Republicans’ “Jobs Gap” is a misleading measure that means nothing

Jared Bernstein

Jared Bernstein Senior Fellow, Center on Budget and Policy Priorities

The Republicans’ “Jobs Gap” is a meaningless measure that reveals nothing about the job market. It can, and is, easily manipulated to show any outcome you like.

On the other hand, the facts about the current labor market are as follows.

–The long-term trend of job growth remains solid, unemployment is low, and, contrary to claims related to the “jobs gap,” employment among working-age people is growing relative to their population.

–Anecdotes suggest that some particularly hot labor markets are helping workers overcome steep labor market barriers, like criminal records. Conversely, some groups of workers face skill or health deficits, the absence of necessary work supports, or live in places that have not yet been reached by strong labor demand.

–Even as the job market continues to tighten, wage growth has been relatively sluggish. Since late 2016, real earnings for middle-wage workers has been flat.

The phony jobs gap measure 

The Republicans “Jobs Gap” measure consists of two disparate series—the labor force participation rate (LFPR) and job openings—with very different scales and no substantive meaning. The commentary around the measure suggests its advocates think the jobs gap shows that people are not taking advantage of labor market opportunities, but the actual data belie that claim.

The LFPR is the percentage of the 16+ population that’s employed or unemployed (i.e., in the labor force), and job openings are millions of jobs. Importantly, the 16+ population includes persons of retirement age, an increasing share of the U.S. population, as well as teenagers in high school and young adults in college, so it is not a useful measure for the purpose it is intended (I show better measures below). Labor economists have long expected the overall LFPR to grow less quickly as the baby boomers age out of the labor force.

But the immediate problem with the “jobs gap” is that there’s no meaningful way to present these two series on one graph. In fact, by tweaking their different scales in ways that make no more or less sense than the Republicans’ version, you can get a gap of any size you like or no gap at all!

Here’s the Republicans’ version.

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Unions, CBO’s new baseline, the Bernstein Rule

Jared Bernstein

Jared Bernstein Senior Fellow, Center on Budget and Policy Priorities

The teachers provide us with a teaching moment, over at WaPo. Their actions pose a stark reminder of the essential need for a strong, organized movement to push back on the forces promoting inequality, non-representative government, trickle down tax policy, and more.

CBO released their updated “baseline,” or estimate of the US gov’t’s fiscal outlook. If you like red ink, you’re in biz. Instead of deficits between 3 and 4% of GDP over the next few years, we’re looking at deficits of 4-5%.

As I’ve written in many places, when you’re closing in on full employment, you want your deficit/GDP to come down and your debt/GDP to stabilize and then fall. It’s not that I worry about “crowd out” so much–public borrowing hasn’t crowded out private borrowing for a long time, as evidenced by low, stable interest rates (rates are climbing off the mat a bit now, as I’d expect at this stage of the expansion).

It’s a) there’s a recession out there somewhere are we lack the perceived fiscal space to deal with it, and b) the larger point that this is all part and parcel of the strategy to starve the Treasury of revenues so as to force entitlement cuts.

Which brings me to this oped by a group of former Democratic chairs of the president’s CEA. It’s a perfectly reasonable call for a balanced approach to meeting our fiscal challenges, and, again, consistent with my view that as we close in on full employment, the deficit should move toward primary balance (another way of saying debt/GDP stabilization).

But two things from this piece, which is a critical response to an earlier oped by a “group of distinguished economists from the Hoover Institution.”

First, I didn’t realize that the Hoover’ites argued that the “entitlements are the sole cause of the problem, while the budget-busting tax bill that was passed last year is described as a ‘good first step.’”

This puts them in direct violation of the Bernstein Rule: if you supported the tax cut, you can’t complain about the deficit.

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When it comes to trade-induced job loss, “don’t worry, be happy!”

Jared Bernstein

Jared Bernstein Senior Fellow, Center on Budget and Policy Priorities

I’ve long hoped, probably naïvely, that one of the benefits of team Trump’s promotion of generally ineffective (or worse) solutions to the downsides of trade could engender a debate about better ideas. Of course, the debate will also generate some really bad arguments, like this one from economist Donald Boudreaux in this AM’s NYT.

Boudreaux argues that trade (and, implicitly, anything else) can’t be a problem for jobs because the US economy creates and destroys tons of jobs all the time. The nub of his case comes down to:

“…estimates of jobs destroyed by trade sound big, but they’re actually tiny. Relative to overall routine job destruction and creation — “job churn” — the number of American jobs destroyed by trade is minuscule.

In January alone, the number of American workers who were laid off or dismissed from their jobs was 1.8 million. The number of workers who quit their jobs that month was 3.3 million. Adding in workers who left their jobs for other reasons, such as retirement and disability, the number of job separations in January was 5.4 million. But there were 5.6 million hires in January, too. Those numbers are typical of most months.

Awareness of job churn should calm Americans’ fears about imports [good luck with that–JB]…Compared with the number of total annual job losses…job losses from trade shrink into insignificance.”

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What’s at stake in the Janus case

Jared Bernstein

Jared Bernstein Senior Fellow, Center on Budget and Policy Priorities

Lots of people think unions are pretty much kaput, but that’s not so, especially in the public sector, where union membership has been a bit north of one-third of the public-sector workforce, and remarkably steady, since the late 1970s (private sector coverage, by contrast, is 6.5%; see figure). That’s why the Janus case being argued at the Supreme Court today is so vitally important. Its outcome will either strengthen or weaken public sector unions, and if the result is the latter, it will have political repercussions far beyond the voice of workers in their workplaces.

 

The Janus case is about whether public sector unions can require “agency fees.” Such fees, also called “fair share” fees, are paid to the union to cover the cost of bargaining on behalf of all workers in the bargaining unit, not just union members. Absent such fees, there is a clear “free rider” problem wherein those benefiting from collective bargaining activities on their behalf pay no costs to cover the union’s work. In that sense, Janus is kind of the public-sector corollary of the misnamed state “right-to-work” laws about which I’ve written elsewhere.

The named plaintiff, Mark Janus, is an Illinois social worker covered under a collective bargaining agreement negotiated by the public workers’ union AFSCME (American Federation of State, County and Municipal Employees). He’s not an AFSCME member, but he’s required to pay a fee to cover the cost of his representation. Note that such fees can only be used for this purpose, and not for, say, political activities by the union.

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A nice wage pop in January should be welcomed, not feared!

Jared Bernstein

Jared Bernstein Senior Fellow, Center on Budget and Policy Priorities

Payrolls rose 200,000 last month, the unemployment rate held steady at 4.1% and wage growth popped up to 2.9%, it’s the fastest year-over-year growth rate since mid-2009. In other words, here’s yet another strong jobs report.

Our jobs-day smoother averages out some of the monthly noise in the payroll data by taking averages over 3, 6, and 12-month periods. As shown below, payrolls are up a strong 192,000, on average, over the past three months, a very nice job-growth pace at this point in the expansion. In fact, the slight acceleration in the figure suggests there may be more room-to-run in this economy than we previously thought, which—co-inky-dink!—happens to be the punchline of a new paper from our Full Employment Project.

As CNBC anchor Becky Quick pointed out this morning during their segment in which I joined, we may be entering that phase of the cycle where good news on Main St. is bad news on Wall St. That is, accelerating wage growth may lead the Federal Reserve to tighten faster, slowing overall growth more than currently expected. That certainly was the market reaction this morning, as the 10-year bond yield spiked on the report, suggesting concerns about future inflation and a more aggressive rate-hike schedule at the Fed.

However, as I note below, there are excellent reasons to embrace and welcome, not fear, faster wage growth.

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Tax Roundup: Lies, Lies, and More Lies

Jared Bernstein

Jared Bernstein Senior Fellow, Center on Budget and Policy Priorities

First, here’s a rough typology of the lies upon which the sales job for the Republicans’ wasteful, regressive tax cut is based.

  1. The tax cut won’t help the rich. 1a. It won’t help Trump.
  2. The tax cut will generate enough growth to pay for itself. 2a. Sec’y Mnuchin’s now going beyond this, claiming that it will raise more revenue than it loses. (Here’s what I think’s going on there.)
  3. Most of the benefits of the tax cut will go to the middle class.

Lies, lies, lies. And while it’s early days, and much could change, My impression is that a lot of people outside of DC Republicans aren’t buying them. The media and the Twitterverse is especially lit up with lies #1 and #2. In fact, here’s the NYT doing some calculations on lie 1b (“Trump could save more than $1 billion under his new tax plan”; that’s mostly due to eliminating the estate tax).

Also, on #1, see the Tax Policy Center’s take on the benefits to the wealthy:

  • The top 1 percent of households (those with incomes above $730,000) would get about 53 percent of the framework’s net tax cuts, or roughly $130,000 a year on average.
  • The top 0.1 percent of households (those with incomes above $3.4 million) would get roughly 30 percent of the framework’s net tax cuts, or about $720,000 a year, on average.

This analysis also applies to the reduction in the tax rate (from about 40 to 25 percent) for business pass-through income, which the R’s are trying to sell as helping small businesses. In fact, 86 percent of pass-throughs are already taxed at 25 percent or less. Chuck Marr reports that “79 percent of the benefit of this tax cut would flow to filers with incomes above $1 million.  The 400 households with the highest incomes would receive an average tax cut of $5.5 million from this provision alone.”

Re #3, since most of the cuts go to the top, there’s not much left to trickle down to the middle class, but the tax cutters are making a big deal out of how their plan to double the standard deduction (or, to increase the zero tax bracket) will help lower income families. And, no question, some will benefit from that.

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This Unique, Terrible, Phony, Fraught-with-Lies Moment in American Politics

Jared Bernstein

Jared Bernstein Senior Fellow, Center on Budget and Policy Priorities

This will be brief, because a note about how the political debate is misleading isn’t exactly breaking news or even, admittedly, that interesting. So, I’d consider it a personal favor if you’ll allow me to vent for a moment.

It’s just that the extent to which we’re being lied to right now seems, to me at least, uniquely over the top. The transparency of the BS is just so obvious, especially on Cassidy-Graham, the just-as-bad-as-all-the-others repeal and replace bill that may get a vote in the Senate next week.

Same with the tax “plan.” Even though there is no real plan yet, what we’ve seen so far is mostly tax cuts for wealthy businesses and corporations, the cost of which will get loaded onto the deficit. Yet its proponents are selling it as a pro-growth package that lifts the working class.

My CBPP colleagues have been hammering on how C-G is just as much a wolf as past R repeal bills, despite its sheep’s clothing. It cuts health care spending on ACA functions by over $200 billion, 2020-26, and much more in later years (a new study by the health analysis firm Avalere comes up with similar numbers; see their table below) and that doesn’t count cuts to the traditional Medicaid program, which under C-G is no longer guaranteed to expand to meet the health needs of low-income recipients. Under C-G: “Faced with a recession…states would have to either dramatically increase their own spending on health care or, as is far more likely, deny help to people losing their jobs and their health insurance.”

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Today’s Census Data on Poverty, Income, and Heath Insurance

Jared Bernstein

Jared Bernstein Senior Fellow, Center on Budget and Policy Priorities

A solid report, showing gains across the spectrum. But inequality’s up too, and median earnings, not so much…

My data dive in the WaPo underscores the clearly favorable results in the report, but here are a few other factoids to consider:

–While this isn’t the best data for inequality analysis, for reasons I note in the WaPo, my piece points out the relative difference between gains at the 10th and 95th percentile. That observation is correct, but the 10th %’ile is a bit of a negative outlier. Better to look at a more stable statistic, the average real income gain for the bottom fifth, up 2.6% last year, compared to a 5.6% gain among the richest 5% of households. The bottom half gained last year, but not as much as the top.

–It’s also true that incomes shares going to the middle and low income households are at all time lows, as the figure reveals. (See note in WaPo piece, however, re the impact of the 2013 survey change on comparisons like this. I think it’s a legit comparison, and it comports with other, better inequality data–where better means inclusive of more data sources, including taxes, more transfers, and capital gains–showing even more growth in inequality.)

Source: Census Bureau

–The lack of change in real median earnings for full-time, full-year workers last year is worth noodling over a bit. It surely reflects a composition effect as lower-paid were drawn into the sample last year, pulling down the median (see here for how this works). But even considering that reality, look at this series for men since 1960:

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An Important Fact Check on Manufacturing Value-Added and Employment

Jared Bernstein

Jared Bernstein Senior Fellow, Center on Budget and Policy Priorities

So, I’m driving around doing errands this past weekend when I hear former Secretary of Commerce Carlos Gutierrez (in GW Bush’s cabinet) interviewed about renegotiating NAFTA. He’s a big booster of the trade deal and wanted to make the point that any job loss in manufacturing was a result of faster productivity growth, not imbalanced trade. His evidence was as follows (my bold):

One of the things I go back to very often is our manufacturing as a percent of GDP. Our manufacturing output is pretty stable, pretty flat. If you go back 10, 15 years, it’s between 12 and 14 percent. But our manufacturing workforce has been declining steadily. So we’re producing the same output with fewer people. What that tells me is that technology is more of a threat to American jobs than trade.

Stable manufacturing output share of GDP?! I practically dropped the dry cleaning!

The first figure shows that, in fact, manufacturing’s share of output (blue line) has been falling since I was born in the mid-1950s. It was 11.7% in 2016, 13% in 2006, and 13.9% in the 2001. OK, that’s roughly between 12 and 14 percent, but it ain’t stable. It’s falling, and pretty steadily. In fact, Louis Uchitelle just published an important book on this long-term trend.*

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Yes, the “Skinny Repeal” is Just a Play to Get to Conference. But It’s Also Terrible Policy.

Jared Bernstein

Jared Bernstein Senior Fellow, Center on Budget and Policy Priorities

Readers know I’ve been deeply engaged in the healthcare debate, and highly critical of the efforts thus far to repeal and replace, demean and deface, disgust and disgrace, etc.

But I haven’t weighed in on up to the minute changes in part because they’re changing fast and because the journalists who follow this are doing a good job of tracking developments in the Senate.

In sum, Senate R’s have failed to pass any of the repeal and/or replace bills they’ve come up with so far. At this point, McConnell looks to be counting on getting to 50 votes with “skinny repeal,” which gets rid of the individual and employer mandates, along with a tax on medical devices.

At one level, this is high strategery. His play is to get to conference, i.e., once both chambers have passed bills, the R’s convene a committee that tries to agree on a plan that R majorities in both houses will support. There’s no requirement that what comes out of conference looks like what went in, and that means they’re most likely to go right back to the full, draconian repeal-and-replace cuts that would lead to tens of millions losing coverage.

Would Senate “moderates” who’ve blocked these bills thus far backtrack and vote for stuff they’ve heretofore opposed, like huge cuts to Medicaid or ending coverage of pre-existing conditions, maternal care, mental health, substance abuse treatment, etc.? They might, but it’s worth remembering that the debate on the conference bill is constrained, no amendments are allowed, and leadership will be in full arm-twisting mode.

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