Jobs, Jobs, Jobs

The Pitch: Economic Update for February 8th, 2024

Friends,

We can’t discuss the week’s economic issues without first addressing last week’s stellar jobs report.

“Employers added 353,000 jobs in January on a seasonally adjusted basis…and the unemployment rate remained at 3.7 percent,” Lydia DiPillis wrote last Friday at the New York Times. “The report also put an even shinier gloss on job growth for 2023, including revisions that added more than 100,000 to the figure previously tallied for December. All told, employers added 3.1 million jobs last year, more than the 2.7 million initially reported.”

December marked two straight years of job gains for the US economy, and the unemployment rate continues to hover near a 70-year low. At the peak of the comeback from pandemic lockdowns, there were two jobs available for every person looking for work. That number has declined to a little less than 1.5 open jobs for every worker — still a remarkable number.

But that’s only part of the picture. Perhaps more important than the quantity of jobs available are the quality of wages. “Average hourly wage growth accelerated sharply in January, rising by 0.6 percent, to $34.55 an hour,” writes Lauren Kaori Gurley at the Washington Post. “Over the past 12 months, hourly wages have risen by 4.5 percent, raising workers’ standard of living, especially the lowest earners.”

Arindrajit Dube digs deeper into the wage growth for Project Syndicate. “Importantly, the real wages of the middle quintile are not only higher today than they were before the pandemic, but slightly higher than we would expect based on 2015–19 trends,” Dube writes. “In other words, the typical American worker’s purchasing power has grown at least as much as it likely would have in the absence of the global challenges posed by the pandemic and geopolitical conflicts.”

And this growth is truly happening from the bottom up and the middle out. “Remarkably, the most significant wage growth occurred at the lower end of the pay scale. Just prior to the pandemic, the bottom quintile experienced a 9% increase in real wages, compared to 5–7% for the next three quintiles, while prices have increased faster than wages for those in the top 20% of the income distribution,” Dube writes.

These wage increases reduced inequality between the haves and the have-nots, and they’ve moved toward undoing some of the longest-standing racial wealth gaps. “Notably, wages for Black workers rose sharply compared to their white counterparts, reversing a four-decade trend.”

Finally, Dube makes it plain that these wage gains were not predestined to happen after the pandemic — they are the result of specific policy measures undertaken by American leaders:

But the wage boom was not inevitable. In fact, the US is the only G7 country that experienced substantial real wage gains in recent years. While American workers’ wages have increased by 2.8% since late 2019, workers in other major economies have faced stagnant or even negative wage growth, ranging from a 0.2% increase in Canada to a 9% decline in Italy.

America’s positive wage trajectory is not a fluke, but rather a testament to the effectiveness of the proactive fiscal policies implemented during the pandemic, particularly US President Joe Biden’s American Rescue Plan.

Put simply, most of us have not seen this sustained level of job openings and wage growth in our lifetimes. And since working Americans are the source of wealth in our economy, those wages and jobs are creating more jobs paying higher wages in a virtuous cycle.

We’ll explore this report and its ramifications elsewhere in this newsletter — and we’ll talk about all the parts of the economy that need repair and reform, too. But this report was so huge, and it flew in the face of expectations of so many mainstream economists, that it’s important to just take a moment and acknowledge the size and scope of this win for American workers.

The Latest Economic News and Updates

How State and Local Governments Can Make the Job Market Even Better

Now that working Americans are making big gains and creating jobs with their bigger paychecks, it’s incumbent on our leaders to figure out how to keep that virtuous cycle turning. The Center for American Progress offers one very simple philosophy that governments could adopt to raise wages for workers and to increase prosperity in low-wage areas. CAP notes that state and local governments create and support millions of jobs, both in the form of direct employment of government workers and indirectly through the hiring of contractors.

“Yet jobs created through government spending often pay very low wages, have poor working conditions, or do little to ensure that local residents benefit,” CAP writes. That’s not just bad news for the workers in the jobs — those contractors lower the standards for everyone else in the local labor market: “Poor-quality jobs not only hurt workers but also undermine the quality of public goods and services, undercut the stability of local labor markets, and often result in hidden costs for the public.”

The first and arguably most important step that city and state governments could do is follow the Biden Administration’s push to adopt prevailing wage laws, which ensure that construction workers hired to perform government contracts are paid the same as local construction workers on private-sector projects. CAP also calls for stricter evaluation of contractor employment standards, and requirements to ensure that a significant portion of contractors live locally.

By adopting these best practices for people and businesses doing government work, state and local governments would raise the standards for all workers in a given area, increasing wages and discouraging extractive employment practices. If we want to build middle-out economies in our states and cities, the best way to do that is to lead by example.

After all, when people see other workers make big gains, they are more likely to push for bigger paychecks for themselves. Now that the United Auto Workers won big victories for workers at Ford, Stellantis, and GM plants last year, Harold Meyerson reports, workers in typically union-resistant southern auto plants have made moves to unionize: “the UAW announced that 30 percent of the workers at Hyundai’s factory in Montgomery, Alabama, have signed union affiliation cards, joining the 30 percent who’ve recently signed cards at the Mercedes plant in Tuscaloosa, Alabama, and the Volkswagen factory in Chattanooga, Tennessee.” Outside of auto manufacturing, young people who are seeing the benefits of unionization won a big victory this week when the National Labor Relations Board determined that Dartmouth college basketball players are employees who have the right to unionize.

But state and local governments are still leading from behind. Yesterday morning brought an especially vivid example of how all this brinksmanship from House Republicans on the budget affect real people with real jobs in the economy: “NASA’s Jet Propulsion Laboratory is poised to lay off 530 employees along with 40 contractors as the federally funded research and development center has yet to secure funding for the 2024 fiscal year, according to an internal memo,” writes Helen Jeong at NBC 4 in Los Angeles.

Forty years of trickle-down orthodoxy has led politicians to argue that government jobs aren’t “real” jobs that don’t impact the “real” economy the way that private sector jobs do, but that’s a completely bogus argument. Those nearly 600 workers who lost their jobs because Congress can’t decide if they want to fund our space program are going to impact the rest of the economy. They’re going to have to move or find new work, and they’re likely going to stop or slow their consumer spending, which will have impacts on the local economy.

And those workers are just the tip of the iceberg. At the beginning of the pandemic, state and local governments still hadn’t recovered the employment levels that they had before the beginning of the Great Recession in 2008.

Imagine how high the economy would be soaring right now if states and cities followed the hiring trends of the public sector over the last few years, rather than embracing a 15-year trend of austerity.

Corporations Finally Join the Fight Against Child Labor

In the first Pitch of this year, I wrote about a bombshell New York Times report proving that lax self-inspection policies had allowed major American corporations like McDonald’s to get away with widespread child labor violations. Now, the Times reports that corporations are cracking down on their own immoral child labor practices, which largely exploit children of immigrants.

“McDonald’s says it is requiring private inspectors to review overnight shifts at slaughterhouses that provide some of its meat, where children as young as 13 were cleaning heavy machinery. Suppliers for Ford Motor Company must now scrutinize the faces of employees when they arrive for work. Costco is commissioning more audits with Spanish-speaking inspectors,” writes Hannah Dreier, adding that “Starbucks, Whole Foods and PepsiCo are revising the kinds of audits they require at their suppliers. The changes include enhancing reviews of night shifts and shifts run by outside contractors, such as cleaning companies, and moving away from announcing audits in advance.”

Obviously, it’s good news if these ramped-up self-inspections save children from exploitation and bodily harm in unsafe working conditions. But the fact is that these corporations were supposed to be doing self-inspections all this time, and now they’re only ramping up their efforts now that they’ve been caught red-handed by the media. Before the trickle-down era, government used to handle these inspections. It’s no coincidence that child labor violations have been on the rise in recent years, and now that public awareness of these violations is growing, it’s also not a surprise that governors in red states are working so hard to relax regulations that previously protected kids from exploitative employers.

Credit Check

One of the economic warning signs we were keeping an eye on as prices were skyrocketing was consumer credit card debt. If Americans weren’t able to afford higher prices for groceries and other necessities and were instead putting those escalating bills on their credit cards, that would be bad news for the whole economy.

For Axios, Courtenay Brown says that credit card and auto loan delinquencies have spiked in recent months. While not as high as the peaks of the Great Recession, the growing number of Americans who are unable to pay their bills is troubling.

“The upswing in delinquency rates are an indication that the Federal Reserve’s aggressive interest rate hikes are hitting consumers, who are struggling with the higher cost of borrowing,” writes Brown, but adding that on the other hand, “Other types of debt — like student loans and mortgages — have delinquency rates below pre-pandemic levels. Overall delinquency rates rose a tick to 3.1% in the fourth quarter — that’s still 1.6 percentage points below the pre-pandemic level.”

But Scott Fulford and Neale Mahoney at Briefing Book argue that “consumer credit markets are more boring than these headlines suggest. Credit card balances are not abnormally high when inflation-adjusted and are below historical averages when compared to incomes.” They continue, “Financial distress rates, while up from rock bottom during the pandemic, are in their normal range. Although there are some pockets of weakness, as long as the labor market remains strong, financial distress and credit delinquencies will likely continue to be in line with historical norms.”

They argue that consumer borrowing levels are consistent with historical record, and the broader picture of debt — including near-record-low mortgage and home equity delinquencies — is generally healthy.

Of course, the Federal Reserve could offer tremendous relief for the wallets of Americans with credit card debts by lowering interest rates and making money less expensive. Fed Chair Jerome Powell told 60 Minutes this week that consumers could expect three cuts to interest rates this year, but reiterated that those cuts were coming later in the year, and “interest-sensitive spending like mortgages and buying, you know, durable goods and things like that” are “going to be expensive for a while.”

It’s a maddening answer that doesn’t offer solace for Americans who have struggled for more than two years with skyrocketing grocery, housing, and auto prices. Until the Fed brings interest rates back down, we’re going to have to keep a close eye on the debt management of American consumers, and also consider policies to help people get out from under expensive car loans and grocery bills.

A Reader Question and an Update on GBI

Last week, we talked about the success of Guaranteed Basic Income programs worldwide, which found that contrary to the trickle-down belief that people are inherently lazy, giving people money on a regular basis actually encouraged them to work. A reader named James wrote in to ask, “What about the long term study in Finland? It went so badly they stopped it early.”

Thanks for writing, James. This Jacobin report looks into the problems with the Finnish study — it was rushed into existence and was rocked throughout its lifespan by complex partisan headwinds — but this McKinsey report finds that even though the implementation was botched, Finland’s GBI program still “led to a small increase in employment, significantly boosted multiple measures of the recipients’ well-being, and reinforced positive individual and societal feedback loops.”

“People on the basic income were more likely to be employed than those in the control group, and the differences were statistically significant, albeit small,” McKinsey concludes, adding that those on GBI also showed increased confidence and a much larger sense of security than others in the program.

Finland offers many warning signs for countries, states and localities that are looking to implement their own GBI programs. The Finland experience affirms what I would tell any policy maker: move deliberately and thoughtfully when crafting your policy. Moving policy from a catchy concept to practical reality is hard. And that’s part of why I am glad to see so many experiments in so many geographies testing out how best to do this very hard thing.

Still, we shouldn’t let negative headlines about the Finland experience cloud the fact that the economic benefits of the program for individuals was roughly as good as we have seen elsewhere. Taking the good with the bad and sorting out what to do differently is exactly what we should be doing in this space.

And in the week since I last published my post on GBI, another study has come in — this time in Arlington, Virginia. The study provided $500 monthly payments to families earning less than 30% of the area median income between September 2021 and December 2023. And it found that recipients were more employed than the general population by the end of the study, and their paychecks were even bigger than their peers.

And the recipients spent that money on groceries, bills, and other necessities:

To restate my point from last week: It’s important for policy to continue to focus on growing the paychecks of working Americans while making sure that employers It’s important for policy to continue to focus on growing the paychecks of working Americans while making sure that employers don’t transfer the burden of their wages to the public. To be clear: GBI is no replacement for ensuring that good jobs are plentiful. But when it comes to distributing benefits to those in need, these studies seem to overwhelmingly prove that cash benefits are an efficient way to help people get back on their feet — much more than complicated, means-tested voucher systems that take forever to navigate.

This Week in Middle Out

• “There are still too many corporations in America ripping people off: price gouging, junk fees, greedflation, shrinkflation,” President Biden said in a speech last week. But while it’s important that the president continue to point out that grocery prices profits are spiking even as inflation levels out everywhere else in the economy, the New York Times reports that there are frustratingly few short-term options available to the Biden Administration to force grocery stores to bring prices in line.
• “A new report released by the Treasury Department on Tuesday” says that the Biden Administration’s investments on enforcement to catch wealthy tax cheats are outperforming even the most ambitious predictions, bringing in “over $170 billion more than they previously thought over an 11-year window and that, if Congress extends this funding for the IRS, the ultimate revenue gain could be more than double initial estimates,” writes Dylan Matthews at Vox.
• As Congress continues to shoot itself in the foot over immigration reform proposals, Paul Krugman makes a great case for America’s immigrant-powered economy: “It has taken a while, but many observers are finally acknowledging that the United States has done extraordinarily well at recovering from the effects of the Covid-19 pandemic,” he writes. “How much of that growth was due to foreign-born workers? All of it. The native-born labor force declined slightly over the past four years, reflecting an aging population, while we added three million foreign-born workers.”
• To add to Krugman’s case, the Congressional Budget Office released a report yesterday predicting that immigration would add $7 trillion to the US economy over the next decade, and $1 trillion in tax revenue.
• Federal Aviation Administration head Michael Whitaker said that he would be bringing the full force of the FAA down on Boeing after the airline manufacturers reportedly failed to bolt a door plug that later was ripped off the side of a plane in midair. Whitaker promised to have “boots on the ground closely scrutinizing and monitoring production and manufacturing activities.”
• Housing costs are a huge problem everywhere in the nation, and we’re keeping a close eye on regional efforts to make housing more affordable. New York state is considering a plan to build thousands of units of affordable housing by “creating a government agency that could build housing using its own money or money raised in the bond market. It follows similar efforts in Atlanta, Rhode Island and Montgomery County, Md., and is an acknowledgment from the left that solving the housing crisis will inevitably mean building more homes.”
• The Biden Administration is “lowering the annual soot standard to 9 micrograms per cubic meter of air, down from the standard of 12 micrograms,” explains the Washington Post. “When fully implemented in 2032, the stricter limit could prevent up to 4,500 premature deaths and 290,000 lost workdays per year, according to the agency.”
• Billionaires don’t get biweekly paychecks the way working Americans do. Most of their spending money is instead borrowed against their wealth. In addition to keeping their wealth invested even as they spend their loaned cash, the interest on those loans is much lower than the taxes the billionaires would have to spend by actually cashing in their stocks. The Washington Center for Equitable Growth proposes a change to the tax code so that “the borrowing of those billionaires and centi-millionaires be taxed as realizing income.” Doing so “could raise more than $100 billion over 10 years in a highly progressive and reasonably efficient way,” the Center suggests.

This Week on the Pitchfork Economics Podcast

We are currently in the midst of the single largest transfer of generational wealth in the history of the world. Baby boomers are shifting an estimated $30 trillion of wealth to their heirs, and the last few decades have seen tremendous trickle-down cuts to the inheritance tax that ensure a vanishingly small portion of that wealth will be taxed. Tax and inequality expert David Stasavage joins Nick and Goldy to discuss what this $30 trillion wealth transfer means for the greater economy in general and for income inequality specifically. They also discuss how the inheritance tax can be rewritten to ensure that some of that money is put to work for all Americans — not just the children and grandchildren of a small group of wealthy baby boomers.

Closing Thoughts

Though we started this email with a celebration of last week’s explosive jobs report, the wonderful thing about working in the political economy space is that there’s always more to do — more improvements to be made, more policies to explore, more lives to improve. Because jobs and wages are moving in the right direction and inflation is generally flattening out, we now have the opportunity to do some blue-sky dreaming about what we want the ideal economy of tomorrow to look like.

At Vox, Oshan Jarow notes that “The economy is good, and full of things to celebrate,” but that simply means we should be casting our eyes up to even bigger goals. Specifically, the economy is hugely unequal, and too many Americans have been left behind thanks to the last forty years of trickle-down economics. Jarow writes:

More than 6 million Americans are unemployed; 25.3 million Americans lacked health insurance in the first quarter of 2023 (which is actually a record low); and more than 650,000 Americans experienced homelessness in 2023. And more than 40 million Americans, or 12.4 percent of the population, lived in poverty in 2022, and that’s according to a poverty line that just about everyone agrees is ridiculously outdated and low. Not captured in those statistics are tens of millions of Americans who are living too close to economic deprivation for comfort.

Jarow makes the case that in order to close the gap between the haves and the have-nots, and to ensure broad-based prosperity for all Americans, it’s time to renew President Franklin Roosevelt’s idea of a second Bill of Rights — this time focused on economic issues.

If you haven’t watched Roosevelt’s address, it’s well worth your time — it feels just as fresh today as it did when Roosevelt proposed it in 1944. The rights he proposed were as follows:

The right to a useful and remunerative job in the industries, or shops or farms or mines of the nation;

The right to earn enough to provide adequate food and clothing and recreation;

The right of every farmer to raise and sell his products at a return which will give him and his family a decent living;

The right of every businessman, large and small, to trade in an atmosphere of freedom from unfair competition and domination by monopolies at home or abroad;

The right of every family to a decent home;

The right to adequate medical care and the opportunity to achieve and enjoy good health;

The right to adequate protection from the economic fears of old age, sickness, accident and unemployment;

The right to a good education.

In other words, Roosevelt proposed establishing every American’s right to pursue the American dream — a job, a house, affordable healthcare, a competitive and healthy marketplace not made lopsided through monopolization.

The flush of post-war prosperity stifled the public enthusiasm for Roosevelt’s economic bill of rights, but the idea has continued to live in the public imagination, most notably through the support of Martin Luther King Jr, who shortly before his assassination called for an economic bill of rights.

Such a bill of rights, Dr. King wrote, “would guarantee a job to all people who want to work and are able to work. It would also guarantee an income for all who are not able to work,” King wrote, adding that the need for education and housing also needed to be established in law.

On many of these fronts, we have seen great progress. As Jarow notes, a record-high number of Americans currently have health insurance. The Biden Administration has finally turned the tide against the sweeping anti-competitive monopolization that took root during the previous forty years of trickle-down economics. And wages for workers on the low end of the income scale have risen in states and cities around the country over the last ten years and also nationally over the last four years.

But we still have a long way to go to finally ensure universal health care in America. Housing has actually grown even further out of touch for many Americans over the past 15 years. While the Biden Administration has forgiven billions of dollars’ of student debt, a good college education is still too expensive for many, and the quality of public education — or the lack thereof — often depends on where you live.

I’d argue that there’s no better time to renew the charge for a new economic bill of rights than right now. Inequality has declined for the first time in four decades, and working Americans are enjoying the fruits of policies that are specifically aimed at improving their lives, rather than the lives of CEOs and other super-rich Americans. Now is the time to lay out what broad-based prosperity would look like, now that we have a middle-out vocabulary that explains why we all do better when we all do better.

Thanks to middle-out economics, we now understand that an economic bill of rights protecting our right to housing, good-paying jobs, health care, and other necessities isn’t charity that we’re handing down to millions of impoverished Americans. It’s a road map to build an economy that grows for everyone, from the bottom up and the middle out.

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

Zach