Graph of the Day: Why Does the U.S. Have Lower-Wage Jobs than Europe?

The folks at the Center for Economic and Policy Research have a new report out this week that provides an interesting perspective on the now hot-button issue of income inequality. According to John Schmitt, the report’s author, nearly a quarter of American workers were in low-wage jobs in 2009, a higher percentage than in any other rich, developed country. What’s more, the number of low-wage workers—defined as those earning less than two-thirds the national median hourly wage—has been rising in the United States for “at least three decades,” from around 20 percent in 1979 to nearly 30 percent in 2010.

Of course, a high incidence of low-wage jobs does not by itself indicate income inequality. If, as Schmitt points out, “low wage jobs act as a stepping stone to higher-paying work, then even a relatively high share of low-wage work may not be a serious social problem.” But that is no longer the case, at least in the United States. Even Republican lawmakers are acknowledging that social mobility in the U.S. has fallen behind much of the rest of the developed world, with low-wage work “a persistent and recurring state for many workers.” 

But, you may ask, doesn’t the United States have a higher standard of living? Aren’t our low-wage earners still better off than their counterparts in Europe? Well, not really. Low-wage workers in the United States have no legal right to paid vacation, sick days or parental leave, not to mention the lowest incidence of employer-sponsored health insurance—54 percent of workers in the bottom wage quintile have no insurance at all. And though the U.S. does enjoy a high GDP per capita, the OECD data shows no association with a reduction in the share of low-wage workers. Comparing median household income yields the same result:

Stronger labor market institutions, like those in Europe, could certainly help reduce our high proportion of low-wage jobs. Collective bargaining, a higher minimum wage, employment protection legislation, and more rigorous enforcement of national labor laws would all raise wages for the quarter of Americans struggling with low wages and ever-lower social mobility.

Graph of the Day: Busting the Myths About Food Stamps

Last week I commented on a terrific graph published by the Center on Budget and Policy Priorities, which refuted presidential candidate Mitt Romney’s false claim that the majority of federal funding for poverty prevention programs like Medicaid and food stamps (now called the Supplemental Nutrition Assistance Program, or SNAP) is wasted on “massive overhead,” leaving few dollars for the intended beneficiaries. In fact, the CBPP found that the administrative expenses for these and other social programs range from less than 1 percent to just 8 percent of total costs, hardly the bureaucratic bloodsucking Romney claimed.

But Romney is far from alone in his grandiose and off the mark allegations; just last week rival presidential candidate Newt Gingrich doubled down on his controversial comments tarring President Obama as a “food stamp president,” who, the former House speaker proclaimed, has put more people on food stamps “than any president in American history.” A recent USA Today fact check corrects that mistake: while the percentage of Americans on food stamps is at historic highs, fewer people have applied for SNAP under Obama than during George W. Bush’s tenure, when 14.7 million joined the rolls. What’s more, the current growth rate has been declining since the end of the recession in 2009, when there is a clear inflection point in the graph below.

Of course, there shouldn’t be anything alarming about the SNAP participation rate rising during the most severe economic downturn since the Great Depression. That the number of Americans receiving food stamps has increased demonstrates only that the program, designed to combat hunger and even starvation, is working. A quick comparison with the more accurate U6 unemployment rate shows that the percentage of SNAP beneficiaries has moved predictably with unemployment. If that trend continues, the food stamp rolls ought to begin falling this year as the economy continues to recover.

Getting the Numbers Right on Social Assistance

The 2012 campaign cycle has felt extraordinary for the sheer volume of lies and distortions that have been allowed to filter, unchallenged, through the mainstream media and into the national debate.  So I was happy to see presidential hopeful Mitt Romney receive a harsh rebuttal yesterday from the Center on Budget and Policy Priorities for claiming, during Sunday’s GOP debate, that the majority of federal funding for assistance programs for the poor—like Medicaid and food stamps—is wasted on administrative costs:

“What unfortunately happens is with all the multiplicity of federal programs, you have massive overhead, with government bureaucrats in Washington administering all these programs, very little of the money that’s actually needed by those that really need help, those that can’t care for themselves, actually reaches them.”

This is categorically untrue. Thankfully, Robert Greenstein and his staff at CBPP took the time to rebut Romney’s claim—the latest in a series of misleading attacks intended to persuade Americans to eliminate federal assistance for low-income families.


The fact is, these administrative expenses range from less than 1 percent to just 8 percent of total program costs, a far cry from the “massive overhead” that Romney believes is being siphoned off by government bureaucrats. In 2010, the last year in which full data are available, 90 to 99 percent of combined federal and state spending went straight to program beneficiaries.

Still, all evidence to the contrary, the conviction behind Romney’s comment is widely-held among conservatives. Last night, Senator Jim DeMint stopped by The Daily Show with Jon Stewart to discuss his new book, “Now or Never: Saving America from Economic Collapse.” When Stewart pressed him to differentiate “between money that is squandered and invested,” DeMint replied,

“The problem we have is from the federal level, it’s very hard to do things well. I mean, you don’t find too many federal programs that are working. When we politically manage the programs, the money is not distributed well.”

Unfortunately, until Democrats become better at promoting the incredible success (and low overhead) of these programs, such misconceptions will continue to hold sway with the electorate. With more than 15 percent, or 46.2 million Americans, below the poverty line in 2010, proud support for Medicaid, food stamps, and other federal assistance ought to be a winning strategy.   

Graph of the Day: One Job Available for Every Four Unemployed

The recently released December job numbers were a mixed bag in many ways, with optimism over the lower headline unemployment rate tempered by still historically high long-term unemployment, a 15.6 percent “U6” unemployment rate (a broader definition of unemployment), and critically low labor force participation.

The latest data from Washington is similarly difficult to get excited about. According to the Labor Department’s new JOLTS survey (Job Openings and Labor Turnover), there were 3.16 million job openings in November, or approximately one job for every 4.2 unemployed workers. That’s a 30 percent improvement since the trough of the Great Recession in June 2009, but a 2 percent decrease from the number of job openings in October, pointing to a still dismal job market. What’s more, JOLTS makes no distinction between part-time and full-time job openings, meaning many millions of Americas are still working fewer hours than they need to make ends meet.

The Trouble with the December Jobs Report

There’s certainly good reason to cheer the latest employment figures from the Bureau of Labor Statistics—according to this morning’s jobs report, the economy added 200,000 net jobs in December, bringing the headline unemployment rate down to 8.5 percent, the lowest level in nearly three years. Still, the public sector continued to shed jobs, with budget shortfalls forcing state and local governments to layoff another 12,000 employees, for a total of 280,000 fewer government jobs in 2011.

And while employment gains were felt widely throughout the private sector, with new hires in transportation and warehousing, retail trade, manufacturing, health care and mining, among others—job security remains weak for many millions of Americans. The U6 unemployment rate—which measures formal unemployment as well as marginally attached workers and workers who are part-time but wish to be full-time—remains uncomfortably high at 15.6 percent, despite dropping nearly one and a half percent from this time last year.

And though 1.6 million new jobs were added in 2011, workers saw virtually no gains in the number of hours they could work, leading about 150,000 people to take on multiple jobs to make ends meet. The long-term unemployment rate dropped slightly but remains at historic highs, while 1.5 million Americans dropped out of the labor force entirely, bringing the participation rate to historic lows. That means that the unemployment rate is artificially depressed, and will likely increase or plateau as a broader economic recovery encourages millions of labor force drop-outs to start looking for jobs again.

Of course, there are plenty of reasons to applaud today’s jobs report—this is the sixth straight month that we have seen over 100,000 workers rejoin the work force, a statistic that is sure to help President Obama in his quest for reelection. But a healthy dose of negativity is a helpful reminder that millions of Americans remain outside our more conventional metrics of economic well-being, and despite the currently upbeat media narrative, they still need support. Extending the payroll tax-cut, for instance, will go a long way towards maintaining this momentum, as will a new round of stimulus for infrastructure investments. The optics on the economy may be shifting in favor of the President, but too many Americans are still struggling to get back on their feet to let such policy opportunities slide.

Graph of the Day: Capital Gains Drive Income Inequality

As the mainstream Republican establishment begins to coalesce around Mitt Romney following his caucus victory in Iowa, the former Massachusetts governor should also come under increased scrutiny for his hardline conservative positions on tax policy, which many Americans rightly perceive as out of touch with both fiscal reality and growing economic inequality. Romney’s stated opposition to any new income taxes, his promise to lower capital gains tax rates and eliminate the estate tax look particularly out of touch in light of a new report from the Congressional Research Service, which concludes that capital gains—the primary source of income for Mitt Romney and others in the top 1 percent—are now the single greatest driver of income inequality today.

According to the report, GDP grew a healthy 38 percent in the decade between 1996 and 2006 (the last year before the boom-bust cycle of 2007-2008), with average inflation-adjusted after-tax income increasing about 25 percent. But that average conceals an astounding divergence in outcomes between the nation’s richest and poorest citizens: while income of the wealtheist 1 percent nearly doubled, the bottom 20 percent actually saw their income decrease by 6 percent. And because the CRS analysis only used data from active tax filers, those numbers may even underestimate the true width of the income gap.  

The CRS data confirms earlier reports from the likes of the Congressional Budget Office that suggest that the tax code has become less progressive over time, decreasing inequality by less than 4 percent in 2006. Still, the inequality encouraged by the Bush tax cuts—which provided enormous savings at the top of the income distribution—pales in comparison to the incredible shift from labor income to capital income among the wealthiest 5 percent, which, Jared Bernstein muses, “seems endemic of a society that devalues work while providing outsized rewards for speculation and asset accumulation.”

The graph below, culled from the CRS data, illustrates the growing rift between the top 1 percent—who now take the majority of their income from cheaply taxed capital gains and dividends—and the bottom 99 percent, who continue to derive nearly all of their income from wages. It is a troubling paradigm shift in the way our society values labor and rewards risk-taking, but perhaps a natural evolution for the “you’re on your own” culture of today’s Republican party.

For more, check out Greg Anrig’s 10 Reasons to Eliminate the Tax Break for Capital Gains.

Graph of the Day: Half of Schools Fail to Meet “No Child Left Behind” Standards

According to a national report released Thursday, nearly half of America’s public schools fell short of federal standards this year—the highest rate of failure since the controversial No Child Left Behind Act established yearly progress and achievement standards in 2001. The latest survey by the Center on Education Policy identified more than 43,000  schools that did not  make “adequate yearly progress” (AYP) toward the law’s requirement that states ensure every student perform at or above grade level by 2014, which most educators believe is an unrealistic, if not impossible, goal.

Because states are allowed to set their own achievement standards under NCLB, the percentage of public schools not making AYP varied wildly from state to state, from about 11 percent in Wisconsin to almost 90 percent in Florida. And part of the increased rate of failure—up 9 percent nationally from 2010—is due to schools that were able to defer mandated increases in achievement until this year. Such discrepancies and loopholes only reinforce the growing consensus among educators and lawmakers that the current version of the law is deficient. “Whether it’s 50%, 80% or 100% of schools being incorrectly labeled as failing, one thing is clear: No Child Left Behind is broken,” said Education Secretary Arne Duncan in a statement last week.

Many conservatives will no doubt seize upon this failure as further evidence that federal policy should provide incentives for privatization, rather than an argument for greater funding of public education. But NCLB was doomed to failure from the beginning by Congress and the Bush administration, who chose to critically underfund the program, and by its poor implementation—not the viability of public education or national standards. And NCLB has been hamstrung all along by its failure to require that urban students be allowed to transfer to suburban schools, which has created a shortage of options outside of conservative’s prefered solution of private-school vouchers.

“The high failure rate under No Child Left Behind suggests that we need better and more accurate measurements of school success,” argues Century Foundation Fellow and education policy expert Richard Kahlenberg. “But to the extent that the failure rates are a genuine reflection of underlying problems in education, we need to move beyond our attempts to make ‘separate but equal’ work and seek creative ways for children of all backgrounds to have a chance to go to high quality, economically integrated schools.”

As Kahlenberg writes in Improving On No Child Left Behind: Getting Education Reform Back on Track, a better constructed version of NCLB would be fully funded, provide coherent national standards and reasonable stakes for students and teachers, and provide “a genuine transfer option for low-income students to attend high-quality, middle-class suburban schools.” Having failed to meet any of those criteria, it is not surprising that the current law has achieved so little success. Let’s not give up on getting it right the second time around.

Long-Term Unemployment Benefits Do Not Increase Unemployment

Although the official unemployment rate remains stuck at around 9 percent—significantly lower than the “U6” rate of 16 percent, which includes discouraged workers and those forced to work part-time for economic reasons—conservative lawmakers are eager to reduce the number of weeks unemployed workers can receive benefits. One potential bill would also require recipients without a high school diploma to enroll in a GED program or lose their benefits, and allow states to screen applicants with a drug test. That position isn’t particularly surprising, considering the typical conservative refrain that unemployment benefits reduce the incentive to look for work. By their account, if we would only take away unemployment insurance (UI), millions of lazy Americans would get to their feet and find jobs.

It’s a deeply flawed presumption, and one that has real world consequences for the 6.7 million families that rely on an average weekly benefit of $300 to afford food, heat, and shelter while they look for work. It also endangers the more than 2 million long‐term unemployed workers, who will lose their UI benefits entirely by the end of February if Congress fails to reauthorize those benefits before they expire.

Luckily, a new report from the U.S. Joint Economic Committee proves just how wrong the conservative position is. According to the report’s authors, there is no evidence that emergency UI benefits inflated the unemployment rate; the intensity with which the long-term unemployed searched for work actually tripled during the Great Recession. That analysis complements a similar study from Brookings earlier this year that found only 0.3 percent of the 4 percent increase in unemployment could be attributed to long-term benefits.

Unemployment benefits also function as extremely effective, targeted economic stimulus. Benefits are spent quickly on basic necessicities, creating a ripple effect throughout the economy that sustains consumer demand and supports employment. The authors of the JEC report argue that reauthorizing emergency UI benefits provide “the greatest ‘bang-for-the-buck’ among a range of fiscal policies,” boosting GDP with a multiplier effect that the CBO estimates to be as high as $1.90 for each dollar spent: far more than the negative multiplier of tax cuts.

As the report points out, Congress has continued to extend UI benefits until the unemployment rate fell substantially below peak in every major recession since the 1950s. And at 3.7 percent, the current long term unemployment rate is nearly three times higher than it has ever been when UI benefits were allowed to expire. It is estimated that, in 2010, over 3 million Americans were kept out of poverty by UI benefits. To allow the extension of those benefits to expire now would risk impoverishing millions of families at a time when consumer demand is already at historic lows.