The usually great Catherine Rampell unconvincingly objects to two improved labor standards

August 8th, 2017 at 2:42 pm

I’ve long been a big admirer of Catherine Rampell, but her piece today on “unintended consequences” of pro-worker policies was uncharacteristically unconvincing. She goes after two specific upgrades to existing labor standards: the increase in the federal minimum wage from its current $7.25 to $15 per hour, and the increase in the salary threshold below which workers have to be paid time-and-a-half for overtime.

Rampell, a data nerd (that’s a big compliment, to be clear), does the same thing I did when I started hearing about a $15 minimum wage. She goes to the data and shows that median (50th percentile) wages in various low-wage states are below $15. Since most past minimum wage increases affected less than 10 percent of the workforce (see table 1 here), she assumes an increase that hits a much larger share must be problematic (“it would likely result in massive job losses and cuts in work hours”).

But Rampell’s overlooking a key part of every $15 proposal I’ve seen: the phase-in period. The current proposal she’s critiquing here, which Ben Spielberg and I have written about previously and discussed at length, does not fully phase in until 2024. I guarantee Rampell that the phase-in was very intentionally put in there for the very reason she cites: to avoid hitting lower-wage states with an increase that affected such large shares of workers.

Of course, even that phase in may not be long enough for some states. Of course, we must consider potential dis-employment effects when considering unprecedentedly large increases. But to present the proposal yet leave out this part of its design is misleading.

Next, to defend her position, Rampell cites a recent study of the Seattle increase to $13 (on its way to $15; another phase-in!) which finds that the increase “has produced sharp cuts in hours, leaving low-wage workers with smaller paychecks.”

Surely Rampell, a careful and thorough columnist, knows that this study has been called into question. There’s a new critique from Jesse Rothstein and Diane Schanzenbach (R&S) which points out some of its serious limitations. For example, the study’s sample leaves out employers with multiple locations: think Starbucks, Burger King, and any other chain that hires low-wage workers. Second, to capture the impact of the Seattle increase, the study compares low-wage employment at (single-location) Seattle firms to other firms in the state. But R&S note that “The Seattle economy was booming during the period covered by the study, which might have been expected to reduce low-wage employment as employers offer higher wages to attract scarce workers. The study relies on an untestable assumption that low-wage employment would have evolved similarly in Seattle as in the comparison areas had the minimum wage not increased.”

In other words, a perfectly consistent interpretation of the study upon which Rampell depends to make her case is that employers had to raise the pay of low-wage workers due to competitive pressures in the city. “If some Seattle firms found it necessary to raise their wages…due to shortages of workers, this could account for the study’s results…without any negative employment effects of the minimum wage.” Thus, they conclude that the Seattle study “does not provide useful evidence” on Rampell’s question of unintended consequences. That doesn’t mean she’ll be proven wrong. It means, and this is a good example of the cautious assessment you want to employ in this work:

“…that at present the jury is still out: we simply do not know whether the $13 minimum wage in Seattle helped or hurt workers. The literature to date suggests small negative effects that are more than offset by the benefits of higher wages. Those results may not generalize to higher minimum wages, however, so more evidence will be needed to support any strong conclusion.”

The R&S study just came out, so maybe Rampell didn’t see it. But I’d be surprised if she didn’t see this other study (by veteran researchers in this field) on the Seattle increase which finds no evidence of job loss and that came out before the study she cites, or Ben Zipperer and John Schmitt’s thorough discussion of the study’s red flags, or this excellent critique from over a month ago in the Financial Times, or economist and minimum-wage scholar Arin Dube’s response in the New York Times. A more balanced piece would have at least cited some of these well-founded concerns.

Rampell is even further off when she attacks the increase in the overtime threshold. In this case, based on no evidence at all, she asserts that reducing the higher threshold from the (about) $47,500 proposed by the Obama administration to $33,000 suggested by Labor Secretary Acosta “might be appropriate.”

Her motivation for supporting the reduced threshold appears to be her simple discomfort with the higher number. As one among many who worked on this increase, let me assure you that we did our homework. We did extensive analysis of who and how many would be affected and what the employment impacts might be. Next, the Obama Labor Department reviewed tens of thousands of comments from stakeholders on all sides of this issue. This led to compromises such as the use of the lowest regional threshold (see here for details), the three-year deferral for certain non-profits, and the leaving of the duties test (another test for whether a worker is eligible for OT) unchanged.

Yet to read Rampell, a bunch of trigger-happy progressives, responding to the “far-left impulses” of the Democratic base, are throwing out bad ideas without any thought to their consequences.

I share Rampell’s concerns about unintended consequences, but I assure her, they are never ignored by those of us in the progressive analytic community who’ve been in these fights for decades. I rarely hear anyone in these debates suggest these policies are the “Free Lunches” she references in her title, or that they’ll “pay for themselves.” To the contrary, we are very clear that at least part of the costs of resetting labor standards will fall on those who’ve profited from their erosion, and through this mechanism, they will push back on inequality and the shift of national income from wages to profits.

I therefore hope her future work in this area is as nuanced and thoughtful as her work usually is.

A taxing moment

August 8th, 2017 at 10:08 am

I wrote a bit on what real tax reform would look like for yesterday’s WaPo, and the NYT editorial board followed up w/ a similar piece today. Both pieces make an important distinction between tax cuts and tax reform.

The definition of the former is obvious, and in R’s hands, tends to be regressive cuts that hemorrhage much-needed revenues. Real reform, OTOH, avoids exacerbating market-driven income and wealth inequalities, while raising the revenues needed to meet the challenges we face.

That last bit may sound esoteric, so let me give a very concrete e.g. of what I mean. According to CBO, demographic and others pressures are such (see my piece) that by 2027 it will take 2.5 percentage points more of GDP to meet our obligations to Soc Sec and public health care programs. We either raise that in revenues, cut spending elsewhere, cut benefits, or put it on the debt (adding “or we grow at some unrealistic growth rate” not allowed).

The NYT piece is very up front about raising revenues and suggests lots of great ways to do so, including a link to my old financial transactions tax oped. I still like that idea and do not understand why an FTT generates so little buzz among progressives.

In fact, some on the left, or at least center-left, argue that the NYT approach to tax reform is misguided. To lead with your chin like that–to explicitly lean into revenue raisers–in the hurly-burly of the debate just reduces to “R’s want to cut taxes; D’s want to raise them; you choose.”

D’s can counter that they just want to raise taxes on the rich, sometimes adding that they want to cut middle-class taxes. Here’s my take on that:

Between now and 2040, the share of our population over 65 is expected to rise by more than a third (from 15 percent to 20 percent), generating pressure on both the spending and revenue sides of the budget. Global warming, rising sea levels and weather changes will require investments in infrastructure and science. Increased inequality leads to stickier poverty rates, diminished mobility, and the need for increased investment in children’s education and their parents’ well-being.

Politicians, and not just conservatives, are in denial about much of the above. Even many Democrats fear that to come clean on the need for ample revenue to meet these needs would lead to defeat at the polls. Maybe they’re right, but while Republicans make empirically indefensible growth predictions to pretend to offset their tax cuts, Democrats have long been reluctant to explain to constituents that the necessary role of government they represent will require more tax revenue than we can raise from solely the top 1 percent (though that’s the right place to start).

Progressives cannot beat Republicans in a fight over tax reform as currently defined — i.e., if tax reform means tax cuts, we’ve already lost. As their health plans revealed, Republicans’ goal is to shrink government and give the proceeds to the rich. Democrats’ response cannot be that they’ll instead cut taxes for the middle class.

Instead, they should explain what true tax reform is, why it is so necessary and how it must support a robust role for a government that is amply funded to meet the steep challenges we face.

This morning on Bloomberg radio, Tom Keene asked me if we’re overtaxed. My response was that this is not a simple question. First off, it’s important to point out that contra Trump, we’re low in terms of revenues we collect at all levels of gov’t as a share of GDP relative to other countries (about 27% here compared to ~37% among our comparables, according to OECD data).

But as I went on to say, the sensible way to answer that question is to look around and ask yourself if we have the revenues we need to ensure that our social insurance programs remain intact, if not improved, our public goods–schools, roads, water systems–are world class, our preparedness for climate change and geopolitics are adequate. I think not, ergo I’m for #RealTaxReform.

What are you for? And why don’t the D’s have a coherent alternative to the R’s tax cuts? As my old Obama-team compadre Tim Geithner used to say: “plan beats no plan!”

The robots aren’t coming. They’re here. And some are helpful.

August 7th, 2017 at 4:20 pm

In a public service to spare you from reading thousands of pages of both anecdote and analyses, here is a quick summary of the debate over whether automation is really killing jobs.

Pro: Automation is killing jobs! The robots are coming!

Anti: Nuh-uh. If it were, productivity growth, or output per hour of work, would be climbing. Instead, it’s been slowing down…a lot.

Pro: Then we must be mis-measuring productivity growth.

Anti: Sorry, but solid evidence shows that’s not the case. Not to mention that thanks to years of job gains, we’re closing in on full employment.

Pro: Yeah, well, believe me. The robots are coming and the end of work is near!

Anti: Maybe. No one knows. But that claim has always been made and it has always been wrong.

Pro: Automation is killing jobs! The robots are coming!

I’m mostly an “anti” voice in this debate, as the evidence seems much more compelling to me than the mostly assertions and anecdotes from team robot. That said, there are those who’ve looked carefully at both work and technology and they have a lot to teach us. In fact, as the debate rages on, I fear we’re missing an important nuance: the robots are here, they’ve been here all along, and they’re not just substitutes that replace workers; they’re also complements that work with them.

Let me explain by way of an example and a comprehensive study.

The example comes from a recent piece in the Wall St. Journal that told of robots helping, not replacing, warehouse workers. “Instead of developing technology to completely replace manpower, these firms are designing robots meant to work alongside people. These robots, for example, can guide workers to items to be picked or can transport goods across a warehouse to be packed and shipped.” As one industry analyst put it, “It’s not meant to replace human labor, but you can get greater throughput with the same size workforce.” (The WaPo recently featured a similar, albeit darker, story of workers and robots working together on the production line.)

The study is a redo of earlier analysis that set off pervasive we-told-you-so’s in the end-of-work debate. In the earlier research, two analysts from Oxford University (Frey and Osborne) looked at the tasks done by workers in hundreds of US jobs, like number-crunching by accountants or selling clothes in retail outlets. They found that 47 percent of jobs had a high likelihood of being replaced by automation within a decade or two. Scary, right?

Except a deeper dive into those same weeds by couple of researchers from the OECD took that 47 percent down to 9 percent. The large fall off in the share of jobs threatened by automation was, the OECD authors argued, “driven by the fact that even in occupations that Frey and Osborne considered to be in the high risk [of automation] category, workers at least to some extent also perform tasks that are difficult to automate such as tasks involving face-to-face interaction.”

They found, for example, that while a lot of what accountants and auditors do can be automated, 75 percent of such workers must interact with groups and other individuals to perform their job. The comparable figure for retail sales workers in 96 percent (it’s worth noting here that less than 10 percent of retail sales are online, though of course that share is climbing).

In other words, the robot thing is not a zero-one situation, as in what you do at work is either totally automate-able or totally un-automate-able. For many workers, robots, AI, and other labor-saving technologies will be complementary to their work, boosting “throughput” in retail (“stack ‘em high and let ‘em fly”) and assembly-line work, efficiency in auto-maintenance, accuracy in accounting, etc., but not fully replacing human interactions. Moreover, this has been going on forever in one form or another as machines enter the workforce, and its one reason why productivity almost always–even now–increases year after year.

That leads me to be skeptical of “this time will be different” arguments in this space. Throughout history, technology has both destroyed and created jobs, with the latter, of course, in tandem with the growth of population and consumer and investment demand, dominating. Beware of “gross” versus “net” arguments. In the same vein, it’s essential to push back on phony arguments that blame anything bad that happens to workers–wage loss, inequality, trade-deficit induced job losses–on “technology,” a line of argument recently thoroughly debunked by Mishel and Bivens.

To be clear, I’m sure labor-replacing technology will continue to displace workers, as it always has. But there’s no evidence that the pace at which that occurs has accelerated and one reason for that is that the robots are not always substitutes. Sometimes they’re complements.

Unquestionably, the robots are going to keep coming. Some will replace jobs, some will create new sectors that add jobs, and some may even turn out to be, if not our besties, then at least helpful in improving the speed and quality of our output.

Jobs day! More solid jobs gains…but wage growth still not responding

August 4th, 2017 at 9:22 am

The nation’s employment rolls went up 209,000 last month, and the unemployment rate ticked down slightly to 4.3%. The underlying pace of job gains, shown below, suggests a solid, healthy labor market characterized by strong employer demand for workers. That said, wage growth remains remarkably subdued. Taken together, these two facts imply that while we’re closing in on full employment, we’re not there yet.

To get at the underlying trend just mentioned, our jobs-day smoother takes some of the noise out of the jumpy monthly data by averaging job gains over 3-, 6-, and 12-month periods. There’s been a slight acceleration of job growth over the past three months, but broadly speaking, net payrolls are rising at a rate of between 180-190 thousand over the past year. That’s strong enough job growth to continue placing downward pressure on the unemployment rate.

Typically, downward pressure on unemployment means some degree of upward pressure on wage growth. But as the next two figures reveal (average hourly wage growth, yr/yr, for all and non-supervisory—blue collar and non-managerial—workers), while nominal wage growth initially caught a buzz, rising from about 2 to around 2.5%, it’s gotten stuck at 2.5 (a bit lower for the mid-level workers) and hasn’t accelerated further even as the job market has continued to tighten.

One explanation for this lack of correlation is that the job market still has some slack, and that’s suppressing the extent of worker bargaining clout that we’d historically associate with the low unemployment rate and steady, sizable monthly gains we see in these data.

In that spirit, this is a good time to evaluate a spate of slack measures. Here’s a list of “where they were at their trough and where they are today” for some key labor market indicators:

–Monthly job losses/gains have swung from an average monthly loss of 773,000 in the first quarter of 2009 (i.e., your worst nightmare) to an average gain of 195,000 over the last three months.

–Unemployment fell from a high of 10% in Oct of 2009 to 4.3% last month.

–Underemployment fell from a high of 17.1% in April of 2010 to 8.6% last month.

–Involuntary part-time work has fallen from 9.2 million in September of 2010 (6.6% of employment) to 5.3 million in July (3.4% of employment), slightly down from where it was in June.

–The closely watched labor force participation rate is up from a low of 62.4% in September of 2015, but only moderately, ticking from 62.8% in June to 62.9% last month, which is back to where it was at the beginning of 2017. Some of this represents aging boomers leaving the labor force, but some represents ongoing slack.

–That “slack” point re labor supply is underscored by looking at the prime-age (25-54, so few retirees in there) employment rate, which climbed from a low of 74.8% in November of 2010 to a post-recession high of 78.7% this month (up from 78.5% last month); it is now over 70% of the way back to its January 2007 level, 80.3%.

So, clear evidence of labor market tightening, but, at least as far as the prime-age workers go, still some potential labor supply to be tapped.

Sticking with the wage theme for one more moment, clearly the so-called wage Phillips Curve—the correlation between wage growth and the level of unemployment—must be very flat. The next figure takes a little work to absorb but it’s really worth it, IMHO (h/t to its creator, Ben S!). The figure plots unemployment against the annual change in average hourly earnings for blue-collar and non-managerial workers, basically mid-level earners (each data point represents a different month). During the 1990s recovery, a period of chock full employment when real wages grew solidly across the pay scale, you clearly see the expected negative slope. But in this recovery, it’s flat as a pancake.

As I said, that’s partly remaining slack, but there are other factors in play. One hypothesis is that the combination of high inequality and low productivity is part of the problem. Productivity growth is much slower now than in the latter 1990s, when wages were more responsive to labor market tautness. That meant employers could provide wage gains and still maintain their profit margins. With output per hour growing more slowly, in tandem with worker bargaining power that’s still too weak, employers are keeping profit margins up and holding down the growth of pay packets.

I’ll have more to say about the sectoral job changes in July later—running off to play some chin music on MSNBC around 10:30. Manufacturing employment is up a touch in recent months—28K jobs over the past two months—possibly reflecting the benefits to the sector of the falling dollar, though it’s too soon to tell if this is a new, improved trend.

Finally, need I say, I strongly recommend you assiduously ignore any president who argues that his awesomeness is behind these job gains (though he’d be far from the first to claim such credit). This momentum was fully in place before Trump got here, and the best I can say for him is that he hasn’t screwed it up…yet.

Yes, there’s a Trump bump in the equity markets. But the market’s a fickle friend, Mr. President, and it doesn’t help your working-class supporters.

August 3rd, 2017 at 2:24 pm

Our Tweeter-in-chief can barely type fast enough to keep up with the stock market. President Trump expressed great excitement about the stock market hitting 22,000 yesterday, and somewhat weirdly touted the fact that the market hit an all-time high; “weirdly” because all-time highs are not unusual. According to CNN, “the Dow has reached a new high, on average, once every seven days since fully recovering from the Great Recession in March 2013.”

Still, the President has a case for a bona fide Trump bump in the stock market. The figure below plots a “spline function” through the DJIA since late 2007. This function is constructed to produce a linear trend with specified kink points. If the kink points are insignificant, the trend’s slope won’t change (apologies if I’m “mansplining”). The kinks are the terms (starting with the month they won) of Presidents Obama and Trump, and the acceleration starting in November 2016 is clear.

For the record, Obama had a long, bull run himself. I always said that guy was a lousy socialist, albeit a great president. Also for the record, it has long been known that the economy grows faster under Democratic presidents.

Moreover, if I were Trump, I’d be awfully cautious about tying myself to the masthead of the DOW. It goes up, it goes down, and while the correlation of that kink point and his election is undeniable, over the longer-term, presidents don’t have nearly as much influence on markets as they like to think (when it goes up, of course). Just look at where the dollar is now: its Trump bump has already fizzled.

In this regard, though he gets a high-grade so far, I thought Treasury Secretary Mnuchin made a rookie mistake when he agreed on CNBC that the stock market would be the Trump administration’s report card.

Second, as I can’t stress enough in these parts, it is extremely important not to conflate a rising stock market with the economic well-being of the working-class voters who put Trump where he is today. Consider these facts:

–Research by NYU economics professor and wealth expert Ed Wolff finds that fewer than half of all households (46 percent) own stocks, either directly or indirectly (like through their retirement account). However, among the richest 1 percent of households, the ownership rate is 94 percent.

–The value of holdings is even more skewed than straight up ownership. Among the half of households with some equity holdings, less than a third hold at least $10,000 in stocks, compared to 93 percent of those households in the top 1 percent.

–Since the late 1980s, about 80 percent of the value of the market has been held by the top 10 percent, and about 40 percent of the market’s value belongs to the top 1 percent.

–In other words, the share of stock market wealth held by the top 1 percent (38 percent), is twice that of the share held by the bottom 90 percent (19 percent).

I know I’m not the Jared to which Trump listens. If I were, I’d warn him that the stock market is as fickle a friend as they come, and not much of a friend at all to those in his core constituency.