Worker voice, unions, and bargaining power

October 8th, 2015 at 8:06 am

Over at WaPo, and well worth reading the White House’s issue brief on these points. Solid research from the President’s CEA on why unions matter. You ask me, that’s a plus both on substance and political grounds. Also, their section on alternative forms of organizing provides interesting overview of potentially important new developments in this space.

Making sense of the TPP: Don’t confuse trade with trade deals.

October 6th, 2015 at 8:25 am

After years of negotiating, the Trans Pacific Partnership, a 30 chapter, 12 country trade agreement that’s been in the works for years, was signed yesterday by participating countries.

Trade negotiators from the US, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam resolved long-standing differences on tariffs, dispute procedures, labor and environmental rights, intellectual property/patents, and much more, and agreed to the accord. That step alone does not make it the law governing trade practices between these nations; their governments, as well as our own, of course, must now ratify the agreement.

But what does this all mean? The deal has been negotiated in secret so we’ve largely had to rely on what negotiators tell us about it, and since the negotiators are tasked by their governments with selling the deal, such information tends to be pretty one-sided. Will it really herald “a wide range of change in the years ahead” for “consumers across the country,” as the NYT writes this morning?

I haven’t seen it either, but I strongly doubt it. Trade and globalization have historically been big, economic game-changers, reaping benefits for consumers and macro-economies from vastly increased supply chains. Trade deals, on the other hand, are nothing more than rules of the road for how trade is conducted between partner countries. Some of those rules are handshakes between investors across borders; other measures, often in opposition to the investor-favored ones, have the potential to benefit consumers, workers, and the environment.

What matters is the balance between those two forces (not, as many of the media stories tell it, whether we beat China to organizing the Pacific Rim). Historically, the investor class has called the tune, pushing patent protections, intellectual property rights, investment protections, and dispute settlement structures that protect multinationals from prosecution and allow them extra-national privileges. The US negotiators tell us this time is different, and from what we’ve seen, the TPP includes more in the way of labor and environmental rights, along with consumer protections. Whether they are enforced is thus a critical matter.

And at least one important piece is missing: rules against currency manipulation (though we’re learning about a side deal on that as well—read on).

As I point out below, few know yet what’s really in the deal, which should be public in around a month. The fact that it has been negotiated in secret has led to a general sense of distrust around the process. Add to that the fact that while we all benefit from global trade, many have lost good jobs to globalization, and many live in communities that have been crippled by the loss of industry. They and their political representatives are naturally skeptical of trade deals.

So, with the caveat that I’ve seen nothing more than a few leaks, let me at least try to answer some questions you might be pondering in as balanced a way as I can.

What happens now?

As with past trade agreements, because Congress gave President Obama “fast track authority” back in June, there will eventually be an up or down, majority vote on the treaty—no amendments, no filibusters. But there’s an important new wrinkle this time around.

The TPP is a bigger deal than past agreements, which typically involve one or two other countries. Trade officials talk about it as the “last trade agreement,” meaning that instead of negotiating future agreements, countries will be able to join onto the TPP. Thus, when fast track was passed, the administration agreed that once the President announces his intention to sign it, 90 days must pass before he does so, including 60 days when the heretofore secret agreement will be public for all to read (though you’ll really need a trade lawyer to make sense of the language and references to past agreements).

Why have the negotiations been secret?

As suggested above, the secrecy of the negotiations have created a great deal of distrust with a skeptical public, especially when it’s come out that those who have made it to the bargaining table have tended to come from the multinational corporate sector more than the working class. That said, there’s a logic to the secrecy. A 12-way negotiation is extremely hard already; if interest groups were banging on the process at every turn, the negotiation stage would never end.

Is the deal as great as the White House says it is?

The thing you should know about trade agreements is that advocates oversell them and opponents exaggerate their downsides. And this problem gets amped up when few on either side have access to the actual terms of the deal.

From what I’ve seen so far, the language in this deal looks like that of past deals, including ones I’ve worked on myself. Like I said, they’re rules of the road and it would be awfully dangerous to drive down a road where motorists didn’t agree to follow conventions. Similarly, trade proceeds more smoothly when agreements on the terms are explicit.

Things like “rules of origin” (defining the standards by which a good can be said to originate in a partner country and thus receive tariff benefits), allowable tariffs, how disagreements will be settled, investor protections, patent rules—that’s the stuff of trade agreements. Note that a lot of that—patents, for example—are not “free trade” at all. In fact, TPP’s likely expansion of patent rules on medicines has been a sticking point in the negotiations, as US patent protections have not only led to higher drug prices here, but have also restricted access to needed medicines in the developing world.

In that sense, I greet claims that the TPP will boost American growth and jobs with a healthy dose of skepticism. We already trade pretty freely with most of these countries, and tariffs are low enough already that taking them down further will yield marginal, non-measurable gains given all the other moving parts in the international trade equation.

In this regard, trade itself matters more than trade agreements, and trade has benefits and costs. TPP proponents correctly note that trade increases the supply of goods and thus lowers consumer prices. It’s also true that there’s a wage premium associated with jobs in the export sector.

Conversely, TPP opponents are on solid ground when noting that what really matters for the American workforce are net exports (exports minus imports). We’ve run large trade deficits in this country for decades, and they are one channel through which globalization has been a factor in rising inequality, wage stagnation, and the loss of manufacturing jobs.

There’s no reason to believe the TPP alone will change these fundamental benefits and costs of trade.

So why sign the deal? What’s in it for working people here and abroad?

If it’s not about growth and jobs, what is it about?

Like I said, rules of the trade road, and here, the Obama administration claims some real advances in important areas including labor and environmental rights.

For example, they claim that the parties to the TPP agree to “freedom of association and the right to collective bargaining; elimination of forced labour; abolition of child labour and a prohibition on the worst forms of child labour; and elimination of discrimination in employment.  They also agree to have laws governing minimum wages, hours of work, and occupational safety and health.” (Apparently, they’ve also agreed to the un-American spelling of ‘labor!’)

OK, but will they enforce these rights? Countries like Mexico and Vietnam have terrible records on labor, consistently oppressing independent unions. I spoke to Rep. Sandy Levin (D-MI) about this—a trusted voice on trade issues—and he believes the deal contains language such that if Vietnam did not have independent unions in five years, some of the benefits of the deal would be withdrawn. He was less sanguine about Mexico.

Basically, we can write down all kinds of good ideas—progressive rules of the road—but if we fail to enforce them, which implies holding other parties’ feet to the fire as well, they won’t matter. As Senator Elizabeth Warren has pointed out, our enforcement record has not been admirable.

What’s all this about blocking China from co-opting the region?

The other big reason for the deal, according to the administration, is to keep China from organizing trade in the region. But frankly, I think “Who would you rather have writing the rules, us or the Chinese?” isn’t the right question. That is, the answer is surely “us,” but who is “us?”

From the perspective of low- and middle-income people, what matters is who’s at the negotiating table. Workers from signatory countries, particularly emerging economies, have less to worry about in this context from China than from representatives of corporations, those working to expand patents, and similar stakeholders trying to protect and expand market share at the expense of the less advantaged.

It is thus worrisome that, according to the Washington Post, 85 percent of those on US advisory committees came from private industry and trade associations.

The TPP’s Investor State Dispute Settlement (ISDS) provisions, which can enable multinational corporations to circumvent countries’ court systems and challenge laws in front of international panels of arbitrators, are also worrisome. Interestingly, the deal appears to prohibit big tobacco from using ISDS to prevent cigarette regulations. The Obama administration correctly points out that we’ve never lost an ISDS case, so they’re downplaying such concerns. But the tobacco exclusion is telling: surely there are other industries in which an ISDS mechanism can present a threat to hard-won environmental and/or labor rights in member countries.

Will the Congress ratify the deal?

Not unlike the way Speaker Boehner has passed important legislation with mostly Democrats, the Obama administration has leaned on Republicans for support on fast track and the TPP. They should be able to do so again when the vote to ratify comes to the floor, probably sometime early next year (remember, they only need majorities).

In the meantime, it will be essential to review the TPP when it becomes public and, while the agreement itself cannot be changed, Congress can insist on side deals. A key area here is currency manipulation, a tactic that has cost us many manufacturing jobs in the past. Reports tell of “Finance Ministers’ plan” on currency outside the deal. The problem, according to Rep. Levin, who described this effort as “entirely unsatisfactory,” is that there’s no way to enforce rules on currency—to mete out sufficient consequences for manipulators—through this channel.

End of the day, it’s extremely hard to know the impact of the TPP. Team Obama has fought for some important improvements that could boost labor and environmental standards but it really all comes down to whether the member countries enforce them, and, given our relative size and power, whether we make sure they do so – and take action if they don’t.

The politics are already getting tricky, but I suspect the deal will pass. Both the administration and powerful interests want it in place. In the meantime, don’t believe the hype, and stay tuned for the public release.

September jobs: A weak report, but does it reveal a true downshift?

October 2nd, 2015 at 9:23 am

The nation’s payrolls rose by only 142,000 last month, and job gains for July and August were revised down by 59,000, suggesting the pace of job growth has slowed in recent months. The labor force contracted and weekly hours of work also declined slightly. Hourly pay was unchanged over the month and rose 2.2% over the past year, around the same pace it has been at for numerous years.

In other words, what we have here is a surprisingly weak jobs report—analysts were expecting job growth of around 200,000, and the question is: how much should it change our views about underlying labor market conditions? The answer is somewhat, but it’s too soon to confirm a lasting downshift in job growth.

On the one hand, my patented smoother shows evidence of the downshift. The figure gets at underlying trends in monthly job growth by tracking 3, 6, and 12-month averages. Over the past 3 months, payrolls have averaged 167,000 per month. That well below the 12-month average of about 230,000, suggesting a slowdown.

Source: BLS, my analysis

Source: BLS, my analysis

On the other hand, a look at the BLS figure of monthly gains (not averaged) shows peaks and valleys to be common in this data. Note the circled months at the end of 2014. Someone writing those months up might have mistakenly assumed a significant upshift in job growth.

Source: BLS

Source: BLS

The key then is to ask: what other economic indicators might be in play here, slowing job growth in a way that could be lasting?

One candidate is the stronger dollar, which hurts the competitiveness of US goods in foreign markets. We know that negative net exports have been a drag on growth lately, and one place you’d expect to see that in the jobs numbers is in manufacturing employment. In fact, this year, factory employment is flat, up only 2,000 per month, and down 27,000 in the past two months. Last year, the sector added 18,000 jobs/month on average.

Source: BLS, my analysis

Source: BLS, my analysis

The decline in the labor force rate is another sign of weakness. It ticked down to 62.4%, the lowest this rate has been since the late 1970s. That’s not as shocking as it sounds, because part of what’s driving the rate down is demographics, i.e., the retirement of baby boomers. But we also have seen very low rates for working-age persons, and I’d say that at least a third of the 3.6 percentage point decline in the labor force rate since the end of 2007—the beginning of the recession—is due to weak labor force demand. That’s close to 2 million potential workers missing from the labor force.

However, a few signs point in a more positive direction. Wage growth hasn’t sped up, which is what you’d expect if the labor market were truly around full employment, which it’s not. But neither has it slowed. There’s a significant lag in play here, but unlike price growth, at least wage growth is holding steady.

Also, both the number of long-term unemployed and the number of involuntary part-timers is on the decline, with the latter down 1 million over the past year. Since this latter group is a big part of the more comprehensive “U-6” rate, it fell to 10% last month, its lowest level since May of 2008.

Someone asked me the other day what the Fed would have to see in this jobs report to make their mind up one way or the other about a rate hike in either their October or December meeting. The answer is: no one report could have that effect. If the report was a large outlier—a big negative or positive spike in payrolls, e.g.—it would be considered…um…a large outlier. If it was somewhat off trend, like today’s report, it would raise eyebrows, including my own, as a potential sign of a new, slower trend. If that suspicion is reinforced by the next two jobs reports, the Fed will very likely incorporate that into their evaluation at their December meeting and hold their target rate near zero.

The punchline is that “high-frequency” data is but a dot on a painting by Georges Seurat. It’s not enough by itself to paint a picture of what’s going on in the job market, but if you combine it with a bunch of other dots, you may be onto something.

Unfortunately, this month’s report is a lot less pretty than the painting below, and we’ll have to wait and see if it truly paints an unattractive slowdown in the rate of job growth, something we really don’t need given that the recovery still hasn’t adequately shown up in wage and income growth of low- and middle-income households.

On the upside, perhaps we’ve engaged some art history majors in economic analysis!

Art history majors shouldn’t feel left out on jobs day: high frequency data is like a dot in a Seurat painting.

Source: Georges Seurat

Source: Georges Seurat