Child Tax Credit expansions were instrumental in reducing poverty rates to historic lows in 2021
Government policies enacted in the wake of the pandemic have proven critical for reducing child poverty in the United States. Census Bureau data released last week showed that government social programs kept tens of millions of people out of poverty in 2021.
Child poverty reached its lowest level on record, as calculated by the Supplemental Poverty Measure (a measure that includes both cash and noncash benefits). This new historic low is largely thanks to the expanded Child Tax Credit (CTC), a key component of the 2021 American Rescue Plan (ARP) that has since expired. Without additional action by Congress to renew the expanded Child Tax Credit, we should expect higher child poverty in future years.
Let’s start with the outstanding role the Child Tax Credit played in reducing child poverty. The Child Tax Credit is a payment to support families raising children under 17 years of age of up to $2,000 per qualifying child. The 2021 ARP expanded the credit to increase the level of earnings to families receiving the credit (up to $3,600 per child under age 6) and to make the credit more widely available and fully refundable.
Inflation, minimum wages, and profits: Protecting low-wage workers from inflation means raising the minimum wage
There are two main debates about what to do about inflation. One is mostly good-faith (if highly contested): It concerns the actions of the Federal Reserve. Another is mostly bad-faith: It uses the existence of elevated inflation as a cudgel against any progressive policy change and as a justification for long-standing ideological priorities. This is most visible in fiscal policy debates, with some people claiming simultaneously that spending must be restrained (a contractionary move in fiscal policy), but taxes must be cut (an expansionary move).
This bad-faith will certainly rear its head in debates on attempts to move forward on stronger labor standards as well—say by increasing the federal minimum wage. Even under normal circumstances, opponents of minimum wage increases claim that they will be inflationary, so they will almost certainly exaggerate these effects today. In this blog post, I make the following points about the relationship between minimum wages and inflation:
- Faster inflation makes it more important, not less, to raise the federal minimum wage. Every year lawmakers don’t raise the minimum wage is a year that they have effectively cut the purchasing power and living standards of this country’s lowest wage workers.
- Even under a worst-case inflation scenario where every penny in extra pay that results from moving the federal minimum wage to $15 by 2027 is passed on in the form of higher prices, the result would be a five-year stretch of inflationary pressure equal to 0.1% per year (or about 1/100th of the increase we’ve seen since 2021), then the inflationary effect would return to zero.
- Even this extremely mild inflation could be substantially blunted by other margins of adjustment to a higher minimum wage—including a retreat from today’s still sky-high profit margins. During normal times, profits account for about 13% of the price of goods and services, but since recovery from the COVID-19 recession began in the second quarter of 2020, rising profit margins have accounted for roughly 40% of the rise in prices. When these margins normalize, there will be ample room for noninflationary wage growth.
Poverty is a policy choice: State-level data show pandemic safety net programs prevented a rise in poverty in every state
The year 2021 proved to be a remarkable showcase of the power of public policies in alleviating economic hardship. This week, the Census Bureau released data from the 2021 Current Population Survey Annual Social and Economic Supplements (CPS ASEC) detailing poverty and other economic conditions across the country. The data revealed that social insurance programs—like Social Security, economic stimulus checks, a strengthened unemployment insurance (UI) system, and the expanded Child Tax Credit—kept more than 25 million people out of poverty. State lawmakers should do everything in their power to revive these programs.
Differences in the supplemental and official poverty measures highlight the impact of pandemic support programs
In 2011, the Census Bureau began annually releasing an additional poverty measure called the Supplemental Poverty Measure (SPM). Although imperfect, the SPM is a much better measure of poverty than the official poverty rate. SPM accounts for major government benefits like Social Security and child tax credits, and uses a more holistic measurement of modern costs of living and geographical differences in those costs. The latest data show that the 2021 SPM rates are the lowest on record for all years for which SPM estimates are available, starting from 2009. This is even more remarkable considering that the economic hardships and disruptions brought on by the COVID-19 pandemic were still very present during 2021.
Household incomes have fallen since 2019 despite growth in workers’ earnings
On Thursday, the U.S. Census Bureau released 2021 household income and household earnings data for states from the American Community Survey (ACS). National averages hide the wide disparities experienced by workers and families across states while state-level data can help us understand how policy choices impact income and earnings. According to the ACS, inflation-adjusted median household income in 2021 was $69,717 nationally with large differences across states. Nineteen states and the District of Columbia had median household incomes above the national average with the highest being Maryland ($90,203), The District of Columbia ($90,088), and Massachusetts ($89,645). However, 31 states had median household incomes below the national median with the lowest being in Mississippi ($48,716), West Virginia ($51,248), and Louisiana ($52,087).
The labor market recovery and pandemic relief measures lifted Black and Brown workers and families in 2021
The 2021 Census Bureau reports on income and poverty provide a first official glimpse at the economic condition of U.S. households by race and ethnicity in the first full year of the COVID-19 economic recovery, which reached people of color much faster than the recovery from the Great Recession.
The faster pace of this recovery can be attributed to the strong pandemic policy response that not only contributed to robust job growth throughout 2021, but also provided critical income supports to economically vulnerable families and children.
However, along with these positive outcomes came a spike in inflation that threatened to chip away at any income gains. As a result, in 2021, real median household income ($70,784) was not statistically different from 2020 ($71,186). Real median household income was also statistically unchanged across all racial and ethnic groups. Reported income estimates reflect the Census Bureau’s inflation adjustment for 2021 – an annual increase of 4.7% between 2020 and 2021 and the largest annual increase since 1990. While this suggests that median incomes essentially kept pace with the 2021 rise in prices, these estimates do not reflect the more rapid increase in inflation in 2022.
Census data show health insurance coverage gains for Black workers and children in 2021, but we can go further with better policy
The number of workers with health insurance coverage grew between 2020 and 2021 as the economy recovered from the massive job losses associated with the coronavirus pandemic. Most people (91.7%) had health insurance coverage at some point during the year and the share of uninsured people fell from 8.6% in 2020 to 8.3% in 2021.
Notably, the share of Black people who were uninsured fell from 10.4% in 2020 to 9.0% in 2021, marking a rare occurrence in which the Black uninsured rate fell below double digits.
In 2021, most people (54.3%) had health insurance through an employer (either their own employer or a family member). The share of people with private health insurance of any kind (employment-based or through individual purchase) fell slightly to 66.0%, while the share of those with a public plan rose to 35.7% (note that coverage types are not mutually exclusive – one person can have two types of health insurance coverage).
Pandemic safety net programs kept millions out of poverty in 2021, new Census data show
It should not have taken a pandemic to realize poverty is a public policy choice.
Public investments in safety net programs continue to be extremely effective poverty reduction tools, as newly released Census income data show. Government social programs kept tens of millions of people out of poverty in 2021. Because of expansions to programs like unemployment insurance benefits and the Child Tax Credit, poverty rates were actually lower in 2021 than they were prior to the COVID-19 pandemic.
The poverty reduction achieved through expanded social insurance programs highlights how much policymakers’ choices can impact poverty.
Unfortunately, some of the program expansions enacted in the pandemic have already been reversed, and cuts to programs like unemployment benefits and the Child Tax Credit will increase household economic distress going forward.
The 2021 Census report highlights how government relief measures played a vital role in reducing poverty
Below, EPI senior economist Elise Gould offers her initial insights on the Census Bureau’s latest data on earnings, incomes, poverty, and health insurance for 2021. Read the full Twitter thread here and follow along for more to come.
The federal government played a vital role in reducing poverty in 2021. While Social Security remains the largest poverty reducer in the U.S.—reducing the number who would have been in poverty in 2021 by 26.3 million—the relief measures in 2021 were vital. pic.twitter.com/zYDwW87lIT
— Elise Gould (@eliselgould) September 13, 2022
Even with the rise in inflation, the bounce back in the labor market and strong safety net programs such as the child tax credit meant a reduction in poverty between 2020 and 2021. Remember SPM poverty includes those safety net programs while the Official Pov Measure does not. pic.twitter.com/4TA7YVekbs
— Elise Gould (@eliselgould) September 13, 2022
Today, the Census Bureau also released valuable statistics on earnings for men and women in 2021. A bit surprising to me that there was little change in the overall number of workers, but a notable increase in full-time, year-round workers in 2021, for both men and women. pic.twitter.com/iep9KUELX7
— Elise Gould (@eliselgould) September 13, 2022
Median earnings for all workers (regardless of work hours) rose between 2020 and 2021 by 4.6%, in part because of the shift from part-time to full-time work. The 4.5% rise in women’s earnings was particularly good news given that theirs is still significantly lower than men’s . pic.twitter.com/WIrGOBAmej
— Elise Gould (@eliselgould) September 13, 2022
August CPI data will likely show a second straight month of overall price declines: New interest rate hikes may be harmful
Below, EPI director of research Josh Bivens offers his predictions for tomorrow’s release of the consumer price index (CPI) for August. Read the full Twitter thread here.
The price decline will be driven overwhelmingly by commodity price softening. But even core inflation (excluding food and energy) fell in the PCE index last month to its lowest level since 2020. 2/
— Josh Bivens (@joshbivens_DC) September 12, 2022
What should policymakers if they get another month of breathing room on inflation? Many people will be persuaded by a view that the responsible thing to do here is maintain the fight to cram price pressure down as far as possible. 4/
— Josh Bivens (@joshbivens_DC) September 12, 2022
But, the “maintain pressure” view is only responsible if one thinks measurably-greater economic slack (higher unemployment, for example) is needed to pull inflation back down to more-normal levels (say around 2-3%) in a reasonable time-span. 6/
— Josh Bivens (@joshbivens_DC) September 12, 2022
Goods prices are set to post outright falls going forward. Supply chain pressure seems to unwinding – even in the face of China’s continued Zero Covid approach. The normalization of pre-pandemic spending patterns (more services and less goods) is continuing. 8/
— Josh Bivens (@joshbivens_DC) September 12, 2022
In the labor market, over the past 6 months, average hourly earnings are growing at a 4.8% annualized pace, down a full percentage point from January – a pronounced fall even with low unemployment. 10/
— Josh Bivens (@joshbivens_DC) September 12, 2022
About those profits – while the most recent quarter saw a huge increase in the contribution of profits to price growth, this was almost surely mostly in the energy sector. 12/
— Josh Bivens (@joshbivens_DC) September 12, 2022
What all this tells us is that something close to the current state of economic slack is consistent with moderating price pressures – even outside of food and energy. 14/
— Josh Bivens (@joshbivens_DC) September 12, 2022
For example, real final sales to domestic purchasers (domestic demand) grew by just 1.2% between 2021q2 and 2022q2. That’s a growth rate that should have substantially “cooled” the economy by any measure. 16/https://t.co/IBH0CQv4qe
— Josh Bivens (@joshbivens_DC) September 12, 2022
A month of flat prices would mean that the inflationary outlook has meaningfully changed. So, policy should change too. Hiking by 0.75 in the face of flat monthly prices tilts risks too-sharply in the direction of recession, and isn’t needed to keep tamping down inflation. end/
— Josh Bivens (@joshbivens_DC) September 12, 2022
2021 Census Data Preview: A growing economy and government relief measures matter for earnings, incomes, and poverty
The vast majority of families and households in the United States rely on a combination of labor earnings from work and public assistance to make ends meet, especially throughout the pandemic recession and recovery.
Next week, the Census Bureau will release their latest data on earnings, incomes, poverty, and health insurance for 2021, which will inform our understanding of people’s economic wellbeing last year. Below, I provide context for the data next week by looking at how an expanding economy—the robust bounce-back in the labor market— and vital public programs sustained workers and their families in 2021.
These two phenomena are related, as public policy directly led to the robust recovery we experienced in the wake of the pandemic recession. Public policy further helped workers and their families stay afloat with expanded and enhanced unemployment insurance, economic impact payments, and child tax credits, to name a few.
California is on the brink of enacting the first significant law to combat international labor recruitment abuses and protect 300,000 temporary migrant workers. Will Governor Newsom sign the bill?
Key takeaways:
- There are at least 310,500 migrant workers in California—employed through temporary work visa programs—making it the largest host state. These temporary migrant workers are vulnerable to abuses of labor recruiters that connect workers to jobs in the United States.
- The abuses of labor recruiters have included requiring the payment of illegal fees to obtain jobs which can result in debt bondage, as well as cases of wage theft, discrimination, human trafficking, and other abuses. But since these U.S. work arrangements are being set up abroad, it is difficult to regulate the behavior of recruiters.
- Congress has failed to act to protect workers who are recruited abroad through temporary work visa programs. A California law was enacted in 2014 to fill this gap. Senate Bill (SB) 477 created a registration system for labor recruiters, providing transparency and tools to hold recruiters accountable for abuses. However, that law has been interpreted to apply only to the H-2B visa program, one of the many visa programs that are used to hire workers in California. H-2B workers only account for a small share of the state’s temporary migrant workers, less than 1%.
- Assembly Bill (AB) 364, which passed the California Assembly and Senate, would expand the reach of SB 477 to nearly all temporary work visa programs, thus protecting an estimated 300,000 migrant workers. It would also give California the authority to monitor and regulate labor recruiters doing business in the state and more proactively prevent labor abuses and trafficking.
- California is on the brink of passing the first significant reform of the international labor recruitment process. But will Governor Newsom sign AB 364? He must decide whether to sign it by September 30, and immigrant and worker advocates are calling on him to do so.
Tying minimum-wage increases to inflation, as 13 states do, will lift up low-wage workers and their families across the country
The original version of this post inadvertently left New Jersey off the list of states that will raise their minimum wage in response to inflation, it has since been updated.
13 states and the District of Columbia have policies that increase (or index) their state’s minimum wage based on inflation. Most of those indexed increases are based on the August-to-August change in the Consumer Price Index, which will be announced sometime in mid-September. With inflation higher than it has been in recent years, the indexed inflation increases in these states will be higher than usual as well. Still, these indexed increases are similar in size to other legislated minimum wage increases in recent years and they will help reduce the burden of rising prices for low-wage workers and their families.
The federal minimum wage has remained at $7.25/hour for the past fifteen years. Since then, its purchasing power or real value has dropped by 27% because of increases in the cost of living. As a result, the value of the minimum wage is the lowest since 1956. In response, thirty states, Washington D.C., and dozens of local governments have introduced their own minimum wages that are higher than the federal minimum wage. Workers in many of those states still experience the same problem – if the state doesn’t raise its minimum wage on a regular basis, its value will decline.
Jobs report doesn’t show signs of recession as labor market remains strong in August
Below, EPI economists offer their initial insights on the jobs report released this morning, which showed 315,000 jobs added in August.
From EPI senior economist, Elise Gould (@eliselgould):
Read the full Twitter thread here.
In August, most jobs were added in education and health services and professional and business services. While govt jobs increased by 7,000 in August, they remain 645,000 below pre-pandemic levels, a concerning phenomenon for those workers and the vital services they provide. pic.twitter.com/wMoqhfZhNg
— Elise Gould (@eliselgould) September 2, 2022
With the August increase, private sector employment is now 0.7% above pre-pandemic levels while state and local jobs remain stubbornly 3.2% below its February 2020 level with little improvement in recent months. pic.twitter.com/VS9ICLnRre
— Elise Gould (@eliselgould) September 2, 2022
The latest quarterly change (annualized) in average hourly earnings for all private-sector and production-nonsupervisory workers shows no signs of acceleration and demonstrates, once again, that wages in the labor market are pulling down (not pushing up) inflation. pic.twitter.com/dc1OcLulbi
— Elise Gould (@eliselgould) September 2, 2022
Troubling trend in Black unemployment, which rose 0.6 pps over the last two months to 6.4%. It’s a more volatile series, but labor force participation and EPOPs for Black workers have declined in each of the last three months as well. pic.twitter.com/YpVKSfijag
— Elise Gould (@eliselgould) September 2, 2022
The rise in Black unemployment and fall in participation and employment in August was experienced by both Black men and Black women.
The rise in Hispanic unemployment was accompanied by an increase in participation and employment for both Hispanic men and Hispanic women. pic.twitter.com/cqGR6WjUVm
— Elise Gould (@eliselgould) September 2, 2022
From EPI president, Heidi Shierholz (@hshierholz):
Read the full Twitter thread here.
We added 315,000 jobs in August. This is down substantially from the blistering average pace of 561,000 per month for the 12 months ending in February of this year, but remains solid. 2/
— Heidi Shierholz (@hshierholz) September 2, 2022
Wage growth dropped in August and has clearly not accelerated in 2022. 4/ pic.twitter.com/4QTO3gVadZ
— Heidi Shierholz (@hshierholz) September 2, 2022
Though today’s release underscores we’re almost surely not in a recession now, the fed may have already overshot and secured a recession in coming months. Regardless, they should slow the pace of rate increases substantially and be ready to go into neutral or even cut rates. 6/
— Heidi Shierholz (@hshierholz) September 2, 2022
The private sector has gained back all the jobs it lost in the covid recession, and more. State and local governments have gained back less than 60%. I’m a broken record on this, but we have to push state and local govts to use their ARPA funds to raise pay & hire workers. 8/
— Heidi Shierholz (@hshierholz) September 2, 2022
The overall numbers mask big disparities for different groups. Due to the impact of structural racism on the labor market, people of color have much higher unemp rates than white workers. For example, the unemp rate is currently 6.4% for Black workers, 3.2% for white workers. 10/
— Heidi Shierholz (@hshierholz) September 2, 2022
But it’s worth noting that all groups are seeing far faster recoveries *than they did following the Great Recession.* From the start of the Great Recession, it took more than 10 years for Black unemployment to get down to 6.4%, but this time around it took just over 2 years. 12/
— Heidi Shierholz (@hshierholz) September 2, 2022
Of course, a recession caused by the fed raising rates too aggressively would undo a great deal of the enormous gains that have occurred in the current recovery. 14/
— Heidi Shierholz (@hshierholz) September 2, 2022
Union approval hits highest point since 1965: Here’s why this isn’t surprising
It’s been nearly 60 years since approval for unions in the U.S. has been this high.
More than 70% of Americans now approve of labor unions. Those are the findings of a Gallup poll released this morning, and they shouldn’t be surprising.
Why? U.S. workers see unions as critical to fixing our nation’s broken workplace—where most workers have little power or agency at work.
The pandemic revealed much about work in this country. We saw countless examples of workers performing essential jobs—such as health care and food service. They were forced to work without appropriate health and safety gear and certainly without pay commensurate with the critical nature of the work they were doing.
Jobs openings ticked up in July while hires remained above pre-pandemic levels
Below, EPI senior economist Elise Gould offers her initial insights on today’s release of the Job Openings and Labor Turnover Survey (JOLTS) for July. Read the full Twitter thread here.
The July data show mild reductions in hires and quits while layoffs hold steady. Hires remain above pre-pandemic levels as the labor market continues to expand. Layoffs remain low in historical terms. Elevated quits mean workers seeking (and finding) better opportunities. pic.twitter.com/4DSSBXsfUI
— Elise Gould (@eliselgould) August 30, 2022
California’s FAST Recovery Act is a victory for fast food workers and a model for state labor policy
This week’s Senate passage of the California FAST Recovery Act, AB257, marks a historic breakthrough for workers and state labor policymaking with far-reaching national implications. As EPI and the National Employment Law Project noted in a statement endorsed by forty organizations earlier this year, AB257 “is important for workers across the country and for shaping the future of our national economy. The state of California has a long history of leading the way on workers’ rights and worker protections, including becoming the first state to pass a $15 minimum wage in 2016—a breakthrough that paved the way for states across the country to take similar action.”
AB257 was designed to address poverty wages and widespread worker rights violations that have resulted from extremely unequal bargaining power between fast food workers and employers across the industry. If signed into law by Governor Newsom, the legislation will give workers a seat at the policymaking table to engage as equals with franchisees, franchisors, and government agencies through a 10-member Fast Food Sector Council with authority to set statewide minimum wages and standards across the industry. Standards set by the new council will have a direct impact on over 550,000 California fast food workers, over 80% of whom are workers of color and two-thirds of whom are women.
Teachers’ unions reduce teacher stress. Anti-union laws significantly increase it.
Teaching, while rewarding, is one of the most stressful occupations in the U.S., and many teachers experience serious emotional and mental problems related to school stress. The COVID-19 pandemic exacerbated this phenomenon as teachers adapted to challenging working environments and navigated frequent technical difficulties in new online platforms, all while dealing with health concerns during in-person instruction.
Stress is the most common reason for leaving teaching early, and it is also associated with job absenteeism and poor teacher performance, negatively impacting student outcomes. As more schools face increased teacher turnover rates and intensified teacher shortages, it is essential to investigate what influences teachers’ job-related stress.
Abortion bans prove yet again there is no race-neutral policy
Earlier this summer, in a 6-3 decision, the Supreme Court finalized the proposed overturning of landmark cases Roe v. Wade and Planned Parenthood v. Casey which have protected the right to abortion in the U.S for decades. As a result, twenty-one states already have or are in the process of restricting abortion access completely. Other states will soon follow, resulting in the denial of abortion in over half the country. Though this decision was unsurprising, the blatant disregard by the Justices of the negative economic effects this decision will have on millions of women continues to be shocking.
Abortion bans negatively impact women’s economic well-being in various ways, from future earnings, college completion, and the broader issues of economic security and mobility. Though it’s clear this issue will negatively impact all women in this country, it is important to note that Black and Brown women are likely to face the negative economic consequences of this decision at a disproportionate rate.
State policy solutions for good home health care jobs—nearly half held by Black women in the South—should address the legacy of racism, sexism, and xenophobia in the workforce
Introduction
Home health care workers are part of the “care economy” that makes all other work possible.
These workers include nursing, psychiatric, and home health aides; personal and home care aides; and nursing assistants working in private households. They provide services and support for older adults, people with chronic illnesses, and people with disabilities allowing them to stay in their homes and communities, rather than nursing homes or other institutions. And the COVID-19 public health emergency further highlighted the importance of this workforce, who provide long-term care at a time when congregate settings are limited in their ability to support physical distancing or quarantining.
So why don’t we value these workers?
Jobs report doesn’t show signs of recession—yet—as labor market remains strong: The Fed should still be wary of raising interest rates much further
Below, EPI economists offer their initial insights on the jobs report released this morning, which showed 528,000 jobs added in July.
Rising inflation is a global problem: U.S. policy choices are not to blame
Key takeaways:
- An international comparison among OECD countries shows that rising inflation is a global phenomenon, not unique to the United States.
- This fact argues strongly that high inflation in the U.S. has not been driven by any unique American policy—not the American Rescue Plan and other generous fiscal relief during the pandemic recession and recovery nor anything else U.S.-centric.
- Some have argued that the global rise of inflation means that many countries— including the U.S.—overstimulated their economies and generated excess aggregate demand. But this explanation is not supported by the data. The countries with larger declines in unemployment over the past 18 months have not seen larger inflation spikes.
Consumer price data for June 2022 showed another month of rapid inflation, with overall inflation rising 9.1% year-over-year and core inflation (which doesn’t include volatile energy and food prices) rising by 5.9%. This level of inflation has obviously become a major political issue this year. But however this issue resonates politically, as an economic matter a common narrative that blames the Biden administration and its policy choices for causing the inflation is deeply misleading.
This is not simply a case for exonerating the Biden administration’s choices—how the recent inflationary outbreak is interpreted will have huge consequences for how policymakers respond. A loud chorus of economic analysts and influential policymakers continue highlighting the need for the Federal Reserve to continue raising interest rates sharply to slow growth to “rein in” inflation. This approach risks terrible consequences and threatens to cast aside the amazing policy achievement of a full jobs recovery from the pandemic recession.
What to watch on jobs day: Can wage growth normalize without substantially higher unemployment?
On Friday, the Bureau of Labor Statistics (BLS) will release its monthly report on the state of the labor market. In addition to top-line payroll employment growth and changes in labor force participation, probably the most anticipated measure is the pace of nominal wage growth.
Even with the recent contraction in gross domestic product (GDP), the labor market has been expanding at a steady rate and wage growth continues to fall short of inflation. Despite this, many remain worried that abnormally high nominal wage growth (relative to pre-pandemic) will prevent inflation from returning to more-normal levels in the year ahead. In this jobs day preview post, we take a closer look at wage growth using several different measures to gauge just how worried we should be that wage growth will not normalize in the coming year without aggressive policy measures that cause collateral damage (like higher unemployment) in the labor market. We find that most of these measures show decelerating wage growth in very recent quarters.
Job openings declined in June but remain much higher than pre-pandemic
Below, EPI senior economist Elise Gould offers her initial insights on today’s release of the Job Openings and Labor Turnover Survey (JOLTS) for June. Read the full Twitter thread here.
Slight correction. Job openings are down each month since March’s series high. That’s three months in a row of declines. Please pardon the error in counting months when it’s now August and the data are for June.
— Elise Gould (@eliselgould) August 2, 2022
Not a recession—yet: The Fed’s overly aggressive interest rate hikes increase risk of recession
Yesterday’s data showing negative gross domestic product (GDP) growth for the second consecutive quarter has sparked a debate about whether the U.S. economy is in recession. Below are some quick thoughts interpreting the numbers, and some larger questions about recession and inflation.
- We’re very likely not in recession currently, even though we’ve had two straight quarters of negative GDP growth. The “two straight quarters” criterion for a recession is a rough rule of thumb. The more generally accepted arbiter of business cycles in the U.S. is the National Bureau of Economic Research Business Cycle Dating Committee, which weighs changes in many economic variables to determine the start and end dates of recessions. The most notable statistics arguing against the view that we’re in recession currently are unemployment and employment growth. Both remain quite strong.
- The negative growth in the first quarter of 2022 was mostly driven by statistical quirks that hid some real strength in the economy. Specifically, exports were quite weak and imports quite strong, but both of these measures can be pretty volatile. Net exports in the second quarter, for example, were positive and added to growth. But, if I had to choose one measure of the strength of the domestic economy that stripped out volatile measures that could be introducing noise in our assessment, I’d choose domestic demand growth (known officially as final sales to domestic purchasers)—this is a measure of spending by U.S.-based households, businesses, and governments that strips out volatile changes in firms’ inventories. In the first quarter, this domestic demand growth was acceptably strong, rising at a 2.0% rate.
- Conversely, fundamental growth in the second quarter was weak. Domestic demand growth actually shrank in the quarter. On top of that fundamental weakness, a statistical quirk—a huge decline in the contribution to GDP made by changes in firms’ inventories—also weighed unusually on growth.
- In short, the negative growth in the first quarter of 2022 looked much worse than it was. This is far less true for the negative growth in the second quarter.
Unions helped keep workers in jobs and paid during the pandemic
In a new EPI technical paper, I review data on how union workers fared relative to their nonunion counterparts during the first two years of the COVID-19 pandemic. The nationally representative data allow me to draw several important conclusions about what unions have been able to do for the workers they represent as the country confronts COVID-19.
First, unions helped maintain pay for workers. Specifically, union workers—union members and nonmembers who were covered by a collective bargaining contract—were more likely than nonunion workers to receive pay during periods when their workplaces were not open for business. Even after controlling for a wide range of worker characteristics, such as industry, occupation, education, age, gender, race and ethnicity, marital status, state of residence, and others, union workers were 10 percentage-points more likely than nonunion workers to have been paid by their employers for hours not worked due to pandemic-related closures or lost business during the pandemic period.
Second, unions saved jobs. My estimates suggest job losses were 2,000 jobs per month lower for union members than nonunion members during the first six months of the pandemic when the economy was suffering most. Even as the economy started to recover over the subsequent 16 months, unions continued to preserve an average of 1,700 jobs per month. During the 22 months I analyzed in my paper, unions saved just over 40,000 jobs, relative to what happened to workers in nonunion establishments.
Third, the union boost to wage levels remained. The union weekly earnings premium—the 7% by which the weekly earnings of union workers exceeded the earnings of comparable nonunion workers—held steady over the course of the pandemic. The pandemic hit all workers hard, but it did not reduce the relative position of union workers.
Additional findings and a complete discussion of the methodology used are available here.
Putting Minnesota’s record-low unemployment numbers in context
Minnesota set a record in June with an unemployment rate of 1.8%, the lowest number recorded for any state ever since the data began to be collected in 1976. While this is good news, the headline unemployment number must be put in proper context. In Minnesota, and across the country, payroll employment and labor force participation are still down considerably from before the pandemic. Policymakers should resist the temptation to treat a low unemployment rate as proof the economy is overheating, and instead should continue pursuing policies to bring workers into the workforce, raise wages, reduce barriers to employment, and promote racial and gender equity.
The unemployment rate is an important measure, but it doesn’t tell the full story
A 1.8% unemployment rate means that only 1.8% of Minnesotans looking for jobs report that they’re unable to find one. That’s good news. And it’s not just Minnesota that’s doing well. The June 2022 unemployment numbers also showed Nebraska at 1.9% unemployment, New Hampshire and Utah at 2.0%, and Vermont at 2.2%. Eighteen states, in total, had a June unemployment rate below 3%.
And yet, every single one of these states still had fewer jobs in June than before the pandemic. EPI’s Economic Indicators page shows that the United States is still down 524,000 jobs from its pre-pandemic peak. If we account for population growth over the last 2.5 years, the country has 3 million fewer jobs than we would expect if pre-pandemic trends had continued.
Inflation is no excuse for inaction on needed tax reforms and investments
In recent months, a number of policymakers have cited inflation concerns as the source of their opposition to budget reconciliation proposals that would raise taxes progressively and boost federal spending on public investments and social insurance. (Many of these proposals were once collected together and named the Build Back Better Act (BBBA), but since negotiations over the full BBBA faltered there has been no single name for the shifting permutations of tax and spending changes that are under debate.)
Today’s inflation is a real concern—it is running too high and is reducing households’ purchasing power. But linking fiscal policy decisions about the proper level of taxes and spending in the medium and long run to today’s inflation makes little sense. Even worse, many of these policymakers cast both the tax increases and the spending increases as potentially inflationary. This is not just unwise—it is simply economically innumerate.
The value of the federal minimum wage is at its lowest point in 66 years
The value of the federal minimum wage has reached its lowest point in 66 years, according to an EPI analysis of recently released Consumer Price Index (CPI) data. Accounting for price increases in June, the current federal minimum wage of $7.25 per hour is now worth less than at any point since February 1956. At that time, the federal minimum wage was 75 cents per hour, or $7.19 in June 2022 dollars.
Last July marked the longest period without a minimum wage increase since Congress established the federal minimum wage in 1938, and continued inaction on the federal minimum wage over the past year has only further eroded the minimum wage’s value. As shown in Figure A, a worker paid the current $7.25 federal minimum wage earns 27.4% less in inflation-adjusted terms than what their counterpart was paid in July 2009 when the minimum wage was last increased, and 40.2% less than a minimum wage worker in February 1968, the historical high point of the minimum wage’s value.
The minimum wage increases of the late 1960s expanded the coverage of the minimum wage to include industries like agriculture, nursing homes, restaurants, and other service industries. The earlier exemption of these industries from the federal minimum wage disproportionately excluded Black workers from this important labor protection. The application of the minimum wage to these industries raised workers’ incomes and directly reduced Black-white earnings inequality. Congress’s failure to raise the minimum on a regular basis in the interim, however, has eroded the value of the federal minimum wage and worsened racial earnings gaps.
The growing housing supply shortage has created a housing affordability crisis
Rising housing costs have made housing largely inaccessible and unaffordable to most Americans, but have acutely impacted communities of color and low- to moderate-income families over the past several decades. The median asking rent in the United States rose above $2,000 for the first time in June 2022. Given that the U.S. Department of Housing and Urban Development (HUD) sets the standard of affordability at 30% of household income, $2,000 per month would only be “affordable” for households earning at least $80,000 per year—well above the median U.S. household income ($67,521).
A growing housing supply shortage is a key contributor to the housing affordability crisis. Following the Great Recession, the share of homes being built fell significantly, causing buyer demand to exceed housing production. In fact, fewer new homes were built in the decade following the Great Recession than in any decade since the 1960s. This deficit has now expanded even further, contributing to a shortfall of over 3 million homes and growing.
Some of the leading factors responsible for the housing shortage are land availability and exclusionary zoning laws, which restrict the kinds of homes that can be put in certain neighborhoods—maintaining segregation. Examples of exclusionary zoning laws include minimum lot and square footage requirements, limits on the height of buildings, and restrictions on building multi-family homes. These laws have historically sought to exclude lower-income residents from living in more affluent suburban developments with access to high-performing schools, employment, and other amenities. In the early decades of the 20th century, these laws were also used as a vehicle for explicit racial discrimination excluding Black residents from predominantly white neighborhoods.
Today, the legacy of these laws remains in place and has had far-reaching consequences for all families trying to secure housing. Despite the Fair Housing Act prohibiting discrimination based on race, color, national origin, religion, sex, and other identities, the law does not prohibit class-based discrimination. This allows a legal loophole where people earning low incomes can be restricted to certain neighborhoods and excluded from living in more affluent areas with broader investment and economic opportunity. Given that Black and Latinx families have far less wealth and income than white households, on average, these exclusionary zoning laws are often used to intentionally drive people of color out of certain communities and keep neighborhoods more uniformly white. The pattern of this discriminatory practice over time has exacerbated many racial economic disparities we see today and also takes root in the current housing unaffordability crisis.
A recession would be worse than today’s inflation
The Federal Reserve has been under intense pressure in recent months to sharply raise interest rates in the name of taming inflation. The voices calling for these rate increases often explicitly say that they are worth doing even if they greatly increase the risk of recession. At their last open market committee meeting, the Fed heeded these voices and raised rates by 0.75%—the largest single increase in 28 years—and indicated commitment to continuing to raise rates until inflation normalized, even if this increased the risk of recession.
The Fed’s actions to date do not guarantee a recession, but they have already made one more likely. Moreover, if they continue on a hawkish path much longer, a recession is quite probable. This would be a huge and avoidable policy mistake. Inflation is not being driven by large macroeconomic imbalances between aggregate demand and supply. Wage growth is already decelerating noticeably. In short, the point of rate hikes—bringing demand and supply into balance and restraining wage growth—has already been accomplished.
Besides failing to recognize these points, many voices in this debate have implicitly or explicitly argued that recession and inflation cause equivalent damage, or that inflation actually causes worse damage than recession. This view is clearly wrong—the economic damage wrought by recessions is far greater than that by single-digit inflation rates.
A common argument runs that inflation harms everybody in the economy, but only those who lose their job are harmed by recession. This is the opposite of truth. A recession directly reduces economy-wide incomes while inflation does not.