America Got a Raise in 2023

The Pitch: Economic Update for January 11th, 2024

Friends,

Let’s talk about jobs. Last Friday, the Department of Labor reported that employers added 216,000 jobs to the economy in December — a much higher number than economists predicted. Lauren Kaori Gurley writes at the Washington Post, “the labor market added 2.7 million jobs in 2023, with an average monthly gain of 225,000 jobs. That’s a smaller annual gain than in 2022 or 2021, but more than each of the four years leading up to the pandemic.”

The unemployment rate held at 3.7%, which Kaori Gurley writes means that the rate “has now remained below 4 percent for 25 months, a stretch last accomplished in the 1960s.” And while the Black unemployment rate is still unacceptably high in comparison, it continues to hover near historic lows at 5.5%.

For the New Yorker, John Cassidy writes that “Among prime-age workers (those between twenty-five and fifty-four), the labor-force-participation rate — the percentage of the civilian population that is working or looking for work — is now higher than it was before the pandemic, at 83.2 per cent.” And quits are still lower than hires in every single category, which EPI economist Elise Gould explains means that workers still have the power to find new jobs with better wages.

In fact, wages grew by 4.1% last year — not as high as the peak of 6.7% in 2022, but still above inflationary price increases. Wages are still growing more now than at any point in the last 20 years. Wages have grown more than price increases since the dawn of Covid, as this Center for American Progress graph shows:

While this is welcome news for the close of 2023, it’s not anything like a triumphant finish line for American workers. Wages need to rise significantly and steadily for years in order to make up the huge wage inequality that has languished over the last four decades. But the gains that workers made last year are more than just individual successes — those bigger paychecks are creating even more jobs, and they’re raising wages for the people who are joining and rejoining the workforce. As we say time and again in this newsletter, what’s good for workers is good for the economy — and 2023 was a good year for workers.

The Latest Economic News and Updates

Inflation Ticks Up, but Follows Downward Trend

“Data released Thursday by the Bureau of Labor Statistics showed prices rose 3.4 percent in December compared with the year before. That’s up compared with the 3.1 percent rate notched in November,” writes the Washington Post’s Rachel Siegel this morning, noting that these numbers are “offering the latest sign that the economy has made significant progress since prices spiked to four-decade highs — but there’s still a ways to go, especially on housing costs, which dominate the budgets of households nationwide.”

For the New York Times, Jeanna Smialek notes that “after stripping out volatile food and fuel prices to get a sense of the underlying inflation trend, a ‘core’ price measure climbed 3.9 percent in the year through December, down from 4 percent previously,” which she says “marked the first time the core index has dropped below 4 percent since May of 2021.”

Most importantly, economist Arin Dube notes that this December inflation report confirms that wage growth outpaced inflation for the entire year, meaning that “2023 was a time of broad-based growth in real wages for most workers.”

We’ll have more to say about the inflation report next week.

What to Expect in the State of the Union

This week, President Biden announced that he’d be giving his State of the Union address on Thursday, March 7th — the latest SotU speech in modern history. That means we have more than a month and a half to consider which policies Biden will discuss during his speech.

Semafor asked Senator Elizabeth Warren for a preview of what she thought Biden would share in his address to Congress, and she suggested that he might spotlight “further student loan cancellation, lowering the cost of healthcare, combating ‘price-gouging’ by multinational corporations, and codifying Roe v. Wade if Democrats reclaim control of Congress.”

On the price-gouging front, Matt Stoller of the excellent BIG newsletter offered some predictions for what 2024 might bring for the Biden Administration and its fight against corporate consolidation. You should click through (and subscribe) to read his full list of the wins and losses that he thinks the Biden Administration might see in its trials with Google, JetBlue, and other huge corporate mergers, but I thought this little preview was especially interesting: “Banking will be revolutionized as the Consumer Financial Protection Bureau implements an open banking rule that mandates banks allow easy porting of data and accounts” to other financial institutions and to third party financial companies. That’s an interesting development that isn’t on the radars of most media outlets, and it could eliminate a host of additional fees for consumers who use payment apps like Venmo.

And in terms of student loans, I was especially excited to read this Washington Monthly piece by Ellie Quinlan Houghtaling with the provocative headline “Psst: Joe Biden Has Solved the Student Debt Crisis.” Forgive the long blockquote that follows, but it’s important that more people read the first few paragraphs of the piece, in which the author dreads the resumption of student loan debt repayments, which had been canceled for the entirety of the pandemic:

Out of options and running up against the deadline, I heard about the Biden administration’s new Saving on a Valuable Education repayment plan, or SAVE, which was announced at the end of August.

Hunched over my laptop, I took a leap of faith, unsure if it would help me — especially because my debt burden had grown by 43 percent and I was earning double the salary I had been before the COVID payment pause. To my relief, I was notified that I’d owe zero dollars a month until the plan automatically renews in September 2024. Then, my payments would cost roughly $227 a month — 37 percent less than I’d be paying under the old plan.

After digging deeper into SAVE’s details, I learned that the plan is more than an extra-lenient repayment program — it’s President Joe Biden’s vehicle for delivering billions in forgiveness after the Supreme Court defeated his $430 billion debt cancellation plan this summer.

Under other repayment plans, the average borrower ends up paying more than the original amount they borrowed because interest accumulates. But the average undergraduate borrower who uses SAVE will repay only 60 cents on every dollar they borrowed. For low-income borrowers, the entire balance will be forgiven.

There’s never been a program like it. For millions of Americans, SAVE will be debt cancellation in the form of debt repayment. In other words, the large-scale debt relief activists have spent years fighting for is finally here — it just didn’t arrive in the packaging anyone expected.

For pundits who stopped paying attention to Biden’s student-loan forgiveness plans when the Supreme Court killed the program in June of last year, this might come as a surprise. And while some people with loans will be automatically enrolled into SAVE, the Biden Administration still has to do a better job of letting people know this program is available to them. It’s not enough to just create policies that help a wide swath of Americans — you also have to make sure the people know the policies are there.

What the Biden Administration Is Doing to Help Workers, and Where It Can Do More

On Wednesday, the Biden Administration announced a major new rule that could change the way millions of workers are classified. “The rule effectively expands the reach of federal labor laws that require employers to extend certain benefits and protections to workers classified as employees,” writes Lauren Kaori Gurley at the Washington Post. “Those include the right to the minimum wage, overtime pay, unemployment insurance and Social Security benefits — which employers are not required to provide to independent contractors.”

The rule, which would go into effect on March 11th but is certain to be challenged by business interests, would make it harder for employers to label workers as independent contractors.“The review considers six factors, including how much control an employer has over working conditions, a worker’s financial investment in their job and any opportunities a worker has for turning a profit,” Kaori Gurley writes. This rule could have huge impacts for workers in the gig economy and the trucking industry.

Gig employers like Uber and Lyft have argued that nothing will change and that their workers will still be classified as independent contractors, but for those who disagree the rule offers several avenues for enforcement: “The Labor Department could take enforcement action against both companies under the new rule,” the Post notes. “The law also gives individual workers the right to sue if they believe they’ve been misclassified.”

As we saw with the massive expansion of independent contractor designations during the rise of the gig economy, some employers are always manipulating the law in order to pay workers less. The Economic Policy Institute issued a major new report on youth subminimum wages, which are in place in 34 states and the District of Columbia.

Many adults don’t understand the ways that young workers can be legally exploited. Under federal law, workers under 20 years of age can be paid as little as $4.25 per hour for the first 90 days of their employment. Full time students can be paid as little as 85% of minimum wage “when employed in retail or service establishments, agriculture, and institutes of higher education,” and apprentices (of any age) can be paid 75% of minimum wage.

So the federal government’s protections for young workers are embarrassingly weak, and many state governments haven’t bothered to raise the bar any higher:

This is something that the Biden Administration can prioritize, but it’s also a problem that states can remedy on their own by raising or altogether eliminating the subminimum wage for young workers. Though it’s presented as a way to invest in a new and untrained generation of workers, the subminimum wage as it stands currently is actually just a way to exploit children.

Trickle-down employers will always find ways to exclude small subgroups of workers from regulations, and once they do successfully separate a subgroup from the larger field of workers, they will continue to strip them of even more power and pay. It’s important to keep in mind that when we talk about making gains for workers, we mean for all workers — and both gig economy workers and young workers have been left behind for too long.

What We Talk About When We Talk About Taxes

With the Donald Trump campaign proposing hefty tax cuts for corporations and the wealthy, and the Biden Administration proposing ways to rebalance the tax code so wealthy people pay at least as much as the bottom 90% of the population, we’re likely to see a lot of conversations about taxes in the coming year.

That’s a fine conversation to have, and I’m excited to have it — most Americans support raising taxes on the rich. But we also need to have a conversation about how the wealthy few manage their wealth, and why our tax code as written isn’t prepared to address those realities. This isn’t as simple as taxing the wages of the super-rich. A report from the Americans for Tax Fairness finds that “America’s billionaires and centi-millionaires (those with at least $100 million of wealth) collectively held at least $8.5 trillion of “unrealized capital gains” in 2022.”

When we talk about billionaires and centi-millionaires, their wealth doesn’t come in the form of weekly paychecks. It takes the form of gains in assets like stocks and real estate — and they don’t even need to withdraw those funds in order to get their money.

“Under current law, these gains in the value of stocks, bonds, businesses, real estate and other assets are not taxed unless the gain is ‘realized’ through a sale,” the report explains. “But the ultra-wealthy don’t need to sell to benefit: they can live off low-cost loans secured against their growing fortunes. And once inherited, such gains disappear completely for tax purposes.” This is increasingly how fortunes are kept and grown — and our tax code doesn’t recognize any of that money as taxable income.

That’s $8.5 trillion in wealth that the IRS couldn’t touch last year, because our tax code hasn’t been updated to reflect this new reality for the wealthy.

And there’s also a huge pool of money that the IRS is owed and not receiving. A report from the Committee for a Responsible Federal Budget finds that more than half a trillion dollars was underreported to the IRS in 2021, both intentionally (in the form of tax fraud) and unintentionally.

The Biden Administration took one big step toward solving this problem by putting billions of dollars toward the IRS for hiring and tax enforcement purposes, but these two stories demonstrate that any conversation about taxes isn’t as simple as just raising or lowering a percentage point on a tax form — tax codes have to recognize how wealth is actually accrued and kept, and any tax code is only as useful as its implementation.

Inequality Isn’t Just for the One Percent

Paula Span’s report for the New York Times reminds us that income inequality isn’t just a gap between the super-rich and the rest of us. Over the past two dozen years, a widening gap has opened between the American middle class and the lower middle class. And now that gap is starting to threaten the retirements of people in the lower group.

Span writes that in a study of economic data collected from 1994 to 2018, researchers found that middle-class Americans in their mid-50s “now divide into two middle classes: the more secure upper tier (which, in 2018, had on average more than $90,000 per person in annual resources, including income and the annualized value of home equity, retirement savings and pensions); and the increasingly precarious lower middle class. In 2018, people in that group had average annual resources of less than $32,000.”

This drastically affects virtually every aspect of their daily lives. “Homeownership, for instance, declined by 5 percent in the upper middle class but declined by 31 percent in the lower middle class, only 54 percent of whom owned homes in 2018,” Span writes. “For those still working, earnings rose 27 percent in the upper middle class and fell 5 percent for lower-middle-class workers, adjusted for inflation.”

In the long term, we need to do more to close the wealth gap between Americans in the middle and lower income percentiles by raising wages, increasing access to housing stability, and making strategic investments in communities that have fallen behind. But in the short term, the researchers propose “a ‘bridge benefit’ for workers with physically arduous jobs, allowing them to receive partial Social Security payments early without locking them into reduced benefits for the rest of their lives” and “Raising the cap on the income subjected to payroll taxes,” which is likely to “improve Social Security’s solvency for everyone.”

Inequality isn’t just a matter of money or financial security. As Civic Ventures founder Nick Hanauer famously warned, greater wealth inequality leads to less social cohesion. A new study looks at over 200 years of economic sentiment and finds that the news media “has become increasingly negative across all states in the past half century,” with economic sentiment dropping off considerably since the year 2000 and non-economic sentiment since 1980. What’s most fascinating to me is that the map of media sentiment closely maps with the growing income inequality of the trickle-down economics era:

This Week in Middle Out

• Erika Morphy at TechSpot writes that America’s creaky H-1B visa program for immigrant workers is in desperate need of reform as the semiconductor industry expands thanks to the CHIPS Act signed into law by President Biden. “There is a 65,000 total annual cap on the visas, which are awarded by lottery tickets — a highly inefficient process that does not ensure they go to the best use, or to occupations of pressing national concerns, such as semiconductors,” she writes. A bill proposing reform of the H-1B program is currently in Congress, but Morphy notes that Congressional Republicans are unlikely to pursue the legislation now that we’re in an election year in which Donald Trump is using inflammatory language to deride immigrants.
• The Center for American Progress proposes revising the college accreditation process “to make it fundamentally student-centered,” which would “give both institutions and accreditors the chance to consider required inputs — such as staffing levels and student support infrastructure — from a student perspective and may foster truly innovative approaches to institutional quality,” making education more affordable and accessible.
• The American Economic Liberties Project has released a brief calling on the Department of Justice to break up the Live Nation-Ticketmaster monopoly. The full brief is an elegant and extensive study of how the two megacorporations have dominated the market and wiped out competition, and a compelling case for taking action to bring competition back into the live events market.
• It’s too soon to draw any conclusions about the Boeing jet whose door plug blew off shortly after taking off from Portland, OR last week, but we can expect to have some important conversations about regulation, self-regulation, contracting out labor to cheaper firms, and the damaging effects of stock buybacks on quality in the next few weeks.

This Week on the Pitchfork Economics Podcast

In a wide-ranging conversation, Goldy and Paul talk about the three major economic topics that could shape the elections this year, including housing, taxes, and paychecks.

Closing Thoughts

Though Bidenomics is a policy framework built around the concept of middle-out economics, it’s important to remember that middle-out economics is not a partisan concept. Neoliberal trickle-down economics, which assumed that giving money to the wealthiest people and corporations would benefit everyone in an economy, was practiced by Republicans and Democrats alike over the past 40 years. As we continue to expand our understanding of a middle-out economic model in which worker paychecks power economic growth, I fully expect to see conservative politicians apply middle-out economics to their own policies and platforms.

That’s why I like to keep tabs on conservative policies and conversations. It’s increasingly clear to many influencers on the conservative side of the aisle that trickle-down is on its way out. I was pleased to note earlier this week that the hyper-libertarian magazine Reason announced that “Anyone advocating neoliberal policies is now persona non grata in Washington, D.C.” Daniel W. Drezner’s account of the collapse of neoliberalism is not too far from my own assessment:

Neoliberalism was embraced by policy makers from both major parties. For free market Republicans, neoliberalism meant scaling back barriers that stunted market efficiency. For moderate Democrats, it was viewed as a set of policies that could lift the poorest of the poor out of poverty. What united those across the political spectrum was the belief that neoliberalism fostered greater economic interdependence, which could, in turn, generate global peace and prosperity. After all, why would China ever go to war with the West if it could get rich by trading with it instead?

I completely disagree with Drezner’s conclusions — he makes some bizarre assertions about pandemic-era global supply chains and ultimately concludes that “post-neoliberalism” will destroy the world. But I’ve never found much ground for agreement with libertarians. It’s still impressive that we can agree on the failures of the last 40 years of trickle-down global expansionism.

I’ve written in The Pitch before about Oren Cass, the former Romney policy adviser who now works as executive director for American Compass, a think-tank that is searching for a new conservative economic theory. Cass has appeared on our Pitchfork Economics podcast and he’s demonstrated a remarkable willingness to entertain ideas that ten years ago would have gotten him laughed out of rooms full of Republicans.

For Law & Liberty, Cass recently wrote an interesting article about America’s changing relationship with global trade. “US exports and imports were roughly balanced in 1992; in 2022 the trade deficit exceeded $900 billion for the first time,” he writes. “Even in advanced technology products, the same 30-year period saw the United States swing from a $60 billion surplus to a nearly $250 billion deficit.”

Cass continues with a thoughtful assessment of what manufacturing means to the United States that just stops short of becoming a middle-out economic policy paper:

What economists have missed in their blind embrace of free trade is a two-fold problem, part conceptual and part technical. The conceptual problem is quite straightforward: making things matter. This should not be a controversial assertion, but in fact, many economists will take issue with it. Michael Boskin, chair of President George H. W. Bush’s Council of Economic Advisers, famously quipped, “Computer chips, potato chips, what’s the difference?” Michael Strain, director of economic policy studies at the American Enterprise Institute (AEI), says of the United States being a manufacturing center, “we should not want to be.” Adam Posen, president of the Peterson Institute for International Economics, has argued that “what’s really going on here” with concern for American manufacturing is “the general fetish for keeping white males of low education outside the cities in the powerful positions they’re in in the US.”

But a nation’s capital investments, the capabilities it develops in its firms and workers, the supply chains it fosters, and the types of research and development it pursues all have important implications for the trajectory of its growth, the opportunities available to its citizens, and its power on the global stage. What is made in a country determines what else is made in the country; and what will be made tomorrow.

I am not an isolationist, and neither is Cass. Perhaps most hearteningly, the American people aren’t, either. Just this morning, American Compass and YouGov released the results of a new poll showing that “Americans have broadly negative views of globalization and trade with China, but not because they feel personally aggrieved.” The executive study reports that “By a 41% to 28% margin, Americans said that they have personally benefited rather than suffered from America’s embrace of globalization and China.Yet at the same time, by a 47% to 33% margin, they said that the nation has suffered rather than benefited.”

So if more Americans feel like they’ve benefited from globalization, why do they think the nation has suffered? Perhaps not surprisingly, they believe that neoliberals sacrificed too many jobs and local economies in our rush to build a global economy. “Americans agree that the nation needs a stronger manufacturing sector, somewhat for individual jobs and national security, but more so for economic growth and dynamism,” the report explains. Sounds like a middle-out understanding of the economy to me.

Trade is an important part of any national economy, and economic interdependence is an important ingredient for healthy international relations. But the pandemic demonstrated the importance of local manufacturing and domestic supply chains, and the drain we’ve seen in union power and wages for non-college workers over the last 40 years correlates almost exactly with the outsourcing of much of America’s manufacturing.

I think that both Cass and I agree that it’s important to have good-paying jobs in the American economy. My middle-out understanding of economic growth argues that those good-paying manufacturing jobs will create more jobs in local communities, enriching both the CEOs who own the factories and the hairdressers and grocery store employees who work in the town surrounding them.

And middle-out economics also argues that just as it’s important to raise standards here at home to ensure that paychecks of working Americans are growing, it’s also important to raise standards abroad. For too long, our trade was based on extractive, lowest-common denominator economics that saw workers earning pennies on the dollar for megacorporations in countries halfway around the world. That’s why it’s important that President Biden championed the first global minimum tax on corporations, thereby establishing rules of the game that everyone plays by. And it’s why I also think that a global minimum wage will eventually become necessary.

Cass and I likely wouldn’t agree on any number of things, and that’s fine. I applaud him for investigating his own long-held economic beliefs, and for putting serious thought into what a completely new system might look like. For other conservatives who are taking in the devastation caused by 40 years of neoliberal, trickle-down economics and wondering what could possibly come next, I invite you to take a good look at what we’re doing with middle-out economics and consider how you might incorporate these economic realities into your own political frameworks. I can’t promise I’ll always agree with you, but I welcome the debate.

Be kind. Be brave. Take good care of yourself and your loved ones.

Zach