12 by 2020

Senator Patty Murray and Representative Bobby Scott introduced a bill yesterday that would increase the federal minimum wage from its current level of $7.25 per hour to $12.00 by 2020.

In a paper also released yesterday, David Cooper and Lawrence Mishel of the Economic Policy Institute and I assess how a minimum wage of $12 in 2020 would compare with the historical experience.

We use 1968 as our main reference point. That is the year that the minimum wage reached its peak value by most measures—and the national unemployment rate was just 3.6 percent. With respect to purchasing power, for example, the 1968 minimum wage was equal to $9.54 per hour (in 2014 dollars), or more than 30 percent higher than its current value. In 1968, the federal minimum wage was also equal to 33 percent of the hourly productivity of the average worker. By 2014, the federal minimum stood at only 13 percent of average productivity.

Schmitt-2015-05-01-2

Raising the federal minimum wage to $12.00 by 2020 would go a long way toward restoring the minimum wage to where it was in 1968. We focus our analysis on the relationship between the minimum wage and the wage of the median worker, the one right in the middle of the wage distribution, where half of all workers earn more and half earn less. In 1968, the minimum wage was equal to about 52 percent of what the median worker earned. By 2014, the minimum wage had fallen to just 37 percent of the median. Under conservative assumptions, a $12.00 minimum in 2020 would increase the ratio to 54 percent, just a bit above where it was in 1968.

This basic finding repeats itself when we use other data to gauge the relationship between the minimum wage and earnings of the typical worker. In 1968, the minimum wage was equal to 53 percent of the average earnings of production and nonsupervisory workers (roughly the bottom 80 percent of the workforce). Today, that ratio is about 35 percent. Raising the minimum wage to $12.00 by 2020 would leave the ratio at 51 percent, just a bit shy of where it was in 1968.

cms-2015-figA
These calculations (and others we present in the report) all suggest that by 2020 the economy will be able to afford the new, higher minimum wage.

The report also highlights three reasons why the economy today is much better placed to absorb a minimum wage on a par with the level last seen in 1968.

First, average productivity levels are more than twice as high now as they were in 1968. Since economists generally believe that wages across the distribution should move broadly in line with average productivity, the much higher average productivity levels today (and even more so by 2020) mean that the economy can at very least match wages paid in 1968.

Second, low-wage workers are older and much better educated today than they were in the past. Today’s low-wage workers are much more likely to have a high school degree or even a college degree than they were four or five decades ago. They are also older and therefore likely to have more job experience. Since economists generally believe that older and better-educated workers should earn more than younger and less well-educated workers, again, the economy appears able to afford to pay workers at least as much as they did roughly five decades ago.

Finally, differences in state wages have gotten smaller since 1968. The median worker in the lowest wage state in 1968 (Tennessee) earned only 78 percent of what the national median worker received. By 2013, no state had a median wage that was less than 90 percent of the national median. As a result, a federal minimum will have less of an impact on low-wage states now than it did in 1968. (Of course, wage inequality is much higher today than it was in 1968. But, this is because the wages of low-wage workers within each state are much lower now relative to where they were in 1968. An important reason for the widening of wage inequality at the bottom is precisely the decline in the value of the federal minimum wage.)

In short, our view is that anything we could do in 1968, we can do better in 2020.

Two other key features of the bill that I want to point out, but leave for another day to discuss, are: the gradual elimination of the existing sub-minimum wage for tipped workers (currently just $2.13 per hour, where it has been since the early 1990s); and the setting of increases in the federal minimum wage after 2020 to match growth each year in the national median wage. Both actions would tie low-wage workers’ prospects to the wage advances achieved by the rest of the workforce.

(This post originally appeared on the CEPR blog.)

Disunited States of America

disunitedstates

I have a chapter on state-level labor-market regulations in a new ILR Press book edited by David Jacobs (Morgan State University) and Peggy Kahn (University of Michigan, Flint). The book is called Disunited States of America: Employment Relations Systems in Conflict, and the title of my chapter is “Differences in the ‘inclusiveness’ of state labor market institutions.”

My chapter compiles and presents a lot of data on differences in minimum wages, unionization rates, earned income tax credits, unemployment insurance systems, employment protection legislation, and other dimensions of labor-market regulation at both the state and international levels. The main conclusion is that, while there is substantial variation across the U.S. states along many of these dimensions, these differences are small relative to the gap between the United States and the rest of the world’s rich economies.

To give just one example, the figure below shows an OECD-calculated measure of the generosity of unemployment insurance benefits in the core OECD economies, together with my own roughly comparable estimates for the U.S. state with the most generous unemployment insurance system (Rhode Island) and the least generous system (District of Columbia). By the OECD’s calculation, the United States as a whole has one of the least generous unemployment benefit systems. But, the figure illustrates that even the most extravagant U.S. state program would still look miserly by international standards. A similar pattern holds for the other indicators I examine: even the most “inclusive” U.S. labor-market systems compare poorly to our peer economies.

fig3

The other chapters in the volume include: “The persistent effects of slavery in the United States: culture, legal policy, and the decline of American labor unions,” by Raymond L. Hogler; “Labor in the world of cynical conservative federalism,” by Nathan Newman; “Worker centers as an inflection point? An introduction and an interview with Kimi Lee,” by Peggy Kahn and Kimi Lee; “Beyond the Family and Medical Leave Act: the pluralization of leave rights from below,” by Peggy Kahn; “Labor and class in a neo-mercantile context: a view from the U.S. Midwest,” by Roland Zullo; “Health insurance coverage of low-income workers in the United States,” by Sara R. Collins and Tracy Garber; with a conclusion on “Reconstituting laborist capitalism,” by David Jacobs.

Failing on Two Fronts

epop

In a new CEPR report out today, I argue that the US labor market is failing on two fronts. The first failure is the decades-long stagnation of real wages at the middle and the bottom of the wage scale –even as earnings at the top have grown rapidly. The second failure, only apparent since the early 2000s, is the sharp deterioration in job creation.

In the standard view, high and rising wage inequality was supposed to have been the secret ingredient that allowed the US economy to create jobs more rapidly than other more “rigid” economies. I’ve never been convinced by that particular argument, but at least before about 2000 there was a case that the US economy was doing a decent job creating jobs, whatever the specific cause. But, as this new report demonstrates, since the early 2000s, the US employment performance has been pretty dismal. If inequality was ever driving job creation, it hasn’t been doing so for more than a decade.

I place the blame for both of these failures squarely on economic policy. A broad set of policies –from the decline in the value of the minimum wage to a string of bad trade deals– have undermined the bargaining power of workers, driving up inequality (see an older CEPR report for a longer discussion). Meanwhile, bad macroeconomic policy has simultaneously reinforced this downward pressure on wages and hobbled the once impressive US “jobs machine.”

Union Membership, 2014

The Bureau of Labor Statistics released its estimates of union membership and union coverage for 2014 this morning. Last year, the share of U.S. workers who were members of a union fell 0.2 percentage points to 11.1 percent, continuing a decades-long decline in unionization in the United States.

My CEPR colleague, Cherrie Bucknor, and I (with the help of Nick Buffie) have written a quick analysis that attempts to put these latest developments into longer-term context.

You can read the full story here, but two points are worth highlighting. First, since the mid-2000s, workers in manufacturing are actually less likely to be in a union than the average worker is.

union-byte-2015-01-fig1

Second, the union membership rate in the public sector –where employer opposition tends to be much lower than in the private sector– is relatively high and has changed little over the last thirty years. By contrast, in the private sector, where labor law and strong employer opposition make it difficult for workers to join unions, membership has been much lower and falling steadily .

union-byte-2015-01-fig2UPDATE 01/24/15: The Wall Street Journal‘s Melanie Trottman cited our research in her coverage in today’s print edition (behind a paywall).

Raising or Scrapping Social Security Payroll Tax Cap

On New Year’s Day, the cap on the Social Security payroll tax increased to $118,500 per year (up from $117,000 in 2014). Workers pay Social Security tax until their annual earnings reach the cap and then pay no additional Social Security tax after that (until the following year, when the clock restarts).

One way to increase revenues available to Social Security would be to raise or eliminate the cap. In a report out today, my CEPR colleagues, Nicole Woo, Cherrie Bucknor, and I use data from the American Community Survey (ACS) to estimate how many workers would be affected if we raised the cap to $250,000, $400,000, or just eliminated the cap altogether.

According to our analysis of the ACS data, about 6.1 percent of all workers have earnings from work in excess of the new cap; about 1.5 percent earn more than $250,000 per year; and about 0.7 percent are above $400,000.

The report includes tables with breakdowns by race, gender, age, and state.

Minimum Wage Q&A

The Inter Press Service news agency has published an interview with me by journalist Peter Costantini focusing on the minimum wage. There’s a longer version here and a shorter version in English here and in Spanish here.

My favorite part is the title, which is a cleaned-up version of something I said in the course of the interview: “The Economy Needs to Serve Us and Not the Other Way Around.”

A Tougher Road to Employment

On Christmas Day, the New York Times ran a great story on the “tougher road to employment” for black recent college graduates. The piece featured research by my colleague Janelle Jones and me, which originally appeared as a CEPR report (pdf) back in May.

Of course, I liked that the piece used our numbers (in 2013, the unemployment rate for black recent college graduates was more than double the unemployment rate for white recent grads, for example), but I also liked the implicit framing of the numbers. Black college graduates are a group that have “done everything right” –finished high school, finished college, entered the labor market– and yet are much more likely than their white counterparts to be unemployed or to be in a job that doesn’t require a college degree. (And, yes, our numbers show that this also holds true for black graduates with degrees in STEM –science, technology, engineering, and math.)

For me, the most insightful part of the story were the paragraphs focusing on remarks by Duke economist, Sandy Darity:

“I would never say to anyone they shouldn’t get a college education,” said William A. Darity Jr., an economist at Duke University. “There’s no doubt that having a college education improves the relative situation of any black American compared with any other black American.”

“But it does not significantly reduce racial disparity,” he added. “We’ve got to do something else to really have an effect on that.”

In fact, the unemployment rate in 2013 was lower among whites who never finished high school (9.7 percent) than it was for blacks with some college education (10.5 percent).

Black graduates are suffering from a version of last hired, first fired, Mr. Darity said. The effects of discrimination are blunted when the work force is expanding, but in harder times minorities are much more vulnerable, he said.

Does the OECD Think That the South Should Rise Again?

A post at Wonkblog earlier this month noted that a recent analysis by the Organization for Economic Cooperation and Development (OECD) of regional well-being across its member countries found that the U.S. South was “the worst place to live in the United States.” The OECD –as diplomatic as it is– did not say this in so many words, but Wonkblog reporter Roberto Ferdman pulled together the OECD’s state-level data for the United States and it would be hard to arrive at any other conclusion.

For each of the 50 states and the District of Columbia, the chart below gives the OECD’s overall well-being score, which consolidates the organization’s nine separate measures, reflecting health, jobs, safety, environment, access to services, civic engagement, housing, education, and income. Possible scores ranges from a low of zero to a perfect score of 90. In the United States, the lowest recorded score was 50.7 for Mississippi and the highest was New Hampshire at 77.6.

As Wonkblog highlighted, the chart shows a heavy concentration of southern states at the bottom –and the complete absence of southern states at the top. Ferdman writes: “The South, which performed the worst of any region in the country, is home to eight of the poorest performing states. Only Virginia was in the top 25. And just barely — it placed 22nd.” A similar pattern holds in the nine subcomponents of the OECD’s overall index.

Chart of OECD well-being index by US state

A few days later, Wonkblog ran a defense of the South –and of the OECD– written by Carol Guthrie, an OECD official in Washington, who also happens to be a die-hard daughter of the South. Guthrie emphasized that the OECD’s measures are “objective” and can’t capture the many subjective reasons that southerners love the South. The OECD, she said, was simply listing a set of “criteria that underpin economic as well as physical well-being, including things that make our regions more or less competitive and able to provide vibrant quality of life.” Quoting the OECD’s Secretary General Angel Gurria, Guthrie wrote that these indicators can be used to “offer a new way to gauge what policies work and can empower a community to act to achieve higher well-being for its citizens.”

So, what happens if we take up Guthrie and Gurria’s suggestion to use the well-being measures “to gauge what policies work”? Well, the most striking feature of the Wonkblog chart and of the OECD’s regional data more generally is how at odds the performance of the South is with long-standing policy preferences at the OECD. The South is almost certainly the region of the world that has most embraced in principle and has most embodied in practice the policies promoted by the OECD. Relative to the rest of the rich world, the states of the South have among the stingiest unemployment benefit systems, the least unionized workforces, the lowest minimum wages, the smallest public sectors, the weakest employment protection laws, and the lowest taxes. By standard OECD analysis, the South ought to be a workers’ paradise. But, based on the indicators that Guthrie decribes as “cold, hard facts” for “policymakers and citizens looking to bring about change,” the South performs disastrously.

To be fair, in recent years, the OECD has softened its stance on some of these issues, such as the minimum wage. And the OECD has long been a champion of increased investment in education, where the South also does poorly relative to the rest of the United States.

But, is it too much to hope that the OECD would use these new regional data to rethink their policy recommendations? At least when it comes to the United States?

(This post originally appeared on the CEPR blog.)

“Wage Inequality: A Story of Policy Choices”

The September 2014 issue of New Labor Forum includes an article (paywalled) by Larry Mishel (President of the Economic Policy Institute), Heidi Shierholz (until recently an economist at EPI, now Chief Economist at the Department of Labor), and me offering our explanation for the rise in wage inequality since the end of the 1970s.

From the introduction:

The mainstream of the economics profession offers one over-riding explanation for the rise in inequality: workers who have the skills needed for new technologies have done well, while those lacking those skills have fallen farther and farther behind. …We take a different view. We believe that it is possible to explain the entire rise of economic inequality since the late 1970s as the outcome of an array of economic policies that had the easy-to-predict effect of widening the gap between the top 1 percent and the rest.

Over each of the last three decades, macroeconomic policy (fiscal, exchange rate, monetary policies), trade agreements, deregulation of the financial sector, the legal environment governing unionization, the minimum wage, industry deregulation (in airlines, trucking, inter-state busing, and elsewhere), the privatization of state and local government functions, and other policies have had different effects on different kinds of workers, helping some and hurting others. … Together, we argue, these policies can explain changes in wage trends for workers—both men and women—across the wage distribution.

Beyond Secular Stagnation

Cover of Dissent, Summer 2014The new issue of Dissent has a special section, organized by SEIU Chief Economist Mark Levinson and me, on alternatives to economic stagnation. As Mark and I write in an introduction: “The special section seeks to provide a fuller, progressive answer to the question of how we should respond to stagnation. One common theme of the essays … is that ‘recovery’ from the economic crisis is not enough.”

The section features pieces by Dean Baker (CEPR) and Jared Bernstein (CBPP) on the importance of full employment; Heather Boushey (Washington Center for Equitable Growth) on the economics and politics of work-life balance policies; Amy Hanauer (Policy Matters Ohio) on progressive economic policy innovation at the state and local level; Alan Aja (Brooklyn College), Daniel Bustillo (Columbia University), William Darity, Jr. (Duke University), and Darrick Hamilton (The New School) on how to build a “race-fair” America; and Jennifer Taub (Vermont Law School) on how to fix our broken financial system.