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

Earlier this morning, the Bureau of Labor Statistics (BLS) released the January 2016 results from the Job Openings and Labor Turnover Survey (JOLTS). In its summary of the newest JOLTS data, the BLS notes: “Job openings remain at historically high levels, rising to 5.5 million (+260,000) in January.” In fact, the 5.5 million openings is the third-highest level since the inception of JOLTS in December 2000.

A greater number of job openings means that more employers are looking to hire. And if employers are competing to hire workers, they will have to bid up wages to attract workers to their firms. So other things equal, a higher number of vacancies should benefit workers by pushing up wages.

However, what remains salient from a wage-setting perspective is not the number of job openings per se but rather the ratio of job openings to unemployed workers. If more job openings force employers to compete for workers and bid wages up, unemployment has the opposite effect: it forces prospective workers to compete for jobs and thus pushes wages down. Think of it this way: unemployed workers are desperate for jobs and will work at even very low wages, because any wage is an improvement over unemployment. When unemployment is high, employers need not bid up wages to attract workers to their firms, since the unemployed are desperate to work anyways.

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The Federal Reserve Board’s Open Market Committee (FOMC) voted not to raise interest rates at today’s meeting, but their statement indicates that they are still very much looking toward further rate hikes this year. It is difficult to see reason for this urgency.

The justification for raising rates is to prevent inflation from getting out of control, but inflation has been running well below the Fed’s 2.0 percent target for years. Furthermore, since the 2.0 percent target is an average inflation rate, the Fed should be prepared to tolerate several years in which the inflation rate is somewhat above 2.0 percent. In fact, since wages badly lagged productivity growth during the recession, the Fed should be prepared to allow for a period in which real wage growth slightly outpaces productivity growth in order to restore the pre-recession split between labor and capital. If preemptive steps are taken by the Fed in the near future that prevent workers from regaining their share of national income, that implies the use of the Fed’s power to make permanent the shift from wages to profits that took place in the recession.    

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Recent CPI data could give the impression that overall inflation is being held down by falling energy prices. While energy prices have fallen by 12.5 percent over the last year, the core inflation rate, which excludes food and energy prices, has risen by 2.3 percent. (The Federal Reserve Board actually targets the core Personal Consumption Expenditure Deflator, which has increased by 1.7 percent over the last year.)

However, it turns out that much of the inflation in the core index is driven by the shelter component as rents have been rising at more than a 3.0 percent annual rate. Excluding the shelter component, the core index is rising at just a 1.5 percent rate. While there has been some increase in this non-shelter core index in recent months, that was also true in 2001, when the economy and labor market were still quite weak by any measure.

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It’s presidential primary season!  That time every four years when the media focuses on all of the important policy issues facing our county with thorough, unbiased, factual analysis of all of the candidates’ proposals…

OK, we know that’s wishful thinking, especially this campaign season when the debate is about the size of the candidates’ “hands” rather than the size of workers’ paychecks. But on those occasions when the talk does turn to economic policy, CEPR is there - providing research and analysis that is truly fact-based and non-partisan.  

And we need your help to continue to inject some economic sanity into the news spin cycle this year.

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baker buffie unemployment budget 2016 03 14

The graph above shows the impact on the deficit of sustaining a 4.0 percent unemployment rate over the next decade, alongside projected spending on TANF, and SNAP. A 4.0 percent unemployment rate is 0.9 percentage points below the 4.9 percent average rate of unemployment projected by the Congressional Budget Office over the next decade.

The economy sustained a 4.0 percent unemployment rate as a year-round average in 2000, with the rate falling as low as 3.8 percent over the course of the year. Contrary to the predictions of most economists, there was no notable uptick in the rate of inflation despite this low unemployment rate. While we cannot know for certain the lowest unemployment rate the economy could sustain without leading to inflation, most economists had badly overstated this rate in the 1990s. There is reason to believe, most notably due to the aging of the labor force (older workers have lower unemployment rates), that the economy might be able to sustain a lower unemployment rate today than it did two decades ago.

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This is the first in a series of profiles of the members of the Federal Reserve Board’s Open Market Committee [FOMC]. The profiles will focus on their writings, public statements, and voting records as members of the FOMC.

Esther George has been one of the more hawkish members of the FOMC since becoming President of the Federal Reserve Bank of Kansas City in October of 2011. She first became a voting member of the FOMC in 2013. In her first seven meetings, she dissented from the majority each time and argued that the Fed should move to more restrictive monetary policy. (The statements on the dissents, from the Fed’s minutes, are at the end of this post.)  In six of the seven cases, she was the lone dissenter.

In 2014 and 2015 she continued to argue for tighter monetary policy in her public speeches. For example, in the summer of 2014 she argued that keeping the federal funds rate near zero could be signaling excessive pessimism and therefore have a negative effect on the economy:[1]

“And by keeping rates unusually low, policymakers may signal pessimism that the economy is not strong enough to begin moving to a more normal rate environment.”
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The following reports on labor market policy were recently released:

Institute for Research on Labor and Employment

The Effects of a $15 Minimum Wage in NewYork State
Michael Reich, Sylvia Allegretto, Ken Jacobs, Claire Montialoux

Current Challenges to Workers and Unions in Brazil
Roberto Véras de Oliveira

Center on Budget and Policy Priorities

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

Chart Book: The Legacy of the Great Recession
Center on Budget and Policy Priorities

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Earlier this morning, the Bureau of Labor Statistics released its February jobs report. The February data are being well-received, with CEPR and other outlets highlighting the fact that workers finally seem to be moving back into the labor force.

One easy way to see this is by looking at the share of unemployed workers classified as “reentrants to the labor market.” Reentrants are people who have held a job at some point in the past and recently began searching for work after a period of non-employment.

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In 2015, the unemployment rate for black Americans aged 25 and older was 7.8 percent. For white Americans, it was just 3.8 percent. This large gap in unemployment rates persists even when controlling for educational attainment.

Figure 1 shows the average 2015 unemployment rates by race and educational attainment. The black unemployment rate is considerably higher than the white rate within each educational group.

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The Labor Department reported a sharp increase in the number of people entering the labor force in February and finding jobs, pushing the employment-to-population ratio (EPOP) to 59.8 percent, the highest rate in the recovery. This is 0.5 percentage points above the year-ago level, with all the increase coming since October. The recent rise in the EPOP suggests that many of the people who had left the labor force during the downturn are now coming back. However, the EPOP is still down by more than three full percentage points from the pre-recession level with most of the drop-off among prime age workers.

The establishment survey showed the economy creating 242,000 new jobs, with the gains broadly spread across sectors. Apparently the snow storms that hit the East Coast in early February did not markedly affect employment growth. Upward revisions to the prior two months data brought average growth over the last three months to 228,000.

Not all the news in the establishment survey was positive. The average workweek reportedly fell by 0.2 hours leading to a decline in the index of aggregate weekly hours, in spite of the increase in employment. The average hourly wage also reportedly fell by 3 cents in February. The reported decline is most likely a reporting error, but still the average hourly wage has only increased at a 2.0 percent annual rate comparing the last three months to the prior three months. There is certainly no case of accelerating wage growth in these data.

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During the 2016 campaign, a number of presidential candidates have proposed raising the retirement age to 70. Others want to raise the retirement age a bit less, and some don’t favor raising it at all.

When candidates talk about “raising the retirement age,” what they are referring to is the Social Security Full Retirement Age (SSFRA). This is the age at which retirees can begin receiving full Social Security benefits. Starting at age 62, retirees can receive partial benefits.

From 1937 through 2002, the SSFRA was 65. Based on a law from 1983, the SSFRA was gradually raised to 66 by 2009 and will be raised to 67 by 2027. While the age for receiving partial benefits wasn’t lifted, the amount of benefits was reduced. Figure 1 below shows how the SSFRA has and will increase according to current law.

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

— CEPR Senior Associate for International Policy Alexander Main penned this op-ed for the The New York Times on corruption in Honduras. In the piece, Alex writes that a growing number of Hondurans are insisting on an independent, United Nations-backed body to investigate corruption charges against the current president and others in his party. Alex also notes that 54 members of Congress have urged Secretary of State John Kerry to support this demand.

The piece was picked up — and commented on — by several media outlets in Honduras, and it even sparked an editorial cartoon there, here. Alex was interviewed about the op-ed by The Real News, and was cited in this Think Progress article.

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A little over a week ago, CEPR released a blog post looking at the Congressional Budget Office’s (CBO) projections for wage growth over the next decade. Based on the data presented in their 2016 Budget and Economic Outlook, CBO expects wage inequality to rise substantially over the next decade.

It is striking that this projection of a continuing rise in inequality has gotten so little attention. By contrast, the media constantly talk about the projected shortfalls in the Social Security Trust Fund, making the point that if the projections prove correct then in 2034 we will either have to cut benefits or raise taxes.

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Last month the Congressional Budget Office (CBO) released its Budget and Economic Outlook report for 2016 to 2026. While various aspects of the report have gotten major play in the media, one important yet overlooked detail is what CBO says about wage inequality. Specifically, CBO expects to see a “continued increase in the share of wages earned by higher-income taxpayers” (pg. 88). It indicates that another 4 percentage points of wage income will be redistributed from the bulk of the workforce to the roughly 7 percent of workers who earn more than the cap on wages subject to the Social Security tax (currently $118,500):

“The share of covered earnings above the taxable maximum amount is projected to rise to more than 20 percent in 2026, 4 percentage points more than the share in 2015...” (pg. 94)

This ceiling on the amount of wages subject to taxation rises in line with average wage growth every year. If inequality goes up and high-wage workers’ earnings rise faster than average, a greater share of overall wages are exempt from taxation. Due to rising inequality, the share of wages going untaxed has nearly doubled from one-tenth to nearly one-fifth over the past thirty years.

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Between 2007 and 2015, there was a substantial decrease in the civilian labor force participation rate from 66 percent to 62.7 percent. Journalists and economists have debated how much of this decline can be attributed to a weak economy as opposed to an aging population.

The civilian labor force participation rate (LFPR) measures the percentage of the civilian non-institutional population (those who are 16 and above and not part of an institution, e.g. a mental institution, prison, etc.) who are in the labor force. The labor force consists of everyone who is either employed or unemployed (meaning they have searched for work sometime over the past four weeks). The LFPR may fall as a result of bad economy, as people give up looking for work due to a weak labor market, but it also changes due to demographics. If the population is aging, a greater percentage of the population may hit retirement age and willingly retire. Conversely, if the population is becoming younger, a greater percentage of the population may enroll in high school or college.

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Social Security, the program that provides retirement, disability, and survivor benefits to millions of Americans just gave a valentine to those making $1,000,000 a year.

Many people do not realize that the taxes that fund Social Security only apply to the first $118,500 of wage income in 2016. Income above the cap is not subject to the tax and workers do not pay into Social Security on that income. That means that the vast majority of the population (those making under $118,500 a year) pay the 6.2 percent Social Security payroll tax for the entire year, but the wealthy don’t. It also means that the wealthy have a lower effective tax rate.

For example, someone making $1,000,000 paid into Social Security on every day in 2016, up until and including February 13th. On the 14th — Valentine’s Day — their income was no longer subject to the payroll tax, and their paychecks for the rest of the year became heftier.

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Job Leavers as Share of the Unemployed

The figure above shows the percentage of unemployed Americans who quit their last job, by race. For all groups, the share of job quitters took a nosedive during the recession; this is to be expected, because a low rate of job quitting is actually a sign of a weak labor market. When workers feel that there are few job opportunities available to them, they are less likely to quit their jobs, because they know that they are unlikely to find a new one. By contrast, when the economy is strong and the job openings rate is high, we see more workers leaving their jobs:

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The following reports on labor market policy were recently released:

Economic Policy Institute
When Quitting is a Good Thing
Elise Gould

The Fed Shouldn’t Accept the “New Normal” Without a Fight
Josh Bivens

State Unemployment Rates by Race and Ethnicity at the End of 2015 Show a Plodding Recovery
Valerie Wilson

Center for American Progress
How States Are Expanding Apprenticeship
Angela Hanks, Ethan Gurwitz

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This week D.C. will hold another hearing on a proposal for Paid Family Leave, in line with states like New Jersey, California and Rhode Island that have implemented paid family leave programs over the last decade. In this election cycle, a major point of political discourse among Democrats has been that America is still one of the only developed countries that has not established a paid leave program to provide income for workers during family or medical leaves. However, the case for federal paid leave has been gaining momentum for the several years; that would fix many problems with the current system of unpaid leave that keep workers from taking care of family members, bonding with a new child, or taking care of serious medical illnesses.

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Today President Obama released his 2017 Budget, the final one of his presidency. Among many initiatives to strengthen the economic security of workers and retirees is one that CEPR’s been leading on for years: work-sharing (a.k.a. short-time compensation). The President’s proposal provides 1.8 billion dollars over ten years to expand work-sharing programs. 

Since the depths of the Great Recession, CEPR’s Dean Baker has been promoting the concept of work-sharing, which prevents job losses by incentivizing employers to reduce workers’ hours, rather laying them off entirely. The workers, in turn, are partially compensated for those hours with pro-rated unemployment benefits.

Work-sharing has proven to be one of the few areas of bipartisan consensus that we’ve seen over the past few years. For example, Dean has regularly partnered with conservative economist Kevin Hassett of AEI in advocating this idea. A dozen states have passed work-sharing since 2009, mostly with bipartisan majorities, to bring the total number with work-sharing programs up to 28 states plus the District of Columbia. In 2012, a bipartisan vote in Congress passed the Middle Class Tax Relief and Job Creation Act, and it included temporary funding to support states’ work-sharing programs, which has since expired. 

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In 1996, the Congressional Budget Office (CBO) projected that unemployment would rise from 5.8 to 6.0 percent the next year and stay at that rate into the 2000s. The consensus among most economists and policy experts was that 6.0 percent unemployment was the lowest the unemployment rate could fall to before it caused inflation (this rate is known as the non-accelerating inflation rate of unemployment, or NAIRU), even though inflation was already very low.

In their minds, this meant the Federal Reserve (Fed), which has an obligation to pursue low unemployment, should keep interest rates as high as necessary to prevent the unemployment rate from falling much below 6.0 percent. While it might be possible to lower interest rates to reduce unemployment, as some economists and activists advocated for, the mainstream view was that this would not be worth the cost of higher inflation.

Alan Greenspan, then chair of the Fed, and Janet Yellen, the chair today, seemed to go along with that consensus. Yellen even called low interest rates to promote growth and employment “a very confused set of arguments.”

But over the next four years, Greenspan broke with orthodoxy and used his influence to keep rates relatively low, unlike during the expansion in the 1980s. In 1997, when unemployment had dipped below 6.0 percent without an uptick in inflation, Paul Krugman doubled down on his belief that this would lead to accelerating inflation. He, like many other commentators, was wrong.

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