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January 2017, Volume 23, Number 1
The unemployment rate averaged five percent in 2016, the US economy added 2.2 million jobs or an average 180,000 a month, and average hourly earnings rose almost three percent. California added almost 400,000 jobs in 2016, as unemployment in the San Francisco area dropped to three percent.
US job growth averaged 225,000 a month in 2015 and 248,000 a month in 2014.
Employment was nine million higher at the end of 2016 than at its previous peak in November 2007. Hispanics, who are about 15 percent of US workers, got half of these additional jobs, while the whites who are 78 percent of US workers saw their employment fall by 700,000. Hispanics between 25 and 54 gained three million jobs between 2007 and 2016, prime-aged Asians gained 1.5 million, and Blacks gained one million, while the net employment of prime-aged whites fell by 6.5 million.
The employment rate of whites declined from almost 64 percent in 2007 to 60 percent in 2016, while employment rates for Hispanics fell from 65 to 62 percent and for Blacks from 58 to 57 percent.
Non-Hispanic whites are 62 percent of US residents, but they are 78 percent of residents in nonmetropolitan counties. Trump won the majority of votes in 2,584 counties, Clinton won a majority of votes in 472 counties. Clinton won in urban counties that account for two-thirds of US economic output and are dominated by services, while Trump won in counties dominated by one or a few factories.
US manufacturing employment fell from 17 million in 2000 to 11 million in 2010, and rebounded to 12.3 million at the end of 2016. Can President Trump bring jobs back to rural and suburban areas with closed factories?
Some think not, emphasizing that automation has eliminated more jobs than trade. Mini-mills reduced employment in US steel from 550,000 to 150,000 between 1962 and 2005, as the amount of steel produced remained stable. There are 1.7 million long-haul truck drivers earning an average $42,500 a year; self-driving trucks could displace many of them.
Routine jobs held by machine operators and bank tellers are disappearing; their share of total employment fell from 40 percent in 1979 to 31 percent in 2014. One side effect of fewer jobs that provide middle-class earnings for those without college degrees is lower labor force participation, which peaked at 67.3 percent in 2000 and fell to less than 63 percent in 2016. The drop in labor force participation is greatest for men who did not finish high school.
Wages. Minimum wages rose in 19 states on January 1, 2017; the federal minimum wage has been $7.25 an hour since 2007.
Wage growth has been slower than job growth over the past decade, raising questions about why a falling unemployment rate has not pushed up wages. Some studies suggest that employer monopsony power restrains wages, as when hospitals agree not to raise the wages of nurses to attract more or tech firms agree not to poach engineers from each other.
About 20 percent of US workers are required to sign non-compete agreements, meaning that they cannot quit one job and work for a competing firm for one or two years. The purpose of non-compete agreements is to protect a firm's business secrets, but these agreements have spread to fast-food and retail workers, who are unlikely to transfer business secrets.
Worker stickiness in jobs reduces bargaining power, which restrains wage growth. Many workers stay in jobs that pay less than they could earn elsewhere because of child-care or other personal arrangements.
Reducing employer monopsony power is an example of a "predistribution policy," setting the rules of the game to favor certain groups, a contrast to redistribution policies that provide welfare or tax benefits to those left behind by market activity. Instead of assuming that markets work to generate growth, some of which can be redistributed, predistribution policies aim to change market rules so that workers receive higher wages.
States with 60 percent of US workers have minimum wages above the federal $7.25 an hour, and three states will have $12-an-hour minimum wages by 2020; California, New York and Oregon. Voters in Arizona, Colorado, Maine and Washington approved ballot measures in November 2016 to raise their minimum wages to $12 an hour by 2020 (to $13.50 in Washington). About 40 percent of US workers in 2016 were in states with the $7.25 an hour federal minimum wage.
The campaign for a $15-an-hour minimum wage continues, with demonstrations at airports November 29, 2016. The Trump administration is unlikely to raise the federal minimum wage, which encourages activists to push for wage increases at the state and local level.
Wages have been rising slower than usual in the US and in other industrial countries. In 22 industrial countries, average hourly earnings rose by 3.7 percent a year between 1995 and 2007, but by less than two percent a year since 2008. There are several reasons for slower wage growth since the 2008-09 recession, including the fact that an ever-higher share of jobs are in services, where labor is often a large share of total costs and there are fewer unions, encouraging employers to resist wage increases.
H-1B. The H-1B program makes it relatively easy for most US employers to hire foreigners with college degrees coming to the US to fill jobs that require such degrees. Only H-1B dependent employers with 15 or more H-1B guest workers must attest that they are not displacing US workers with H-1B guest workers, and outsourcers are exempt from this no-displacement rule if the H-1B workers have master's degrees or are paid $60,000 a year or more.
HR 170, introduced in January 2017, would eliminate the master's exemption for H-1B dependent employers and raise the minimum salary for no-displacement to $100,000.
Carrier. Carrier in February 2016 announced that it was closing a 1,400-employee factory making air conditioners in Indianapolis and moving the jobs to Mexico. Donald Trump cited Carrier's decision as one he would reverse as president by levying a tax on profitable firms that move jobs out of the US. Carrier's US wages are $24 an hour or more; the service jobs available to those who lose manufacturing jobs pay $12 to $15 an hour.
Interviews with Carrier workers, many of whom are minorities and women, suggest that they believe the wealthier and educated Americans who dominate in Washington do not understand or care about their downward mobility, telling them to get more education and training in order to return to Carrier-level wages.
Some 385,000 current and former drivers in California and Massachusetts sued Uber, saying they were employees rather than independent contractors and entitled to minimum wages, overtime and workers compensation. Uber offered $100 million to settle the suit in a way that keeps drivers as independent contractors, but a judge in September 2016 rejected that offer as inadequate. Meanwhile, an appeals court in another case ruled that Uber's arbitration clause in its contract with drivers was valid, which may bar class-action suits.
ACA. US health care spending reached $3.2 trillion in 2015, an average $10,000 per person and almost 18 percent of the $18 trillion US economy. The federal government accounted for $1 billion or 30 percent of health care spending. About 91 percent of US residents have health insurance.
Health insurance premiums for the plans offered on the exchanges created by the Affordable Care Act rose by an average 22 percent in Fall 2016, prompting a review of the assumptions made in 2010. The ACA mandated that all persons have health insurance or pay a penalty to the Internal Revenue Service, and the assumption was that collecting premiums from young and healthy persons would cover the cost of care for older and sicker people. Some 18 million US residents in 2015 bought health insurance on the exchanges created by the ACA.
However, many young and healthy people have not enrolled despite penalties of $700 each for 2016. Some 5.6 million people paid an average penalty of $442 in 2015 for not enrolling, and many of the 11 million people who are eligible to buy insurance on the exchanges say that they would rather pay hundreds of dollars to the IRS than thousands to an insurance company for a plan with high deductibles.
Under the ACA, insurance companies cannot turn down people because of pre-existing conditions, which prompts some to wait until they have a health care problem to buy insurance. As a result, some insurers have stopped offering individual policies, so that in a third of US counties only one insurance plan is offered. The Kaiser Family Foundation estimated that the 10 percent of US patients with the highest health care costs accounted for two-thirds of US health care spending in 2013.
The US has 2.8 million nurses, 56 percent of whom are employed in hospitals. More nurses are retiring than entering the labor force, encouraging many hospitals to offer sign-up bonuses. Hospitals are often monopsony employers in local labor markets, and find it cheaper to offer $10,000 to $20,000 sign-up bonuses to attract new nurses rather than to raise wages for all nurses.