Students, policymakers, and members of the American public have increasingly acknowledged the crippling impact of student loans for many college graduates. In response, a growing number of schools are offering an alternative financing option to students: so-called “income share agreements.” Instead of taking out a loan and paying it back over time with interest, students with income share agreements (ISAs) commit to pay a fixed percentage of their income for a specified number of years after graduation in exchange for tuition. Under these agreements, graduates may end up paying more than or less than the total amount of funding they received in the first place — their obligation depends on their income.
Although ISAs are still relatively uncommon in the higher education landscape, they are gaining traction with an increasing number of colleges. The most notable participant so far is Indiana’s Purdue University, whose “Back a Boiler” program uses philanthropic donations and funds from the school’s endowment[1] to offer ISAs to hundreds of students. So far, the school’s ISAs have totaled more than $6 million in financing.[2]Other schools endorsing income share agreement programs include Point Loma Nazarene University in California, Lackawanna College in Pennsylvania, and Clarkson University in New York.[3]In addition to colleges and universities, career-focused institutions such as coding schools are also adopting the model.[4]
ISAs are funded either directly by the school or administered by third-party companies such as the Virginia-based start-up Vemo. Proponents say that ISAs give colleges “skin in the game” as far as how their graduates fare after school, because they have an incentive to ensure that students obtain well-paying jobs. The same is true for ISA companies such as Vemo.[5]
But as interest in ISAs grows, there is so far very little legal guidance as to how these agreements should be structured. With more private investors entering this space, public policy should protect participants from unfair terms and facilitate clear, legally legitimate agreements between funders and students. Setting reasonable regulations around income share agreements would also help to develop a robust market for this product and ensure that “bad actors” don’t cripple the market for ISAs before it takes root.
A promising proposal to set a regulatory framework for ISAs is the bipartisan “Investing in Student Success Act of 2017” (S.268), sponsored by Sens. Marco Rubio (R-FL) and Todd Young (R-IN) in the Senate and its companion bill, the “ISA Act of 2017” (H.R.3145), sponsored by Reps. Luke Messer (R-IN), Jared Polis (D-CO), Trey Hollingsworth (R-IN), Jackie Walorski (R-IN), Erik Paulsen (R-MN), Jim Banks (R-IN), Krysten Sinema (D-AZ), and Randy Hultgren (R-IL) in the House. Both bills establish standardized terms for an ISA, including the percentage of income and duration of payment required of the graduate, terms for potential prepayment, and an explicit definition of income. Requirements such as these will ensure the creation of a uniform financial product with legal certainty for both students and institutions.
The Senate and House proposals also establish some protections for graduates regarding their ISA payments. The bills establish a “maximum commitment factor” of 2.25, which is calculated by multiplying the percentage of income required in the ISA contract by the number of years left in the agreement. By capping commitment in this manner, the legislation would prevent lenders from requiring both a very high percentage of income and long duration of payments from graduates. The bills also dictate that graduates will not be required to make any payments during periods of time when their incomes fall below a certain level ($15,000 adjusted for inflation annually in the Senate bill; 150 percent of the poverty line for a single person in the House bill). This is a key component in why ISAs are an appealing financing option for many people: during sustained periods of financial hardship, graduates are protected. The bills also establish an overall maximum commitment level for students who might have multiple ISAs (e.g. for undergrad and graduate school).
While a good start, the bills could also include explicit protections from discrimination in the administration of ISAs. While proponents argue that ISAs would allow more minority and low-income students to be able to afford higher education, skeptics argue that ISA investors could still find ways to discriminate against certain students. Specifically, “one of the major arguments against ISAs is that private investors could refuse to fund certain high-risk pools of students, such as minorities, first-generation students or those pursuing lower-paying careers.”[6]Again, regulation is key here. Through clear terms in legislation, Congress could set expectations about which students can get ISAs on what terms. By emphasizing forward-looking prospects after graduation, ISA requirements can more effectively support students coming from many different backgrounds.
ISAs are not a silver bullet for solving the problem of college affordability. For this reason, PPI has also proposed a “College Finance Innovation Fund” which can help test, evaluate, and bring to scale innovations such as ISAs — as well as other new ideas that emerge. Among other things, such a fund could help support research to examine who gets ISAs on what terms, how these programs impact the ability of low-income students to build a credit history,[7]and what implications ISAs have for the diversity of the federal loan portfolio.[8]
In the meantime, students are eager for alternatives to traditional student loans, and ISAs offer a promising way to help many young people supplement or replace their existing funding for school. Smart regulation can help ensure that ISAs live up to their potential.
America’s official unemployment rate now stands at3.9 percent, which has been cause for much crowing by President Donald Trump. New data, however, belie Trump’s triumphalism on the economy and find that many ordinary Americans are far from confident about their personal economic circumstances.
A new survey by Prudential and Morning Consult finds that just 46 percent of Americans are “hopeful” about their financial security, while 48 percent are “worried” or “very worried.” One in four say they’re saving less for retirement because of their current finances, 27 percent say they’ve taken a second job, and 34 percent say they’ve looked for a new job in an effort to increase their pay.
Fears about retirement security in fact loomed large in this survey, with 72 percent of workers saying they were concerned about their retirement and 80 percent ranking it as the top issue they’d like to see Congress tackle. According to the poll, the principal reasons workers gave for having trouble saving were “daily expenses” (29 percent), housing costs (18 percent), elder care (17 percent) and health care (13 percent).
Why so much anxiety despite nothing but positive toplines on the economy?
One reason is wage stagnation. While corporate profits might be reaching record highs, wage growth has been sluggish. According to the Bureau of Labor Statistics, real average weekly earnings in April were just0.4 percent higher than they were a year ago. Meanwhile, household expenses have been rising at a much faster pace. Average annual premiums for employer-sponsored health insurance, for instance, have risen19 percentsince 2012 and 55 percent since 55 percent since 2007, according to the Kaiser Family Foundation.
A second reason for Americans’ persistent economic anxieties is escalating levels of debt. This week, the Federal Reserve Bank of New York releasednew datashowing an increase in household debt for the 15thconsecutive quarter. As of March 31, U.S. households owed $13.2 trillion, up $63 billion from the fourth quarter of 2017. Student loans were the largest source of debt behind mortgages, outstripping auto loans and credit cards to total $1.41 trillion in the first quarter of 2018.
A third source of household anxiety is growing job insecurity, as mounting numbers of workers enter the “contingent” or “gig” economy. While the precise size of this new economy is under dispute, the Prudential-Morning Consultsurvey found that 27 percent of workers – including 35 percent of millennials – characterized themselves as gig workers and that 30 percent of respondents said someone in their immediate family worked a gig job. Despite their claimed benefits of flexibility and independence, gig work is also seen as insecure – 64 percent of Americans said gig jobs “fail to provide necessary worker benefits.”
Americans’ worries about their finances should also add to the worries of the GOP, which is already highly vulnerable this fall. The President’s much-touted tax cuts have done little to help average families, who might be starting to see the extent to which they’ve been hoodwinked by Trump and GOP promises. Surveys show, for instance, that voters are beginning to pin higher health care costs on Republican recalcitrance over Obamacare – one late 2017survey found that 50 percent of Americans would blame Trump and Republicans if costs increase and people lose coverage, versus 37 percent who would blame Democrats and former President Barack Obama.
Progressives, on the other hand, now have a chance to point out the failures of Trump’s economic plan and offer their own prescriptions for change. At the top of that list should be strategies to help Americans earn their way to greater financial security through better jobs, higher wages and greater opportunities for advancement. One promising blueprint is theeconomic opportunity agendareleased this week by the House New Democrat Coalition, which offers a smorgasbord of creative ideas for improving workers’ skills and ensuring they are well-equipped to thrive in a changing economy. Among other things, the Coalition calls for an overhaul of higher education so that students not only emerge from school with immediately marketable skills but have a chance to upgrade themselves throughout their working lives.
By embracing a forward-thinking agenda that gives Americans a clear path forward and upward, progressives can shift the political winds in their favor and help to defeat the underlying forces that propelled the rise of Trumpism and its destructive policies.
Apple’s introduction of the iPhone in 2007 initiated a profound and transformative new economic innovation. While central bankers and national leaders struggled with a deep financial crisis and stagnation, the fervent demand for iPhones – and the wave of smartphones that followed – was a rare force for growth.
Today, there are five billion mobile broadband subscriptions globally, an unprecedented rate of adoption for a new technology.Use of mobile data is rising at 65 percent per year, a stunning number that shows its revolutionary impact.
The smartphone era helped power Korea’s economic growth over the past decade. Samsung announced its first Android phone in April 2009, eventually becoming the largest smartphone maker globally measured by volume. But the smartphone was about more than hardware. Apple’s opening of the App Store in 2008, followed by Android Market (now Google Play) and other app stores, created a way for iOS and Android developers to write mobile applications that could run on smartphones anywhere.
Despite all the attention it has received in recent years, the cost of college continues to rise at both private and public institutions across the United States.
According to data from the College Board, average tuition and fees for a public four-year college is $20,770 if in-state or $35,420 for out-of-state, and $46,950 for private, non-profit institutions. This represents increases of 13, 12, and 15 percent respectively since 2014, when the Progressive Policy Institute (PPI) first called for institutions of higher learning to make a three-year bachelor’s degree the norm and cut the cost of college by 25 percent.
American college students are facing a triple whammy – out-of-control college costs, record levels of student debt, and declining real earnings for college graduates. Yet politicians from both the left and the right have done nothing to fix the problem. Republicans actually proposed cutting student aid during the debate over tax reform. Meanwhile, some Democrats are pushing “free college,” which – while well intentioned – would do nothing to restrain the rising cost of college (in fact, just the opposite) or ensure Americans access to the best colleges and universities.
In 2017 the tech/telecom sector continued to outperform the rest of the economy, on all relevant measures: Output, productivity, hours, and prices.
I analyzed the BEA’s initial release of industry GDP datafor 2017, and combined it with BLS hours data. For the tech/telecom sector, I used computer and electronic products manufacturing; warehousing and storage (ecommerce fulfillment centers);publishing industries, including software; broadcasting and telecommunications; data processing, internet publishing, and other information services; and computer systems design and related services.
I found that in 2017, the tech/telecom sector showed 4.9% real output growth, more than double the 2.3% growth for the rest of the private nonfarm economy. Productivity growth in the tech/telecom sector was running at a strong 2.4% rate, compared to a meager 0.3% for the rest of the private nonfarm economy.
In 2017 worker hours in the tech/telecom sector grew by 2.5%, somewhat faster than the 1.9% gain in the rest of the economy. And finally, prices dropped in the tech/telecom sector, compared to an increase of 2.1% elsewhere.
Decomposing the price decline in the tech/telecom sector is particularly interesting. Historically hardware prices have declined sharply, but that’s not the main reason here. According to the BEA, the price change for value-added in the computer and electronics manufacturing industry was only -0.6% in 2017.
Instead, the main contributors to declining prices in the tech/telecom sector were broadcasting and telecommunications ( -2.2%); data processing, internet publishing, and other information services (-1.3%); and computer systems design and related services ( -0.3%). These figures are drawn right from BEA data.
Conclusion: Simple common sense says that if you own one car that’s broken down and another that makes weird noises but is still running well, you focus on fixing the broken-down vehicle first. The tech/telecom sector has some worrisome issues, but it’s still delivering value to both customers and workers. Meanwhile the rest of the economy has some bright spots, but overall most of those industries are stuck in the garage.
With productivity growth only running at 0.3% in the nontech private nonfarm economy, it’s little wonder that real wage growth has remained low across most of the economy. We need to digitize the physical industries to raise productivity and create more and better paying jobs.
As the party out of power, Democrats have the luxury of thinking big as they consider how to topple President Donald Trump in 2020. Bold, ambitious ideas are what the party sorely needs if it is to capture voters’ attention and woo them from Trump’s corrosive grip.
But if Democrats are to craft a winning agenda for 2020, bigness and boldness alone are insufficient; political feasibility and substantive plausibility are also necessary ingredients. That’s why the latest big and bold idea catching the eye of potential 2020 contenders – a federal jobs guarantee – is ultimately a disappointment.
Touted by advocates as a way to achieve “permanent full employment,” the notion of a federally guaranteed job for anyone who wants one has won support from three rumored presidential hopefuls so far, including New YorkSen. Kirsten Gillibrand, Vermont Sen. Bernie Sanders and New Jersey Sen. Cory Booker. Last week, Booker revealed draft legislationto pilot a federal jobs guarantee program in up to 15 localities nationwide, while Sanders has floated a much more ambitious national planfocused on public works projects at a scale not seen since the Great Depression. Under both proposals, participants would earn wages of up to $15 an hour, along with benefits such as paid family and sick leave and health insurance. “There is great dignity in work – and in America, if you want to provide for your family, you should be able to find a full-time job that pays a fair wage,” said Booker in a press release announcing his effort.
Booker’s endorsement speaks to the inherent surface appeal of a jobs guarantee. To borrow President Bill Clinton’s famous formulation, Americans who “work hard and play by the rules” deserve a shot at self-sufficiency, and the promise of work for all who want it invokes Americans’ innate sense of fair play. Proponents also rightly point out stark disparities in employment between certain groups, the result of discrimination and other structural barriers that guaranteed access to meaningful employment could arguably remedy.
Unfortunately, the idea also suffers from a variety of fatal defects, including its size, timing and relevance and any number of practical obstacles that make it administratively unworkable as well as politically untenable. For one thing, it rests on the dubious assumption that the American electorate – at a time when public cynicism and distrust toward government remain at all-time highs– is ready to embrace a dramatically expanded role for the federal government as the nation’s largest staffing agency and employer. More fundamentally, the idea betrays a deep lack of faith in the inherent resilience of the American economy and its people to weather disruption and change. Most Americans don’t share the left’s inordinate confidence in government’s ability to engineer shared prosperity from the top down. Aggressive advocacy of a panacea like government guaranteed jobs can only reinforce public impressions that progressives will always default to “big government” as the solution to complex economic problems.
While a federal jobs guarantee certainly passes the “bigness” test, its very bigness is a central conceptual weakness, at least in the current political environment. It is far too large a hammer in search of a nail.
According to the leading proposal for a national guaranteed jobs program, it would cost roughly $543 billiona year to create 10.7 million new federal jobs covering every worker unemployed or underemployed in January 2018 (a figure known as “U.6”). That would put the number of job guarantee participants at nearly five times the size of the entire current federal workforce.
It’s hard to fathom why proponents believe there is public appetite for a jobs program of this scale today, especially given that the nation’s official unemployment rate is at its lowest in nearly 20 years, employers in many places are complaining of worker shortages, the economy is set to grow at a solid pace and fears of inflation are currently preoccupying central bankers and financial markets. And even though workforce participation is lowerthan it could or should be compared to historical standards, the magnitude of unemployment and underemployment is nowhere near what it was the last time a massive federal works program was proposed and implemented, which was during the Great Depression. Then, unemployment rates were running at upwards of 15 to 25 percentwhile the private sector was wholly crippled.
Though some proponents might imagine an automation apocalypse that could ultimately throw millions of Americans out of work, talking about a national jobs guarantee program now is, at best, still wildly premature. Moreover, even if such a circumstance should occur, it’s far from settled that Americans would prefer a large-scale public jobs program over other strategies to manage economic disruption, including, heaven forfend, their own abilities to learn new skills and adapt to change.
A second and more serious conceptual flaw with a jobs guarantee is that it seeks to solve the wrong problem. While the lack of jobs is a continuing concern for some groups in some areas and absolutely should not be overlooked, the biggest malady ailing the middle and working classes isn’t so much the quantity of jobs as their quality – in the form of stagnant wages, declining benefits and the loss of stability and security. In this context, a national jobs guarantee program isn’t just too big a hammer, but the wrong tool altogether.
Though wages are finally ticking upward, the long-term trend toward stagnation is still far from being erased. The Brookings Institution, for example, reports that real wages for the middle quintile of workers grew by only3.4 percent between 1979 and 2016, while labor’s share of national income has also steadily fallen despite healthy corporate profits. More Americans are also losing access to traditional employer-provided benefits, such as health insurance. At the same time that the share of employers offering health insurance has dropped by 10 percentage points since 1999, according to the Kaiser Foundation, more Americans are finding themselves to be no longer employees at all but members of the ever-precarious “gig economy.”
Though wages are finally ticking upward, the long-term trend toward stagnation is still far from being erased
Especially vulnerable are the workers with the least amount of education, the one group that has remained consistently underemployed despite rising fortunes for others. In March, for instance, just 44 percent of Americans without a high school diploma were working, compared to 72.6 percent for college graduates. While a jobs guarantee program could potentially help some of these less-educated workers, a big question is why they should be shunted to relatively low-skilled public jobs rather than given the opportunity to increase their skills and compete for skilled openings currently going begging.
As for the question of wages, proponents of a job guarantee argue their plan would put upward pressure on wages by forcing private sector employers to compete for workers. This argument, however, rests on a very large and unproven assumption: that enough workers would in fact prefer a “public option” over private sector work to create that pressure. Many workers, for instance, might choose a lower-paid private sector job in the short term with the potential for advancement in the future, rather than a public job capped at $15 an hour into perpetuity. In any event, the potential impact on private sector wages would be indirect at best when other, more targeted ideas could have broader impact on workers’ incomes and financial security.
Even setting aside the conceptual and political weaknesses of a federal jobs guarantee, any number of practical obstacles could also prove insurmountable.
For instance, one such practical question is the kind of jobs government would provide. Booker’s proposal, for instance, imagines that participants would work in fields that are “currently under-provided, like child and elder care, infrastructure, and community revitalization.” What’s not clear, however, is how the government will gauge demand in a particular sector so it will know how many workers to deploy. Also unanswered are where and how to place them. These are not questions in which the federal government has a proven track record, particularly given the limited successof the more than 40 employment and job training programs the federal government already administers. If, for example, the government miscalculates and produces a surplus of elder care providers in a community with an insufficient number of potential patients, what would these workers do?
The new corps of government workers will not be fungible from one field to another, given the skills required for each of these professions, as well as licensing and other requirements. Workers cannot be working in a nursing home on one day and on a road crew the next, depending on demand.
A second set of practical concerns involves the role of the private sector and the effect these new federal workers would have on labor markets. While job guarantee advocates seek to create a new “floor” in the labor market and prompt the private sector to raise its own wages to compete for workers, it’s not clear that this is, in fact, what would happen. What could occur, however, is the displacement of private sector providers of child care, elder care and other services if the federal government ends up competing directly with existing employers. While some may not find this outcome objectionable if big companies were the ones to face the most pressure, the reality is that small businesses – such as home-based day care centers – are the least likely to survive in the face of government competition.
A third set of worries involves the preparation of workers for the jobs they would be asked to do. Current job guarantee proposals seem to assume that anyone who wants a job also has the skills and capacity to perform it, which is unrealistic. While the simple lack of available work might be all that stymies many workers, many other Americans who want to work face far more serious barriers, including the lack of skills, mental and physical disabilities that limit their capacity, caregiving obligations, mental health concerns or other issues that will need to be overcome if full-time employment is to be a reality.
Barriers like these are especially problematic if a federal work program is focused on infrastructure projects, as Sanders proposes. Though liberals romanticize the Civilian Conservation Corps and other Depression-era federal work efforts, infrastructure jobs often involve physically demanding outdoor labor in all sorts of weather, along with grueling hours. They are not for everyone.
One way to gauge the scope of the challenge around potential participants’ employability is to examine the ranks of workers “marginally attached” to the workforce, defined by the U.S. Bureau of Labor Statistics (BLS) as those who want to work and have looked for work in the last 12 months or those available to work but who have not searched for work in the last four weeks. These workers would presumably be prime targets for a federal jobs guarantee program.
Among the 1.59 million workers considered “marginally attached” in 2017, less than a third reported being “discouraged over job prospects,” while the vast majority cited other reasons for not being in the labor force, such as the lack of child care or transportation, “ill health or disability,” and family responsibilities.
If the purpose of a federal jobs program is to provide safety net employment for workers who cannot otherwise find private sector jobs, such an effort cannot succeed unless it also helps workers overcome the very barriers that made private sector work tougher for them to attain. This means the government not only needs to provide jobs, it needs to provide training so that workers can competently perform the work they’re given; affordable child care and transportation; remedial help if necessary with basic literacy and numeracy as well as so-called “soft skills”; mental health services and other accommodations. All of these are immensely complex, expensive and time-consuming services. But if the federal government is not willing to provide or at least subsidize these services, the “guarantee” of a job is meaningless unless there is some assurance of a worker’s potential success. And even then, there are a host of unanswered questions about the worker’s end of the bargain. Can a worker with a guaranteed job be fired? What if an employee is guilty of malfeasance or simply can’t perform? What rights and duties does a “guarantee” create?
Finally, there is the consideration of cost.
As mentioned above, the large-scale national job program envisioned by its leading proponents would cost $543 billion, or 3 percent of GDP, to employ 10.7 million people. This translates to a per-worker cost of $50,747 a year – or just slightly below the median household income in 2016 of $57,617. By comparison, federal spending on Social Security totaled $922 billion in 2016 while benefiting 61 million people, a relative bargain by comparison.
The $543 billion figure is also situated in the context of relatively low unemployment. At the height of the recession in 2010, the total share of workers unemployed and underemployed (“U.6”) was 17.1 percent, meaning that the cost of a federal jobs program could expect to double in a downturn, to more than $1 trillion a year.
Spending of this magnitude would crowd out spending on a host of other priorities that might be better suited to building human and social capital, such as improving early childhood and K-12 education, expanding health care or making college and occupational training more affordable. Worse yet, funding for a federal jobs program could come at the expense of other safety net programs supporting children, disabled Americans and others who cannot work. As Ernie Tedeschi, an economist who served under President Barack Obama recentlytold The Washington Post, “It would be extremely expensive, and I wonder if this is the best, most targeted use of the amount of money it would cost.”
At the same time that a federal jobs guarantee program is too big, it paradoxically also aims too low. Federally provided jobs are unlikely to be the kind of jobs that people want, nor would there necessarily be a path to upward mobility for those relegated to this work. While a federal jobs program might promise the dignity of work for all, what is delivered could still be work without dignity.
As envisioned by its advocates, the kinds of jobs the federal government could provide includesuch tasks as “the repair, maintenance, and expansion of the nation’s infrastructure, housing stock, and public buildings,” “assistance with ecological restoration,” “engagement in community development projects,” as well as jobs in child care, education and senior care.
Compared to the private sector, the federal government is relatively ill-suited to the task of creating jobs that demand workers’ creativity, innovation and commitment
While there is value in all of this work, the ranks of America’s unemployed and underemployed deserve better. Compared to the private sector, the federal government is relatively ill-suited to the task of creating jobs that demand workers’ creativity, innovation and commitment, that best fit the needs of the local and national economy at any given time and, importantly, are self-sustaining.
With many fewer dollars than a jobs guarantee program would cost, the federal government should invest in other, more effective ways to spur the creation of high-quality jobs, prepare workers for well-paying careers with opportunities for advancement and supplement the wages of the working poor.
Among the myriad of possibilities for increasing incomes is to expand the federal Earned Income Tax Credit for low-wage workers, in combination with raising the minimum wage, as Isabel Sawhill and Quentin Karpilow of the Brookings Institution recommend. Another possibility is to eliminate the payroll tax, which falls most heavily on low-wage workers as well as the self-employed, and replace it with a broad-based value-added tax (VAT) of the kind adopted in most European countries or a carbon tax, which would have the additional benefit of combating climate change.
Another option, which PPI has endorsed, is to help workers earn better wages by expanding the availability of Pell grants to students pursuing high-quality occupational credentials in IT, advanced manufacturing and other “new-collar” careers where demand is growing. This idea would allow older, lower-income and displaced workers who do not want or cannot afford to go to college with an alternative means of upgrading their skills. Government should also invest heavily in rural broadband to expand digital opportunity to all corners of the country and help rural areas decimated by the loss of manufacturing and mining jobs reinvent themselves and attract new industry. Government could also encourage new models of corporate governance and ownership, such as the “benefit corporation” model PPI has embraced, or the expansion of employee stock ownership plans (“ESOPS”), that would ensure that more of the fruits of economic growth flow to workers.
The advocates of guaranteed jobs have their finger on the right problem: far too many Americans are suffering from the maldistribution – or outright denial – of economic opportunity. But by making work a right – as a guaranteed job would do – the government would also paradoxically be diminishing its value. The fundamental nature of the American character is to strive, to achieve – and to earn. What the government should guarantee, then, is not a job but the means and opportunity for all Americans to attain their aspirations to the fullest.
Apple’s introduction of the iPhone in 2007 initiated a profound and transformative new economic innovation. While central bankers and national leaders struggled with a deep financial crisis and stagnation, the fervent demand for iPhones – and the wave of smartphones that followed – was a rare force for growth.
Today, there are five billion mobile broadband subscriptions, an unprecedented rate of adoption for a new technology.1 Use of mobile data is rising at 65 percent per year, a stunning number that shows its revolutionary impact.2
More than just hardware, the smartphone also inaugurated a new era for software developers around the world. Apple’s opening of the App Store in 2008, followed by Android Market (now Google Play) and other app stores, created a way for iOS and Android developers to write mobile applications that could run on smartphones anywhere.
Apple’s introduction of the iPhone in 2007 initiated a profound and transformative new economic innovation. While central bankers and national leaders struggled with a deep financial crisis and stagnation, the fervent demand for iPhones – and the wave of smartphones that followed – was a rare force for growth.
Today, there are five billion mobile broadband subscriptions, an unprecedented rate of adoption for a new technology.1 Use of mobile data is rising at 65 percent per year, a stunning number that shows its revolutionary impact.2
More than just hardware, the smartphone also inaugurated a new era for software developers around the world. Apple’s opening of the App Store in 2008, followed by Android Market (now Google Play) and other app stores, created a way for iOS and Android developers to write mobile applications that could run on smartphones anywhere.
Summary: The new “median employee pay” statistics tell us very little about pay. However, they do illuminate the future of economic statistics.
The median center of the United States population, as calculated by the Census Bureau, is Pike County, Indiana, in the rural southwest corner of the state. A visit with a resident of Pike County, with a density of 38 people per square mile, might tell you something important about the rural Midwest, but it wouldn’t give you any insight into Silicon Valley or New York City.
That, in a nutshell, is the problem with the new “median employee pay” figures that companies are now required to publish. These figures provide us with some useful pieces of information that were hidden before. It’s interesting to know that the median employee at GE, for example, earns $57,211 per year, while Ford’s median employee receives $87,783.
But we’re learning that “median employee pay” for a company has a lot more to do with geographic scope and the nature of the corporate business model than with the actual level of pay in the company. For example, median employee pay at megabank Citigroup is $48,249, while median employee pay at Bank of America is $87,115. Does that mean that comparable workers get paid twice as much at Bank of America? No, it merely reflects that two-thirds of Citigroup employees are outside the United States, many in lower-wage countries. By contrast, Bank of America’s business is mostly focused in the US.
Another odd set of numbers comes out of the utility industry. Median employee pay at The Southern Company, a gas and electric utility employing 31,000 workers in 34 states, was reported at an eye-popping $138,000. Meanwhile, the AES Corporation, with three-quarters of its operations outside the US, reported median employee pay of $49,229. These two numbers tell us nothing, however, about pay for comparable workers.
A different set of issues arises in retailing. The need to staff weekend and evening hours means that many retailers employ a large number of part-time workers to cover off-hours. Similarly, the annual surge in holiday shopping requires hiring an enormous number of seasonal workers. Moreover, there’s a large amount of turnover in the retail industry, which means that many workers hired for a permanent position may not have been working for that employer for a full year at the time when the count is made.
As a result, the reported median employee pay for most retailers is not directly comparable to other sectors of the economy. For example, Macy’s reports median employee pay of $13810, as of October 29, 2017. That number reflects the reality that 54% of its workers are part-time or seasonal. Similarly, Walmart is reporting median pay of $19177, and Loew’s is at $23905. Amazon reported a median employee pay of $28446, and Nordstrom’s median pay is at $30105.
Meanwhile, Connecticut-based tech manufacturer Amphenol, a major global designer and manufacturer of electronic products such as fiber optic connectors, reported median pay of only $12179. But as the company points out in its proxy, that’s because the majority of its employees are in low-wage countries. However, its US employees have a median pay of $54532.
Indeed, in the bigger picture, the data on employee median pay is telling us something important about the ongoing changes in economic statistics. Today, economic and labor statistics mainly come from government statistical agencies. These agencies mainly do expensive surveys which cover the whole country. These surveys are carefully curated and standardized, and systematically designed to be comparable over time and across the economy. The national unemployment rate and inflation rate come from surveys such as these, which were originally designed in the middle of the 20th century.
However, these surveys are increasingly expensive and often lag changes in the economy. Moreover, it’s getting hard to justify sending out teams of interviewers when companies have so much business data on their servers already.
As a result, going forward, economic statistics will be based much more heavily on “organic” data, generated in the normal process of doing business. That’s good news and bad news. The good news is that information technology allows companies to generate new types of economic data that weren’t possible before. Median employee pay, for example, would have been prohibitively expensive to require as recently as ten years go. Most companies just didn’t have the global pay databases that would allow them to do these kind of calculations.
The bad news is that these new types of data—such as median employee pay—may not be comparable across companies, either because they use different calculation methodologies or because different companies have objectively different business models. The median employee in a global company with large operations around the world is very different than the median employee of a company whose operations are based solely in one region of the United States.
The danger is that journalists and politicians treat these new types of organic data as if they were the old type of government-curated statistics. They are not. Comparisons of median employee pay across companies tell us more about how the companies are organized and about their industry than they do about the level of pay.
To put it a different way: If you had a magic wand and could ask corporations to produce one new statistic about their operations, you likely would not have asked for “median employee pay.”
Earlier this week, we publisheda blogexploring the relationship between budget deficits and unemployment under both Democratic and Republican presidents over the last 40 years. Our analysis found that deficits under Democratic presidents rose and fell with unemployment (which is what should happen when adhering to responsible counter-cyclical fiscal policy), while deficits under Republican presidents did not. Moreover, we found that deficits under Democratic presidents were consistently lower than those under Republican presidents facing comparable economic circumstances. Below is a chart depicting the data upon which our analysis was based:
Following the blog’s publication, alively discussionensued on Twitter over how much credit a president deserves for the fiscal situation on their watch. Marc Goldwein of the Committee for a Responsible Federal Budget and Brian Riedl of the Manhattan Institute rightly pointed out that Congress plays a major role in crafting federal fiscal policy and should be taken into consideration when adjudicating fiscal records by party.
As a result, we decided to make a second chart that focused on partisan control of Congress instead of the White House. The underlying data is the same as the chart above, with the exception of projections for 2019 and 2020, which were removed because nobody knows what the composition of Congress will look like after this year’s midterm elections. (We considered doing a third chart that combines the partisan composition of both the presidency and Congress, but there weren’t enough data points for every possible permutation to draw any reasonable conclusions.)
The chart above shows that, under comparable economic circumstances, deficits under divided Congresses have generally been slightly lower than deficits under unified Congresses. The chart also shows that deficits under unified Congresses have been roughly identical in level regardless of which party is in control. But there is one key way in which the partisan control of a unified Congress matters: when at least one chamber of Congress was controlled by Democrats, budget deficits have historically had a modest correlation with unemployment. When Republicans were in full control of Congress, however, deficits have had little to no relationship with the unemployment rate.
This finding appears to reinforce our conclusion from theprevious blog: under Democratic governance, budget deficits have been consistent with responsible counter-cyclical fiscal policy. Under Republican governance, they have not.
There are many possible rationales for why Democrats appear to have a better budgetary track record than Republicans. Goldweinhypothesizedthat “Republican Congresses make Democratic presidents their best (fiscal selves) while they enable Republican presidents to be their worst fiscal selves.” David Leonhardt of the New York Times, whosecolumnlast the weekend inspired PPI’s first analysis,suggestedthat although this phenomenon may have some effect, there have also been instances (specifically in the early years of the Clinton administration) in which Democrats pursued responsible fiscal policy of their own volition that cannot be explained by this “external pressure” theory.
Regardless of the reason, there is relatively strong evidence that the federal budget over the past 40 years has been more responsibly managed under Democrats than Republicans – at least in the short term. Riedlnotedthat our analysis ignores the impact of policy changes implemented under a president (or Congress) that are inexpensive in the short term while costing more in later years. A cursory review of the record suggests to us that Democrats would likely still come out ahead under this metric over the past 40 years, but for now it remains a very real blind spot we hope to address at some point in the future when we have more time to compile and analyze the data.
Another good point Riedl made is that the biggest contributor to long-term budget deficits is the rising cost of social insurance programs that were created by Democratic administrations more than 40 years ago. These programs, the largest of which are Social Security and Medicare, are growingroughly twice as fast as the economyas more and more baby boomers move into retirement and begin collecting benefits. Other categories of federal spending, meanwhile, areprojected to shrinkrelative to the size of the economy.
Although Democrats have generally been the more fiscally responsible party since the Carter administration, they still need to present voters with a credible plan for making their social insurance legacy from earlier years more fiscally sustainable. Doing so would cement theirrecent superiorityon the issue of responsible fiscal stewardship and save young voters – akey componentof the Democratic Party’s base – from being buried under a mountain of debt.
Low unemployment rates mask soft spots in the job market, especially among rural Americans and minorities.
For the last several months, Republicans have been resting on the laurels of positive job growth and low unemployment—proof, they say, of the Trump economy’s strength. In March, the nation’s official jobless rate stood at 4.1 percent, the lowest it’s been since the peak of the Great Recession and a level that many economists say is at or approaching “full employment.”
Certainly on paper, the labor market looks to be nearly as tight as it was during past expansions, such as during the boom of the late 1990s and early 2000s. In reality, however, the low official unemployment rate masks some serious weaknesses in the economy, including in the parts of the country that are the strongholds of Trump’s support.
Rural job growth, for example, is lackluster in comparison to that of cities. And while college graduates and the highly-skilled are in demand, minorities and lesser-skilled workers are still struggling. The share of people actually participating in the labor market is also significantly lower than in the past, including among “prime-age” adults between the ages of 25 and 54 who are the backbone of the job market. Simply put, fewer Americans are working or even looking for jobs. This means the decline in jobless rates reflects to some extent a shrinking pool of Americans looking for work.
On Thursday, House Republicanswill voteon aconstitutional amendmentproposed by Rep. Bob Goodlatte (R-VA) that would require the federal government to balance its budget every year. The vote, which is virtually guaranteed to fall short of the two-thirds super majority necessary for passage, is nothing more than a cynical ploy to give the party of debt and deficits a veneer of fiscal responsibility while they make no serious effort to earn it. Anyone who is truly concerned about soaring deficits should ignore this distraction and focus on the real record of the Republican-controlled Congress.
In December, the same House Republicans who now ostensibly want to reduce budget deficits championed a partisan tax cut that instead grew the gap between revenue and spending by $1.9 trillion over 10 years. In February, they voted to increase deficit spending by roughly $400 billion over two years. As if more than $2 trillion of additional deficits over two months wasn’t enough, Republicans are hoping to pile on even more borrowing later this year withyet another roundof tax cuts. On our current path, deficits over the next decade could total$15 trillion.
Closing this gap through spending cuts alone, as most Republicans would presumably seek to do, would require lawmakers to immediately and permanently cut more than one-quarter of all non-interest spending. If they sought to exempt defense spending or entitlement programs such as Social Security, the cuts to non-exempt programs would need to be even deeper. Simply mandating the budget be balanced doesn’t liberate policymakers from the painful trade-offs required to make it happen.
Should Congress and the president fail to adopt the policy changes necessary to comply with the balanced budget amendment of their own volition, there is no enforcement mechanism in the Goodlatte proposal to compel them. Ill-equipped courts would inevitably be asked to determine national economic policy that should be crafted by the legislative and executive branches.
The Republican crusade for this poorly crafted amendment is particularly dubious considering that most economic experts, including those who are sincerely and deeply committed to promoting fiscal responsibility, don’t believe in the necessity of a balanced budget. Small deficitscan be sustainableas long as the debt burden that finances them is growing slower than the economy. For this reason, most informed deficit hawks believe the goal should be to stabilize and reduce the debt as a percentage of gross domestic product rather than to balance the budget.
In fact, requiring a balanced budget in every year could be quite harmful if it prevents the government from using temporary borrowing to stabilize the economy during a downturn. The Goodlatte proposal would only allow spending to exceed revenue in a given year if supported by a three-fifths super majority in both the House and the Senate. When economic output falls, this onerous requirements would make it incredibly difficult for the federal government to maintain even pre-recession spending levels, let alone provide the kind of economic stimulus necessary to prevent a recession from turning into a deep depression.
The sole reason House Republicans are pushing this half-baked proposal now is to give themselves a fig leaf to cover their shameful legislative record. When Congress returned to Washington yesterday, the Congressional Budget Office greeted them with updated projections showing federal budget deficits that weretrillions of dollars higherthan those projected last year. Republicans hope their constituents will ignore thereal damage they’ve doneto our nation’s finances if they merely affirm their support for balancing the budget in principle.
Democrats and deficit hawks shouldn’t let the GOP off the hook so easily. They should repudiate this meaningless show vote and demand Congressional Republicans either put up or shut up. Making our fiscal policy sustainable requires real solutions; the proposed balanced budget amendment is nothing more than a sham to avoid them.
This post has been updated to reflect that the version of the amendment being voted on is different than the version Rep. Goodlatte posted on his website last week. That version, which can still be foundhere, would have also required a three-fifths super majority in both chambers to raise additional revenue and an even larger two-thirds super majority to authorize spending more than one fifth of economic output.
Ecommerce has been a major job creator for less-educated workers, at a time when many of their traditional positions have been disappearing.
Between 2007 and 2017, overall US employment of workers with at least a high school diploma and less than a bachelor’s degree dropped by almost 1 million jobs. That’s according to our tabulation of the Current Population Survey.
However, ecommerce leaders such as Amazon, Walmart, and Chewy.com have been bucking that trend by building fulfillment centers that employ large numbers of workers without college degrees. The ecommerce industries–electronic shopping, warehousing, and couriers and messengers–created jobs for roughly 270,000 less-educated workers between 2007 and 2017. Most of those gains have come in the past three years.
These workers are tech-enabled–they do not have college degrees, but they work closely with robots and other technology. As a result, as we have shown, real wages for production and nonsupervisory workers in the warehousing industry have been rising rapidly. Real hourly earnings for production and nonsupervisory workers in the warehousing industry are up by 6% over the past year
By comparison, brick-and-mortar retail companies have reduced their employment of less-educated workers by roughly 100,000 over the 2007-2017 stretch. That means ecommerce plus brick and mortar retail combined have been a net plus for less educated workers. (Note that our analysis intentionally omits workers who do not yet have their high school diploma).
The next generation lost a champion today with the passing of Peter G. “Pete” Peterson. While many leaders proselytize against debt and deficits when it’s politically convenient, Pete was one of the few whose concern for our nation’s fiscal future was truly sincere. For decades, he consistently advocated for using a responsible combination of spending cuts and tax increases to minimize the burden being placed on young Americans by a growing national debt. Pete worked respectfully with both Democrats and Republicans in pursuit of these solutions, making him a paragon of civility and bipartisan pragmatism in an era where such traits seem to be in short supply.
In addition to his advocacy, Pete was well-known for his philanthropy. In 2008, Pete donated half of his fortune to start the Peter G. Peterson Foundation. The foundation has contributed to think tanks across the political spectrum and offered educational and professional opportunities to young Americans of all ideological stripes. Many leaders talk of empowering the next generation but Pete actually did so. Our condolences go out to Pete’s family, his staff, and the broader budget community during this difficult time.
Although February’sbipartisan budget dealsignificantly increased discretionary spending, the portion of the federal budget appropriated annually by Congress remains near record-low levels. Both defense and non-defense (domestic) discretionary spending are falling relative to the size of the economy – a trend that has serious long-term implications for our nation’s ability to make critical public investments that strengthen the foundation of our economy.
Domestic discretionary spending is the category of federal spending that encompasses virtually all non-defense, non-entitlement programs. These programs include critical public investments such asinfrastructureandscientific researchthat provide long-term benefits to our society. It is also the part of the budget that Congress has the flexibility to use for addressing unexpected crises such as natural disasters and economic downturns. Reducing the resources available for domestic discretionary spending thus risks jeopardizing many core government functions and the future health of our economy.
Unfortunately, that’s exactly what policymakers have been doing in recent years. TheBudget Control Act of 2011capped both categories of discretionary spending as part of a broader effort to reduce future deficits. When Congress failed to reach a bipartisan agreement on taxes and other categories of federal spending, the BCA automatically triggered an even deeper, across-the-board cut to discretionary spending known assequestration. While the sequester has been liftedseveral timessince it first took effect, discretionary spending consistently remained far below the original BCA caps.
That trend ended with theBipartisan Budget Act of 2018. This budget deal not only lifted discretionary spending above sequester levels – it also wentabove and beyondthe original BCA caps for two years. Nevertheless, projected domestic discretionary spending for Fiscal Year 2019 is significantly below the historical average as a percentage of gross domestic product. Moreover, even if policymakers extended these policy changes beyond the two years covered by the BBA, we project that domestic discretionary spending could fall to just 3 percent of GDP within the next decade – the lowest level in modern history.
The story is similar for defense spending. Thanks to the pressure put on by the sequester, defense discretionary spending fell to just under 3.1 percent of GDP in FY2017. Under the BBA, defense spending would increase to 3.4 percent of GDP in FY2019 before falling again. Unlike domestic discretionary spending, however, defense would remain above the all-time low it reached before the 2001 terrorist attacks throughout the next decade.
None of this is to say that policymakers should abandon any semblance of fiscal discipline when it comes to discretionary spending. The budget deal set domestic discretionary spending levels above those requested inPresident Obama’s final budgetwhile also setting defense spending above thelevels requested by President Trump. This fact suggests that the immediate spending increase was more than either party really needed to fund its priorities. Sharp spending increases without a clear purpose are more likely to lead to waste as government officials lose the incentive to make tradeoffs and efficiently target taxpayer resources.
Moreover, thebudget challengesthat led to the original imposition of the Budget Control Act remain serious. PPIcriticizedthe BBA because we believe that any spending increase above the original BCA caps – which were meant to be a down payment on much-needed fiscal discipline – should be offset so as not to further exacerbate the nation’s already ballooning budget deficit. Thanks to both it and other recently enacted legislation, the federal government is now running an annual budget deficit thatmay neverfall below $1 trillion again.
But when policymakers are ultimately forced to confront the nation’slong-term fiscal challenges, they should focus their efforts on the tax code and non-discretionary programs that are growing on auto-pilot faster than the economy. Discretionary spending isn’t the main driver our budget deficits, and most of the savings achieved by cutting internal waste should be redirected towards more beneficial public investments. A great nationinvests in its futureand cutting those investments too deeply will only hurt us in the long run.
U.S. social policy traditionally has emphasized supporting income for low-income families, to the neglect of wealth-building strategies.1 While income supports are essential for covering daily expenses, upward mobility depends on saving and building personal assets, especially completing post-secondary education, purchasing a home, or creating a business.2
Moreover, inequality of wealth in America is worse than income inequality. That’s why it’s time for a new approach to empowering low-income and working Americans. U.S. social policy in the 21st century should stress social investment and wealth creation, not just income transfers to support consumption. This report proposes a new policy – American Development Accounts (ADAs) – intended to help younger workers and blue-collar households rise into the middle class by enabling them to save and accrue assets.
The story is similar for defense spending. Thanks to the pressure put on by the sequester, defense discretionary spending fell to just under 3.1 percent of GDP in FY2017. Under the BBA, defense spending would increase to 3.4 percent of GDP in FY2019 before falling again. Unlike domestic discretionary spending, however, defense would remain above the all-time low it reached before the 2001 terrorist attacks throughout the next decade.