Outten & Golden: Empowering Employees in the Workplace

Posts Tagged ‘Federal Reserve’

We Must Create Good Jobs: Sherrod Brown Shows the Way Forward

Thursday, March 16th, 2017

February, the first full month of the Trump presidency, witnessed solid jobs growth of 235,000 with the headline unemployment rate little changed, at 4.7 percent, according to the Bureau of Labor Services monthly report.

Trump has already tweeted to claim credit for the results, but neither his plan nor his administration were in place. In fact, the February figures, a record 77th straight month of jobs growth, result from the momentum of the Obama recovery, plus whatever benefit or harm came from Trump’s bombast.

The jobs growth will harden the Federal Reserve’s resolve to raise interest rates again when its Open Market Committee meets next week. The Fed is acting in anticipation of an expected rise in inflation, that is to date not much in evidence.

By raising rates, The Fed is choosing to put a drag on the economy, even though full recovery is a long way off. Nearly 15 million people are still in need of full-time work. The share of the population in the workforce – 60 percent – is still down from 2000. If our work rate were back to where it was, about 10 million more Americans would have jobs.

Over the course of the recovery, most of the jobs created are contingent – part-time, short-term, contract work – with few benefits and often low wages. Lawrence Katz and former Obama economic advisor Alan Kreuger found that a staggering 94 percent of new jobs created from 2005 to 2015 were “alternative work,” contract or short-term or contingent.

Trump’s trickle-down agenda – to cut taxes on rich and corporations so they will create jobs – doesn’t address this reality. In fact, corporations are swimming in money, and using it increasingly to buy back shares or for mergers that do little to create jobs. Companies, contrary to Trump’s rhetoric, don’t lack capital or access to it, they lack demand for their products.

Democrats are sensibly critical of the Trump agenda, but too many fall back to a defense of Obama’s policies as the alternative. Obama helped save the economy that was in free fall when he took office, and presided over record months of jobs growth, but his policies, frustrated by Republican obstruction, did little to counter the stagnant wages, growing inequality and increasing insecurity of the modern economy.

The challenge is not simply to expose Trump’s bait and switch on the working people who voted for him, but to lay out elements of a bold alternative agenda. Bernie Sanders modeled that effort in his surging primary challenge.

Now, Senator Sherrod Brown of Ohio, who is up for re-election in 2018, has stepped  boldly into the breach. Brown has released a 77 page, meticulously documented report –Working Too Hard for Too Little – that delves into how policies and power have undermined workers, and offers the elements of an agenda to rebuild the middle class.

Brown’s central insight is a direct counter to Trump’s recycled voodoo. Trump believes that cajoling and bribing companies is the way to generate good jobs. Brown argues “It’s not businesses who drive the economy – it is workers.”   Workers with decent wages and secure jobs generate the demand that allow companies to grow and the economy to thrive. As it is, “Between 2000 and 2013, the middle class shrank in all 50 states. And that’s hurting our country. When hard work doesn’t pay off – when workers have no economic security and their paychecks don’t reflect the work they do – our economy cannot grow.”

The unemployment rate, Brown argues, isn’t the measure of a good economy. “The unemployment rate is one thing, but whether workers have jobs that pay a decent wage and provide security is another. And the unemployment rate certainly doesn’t reflect the frustration, the worry, the anger, the pain that workers feel.”

Senator Brown details how the policies that have structured globalization, technology, corporate management have undermined workers, savaged unions, and pushed companies to offshore, contract out, and cut back on jobs, wages and benefits.  He then offers a worker based alternative agenda, some old and some new.

He’d act directly to lift the floor under workers – requiring a $15.00 minimum wage, setting up a national fund to finance 12 weeks family and medical leave, mandating minimum paid vacation days and enforcing overtime pay.

He calls for empowering workers at the workplace– cracking down on labor violations, curbing wage theft, policing misuse of contract labor, and reviving the right to organize and bargain collectively. While Republicans are intent on destroying unions, Brown argues that clearly we all have a large stake in challenging the current imbalance of power in the workplace.

He details measures to help workers save for retirement – including matching grants and expansion of opportunities for part-time and short-term workers.

Then Brown offers a far more coherent plan than Trump to change corporate incentives. He’d create a “Corporate Freeloader Fee,” levied against all corporations “whose pay is so low that taxpayers are forced to subsidize their workers.” The fee would force companies to reimburse American taxpayers for the insult. He’d accompany this with offering companies that do right by the workers a tax break – if they “commit to staying in the US, to hiring in the US and to providing good wages and fair benefits for workers.”

The academic rigor – complete with footnotes – of Brown’s report is a rarity among politicians. It exposes House Speaker Paul Ryan’s much celebrated power points for the thin gruel that they are. Brown doesn’t see creating jobs as a standalone – affordable health care, better schools, access to colleges and good training, aggressive anti-trust and more are also vital.

Work unites all of us, Brown writes, citing Pope Francis: “We don’t get dignity from power nor money or culture. We get dignity from work.” With Working too Hard for Too Little, Brown has shown Americans that there is an alternative. The choice is not between Trump’s antics and more of the same. Good analysis leads to bold alternatives that offer a way out. His courage and his leadership should be applauded.

This blog originally appeared in ourfuture.org on March 10, 2017. Reprinted with permission.

Robert Borosage is a board member of both the Blue Green Alliance and Working America.  He earned a BA in political science from Michigan State University in 1966, a master’s degree in international affairs from George Washington University in 1968, and a JD from Yale Law School in 1971. Borosage then practiced law until 1974, at which time he founded the Center for National Security Studies.

Still Getting 'It' Wrong

Tuesday, March 14th, 2017

On Friday, the U.S. Bureau of Labor Statistics reported the economy gained 235,000 payroll slots in February and upped its estimates for December and January by another 9,000 jobs. Over the three-month period, that means an average job growth of 209,000 jobs a month. Including the ups and downs, over the past 30 years, the U.S. economy has averaged job growth of about 126,000 jobs a month. So this current rate of growth would suggest a strong labor market. Further, workers who transitioned from being out of the labor force into active job search were 2.3 times more likely to land a job than to be stuck unemployed and looking.  And unemployed workers were 1.3 times more likely to find a job than if they were to quit and drop out of the labor force discouraged. Over the year, average wages (not adjusting for inflation) rose 2.8%.

Watchers of the Federal Open Market Committee, the policymaking body of the Federal Reserve Board, are sure the FOMC will stick to its forward guidance and act to raise the fed funds rate; which is their tool for setting the tightness of monetary policy. Raising the rate signals faith in the strength of the recovery by the Fed; a strong sense the economy is nearing both its target for inflation and employment. And, it is likely, given recent statements from several Fed officials that these numbers may convince them that “normal” is just around the corner. But they are wrong.

Raising interest rates is a way to slow the growth of the economy. It is useful to prevent an economy from over-heating and setting price increases on a pace that would be difficult to reign in. If done properly, the Fed can guide the economy to a soft-landing, where it will sit growing at a rate just fast enough to stay at full employment.

Well, the problem is that is where the economy is now. Despite solid job growth over the past year, the unemployment rate has remained flat and annual nominal wage growth has remained steady at around 2.6%. As a simple arithmetic, if the number of jobs created slows, then the unemployment rate will have to rise, and wage growth will slow.

If the near term had great economic certainty, then it might be possible to agree that labor market might show more signs of tightening; rather than its present “goldilocks” state of flat unemployment and wages. But the near term has great economic uncertainty.

First, while wages are beginning to show growth, the share of people employed is still a significant distance from the share employed at the peak of 2007, which was below the peak of 1999. This means that household incomes have not caught up. A large share of the workforce is employed part-time, and while the recovery has seen mostly growth of full-time jobs, household incomes have not gotten back to full employment levels.

Second, a major driver of the real economy is the automobile industry sector. After over-correcting during the depths of the Great Recession and the historic collapse in demand, it has used the financial helping hand then-President Barack Obama lent, to recover and now reach record sales and a growth in employment and investment. But a substantial and rising share of auto loans have been made to African American and Latino communities using subprime lending tools.  During the initial stages of the recovery, delinquencies on auto loans declined. But, beginning in 2016, they started to rise. And they continue to rise.

The purchase of new cars has increased the supply of used cars, so the gap between new car prices and used car prices has been rising as the price of used cars is falling. Delinquencies on auto loans began when the Fed began moving from zero interest rates, since the loan rate on automobiles is tied to short-term interest rates. Higher short-term rates will further increase consumers’ costs of buying a new car, increasing the wedge between new and used car prices.

The threat is that if job growth slows, it will first affect the African American and Latino communities, already showing struggles with the onerous terms of the subprime loans. Those communities need more time for the labor market to recover. The best solution for the economy is for their income to pick up pace and out run the debt. Income-led buying leads to healthy sustainable recoveries. Raising interest rates when incomes lead the recovery simply slow the pace of buying and encourage savings rather than spending. The worse solution is to have the debt out run their income. If delinquencies increase more, the auto market will get a greater flood of used cars, driving the price of used cars down further and increasing the gap in price between used and new cars.

Over the past six months, in fact, lending activity has become more stringent for new borrowers in the auto sector and for small business. Such a credit tightening is normally associated with an economic downturn; not a healthy growing recovery about to overheat. Higher short-term rates will only exacerbate that problem.

The problem is clear, at some point the new car market will go into recession; which means the auto industry will be in recession; which means the economy will be in recession.

Third, compounding the near term uncertainty, is the war that President Donald Trump has declared on the immigrant community. Fear and uncertainty are high in communities where many workers and family members are undocumented. These workers are fully integrated into our communities. They are wives, husbands and parents of legal residents and American citizens. These households live under a cloud. Fearing deportation, or legal fees to protect loved ones, millions of households are unlikely to buy new cars, or may be deciding to horde cash and stop making payments on cars that have been purchased. This is an uncertainty with a magnitude we have never faced, and therefore is too great a threat to ignore.

Fourth, the increase in people with health insurance because of the Affordable Care Act has meant job growth in the health sector at a faster rate than the rest of the economy. The current proposals of the Republican Congress to repeal the Affordable Care Act all will lead to a decrease in the number of Americans with health insurance. For this reason, the major hospital associations and the American Medical Association oppose the Republican plan. The threat to this market will have real repercussions on job growth in the one high-wage sector with fast job growth. And the wind down of federal Medicaid support to those states that extended health coverage using Medicaid will cause huge ripple effects on state budgets, which have not fully recovered from the drastic loss of revenues during the Great Recession. This will mean further pressures on recovering state investment in public colleges and universities.

Finally, the proposed budget cuts put forth by the Trump administration would gut public investment in education, housing and the environment. The austerity that has been proposed will cut federal jobs. And, just when the Medicaid cuts are going to hurt state budgets and so put more pressure to raise tuition at public two- and four-year colleges, the Trump administration is proposing cuts to Pell Grants and returning the student loan market to the more expansive private sector.

Thoughts that huge tax cuts to high-income households will offset a downturn in automobile sales, further disruption in the rising costs of college tuition or a dismantling of the health sector are irrational. We have lived through big tax cuts to the wealthy under former President George W. Bush. They were insufficient to pull the economy out of the 2001 downturn in any timely fashion; and, he had the help of low interest rates, a federal deficit swelled by tax cuts and war time expansion of military budgets, as well as a relatively healthy state unemployed insurance system. The current unemployment insurance system is greatly weakened and cannot provide the automatic stabilizer so vital to dampening a recession.

These all point to a real danger that the Fed may be a great threat to what is a more fragile economy than appears at the moment. The drive to be “normal” in a world that is clearly not normal, may put us in danger of a downturn that will be difficult to recover from given the instability shown in the White House.

This blog originally appeared in aflcio.org on March 13, 2017.  Reprinted with permission.

William E. Spriggs serves as Chief Economist to the AFL-CIO, and is a professor in, and former Chair of, the Department of Economics at Howard University. Follow Spriggs on Twitter: @WSpriggs.

Trying to Teach Old Dogs New Tricks

Monday, September 26th, 2016

Last December, after a long period of keeping the Fed funds rate near zero, the FOMC voted unanimouslyto raise the Fed funds rate by one-quarter to one-half points. It was anticipated that would be the first in a series of increases of similar small amounts. But, over the course of this year, the economy has run rather flat. Employment in the areas sensitive to interest rates like construction and manufacturing, after employment gains during 2015, ran flat. Durable goods manufacturing, which had been declining during 2015, continued to fall. In 2015, the unemployment rate fell from 5.7% in January to 5.0% in October. It has since remained stuck at about that level.

Ideally, when the Federal Reserve gets things right, the economy runs neither too hot or too cold. Eight months of flat unemployment rates and tepid GDP growth would suggest the Fed has clearly succeeded in finding a landing that, so far hasn’t meant crashing the economy. At least, on Wednesday, the evidence from modest GDP growth, flat unemployment and very low inflation convinced the six Board of Governors and the president of the New York Federal Reserve Regional Bank to hold steady; a tribute to Janet Yellen’s leadership to stay focused on the data and the real economy.

But, the other three regional bank presidents, Esther George of Kansas City, Loretta Mester of Cleveland and Eric Rosengren of Boston, all voted to raise the rate now. Another point of context is understanding the global economy is growing slower. The other major world economies, Europe, Japan and China, are struggling with slow growth. Their central banks are operating with either zero or negative interest rates. America’s modest growth looks very good next to their anemic performance. So this is making the dollar very strong. And that helps to explain the weakness of U.S. manufacturing because a strong dollar hurts U.S. exports. So even modest increases in U.S. interest rates are big by global standards and could further disadvantage U.S. manufacturing.

A second context is that the excess level of savings, globally, is chasing down projections of interest rate levels. Currently, the consensus at the Fed is that in the midterm, the Fed funds rate is likely to be around 1.9% at the end of 2018, and in the long run the normal rate is expected to be about 2.9%. On the eve of the Great Recession, the Fed funds rate was 5.25%. Compared to 2.9%, a raise to between one-half and three-quarters is not small. It isn’t like when the “normal” rate was above 5%.

The current tension in the FOMC between the Board of Governors and the regional bank presidents continues the controversy whether banks have too much say. Independence of the Fed from the political process is important. But, so too is Fed independence from the banks they need to regulate and oversee to make sure we have economic stability. The vote from Wall Street was positive. The stock market gains show a consensus the Fed is doing it right.

This blog originally appeared in aflcio.org on September 23, 2016.  Reprinted with permission.

William E. Spriggs serves as Chief Economist to the AFL-CIO, and is a professor in, and former Chair of, the Department of Economics at Howard University. Follow Spriggs on Twitter: @WSpriggs.

The Federal Reserve and Black Unemployment

Tuesday, August 23rd, 2016

The Federal Reserve Open Market Committee (FOMC) that determines U.S. monetary policy met in July.  Its job is to weigh the state of the American economy, both the labor market and inflationary pressures to set policy.  In an interesting note, its discussion of the labor market explicitly noted the condition of the African American and Hispanic unemployment rates.  More than just an aside, reflecting on the status of June’s labor market the minutes of the meeting show the following note:

“The unemployment rates for African Americans and for Hispanics stayed above the rate for whites, al­though the differentials in jobless rates across the different groups were similar to those before the most recent recession.”

While it is good the FOMC notes the damage its policies may be doing to the African American community, it unfortunately appears too simplistic in understanding the dynamics of the market and how the growth in labor demand affects the African American community.  It is simplistic because it appears to say that nothing has changed; that while the African American unemployment rate of 8.6% was on par with its pre-recession level of 8.4% in March 2007, when the white unemployment rate was 3.8%, little different than June’s 4.3%.  This suggests, the relative position of African Americans is fixed, immutable by macro-economic dynamics, so this lamentable gap corresponds to the best level of African American unemployment that can be reached.  In short, we must be near full employment.

Here is what the June report showed in detail.  The unemployment rate for adult African Americans (older than 25) with Associates Degrees was 3.0%, well below the unemployment rate for white high school graduates 4.2% rate.  This was a first since the recession began, for better educated African Americans to have unemployment rates lower than less educated whites.  In July 2015, African Americans with Associate Degrees had a 4.8% unemployment rate compared to white high school graduates lower 4.4% rate.

Further unnoticed, is that at the depths of the labor market downturn, the employment-to-population ratio for African Americans (the share of people with jobs) fell to 51.0% in July 2011, but had grown by June to 56.1%, a five percentage point gain, but a 10% increase.  For whites, on the other hand, the EPOP had grown only from 59.3% to 60.2%, less than one percentage point.

So, the change in unemployment rates is deceptive.  The African American unemployment rate is improving on a strong growth in employment and in the relative improvement resulting from less discrimination in hiring.  That success has further encouraged the rise in labor force participation for African Americans; which has the perverse effect of fighting against a lower unemployment rate, because it increases the number looking unsuccessfully.

The problem for African Americans is that they face much higher probabilities of enduring long spells of unemployment.  African Americans, of the same educational attainment and with the same cognitive skill levels (the so-called test score gap often mistakenly attributed as a measure of inferior schooling) as whites, face a fifty percent greater chance of being thrown into a long spell of unemployment.  And, once having fallen into that labor market quicksand, face about a third less chance of escaping.  The result is that massive levels of unemployment, like the Great Recession spawned, result in a very long queue of unemployed African Americans.  That long line can only clear by a similarly long and sustained recovery to pluck the unemployed back among the employed.

Put it simply, the unemployment rate is a snapshot composed of the probability of becoming unemployed plus the inability to escape unemployment; so it is a much more complex picture when large numbers of people are unemployed for long periods, as they are more likely to be captured by the snapshot.  When unemployment spells are very short, people move out of the frame before the snapshot can be taken.

The unemployment gap is not one of skill, it is the very real and present discrimination prevalent in a labor market where demand for workers is low and the power and caprice of employers is high.  The relative size of the gap can change, if policies push beyond conventional measures of unemployment and underutilization of workers; it is possible to see another answer is possible.

So, it is good that the FOMC at least is aware that macro-economic policies can have a good or bad effect on African Americans.  The next step is for the FOMC to further understand how much a difference it can make.

This is not just important for African Americans.  It is important for the health of the national economy.  First, everyone benefits if we push the labor market to its true and full level of maximum employment; it means more jobs and opportunities for everyone.

Second, because the African American community has such little wealth, when the economy expands, it is a community very sensitive to the interest rate movements and credit availability to catch-up on purchases like cars and making home improvements.  These purchases are fueled by rising employment opportunities and the easing of credit when the FOMC acts to lower interest rates and stimulate economic growth.  But, in such a leveraged position, it means that a slowing economy and the loss of jobs quickly turns auto loans and home borrowing into severe household balance sheet nightmares.  Those bad effects spill over to the broader the economy.

Since African American employment is more sensitive to a slowing economy, it means the FOMC has to get it right about understanding when African Americans have reached full employment.  So far, they have consistently guessed at a number that is too high, ending labor market recoveries too soon—and economic expansions too soon for everyone.

This blog originally appeared in aflcio.org on August 22, 2016.  Reprinted with permission.

William E. Spriggs serves as Chief Economist to the AFL-CIO, and is a professor in, and former Chair of, the Department of Economics at Howard University. Follow Spriggs on Twitter: @WSpriggs.

Why the Fed Isn't Close to Achieving Full Employment and Shouldn’t Be Discussing Raising Interest Rates—the Case of Black Workers

Thursday, August 27th, 2015

William SpriggsThe recently released minutes of the last meeting of the Federal Reserve Board’s Open Market Committee revealed there was serious discussion of the fact the labor market still showed signs of weakness. A primary issue was the lack of evidence of strong wage growth, which would be a clear signal the labor market was tightening. This has unleashed the Wall Street bettors, who want a jump on the Fed’s changing monetary policy, giving them more active play on the bond market, where interest rate movements can fuel their gambling addiction. The voices being raised to have the Fed raise interest rates march out lots of theory to predict uncontrolled inflation, despite a global slowdown, falling oil and natural resource prices, and flat real wages. We must hope that the Fed makes policy based on what is good for the economy, not what is good for the reckless gamblers on Wall Street.

The current directive to the Fed comes from the Humphrey-Hawkins Act, which in 1978 established that the nation’s primary economic policy is to achieve full employment, within reason—not by creating unsustainable budget deficits or igniting uncontrollable inflation. Unfortunately, many have twisted the legislation’s purpose to their own ends, changing the act’s intent to balance budgets and maintain low inflation in hopes those policies don’t increase unemployment. The act does not place full employment on equal footing with fighting inflation; it merely constrains full-employment policy to a measure of prudence.

With that in mind, the Fed should understand it is not at full employment. In addition to wages rising with productivity, a main tenant of evidence of full employment, the Fed needs to embrace some additional senses of full employment. One is that discrimination would disappear, since it would become prohibitively costly in a full-employment economy.

A problem for the Fed is that there is little diversity in its staffing, which reflects the low level of diversity among economists. Economists have convinced themselves there is little to explain about the persistence of the disparity in black and white unemployment rates, the ratio of which remains stubbornly at 2-to-1. It is enough to assume there are lower skill levels among African Americans and societal structural issues that permanently disadvantage African Americans, and that these circumstances will persist no matter what the level of unemployment.

Of course, many economists do appreciate that this pat answer is hard to reconcile with the great sensitivity that the black unemployment rate has to the economy—a tightening labor market brings down the black unemployment rate at twice the rate for whites. That makes the structural argument difficult to maintain.

There is another key element. The unemployment rate gaps between blacks and whites are stubborn at every education level, and the gaps are glaring. In fact, what the unemployment rate gaps for blacks suggest is the old adage that blacks must be twice as good to compete in the labor market with whites. The unemployment rate for blacks with more education is similar to that of whites with less education. This is true for blacks at all education levels, from college graduates to associate degree holders to high school graduates. And it is very difficult to argue that those huge gaps do not reflect discrimination.

When the labor market tanks, and the number of unemployed workers per job opening goes up, the gaps faced by better educated blacks to less educated whites get wider. Black college graduates find themselves with unemployment rates closer to white high school graduates, and blacks with associate degrees find themselves with unemployment rates worse than white high school dropouts.

When the labor market tightens, unemployment rates for blacks with more education improve such that they are better than those of less educated whites, though still off the mark compared with equally educated whites. When employers are faced with two unemployed working people for each job opening, many stop seeing color and start seeing qualifications. Employers faced with a growing economy and smaller applicant pools find it would now cost to discriminate by passing over the qualified African American applicant. We don’t know what would happen if the nation maintained its commitment to full employment, because just as the black unemployment rates near parity with whites, our economic policy switches all reverse to slow the economy, increase unemployment and push blacks off the path to equality.

The Fed needs to see that its policies are part of that problem. Slowing the economy before we reach full employment means employers never have to raise wages nor understand the costs of their discriminatory practices.

This blog originally appeared in AFL-CIO on August 21 ,2015. Reprinted with permission.

About the Author: William E. Spriggs is the Chief Economist for AFL-CIO. His is also a Professor at Howard University. Follow Spriggs on Twitter: @WSpriggs.

What Is the Federal Reserve Doing?

Friday, June 26th, 2015

William Spriggs

Last week, the U.S. Bureau of Labor Statistics issued its numbers for inflation and for real wage movements. The numbers reflected the weak numbers of the first quarter for economic growth: Zero inflation and zero real wage growth in the past three months. The economy is showing signs that it is fragile. It can be spoofed by international developments that raise the value of the dollar and slow U.S. export growth, or by bad weather—events, the Federal Reserve cannot control or easily predict.

So what is the Federal Reserve doing? At its June Open Market Committee Meeting, where Federal Reserve policy is set, the Fed stayed put on interest rates.  Yet, it gave indications that it was considering giving in to the stampede for the Fed to act sometime this year to raise interest rates in a deliberate move to slow the economy. A policy to slow the economy is based on beliefs, not on the hard data before us on wages or inflation. This is regrettable.

The deeper reality is that the Fed took unprecedented moves to build up huge reserves of U.S. Treasuries. What is really going on is more that the speculators on Wall Street are nervous. They are afraid that somehow, from some unknown source, inflationary pressures will rapidly appear and the Fed will quickly unwind its position with, for some of them, disastrous consequences on bets they have placed on bond prices. They would prefer the certainty of having the Fed start to unwind its position now, slowly divesting itself of its bond reserves and easing the economy to higher interest rates. This has nothing to do with the economy, and everything to do with Wall Street speculation. Unfortunately, the press plays sycophant to these speculators, who are constantly quoted as giving “economic” advice when they state with certainty the need for the Fed to raise interest rates.

Sources of global instability abound. The discussions over the Greek debt, the Eurozone bankers and the International Monetary Fund are far from a workable solution. In the meantime, the Swiss Franc is rising uncontrollably in response to that uncertainty. Iraq, Syria, Yemen and the ongoing conflict with ISL make the Mideast equally unpredictable. And, if snows were the issue in the first quarter, the California drought, the Texas floods and Midwest tornadoes so far this quarter should not make anyone confident that the current hurricane season is going to be a sleeper. Further incidents in Charleston and now Charlotte with violent attacks on African American churches and the constant stream of discontent with the ongoing and unresolved issue of police misconduct make the domestic situation equally volatile.  With so many uncontrollable and unpredictable risk factors that could slow the economy, the fears of Wall Street speculators should and must take a back seat.

These risks are not all unrelated. A more robust U.S. economy will help the world economy and help reduce some risks associated with weak economic performance; especially in the Eurozone. And a more robust U.S. economy will hopefully speed job growth to reduce the economic tensions that overlay the raw social tensions domestically.

The Fed must expand its view of measures of full-employment. The Wall Street gamblers base their assumptions on full employment from a time gone by. For instance, economists today still persist in viewing the high African American unemployment rate as a “structural” issue, since African American workers are assumed to be so low-skilled they cannot find jobs in a modern economy. So, they ignore the warning signs that job growth is frail when the African American unemployment stalls, as it has, at around 10%.

In May, the unemployment rate for adult African American workers (those older than 25) with associate degrees was 5.6%, which was higher or about the same as the unemployment rate for white, Asian and Hispanic high school graduates. Those numbers are inconsistent with full employment. They indicate a market where employers are very free to pick and choose which workers they want. A faster growing economy will force employers to be less choosy.

The slow economy cascaded higher educated workers down into jobs that require less education. If the economy does not speed up, that misallocation of productive capacity could become permanent, as employers may continue to seek only college graduates to serve coffee. This costs us in loss productivity growth.  It is another sign of a labor market that is not at full employment.

Locking in high African American unemployment and college degree requirements for entry-level jobs is not in the economy’s interest. And covering Wall Street bets isn’t either.

This blog was originally posted on AFL-CIO blog on June 26, 2015. Reprinted with permission.

About the Author: The author’s name is William E. Spriggs. William E. Spriggs is the Chief Economist for AFL-CIO. His is also a Professor at Howard University. Follow Spriggs on Twitter: @WSpriggs.

The Federal Reserve Board’s Plan to Kill Jobs

Monday, March 2nd, 2015

Image: Dean BakerThere is an enormous amount of political debate over various pieces of legislation that are supposed to be massive job killers. For example, Republicans lambasted President Obama’s increase in taxes on the wealthy back in 2013 as a job killer. They endlessly have condemned the Affordable Care Act as a job killer. The same is true for proposals to raise the minimum wage.

While there is great concern in Washington over these and other imaginary job killers, the Federal Reserve Board is openly mapping out an actual job-killing strategy and drawing almost no attention at all for it. The Fed’s job-killing strategy centers on its plan to start raising interest rates, which is generally expected to begin at some point this year.

The Fed’s plans to raise interest rates are rarely spoken of as hurting employment, but job-killing is really at the center of the story. The rationale for raising interest rates is that inflation could begin to pick up and start to exceed the Fed’s current 2.0 percent target if the Fed doesn’t slow the economy with higher interest rates.

Higher interest rates slow the economy by discouraging people from borrowing to buy homes or cars. They will also have some effect in discouraging businesses from investing. With reduced demand from these sectors, businesses will hire fewer workers. This will weaken the labor market, which means workers have less bargaining power. If workers have less bargaining power, they will be less well-situated to get pay increases. And if wages are not rising there will be less inflationary pressure in the economy.

The potential impact of Fed rate hikes on jobs is large. Suppose the Fed raises interest rates enough to shave 0.2 percentage points off the growth rate, say pushing growth for the year down from 2.4 percent to 2.2 percent. If we assume employment growth drops roughly in proportion to GDP growth, this would imply a reduction in the rate of job growth of almost 10 percent. If the economy would have otherwise created 2.4 million jobs over the course of the year, the Fed’s rate hikes would have cost the economy more than 200,000 jobs in this scenario.

For comparison purposes, we are having a big fight over the Keystone pipeline. The proponents of the pipeline point to the jobs created by building a pipeline as an important justification, even if the oil being pumped through the pipeline may cause enormous damage to the environment. According to the State Department’s analysis, building the pipeline would create 21,000 jobs for two years. This pipeline related jobs gain has been widely touted in the media and is supposed to make it difficult for many members of Congress to go along with President Obama in opposing Keystone.

Yet, the Fed can easily destroy ten times as many jobs with a set of interest rate hikes this year with its actions passing largely unnoticed. In fact, the impact of Fed interest rate hikes on jobs can easily be far larger than this 200,000 number. If the Fed decides that the unemployment rate should not fall below a certain level (5.4 percent is a number is often used), then it could be costing the economy millions of jobs if the economy could actually sustain a considerably lower level of unemployment as it did in the late 1990s.

To be clear, Federal Reserve Board Chair Janet Yellen and her colleagues on the Fed’s Open Market Committee (FOMC), the committee that determines interest rates, are not evil people sitting around figuring out how to ruin the lives of American workers. The Fed has a legal mandate to control inflation, in addition to its mandate to sustain high levels of unemployment. If they raise interest rates it will be because they fear inflationary pressures will build if they let the economy continue to grow and unemployment to fall.

But this is inevitably a judgment call. The call is based on both their assessment of the risk of inflation and also the relative harm from higher rates of inflation as opposed to higher rates of unemployment. It is likely that the members of the FOMC, who largely come from the financial industry, are much more concerned about inflation than the population as a whole. They are also likely to be less concerned about unemployment. These are people who tend to read about unemployment in the data, not to see it themselves or among their friends and family members.

This is why it is important that the public be paying attention to the Fed’s interest rate policies and let them know how they feel about raising interest rates to kill jobs. The Center for Popular Democracy has organized an impressive grassroots campaign around the Fed’s interest rate policies. Those who don’t want to see the government deliberately trying to kill jobs might want to join in.

This article originally appeared on CEPR.Net and on ourfuture.org on March 2, 2015. Reprinted with permission.

About the Author: Dean Baker is an American economist whose books have been published by the University of Chicago Press, MIT Press, and Cambridge University Press.

Did I Hear the Words "Full Employment"?

Thursday, August 1st, 2013

jonathan-tasiniAmong the many reasons the country would be better off if Bernie Sanders was president is that the man just refuses to deal in silliness. He wants the country to have a serious debate — and whether the next head of the Federal Reserve Board is a man or a woman, or the current president is more “comfortable” with one person or another running the Fed, is entirely irrelevant to Sanders. And, so, Sanders goes really wild — he invokes the two words that most people will not speak in this debate even though those two words are part of the Federal Reserve Board’s mission:  FULL EMPLOYMENT.

Last week, I tried to suggest that the critical questions are not being asked in the discussion about who should run the Fed. Sanders can actually communicate with the guy in the White House, as he does in this letter. The entire letter is worth reading but this is the paragraph that almost made me cry (I’m desperate here, politically speaking):

The top priority of the Federal Reserve Board must be to fulfill its full employment mandate. When Wall Street was on the verge of collapse, the Federal Reserve acted boldly, aggressively, and with a fierce sense of urgency to save the financial system. We need a new Fed chair who will act with the same sense of urgency to combat the unemployment crisis in America today that has left 22 million Americans without a full time job. [the underline and bold is in the original]

There is a lot to learn from this short letter.

First, how many people know, as Sanders points out, that it is the Fed’s responsibility to bring about full employment?

Wait a second: who even talks about full employment anymore? Not the Congress (except for a handful of people…or maybe it’s only Sanders). Not the president. Not either of the two parties.

It’s seen as, well, quaint. We’ve now adjusted our attitude, thanks to the constant chatter of the transcribers of press releases (formerly known as “journalists”), so that we now think of under 7 percent unemployment as somehow “okay” and 6 percent unemployment as if everything is going great guns…with the millions of people out of work that those numbers represent.

Obscene.

But, reaching full employment is the Fed’s job. And Sanders, wacky guy that he is, actually wants someone in the position who understands that. Uh, good luck with that, Bernie.

Correctly, Sanders targets the Big Three. No, not the auto companies. The Big Three who were key architects in the financial crisis: Robert Rubin, Alan Greenspan and Larry Summers. Those guys had a mission: destroy regulation, let Wall Street run wild and make themselves and/or their friends rich along the way.  To the president, who is out now talking about the divide between rich and poor, Bernie says: keep those turds away from the Fed (yes, he uses far more Senatorial language)

I got to have one quibble with Sanders, otherwise it will seem like hero worship (close). And that’s that he doesn’t call out in his letter the puppet master who laid the groundwork for this mess in the 1990s: Bill Clinton. Because it was the Big Dog himself who led the charge of the Big Three against Glass Steagall — which was the law that did not allow investment banking and commercial banking to mix.

But, if the world was right, and we had a serious political debate, Sanders’ letter would be driving policy the decision about who will be looking out for the interests of the people.

This article originally posted on Working Life on July 30, 2013.  Reprinted with permission. 

About the Author: Jonathan Tasini is a strategist, organizer, activist, commentator and writer, primarily focusing his energies on the topics of work, labor and the economy. On June 11, 2009, he announced that he would challenge New York U.S. Senator Kirsten Gillibrand in the Democratic primary for the 2010 U.S. Senate special election in New York. However, Tasini later decided to run instead for a seat in the House of Representatives in 2010.

CHART: The Federal Reserve Is Failing Its Obligation To Fight Unemployment

Monday, July 16th, 2012

spross_jeffThe Federal Reserve has a dual mandate to maintain low inflation and high employment — a job description that requires a balancing act, as these two goals can be in tension. The Fed has put its inflation target at 2 percent, while 5 percent is generally viewed as the normal unemployment rate when the economy is operating at full strength.

But as economist Chad Stone shows in U.S. News & World Report this morning, the Fed has usually hit its inflation target ever since the Great Recession while utterly failing to meet its obligation to bring down unemployment:

So the Fed has spent the last three years treating 2 percent inflation as a ceiling rather than a happy median, refusing to allow it higher even to bring down America’s sky-high unemployment rate of 8 percent. But the good news is that in late June, the Federal Reserve finally decided to extend what monetary easing it has engaged in by another $267 billion, and the institution’s hesitation to do more to help the economy could be dissapating. Whether it will be sufficient to help the economy at this point remains to be seen.

This post originally appeared in Think Progress on July 13, 2012. Reprinted with permission.

About the Author: Jeff Spross is video editor and blogger for ThinkProgress.org. Jeff was raised in Texas and received his B.S. in film from the University of Texas, after which he worked for several years as an assistant editor in Austin and Los Angeles. During that time Jeff co-founded, wrote and produced The Regimen, a blog and podcast dealing with politics and culture. More recently, he has interned at The American Prospect and worked as a video producer for The Guardian.

Showdown in Chicago: Thousands Protest Bankers

Tuesday, October 27th, 2009

Image: Seth MichalsMore than 5,000 people are packing the streets of downtown Chicago this morning, chanting, marching and rallying against Big Bankers and financial institutions that have taken taxpayer money and are using it to give big bonuses to CEOs and to lobby against financial reforms that would ensure they don’t go back on the public dole.

The crowd is marching to the Sheraton Chicago Hotel & Towers, site of the American Bankers Association meeting, to protest the banking industry’s greed and irresponsibility that crippled our economy, leaving millions of workers behind.

Photo by SEIU

Photo by SEIU

After the house of cards they built collapsed, bankers and the financial industry took $700 billion in taxpayer funds for a bailout. But rather than reform their failed practices, they want to go back to business as usual—with the chance of again precipitating another financial collapse and need for taxpayer bailout in coming years.

AFL-CIO President Richard Trumka, who is joining union members and allies at today’s events, has a clear message to bankers: You work for us.

Business as usual is over. We are shutting it down. You work for us—not the other way around. Your job is to be stewards of our savings, to put and keep working families in homes, to lend the money companies need to create jobs. And you have failed. You’ve turned the American economy into your own private casino, gambling away our financial future with our money, and driving us to the brink of a second Great Depression—then sticking out your hand for taxpayers to bail you out.

Praising Barack Obama’s administration for trying to stop the out-of-control bonuses paid to executives at bailed-out banks, Trumka says we need to go further by setting tough new rules so that the financial industry can’t run our economy into the ground again.

Trumka calls for four key principles to be part of any financial reform:

  • A new Consumer Financial Protection Agency to monitor banks and credit card companies and prevent abuses.
  • Reform the Federal Reserve Board or create an agency capable of stopping systemic risk.
  • More transparency so that hedge funds, derivatives and private equity markets can have real oversight.
  • Reform of corporate governance and executive compensation to make the finance industry work on behalf of the real economy, not vice versa.

This shouldn’t be a moment, Trumka says, where we pretend we can go back to the old broken economy that benefited only a few at the expense of everyone else.

Our economy has been all but destroyed. We have to build a whole new one, based on good jobs, not on bad debt; with America investing in and exporting technology and world-class products, not financial crisis; where hard work is rewarded, not colossal failure; where workers have a real voice because they have the freedom to have a union if they want one; and where all of us have the health care we need.

Appearing on the local Fox affiliate this morning, Trumka said it’s an outrage the financial industry took billions in taxpayer dollars, yet uses its resources to lobby against regulations to prevent a crisis like this from happening again:

The bankers who took all the risk and now are doing everything that they can to block reform so that it doesn’t happen again. Now that’s the problem. They want to do the same things over and over again, and they want us to pay the price again.

This article originally appeared in AFL-CIO Now on October 27, 2009. Reprinted with permission from the author.

About the Author: Seth Michaels is the online campaign coordinator for the AFL-CIO, focusing on the Employee Free Choice campaign. Prior to arriving at the AFL-CIO, he’s worked on online mobilization for Moveon.org, Blue State Digital and the National Jewish Democratic Council. He also spent two years touring the country as a member of the Late Night Players, a sketch comedy troupe.

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