of conventional inflationary dynamics.

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By February 2018, many rich people have stopped paying into Social Security for the year. The essential program, which provides retirement, disability, and survivor benefits to millions every year, only taxes the first $128,400 of a salary (up from $127,200 in 2017). Any wage income above this payroll tax cap is not subject to the tax.

Since the vast majority of people in the United States make less than $128,400 per year, they pay the 6.2 percent payroll tax for the entire year. But those with incomes over the cap pay a lower effective tax rate.

For example, someone with a salary of $50,000 pays into the program for the entire year — up until December 31st — and has a 6.2 percent effective Social Security tax rate. But someone who makes $1,000,000 in 2018 stops paying Social Security taxes on February 16th — and has an effective tax rate of just 0.8 percent. In other words, the burden of Social Security taxes falls more heavily on those who make less money.

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In 2017, the Bureau of Labor Statistics (BLS) reports the black union membership rate to be 12.6 percent, equivalent to 2,210,000 black union members. While the overall union membership rate was unchanged in 2017 in the United States, it actually fell by 0.4 percentage points for black workers, who had a union membership rate of 13 percent in 2016. All else equal, if black union density had not fallen (it increased for white and Hispanic workers), an additional 70,000 black workers would be union members in 2017. This is particularly important for wages because black union members are reported by the BLS to earn $164 more per week than nonunion black workers.

Multiplying this union wage premium by the number of union members lost to the single-year drop in black union density shows a union-density-related wage loss for black workers of more than $597,000,000 in 2017. In contrast, union density for white workers increased by 0.1 percentage points, generating a one-year wage boost of nearly $1,274,000,000 (Figure 1).

Figure 1. Estimated One-Year Wage Effect from Change in Union Density in 2017
Millions of US Dollars


Source: Author’s calculations from Bureau of Labor Statistics' recent union report.

While black union membership fell by 0.4 percentage points in 2017 and 70,000 black workers missed out on the union wage premium, black union membership has fallen by an astounding 19.1 percentage points since 1983. As a result of this long-term trend, millions of black workers have missed out, not only on the wage premium that comes with union membership, but on better access to health and retirement benefits, as described in detail by Cherrie Bucknor in her report ”Black Workers, Unions, and Inequality.”

Policy differences between states offer insight into the divergence in outcomes in 2017 and long-term trends more generally. State policies have a big impact on union density: 6.3 percent of workers are union members in “right-to-work” states (states that prohibit contracts requiring that all workers who benefit from a union contract share in the cost), compared to 15.4 percent in states without the union-weakening rules. And states with lots of black workers have been particularly intense in their assault on unions. Right-to-work laws cover about half of all workers (50.4 percent in 2017), but cover 61 percent of black workers. So, while President Trump has asked someone to inform Jay-Z that his administration has the best policies for black workers, Republicans are putting in place policies that reduce black wages and benefits (both Kentucky and Missouri became right-to-work during 2017).

Beyond lower wages, in a fascinating new National Bureau of Economic Research working paper, James Feigenbaum, Alexander Hertel-Fernandez, and Vanessa Williamson point out one possible explanation for Republicans putting in so much effort to weaken unions in states where a large share of workers are black. The authors find that passing a right-to-work law reduces voter turnout by 2 to 3 percentage points. Cumulatively, right-to-work laws have reduced the Democratic vote share in local, state, and national elections.

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The Bureau of Labor Statistics reported that the black unemployment rate jumped 0.9 percentage points in January to 7.7 percent, putting it just a hair under the 7.8 percent rate of January 2017. This was associated with a 0.6 percentage point drop in the employment rate. Typically, the black unemployment rate is twice the white unemployment rate. However, with the white rate dropping to 3.5 percent, it is now substantially higher.

This is disappointing since the 6.8 percent rate in December was the lowest on record. The increase for men was 0.9 percentage points to 7.5 percent. For women, the increase was 0.8 percentage points to 6.6 percent, and for teens, the rise was 1.4 percentage points to 24.3 percent.

The data for black workers are highly erratic and it is likely that much of this change is driven by measurement error, but it is nonetheless discouraging to see this reported jump.

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President Trump’s call in the State of the Union for paid family and medical leave for workers, coming on the eve of the 25th anniversary of the Family and Medical Leave Act (FMLA), was a high point in his address to the nation. The FMLA provides unpaid leave to eligible workers at companies with 50 or more employees. A large majority of Americans across the political spectrum favor leave with pay for workers who face their own or a family member’s serious health problem, need to care for a departing or returning military service member, or need time to recover from childbirth and bond with a new baby or adopted child. The devil, as always, is in the details, and the President’s address provided no hint of these.

A national paid leave program that is universal, accessible, comprehensive, affordable, and inclusive would bring the US into the 21st century.

But is this what the administration has in mind?

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With tax reform behind him and the repeal of Obamacare off the table for 2018, Donald Trump will focus this year on infrastructure investment. In his State of the Union address, he called for $1.5 trillion in infrastructure spending in the next year. This would go a long way toward meeting the nation’s infrastructure needs, pegged by the American Society of Civil Engineers at $2 trillion. If it materializes, the $1.5 trillion in spending over the next decade will make a meaningful improvement in the nation’s crumbling infrastructure and will create a large number of blue collar jobs. But there is reason to be skeptical. The $200 billion in federal funding — which amounts to just 0.1 percent of cumulative GDP over the period — may be too small a contribution. Cash-strapped states and municipalities may not be able to raise the remaining $1.3 trillion in matching funds to fulfill the President’s pledge.

The President’s address provided no details on the selection of projects or their financing. But there are clues from the administration that suggest what the President has in mind.

Early rhetoric about the administration’s plans to shore up the nation’s deteriorating infrastructure relied on private investors such as private equity (PE) funds to finance Trump’s campaign promise of $1 trillion in spending on infrastructure projects. Devised by campaign advisors Wilbur Ross (PE magnate and now Secretary of Commerce) and Peter Navarro, their proposal was to encourage PE funds and other private investors to put up a sixth of the $1 trillion infrastructure investment and finance the rest with debt. The Ross/Navarro infrastructure plan proposed a tax credit to these investors equal to 82 percent of their equity investment as an incentive. PE firms geared up for this anticipated bonanza. In February 2017, Joe Baratta, global head of PE at Blackstone Group, the largest PE firm in the world, talked about raising an infrastructure fund with as much as $40 billion of equity. Global Infrastructure Partners raised $15.8 billion and Brookfield Asset Management Inc. raised $14 billion for equity investments in public infrastructure.

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Although it's hard to know exactly what President Trump will say in his State of the Union address, it is very likely that he will touch on two topics: the economy and his infrastructure plan. CEPR has two blog posts to address these two issues. Dean Baker sets the record straight in, President Trump Will be Boasting About the Yellen–Obama Economy, and Eileen Appelbaum explains the infrastructure plan in, Trump Infrastructure Plan: What to Expect in the State of the Union.

In addition, Mark Weisbrot will be giving post-speech insights and critiques in a live stream on Al Jazeera English. Follow CEPR on Twitter for real-time facts and insights @ceprdc.

The State of the Union airs tonight, January 30, at 9:00 PM Eastern time.

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With tax reform behind him and the repeal of Obamacare off the table for 2018, Donald Trump is expected to focus this year on his plan for infrastructure investment.

Early rhetoric about the administration’s plans to shore up the nation’s deteriorating infrastructure relied on private investors such as private equity (PE) funds to finance Trump’s promised $1 trillion spending on infrastructure projects. Devised by campaign advisors Wilbur Ross (PE magnate and now Secretary of Commerce) and Peter Navarro, their proposal was to encourage PE funds and other private investors to put up a sixth of the $1 trillion infrastructure investment and finance the rest with debt. The Ross/Navarro infrastructure plan proposed a tax credit to these investors equal to 82 percent of their equity investment as an incentive. PE firms geared up for this anticipated bonanza. In February 2017, Joe Baratta, global head of PE at Blackstone Group, the largest PE firm in the world, talked about raising an infrastructure fund with as much as $40 billion of equity. Global Infrastructure Partners raised $15.8 billion and Brookfield Asset Management Inc. raised $14 billion for equity investments in public infrastructure.

The administration’s infrastructure plan has changed in important ways since the days of the presidential campaign. The plan to be announced in the State of the Union is expected to include a substantial role for private investors, including PE funds — but a smaller and less central role than in the plan circulated during the Trump campaign.

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It is virtually certain that Donald Trump will devote much of his State of the Union Address to boasting about the economy. And there is something to boast about there: the economy is looking better by most measures than it has since 2001. However, he has had almost nothing to do with the economy’s performance to date. What we have seen in the last year is a continuation of trends that were in place for the prior six years.

To take a few examples, we created an average of 171,000 jobs a month in 2017. That is down from 187,000 a month in 2016, and 226,000 a month in 2015. This brought the unemployment rate down to 4.1 percent at the end of 2017, compared to 4.7 percent at the end of 2016. The unemployment rate has been on a consistent downward path since it was at 9.8 percent in November of 2010 (roughly a drop of 0.8 percentage points a year), so the decline in 2017 is not any kind of break from the prior pattern.

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The Revolving Door Project, with the support of a host of organizations interested in promoting good government (listed below), has for several months been shining a light on the importance of the IRS being run by either a Senate confirmed head or a career staffer. This effort has included sending letters to key congressional committees, the Treasury Department, and Inspectors General in September and December.

Politico reported Tuesday that the Trump Administration has finally identified an IRS Commissioner to replace John Koskinen, who departed at the end of his term two and a half months ago. While it is far too soon to say if Charles Rettig is a good choice, it has been clear since David Kautter's second job was announced that it is deeply inappropriate for a political appointee like Kautter to serve both as Assistant Secretary for Tax Policy as well as Acting Commissioner of the IRS.

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The continued strong pace of job growth pushed down the unemployment rate for African Americans to 6.8 percent, the lowest figure since these data began being collected in 1972. By comparison, the African American rate bottomed out at 7.0 percent in April of 2000.

This is yet another example of how a low unemployment rate disproportionately benefits the most disadvantaged segments of society. The overall unemployment rate was unchanged at 4.1 percent, the lowest rate since 2000.

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ICYMI, the new GOP tax law has a provision specifically designed to punish Democratic-leaning states with relatively high taxes that reflect that state’s commitment to providing better social services to low- and moderate-income people. California and New York are the two most prominent states targeted for this tax punishment. Both states are intrigued by CEPR’s hack, championed by senior economist Dean Baker, as a way to thumb their collective noses at the trifling GOP tax antics.

20180108 UPDATE employer side twitter

Baker published a simple hack in the New York Daily News that New York and other states could enact to do an end-run around the GOP’s petty misuse of the tax law; it’s the employer-side payroll tax. It has also sparked the imagination of the press and Blue state leaders still smarting from the GOP using their states as target practice. Click on any of these links for a full explanation of Baker’s hack.

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While inflation-adjusted house prices are still far below bubble peaks nationwide, they have been outpacing inflation for the last five years and are well above their long-term trend levels. However, these prices may be justified by unusually low-interest rates (both real and nominal) in the years following the Great Recession. Also, unlike the bubble period, rents have been outpacing inflation in most markets, suggesting that house prices are responding to the fundamentals of supply and demand in the housing market rather than being driven by a speculative frenzy.

Nonetheless, there are sharp divergences in trends by geographic market area. The Case-Shiller tiered house prices index has been showing the sharpest increases in the bottom third of the market in most of the cities it covers. This raises the possibility that at least this segment of the market may be driven by speculation rather than fundamentals.

In a paper in the fall of 2016, CEPR examined the evidence in some of these cities to see if rents appeared to be following in step with house prices in the bottom tier of the Case-Shiller indices (CSI). As a measure of rents, we used the Department of Housing and Urban Development’s estimate of the fair market rent (FMR) for a two-bedroom apartment. This measure is somewhat different in construction from the Case-Shiller indices. It is not measuring the rent changes for a fixed set of units, but looks at average rents for different units year-by-year. Nonetheless, it should give a reasonable approximation of trends in the segment of the rental market that most directly competes with the bottom third of the home sale market.

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Of all the provisions maintained within the Tax Cuts and Job Act that just passed, among the most devastating is the repeal of the individual mandate in the Affordable Care Act. According to estimates by the Congressional Budget Office, 4 million additional people will be uninsured within a year with a total of 13 million additional people uninsured by 2025.

baker zessoules mandate 2017 12 1

Repealing the individual mandate means that people will have the option to opt-out of the health insurance pool, increasing premiums for those that remain within the pool. It is safe to guess that those who would choose to opt-out would be those who are healthier. Needless to say, the repeal of the individual mandate will affect those that are poorer; those from low-income families and people of color.

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