Posts from Jared Bernstein

The 2018 Poverty, Income, and health coverage results: a tale of three forces.

Jared Bernstein

Jared Bernstein Senior Fellow, Center on Budget and Policy Priorities

This morning, the Census Bureau released new data on health insurance coverage, poverty, and middle-class incomes. While the data are for last year, they shine an important light on key aspects of families’ living standards that we don’t get from the more up-to-date macro-indicators, like GDP and unemployment.

As the economic recovery that began over a decade ago persisted through 2018, poverty once again fell, by half-a-percentage point, from 12.3 percent to 11.8 percent. Other results from the report show that anti-poverty and income support programs lifted millions of people out of poverty, including 27 million through Social Security alone. Though the real median household income—the income of the household right in the middle of the income scale—increased slightly less than 1 percent last year, the increase was not statistically significant. Median earnings of full-time men and women workers both rose significantly, by over 3 percent for each (for reasons discussed below, sometimes earnings rise significantly but income does not).

Health coverage, however, significantly deteriorated last year, as the share of the uninsured rose for the first time since 2009, from 7.9 percent to 8.5 percent. In total, 27.5 million lacked coverage in 2018, an increase of 1.9 million over 2017. This result is partially driven by actions of the Trump administration to undermine the Affordable Care Act (note that Medicaid coverage was down by 0.7 percentage points), and in this regard, it should be taken as a powerful signal of the impact of conservative policy on U.S. health coverage.

Taken together, the poverty, income, and health coverage results tell a tale of three powerful forces: the strong economy, effective anti-poverty programs, and the Trump administration’s ongoing attack on affordable health coverage. A strong labor market is an essential asset for working-age families, and the data are clear that poor people respond to the opportunities associated with a labor market closing in on full employment. Anti-poverty programs are lifting millions of economically vulnerable persons, including seniors and children, out of poverty. But while a strong labor market and a responsive safety net help to solve a lot of problems, the history of both U.S. and other countries shows that it takes national health care policy to ensure families have access to affordable coverage. The ACA was and is playing that role, but efforts to undermine its effectiveness are evident in the Census data.

Poverty, Income, Inequality

The Census provides two measures of poverty: the official poverty measure (OPM) and the Supplement Poverty Measure (SPM). The latter is a more accurate metric as it uses an updated and more realistic income threshold to determine poverty status, and it counts important benefits that the OPM leaves out. While the two measures often track each other, year-to-year, that wasn’t the case last year, as the SPM rose an insignificant one-tenth of a percent, from 13.0 to 13.1 percent, while the OPM fell a significant half-a-percent, from 12.3 to 11.8 percent. Because the SPM has a higher income threshold than the OPM, 4.4 million more people were poor by that more accurate measure.

Because it counts anti-poverty policies that the official measure leaves out, one particularly useful characteristic of the SPM data is that it breaks out the millions of people lifted out of poverty by specific anti-poverty programs. For example, refundable tax credits, such as the Earned Income Tax Credit and the Child Tax Credit lifted about 8 million people out of poverty in 2018; SNAP (food stamps) lifted 3 million more out each, and Social Security was the most powerful poverty reducer, lifting 27 million out of poverty in 2018, 18 million of whom were elderly (65 and older).

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Payrolls slow and the trade war is hurting manufacturing. But underlying job market still solid.

Jared Bernstein

Jared Bernstein Senior Fellow, Center on Budget and Policy Priorities

Payrolls rose by 130,000 last month and the unemployment rate held at 3.7 percent, close to a 50-year low and the same level as the past 3 months. Still, job growth is cooling (25,000 of this month’s gains were temporary decennial Census workers), as the pace of monthly gains, while still strong enough to support low unemployment, has slowed. Wage growth also stayed parked at about where it has been in recent months, and there’s some evidence that the trade war is taking a toll on factory jobs. However, the job market remains strong, real wages are growing, and consumer spending will continue to be supported by these dynamics.

The slowdown in payrolls

To get a clearer take on the underlying trend in job growth, our monthly smoother shows the average monthly gain over 3, 6, and 12-month periods. This month, however, we add an extra bar to our usual smoother, as we believe it is important to begin to incorporate a recent BLS revision, based on more accurate jobs data, into our assessment of the US job market. This preliminary benchmark revision estimates that employers added 500,000 fewer jobs to US payrolls between April of 2018 and March of 2019 (BLS will officially wedge their final estimate into the payroll data by Feb 2020). The second bar includes the result of this revision, showing that over the past year, payroll growth was likely closer to 150K per month than 175K per month.

To be sure, this is still solid payroll growth at this stage of the expansion and as noted below, in tandem with real wage growth, it’s strong enough job growth to support the recovery and keep unemployment around where it is. However, using the preliminary revised data, the pace of payroll gains has slowed from 1.6% last year to 1.3% this year. Clearly, that’s not a big deceleration, and it’s also not unexpected in a job market closing in on full employment. But it is a slower trend which I expect to persist.

The trade war

The trade war that the Trump administration has been waging is clearly taking a toll on the global economy. While its impact is greater in countries more exposed to trade, like Germany, than the US, our manufacturers have been hit by these new taxes (tariffs) on their imported inputs and by retaliatory tariffs on their exports. To what extent is this showing up in factory employment, hours, and wages?

Manufacturing employment has slowed since the Trump administration began ramping up tariffs at the beginning of last year. Last month, factory jobs rose just 3K and durable manufacturing employment was unchanged. Thus far this year, the factory sector has added 5.5K jobs per month on average, compared to 22K for all of last year.

The product of manufacturing employment and weekly hours yields the aggregate hour index for the sector, a very good proxy for labor demand. The next figure looks at the year-over-year change in this index for blue collar and for all manufacturing workers. Starting about a year ago, a clear deceleration is evident, and for the non-managers—who comprise about 70 percent of the sector’s employment—total hours worked have outright declined in recent months (relative to a year ago).

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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

No Such Thing as Good Greed

No Such Thing as Good Greed

Union Matters

America’s Wealthy: Ever Eager to Pay Their Taxes!

Sam Pizzigati

Sam Pizzigati Editor, Too Much online magazine

Why do many of the wealthiest people in America oppose a “wealth tax,” an annual levy on grand fortune? Could their distaste reflect a simple reluctance to pay their fair tax share? Oh no, JPMorganChase CEO Jamie Dimon recently told the Business Roundtable: “I know a lot of wealthy people who would be happy to pay more in taxes; they just think it’ll be wasted and be given to interest groups and stuff like that.” Could Dimon have in mind the interest group he knows best, Wall Street? In the 2008 financial crisis, federal bailouts kept the banking industry from imploding. JPMorgan alone, notes the ProPublica Bailout Tracker, collected $25 billion worth of federal largesse, an act of generosity that’s helped Dimon lock down a $1.5-billion personal fortune. Under the Elizabeth Warren wealth tax plan, Dimon would pay an annual 3 percent tax on that much net worth. Fortunes between $1 billion and $2.5 billion would face a 5 percent annual tax under the Bernie Sanders plan.

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