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:


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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The following reports on labor market policy were recently released:


Economic Policy Institute
States Heavily Reliant on the Energy Sector Had a Tough Year, but Most Other States Finished 2015 Heading in the Right Direction
David Cooper

The Obama Administration Pushes for a Better Response to Unemployment
Ross Eisenbrey

The H-2B Temporary Foreign Worker Program
Daniel Costa

14 States Raised Their Minimum Wage at the Beginning of 2016, Lifting the Wages of More than 4.6 Million Working People
Will Kimball

Balancing Paychecks and Public Assistance
David Cooper

Political Economy Research Institute
Is a $15 Minimum Wage Economically Feasible?
Jeannette Wicks-Lim

National Employment Law Project
How Much Do New York’s Workers Need? At Least $15 per hour – Both Upstate and Down
NELP

The Institute for Research on Labor and Employment
#39: “Current Challenges to Workers and Unions in Brazil”
Roberto Véras de Oliveira

Urban Institute
Women In Pakistan’s Urban Informal Economy
Ammar A. Malik, Hadida Majis, Husnain Fateh, Iromi Perera

Institute for Women’s Policy Research
Access to Paid Sick Time in St. Paul, Minnesota
Jenny Xia

Women Gain 55 Percent of Jobs in Last Year, 77 Percent in Last Month
Institute for Women’s Policy Research

Center for American Progress
Women and Families’ Economic Security in New Hampshire
Sarah Jane Glynn, Brendan Duke, Danielle Corley

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One of the most depressing aspects of the 2007-2009 recession was the unprecedented rise in long-term unemployment. This is depicted in the chart below.

The Rise of Long-Term Unemployment

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The economy added 151,000 jobs in January, in line with some economists' expectations. There were largely offsetting revisions to the prior two months data leaving the average change over the last three months at 231,000. The slowing was sharpest in construction, which added 18,000 jobs after adding an average of 56,500 jobs in the prior two months. The temp sector lost 25,000 jobs in January after a reported gain of the same size in December. The big job gainers were restaurants, which added 46,700 jobs, health care with a gain of 36,800, and retail with a gain of 57,700. Both restaurants and retail were likely helped by unusually good weather. (The storms hit after the survey period.)

On the household side, there was another large increase in labor force participation, with 284,000 entering the labor force, after adjusting for changes in population controls. Employment rose by 409,000 after the adjustment. Other news in the household survey was mixed. The number of involuntary part-time workers fell again and is now down by almost 800,000 over the last year. The number of people who choose to work part-time rose slightly. It is now up by almost 500,000 from its year ago level. This is a predictable effect of the ACA as people no longer need to work full-time to get health care insurance through their jobs.

On the negative side, the unemployment rate for African Americans by rose by 0.5 percentage points and for African American teens by 1.5 percentage points. This indicates the drop in December was a blip. The percentage of unemployment due to voluntary job leavers also dropped in January, indicating a lack of confidence in the labor market.

There was a large 12 cent jump in the average hourly wage in January, but this followed a month in which there was no reported rise at all. Over the last three months the wage has risen at a 2.5 percent annual rate compared to the prior three months, the same as its pace over the last year. There is little basis for believing there is any notable increase in wage growth.

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Back in 2008, Barack Obama pledged not to raise taxes on households making less than $250,000 per year (and individuals earning less than $200,000). During his administration, almost none of the tax proposals that have come from the White House have crossed that line, in effect forgoing potentially tremendous amounts of revenue. Presidential candidate Hillary Clinton has made a similar promise if she is elected president.

All this, in the name of avoiding tax increases on the “middle class.”

While $250,000 per year may seem like a “normal” income for inside-the-Beltway types, it is actually the 97th percentile of households in America.[1] That means that 97 percent of households make less than that. For individuals, $200,000 per year falls above the 98th percentile. On most scales, being in the top two or three percent would not be thought of as being in the “middle.”

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Many Americans are not aware that, because there's a cap on the amount of earnings that are subject to Social Security payroll tax, the highest-income earners among us pay a lower rate than the rest of us. For 2016, that cap is set at $118,500 per year, the same level as in 2015. (In almost all prior years, the cap increased annually with inflation, but lower gas prices were a major factor in holding the relevant inflation measure flat last year.)

That means that people who make a quarter of a million dollars per year pay this tax on less than half of their wages. Those who make a million dollars annually pay the tax on less than one-eighth of their earnings. In other words, the vast majority of us who make less than the cap pay a Social Security tax rate that's more than eight times that of millionaires.

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Percent of Newly Employed Who Were Not In Labor Force In Previous Month

The graph above is interesting. It looks at newly employed persons, a group that includes all new hires except for people who were previously employed. There has been an increasing trend during the recovery for employers to hire people who are not in the labor force rather than people who are unemployed.

Before we proceed any further, it’s worth clarifying the Bureau of Labor Statistics’ definitions of the terms employed, unemployed, and not in the labor force (all persons who are employed or unemployed are part of the labor force):

  • Employed: Someone who has a job and is currently working;
  • Unemployed: Someone who does not have a job, wants one, and has applied for a job within the past four weeks;
  • Not in the Labor Force: Someone who does not have a job and has not applied for a job within the past four weeks.

The graph above does not include people who move from one job to another. (However, it’s worth noting that job mobility has been declining – employers are generally not poaching workers from other firms. This means that employers are not competing to hire workers and therefore not raising wages.) Rather, the graph looks at newly employed persons and asks whether they were unemployed or not in the labor force in the previous month.

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The economy grew 0.7 percent in the 4th quarter, bringing its rate for the full year (4th quarter to 4th quarter) to 1.8 percent. That is a substantial slowing from the 2.5 percent rates of the prior two years. By far the major component boosting growth was consumption, which grew at a 2.2 percent annual rate, driven largely by continued strong growth in durable goods consumption, which grew at a 4.3 percent annual rate. Housing was also a big contributor to growth, expanding at an 8.1 percent annual rate and adding 0.27 percentage points to growth.

Investment and trade were both big negatives in the quarter.  The real trade investment increased by $20.7 billion in the quarter subtracting 0.47 percentage points from growth. Spending on equipment and non-residential structures both fell in the quarter, subtracting 0.3 percentage points from growth. Equipment spending has been hard hit both due to the impact of the trade deficit on manufacturing and also due to the collapse of investment in energy related sectors.

Another factor depressing growth in the quarter was the slowing of inventory investment, which subtracted 0.45 percentage points from growth. The growth in final demand in the fourth quarter was 1.2 percent.

Inflation continues to be nowhere in sight. The core PCE grew at just a 1.2 percent annual rate in the quarter, bringing the increase for the year to 1.4 percent, well below the Fed's 2.0 percent target.

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

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

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

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

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

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The following reports on labor market policy were recently released:


Center for American Progress

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

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

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

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

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

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

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

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Dear Friend,

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

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

CEPR BUSH

CEPR PAILN

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

Two dogs

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

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

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

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

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

biscuit meme

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

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

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

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

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

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

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

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

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

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

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

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