North Carolina’s Misunderstood Cut in Jobless Benefits

From today’s NYT blog “The Upshot” by Justin Wolfers:

Since North Carolina effectively eliminated unemployment benefits last year for people unemployed 20 weeks or more, the state has become a symbol in the partisan wars over economic policy. People on either side of those wars have argued that it proves the economic advantages — or damage — of providing the long-term jobless with cash payments.

But digging into the data suggests North Carolina should really be a case study in people seeing what they want to see. Over the last year, the state’s economy has performed remarkably like the economy in nearby states.

North Carolina is more than a case study, too. It is a laboratory for the rest of the country, given that at the start of this year, the federal government eliminated all benefits for the long-term unemployed. Both political sides have looked to North Carolina for evidence to bolster the positions they have taken in this debate.

Republicans, who voted against extending unemployment benefits, argue that ending benefits will spur the long-term jobless to look harder for work; with more eager workers, employment will rise, conservatives say. Democrats, many of whom voted to continue jobless benefits for the long-term unemployed, say that ending benefits will force the unemployed to cut their spending, which may have broader ripple effects that could slow the labor market recovery.

My reading of the North Carolina experiment is that it provides little support for either side.

The question of whether to provide those benefits is an important one. But perhaps the answers should depend more on social values than on macroeconomic implications. After all, the point of unemployment insurance isn’t to boost the economy as a whole, but rather to ensure that an unlucky few don’t shoulder an unbearable burden. Whether we’re doing that is a question more of values than of economic statistics.

Read the entire article here.

NPR Reports: Does Raising the Minimum Wage Kills Jobs?

NPR’s David Kestenbaum investigates the question, Does raising the minimum wage kill jobs? Here is an overview:

President Obama has called for increasing the minimum wage, saying it will help some of the poorest Americans. Opponents argue that a higher minimum wage will lead employers to cut jobs.

Figuring out the effect of raising the minimum wage is tough. Ideally you’d like to compare one universe where the minimum was raised against an alternate universe where it remained fixed.

Economist David Card found the next best thing. In 1992, New Jersey was about to raise its minimum wage. Right next door, there was a parallel universe: Pennsylvania, which was not raising its minimum wage.

Card and a colleague decided to study what had happened to jobs at fast-food restaurants in both states. They surveyed restaurants and found that the number of jobs actually went up in New Jersey, which increased its minimum wage, compared to the number of jobs in Pennsylvania, which didn’t.

Card theorized that employers were making less money. The prices of hamburgers had gone up. But as far as he could tell, raising the minimum wage did not end up costing jobs.

The study and subsequent book, Myth and Measurement: The New Economics of the Minimum Wage, bugged economist David Neumark. He explains:

“It was presented as, ‘Economics has it all wrong.’ And I think that coupled with the evidence that the data looked kind of strange, just really prompted us to say, ‘Let’s go back and get what we think will be better data, and do the whole thing over again.’ “

Neumark and a colleague got actual payroll data from fast-food restaurants in New Jersey and Pennsylvania. They came to the opposite conclusion: Raising the minimum wage slightly reduced the number of jobs.

But this was not the end of things. The authors of the original paper then went back and redid the experiment using government data. And they came to the same conclusion as from the first study: Raising the minimum wage did not cost jobs.

Findings like these are the reason the debate over the minimum wage goes on and on — not just among politicians, but also among economists.

The newest study, which the Congressional Budget Office published in February, says raising the minimum wage could cost 500,000 jobs. But it would also increase hourly wages for more than 16 million people.

Listen to the entire story here.

The Clear Benefits of a Higher Wage

From the New York Times Editorial Board:

Republicans sputtered with outrage when the Congressional Budget Office said that immigration reform would lower the deficit, strengthen Social Security and speed up economic growth. They called for the office to be abolished when it dared to point out that tax cuts raise the deficit or when it highlighted the benefits of health care reform. But now that the budget office has predicted (and exaggerated) the possibility that an increase in the minimum wage might result in a loss of jobs, Republicans think it’s gospel.

“This report confirms what we’ve long known,” said a spokesman for the House speaker, John Boehner. “While helping some, mandating higher wages has real costs, including fewer people working.”

What Republicans fail to mention is that Tuesday’s report from the budget office, a federal nonpartisan agency, was almost entirely positive about the benefits of raising the minimum wage to $10.10 by 2016, as President Obama and Congressional Democrats have proposed.

But the report said there could be a cost to the wage increase, and most of the headlines have focused on the possible loss of 500,000 jobs, or about 0.3 percent of total employment. That bears further scrutiny, because, unlike the benefits, the employment estimates have been disputed by a wide variety of nonpartisan economic studies.

What the report actually says is that there is a two-thirds chance that a $10.10 wage would produce job losses in a range from just above zero to one million. The number 500,000 was simply picked as a midpoint. (There is a one-third chance the wage increase would lead to more than a million job losses or actually increase employment.) A range that big is essentially the budget office’s way of saying it doesn’t really know what would happen to employment if the wage goes up, because, as the report says, there is vast uncertainty about how much wages will go up on their own over the next three years, and uncertainty about how employers would react to a higher minimum.

The budget office didn’t do its own research on those variables. It surveyed the economic literature on the subject, and chose a figure more conservative than the most recent and rigorous studies have found. That means the job-loss figure needs to regarded skeptically, as a careful reading of the report shows, while the benefits are undisputed.

Those benefits to millions of low-wage workers overwhelmingly outweigh the questionable possibility of job losses. Lawmakers who focus only on the potential downside of an enormously beneficial policy change are the same ones who never wanted to do it in the first place.

Minimum Wage Increase Would Have Mixed Effects, CBO Report Says

From the New York Times by Annie Lowrey:

A popular Democratic proposal to raise the minimum wage to $10.10 an hour, championed by President Obama, could reduce total employment by 500,000 workers by the second half of 2016. But it would also lift 900,000 families out of poverty and increase the incomes of 16.5 million low-wage workers in an average week.

That is the mixed conclusion of an assessment on how raising the minimum wage would affect incomes, employment and the federal budget. The report was released on Tuesday by the nonpartisan Congressional Budget Office, whose views often have a powerful influence on the fate of legislation.

The nuanced analysis provided instant fuel for both supporters and critics of raising the federal minimum wage, a policy heavily favored by Democrats but viewed skeptically by Republicans in Congress.

Republicans contended the policy would be a job-killer, while Democrats asserted it would help alleviate poverty. Economists said both might be right.

And the White House, in an unusual twist, openly disputed the budget office’s math.

Jason Furman, the chairman of the White House’s Council of Economic Advisers, said that the office’s estimate of the potential lost jobs might be too high. In a call with reporters, Mr. Furman said that finding no jobs effect at all would be a “perfectly reasonable estimate.”

The analysis does not reflect “the consensus view of economists,” he said. “Sometimes, you have to have respectful disagreement.”

But the report was embraced by leading Republicans, who have opposed the legislation despite its widespread popularity in public opinion polls. “Raising the minimum wage could destroy as many as one million jobs, a devastating blow to the very people that need help most in this economy,” said Senator Mitch McConnell of Kentucky, the minority leader. “If and when Democrats try to push this irresponsible proposal, they should be prepared to explain why up to a million Americans should be kept from having a job.”

Democratic lawmakers and liberal groups joined the White House in challenging that view. “I haven’t seen Republicans this excited about something that bucked the trend in their favor since the last poll showing Mitt Romney was about to be elected president,” said Brad Woodhouse, the president of Americans United for Change, a liberal advocacy group. “But sorry to rain on their parade — one report does not a trend make.”

The budget office found that lifting the federal minimum wage, currently $7.25 an hour, would have a complicated effect on the labor market, acting as a boon and a burden for businesses and workers.

Over all, the budget office estimated that lifting the minimum wage to $10.10 and indexing it to inflation would reduce total employment by about 0.3 percent, or 500,000 workers. But it cautioned that the estimate was imprecise, with the job losses likely to fall in a range from practically nothing to one million.

The proposal would result in winners and losers among the low-wage workers it would target, the report found. Some businesses, squeezed between increased costs and the inability to raise prices or sell more goods, would hire fewer low-wage workers because of a higher minimum wage, the report said.

But increasing the minimum wage would bolster the earnings of about 16.5 million workers: providing $5 billion a year more for families living in poverty, $12 billion a year more for families earning from one to three times the poverty threshold.

Several top labor economists said on Tuesday that the budget office was overstating the proposal’s effect on the job market. Lawrence Katz of Harvard, for instance, said that the budget office had used “a lot of off-the-shelf estimates” of the jobs effect, and that if it had emphasized findings from higher-quality studies, it would have found a smaller or negligible impact on total employment.

More conservative economists said that the profession had long viewed raising the minimum wage, like any increase in price, as having an effect on the demand for jobs.

“The Congressional Budget Office confirms the president proposes an unprecedented increase in the minimum wage that will cost hundreds of thousands of jobs,” said James Sherk, who analyzes the labor markets for the Heritage Foundation, a right-of-center research group.

Liberal economists said that quibbling over the jobs numbers neglected a central finding in the report: that many workers would benefit from an increase in income.

“The C.B.O. chose a higher number than I think reflects the best work, but they’re not way off the reservation,” said Jared Bernstein, a former Obama administration economist now at the Center on Budget and Policy Priorities. “Even if they’re right, the beneficiaries far, far outweigh the people who are hurt by this.”

The budget office analyzed two proposals in its report. The first would increase the minimum wage to $10.10 by mid-2016 and would tie it to the Consumer Price Index, so that it would increase with inflation over time. It would also increase the minimum wage for workers who receive tips for services.

The second proposal would increase the minimum wage to $9, without any indexing for inflation. That would have much smaller effects, the budget office found. It would reduce employment by 100,000 workers by the second half of 2016, and push about 300,000 people above the poverty line.

The higher minimum wage would reduce employment in two main ways, the budget office report said. Businesses facing higher labor costs would raise prices, passing those higher costs on to their customers. That would lead their customers to cut back on their purchases, meaning that businesses would need fewer workers.

Raising the minimum wage would also make hiring low-wage workers more expensive relative to other investments, like new machinery. Businesses might then reduce their use of low-wage workers and shift their spending toward other things, like automated systems.

But a higher minimum wage would offset at least part, if not all, of that effect by helping increase spending by lower income workers throughout the economy.

Read the entire article here.

Shutdown: Complacency on Wall Street Could Be Worse Than a Panic

From the New York Times “DealBook” Blog by Jason Eissenger:

Don’t look to a market panic to save us.

We are in upside-down world, where a freak-out now would help stave off financial devastation later. By staying cool, the markets are making a crisis more likely.

Sure, the stock market has ebbed lower, but it hasn’t plunged. Short-term bond markets have hiccupped. Spreads on United States credit default swaps have widened, indicating a slighter greater fear of default, but nothing drastic. The financial media keep grasping at any movement to demonstrate investors are worried. But market participants simply don’t think that the government will end up doing something so obviously reckless and harmful as refusing to pay its debts.

Wall Street’s lack of worry reflects cynicism about Washington (who doesn’t feel that?) but also a deep misreading of how significant the ideological fissures are in the capital. Wall Street is misunderstanding the extremism of the House Tea Party Republicans who precipitated the government shutdown and debt ceiling crisis.


Update: Congress passes Bipartisan Student Loan Certainty Act of 2013

In a fairly novel turnaround Congress passed a major piece of legislation Wednesday with significant bipartisan support that changes the way interest rates for student loans will be calculated. The Bipartisan Student Loan Certainty Act of 2013 was able to bridge a gap between Democrats and Republicans over the government’s role in regulating financial institutions. The bill passed by an overwhelming majority of 392 to 31.

The fate of the bill has long been in question as both Democrats and Republicans alike tried to find reasons for opposing it, ranging from concerns about protecting students from predatory loan practices among the former to worries about government interference in distorting interest rates.

All federally subsidized Stafford loans will have interest rates that are tied to 10-Year Treasury bonds plus 1.8 percent with a cap of 8.5 percent and 9.5 percent on undergraduate and graduate loan respectively. The federal loan program PLUS would pay the Treasury rate plus 4.5 percent. Roughly, this means individuals taking out new loans after the law passes will pay 3.61 percent for undergraduate loans and 5.21 percent for graduate loans.

Obama proposes lower corporate tax rates, but tax reform remains elusive

There is a concerted bipartisan effort to pass tax reform legislation among centrist Democrats and Republicans alike. However, the deep animosity between the radicalized House Republicans and the Obama Administration is going to make agreement about any kind of substantial reform hard to achieve as they enter yet another round of budget battles. There was no victor in the last round of budget bickering and only losers, as the so-called “sequestration” led to across-the-board spending cuts and potentially hampered efforts at economic recovery.

This week President Obama announced a “grand bargain” of sorts at an Amazon distribution center in Chattanooga, TN. In an effort to jump start a serious political conversation about tax reform generally the President made public his proposal for streamlining corporate taxes in America and creating jobs through education, training, and public works projects.

“If folks in Washington really want a ‘grand bargain,’ how about a grand bargain for middle-class jobs? If we’re going to give businesses a better deal, we’re going to give workers a better deal, too.”

The President outlined a similar proposal for tax reform in early 2012 during the presidential election. His idea is to cut the corporate tax rate from 35 to 28 percent, with a slightly lower for manufacturing firms in an effort to retain and expand those kinds of jobs. The proposed measure is supposed to be “revenue-neutral” so that it neither adds to nor subtracts from the deficit. There would be a one-time revenue boost, however, that would create enough savings to invest in jobs, something the Republicans have blocked time and again.

The national debate that ensued has also drawn attention to Sen. Max Baucus (D-MT), head of the Senate Finance Committee, and his House counterpart Rep. Dave Camp (R-MI) on the Ways and Means Committee. The two have been quietly working for months on substantial bipartisan tax reform aimed at overhauling and simplifying the nation’s antiquated tax code. Like all earlier attempts at reform their proposal suffers from being well-liked as an ideal theory but subject to the nitpicking and haggling of realpolitik by those who want to preserve parts of a system that benefits them. In short, everyone likes the idea of tax reform but no one will agree to the unforeseen outcomes of the details that might threaten their pocketbooks.

Now that the nation’s attention has been drawn to it, the partisan resistance by the Republicans to make any compromises has been emboldened. They have painted the President’s plans to reduce both corporate and middle income taxes as “tax increases” that compromise economic recovery, even though his proposal calls on reducing taxes for most Americans and small businesses. In ungovernable climate like this, the prospects of substantial tax reform remain dimmer than ever.

Obama and Democrats must work harder for real economic fairness

President Obama’s speech yesterday promising a renewed effort to turn the economy around and make prosperity work for all Americans is long overdue.

Democrats must develop a more responsible economic policy that abandons the centrist consensus on business and regulation that it shares with Republicans. Since the days of President Clinton with his model of smaller more responsive government for facilitating economic growth, the once-upon-a-time party of the working classes has increasingly become indistinguishable from the hear-and-now party of big business and deregulation.

Over the last 20 years the debate between liberal and centrist Democrats has been about foreign policy, nation building, and balancing the war on terrorism with the civil liberties of their constituents. The failure of yesterday’s close vote in the House to prohibit the NSA from collecting and mining the phone calls of Americans highlights the drift of the Democrats’ vision for such a balanced policy. Most of them voted against President Obama to prohibit the blatantly anti-democratic actions of our intelligence agencies to spy on citizens without reasonable suspicion or due process. Yet, they remain behind the President’s floundering economic policy to reward risk-taking at the cost of massive and growing inequality between the wealthy and everyone else.

Luckily that is starting to change with push back from liberals like Sen. Elizabeth Warren (D-MA), who is renewing the debate about the purpose of a market economy and its role in the shared prosperity of a nation. Not only is Sen. Warren pushing to renew the Glass-Steagall Act, which regulates investment and commercial banking from engaging in the kinds of risky financial practices that started the Great Recession, she is quickly becoming the champion of corporate oversight. Last week she refused to vote with her party on its student loan interest legislation because it does too little to address the gravity of the problem.

Warren’s call to action on financial regulation and consumer protection highlights the growing need to return to matters of economic fairness. The truth is in the numbers. While the jobless recovery has stalled improvements for middle class Americans and the poor, it has fueled larger than ever gains by the top income earners. The rich are getting richer, while the rest of America is floundering. Without adequate employment opportunities, out-of-reach education, and unaffordable health care costs, social mobility for college graduates and younger generations is quickly becoming a Horatio Alger tale of the past.

The new edition of Fortune magazine has a revealing expose on the world’s billionaires that captures the behemoth problem of rising income inequality. The expose lists the world’s billionaires by country, and represents them as colored circles on a map. The U.S. has more combined wealth than all of the countries of the E.U. put together. What is more, the size of its circle compared to developing nations is like a giant star to a pin dot. The massive inequality of wealth, income, and resources highlights the problem of an economic policy driven by the laisser-faire myth that no regulation is better for market performance in the long run.

Consider the contrast of desperate job seekers and billionaires. In the last year the unemployment rate decline by .06 of a percent. Millions of Americans remain out of work, or without adequate compensation to address their needs. By contrast, this country added 56 new billionaires in that same year, from 515 to 571. That is not a system built on economic fairness that will last for much longer.

NLRB dispute may lead Senate majority to change rules for filibuster

Senate Majority Leader Harry Reid (D-NV) has done the unthinkable by proposing rule changes in the Senate to restrict filibusters. The proposed change has been considered before by both parties at different times but rejected on the grounds that lacking an effective procedural tool like the filibuster would make it impossible for the opposition party to stop, or least constrain, the ruling party from doing anything it likes. The political winds of fortune change, so for the sake of fair play, filibuster rules have been left alone.

No longer. The proximate cause of the proposed change by the Democratic leadership is an opposition party that is not only uninterested in governing, but positively antagonistic about bipartisan compromise for the sake of it. As a result, the Senate remains a legislative body ground down by gridlock with tempers flaring on both sides of the aisle.

The immediate cause is a prime example of the Republican Party’s intransigence, however. Party loyalists in Congress have publicly declared they will do everything in their power to frustrate Obama’s presidency out of sheer (sometimes racially motivated) animus. In the Senate the filibuster has been used time and again to block executive appointments made by President Obama, ranging from federal judges to independent agencies like the National Labor Relations Board. For Obama’s entire presidency the NLRB has functioned without full membership because Republican Senators have misused and abused the power of the filibuster to deny hearings for his nominees. This means, in effect, that for the last five years hundreds of labor disputes have gone unmediated, which is the principle role of the board.

Republican opposition to the NLRB intensified in 2011 following its ruling against Boeing’s attempt to move large swaths of its manufacturing from Washington to South Carolina where unions are not as strong and labor laws are more permissive. The ruling angered Sen. Lindsey Graham (SC-R), who is anti-labor and pro-business. He claimed the NLRB is “the Grim Reaper of job creation,” even though we all know from the Great Recession that the real killer of jobs in this country is Graham’s own deregulatory economics. Opposition to Obama’s nominees to the NLRB is fundamentally about the Republican Party’s mission to dismantle much of the progress made by New Deal policies following the Great Depression, including laws that regulate the financial sector from doing its part in causing the Great Recession.

Craig Becker is a labor lawyer for the AFL-CIO and former board member of the NLRB:  “There’s a breakdown of what used to be a consensus that the workers should have a right to organize, that this should be protected by the government, and that collective bargaining is a good thing for the country.”

The politics of labor runs both ways, however. Democrats used similar means during George Bush’s presidency to deny political appointments to the NLRB, fearing Bush’s anti-labor appointments would hurt American workers. Now that the tales of have turned, Democrats are understandably tired of taking the blame for America’s problems, a theme Republicans are constantly harping on but bear much responsibility for as well. The stakes are much higher in the current showdown because if nominees are not appointed the board will stop functioning.

Eric Schultz, a White House spokesperson, put the point this way:  “Republicans want to make this an ideological fight in an effort to dismantle the agency. If the Senate fails to act, the board will lose a quorum in August and be unable to function, which is exactly what Republicans are seeking.”

Sen. Reid’s announcement marks a sharp reversal from the Democratic Party’s usual cowardice and glad-handing. This is an important stand to take as the NLRB protects workers’ rights, and is one of the few means workers, unions, and corporations have for mediating and resolving disputes. Without the oversight of the board, how will disputes get settled? Perhaps Republicans want to return to the pre-NLRB era when disputes were settled by cat strikes, walkouts, and violence. The party is pro-forma in favor of settling disputes with the gun, and without laws to protect their rights, perhaps workers should demand employers respect their rights by arming themselves. How would this change Republicans’ views on gun control?