Graph of the Day: Putting the Squeeze on Labor
The White House’s new Economic Report of the President—broadly, an annual overview of how the president and his Council of Economic Advisors (CEA) view the state of the economy—is generally optimistic for 2012, noting better-than-expected job growth and economic expansion for ten straight quarters. It also underscores just how severe the financial crisis was that the president faced, with revised estimates showing that the economy contracted at an 8.9 percent annualized rate in the last quarter of 2008, not the 3.8 percent initially claimed.
The outlook on wages, productivity, and prices is less rosy. The CEA notes ominously that for the first time since World War II, the historical link between wages and prices has broken. For the last ten years, inflation has been driven by rising price markup, while unit labor costs have fallen behind productivity gains. In other words, prices are increasing and corporate profits are soaring—but workers are being left behind, with labor share of output (the inverse of price markup over labor unit costs) at its lowest level in seventy years.
On the one hand, that means there is now considerable slack in the labor market, so the CEA can predict that the economy has plenty of room to expand without creating inflationary pressures. But it also indicates a tectonic shift, since the Reagan Revolution, in the relationship between unskilled labor and capital. If this new trend holds, then we are looking at an economic environment that is unlike anything we have experienced in the post-war era. Karl Smith is more blunt: “At its heart the issue is that Industrialization Really Was Different, and there is no reason to think it will come again. The reality of this new world is that you cannot simply work hard and make a good living.”
In a way, he’s right. The post-war era really was a unique time in American and economic history, with wage compensation tied to productivity growth—a rising tide that lifted all boats mostly equally. The past several decades have seen that relationship erode, as manufacturing and union jobs disappeared overseas, and corporations sought massive gains in competitiveness and profit at the expense of labor. Globalization and technology share much of the blame, but it is also instructive to look at the experience of other industrialized countries, many of which have been able to mitigate soaring income inequality with education and industrial policies designed to equalize opportunity and share the benefits of economic growth. Once, around the turn of the twentieth century, enterprising young progressives headed to Europe to study policy, returning to America with the seeds of what would become the New Deal, and later, the Great Society. Perhaps it is time, once again, to look abroad for answers.
Simple Solutions to Complex Problems
Via Sarah Kliff, the OECD’s Obesity Update 2012 provides an important example of a complex problem (soaring health care costs) that could be addressed, in part, by a relatively simple solution (healthier diet and exercise).
President Obama has caught plently of flak in the past for similarly modest proposals, like painting roofs white to reduce air conditioning and electricity costs, or keeping car tires properly inflated to improve mileage. Thankfully, that hasn’t stopped the administration from moving ahead with new rules for government-subsidized school meals, which must now include whole grains, reduced fat and salt, and twice as many fruits and vegetables.
It’s a step in the right direction. The OECD estimates that an obese person incurs 25 percent higher medical bills than a person of normal weight in any given year, with obesity responsibile for 5 to 10 percent of all health care expenditures in the United States. And that number should rise by 2020, when the OECD predicts three out of every four Americans will be overweight or obese. So, as employers and families struggle to pay ever-higher premiums, a renewed focus on practical, preventative health policy—like school nutrition regulations—is surely a step in the right direction.
Mitt’s “Entitlement Society” is a Myth
As I wrote earlier this week, the idea that the United States has become an “Entitlement Society,” as Mitt Romney recently put it, is a myth unsupported by the most basic facts. Although the former Massachusetts governor has written that government benefits engender “passivity and sloth,” the truth is that over 90 percent of benefit dollars are spent on the elderly, the seriously disabled, and members of working households—hardly the “welfare queens” that Republican rhetoric evokes.
But the misinformation extends beyond the welfare queen trope. As Lawrence Mishel points out, the argument that the welfare state has significantly expanded under President Obama only works if you calculate that growth by dividing mandatory spending by government revenues. That trick allows you to use as your denominator revenues that are at their lowest levels in 60 years, in addition to a numerator distorted by an unemployment figure more than double the rate a decade ago.
A better way to evaluate the expansion of government benefits is to look at total mandatory human resource expenditures as a share of government outlays. By that standard, entitlements as a share of federal expenditures barely changed between the 1990s and 2007, before the financial crisis. After the recession hit, mandatory spending did rise slightly, to 55 percent in 2010 and 56 percent in 2011—but that is exactly what we would expect from the social safety net during a severe economic downturn. The picture is even rosier if you take the size of the economy as your denominator: mandatory spending as a share of GDP remains essentially unchanged in two decades, and is actually down slightly in 2012.
Source: U.S. Office of Management and Budget Historical Tables
Who Benefits From Our “Entitlement Society”?
“Even Critics of Safety Net Increasingly Depend on it,” read a recent New York Times headline, capturing in a sentence the uncertain and contradictory sentiment of millions of middle class Americans who say they want the government out of their lives, but admit they count on Social Security, Medicare, and other benefits to stay afloat. Chisago, Minnesota—the archetypal heartland county in which much of the article takes place—is illustrative: a former Democratic stronghold, now with a declining middle class and a decidedly conservative outlook, whose residents struggle to reconcile their resentment with reliance on entitlement programs.
The remaining Republican presidential candidates have seized upon that resentment to construct an alternative narrative to the one President Obama favors. While the administration talks about helping hard-working Americans to get back on their feet after the worst economic downturn since the Great Depression, Mitt Romney has warned that the United States is becoming an “Entitlement Society,” with dependence on government fostering “passivity and sloth.” Rick Santorum talks of social insurance “systematically destroying the work ethic.” And Newt Gingrich has called Mr. Obama a “food-stamp president,” suggesting that “the African-American community should demand paychecks and not be satisfied with food stamps.”
But this racially-charged 
narrative—able-bodied young people collecting government benefits instead of finding honest work—couldn’t be farther from the truth. According to a new report from the Center on Budget and Policy Priorities, more than 90 percent of government benefits went to the elderly, the seriously disabled, and members of working households in 2010. The majority of the remaining 9 percent went to medical care, unemployment insurance (which requires previous work experience), Social Security survivor benefits (for children and spouses of deceased workers), and early Social Security benefits. The CBPP analysis also finds that among entitlement programs that target only low-income households, five out of every six dollars were spent on the elderly or disabled (probably a low estimate, as the data comes from 2010, when the national unemployment rate averaged a historic 9.6 percent).
The CBPP data should also quash the Republicans implication that the poor benefit from entitlement programs at the expense of the middle class. In fact, the graph below shows that the middle class receives a proportionate share of benefits, while only the top 20 percent of the population receives less. Compare that to the distribution of tax credits, write-offs and deductions that are available to the rich: the top fifth of the population received 66 percent of the $1.1 trillion “tax entitlements” in 2010, compared to just 2.8 percent for the poorest fifth.
Unfortunately, the deterioration of the middle class has made many Americans susceptible to the politics of resentment that drive Republican misperceptions. In Chisago County, per capita income has fallen 13 percent in the last decade; nationally, median income remains little changed in over thirty years. But instead of questioning the vast upward redistribution of wealth to the top one percent, or why the 400 richest Americans—who control as much wealth as 150 million people—pay an average tax rate of just 18%, many of Minnesotans quoted in the Times article speak stoically of suffering to reduce the national debt and their own reliance on government:
“How do you tell someone that you deserve to have heart surgery and you can’t?” Mr. Gulbranson said.
He paused.
“You have to help and have compassion as a people, because otherwise you have no society, but financially you can’t destroy yourself. And that is what we’re doing.”
He paused again, unable to resolve the dilemma.
Graph of the Day: For High-Scoring Students, Socioeconomic Status Still Matters
My colleague Greg Anrig continues live-blogging his critique of Charles Murray’s Coming Apart: The State of White America 1960-2010, with a deconstruction of Murray’s claim that top-tier universities perpetuate a genetically superior elite, whose privilege further isolates them from working-class Americans. As Anrig points out, class privilege in higher education is a problem The Century Foundation takes seriously (our own research shows that 74 percent of the students at highly selective colleges come from the richest socioeconomic quartile, while just 3 percent come from the bottom fourth); but Murray’s obsession with genetic explanations (as in his debunked theories about racial intelligence in The Bell Curve) and his conservative ideology blind him to essential facts about the way that class privilege operates in the real world.
The fact is that among high school students who score in the top 25th percentile on standardized tests, socioeconomic background remains the most significant predictor of whether they will go on to earn a college degree. According to a 2010 Century Foundation report, high-scoring students from a poor socioeconomic background were more than 80% less likely to attend a four-year college than their wealthy peers, and five times more likely to attend no college at all. And with the cost of a four-year college education skyrocketing, is it really any wonder that affordability has become a major obstacle for equally intelligent and deserving students? But Murray takes no time to consider whether income inequality–rather than an inevitable, genetic aristocracy of talent–is to blame for this concentration of class privilege. The data below, from the U.S. Department of Education, tell the true story.
Fiscal Drag Still Threatens the Recovery
Last week brought good news for the U.S. economy: according to the Labor Department, the headline unemployment rate fell to 8.3 percent as payrolls added 243,000 new jobs in January. That number climbs to 304,000 if you include the revised numbers for November and December, which underestimated employment by a full 60,000. And job growth was well distributed throughout the private sector, with impressive gains in professional and businesses services, leisure and hospitality, and manufacturing. “That sound you hear is champagne corks in the west wing,” tweeted Washington Post economics reporter Neil Irwin at the news.
But while it’s surely five o’clock somewhere (probably China, in this particular metaphor), champagne-soaked celebration would be premature. There are, as Ezra Klein points out, “fiscal bombs”—or perhaps more accurately a “fiscal minefield”—about to explode beneath our feet.
The problem is this: if current law holds, the payroll tax cut and expanded unemployment benefits will soon end, followed by the expiration of the Bush tax cuts and the winding down of what remains of the stimulus money. Then comes the implementation of the $1.2 trillion automatic sequester, which will take a huge bite out of Medicare and other non-defense discretionary spending. According to the CBO—which, crucially, must base its analysis solely on current law—those higher taxes and lower deficits will costs us 0.5 percent of GDP in 2012 and 1.65 percent in 2012—enough to slow economic growth to just 1 percent. The IMF agrees: they estimate such “fiscal drag” could cost the U.S. as much as 2 percent of GDP in 2012—”the largest annual fall in at least four decades.”
Decisive action from lawmakers to extend the payroll tax holiday, reinvest in infrastructure, and support state and local governments would go a long way toward preventing that fiscal drag until the economy is more solidly on its feet. As Jared Bernstein notes, the Recovery Act demonstrated just how effective state fiscal relief was for preserving local government jobs. Unfortunately, that money was temporary; now that the stimulus has run its course, we have returned to a hemorrhaging public sector, with 14,000 jobs lost just last month. Immediate action to keep police, teachers, and other state government employees on the payroll would go a long way toward avoiding “fiscal drag” and giving our local economies time to secure a meaningful recovery.
Union Membership Grew in 2011, But Remains at Historic Low
Despite ongoing government cutbacks and a series of threats from states seeking to limit collective bargaining rights, the latest data shows that gains in the private sector helped overall union membership to increase slightly last year to 14.8 million. While that number is “essentially unchanged” from 2010, according to the Bureau of Labor Statistics, it indicates that declining union participation may have finally bottomed out—for now.
While the addition of 110,000 new union workers in the private sector—primarily in health care and construction—helped to offset the loss of about 61,000 government employees, the overall percentage of unionized workers remains, at 11.8 percent, the lowest since the Great Depression. Interestingly, that’s something of a reversal from the trend the last thirty years: public sector union membership was growing steadily until the financial crisis of 2008, even as private sector unions all but disappeared with the offshoring of American manufacturing.
It is a precarious moment for the labor movement. If, as labor leaders hope, we have indeed hit the bottom for private sector unionization, we may see unions begin to rebuild as the economy recovers. But in the face of continuing budget shortfalls, the future for the public sector remains uncertain. “We may have reached a level where the union numbers simply can’t decline anymore,” says Gary Chaison, a labor professor at Clark University. “But if you’re not expanding, how can you call yourself a movement?”
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.
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.
