Restraining the power of the rich with a 10 percent surtax on incomes over $2 million*

Excessive wealth and power commanded by a small group of multi-millionaires and billionaires pose an existential threat to America’s economic vitality, democracy and civil society.

It’s well-known by now that the richest 1 percent of American households have essentially doubled the share of national income they claim since the late 1970s. Less well-known is that inequality has even risen sharply within the top 1 percent, with the top 10 percent of that overall group—or the top 0.1 percent—accounting for half of all income within the top 1 percent.1 In 2016, the latest year of available data, households with adjusted gross income (AGI) of over $2 million made up just over 0.1 percent of tax filers, but accounted for 100 times as much (10 percent) of total AGI.

The political clout of this topmost sliver of households is likely even more outsized then their share of overall income. This group’s incomes overwhelmingly stem from owning financial assets, not working in labor markets.2 This means that they benefit from the preferential tax treatment given to income from wealth relative to income from work. The Trump tax cut at the end of 2017 was tailor-made for very rich, as its largest cuts accrue to business owners—both corporate and non-corporate business.3

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Cleaning up administrative records or targeting immigrants?

The Trump administration recently began implementing a “no-match” policy of flagging administrative records that don’t match what the Social Security Administration (SSA) has on file.

If you’ve been following the news in Georgia, you might think this is a reference to a tactic used by Georgia Secretary of State Brian Kemp to purge minorities from the state’s voter rolls right before the gubernatorial election he narrowly won against his Democratic opponent, Stacey Abrams. Not exactly, but both are related—and have civil rights implications.

Voter suppression efforts in Georgia and elsewhere have used a range of strategies to purge voters, including striking those whose names loosely matched those of dead people and felons and those whose names didn’t exactly match SSA or drivers’ license records (so much for consistency). In a legal challenge, civil rights groups noted that an estimated 80 percent of voters affected by the “exact match” policy were African American, Latino, or Asian American.

Now the Trump administration is reviving a failed policy of sending letters to employers informing them of apparent discrepancies between employee W-2 forms and SSA records. In this case, the ostensible goal is checking tax forms, not voter registrations, but both efforts use SSA data as a validity check and both disproportionately impact immigrants and people of color.

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Housing discrimination underpins the staggering wealth gap between blacks and whites

Wealth is a crucially important measure of economic health—it allows families to transfer income earned in the past to meet spending demands in the future, such as by building up savings to finance a child’s college education.

That’s why it’s so alarming to see that, today still, the median white American family has twelve times the wealth that their black counterparts have. And that only begins to tell the story of how deeply racism has defined American economic history.

Enter EPI Distinguished Fellow Richard Rothstein’s widely praised book, “The Color of Law,” which delves into the very tangible but underappreciated root of the problem: systemic, legalized housing discrimination over a period of three decades—starting in the 1940s—prevented black families from having a piece of the American Dream of homeownership.

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Research is vital to the moral integrity of social movements

The faith community has a long history of involvement in social movements for economic justice, bringing into focus the moral failings of our political and economic systems. I’m always struck when people say to me, “But you’re talking about morality, and we’re talking about money.” I answer, “You really think they’re different? You don’t recognize that a budget is a moral document? That policies are about moral decisions? That morality is not just about inspiration but about information?”

I realize that for some, the concept of a preacher writing for an economics blog might seem odd, but the link between what I do—as a pastor, architect of the Moral Monday movement and co-leader of The Poor People’s Campaign—and the research done by EPI is absolutely vital. One of the quickest ways for a movement to lose its integrity is to be loud and wrong. We’ve seen too many movements that have bumper sticker sayings but no stats and no depth. Researchers help to protect the moral integrity of a movement by providing sound analysis of the facts and issues at hand. Armed with this information, we’re able to pull back the cover and force society to see the hurt and the harm of the decisions that people are making.

In fact, I believe we find evidence of a relationship between religion, activism, and research that dates back to the prophets of the Bible. The prophets of the Bible were the social activists of their time. I say that because the only time prophets in ancient Israel rose to the fore was when the kings or the politicians and their court chaplains weren’t doing their job.

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Progressive tax reform requires a healthy IRS

Internal Revenue Service (IRS) funding was in the news at the end of last year, after a series of articles by ProPublica detailed just how badly its resources had been gutted by cuts enacted by the Republican-controlled Congress. And the IRS remains in the news with ongoing pressure to release President Trump’s tax returns. Complaining about the IRS is a popular pastime for lots of Americans, and we would certainly agree that in recent years the IRS has spent too much time auditing low-income households—a recent ProPublica story notes, “the IRS audits Earned Income Tax Credit (EITC) recipients at higher rates than all but the richest Americans.” But the IRS needs mended not ended, with a large infusion of resources as well as a reorientation of its enforcement priorities. The reason for not giving up on having a functional IRS is simple: if we want a country where rich people and powerful corporations pay their fair share, we will need a higher-functioning IRS, and we should be willing to pay for it. The chart below shows the substantial budget and employment cuts at the IRS since 1994. IRS operating costs (in 2017 dollars) have declined 29 percent between 1994 and 2017 as a share of total returns filed. And those budget cuts have real consequences for IRS staffing; full time equivalent employees as a share of total returns filed has fallen by 42 percent since 1994.

Figure A

IRS funding and employment have been cut drastically: IRS operating costs (in 2017 dollars) and average positions realized as a share of total returns, 1994–2017

Average positions realized Operating costs
1994 0.054% 6.631%
1995 0.054% 6.528%
1996 0.051% 6.097%
1997 0.047% 5.624%
1998 0.044% 5.455%
1999 0.044% 5.662%
2000 0.043% 5.328%
2001 0.043% 5.452%
2002 0.044% 5.519%
2003 0.044% 5.679%
2004 0.043% 5.627%
2005 0.042% 5.722%
2006 0.040% 5.629%
2007 0.039% 5.395%
2008 0.036% 5.295%
2009 0.039% 5.903%
2010 0.041% 6.326%
2011 0.040% 6.080%
2012 0.038% 5.781%
2013 0.036% 5.422%
2014 0.035% 5.293%
2015 0.033% 4.939%
2016 0.032% 4.916%
2017 0.031% 4.697%
ChartData Download data

The data below can be saved or copied directly into Excel.

Source: EPI analysis of data from table 2.3.3 from the National Income and Product Accounts (NIPA) from the Bureau of Economic Analysis (BEA) and IRS data books, 1995–2017

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Since 2011, GAO found that the shrinking IRS workforce has come largely in enforcement, leading to agency officials telling GAO that declining staff was a key contributor to scaled back enforcement activities. Shrinking IRS enforcement is a boon largely for rich individuals and corporations, who have far greater opportunities to dodge taxes through creative accounting.

The IRS has not always been so hamstrung. A too-brief spell of increased budget and staff capacity from around 2008 to 2011 led to about a threefold increase in audit rates on households making over $1 million, while audit rates overall increased by just 11 percent, as did audit rates for EITC recipients making under $25,000. Overall audit rates for EITC recipients increased by just 4 percent. In short, when resources were adequate, the IRS (properly) focused its enforcement gaze where the money was.

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Congress and Trump discover bipartisanship on immigration—but only to increase H-2B visas for captive and underpaid migrant workers

Instead of taking action together to enact legislation that would provide a path to citizenship for the unauthorized immigrants who are in danger of losing their immigration protections and work authorization as a result of President Trump’s efforts to end Deferred Action for Childhood Arrivals (DACA) and Temporary Protected Status, Congress and the Trump administration have collaborated to increase in the size of the main temporary work visa program that U.S. employers use to fill low-wage non-agricultural jobs: the H-2B visa.

This year, employers and corporate lobbyists claimed—as they do every year—that 66,000 low-wage work visas were not enough to fulfill their demand for cheap, captive labor in the landscaping, construction, forestry, seafood, meat processing, traveling carnival, and hospitality industries. Members of Congress acquiesced to their demands by inserting language into the appropriations legislation that is now funding the government during fiscal year 2019, that gave the Department of Homeland Security (DHS) the authority to temporarily increase the annual limit of 66,000 visas by up to 63,500 additional visas. DHS ultimately decided last week to increase the H-2B annual limit by 30,000 visas, taking the total H-2B “cap” for 2019 to 96,000.

Migrant workers make important contributions to the U.S. economy, and it should go without saying that they deserve equal rights, fair pay, protections from retaliation, and a path to permanent residence and citizenship. Sadly, the H-2B program does not meet any of these standards. Instead, the H-2B program—like other U.S. temporary work visas programs—empowers employers to legally exert an unusual amount of control over migrant workers, who often arrive indebted to the labor recruiters who connect them to jobs in the United States. H-2B workers are in effect, captive, because their visa status is controlled by their employer—which means that if an H-2B worker isn’t paid the wage he or she was promised, or is forced to work in an unsafe workplace—the worker has little incentive to speak up or complain to the authorities. Complaining can result in getting fired, which leads to becoming undocumented and possibly deported. It also means not being able to earn back the money that was invested in order to get the job.

These problems, which are inherent in the H-2B program, are well-documented. There are numerous cases of litigationmedia reports, government audits, and studies revealing how migrants employed through the H-2B program arrive in the United States with massive debt, are often exploited and robbed by employers, and even become victims of human trafficking. While these most-egregious examples are clear legal violations, much of the abuse and discrimination in the H-2B program is perfectly legal. First, employers control the workers’ immigration status. And second, employers have been allowed to underpay H-2B workers for years thanks to the way the H-2B wage rules work, which have included policy changes made through appropriations riders that have weakened the already-inadequate wage rules and de-funded enforcement. Since U.S. workers are forced to compete with vulnerable and underpaid H-2B workers, wages and working conditions for all workers in major H-2B occupations are degraded. As a result, there’s no question that the H-2B program needs major reforms to protect both migrant and American workers.

Table 1 below illustrates how the H-2B program allows employers to undercut U.S. wage standards. Table 1 shows the top 20 H-2B occupations in fiscal2017 by Standard Occupational Classification code, according to H-2B jobs certified by the U.S. Department of Labor (DOL), and the nationwide average hourly wage for all certified H-2B workers in each of the occupations. The 2017 average hourly wage rates for all workers in the occupation nationwide, according to the DOL’s Occupational Employment Statistics (OES) survey—which is used to set H-2B wage rates, making it an apples-to-apples comparison—is listed next to the H-2B wage. The final column shows the difference between the average hourly certified H-2B wage and the average hourly OES wage for the entire country; this is what employers save, on average, by hiring an H-2B worker instead of a worker who is paid the national average wage for the occupation.Read more

Equal Pay Day is a reminder that you can’t mansplain away the gender pay gap

April 2nd is Equal Pay Day, a reminder that there is still a significant pay gap between men and women in our country. The date represents how far into 2019 women would have to work to be paid the same amount that men were paid in 2018. On average in 2018, women were paid 22.6 percent less than men, after controlling for race and ethnicity, education, age, and geographic division.

Even after extensive research has been done to show the gender pay gap exists (and persists), some skeptics refuse to believe the data. This infographic shows some of the most common criticisms of the gender wage gap and rebuts the “mansplainers” with data.

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The House makes way for equal pay with the passage of Paycheck Fairness Act

Yesterday, the House of Representatives took an important step toward ending gender-based pay discrimination by passing the Paycheck Fairness Act. The legislation, introduced by Rep. Rosa DeLauro (D-Conn.), would strengthen the Equal Pay Act of 1963 and guarantee that women can challenge pay discrimination and hold their employers accountable. The legislation specifically requires employers to prove that pay disparities are based on factors other than sex; protects employees against retaliation for discussing salaries with colleagues; prohibits employers from seeking the salary history of prospective employees; removes obstacles in the Equal Pay Act of 1963 to allow workers to participate in class action lawsuits that challenge systematic pay discrimination; creates a negotiations and skills training program for women and girls; and improves the Department of Labor’s tools to enforce the Equal Pay Act of 1963.

Over fifty years ago, the Equal Pay Act of 1963 was enacted to prohibit pay discrimination on the basis of sex by requiring employers to pay women and men equally for equal work. Since the passage of the Equal Pay Act of 1963, millions of women have joined the workforce. However, more than five decades later, women are still earning less than their male counterparts. On average in 2018, women were paid 22.6 percent less than men, after controlling for race and ethnicity, education, age, and location. This gap is even larger for women of color with black and Hispanic women being paid 34.9 and 34.3 percent less per hour than white men, respectively—even after controlling for education, age, and location. Any way you slice it, women experience a gender pay gap.

There are many policies that can reduce gender pay gaps including raising the minimum wage, strengthening collective bargaining rights, and providing paid family and sick leave, among others. The passage of the Paycheck Fairness Act in the House is just one step toward reducing these gender pay gaps and guaranteeing women receive equal pay for equal work.

Why NAFTA’s 2.0 current labor provisions fall short

One year ago, we were hopeful that renegotiating NAFTA represented the first real opportunity in 25 years to finally rewrite the labor template currently relied on for trade agreements. After all, since NAFTA was implemented, hundreds of thousands of U.S. jobs have been outsourced to Mexico by companies taking advantage of workers who do not enjoy the fundamental human rights to form their own free and independent unions, engage in meaningful collective bargaining, be free from discrimination and forced labor, and work in safe and healthy workplaces.

In anticipation of the renegotiations, numerous recommendations for improving and enforcing labor standards were submitted—all of which are instrumental in removing corporate incentives to transfer work to Mexico. Specific recommendations for improving the labor template of current U.S. agreements included these five general suggestions:

  1. Incorporate explicit references to labor standards and interpretation of those standards through various cases and reports reflecting specific rules adopted by the UN’s International Labour Organization (ILO), including those concerning the freedom of association, collective bargaining, discrimination, forced labor, child labor, and workplace safety and health.
  2. Remove the footnote explicitly limiting the terms of the chapter to the ILO Declaration on Fundamental Principles and Rights at Work.
  3. Eliminate the requirement that labor violations under the agreement must be in a manner affecting trade or investment between the parties.
  4. Eliminate the requirement that labor violations must be sustained or recurring.
  5. Verify that labor standards in the agreement are being honored and enforced by the signatories prior to the agreement going into effect.

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The search for America’s missing teachers

Our schools are not only temporarily without teachers because of teacher strikes for better working conditions and more investment in education. Some schools are chronically short of teachers: they can’t find teachers able and willing to work at current wages and conditions.

The estimated teacher shortage of about 110,000 teachers may seem small in a labor force of about 3.8 million. But its sudden appearance after years of teacher surpluses and its consequences are certainly a large cause for concern. Teacher shortages depress student performance, reduce teachers’ effectiveness, alter the cohesion of the school, and consume economic resources that could be better deployed elsewhere. These consequences also make it more difficult to build a solid reputation for teaching and to professionalize it, further perpetuating shortages. Finally, the teacher shortage reflects school districts’ failure to make the kinds of investments (in smaller class sizes, in resources to meet the needs of students, and in teacher development) that the expanding teacher protest movement seeks.

EPI has published the first in a series of reports that will document some of the reasons why the demand for teachers is outstripping the supply. In our report we argue that when issues such as teacher qualifications and equity across communities are taken into consideration, shortages are more concerning than we thought.

If we consider the declining share of teachers who hold the credentials associated with teacher quality and effective teaching (they are fully certified, took the standard route into teaching, have more than five years of experience, and they have an educational background in the subject they teach), the teacher shortage grows. If we compare the share of these teachers in high-needs schools (schools with a large share of students from families living in poverty) with other schools, we see that the shortages there are even more severe in those high-needs schools.

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Teacher strikes blanket the nation as a labor of love meets economic hardships

School districts around the country, faced with a historic shortage of teachers, should be scrambling to offer those educators higher pay and better working conditions. That’s what the economics of supply and demand would dictate.

Instead, we are seeing a spread of teachers’ strikes and protests, with Denver and Oakland among the latest in a series of protest waves spreading from West Virginia to Los Angeles.

The gap between the estimated number of additional teachers needed in U.S. public school classrooms and the number that are available to be hired grew from zero to over 110,000 in just the last few years.

What gives? The lack of reaction from policymakers shaping the education landscape is emblematic of a broader disrespect for teachers as professionals over time. Teachers face a curious social situation—clearly and deeply needed but demonstrably undercompensated and poorly supported at work. The spate of recent strikes suggests conditions have reached a breaking point as teachers are forced to take on second and third jobs to make ends meet, and to spend money out of their own pockets to supply classrooms.

Our new analyses for EPI suggest that breaking point is here. This week, we released the first in a series of reports on the growing teacher shortage and the working conditions and other factors behind it. Our research shows that, when we account for the shrinking share of teachers who hold credentials associated with more effective teaching, especially in high-poverty schools, the teacher shortage is worse than estimated. The reports of the series will also show that low relative pay, tough working conditions, and a lack of supports for teachers aren’t isolated problems in a handful of districts but challenges being reported by teachers nationwide. The depth and breadth of the crisis shows that the education industry—i.e., the nation’s state and local departments and boards of education—urgently need to rethink how they cultivate, train, recruit, and support teachers.

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Predicting wage growth with measures of labor market slack: It’s complicated

Josh Bivens, Director of Research

Why have wages grown so slowly in recent years despite relatively low unemployment rates? This puzzle has dominated economic commentary.

Figure A below, for example, shows a scatterplot of quarterly nominal wage growth (measured against the same quarter in the previous year) and unemployment rates since 2008. The trendline showing the relationship between these variables demonstrates it’s very weak—both statistically and economically insignificant.

Figure A

Unemployment does not predict wage growth after 2007 : Unemployment rate and annual change in nominal wage growth, 2008–2018

UR NWC
2008-Q1 5.00% 3.81%
2008-Q2 5.33% 3.65%
2008-Q3 6.00% 3.73%
2008-Q4 6.87% 3.88%
2009-Q1 8.27% 3.61%
2009-Q2 9.30% 3.10%
2009-Q3 9.63% 2.72%
2009-Q4 9.93% 2.62%
2010-Q1 9.83% 2.49%
2010-Q2 9.63% 2.50%
2010-Q3 9.47% 2.32%
2010-Q4 9.50% 2.20%
2011-Q1 9.03% 2.15%
2011-Q2 9.07% 2.09%
2011-Q3 9.00% 2.08%
2011-Q4 8.63% 1.82%
2012-Q1 8.27% 1.52%
2012-Q2 8.20% 1.55%
2012-Q3 8.03% 1.42%
2012-Q4 7.80% 1.45%
2013-Q1 7.73% 1.92%
2013-Q2 7.53% 1.90%
2013-Q3 7.23% 2.13%
2013-Q4 6.93% 2.32%
2014-Q1 6.67% 2.35%
2014-Q2 6.20% 2.39%
2014-Q3 6.07% 2.36%
2014-Q4 5.70% 2.13%
2015-Q1 5.53% 1.89%
2015-Q2 5.43% 2.06%
2015-Q3 5.10% 2.03%
2015-Q4 5.03% 2.33%
2016-Q1 4.93% 2.45%
2016-Q2 4.90% 2.45%
2016-Q3 4.90% 2.53%
2016-Q4 4.77% 2.42%
2017-Q1 4.60% 2.33%
2017-Q2 4.37% 2.30%
2017-Q3 4.30% 2.38%
2017-Q4 4.13% 2.33%
2018-Q1 4.07% 2.50%
2018-Q2 3.90% 2.71%
2018-Q3 3.80% 2.83%
2018-Q4 3.80% 3.25%
ChartData Download data

The data below can be saved or copied directly into Excel.

Note: Data are quarterly, with nominal wage changes measured from the same quarter in the previous year.

Source: Unemployment rates are from the Bureau of Labor Statistics (BLS) Current Population Survey and wages are the average hourly earnings of production and nonsupervisory workers from the BLS Current Employment Statistics.

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In this newsletter, I address a number of questions raised by this weak relationship between unemployment rates and wage growth since 2008. My key conclusions are:

  • Since 2008, the share of adults between the ages of 25 and 54 who are employed (or the “prime-age EPOP”) has predicted wage growth better than the unemployment rate.
  • But even the prime-age EPOP has done a poor job at predicting wage growth since 2008 compared with both its own predictive power pre-2008 and the predictive power of the unemployment rate in earlier periods.
  • The prime-age EPOP’s advantage in predicting wage growth seems to have started even a bit before the Great Recession, around 2001.
  • Because both the unemployment rate and the prime-age EPOP have seen a large reduction in their predictive power regarding wage growth since 2008, efforts to explain this decline in predictive power should involve looking to the unique features of the Great Recession: very high rates of unemployment combined with very low rates of inflation.
  • While both the unemployment rate and the prime-age EPOP are likely to be fine statistical predictors of wage growth moving forward, there has been a steady decline in how responsive wage growth is to a given change in either. In short, workers have seemingly needed ever-tighter labor markets (measured by quantity-side variables like the unemployment rate and the prime-age EPOP) to generate a given amount of wage growth.

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Higher returns on education can’t explain growing wage inequality

Steep and rising wage inequality is too often blamed on growing demand for workers with higher levels of educational attainment—the more schooling you have, the more you’ll be paid. But our research shows the rising gulf in pay has little to do with rising returns to education.

A prevalent story explains wage inequality as a simple consequence of growing employer demand for skills and education—often thought to be driven by advances in technology. According to this explanation, because there is a shortage of college-educated workers, the wage gap between those with and without college degrees is widening. The expected boost to workers’ pay from a four-year college degree is known as the “college premium.”

Despite its great popularity and intuitive appeal, this story about recent wage trends driven more and more by a race between education and technology does not fit the facts well, especially since the mid-1990s. The growing inequality of note is that between the top (or very top) and everyone else. The pulling away of the very top cannot be explained by education differences, but rather the escalation of executive and financial sector pay.

Even when looking at the relative changes in the 95th percentile of wage earners compared to the 50th percentile of wage earners, and comparing that gap with the college wage premium from 2000 to 2018, it is clear that gains in the college wage premium have been very modest and far less than the continued steady growth of the 95/50 wage gap. Therefore, it is highly implausible that the growth of unmet employer needs for college graduates has driven wage inequality.

The evidence suggests the demand for college graduates has grown far less in the period since the mid-1990s than it did before then. This is difficult to square with contentions that automation or changes in the types of skills employers require have been more rapid in the 2000s than in earlier decades. Rather, automation has been slower in the recent period than in earlier decades as seen in the pace of productivity, capital, information equipment, and software investment—and in the speed of changes in occupational employment patterns.

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A close look at recent increases in the black unemployment rate

Everything from weather to furloughs made it hard to draw any major conclusions from this month’s employment report, but one recent worrisome trend persisted—a continued increase in unemployment for black workers.

The Labor Department’s February employment report showed job growth effectively stalled last month, rising just 20,000. That was much lower than anticipated and substantially weaker than the prevailing trend of the last few years. The average over the last three months came in at a more solid 186,000, likely a better reflection of underlying trends, given the unusually harsh weather in February. At the same time, wages grew 3.4 percent over the year, the highest so far in the economic recovery from the Great Recession.

Turning to the separate household survey, the unemployment rate ticked down to 3.8 percent, while the labor force participation rate and the employment-to-population ratio (EPOP) held steady. The overall unemployment rate has sat at or below 4.0 percent for the last 12 months, averaging 3.9 percent over the year. The black unemployment rate, on the other hand, averaged 6.4 percent over the last year and has been increasing in recent months. For comparison, white unemployment tracked the drop in overall unemployment in February and has averaged 3.4 percent over the last year.

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What to Watch on Jobs Day: Stronger wage growth as prime-age labor force participation continues to climb

Wage growth has continued to be the number one indicator to track in the monthly jobs report. Nominal wage growth has been slowly climbing over the last several months. Over the last three months, year-over-year wage growth averaged 3.3 percent, up from 3.2 percent the prior three months, and 2.8 percent the six months before that. Wage growth has still yet to reach levels fast enough—and for long enough—to reach full employment and restore labor’s share of corporate-sector income. At the pace of growth we’ve seen in recent months, however, I’m optimistic that the economy will continue on track toward genuine full employment.

One of the reasons I’m optimistic is that more and more workers are returning to the labor force. And, the vast majority of the newly employed are coming from out of the labor force, so lots of those workers who have (re)entered the labor force are getting jobs. I’m unconcerned by the slight increase in the unemployment rate over the last couple of months. The unemployment rate has sat at or below 4.0 percent for nearly a year. As the labor force participation rate continues to recover, the unemployment rate may rise, but those increases will be for the right reasons as more workers grow optimistic about their chances in the labor market.

In the figures below, I take a closer look at the labor force participation rate and the share of the population with a job. I’m going to focus on trends in the prime-age population, with attention to 25- to 54-year-olds to remove any possible confounding factors due to retiring baby boomers at the top end or longer years of schooling at the bottom end. The figure below shows the prime-age labor force participation rate (LFPR) in blue and the prime-age employment-to-population ratio (EPOP) in green. The prime-age LFPR is the share of the prime-age population either with a job (employed) or actively looking for work (unemployed). The prime-age EPOP is the share of the prime-age population with a job (employed). The denominator is the prime-age population for both lines and the space in between can be roughly thought of as the unemployment rate. (Technically, the unemployment rate is 1 – EPOP/LFPR and the space between the lines is the number of unemployed people as a share of the population, but they track each other well.)

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Record U.S. trade deficit in 2018 reflects failure of Trump’s trade policies

The U.S. Census Bureau reported that the U.S. goods trade deficit reached a record of $891.3 billion in 2018, an increase of $83.8 billion (10.4 percent). The broader goods and services deficit reached $621.0 billion in 2018, an increase of $68.8 billion (12.5 percent). The rapid growth of U.S. trade deficits reflect the failure of Trump administration trade policies, as well as the negative impacts of tax cuts and spending increases, which have sharply increased the federal budget deficit, and tightening of U.S. monetary policy, resulting in upward pressure on interest rates and the real value of the dollar.

The IMF predicts that the U.S. current account deficit—the broadest measure of U.S. trade in goods, services, and income—will nearly double between 2016 and 2022. Unless these trends are offset by a rapid decline in the value of the U.S. dollar, rapidly rising trade deficits could be devastating for U.S. manufacturing, likely giving rise to massive job loss on the scale experienced in the 2000–2007 period, when 3.5 million U.S. manufacturing jobs were lost.

The U.S. goods trade deficit with China reached a new record of $419.2 billion in 2018, up from $375.6 billion in 2017, an increase of $43.6 billion (11.6 percent). United States trade with China is dominated by the deficit in manufactured products. Although the United States has imposed tariffs of 10 to 25 percent on $250 billion in imports from China (about half of total U.S. imports from that country), China has played its ‘ace-in-the-hole’ by allowing it’s currency to fall by roughly 10 percent against the dollar. As a result, the U.S. trade deficit with China increased faster (11.6 percent) than the U.S. deficit with the world as a whole (10.4 percent). While the United States and China are poised to negotiate a deal to end their trade dispute, the proposed deal amounts “much ado about nothing much,” as Paul Krugman puts it. It will do little to reduce the massive imbalance in U.S.–China trade flows.

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When will ‘Buy American’ really mean buy American?

Our government’s procurement policy falls far short of its potential to encourage and support good jobs in domestic manufacturing. We need to strengthen domestic sourcing requirements for publicly funded programs, including those intended to repair our failing infrastructure. While the recently issued “Executive Order on Strengthening Buy-American Preferences for Infrastructure Projects” is an improvement over the status quo, it falls far short of making the substantive improvements that are needed to make sure that “Buy American” actually means buying American.

To begin, the EO does nothing to strengthen domestic content requirements that agencies use to determine if a good is “domestically sourced”—that is, actually made in the United States. Many Americans would be startled to learn that a product requires only 51 percent U.S. content to be considered domestically made under the Buy American Act, which applies to federal government procurement. This does not even take into account the substantial transformation test, when a product is deemed domestic even if it is “made at least in part from materials manufactured in another country,” a special concern for the federal government’s procurement of the equipment and construction materials that are required for infrastructure projects.

In contrast, the Federal Trade Commission requires that the entire product be made substantially domestically in order to satisfy its definition of “Made in the U.S.A.,” although much more must be done to ensure that the FTC rules are effectively enforced.

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There’s nothing radical about Elizabeth Warren’s proposal for universal childcare

The right-wing punditry machine has gone into full spin cycle as Democratic presidential candidates throw their hats into the ring, ready to brand any initiative that might ameliorate the lot of working families as radical or, worse in American political parlance, “socialist.”

That has certainly been the case with Senator Elizabeth Warren’s proposal for universal child care. But there’s nothing radical or socialist about her plan, which represents a sensible, evidence-based, practical, and much-needed strategy that tackles several critical national crises in one neat package. And it doesn’t even take money away from the GOP’s sacred cows of military spending and border security.

What crises do Warren’s proposal address? Let’s review:

First, and perhaps foremost, the majority of American families currently struggle to get their young children into child care that is decent, let alone of high quality. And for a substantial subgroup in the bottom quintile of the wage distribution, “struggle” is an understatement. For example, a 2015 EPI study showed that a single parent with one child who worked full-time for the minimum wage would not be able to sustain a modest but adequate lifestyle due to the high cost of child care.

Warren’s plan, which would make high-quality care free for families living at up to 200 percent of the federal poverty line and institute a sliding scale above that, with no family paying more than seven percent of their income, would do away entirely with that problem. Families that currently must choose among rent, food, and keeping their toddlers safe can now have all three, and middle-class families can invest in other child development activities and resources. Sounds a lot better than a wall already.

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Stark black–white divide in wages is widening further 

One of the most striking features of U.S. racial inequality is just how stubborn the wage gap between black and white workers has remained over the last four decades.

That trend was evident in EPI’s new State of Working America (SWA) Wages report, which highlights trends in wages across the wage distribution, by education, as well as by gender, race, and ethnicity.

Overall, the findings indicate wages are slowly improving with the growing economy, but wage inequality has grown and wage gaps have persisted, and in some cases, worsened. In this post, I will highlight one particular worsening wage gap and look at it from multiple dimensions. Since 2000, by any way it’s measured, the wage gap between black and white workers has grown significantly.

The findings here support the important research by Valerie Wilson and William M. Rodgers III, which shows that black–white wage gaps expanded with rising wage inequality from 1979 to 2015. Where their report is incredibly comprehensive, the trends outlined here are rudimentary, but reinforce the same basic truths.

In the figure below, I’ve collected some of the main findings on the black–white wage gap found both in the latest SWA report as well as the SWA data library. Using various measures, I compare wages for black and white workers over the last 18 years, highlighting the gaps in wages in 2000, the last time the economy was closest to full employment, 2007, the last business cycle peak before the Great Recession, and 2018, the latest data available.

Against these benchmarks, I illustrated the growth in the average gap; the gap for low-, middle-, and high-wage workers; the gap for workers with a high school diploma, a college degree, and an advanced degree; and a regression-adjusted wage gap (controlling for age, gender, education, and region).

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Black women’s labor market history reveals deep-seated race and gender discrimination

The black woman’s experience in America provides arguably the most overwhelming evidence of the persistent and ongoing drag from gender and race discrimination on the economic fate of workers and families.

Black women’s labor market position is the result of employer practices and government policies that disadvantaged black women relative to white women and men. Negative representations of black womanhood have reinforced these discriminatory practices and policies. Since the era of slavery, the dominant view of black women has been that they should be workers, a view that contributed to their devaluation as mothers with caregiving needs at home. African-American women’s unique labor market history and current occupational status reflects these beliefs and practices.

Compared with other women in the United States, black women have always had the highest levels of labor market participation regardless of age, marital status, or presence of children at home. In 1880, 35.4 percent of married black women and 73.3 percent of single black women were in the labor force compared with only 7.3 percent of married white women and 23.8 percent of single white women. Black women’s higher participation rates extended over their lifetimes, even after marriage, while white women typically left the labor force after marriage.

Differences in black and white women’s labor participation were due not only to the societal expectation of black women’s gainful employment but also to labor market discrimination against black men which resulted in lower wages and less stable employment compared to white men. Consequently, married black women have a long history of being financial contributors—even co-breadwinners—to two-parent households because of black men’s precarious labor market position.

Black women’s main jobs historically have been in low-wage agriculture and domestic service.1 Even after migration to the north during the 20th century, most employers would only hire black women in domestic service work.2 Revealingly, although whites have devalued black women as mothers to their own children, black women have been the most likely of all women to be employed in the low-wage women’s jobs that involve cooking, cleaning, and caregiving even though this work is associated with mothering more broadly.

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Trump’s national emergency declaration over the border wall is dangerous and not justified by the facts

Where, exactly, is the national emergency?

Both houses of Congress have now passed appropriations legislation to fund the government for the fiscal year, and it’s become clear they will not provide President Donald Trump with the full $5.7 billion he requested to fund construction of a wall on the southern border.

Trump has been so desperate to fund his signature campaign promise that he’s gone so far as to shut down the government over it for over a month, which caused federal employees to suffer and billions of dollars-worth of economic losses. In response to failing to get the money from Congress, Trump is declaring a national emergency to achieve the same ends by different means.

An emergency declaration, the president hopes, will allow him to access alternative streams of funding that will go towards funding the wall’s construction. Reuters reports the Trump administration expects to be able to allocate about $7 billion from two defense funds and a Treasury forfeiture fund as a result of an emergency declaration. This would be an extreme step that is unjustified by the facts because there is no ongoing national emergency at the southern border under any reasonable definition of the term.

Many on the right and left are unhappy with the legislation passed by Congress. Some conservative pundits and advocates are unhappy that it does not provide larger funding increases for immigration enforcement, going as far as saying that it will lead to “open borders.”

Some progressive legislators and advocates are opposing the legislation because it funds too much immigration enforcement and does little to rein in Immigration and Customs Enforcement (ICE) and Customs and Border Patrol (CBP), especially in light of recent internal criticisms of mismanagement, abuses of detainees, and policies that are being challenged in the courts for being inconsistent with domestic and international law. (The Democratic legislators in opposition, however, do not support another shutdown, and prefer that Congress pass a continuing resolution that would keep the government funded at current levels.) Trump expressed displeasure even before the legislation passed, noting earlier this week that the provisions included were “not doing the trick.”

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Let’s not forget unions and collective action when discussing victories on workers’ rights

Too often in our public discourse about workplace issues, the crucial role of labor unions and the legal right of workers to join together in collective action to improve their working conditions is forgotten or ignored.

In a column about the importance of pay transparency in achieving pay equity published in The New York Times last month (“Want to Close the Pay Gap? Try Transparency,” Jan. 21, 2019), the author outlines possible policy measures to protect workers when they discuss pay with their co-workers. Yet in a rather stark omission, the piece ignores the reality that existing federal law—the New Deal-era National Labor Relations Act—currently protects the right of private-sector workers to discuss pay with one another. It also overlooks the millions of unionized workers who currently benefit from the pay transparency that a collective bargaining agreement provides.

In late November, The Washington Post ran an op-ed about the challenges of effectively addressing sexual harassment in the workplace. The column gave credit to the American Hotel & Lodging Association—the hotel industry lobby—for providing panic buttons to hotel workers to protect them from harassment and assault by hotel guests.

In fact, the trade association was merely following the lead of UNITE-HERE, the hotel workers union, which won panic buttons and other protections for both union and nonunion hotel workers in Chicago and other cities through collective bargaining and legislative activity. (The author also omitted the fact that the hotel association was in the middle of a lawsuit seeking to strike down a Seattle ballot initiative approved by 70 percent of the voters providing panic buttons to hotel workers—yes, the very protection they group had just been credited for.)

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The state of American manufacturing: The failure of Trump’s trade and economic policies

Separating fact from fiction is always tough when listening to President Trump, who lives in his own, fact-free fantasy-world. This is particularly so when it comes to trade and manufacturing. Here are a few key points on that topic to keep in mind when listening to his State of the Union address. There’s a lot that can be done to create millions of good manufacturing jobs for working Americans, but not the way this president is going about it.

  • The trade deficit is growing more than twice as fast as the overall economy, because of the Trump administration’s trade and economic policies. The total U.S. goods trade deficit has increased 18.1 percent since 2016, and our trade deficit with China has grown even faster, 20.5 percent in the same period (annual estimates, based on year to date trade through October). Growing trade deficits over the past two decades are the single largest cause of the loss of roughly 5 million U.S. manufacturing jobs.
  • The Trump administration has failed to end currency manipulation and dollar misalignment, despite Trump’s promise to name China a currency manipulator on day one upon taking office. Currency misalignment is the single largest cause of growing U.S. trade deficits. U.S. trade can be rebalanced, creating millions of good manufacturing jobs, by lowering the value of the dollar by about 25 percent. The failure to end currency misalignment is a major cause of GM’s recent decision to close 5 manufacturing plants and outsource production, eliminating 12,000 jobs, and Ford’s plan to reduce its workforce by 12 percent, eliminating 24,000 jobs.
  • Trump’s massive tax cuts (for corporations and the wealthy) and spending increases are expanding the federal budget deficit, pushing up the value of the dollar and the U.S. trade deficit. The dollar has increased 20 percent since 2013, including 5 percent in 2018 alone. As a result, the IMF now predicts that the broadest measure of the U.S. trade deficit will nearly double between 2017 and 2022. Growing trade deficits will decimate manufacturing over the next few years, and could push the United States into a recession.

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Trump’s hateful border wall fantasy would do nothing to address the real immigration crisis

For well over a month, President Donald Trump has demanded Congress pass appropriations legislation to fund the government that includes $5.7 billion for his administration to build additional miles of wall and fencing on the southern border. The president claims that the result of building a border wall will be that “CRIME WILL FALL,” and is threatening to declare a national state of emergency in order to get the funds he wants to begin construction.

When Democrats refused to give in to the president’s demands in December 2018, he caused the longest government shutdown in history before ultimately signing legislation on January 25 to reopen the government for three weeks, until February 15. This is intended to give a bipartisan committee of members of Congress time to agree to fiscal year 2019 appropriations legislation that includes new border security funds. Today the president is scheduled to give his annual State of the Union speech, and it’s been widely reported he will again threaten to declare a state of emergency to get what he wants—or even make a definitive statement about an emergency declaration.

The president’s focus on the wall and border security is misguided, and does little to address today’s realities on the border. There the U.S. immigration system certainly faces challenges, but the president isn’t proposing valid solutions. Instead, he’s trying to scare the public by muddling the issue with alarmist language and false statistics.

The reality at the border is this: The overall size of the unauthorized immigrant population has declined to its lowest level in a decade. And while a wall is mainly designed to keep out unauthorized border crossers, the number of migrants being apprehended for attempting to enter the United States without authorization is lower than it has been in decades. The numbers that are growing, however, are the share of total apprehensions by U.S. Customs and Border Protection (CBP) that consist of families and unaccompanied minors, as well as the number of families who present themselves voluntarily before CBP. Many then go on to request asylum once in CBP custody.

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Before the State of the Union, a fact check on black unemployment

The historically low black unemployment rate has become one of Donald Trump’s favorite statistical claims, one he is likely to tout again at the upcoming State of the Union address.

The fallacy of touting this as a genuine accomplishment of the Trump administration rather than fortuitous timing has been noted by me and others on multiple occasions. Still, at the start of Black History Month, it’s useful to provide some facts about the African American labor force that you will probably not hear during the presidential address to Congress.

To begin with, it is true that the 2018 black unemployment rate was the lowest it has been since the Bureau of Labor Statistics began reporting it in 1972. But little, if any, credit for that belongs to the Trump administration. As the graph below clearly shows, the black unemployment rate had been steadily falling since 2011, well before Trump was sworn into office, and the rate of decline has not gained momentum since. Arguably, the decline of the black unemployment rate to its current level has more to do with the Fed’s decision to keep interest rates at or near zero for an extended period of time—decisions led by the two previous Federal Reserve chairpersons.

Figure A

Unemployment rate of workers age 16 and older by race, 1995–2018

Year White Black
1994 4.84% 11.54%
1995 4.46% 10.53%
1996 4.22% 10.59%
1997 3.82% 10.13%
1998 3.45% 8.95%
1999 3.30% 7.98%
2000 3.14%   7.59%  
2001 3.79% 8.65%
2002 4.73% 10.23%
2003 4.85% 10.77%
2004 4.49% 10.39%
2005 4.11% 10.03%
2006 3.84% 8.97%
2007 3.85% 8.29%
2008 4.75% 10.11%
2009 7.80% 14.79%
2010 8.01%   15.92%  
2011 7.25% 15.84%
2012 6.58% 13.95%
2013 5.99% 13.16%
2014 4.88% 11.51%
2015 4.16% 9.66%
2016 3.96% 8.50%
2017 3.53% 7.57%
2018 3.19%  6.57% 
ChartData Download data

The data below can be saved or copied directly into Excel.

Source: EPI analysis of BLS Current Population Survey microdata

Copy the code below to embed this chart on your website.

However, even at an annual rate of 6.6 percent, the black unemployment rate was still more than double the white unemployment rate of 3.2 percent in 2018. In fact, the graph also shows that the last time the white unemployment rate was 6.6 percent was six years earlier in 2012, when the black unemployment rate was 14 percent. If you’re starting to see a pattern emerge, then the shortsightedness of Trump’s boasting about the black unemployment rate should also be apparent. The black unemployment rate has been about double the white unemployment rate for more than four decades, making this relationship more historically significant than any single unemployment rate. And, it is the durability of this gap that allows blind celebration of an unemployment rate that is higher than that of any other race or ethnicity reported by BLS, when the more appropriate response would be to focus on solutions for closing the gap.

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The Fed shouldn’t give up on restoring labor’s share of income—and measure it correctly

U.S. workers’ wages have climbed modestly but noticeably over the past year. EPI’s nominal wage tracker shows that in 2015 and 2016, this growth averaged 2.4 percent, in 2017 it averaged 2.5 percent, but in 2018 it accelerated to 2.85 percent—and it surpassed 3 percent growth in the last quarter of the year. This uptick has been long-coming and it took a longer spell of low unemployment to spur it than most would have thought.

Three percent growth for a quarter, however, should not constitute “mission accomplished” in the minds of macroeconomic policymakers like the Federal Reserve. In the long run, nominal wage growth should run at a rate equal to the Fed’s inflation target (2 percent) plus the long-trend growth in potential productivity (let’s call this 1.5 percent).1 This indicates that even the recent accelerations in wage growth leave us failing to meet these long-run goals.

Even more importantly, wage growth should run substantially above these long-run targets for a spell of time after long periods of labor market slack. The arithmetic reasoning for this is straightforward: any time wage growth runs slower than current rates of inflation plus productivity, the result will be labor compensation shrinking as a share of the economy. The economic intuition is simply that extended periods of labor market slack sap workers’ ability to secure wage increases from employers.

This undermining of labor’s leverage shows up clearly in the data. EPI’s nominal wage tracker, besides charting wage growth over time, also tracks a measure of labor’s share of income, precisely to highlight the accumulated shortfall of labor income that policymakers should aim to restore.

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What to Watch on Jobs Day: Furloughs and month-to-month volatility

The government shutdown adds several layers of complexity to interpreting January employment figures set for release on Friday. While I still plan to look at wage growth and the prime-age employment-to-population ratio to measure the slack that remains in the labor market, the effect of the extended partial government shutdown on the top-line employment numbers will get a lot of attention too. In this post, I will explore how the shutdown likely will and will not affect the numbers, along with a reminder about typical month-to-month volatility.

The reference period for the upcoming Current Employment Statistics (CES) and the Current Population Survey (CPS) is the pay period or week, respectively, including January 12, 2019. The 12th of January marks roughly the middle of the 35-day partial government shutdown. The shutdown directly affected three types of workers and their paychecks: government employees working without pay, government employees not working, and government contractors not working. Indirectly, the shutdown also affected workers who typically service government employees who were not working, but who are not directly paid for by government contracts—think restaurants, taxi cabs, and other services purchased by the government workforce.

Let’s start with the CES. Government workers, furloughed or not, will be counted as employed in the CES. As soon as the Government Fair Treatment Act of 2019 was signed into law, those furloughed workers were guaranteed their back pay and therefore count as employed workers. In other words, the effects of the furlough will not affect the count of federal jobs in the CES. The loss of private sector work, on the other hand, either as direct federal contractors or indirect employment that services government work, could register as a fall in private-sector employment or private-sector hours, or both.

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The number of unionized U.S. workers edged lower to 16.4 million in 2018

The number of American workers represented by a labor union ticked down last year, extending a decades-long trend.

New data on union membership from the Bureau of Labor Statistics released on Friday showed 16.38 million unionized workers in 2018, down from 16.44 million in 2017. However, because employment of wage and salary workers grew by 1.6 percent between 2017 and 2018, the share of workers represented by a union declined by a more significant amount, from 11.9 percent to 11.7 percent.

In the private sector, the number of workers represented by a union ticked up slightly (+18,000). But due to the 1.7 percent increase in employment in the private sector, the share of private sector workers represented by a union declined, from 7.3 percent to 7.2 percent.

The losses were greater in the public sector. The number of public sector workers represented by a union declined by 83,000, while the share of public sector workers represented by a union declined by seven-tenths of a percentage point, from 37.9 percent to 37.2 percent. The drop was largest at the state government level, with the share of state government workers represented by a union dropping from 33.4 percent to 31.8 percent.

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Reliable data is one of the many victims of the government shutdown

One of the many things we rely on the federal government for is timely, accurate, independent, and publicly available data that is used by households, businesses, and policymakers to make informed economic decisions. Of the many negative effects of the government shutdown, there have been some “data casualties,” including the release of Current Population Survey (CPS) public microdata files. These files are the source data for monthly reports on the unemployment and labor force participation rates, key timely barometers of the nation’s economic health. This microdata also forms the basis of much of the research that EPI and other research organizations and academics conduct. EPI urges the president to end the government shutdown so that federal employees and contractors can receive their paychecks again, researchers at EPI and elsewhere can continue to provide current economic analysis, businesses and households can make economic plans with fuller information, and the new Congress can make well-researched policy choices.

The Current Population Survey (aka the Household Survey), which is used to measure the nation’s unemployment rate (along with many other measures of labor market health), is collected and analyzed through a partnership between the Bureau of Labor Statistics (BLS) and the Census Bureau. Every month, a few weeks after BLS releases the monthly jobs report with CPS-derived estimates of unemployment and labor force participation, Census releases a version of the CPS microdata for public use. These public-use extracts allow for analysis beyond what’s available in tables published by BLS. For example, the jobs report includes an enormous amount of information on employment status by race/ethnicity, gender, age, education, and a variety of other demographic characteristics. However, to look at how the employment status of young people with a high school degree differs by race, you need to use the CPS microdata to run your own analysis. The CPS microdata is also a key source for assessing trends in wage growth for workers at different points in the wage distribution—an assessment we make annually at EPI and which will be delayed by this week’s announcement.

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Au pair lawsuit reveals collusion and large-scale wage theft from migrant women through State Department’s J-1 visa program

Last week, the Associated Press (AP) reported on a proposed settlement agreement for $65.5 million between a dozen former au pairs from Colombia, Australia, Germany, South Africa, and Mexico who were brave enough to bring a lawsuit against the companies that recruited them to work the United States. Thanks to the former au pairs and the tireless efforts of the smart lawyers at Towards Justice, a nonprofit organization in Denver, nearly 100,000 young migrant workers (mostly women) will finally receive some portion of the wages they should have been paid while working in the United States providing low-cost child care to Americans.

The migrant au pairs doing this work as in-home caretakers were employed in the United States through the U.S. State Department’s Au Pair program, one of 15 programs in State’s J-1 visa Exchange Visitor Program. Each year about 20,000 au pairs are hired by American families, assisted by J-1 “sponsors,” which can be either for-profit companies or nonprofit organizations that act as labor recruiters for families looking to hire foreign au pairs, and to which the State Department has mostly outsourced the management and oversight of the J-1 visa program. The sponsors make money by charging the au pairs to participate in the program, as well as by charging fees to families in order to connect them to au pairs. According to the AP, in the lawsuit the au pairs claimed that the:

15 companies authorized to bring au pairs to the United States colluded to keep their wages low, ignoring overtime and state minimum wage laws and treating the federal minimum wage for au pairs as a maximum amount they can earn. In some cases, the lawsuit said, families pushed the limits of their duties, requiring au pairs to do things like feed backyard chickens, help families move and do gardening, and not allowing them to eat with the family.

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