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‘Oil on the inequality fire’: How slashing jobless aid could widen the wealth gap

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Congress appears poised to dramatically reduce a federal program that has been providing an extra $600 per week for jobless workers since the spring.

How Congress decides to help the tens of millions of unemployed workers during the pandemic could determine whether the stark gap between America’s rich and poor will continue to widen amid a crisis that has already hit the lowest earners the hardest.

Economic downturns historically have been more damaging for the poor. But in the coronavirus-induced recession, low-income workers are disproportionately dependent on enhanced unemployment benefits in part because shutdowns have wiped out low-wage, in-person job opportunities in industries like hospitality and retail — and have made it dangerous if not impossible to search for other gigs.

More than two-thirds of those earning a salary of less than $25,000 are now out of a job, according to the most recent Census survey data — a number that has risen in recent weeks even as higher-wage sectors have shown potential signs of recovery.

The bottom quarter of wage earners comprise a full third of all recipients receiving jobless benefits, a larger proportion than any other sector, the Congressional Budget Office found. And they are the least likely to have savings to lean on to weather the crisis.

Now Congress appears poised to dramatically reduce a federal program that has been providing an extra $600 per week for jobless workers since the spring, the consequences of which will fall heavily on the lowest-wage employees, economists warn. That could exacerbate already staggering wealth and income divides, which have been growing for decades and which are larger in the U.S. than in any other nation in the G-7, a group of major developed countries. And it could hurt workers of color in particular, who are overrepresented in low-wage jobs.

“There’s a great risk that it will compound the existing inequalities,” said Chuck Collins, a director with the Institute for Policy Studies, a progressive think tank. “Depending on how both the emergency stimulus response and recovery are designed, it could throw oil on the inequality fire.”

Spiraling inequality has significant ripple effects, economists say, and could contribute to political and financial instability in the country while worsening the economic recession. Moody’s, the credit ratings service, this month flaggedpersistent and growing racial and income inequalities in the U.S. as “potent forces” that are heightening social risk and could adversely affect the country’s economic and institutional strength.

At the same time, many economists argue that it will become more difficult and expensive for society in the long run to not help the most disadvantaged workers today. Hilary Hoynes, a professor at the University of California, Berkeley who focuses on economic disparities, said children who have a lower quality and quantity of food have lower educational outcomes and less economic well-being throughout adulthood.

“So there’s a way in which not doing enough today is going to cost you more in the future,” she said.

Already, the wealth divide is dramatic: The top 20 percent of the country held more than three-fourths of all household wealth in 2016, according to a Brookings Institution analysis of consumer finance data. The bottom 20 percent held just 2 percent.

The coronavirus crisis is almost certain to worsen that. A May report led by economists from the International Monetary Fund found that recent major outbreaks, including H1N1 and Ebola, worsened income inequality for five years beyond the events. Without “deliberate and strenuous attempts to protect the most vulnerable segments of society,” the coronavirus’ effect on inequality could be greater than previous events, they warned.

Slashing the level of unemployment aid now, when new jobless claims are rising and as data shows roughly one job opening for every four unemployed people, will also hinder a recovery by sparking a drop-off in spending and reducing the amount of money flowing through the economy, analysts say.

As of early July, low-income consumers had cut their spending by just 2 percent from January levels, according to an analysis by Harvard economists, largely because their wages were supported by a combination of unemployment benefits and stimulus checks.

As Congress searches for ways to stimulate the economy, most economists say jobless aid is one of the quickest and most effective ways to get cash directly into the hands of those who need it most. Low-wage workers are likely to spend any aid money immediately. And despite its up-front cost, $1 of spending on unemployment benefits sparked an estimated $1.61 in economic activity during the Great Recession, according to a 2010 report by Princeton University economist Alan Blinder and Moody’s chief economist Mark Zandi.

“If we get people unemployment insurance, if we get people the ability to feed their families, our entire economy comes out better on the other side of this,” said Martha Gimbel, a labor economist with the philanthropic group Schmidt Futures.

Meanwhile, the longer unemployment remains elevated, the more cyclical the consequences of joblessness become for the workers currently dependent on their weekly benefit checks. And the Congressional Budget Office forecast earlier this month that without further federal spending, the unemployment rate could remain heightened for years — not recovering to its pre-pandemic level for more than a decade.

“People aren’t going to be able to pay rent. They could face foreclosure. They may rack up huge credit card debts that will stay with them for years. Their credit rating is going to be affected, and that isn’t easy to fix,” said Michele Evermore, a senior policy analyst at the National Employment Law Project. “It’s incredibly expensive to be poor in the United States.”

Republican lawmakers, who initially opposed any extension of enhanced jobless benefits and remain divided over the path forward, are now pushing for a lower level of additional aid to remain in place. They say the $600 boost too often provides workers with more than they were making while at work and therefore provides a disincentive to return to their jobs.

Sen. John Barrasso of Wyoming, the third-ranking Senate Republican, criticized the “bonus” $600 checks on Wednesday as a “heavy wet blanket on our economy” that will “stop people from getting back on the job.”

“You can’t pay people more to not work than to work,” Barrasso said on Fox News.

Democrats, meanwhile, have already voted to extend the extra $600 a week through the end of January.

Rep. Don Beyer (D-Va.), the vice chair of Congress’ Joint Economic Committee, acknowledged that while that step alone won’t reduce income inequality, “what we want to do is at least not make it any worse.”

“So far we’ve avoided the ‘Grapes of Wrath’ scenario of millions of Americans going hungry — of people losing their homes, people losing their cars, people just desperate,” Beyer said, referring to the John Steinbeck novel about the Great Depression. “That’s what we’re facing if we don’t re-up the unemployment insurance.”

This blog originally appeared at Politico on July 23, 2020. Reprinted with permission.

About the Author: Megan Cassella is a trade reporter for POLITICO Pro.


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The thing about systemic racism is it’s systemic: This week in the war on workers

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According to government statistics, the wage gap between white men and Black men has shrunk dramatically since the 1950s. But that’s only true, The New York Times’ David Leonhardt points out, if you compare workers—and the problem is, a lot of Black men have been pushed out of the workforce, in significant part by mass incarceration. When comparing Black men and white men, regardless of if they work, the wage gap is about the same as it was in 1950. “An end to mass incarceration would help,” Leonhardt writes. “So would policies that attempt to reverse decades of government-encouraged racism—especially in housing. But it’s possible that nothing would have a bigger impact than policies that lifted the pay of all working-class families, across races.” 

It’s the combination of racism and inequality we can see in this pattern that set the stage for the disproportionate impact of the coronavirus on Black people. Black people have been more likely to lose their jobs during the pandemic than white people, but they also disproportionately work at essential jobs that require them to expose themselves to possible infection. They’re less likely to have paid sick leave, the ability to work from home, and health insurance. Racism and inequality produce chronic health problems that make Black people more vulnerable to COVID-19. The list goes on and on and on.

This blog originally appeared at Daily Kos on June 27, 2020. Reprinted with permission.

About the Author: Laura Clawson has been a Daily Kos contributing editor since December 2006. Full-time staff since 2011, currently assistant managing editor.


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America’s Rich Just Scored A Triple Jackpot

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At racetracks all across America, lucky bettors every so often rake in small fortunes when the horses they pick to finish one, two, three — a trifecta — just happen to finish in that order. Last spring at the Kentucky Derby, for instance, a $1 trifecta bet returned a tidy little $11,475.30.

But America’s awesomely affluent don’t have to place any bets to rake in windfalls. They’re essentially hitting jackpots on a daily basis, as a “trifecta” of timely just-released research reminds us.

The first of these three newly released blasts came in late September from the Census Bureau. The gap between America’s haves and have-nots, the new Census data show, has grown “to its highest level in more than 50 years of tracking income inequality.”

The first week in October then brought the second blast, an Institute for Policy Studies analysis on the latest trends in corporate executive pay. In 2018, the IPS report details, 50 major U.S. corporations paid their CEOs over 1,000 times the compensation that went to their most typical workers.

The third blast comes from two of the world’s top inequality scholars. In 2018, economists Emmanuel Saez and Gabriel Zucman inform us, America’s 400 richest households paid taxes at a lower rate than any other income cohort in the nation, the first time that’s happened since the modern federal income tax went into effect in 1913.

The combined federal, state, and local tax rate on the nation’s richest 400 households, Saez and Zucman have calculated, last year fell 2.5 percentage points to 23 percent. In other words, the nation’s richest 400 households paid less than a quarter of their income in taxes.

Households in the nation’s poorest 50 percent, by contrast, paid 24.2 percent of their incomes in combined 2018 federal, state, and local taxes.

These disturbing new numbers appear Saez and Zucman’s new book, The Triumph of Injustice. The book traces how tax rates on the richest of America’s rich have nosedived since the middle of the 20th century. In 1950, the two economists point out, our top 400 households had a combined tax bill that averaged 70 percent of their incomes. A generation later, in 1980, that combined rate took 47 percent — about half — of top-400-household incomes. That rate has since fallen to last year’s 23 percent.

The bottom line: America’s richest used to pay over three times more of their income in total taxes than they do now. The predictable result? America’s richest have become phenomenally richer than they used to be.

The business magazine Forbes began publishing its annual list of the nation’s 400 richest in 1982. The shipping magnate Daniel Ludwig topped that first annual Forbes list. His total fortune: just $2 billion.

Forbes earlier this month released the 2019 ranking of the top 400. The fortune now needed to enter the ranks of America’s 400 richest: $2.1 billion.

Admittedly, we’re not taking inflation into account with this comparison. So let’s do that. Adjusting for inflation, Ludwig — the richest single individual in the inaugural Forbes list — had a 1982 fortune worth $5.3 billion. A stash that size today would rank him just 125th.

In that initial 1982 Forbes 400, America’s richest averaged $230.8 million in net worth each. In today’s dollars, that would come to nearly $633 million. The 2019 top 400 average: $7.4 billion, 32 times the top-400 average net worth in 1982.

Wages for the typical American worker, meanwhile, have been “increasing” on average by less than a half percent a year over the last four decades.

“It’s the economy, stupid,” Bill Clinton’s top campaign guru quipped during the 1992 presidential campaign.

No, it’s the inequality, stupid, the vast gap between the rich and everyone else that’s poisoning nearly every aspect of modern American life, from our crumbling infrastructure to our endangered environment. Hitting an occasional trifecta at the racetrack won’t close that gap. Taxing the rich — and confronting their corporate power — will.

This blog was originally published at OurFuture.org on October 22, 2019. Reprinted with permission.

About the Author: A veteran labor journalist, Sam Pizzigati has written widely on economic inequality, in articles, books, and online, for both popular and scholarly readers. Sam Pizzigati co-edits Inequality.org. Follow him at @Too_Much_Online.


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Income inequality went up again in 2018, and the Republican tax law may have made it worse

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U.S. income inequality continued to grow in 2018, according to new Census Bureau figures. That’s a continuation of a decades-long trend—and a problem several of the Democratic presidential candidates have plans to combat.

The biggest rises in inequality came in Alabama, Arkansas, California, Kansas, Nebraska, New Hampshire, New Mexico, Texas, and Virginia, making increasing inequality a nationwide phenomenon hitting red states, blue states, and swing states across regions of the country. But it’s not something that’s just happening in a vacuum. It’s a product of policy and of choices that giant corporations, unfettered by government, are making to transfer wealth upward. Candidates like Sens. Elizabeth Warren and Bernie Sanders have offered plans from a wealth tax to a $15 minimum wage to strengthening unions to combat the continuing trend. Republicans, meanwhile, are looking for ways to make it worse.

“In 2018 the unemployment rate was already low, and the labor market was getting tight, resulting in higher wages. This can explain the increase in the median household income,” University of Florida economist Hector Sandoval told the Associated Press. “However, the increase in the Gini index shows that the distribution became more unequal. That is, top income earners got even larger increases in their income, and one of the reasons for that might well be the tax cut.”

We’d need more data to know for sure, but we can be sure that it’s an outcome Republicans wouldn’t object to—except selectively during campaign season.

This article was originally published at Daily Kos on September 26, 2019. Reprinted with permission.

About the Author: Laura Clawson is a Daily Kos contributor editor since December 2006. Full-time staff since 2011, currently assistant managing editor.. Laura at Daily Kos

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More U.S. Workers Have Highly Volatile, Unstable Incomes

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The U.S stock market may be at record highs and U.S. unemployment at its lowest level since the Great Recession, but income inequality remains stubbornly high.

Contributing to this inequality is the fact that while more Americans are working than at any time since August 2007, more people are working part time, erratic and unpredictable schedules—without full-time, steady employment. Since 2007, the number of Americans involuntarily working part time has increased by nearly 45 percent. More Americans than before are part of what’s considered the contingent workforce, working on-call or on-demand, and as independent contractors or self-employed freelancers, often with earnings that vary dramatically month to month.

These workers span the socioeconomic spectrum, from low-wage workers in service, retail, hospitality and restaurant jobs—and temps in industry, construction and manufacturing—to highly educated Americans working job-to-job because their professions lack fulltime employment opportunities given the structure of many information age businesses. As Andrew Stettner, Michael Cassidy and George Wentworth point out in their new report, A New Safety Net for an Era of Unstable Earnings, what all these workers have in common are highly volatile, unstable incomes and a lack of access to the traditional U.S. unemployment insurance safety net.

“The programs we have to help people are very biased toward traditional incomes,” says Stettner, senior fellow at The Century Foundation. “Volatility in earnings is a really big problem.”

“Those with the least to lose are most likely to lose it”

Published by The Century Foundation, a progressive, nonpartisan think tank, in collaboration with the National Employment Law Project (NELP), which advocates for policies that expand access to work and labor protections for low-wage workers, the report found that those in the contingent or nontraditional workforce “experience nearly twice as much earnings volatility as standard workers.”

It also found that because of this situation, between 2008 and 2013, three out of five prime earners experienced at least as much as a 50 percent drop in their month-to-month income. Half experienced month-to-month income drops of more than 100 percent.

“This broad issue of underemployment,” says NELP senior counsel George Wentworth, “there’s less of a light on it and these people are not showing up in national unemployment figures. But these workers are struggling and many of them are not making ends meet.”

Central to this problem is that most workers now employed part time are making less than what they made previously, working full time. At the same time, their part-time or independent contractor status means they are likely not eligible for a full complement—if any, in the case of self-employed freelancers—of standard employment benefits, including employer paid health insurance or any form of unemployment insurance, explains Wentworth.

As the report notes, “Those with the least to lose are most likely to lose it.”

Policy recommendations

Both Stettner and Wentworth explain that historical policy responses—and those set up to help workers laid off during the Great Recession—focus on traditional employment situations. Typical unemployment insurance is also biased against those who take up part-time or self-employment gigs while they’re looking for new full-time jobs by reducing unemployment payments. Some states have partial unemployment benefits designed for part-time workers, including those who’ve involuntarily had their hours reduced, but these vary widely. The report found that for workers whose hours are cut from full time to part time, “ten states would replace half of their lost earnings while fourteen states would provide no benefits at all.”

To address what’s becoming the new normal for U.S. workers, the report makes several recommendations. It proposes that states offer partial unemployment benefits to workers earning less than 150 percent of what they’d qualify for weekly if they were laid off (rather than working part time). This would substantially improve coverage for workers whose hours have been cut or who take part-time jobs after losing fulltime jobs.

“It also should be easier to file for these benefits,” says Stettner, explaining that current work documentation requirements don’t necessarily reflect the reality of how part timers work and get paid.

The report also recommends broadening unemployment insurance support for work-sharing programs. Work-share programs, explains Wentworth, are designed to help employers avoid layoffs by retaining their existing workforce but with reduced hours.

The report proposes beefing up existing financial support for work-share programs to reduce the impact to employees of reduced hours. “This is basically for high road employers,” says Wentworth.

The report also recommends a pilot program to provide unemployment insurance to freelancers who don’t have a traditional employer relationship. This is perhaps the most challenging of the report’s proposals since it seeks to address circumstances that extend well beyond the issue of reduced hours. Ideas include giving freelancers better access to certain tax credits in ways that help even out swings in earnings. It could also involve building on international examples such as professional guilds in Europe, where people contribute in order to draw benefits when needed, Stettner explains.

These proposals go beyond and build on those already being discussed at the state, local and federal level to require employers to provide more stable scheduling, pay a minimum number of hours if workers are called for a shift and that protect workers who request schedule changes. They would also begin to address the situations of the estimated 19.1 million Americans who depend solely on freelance income and are currently without any employment safety net.

“We’re just scratching the surface to understand how to come up with a better set of market-based and government solutions,” says Stettner. “We’ve created a whole view of the world that now applies to only about half the working people in America,” he says. “We have this huge divide we need to hammer on. It should concern everyone.”

This article originally appeared at Inthesetimes.com on December 28, 2016. Reprinted with permission.

Elizabeth Grossman is the author of Chasing Molecules: Poisonous Products, Human Health, and the Promise of Green Chemistry, High Tech Trash: Digital Devices, Hidden Toxics, and Human Health, and other books. Her work has appeared in a variety of publications including Scientific American, Yale e360, Environmental Health Perspectives, Mother Jones, Ensia, Time, Civil Eats, The Guardian, The Washington Post, Salon and The Nation.


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Income Inequality Is off the Charts. Can Local Policies Make a Difference?

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The income gap between the classes is growing at a startling pace in the United States. In 1980, the top 1 percent earned on average 27 times more than workers in the bottom 50 percent. Today, they earn 81 times more.

The widening gap is “due to a boom in capital income,” according to research by French economist Thomas Piketty. That means the rich are living off of their wealth rather than investing it in businesses that create jobs, as Republican, supply-side economics predicts they would do.

Piketty played a pivotal role in pushing income inequality to the center of public discussions in 2013 with his book, Capital in the Twenty-First Century. In a new working paper, he and his co-authors report that the average national income per adult grew by 61 percent in the United States between 1980 and 2014. But only the highest earners benefited from that growth.

For those in the top 1 percent, income rose 205 percent. Meanwhile, the average pre-tax income of the bottom 50 percent of workers was basically unchanged, stagnating “at about $16,000 per adult after adjusting for inflation,” the paper reads.

It notes that this trend has important political consequences: “An economy that fails to deliver growth for half of its people for an entire generation is bound to generate discontent with the status quo and a rejection of establishment politics.”

But the authors also note that the trend is not inevitable or irreversible. In France, for example, the bottom 50 percent of pre-tax income grew by about the same rate—32 percent—as the overall national income per adult from 1980 to 2014.

The difference? In the United States, “the stagnation of bottom 50 percent of incomes and the upsurge in the top 1 percent coincided with drastically reduced progressive taxation, widespread deregulation of industries and services, particularly the financial services industry, weakened unions, and an eroding minimum wage,” the paper reads.

Piketty and Portland

President-elect Donald Trump’s administration promises at least four years of policies that will expand the gap in earnings. But a few glimmers of hope are emerging at the local level.

The city council of Portland, Oregon, for example, recently approved a tax on public companies that pay executives more than 100 times the median pay of workers. The surtax will increase corporate income tax by 10 percent if executive pay is less than 250 times the median pay for workers, and by 25 percent if it’s 250 and over. The tax could potentially affect more than 500 companies and raise between $2.5 million and $3.5 million per year.

The council cited Piketty’s Capital in the Twenty-First Century in the ordinance creating the tax. Steve Novick, the city commissioner behind it, recently wrote that “the dramatic growth of inequality has been fueled by very high compensation of a few managers at big corporations, as illustrated by the fact that 60 to 70 percent of people in the top 0.1 percent of income in the United States are highly paid executives at large firms.”

Novick said that he liked the idea when he first heard about it because it’s “the closest thing I’d seen to a tax on inequality itself.” He also said that “extreme economic inequality is—next to global warming—the biggest problem we have in our society.”

Investing in children

There is also hopeful news in the educational realm. James Heckman, a Nobel Laureate in economics at the University of Chicago who has spent much of his career studying inequality and early childhood education, recently published a paper that lays out the results of a long-term study.

In “The Life-cycle Benefits of an Influential Early Childhood Program,” Heckman and others report that high-quality programs for children from birth to age 5 have long-term positive effects across a range of metrics, including health, IQ, participation in crime, quality of life and labor income.

Predictably, perhaps, the effects of the programs weren’t limited to children. High-quality early childhood education also allowed mothers “to enter the workforce and increase earnings while their children gained the foundational skills to make them more productive in the future workforce,” a summary of the paper reads.

“While the costs of comprehensive early childhood education are high, the rate of return of [high-quality programs] imply that these costs are good investments. Every dollar spent on high quality, birth-to-five programs for disadvantaged children delivers a 13% per annum return on investment.”

The research is important because early childhood education has bipartisan support. Over the summer, the Learning Policy Institute released a report that highlighted best practices from four states that have successful early childhood education programs. Two of them—Michigan and North Carolina—are swing states in national politics. The others are Washington and a solidly red state, West Virginia.

Although it isn’t a substitute for other policy tools to address inequality, like progressive taxes, early childhood education has strong bipartisan support because it produces measurable payoffs for both children and the economy. One study found, for example, that the economic benefit of closing the educational achievement gaps between children of different classes would be $70 billion each year.

Early childhood education fosters an “increasingly productive workforce that will boost economic growth, provide budgetary savings at the state and federal levels, and lead to reductions in future generations’ involvement with the criminal justice system,” the Economic Policy Institute recently noted. “These benefits will, of course, materialize only in coming decades when today’s children have grown up. But the research is clear that they will materialize—and when they do, they are permanent.”

This blog originally appeared at inthesetimes.com on December 26, 2016. Reprinted with permission.

Theo Anderson, an In These Times staff writer, is writing a book about the historical and contemporary influence of pragmatism on American politics. He has a Ph.D. in American history from Yale University and teaches history and literature seminars at the Newberry Library in Chicago.


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Inequality Is Still the Defining Issue of Our Time

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In 2011, President Obama, speaking in the wake of Occupy Wall Street, called inequality the “defining issue of our time.” Now Jason Furman, chair of the Council on Economic Advisors, argues that Obama “narrowed the inequality gap” more than any president in 50 years. The nonpartisan Congressional Budget Office echoes the observation that income inequality after taxes is no higher than it was in 2000, and that Obama’s policies have done more to reduce inequality than any other policies on record.

Don’t take down the barricades. Inequality remains extreme and continues to widen. And the populist uprisings that have roiled American politics have clear opportunities to tackle the core problem after the election.

As James Kwak at Baseline Scenario notes, the council’s report measures Obama’s reductions against what inequality would have been if George Bush’s policies had been sustained through the Great Recession. The progress comes largely from progressive tax changes. Obama raised taxes marginally on the very wealthy (allowing the Bush tax cuts to expire for very rich, particularly the 15 percent tax on capital gains, and taxing investment income under Medicare to help pay for health care reform) and increased tax subsidies to low-wage workers (expanded child tax and expanded earned-income tax credits.) These advances, while praiseworthy, don’t come close to reversing the regressive tax polices of the past decades.

As Emmanuel Saez has shown, the richest 1 percent continue to pocket the bulk of the rewards of growth. The income share of the top 1 percent before taxes fluctuates with the business cycle, but it has been rising over time. Despite recent increases, household income for the vast majority of the population has still not recovered from the Great Recession. These rewards largely reflect the underlying economic structures that determine what Jacob Hacker has dubbed predistribution (the pretax distribution of income): globalization, bargaining power of labor, executive pay structures, demand for skills, etc. As Kwak concludes, “It’s hard to point to anything [Obama] did that affected the underlying economic factors producing the increase in inequality.”

This elevates the importance of fierce political battles that will occur after the November elections. First, President Obama plans to join with the business lobby to push the Trans-Pacific Partnership Treaty through the lame-duck session of Congress. The TPP is another in the corporate trade and investment deals that have proved so devastating to American workers. Even trade-accord advocates now admit that our globalization strategy has contributed directly to growing inequality, putting American workers in competition with low-wage and repressed labor abroad, with no sensible industrial or comprehensive strategy for impacted communities and workers.

The mobilization against the TPP will engage the populist energies in both parties. Sanders’s new organization Our Revolution will join with labor and the bulk of the activist Democratic base to drive an intense opposition that will make the Tea Party look like, well, a tea party. If the TPP is defeated, the next administration will be forced to rethink America’s globalization strategies, moving toward more balanced trade, ending the special privatized investor arbitration system, and focusing attention on the tax traps and dodges that allow global corporations to evade hundreds of billions in taxes. Even if the TPP passes, the fury of the opposition could force an understanding that the old game is over.

Similarly, efforts to lift the floor under workers already in motion should gain new energy. The Republican House leadership won’t even allow a vote on hiking the minimum wage, but Fight for $15 and other movements are winning wage hikes in cities and states across the country. Measures to guarantee paid sick and vacation days and to crack down on wage theft and demand equal pay for women are beginning to move. These efforts—particularly at a time of relatively low unemployment—can help workers gain a greater share of the profits they help to produce.

Obama recently admitted that stronger unions are vital to redressing inequality. Yet he abandoned campaign promises to make labor-law reform a priority early in his administration and has refused to issue an executive order giving union employers priority in government contracting. Union support was central to Clinton’s victory in the primaries. When she takes office in January, activists should join with federal contract employees to demand issuance of a Good Jobs executive order that would encourage firms with federal contracts to respect labor rights. And Democrats at every level of executive office should be pushed to put government on the side of workers.

Finally, populist energy should be directed at curbing obscene CEO pay packages. Academics have exposed the fraudulence of “performance pay” bonuses. Investors bemoan the perverse corporate policies generated by executive efforts to drive up the value of their bonuses. Yet boardrooms haven’t got the message. It is time to turn up the heat. For example, executive compensation rules to discourage Wall Street risk-taking were supposed to have been written nearly five years ago. They haven’t been, and progressives in Congress led by Elizabeth Warren and Bernie Sanders should expose this outrage. Unions, public pension funds, and university endowments should use their votes to challenge excessive CEO compensation packages. Sanders’s Our Revolution might join with other progressive groups in challenging the worst abusers at their annual shareholders meetings.

Inequality remains a defining issue of our time. The advances made under Obama deserve applause, but the real work remains to be done. This presidential season has exposed the growing revolt against business as usual. Now activists must seize the opportunity to build on the energy after November.

This blog originally appeared in ourfuture.org on October 13, 2016. Reprinted with permission.

Robert L. Borosage is the founder and president of the Institute for America’s Future and co-director of its sister organization, the Campaign for America’s Future. The organizations were launched by 100 prominent Americans to develop the policies, message and issue campaigns to help forge an enduring majority for progressive change in America. Mr. Borosage writes widely on political, economic and national security issues. He is a Contributing Editor at The Nation magazine, and a regular blogger at The Huffington Post. His articles have appeared in The American Prospect, The Washington Post, The New York Times, and the Philadelphia Inquirer. He edits the Campaign’s Making Sense issues guides, and is co-editor of Taking Back America (with Katrina Vanden Heuvel) and The Next Agenda (with Roger Hickey).

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More Evidence on Why Inequality Matters

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William SpriggsThe evidence has mounted, and is clearly accepted, that extreme income inequality has grown in the United States over the past 40 years—and by extreme income inequality, I mean a huge imbalance in income growth favoring the top 1% of the population. This is extreme because it is large enough and sufficiently imbalanced growth that it must force a rethinking of economic policies.

Too much of the debate has been taken up on wage disparities between high-tech workers and low-wage service workers, between those who program the robots and those displaced by them. All those debates are limited to understanding the stagnant income growth within those in the bottom 90% of the income distribution. In net terms, those workers have gained nothing.

Unfortunately, however, that framework continues to dominate the global consensus debating solutions to the rising inequality, whether it is from the International Monetary Fund or the Organization for Economic Cooperation and Development, pillars of the so-called troika of policy centers that define neoliberal consensus on best practices for national policy. And, the concerns about inequality echo through the World Bank and the World Economic Forum.

Recent research is pointing to a new direction of understanding why inequality hurts growth. It is based on micro-economic evidence of firm-level success and points to why policies aimed at reversing income inequality are in the interests of businesses at the firm level. By exploiting new big data, economists are modelling a different challenge that inequality creates.

Last year, Simon Gilchrist and Egon Zakrajšek looked at differences in pricing behavior of firms during the recovery from the 2008 recession and uncovered that firms live and die based on their customer base. Growth of the firm is reliant on growth of their customer base. Firms that face stagnant customer base growth and loss of customer base then live or die on the availability of credit and their liquidity. Those firms are fragile. A downturn like 2008 means they face the strongest headwinds, their customer base freezes or shrinks as their incomes fall and their lack of credit from the financial collapse can easily mean they fail, or struggle to hold on by raising prices to their remaining customers.

The macro-economic implications are clear. If the bottom 90% of the income distribution rises by only 0.7%, then there will be a lot of firms facing no growth in their customer base. Another new study this week confirms that. Xavier Jaravel shows that those with low incomes consistently buy the same products year to year. This follows basic economic rationality. Consumers with the same income, assuming fixed tastes and preferences, should be observed buying the same things over time. Having revealed their preferences for goods, if their incomes don’t change, their preferences should also be stable over time. In business terms, they do not present themselves as new customers. So, firms do not chase them. These same consumers, therefore, do not realize any gains from “competitive” markets, fighting through prices to win dominance over new products. Instead, the firms that serve the poor are the firms Gilchrest and Zakrejšek point out must survive on raising prices to hold onto their total revenue during tough times.

The rich, Jaravel found, on the other hand, face great competition for them among firms chasing expanding customer bases. In short, the rich are not poor people with more money. They do have different tastes; as economic theory suggests, rising incomes change people’s tastes and preferences. Economists, in fact, label some goods as inferior goods because as incomes rise, demand for them falls; the rich buy foie gras, not baloney, craft beers, not Bud Light. When firms chase those customers, they compete, and the benefit is falling prices for those goods.

So, there are two distortions that hurt growth when income grows so unequally. First, if income grows equally, then the 127 million American consumer units (households and families that buy things) all become potential new customers. Firms would then chase them, and the competitive dynamics of the market would create new opportunities to grow or create businesses. But, when only 1% have rising incomes, that is a growth of 1.2 million potential new customers. That is a vastly smaller set of opportunities for firms to grow.

Second, it is a limited set of tastes and preferences to go after; it is a market that lacks the scale for creating large numbers of jobs and production efficiencies that come from a mass market of 127 million new customers. This hurts productivity growth, as more jobs are created and aimed at smaller scale production.

So, rather than ask individual firms, “What would a $15-an-hour wage mean in paying their workers?” firms should be asked, “What would a 100-fold increase in their customer base mean?” Most firms are more concerned about the latter, without an understanding of ways to make that happen. But, if the economy is to grow, be dynamic and benefit workers and companies both, companies need to think about what policies make growth more equal.

This blog originally appeared in aflcio.org on May 20, 2016.  Reprinted with permission.

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

 


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Thomas Piketty Ran The Numbers On Income Inequality. Here’s What He Found.

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Bryce CovertSome of the top experts on income inequality released a study of new, more accurate data this week, revealing that Americans in the top 1 percent have done far better than everyone else for the last half century — and why they’ve gotten so far ahead.

At the American Economic Association conference this week, economists Emmanuel Saez, Gabriel Zucman, and Thomas Piketty released their preliminary research that uses a new analysis of tax, survey, and national accounts data. That’s more accurate, they say, than just looking at tax data, which misses huge chunks of the actual income people bring home.

The new analysis disputes previous findings that the bottom 90 percent of Americans have seen a slight decline in income since the late 1970s. Instead, the economists say, their income actually increased slightly, by 0.7 percent annually. But the data still corroborates the story of increasing inequality between most Americans and the richest. The incomes of the wealthiest 10 percent grew faster than everyone since 1980, they found. Worse, incomes for the top 1 percent grew about four times as fast as the bottom 90 percent in the same time period.

The data revealed other disturbing trends as well. Until 1980, income for the bottom 90 percent grew at the same pace as the rest of the economy. But after that point, incomes slowed down while the economy kept growing.

Along the same lines, income among the top 10 percent and the bottom 90 used to grow at about the same rate. But since 1980, it’s grown faster at the top and slower at the bottom.

Part of what’s happening is that the source of the top 1 percent’s income has changed. Up until the late 1990s, most of the growth was driven by the rich getting higher wages. But since then, it’s been driven by capital income — money made from returns on investment. That jibes with a past study that found that lowered tax rates on capital gains income are “by far the largest contributor” to growing income inequality

For everyone else, on the other hand, wage growth is more important to income. But wages for most Americans have been stagnant for the last 40 years, even as economic productivity continued to increase.

Things have gotten bad enough that now the top 10 percent of Americans are taking home about half of all of the country’s income, more than what they captured during the roaring 1920s. And the recession, rather than leveling the playing field, has only made things worse. Between 2009 and 2014, the top 1 percent took home 58 percent of all income growth.

This blog originally appeared at ThinkProgress.org on January 6, 2016. Reprinted with permission.

Bryce Covert is the Economic Policy Editor for ThinkProgress. She was previously editor of the Roosevelt Institute’s Next New Deal blog and a senior communications officer. She is also a contributor for The Nation and was previously a contributor for ForbesWoman. Her writing has appeared on The New York Times, The New York Daily News, The Nation, The Atlantic, The American Prospect, and others. She is also a board member of WAM!NYC, the New York Chapter of Women, Action & the Media.


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Female Executives Aren’t Just Paid Less, They Also Suffer More For Bad Performance

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Bryce CovertThere isn’t just a gender wage gap among the highest-paid employees in the country. Pay for female executives also drops further when companies perform poorly compared to men but rises less during good times.

In a new note about their research, Federal Reserve Bank of New York economists Stefania Albanesi, Claudia Olivetti, and Maria Prados find that if a company’s value drops by 1 percent, female executives’ pay will drop by 63 percent, while male executives only see a 33 percent decline. On the other hand, if value goes up by 1 percent men will get a 44 percent boost but women will only get a 13 percent increase.

This leads to cumulative losses for women but gains for men. The economists looked at pay for the top five executives in public companies — CEO, vice chair, president, CFO, and chief operating officer — in the Standard and Poor’s ExecutComp database between 1992 and 2005. Over that time, women’s pay dropped 16 percent while men’s rose 15 percent. If a company’s value increases by $1 million, male executives will net $17,150 more in compensation but women will only get $1,670. “So, overall,” they write, “changes in firm performance penalize female executives while they favor male executives.”

There is still a tiny number of female executives to begin with. They made up just 3.2 percent of the people in the roles examined by the New York Fed economists, while they account for 4.6 percent of CEOs at S&P 500 companies and a quarter of executive and senior officers. But even so, they are still paid less than their male peers. The New York Fed research found that female executives’ total compensation was just 82 percent of men’s. The highest-paid female executives at S&P 500 companies made 18 percent less than male ones in 2013, and female CEOs made less than 80 percent of what male ones made.

Several prominent female executives have recently demonstrated the severity of the pay gap at the top. Yahoo CEO Marissa Mayer was paid less in her few years than the man who had the job before her and ended up fired. Mary Barra, the first female CEO of General Motors, got a pay package for her first year that was less than half of what the man who had the job before her made, although her long-term compensation package will be higher. The value of that package, of course, will depend on the company’s value over time.

But part of the disparity is the way that female executives get paid in the first place. In their research, the New York Fed economists found that women’s compensation is made up of less incentive pay than men’s, which accounts for 93 percent of the overall gender pay gap among them. The biggest gap is in bonuses: female executives get bonuses that amount to just 71 percent of male executives’. But they also get less in stock options and grants, getting just 84 percent and 87 percent, respectively, of what men get. The gap in stock options alone explains 41 percent in the overall gender gap.

While there’s a gender wage gap at the very top of the economy, it’s part of a problem that follows women in virtually every job. They get lower salaries right out of college and will make less than men at every education level. While many factors go into the gender wage gap, women’s career interruptions to care for children can only explain about 10 percent of it and the most ambitious women will still make less.

This blog originally appeared at ThinkProgress.org on August 26, 2015. Reprinted with permission.

About the Author: Bryce Covert is the Economic Policy Editor for ThinkProgress. She was previously editor of the Roosevelt Institute’s Next New Deal blog and a senior communications officer. She is also a contributor for The Nation and was previously a contributor for ForbesWoman. Her writing has appeared on The New York Times, The New York Daily News, The Nation, The Atlantic, The American Prospect, and others. She is also a board member of WAM!NYC, the New York Chapter of Women, Action & the Media.

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