Posts from Jared Bernstein

More evidence that higher minimum wages largely do what they’re supposed to do

Jared Bernstein

Jared Bernstein Senior Fellow, Center on Budget and Policy Priorities

Raising the federal minimum wage to $15 per hour by 2025 would lift the pay of 27.3 million workers—17 percent of the workforce—according to a new report from the Congressional Budget Office. It would raise the incomes of poor families by 5 percent and thus reduce the number of people in poverty by 1.3 million. Since these low-end gains would be partially financed out of profits, the increase in the wage floor would reduce inequality.

CBO also estimates that “1.3 million workers who would otherwise be employed would be jobless in an average week in 2025.” Because economists’ estimates of the job-loss effects from minimum wage increase are so wide-ranging—some studies find little-to-no job loss impacts; other find more—CBO estimates that there’s a two-thirds chance that the actual change in employment is between 0 and -3.7 million. Interestingly, -1.3 million is not the midpoint between 0 and -3.7, suggesting the budget office gave a bit more weight to studies finding less evidence of job-loss effects.

Thus spoke Zarathustra the CBO. Should this lead objective policy makers to embrace or eschew the policy to increase the federal minimum wage to $15 in 2025 (assume for this exercise that “objective policy makers” exist)?

I’d give a solid push towards embrace. It’s a progressive policy that’s long been shown to largely hit its goals of boosting the earnings of low-wage workers whose families seriously need the income. Yes, the report warns that some will be hurt by the increase, but the best research suggests their job-loss estimate may be too high. Moreover, even if they’re right, the ratio of helped-to-hurt is 21 (27.3m/1.3m). And given the extent of turnover in the low-wage labor market, many of those 1.3 million workers will eventually find new jobs, jobs which pay a lot better than their old ones.

Full disclosure: I’ve long advocated for minimum wage increases, so my “embrace” won’t surprise those who’ve followed that work. But the reason why I—and, more importantly, progressive institutions like the Economic Policy Institute, CBPP, CAP, and many others—have long advocated for minimum wage increases is that a deep body of uniquely high-quality research finds that prior increases have had their intended effects of raising low-wage workers’ incomes without leading to significant job loss.

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More evidence–this time from CBO–that higher (even much higher) minimum wages largely do what they’re supposed to do.

Jared Bernstein

Jared Bernstein Senior Fellow, Center on Budget and Policy Priorities

Raising the federal minimum wage to $15 per hour by 2025 would lift the pay of 27.3 million workers—17 percent of the workforce—according to a new report from the Congressional Budget Office. It would raise the incomes of poor families by 5 percent and thus reduce the number of people in poverty by 1.3 million. Since these low-end gains would be partially financed out of profits, the increase in the wage floor would reduce inequality.

CBO also estimates that “1.3 million workers who would otherwise be employed would be jobless in an average week in 2025.” Because economists’ estimates of the job-loss effects from minimum wage increase are so wide-ranging—some studies find little-to-no job loss impacts; other find more—CBO estimates that there’s a two-thirds chance that the actual change in employment is between 0 and -3.7 million. Interestingly, -1.3 million is not the midpoint between 0 and -3.7, suggesting the budget office gave a bit more weight to studies finding less evidence of job-loss effects.

Thus spoke Zarathustra the CBO. Should this lead objective policy makers to embrace or eschew the policy to increase the federal minimum wage to $15 in 2025 (assume for this exercise that “objective policy makers” exist)?

I’d give a solid push towards embrace. It’s a progressive policy that’s long been shown to largely hit its goals of boosting the earnings of low-wage workers whose families seriously need the income. Yes, the report warns that some will be hurt by the increase, but the best research suggests their job-loss estimate may be too high. Moreover, even if they’re right, the ratio of helped-to-hurt is 21 (27.3m/1.3m). And given the extent of turnover in the low-wage labor market, many of those 1.3 million workers will eventually find new jobs, jobs which pay a lot better than their old ones.

Full disclosure: I’ve long advocated for minimum wage increases, so my “embrace” won’t surprise those who’ve followed that work. But the reason why I—and, more importantly, progressive institutions like the Economic Policy Institute, CBPP, CAP, and many others—have long advocated for minimum wage increases is that a deep body of uniquely high-quality research finds that prior increases have had their intended effects of raising low-wage workers’ incomes without leading to significant job loss.

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July jobs: nice pop on payrolls but flat wage growth

Jared Bernstein

Jared Bernstein Senior Fellow, Center on Budget and Policy Priorities

[This jobs report is an important one in terms of assessing the impact of headwinds on the job market, but because it’s sort of a holiday, I’ll just offer up a truncated, bullet-point report. As always, thanks to Kathleen Bryant, who got up early on vacation to help me out!]

Toplines:

–Payrolls rose 224,000 last month, well above expectations for ~165K. Though we never want to over-weight one month of noisy data, that’s an important number, suggesting that building economic headwinds haven’t dented job creation much yet at all.

–Our monthly smoother shows average monthly job gains over 3, 6, and 12-month windows. Even including May’s weak 72K (revised) gain, the average over both the past 3 and 6 months has been around 170K jobs/month. That’s a slight downshift from the 12-month average but still a very solid number, one that should handily support the ongoing expansion.

–The unemployment rate ticked up to 3.7% (a statistically insignificant change, btw), but that was mostly due to more people coming into the labor force–the participation rate nudged up 0.1 ppts to 62.9%.

–That’s all good news, but the evolving wage story is less so. As the figures below reveal, our 6-mos rolling average of yr/yr nominal wage growth shows the trend (versus the noisier monthly values) is stalled or even trailing off a bit. This too, is an important finding, suggesting that a) there’s still “room-to-run” in this expansion as labor supply doesn’t appear to be tapped out, b) even with unemployment near 50-yer lows, too many workers still lack the bargaining clout they need.

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Trump and the Mexican tariffs: How far is this administration willing to go to achieve their protectionist, anti-humanitarian goals? Maybe farther than we thought.

Jared Bernstein

Jared Bernstein Senior Fellow, Center on Budget and Policy Priorities

As you know if you’ve looked at any morning paper, the Trump administration has proposed an escalating tariff on all imports from Mexico, starting at 5 percent on June 10th and rising by five percentage points each month until it reaches 25 percent. The tariffs are intended to force Mexico to take actions to reduce the flow of migrants into the U.S. Trump said the tariffs will remain in place until Mexico “substantially stops the illegal inflow of aliens coming through its territory.”

Here’s a Q&A on this proposed action. Initially, it may not look like a big deal for us (much more so for Mexico). But if it doesn’t fizzle quickly, and I don’t think it will, it could turn out to be important along various dimensions.

Q: Isn’t this is an unusual use of tariffs?

A: It is. The majority of tariff cases stem from countries arguing about trade, as is the case with China. Country A objects to country B “dumping” a specific export (“rubber tires, grade c”) at below cost in order to corner market share and Country A imposes a “countervailing duty” to level the playing field. Or, as with China, we object to their trade practices (though I’ve argued this attack is somewhat overblown).

Yes, tariffs have been used as a geopolitical tactic, to protect what Hamilton called “infant industries,” and to support the buildup of domestic industries to achieve import substitution (tariffs were also the main source of government revenue in early America). But I’m not aware of a case where tariffs have been used to block immigration.

Q: Ok, it’s an unusual idea. But is it a bad idea?

A: Yes, for two broad reasons. First, I have the same objection to this tariff as to any other sweeping tariff (versus the more targeted “dumping” example above): by disrupting broad trade flows and indiscriminately raising costs on swatch of industries and consumers, it is a blunt policy tool that may have been useful in Hamilton’s day but is no longer so. Trump envisions widespread import substitution, but his vision is atavistic. Trade flows and inter-country commerce is too far advanced to be wholly rewired. I don’t think the globalization omelet can be unscrambled but even if it could, the victory would be a Pyrrhic one on all sides of the borders.

We’re especially integrated with Mexico. The WSJ reports that “about two-thirds of U.S.-Mexico trade is between factories owned by the same company.” Those are largely auto manufacturers, as we import $93 billion in cars and parts from Mexico (as a share of our imports, that’s 5x our China share), computers, food, and hundreds more goods. According to Goldman Sachs researchers, 44 percent of our air conditioners and 35 percent of our TVs are imported from Mexico. After China, Mexico was our largest source of imports last year (we imported $350 billion from them last year, and exported $265 billion).

Second, it is a well-documented fact that unauthorized immigration from the Mexico has declined in recent years. What’s gone up is asylum seekers from Central American countries torn by violence and gangs. In this regard, the “crisis” at the border is of the Trump administration’s own making. Suppose this tariff got Mexico to do more to shut its southern border to asylum seekers. On legal, humanitarian grounds, that should be no one’s definition of success.

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Pushing back gently but firmly on Michael Strain’s non-stagnation argument

Jared Bernstein

Jared Bernstein Senior Fellow, Center on Budget and Policy Priorities

A few folks have asked me about my friend Michael Strain’s recent Bloomberg piece where he argues against wage stagnation (it’s “more wrong than right”). It’s an old argument but one worth having, and Michael makes some important points and misses some big ones too (5, to be precise).

Larry Mishel and I counter a much shorter-term version of Michael’s case here but similar issues pertain. Certainly, the evidence he presents doesn’t change the basic wage story that I and many others carry around in our heads.

I think Michael’s most germane point is that nobody defines “stagnation.” If you think stagnation means real wages for low-wage workers have never gone up in the past four decades, you’re wrong. The figure below, from a recent piece I published (one I’ll get back to re a key point Michael misses), shows real wages for low and moderate wage workers stagnated through the 1970s, 80s, and 2000s.

 

But, in periods of very tight labor markets—the latter 1990s and now—they grew at a decent clip. This is key insight #1about real wage growth for too many workers. It’s not that they’ve never grown. It’s that their growth periods in recent decades have been few and far between. And it’s largely dependent of achieving persistent full employment, a condition that’s also been too rare in recent years (see this exciting new paper on precisely this point!).

Key insight #2 is that, sure, switching to a slower-growing deflator leads to faster wage growth and there are good arguments for various choices (see Mishel/Bivens’ cautions re Michael’s choice of using the PCE for wages). But it doesn’t wipe out long periods of stagnation. Here’s the real 20th percentile wage (2018 $’s) using both the CPI-RS (used in the figure above) and the PCE. Just like the above figure: periods of growth, but longer periods of stagnation.

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It takes two to tango: The complementarity of the derigging project and expanded tax credits.

Jared Bernstein

Jared Bernstein Senior Fellow, Center on Budget and Policy Priorities

In a hearing last week, an exchange between Rep. Katie Porter (D-CA) and JPMorgan’s CEO Jamie Dimon caught my eye. Dimon was touting the bank’s new minimum wage of $16.50, increasing to $18 in high-cost areas, for entry level workers. That’s a decent minimum wage, above the $15 that most progressive plans call for (and those proposals typically include a phase-in of numerous years). According to recent EPI analysis, $16.50 is well north of the national 40thpercentile wage of just under $15.

To be clear, I’m not suggesting the highly profitable bank—market cap about $380 billion; Dimon made over $30 million last year—is fairly compensating its entry-level workers (Dimon says such workers tend to just out of high school). My point is an empirical one: given the nation’s wage structure, its (ridiculously low) federal minimum wage of $7.25, and the weak bargaining clout of low-wage workers, especially those without a college degree, a minimum/entry-level wage of $16.50 is actually pretty high.

Rep. Porter, however, pointed out that in pretty much any part of America you choose, a single mom with one child can’t make ends meet on that wage. She’s unquestionably correct, as she demonstrated after the hearing in this tweet (full disclosure: I’ve met Rep. Porter; she’s all that and a big bag of chips; whip-smart, data-driven…one of those new members with just the right recipe of heart, brain, conviction, analytics, etc…).

You can read more about their exchange here, but it led me to ask why is the US wage structure so insufficient and what can we do about it? It’s a question that all of us should have at the top of our minds when listening to the proposals from those who would lead the nation.

What can we do about this mismatch between earnings and needs?

One answer is to work on two tracks, near term and long term. In the near term, we need robust wage supports in the form of fully refundable tax credits (i.e., you get the credit whether or not you owe any taxes), along with other work supports, including child care, health care, and housing.

Over the longer haul we must correct structural imbalances that have, over at least the last 40 years, reduced the bargaining clout for workers relative to employers. The power shift is a function of many forces, including the decline of unions and collective bargaining, but it also relates to the way we’ve handled globalization, the rise of hands-off economics, specifically the notion that progressive interventions are anti-growth (a line of thought that’s led to supply-side policies like cutting taxes for the rich and benefits for the poor), austere fiscal policy, and the many other aspects of what is often labeled the “rigged economy.”

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Foreign holdings of US debt have been coming down a bit. Is that a problem?

Jared Bernstein

Jared Bernstein Senior Fellow, Center on Budget and Policy Priorities

I remember when foreign ownership of U.S. government debt amounted to very little, as shown on the left end of the figure below (the share of total publicly held debt owned by foreigners).

Source: US Treasury

I next remember that this share was growing rapidly, closing in on half about a decade ago. What I didn’t know was that the share has been falling back a bit. In fact, it’s about 10 percentage points off of its peak.

I discovered this because I went to look at the data as part of the broader conversation I’ve been engaged in regarding the lack of attention to and concern about our growing fiscal imbalances, an unusual dynamic what with the economy closing in on full employment.

In the course of that conversation, some have raised the concern that because a significant share of our debt is held be foreign investors, we face risks that were not invoked in earlier decades.

There’s the “sudden stop” scenario that’s been deeply damaging to emerging economies, when foreign inflows quickly shut down, slamming the currency and forcing painful interest rate hikes.

There’s a less pressing but still concerning risk that foreign investors’ demand for US debt would fall at a time like the present, when the Treasury needs to borrow aggressively to finance our obligations in the face of large tax cuts and deficit spending. That scenario could lead to “crowd out,” as public debt competes with private debt for scarce funds, pushing up yields.

At the very least, it leads to more national income leaking out in debt service than when those shares in the figure were lower.

How serious are these concerns?

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New Census data show that low-income people are responding as they always do to tight labor markets…by working!

Jared Bernstein

Jared Bernstein Senior Fellow, Center on Budget and Policy Priorities

One of the particularly frustrating, fact-free aspects of the conservative push to add (or ramp up) work requirements in anti-poverty programs like Medicaid or SNAP is that low-income people who can do so are already working hard. Moreover, as the job market tightens, they respond to tightening conditions.

Using the new Census data, Kathleen Bryant and I, with help from Raheem Chaudhry, used the 2017 microdata (the data on which the poverty and income numbers are based) to compare the employment rates of low-income single mothers (with incomes below twice the poverty threshold) with prime-age (25-54), non-poor adults. We found that between 2010 and 2017, the employment rates of the low-income single moms increased by 5.4 percentage points (67.7% to 73.2%), while those of non-poor adults increased by just 1.2 percentage points (87.8% to 89%).

Source: CBPP analysis.

It’s true that the single moms, by dint of their lower employment rate levels, have more room to grow, but the prime-age adults are not obviously hitting a ceiling on their rates.

At any rate, we believe this shows that a large and growing majority of low-income moms are already trying to both raise their kids and support their families through work, and that they’re actively taking advantage of the tight labor market. Adding work requirements will just give them one more needless, bureaucratic barrier to leap over, likely reducing their ability to maintain their benefits, even as they’re playing by the rules. Forgive me if I cynically suspect that such hassle-induced benefit losses are the point.

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Reposted from On the Economy

Lynx; Trump/Erdogan: compare and contrast

Jared Bernstein

Jared Bernstein Senior Fellow, Center on Budget and Policy Priorities

Productivity and wages: They’re connected, of course, but the extent of the connection requires nuanced analysis of wages at different percentiles and movements in labor’s share of national income.

There’s an interesting dichotomy here in how economists and people think about productivity and wages. For many economists, it’s the determinant of wage growth. For many people, it’s irrelevant, in that powerful forces divert productivity growth from paychecks to profits. The truth, especially once you get away from averages, lies in-between. Productivity matters a great deal, but it is not by itself sufficient to drive broadly shared prosperity.

Employment rates also matter a lot: They take the elevator down in recessions and the stairs up in recoveries. They also may carry some info about the arrival of next recession. Plus, their recent movements reveal the disproportionate benefits of full employment to the least advantaged.

Are politicians no longer listening to economists? You wish. In fact, they’re listening to the wrong ones telling them what they want to hear.

Now, a quick note on current events.

As regards the tanking of the Turkish lira, the business press is largely concerned with the contagion question: to what extent will Turkey’s problems spillover into European and American economies? The consensus is “not much,” based on Turkey’s size and financial markets’ limited exposure to Turkish debt, much of which is dollar-denominated, meaning it becomes more expensive to service when the Turkish currency depreciates.

That’s probably right, and Turkey has uniquely weak fundamentals among emerging market economies: “current account deficit of 6.3% of GDP, Corporate foreign exchange debt is 35% of GDP, inflation rate of 16%.” But the situation bears close watching, of course, and the strengthening dollar has important implications for the trade war, i.e., it pushes in the opposite direction of the tariffs (tariffs make imports more expensive; the stronger dollar makes them less expensive).

But another interesting aspect of the Turkish meltdown is how much Trump and Erdogan have in common. In one sense, that’s not surprising, as the strongman, faux populist playbook is pretty straightforward, and history is replete with examples.

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More solid job gains, but no real wage growth

Jared Bernstein

Jared Bernstein Senior Fellow, Center on Budget and Policy Priorities

In the latest solid report on the conditions in the US labor market, payrolls grew by 213,000 in June, and labor force participation ticked up two-tenths, as more people were pulled into the improving labor market. This led to a two-tenths tick-up in the unemployment rate to 4 percent (really, 30 basis points up, from 3.75% to 4.05%). Wage growth stayed at 2.7 percent, the same pace as last month, and the average since last December. It is also worth noting that inflation is now growing at about the same rate as wages, so, in one of the less impressive aspects of the current job market recovery, real hourly pay is flat.

As the economic expansion that began in June of 2009 enters its tenth year, the enduring recovery has moved the job market closer to full employment. However, the key message from this report, is that despite many economic estimates to the contrary, there still appears to be room-to-run. That is, various indicators suggest we’re closing in on full employment, but not quite there yet. These indicators include:

–Average job gains of about 200,000 per month over the past year (see JB’s official jobs-day smoother which averages monthly payroll gains over different intervals). The historical pattern is for the pace of job gains to slow more than it has when we’re getting to full capacity in the labor market.

 

–Though wage growth has clearly ticked up a bit—it has moved from 2 percent, to 2.5, to now, 2.7 percent—it has not picked up as much as we’d expect at full employment. Our current low productivity growth regime is a constraining factor, and we’re certainly hearing a lot from employers about labor shortages. But before we take that age-old complaint, we need to see more wage pressure. Employers almost always complain about labor shortages, yet the data suggests they’ve been quite reluctant to raise pay to get and keep the workers they need.

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Union Matters

He Gets the Bucks, We Get All the Deadly Bangs

Sam Pizzigati

Sam Pizzigati Editor, Too Much online magazine

National Rifle Association chief Wayne LaPierre has had better weeks. First came the horrific early August slaughters in California, Texas, and Ohio that left dozens dead, murders that elevated public pressure on the NRA’s hardline against even the mildest of moves against gun violence. Then came revelations that LaPierre — whose labors on behalf of the nonprofit NRA have made him a millionaire many times over — last year planned to have his gun lobby group bankroll a 10,000-square-foot luxury manse near Dallas for his personal use. In response, LaPierre had his flacks charge that the NRA’s former ad agency had done the scheming to buy the mansion. The ad agency called that assertion “patently false” and related that LaPierre had sought the agency’s involvement in the scheme, a request the agency rejected. The mansion scandal, notes the Washington Post, comes as the NRA is already “contending with the fallout from allegations of lavish spending by top executives.”

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Corruption Coordinates

Corruption Coordinates