This is a pretty fascinating – and surprising — collection of data:
Source: Federal Reserve of St. Louis
Low-income African countries can sustain moderate rates of productivity growth into the future, on the back of steady improvements in human capital and governance. But the evidence suggests that, without manufacturing gains, the growth rates brought about recently by rapid structural change are exceptional and may not last.
Last week saw an interesting and revealing dustup in the tax debate. President Trump's economic council, headed by Kevin Hassett, released a piece claiming that the proposed corporate tax cut would immediately boost average household income by at least $4,000, a claim that was widely pilloried in the economics community. One of the authors of a paper CEA cited to defend their results claimed that the CEA misinterpreted their paper.
A particularly salient objection was the CEA's claim that the incidence of the corporate tax cut fell not just wholly on workers, but that their aggregate wage gains from the cut would be multiples of the revenue lost. Their paychecks would grow more—a lot more, as much as 500% more!—than the revenues lost to the cut.
That sounds wrong, but as Greg Mankiw points out, the direction of Hassett's result is consistent with a particular economic model (though even Greg's model doesn't get you the magnitudes Hassett claims). Mankiw was not per se defending Hassett, as much as teaching his students how to get a result like Hassett's by imposing standard assumptions common to such models. Greg's explanations, for the record, are lucid and instructive as always.
But, because the model he employs bears little resemblance to reality, his work does not provide information that would help someone answer the key question at hand. That is, Greg answers the question: is there an economic model that might defend Kevin's findings, at least directionally if not their magnitudes? Answer: yes.
Yet, the much more pressing question for people trying to decide if $200 billion a year in corporate tax cuts will help workers is: what's the real-world likelihood that corporate tax cuts will raise workers' wages anywhere near the amount Hassett claims?
As many, including myself, have stressed, the answer to that question is "very low." That's based on both theory and evidence. The historical record is unconvincing regarding corporate cuts leading to wage gains, and in most of the models used by the Joint Tax Committee and CBO, corporate tax cuts that aren't paid for lower GDP (relative to a baseline) and thus over time would reduce wages. Moreover, even if the wage effect ispositive, it is highly unlikely to be large enough to offset the future cuts in benefits (or, less likely, increase in taxes) needed to pay for the plan either now or, more likely, later.
The interesting economics question is why the model predicts such an unrealistic result for the US economy? Which of the assumptions most fail to comport with reality? To the extent that we want to train students to be useful practitioners as opposed to proficient, yet unrealistic, modelers, answering those questions would also provide some real educational value-added.
In this case, the model assumes that the US is a small, open economy such that capital inflows instantaneously fund more investment, such investment immediately boosts productivity, and the benefits of faster productivity immediately accrue to paychecks. The simple model ignores the extent to which these inflows would raise the trade deficit as well as their impact on revenue losses and higher budget deficits.
The model assumes away imperfect competition, which is relevant today as a) monopolistic concentration is an increasing problem, and b) the one thing economists agree on in this space is that in these cases, the benefits of the corporate cut flows to profits and shareholders, not workers, other than maybe some "rent sharing" with high-end workers.
Larry Summers made a great point about this: The modelling of Mankiw and others "illustrate why well-resourced, team-based institutions with a strong culture of attention to detail like the Congressional Budget Office, the GAO, the Joint Tax Committee Staff or the Tax Policy Center are so important." By "detail," I take him to mean an unbiased use of literature (unlike Hassett, who totally cherry-picked), and more important, an historical perspective. As many critics of the White House analysis have shown, corporate tax cuts never come close to the wage impacts Hassett claims and Mankiw's modelling supports. Real modelers analyzing real policy proposals must reference real empirical results, and not just the ones that go their way.
This all points to a bigger problem with contemporary economics, particularly as it is deployed in DC debates. A well-placed, highly-pedigreed economist (Hassett) makes an implausible claim, one that is likely to impose great costs on our fiscal outlook and on those who will ultimately pay the cost of the cuts (likely through spending cuts). Sure enough, his claims can be and are, if not defended, then apparently corroborated, by an economic model, in this case by other highly pedigreed economists.
This is lovely development from the perspective of the politicians and their donors who crave these high-end tax cuts. All they need is some "analysis," regardless of how cherry-picked, and a little backup from other erudite economists saying "under certain conditions, yeah…this could happen."
They—those other erudite economists—shouldn't do that. That is, unless they too have a thumb on the scale, they should be explicit about how applicable the model is to the real world, and whether the assumptions it violates are germane to policy makers (Krugman does so here; Furman here). To do otherwise may seem neutral in the analytic community, but in the hurly-burly of political economy, it's an egregious omission, one with the potential to mislead policy makers and, once the tax cuts fail to generate the result predicted by the model, reduce the trustworthiness of economic analysis.
From the perspective of immigration and the labor market, perhaps the two worst pieces of proposed legislation that we'll see all year will be considered and marked up in the House Judiciary Committee Committee starting today.
One of the bills is the Legal Workforce Act (H.R. 3711), proposed by Rep. Lamar Smith (R-TX); it would mandate that all U.S. employers use E-Verify, an electronic system used to check if new hires are authorized to be employed in the United States. For a number of reasons, E-Verify is not ready for prime time. First, E-Verify's accuracy rate is simply not good enough. Many authorized workers, including American citizens, would be erroneously flagged as unauthorized if all employers were required to use it. Moreover, Congress has not set up a procedure or process for workers improperly flagged as unauthorized to contest E-Verify findings. Job seekers—including many of the working poor with few resources—would have to visit Social Security Administration and/or Department of Homeland Security offices on their own time and at their own expense to correct an E-Verify error, or else face losing their jobs. And if they lose their job because of a government error, there is no meaningful recourse for them to get reinstated or sue for lost wages.
Furthermore, E-Verify should not be expanded nationwide until the 11 million unauthorized immigrants in the United States—including 8 million unauthorized immigrant workers—are legalized. While E-Verify might make sense someday as a policy option to deter future unauthorized migration, without making necessary improvements or coupling it with a broad legalization, it will do much more harm to low-wage workers than good. Many unauthorized immigrants will begin working off of formal payrolls, making it nearly impossible for them to contribute to payroll taxes and the social safety net, or to file successful compensation claims when they are injured on the job. Expanding E-Verify without legalizing the 8 million employed unauthorized immigrants would leave 5 percent of the labor market even more exploitable and vulnerable to retaliation based on immigration status than they already are, putting downward pressure on labor standards for U.S. workers who are employed alongside unauthorized immigrants.
E-Verify expansion was considered as part of comprehensive immigration reform in 2013, and shouldn't be considered again until Congress is ready to consider major reforms to it and couple it with legalization.
Because E-Verify will upset the business community by pushing millions of undocumented workers into the informal labor market, the E-Verify bill is being considered together in the House Judiciary Committee with a bill that would create a large new guestworker program to replace the undocumented workforce. The "Agricultural Guestworker Act" (AG Act), authored by Judiciary Chairman Rep. Goodlatte (R-VA), will create a new temporary worker program that will allow migrant workers to be employed on temporary, nonimmigrant visas—not just for seasonal jobs in agriculture, but also many year-round jobs that have provided a path to the middle class for millions, including in meat processing and food manufacturing. The AG Act would would create a new "H-2C" work visa program that would start at 450,000 new guestworkers per year, but the cap could increase depending on employer demand, and guestworkers could stay for longer than one year. As a result, Farmworker Justice estimates that as many as 2 million visas could be issued by the second year of the H-2C program's existence—equal to roughly 1.25 percent of the entire U.S. labor force. (That would be in addition to the 1 percent of the workforce that is already made up of guestworkers with limited workplace rights.)
This new program the bill would create won't give H-2C workers equal rights on par with U.S. workers. As part of the program, H-2C workers will be vastly underpaid for their work compared to U.S. workers. Employers will only be required to pay H-2C workers slightly above the minimum wage—115 percent of the minimum wage for most jobs or 150 percent for meat and poultry processing jobs—but the bill contains loopholes that would allow them to pay less. In the 21 states that use the federal minimum wage, 115 percent of the minimum wage means that most H-2Cs will get paid $8.34 per hour, which amounts to $334 per week and $17,347 per year if they work a full 40 hours per week. But H-2C workers have no guarantee that they'll work 40 hours per week, because Rep. Goodlatte included a provision only requiring employers to provide them with 20 hours of work per week. 20 hours of work per week at $8.34 per hour amounts to $167 per week and $8,674 per year.
In addition, hundreds of thousands, if not millions of H-2C workers—nearly all of whom will be earning wages that keep them well below the poverty line—will be required to pay for their own housing. Under the current H-2A guestworker program for temporary and seasonal jobs, guestworkers earn a higher wage than they would under the AG Act, and employers are required to provide housing, in part because migrant workers can't be expected to afford housing on the low wages they're paid (even at the higher wage rates in H-2A). It is nearly impossible for anyone in the United States to afford housing if they earn less than $9,000 per year. Rep. Goodlatte is either oblivious to what it costs to live in the United States or he simply doesn't care that many H-2C guestworker will have no choice but to be homeless.
To add insult to injury, Rep. Goodlatte's bill requires H-2C workers to pay for their own health insurance, but prohibits them from accessing subsidies available to the rest of the public under the Affordable Care Act. For some H-2C workers, their annual earnings won't even be enough to afford the health insurance they're required to purchase.
The AG Act is a bad idea for a number of other reasons too, including permitting employers to attest rather than prove that they couldn't find U.S. workers to fill positions, excluding the Department of Labor from any oversight role, prohibiting federal legal aid money from being used to represent H-2C workers, and prohibiting H-2C workers who suffered workplace abuses from filing lawsuits—instead requiring them to submit legal disputes to mandatory arbitration and for good measure, requiring them to pay half the arbitration costs.
It is obvious to any rational person that the AG Act is a recipe for importing poverty and instituting a new era of legalized slavery in the United States, all so that agricultural employers can save a few bucks on labor costs and have a captive workforce that has no option but to beg for the opportunity to earn a pittance for doing some of the most important and backbreaking work in the country.
The one-two punch of the Legal Workforce Act and the Agricultural Guestworker Act will do more to erode labor standards and push down wages for lesser-skilled workers—both Americans and immigrants—than any other immigration legislation in recent memory. The best way to raise wages through immigration law is to legalize the unauthorized immigrant population and create a more rational, flexible, and data-driven system that ties immigration levels to the needs of the economy—not employer desires for indentured workers.
We take a step toward answering these questions by using administrative data covering all college students from 1999-2013 to construct publicly available mobility report cards – statistics on students' earnings outcomes and their parents' incomes – for each college in America.1 We use de-identified data from federal income tax returns and the Department of Education to obtain information on college attendance, students' earnings in their early thirties, and their parents' household incomes.2 In our baseline analysis, we focus on children born between 1980 and 1982 – the oldest children whom we can reliably link to parents – and assign children to colleges based on the college they attend most between the ages of 19 and 22. We then show that our results are robust to a range of alternative specifications, such as measuring children's incomes at the household instead of individual level, using alternative definitions of college attendance, and adjusting for differences in local costs of living.
The colleges that have the highest bottom-to-top-quintile mobility rates – i.e., those that offer both high success rates and low-income access – are typically mid-tier public institutions. For instance, many campuses of the City University of New York (CUNY), certain California State colleges, and several campuses in the University of Texas system have mobility rates above 6%. Certain community colleges, such as Glendale Community College in Los Angeles, also have very high mobility rates; however, a number of other community colleges have very low mobility rates because they have low success rates. Elite private (Ivy-Plus) colleges have an average mobility rate of 2.2%, slightly above the national median: these colleges have the best outcomes but, as discussed above, also have very few students from low-income families. Flagship public institutions have fairly low mobility rates on average (1.7%), as many of them have relatively low rates of access. Mobility rates are not strongly correlated with differences in the distribution of college majors, endowments, instructional expenditures, or other institutional characteristics. This is because the characteristics that correlate positively with children's earnings outcomes (e.g., selectivity or expenditures) correlate negatively with access, leading to little or no correlation with mobility rates. The lack of observable predictors of mobility rates underscores the value of directly examining students' earnings outcomes by college as we do here, but leaves the question of understanding the production and selection technologies used by high-mobility-rate colleges open for future work. (3-4)These are by and large the institutions that constitute the membership of the American Association of State Colleges and Universities (link). AASCU institutions are distinguished by the commitment that they commonly share to enhancing access for under-serviced members of society, and to contributing to social mobility in the regions and states that they serve. These values are expressed in the American Democracy Project (link). The evidence of the Chetty project appears to validate the achievement of that mission.
We are in the midst of a global transformation orchestrated by powerful financial interests espousing an ideology of market liberalisation, commodification, and privatisation. The global market system they advocate increases economic and social injustice, including widespread precarity. In the face of this transformation, how can we create new systems of regulation, distribution, and social protection to achieve a more just society?
Central to the transformation has been the owners' control of physical, financial, and intellectual property from which they overwhelmingly benefit. Unlike the post-war period when shares of income going to capital and labour were roughly stable, in today's globalised economy, the income distribution system has broken down irretrievably and the share of rentier capital – that is, income from rents, trusts, and subsidies rather than production or trade — has risen sharply.
This economic transformation has enormous implications for a growing class, the precariat. I define this group as a class because it has distinctive relations of production, relations of distribution, and relations to the state. And it is the precariat that will define the counter-movement in the global transformation.
The precariat faces a life of unstable, insecure labour. As we have seen with Uber, Task Rabbit, and other new non-traditional work structures, casualization has been extended by indirect labour relations in the 'concierge economy', while online crowd labour in platform capitalism and on-call contracts has spread. Within the next decade, a majority of transactions may be of this type, as labour brokers and apps become more ubiquitous. The old relations of production, built around direct employer-employee relationships, may become the exception.
Many commentators define the precariat simply on the basis of insecure labour, but this misses an important element: the precariat lacks an occupational identity. Further, these forms of precarious work involve increasing amounts of work-for-labour – think of the time an Uber driver puts in to maintaining a car — that is neither recognised statistically nor remunerated. In addition, many do jobs that require less education than they have.
The precariat is also defined by distinctive relations of distribution, in particular exploitation that undermines social income. Precarious workers rely mostly on money wages, which have been falling in real terms while becoming more volatile and unpredictable. They are also losing non-wage benefits, such as paid leave, medical leave, and occupational pensions, which provided labour-based security for old proletariat and, at this point, still do so for salaried workers. Statistics based on money income ignore these losses, and so they understate inequality.
To compound their insecurity, the precariat has lost rights-based state benefits, which increasingly require recipients to meet means tests. This results in a poverty trap, because moving from benefits to a low-wage job often brings only marginal income increases. And if someone loses a job, they don't begin receiving benefits immediately, creating what I call a precarity trap. The combination means that taking a short-term job brings a small extra income but also raises the prospect of losing income altogether for a while after the job ends.
Yet it is the precariat's distinctive relations to the state that are most crucial to understanding this growing class. Members of the precariat are losing rights of all kinds – civil, cultural, social, economic, and political. They are reduced to supplicants, without rights, obliged to be obsequious to gain income or benefits and dependent on bureaucrats to make discretionary judgements in their favour. This is humiliating, intensifying feelings of insecurity. These rights are also forms of social income, and their loss represents extra costs of living for the precariat. This, too, adds to inequality in ways that conventional income measures ignore.
The precariat has been hard hit by the collapse of the old income distribution system. It will be even harder hit by the advance of robotization, which will bring more people into the precariat. Robots may not cause mass unemployment, as many in Silicon Valley predict, but they will be disruptive. Wages will decline, and occupational structures will become more fragmented. The salariat will become part of a growing precariat of para-legals, para-medics, fractionals, and the like. The only people who will benefit are a few elites, whose incomes come from rents and investments.
At that point – and it is coming soon – economists and politicians will either have to accept yawning inequality and all the social and political risks that this entails or build a new income distribution system in which wages will play a smaller role. The base of a new system should be a basic income, funded by taxing the rentier income of the elites.
A basic income is a modest amount paid regularly to each individual legal resident (or 'citizen'). It is a non-withdrawable economic right, without behavioural conditions. This would have several beneficial effects, including acting as an incentive to work in more ecological ways, such as in reproductive or care work rather than in resource-depleting labour, and improving mental and physical health. To afford a basic income system, governments would tax income gained through financial, physical, and intellectual property. Taxes for the majority would not rise, and public services would not be adversely affected. In a basic income system, everybody shares in the collective wealth generated in the economy.
A basic income will be the anchor of the system, but it should also provide supplements for those who have extra costs of living, such as people with disabilities or parents of infants, and to assist those with below-average earning opportunities. The system will still include wages and insurance benefits, as well as income from normal profits from productive activity.
Sooner or later, basic income will be seen as the only sustainable course. That, in turn, will enhance social justice, freedom, and basic social and economic security.
Guy Standing
Guy Standing is a Professorial Research Associate, SOAS, University of London. He is the author of numerous books, most recently Basic Income: A Guide for the Open-Minded andThe Corruption of Capitalism: Why Rentiers Thrive and Work Does Not Pay. He will discuss the books at a seminar in Columbia University on October 26, 2017.
