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October 2016, Volume 22, Number 4

Labor, H-1B

Job growth resumed in summer 2016, with employment rising by 292,000 in June and 255,000 in July, but only 151,000 in August and 156,000 in September, when the unemployment rate was five percent. Economists estimate that employment must rise by 85,000 a month to absorb the growing US labor force. The US added an average 230,000 jobs a month in 2015, and an average 185,000 a month in the first seven months of 2016.

The federal minimum wage has been $7.25 an hour since 2009, but many states and cities have higher minimum wages. Since the 1930s, the real value of the federal minimum wage has ranged from $4 to $11 an hour in 2016 dollars.

Some cities and counties are raising minimum wages, most notably Seattle, whose minimum wage will rise to $15 in 2021. Half of the states have responded to higher city minimum wages with laws that pre-empt local governments from enacting labor laws, setting up a clash between "progressive" cities and "conservative" legislatures.

Groups involved in the "Fight for $15" held a meeting August 12-13, 2016 to raise the wages of the 64 million workers they say are paid less than $15 an hour. Fight for $15, founded and supported by the SEIU in 2012, says that its efforts have put 10 million low-paid workers on the path to $15 wages. Starbucks promised to increase wages at least five percent in October 2016 for employees in the 7,600 of its 12,700 US stores that it operates.

Inequality. Pay gaps by level of education continue to widen. In summer 2016, US workers with only a BS degree earned a median $1,155 a week, compared with $690 a week for those with only a high-school education. Workers with advanced degrees earned a median $1,425 a week, while those without a high-school diploma earned $500 a week.

Over 80 percent of Americans are in income brackets that had flat or declining incomes over the past decade.

There are fears of continuing job losses. Manufacturing, food service and retailing jobs are most vulnerable to automation in the next decade, while health care and education are least likely to automate soon. Predictable and repetitive tasks such as welding or packaging objects are most likely to be automated quickly, so that up to three-fourths of the tasks performed by food service workers, 60 percent of those of manufacturing workers, and 55 percent of the tasks performed by retail workers could be automated within a decade.

H-1B. Donald Trump in March 2016 promised to "end forever the use of the H-1B as a cheap labor program." Trump said he would require employers "to hire American workers first for every visa and immigration program. No exceptions."

The H-1B program admits mostly foreigners with "highly specialized knowledge," defined as having a college degree and filling a US job that requires such a degree. It also admits foreigners without college degrees of "distinguished merit and ability," including fashion models. Trump Model Management uses H-1B visas for foreign models, but it is not clear what visa Trump's Slovenian-born wife Melania used in order to work for Trump in the mid-1990s.

Four India-based outsourcers each received more than 3,000 H-1B visas in FY14 and over 25,000 between FY05 and FY14, led by Tata, Cognizant, Infosys and Wipro. These outsourcers typically take over the IT services of a US firm, replace the US workers with fewer H-1B visa holders, and send much of the IT work to India to be done.

Current regulations require firms with more than 50 employees, and who have at least 15 percent H-1B holders among them, to attest that they tried and failed to find US workers before receiving more H-1B visas unless they are paying H-1B workers at least $60,000 a year. Critics say that this regulation allows India-based outsourcers to lawfully displace US workers by paying H-1B workers just over $60,000 a year. Bills pending in Congress would raise the minimum pay to escape the search for US workers to $100,000 a year.

H-1B workers in the US are typically better trained than the US workers they replace but receive the same or lower wages, which saves the US firm money and makes outsourcing profitable. Outsourcing was not anticipated when the H-1B visa was created in 1990, explaining why there is no requirement that most US employers try to recruit US workers before hiring H-1B workers.

US workers laid off by Disney in 2015 and forced to train their replacements from Cognizant Technology Solutions and HCL America sued, alleging conspiracy. A federal judge in October 2016 dismissed their suit, arguing that Cognizant and HCL did not violate the law that prevents H-1B dependent employers from displacing US workers because the laid-off employees were Disney workers, not employees of the dependent outsourcers, and Disney is allowed to replace US workers with H-1Bs who are the employees of the outsourcers.

The National Foundation for American Policy in August 2016 released reports touting the benefits of H-1Bs, including higher productivity and increased wages. NFAP painted a picture of recruitment as one in which US employers scour the world for the best talent, and hire the talent they find in the US or abroad. In this view, if Chinese and Indian talent cannot come to the US, US employers will create jobs for them abroad.

The NFAP did not emphasize that many US employers of H-1B workers are outsourcing firms who post some H-1Bs at the US firms where they provide services and send the rest of the firm's work outside the US to perform at lower wages.

USCIS in August 2016 proposed to admit foreigners for up to two years on a case-by-case basis who have an "active and central role" and a significant ownership stake in an US business founded in the last three years, using DHS's power to admit foreigners who generate a "significant public benefit." USCIS expects 3,000 applications a year, many from foreigners who earn degrees from US universities.

Safety net. The federal social safety net transfers $2.3 trillion a year, about 14 percent of the US's $17 trillion GDP. The most costly safety net item is retirement benefits, including $740 billion for Social Security and $540 billion for Medicare. Another $400 billion is spent on health care for low-income residents, and $500 billion is spent on other income support, including $145 billion for disability payments, $85 billion for low-income tax credits, $76 billion for food stamps, and $55 billion for supplemental security income.

The labor force participation rate (LFPR) of prime-aged men aged 25 to 54 has been falling, from 97 percent in the 1960s to 88 percent in 2016; the LFPR of men with a high-school diploma or less is 83 percent. LFPRs have fallen for all men, and more for those with a high-school diploma or less. Globalization, automation, and incarceration have reduced the demand for low-skilled workers (many ex-convicts are not hired), and flat minimum wages and rising low-skilled immigration have kept US wages below the wage that US workers expect.

Health. US health care spending was $10,000 per person in 2015. The share of GDP devoted to health care rose from 13 percent in 2000 to 18 percent in 2016.

Most Americans receive health insurance from their employers or from the government via Medicaid (poor) and Medicare (elderly). Those who do not receive employer or government health insurance can buy it on exchanges created by the Affordable Care Act.

About 20 million more Americans had health insurance in 2015 than in 2010, when the Affordable Care Act was passed, but 24 million or 13 percent of US residents remain without health insurance. Of those without health insurance, 41 percent are white, 40 percent are Hispanic, 12 percent are Black, and six percent are Asian. About half of those without health insurance are 19 to 34, almost 60 percent are men, and many live in southern states that have not expanded Medicaid, including Florida and Texas.

Private insurers spent an average $5,400 per enrollee in 2015. Medicaid enrolled 69 million residents in 2015 and spent $8,400 per enrollee. Medicare, which had 54 million enrollees in 2015, is expected to enroll 20 percent of US residents by 2025, when spending per enrollee is projected to average $18,000. By 2025, health is expected to account for 20 percent of US GDP.

The ACA requires insurers to offer four types of plans on state exchanges with various levels of coverage, and the federal government subsidizes premiums for low earners. In 2015, when about 12 million people were enrolled via the exchanges, half of those who enrolled selected the cheapest plan, even if it offered the least choice in doctors and hospitals.

Larger insurers offering more traditional plans attract sicker enrollees that cost them more money, prompting them to complain that their costs exceed the premiums paid by enrollees. In at least 20 states, private insurers are requesting rate increases of 25 percent or more, and some are dropping out of ACA markets. Studies predicting that there would be a surge in health care spending followed by stabilization have so far not been correct, as fewer young and healthy people enroll and those who do enroll are sicker and costlier.

Supporters of the ACA urge states to create a single health exchange for the 12 million people who buy individual insurance via the exchanges (85 percent of exchange enrollees receive subsidies) and the nine million who buy insurance outside the exchanges. Insurers must charge both pools the same price, but those who buy via the exchanges with subsidies are much sicker than those who buy outside the exchanges. Merging both pools of insurance buyers may reduce insurance company losses on sicker people.

A handful of enrollees can generate a large share of total costs. BlueCross BlueShield of Tennessee reported that five percent of the exchange enrollees accounted for three-fourths of claims costs.

California in September 2016 asked the federal government to permit the two million unauthorized adults in the state to be allowed to buy health insurance on the state's exchange, Covered California. The ACA explicitly prohibits coverage of unauthorized foreigners, but California already provides health insurance to 135,000 unauthorized children under Medi-Cal.

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