The State of the Labor Market Is Strong

The Pitch: Economic Update for February 9th, 2023

Friends,

Even for a dyed-in-the-wool political junkie like me, State of the Union speeches are often arduous laundry lists of policies compiled to mollify stakeholders. This week’s State of the Union address was remarkable because it was more than simply watchable — it was a substantive speech that was informative and entertaining throughout.

I’ll let the pundits dissect the political drama of the speech, and Harold Meyerson’s overview of the political ramifications of the speech is definitely worth your time. What’s most interesting about this speech to me — and why I think it was one of the best State of the Union addresses of my lifetime — is that it offered a coherent economic vision and laid out a narrative that broke cleanly from the past 40 years of neoliberal, trickle-down decay.

Biden opened the speech with his thesis statement: That his goal was “to build an economy from the bottom up and the middle out, not from the top down.” Then he explained why that vision matters: “Because when the middle class does well, the poor have a ladder up and the wealthy still do very well. We all do well.”

He acknowledged the inflationary distress that many Americans have felt in the last two years, but he also sounded an optimistic tone that the light at the end of the tunnel is nearing. “Here at home, gas prices are down $1.50 a gallon since their peak. Food inflation is coming down,” Biden said, adding that “inflation has fallen every month for the last six months while take home pay has gone up.”

Biden also used the megaphone of the State of the Union to amplify some of his biggest achievements, including the fact that the 12 million jobs created in his first two years in office outpace every other president’s four-year job creation record, and that a record 10 million small businesses have been launched in the same time. He boasted of 800,000 factory jobs returned to America, with plenty more on the way thanks to the CHIPS and Science Act, adding that many of these jobs “don’t require a college degree.” He reminded Congress that his administration has moved to ban noncompete agreements that eliminate competition in the labor market for workers, driving down wages. (And Republicans in Congress demonstrated a lack of awareness of this problem by shouting that it was “not true” that service economy workers had to sign noncompetes, when in fact noncompetes are standard among one out of every four service economy employers.)

The most impressive part of the speech for me was the wide array of policy proposals, and the skill with which Biden explained them — both the causes of the problems they were intended to solve and the way the policy would alleviate the problem. These policies didn’t feel stapled onto the bottom of the speech as they do in many State of the Union addresses; instead, Biden used the underlying middle-out narrative to explain how these policies would help the economy grow for everyone by focusing directly on working Americans. The economic portion of the policy agenda included:

• A proposal for a billionaire minimum tax, “because no billionaire should pay a lower tax rate than a school teacher or a firefighter.”
• A call to quadruple his new tax on stock buybacks because last year Big Oil “made $200 billion in the midst of a global energy crisis” and “invested too little of that profit to increase domestic production and keep gas prices down. Instead, they used those record profits to buy back their own stock, rewarding their CEOs and shareholders.”
• Biden called on Congress “to strengthen antitrust enforcement and prevent big online platforms from giving their own products an unfair advantage.”
• He also demanded that Congress “restore the full Child Tax Credit, which gave tens of millions of parents some breathing room and cut child poverty in half, to the lowest level in history.”

Perhaps most impressively of all, Biden was clear that these policies were not just the morally correct thing to do. He explained that “when we do all of these things, we increase productivity. We increase economic growth” for everyone in the economy — not just those at the top.

There were plenty of other important and memorable moments in the speech. Biden’s call for a ban on assault weapons and the empathetic argument for police reform both moved many in the audience and at home to tears. But because this is an economics newsletter, we’ll just stay in our lane and say this speech was one of the most important economic speeches to be delivered in recent memory.

The Latest Economic News and Updates

Must-Read: Nick Hanauer on the State of the Union

In his latest piece for the American Prospect, Civic Ventures founder Nick Hanauer explains that this week’s State of the Union speech marked an important moment in President Biden’s embrace of middle-out economics:

President Biden is attempting to do something that no president has done since Ronald Reagan: fundamentally transform how Americans understand the economy and the role of government in creating economic growth and broad-based prosperity. The agenda Biden is advancing is much more than a collection of policies. His accomplishments represent a reimagining of how America conceives of and executes economic policy.

Nick notes that Tuesday’s speech was a pivot point for the Biden Administration — a shift from the last two years of passing important legislation into the next two years of delivering on the results of that legislation, bringing the middle-out narrative to every state in the union in the form of groundbreakings, ribbon-cuttings, and program launches.

While Biden prepares to travel the country spreading the middle-out message, Nick calls on Democrats and progressives to rally around the president’s middle-out flag. “Democratic elected officials, leaders of progressive organizations and economic think tanks, liberal pundits, and social media influencers all need to get on board,” he writes. That means it’s up to leaders to “explain the simple theory behind the idea [of middle-out economics]: A thriving middle class is what grows the economy.”

From the presidential race at the top of the ticket in 2024 on down to city councilmembers and dog catchers at the bottom of the ballot, Nick argues that Biden has established the blueprint for the progressive economic narrative for the next two years: Let’s build the economy from the middle out and the bottom up. I urge you to read Nick’s piece and pass it on to your peers.

Half a Million Jobs Added in January

The day after last week’s Pitch arrived in your inboxes, a surprisingly great January jobs report made headlines. Unemployment is now at 3.4% — the lowest it’s been in more than fifty years. The economy added more than 500,000 jobs last month, and previous months saw upward revisions of hundreds of thousands of jobs, meaning that past jobs reports were even stronger than originally reported.

Best of all, these strong employment numbers are helping workers who have traditionally been left behind, with service-economy job openings increasing dramatically and the Black unemployment rate reaching all-time lows.

It’s not all great news: Worker wages grew by 4.4 percent over the previous January, which is obviously positive, but that wage-growth number has been steadily declining over the past few months.

But those recessionary fears that the media keeps discussing don’t seem nearly as grounded in reality as they did several months ago. As long as we see this level of job creation, the labor market will continue to be competitive and wages will continue to show positive growth. If inflation continues downward and wages stay aloft, Americans will start to feel the positive benefits of Biden’s middle-out economy.

Will a Good Unemployment Report Scare the Federal Reserve?

Last year, many mainstream economists embraced the topsy-turvy idea that good economic news like a strong labor market was somehow bad economic news for everyone. Nowhere was this up-is-down contrarian worldview accepted as strongly as it was at the Federal Reserve, which has argued that the job market has to slow down and millions of Americans may have to lose their jobs in order to combat inflation.

Of course, now that inflation is declining at the same time that unemployment has hit record lows, the Fed’s previous thesis seems to have been completely disproven. But mainstream economists have never allowed reality to get in the way of a closely held assumption, so it’s possible that Friday’s strong jobs report might frighten the Fed into trying to slow down the labor market again by pursuing more aggressive rate hikes.

Fed Chair Jerome Powell was aware of the unemployment report before he raised interest rates by a quarter of a percent. But for what it’s worth, he seems pretty shaken-up by record low unemployment, telling reporters on Tuesday that “if we continue to get, for example, strong labor market reports or higher inflation reports, it may well be the case that we have to do more and raise rates more than has been priced in.”

So if the job market continues to do well, Powell is threatening to raise interest rates faster or higher than he originally planned, making it harder for businesses to borrow money and raising mortgage rates for American homebuyers. But…why? If inflation is decreasing, surely a positive jobs report is a good thing? Powell seems wedded to the (now debunked) idea that your wage growth is what inspired pandemic-era price increases, and that a recession and layoffs are the only way to combat inflation.

Before he panics, Powell should pay attention to this excellent thread from Mark Zandi, the Chief Economist at Moody’s Analytics. Some economists are worried that we have hit full employment — meaning there are too many open jobs and not enough workers to fill those positions, and that growing gap could potentially stall the economy. Zandi argues that the slowing wage growth I wrote about above makes it “tough (impossible) to square the view that the economy is operating well beyond full-employment.”

“If my diagnosis is correct,” Zandi writes, “then just as long as oil prices don’t jump again (yes, a risk), wage and price pressures should continue to abate without much higher unemployment. The Fed should be able to soon end its rate hikes and the economy should be able to avoid recession.”

Higher Education Hangs in the Balance at the Supreme Court

The Supreme Court is hearing two unrelated cases this session that both could affect the future of higher education in this country. They’ve already heard arguments for and against dismantling affirmative action, and sometime this month justices will hear a case against President Biden’s student-loan forgiveness program. Experts agree that the Court seems poised to wipe out affirmative action, and the partisan makeup of the Court suggests that student-loan forgiveness instituted by a Democrat might not survive, either. At the Economic Policy Institute, Adewale A. Maye explains the economic damage that the court could cause by ending both of those programs.

Two years ago, Maye notes, “the percentage of adults age 25 and older with a bachelor’s degree or higher was 20.6% for Latino people, 28.1% for Black people, 41.9% for white people, and 61% for Asian people.” Maye writes that “despite gains in high school completion, Black and Latino students continue to see double-digit differences in college completion compared with white and Asian graduates.” Ending affirmative action, he argues, would cause those gaps to swell even further.

And Maye also proves that students of color and women are more likely to carry a higher student debt burden than their white and/or male counterparts. After graduation, Black student debt is on average $25,000 more than white student debt, he writes, and they take longer to work off that higher debt than their white counterparts.

“Women, and especially Black women, bear the brunt of the student debt crisis,” Maye writes. With women holding “nearly two-thirds of the $1.7 trillion in student debt in America.” And of course that debt is not carried equally across race:

The American Association of University Women (AAUW) found that Black women had the largest average student loan debt ($41,466) in 2021, followed closely by Pacific Islander/Hawaiian women ($38,747), American Indian/Alaska Native women ($36,184), and white women ($33,852). Latina women borrowers were the next highest group at $29,302 and Asian women borrowers owed the lowest amounts at $27,606.

It’s unlikely that any Supreme Court justices would be swayed by these figures, but this report is a reminder that these decisions have real-world implications that will play out for decades to come. Any decision that makes young people less likely to attend college will have lifelong effects on their earnings. Since we can’t affect the outcome of the court’s decisions, we damn well better ought to be able to measure their effects.

The Front Lines of Regulation

At this time last year, cryptocurrency was riding high, and public interest was peaking thanks to a series of attention-grabbing Super Bowl commercials. Today, the industry has been laid low by a series of dramatic crashes that wiped out billions of dollars for tens of thousands of users.

Robert Kuttner explains how the Biden Administration successfully stopped the crypto crash from infecting other aspects of the financial industry. One appointee in particular stands out as a hero in this story: Securities and Exchange Commision Chair Gary Gensler “issued a bulletin last April, indicating that banks would have to mark digital assets as liabilities on their balance sheets for accounting purposes. Gensler prevented the creation of an exchange-traded fund made up of Bitcoin funds, which would have increased bank exposure to crypto.”

It’s almost impossible to calculate the cost of the disaster that might have happened had banks been able to invest funds into Bitcoin in an unregulated scenario last year. This is a perfect example of how the swift and timely application of regulations can save us all from disaster.

David Dayen warns of another practice that is in dire need of regulatory intercession: Private equity firms are getting into the insurance business by buying up insurers. If you’re familiar with private equity practices in other fields — loading up popular brands like Toys R Us up with debt, laying off thousands of workers, and then selling the whole company for scrap — you already understand how bad this situation can get.

Dayen talks with experts who offer several potential regulatory solutions to this impending disaster, including “a ban on firms ‘self-dealing’ by investing insurance assets in their own funds,” and he explains that because insurance is largely regulated on a state basis, there seems to be some confusion about how much action the federal government can take to prevent private equity from picking auto and home insurance companies dry, and hoovering up all the retirement funds invested in life insurance.

And in situations in which the government has failed to lead, small businesses are taking action. Luke Goldstein reports that small businesses are combating extractive practices from the two biggest credit card companies in the world, Mastercard and Visa. The credit card giants “set swipe fee rates, which banks then collect from merchants for the cost of doing business with cardholders,” Goldstein explains.

“These fees don’t reflect value or additional costs to Visa and Mastercard; the duopoly jacks them up simply because they can, serving as a private tax on all credit or debit card sales,” he adds. A small business organization is now encouraging lawmakers to pass the Credit Card Competition Act, which Goldstein says “would force competition into financial transaction providers, to break Visa and Mastercard’s chokehold and bring down fee rates.”

It’s telling that the largest lobbying body in the United States, the U.S. Chamber of Commerce, isn’t doing anything to help small businesses fight for swipe fee reform. That’s because while the Chamber loves to hide its trickle-down agenda behind claims that regulations harm small businesses, the Chamber always feels more allegiance to the profits of Big Banking than it does to businesses on Main Street.

Real-Time Economic Analysis

Civic Ventures provides regular commentary on our content channels, including analysis of the trickle-down policies that have dramatically expanded inequality over the last 40 years, and explanations of policies that will build a stronger and more inclusive economy. Every week I provide a roundup of some of our work here, but you can also subscribe to our podcast, Pitchfork Economics; sign up for the email list of our political action allies at Civic Action; subscribe to our Medium publication, Civic Skunk Works; and follow us on Twitter and Facebook.

• As I mentioned earlier, the Supreme Court will hear arguments in a case brought against President Biden’s student loan forgiveness program later this month. So this week’s episode of Pitchfork Economics revisits our interview with debt expert Fenaba Addo, who makes a compelling case for total forgiveness of student loan debt.

Closing Thoughts

We’ve all seen those handwritten notes on the front of businesses complaining that “no one wants to work anymore,” and this newsletter has debunked those claims multiple times over the last couple of years. We know that many of these employers simply aren’t paying enough to make the jobs worth the time of prospective applicants, for instance.

But this graph showing the decline of immigration to the United States during the virulently anti-immigrant Trump Administration also shows where many of those potential workers have gone:

This decrease in migration means that almost a million workers have disappeared from the workforce, and now employers are paying the price. For the Wall Street Journal, Michelle Hackman and Santiago Perez explain “Migrants who come to the U.S. to find work are now being hired more quickly, at higher pay and under better working conditions than at any time in recent memory.”

Hackman and Perez lay out a series of anecdotes that show employers increasing wages for migrants by as much as 150%, compared to pre-pandemic wages. And these higher wages are inspiring a new surge of migration — and an increase of detentions at the US-Mexico border. Immigration has long been a third rail in American politics. Leaders have been so afraid to act that our laws have deteriorated. The systems that are in place to allow migrants to find legal work are antiquated to the point that they fail to meet modern demand, as with H-2B visas, which are handed out via a lottery:

Congress sets the number of visas available — for fiscal year 2023, the total limit is roughly 130,000. A portion of this year’s total has already been distributed for the winter season, leaving fewer than 80,000 visas available for the summer, government data show. Yet employers have already requested 142,000 for the warm-weather season.

Donald Trump weaponized anti-immigration sentiment in such an ugly way that it seems impossible that federal leaders will be able to reach any sort of a solution that would allow employers to legally fill empty positions with migrants.

But in a nation with declining birth rates, immigration is absolutely necessary to keep the economy growing. Even though companies that rely on migrant labor are willing to finally compensate workers with a living wage, they simply can’t meet the increased demand that is powering our recovery from the pandemic. If we continue to penalize migrants for wanting to meet that demand, we could tip into a labor crisis. By removing uncertainty and risk from the migration process, we would strengthen the American economy for everyone.

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

Zach