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April 2019, Volume 25, Number 2

Labor, H-1B

US employers added 304,000 jobs in January 2019, continuing the job growth that has kept the unemployment rate at four percent or less. The US economy has added jobs for over 100 consecutive months.

The unemployment rate is under four percent, but wage growth has been slow. Economists say there are several reasons for slow wage growth, including employer monopsony power, as when one hospital in a small city hires most of the nurses and can slow wage growth. Other reasons are expanded benefit packages offered by some employers, so that workers accept lower wages and slower wage growth in exchange for benefits ranging from health insurance and pensions to flexible work schedules.

Fewer union members, more automation, and increased trade are other factors that weaken the power of workers to demand wage increases.

The US labor force grew by an average 0.7 percent a year between 2000 and 2018, much slower than the 1.7 percent annual increase between 1950 and 2000 that was driven by the return of WWII veterans, women going to work for wages, and the postwar baby boom. Many economists expect labor force participation to drop as the baby boom generation retires; only 20 percent of those 65 and older are in the labor force.

Workplace Issues. Uber and Lyft did not fundamentally change the US labor market, according to a DOL survey that found seven percent of US workers were independent contractors in 2017. Independent contractors earn more than employees in regular jobs. Over 90 percent of US workers in 2017 held traditional "main" jobs during the week before the DOL survey, although some may have held secondary jobs as independent contractors as Uber drivers. Other surveys find that a third of workers who use apps such as Uber depend on app-based work for most of their income.

Uber, Lyft and other firms that use apps to link workers with customers argue that these workers are independent contractors, not employees, making the person doing the work responsible for social security and other taxes that employers pay on behalf of employees. Payroll costs for employees are typically 20 to 30 percent more than their wages, making independent contractors cheaper.

App-based firms are supporting a state-by-state effort to persuade labor agencies to classify their workers as independent contractors; 25 states have already declared that Uber and Lyft drivers are independent contractors. The Texas Workforce Commission in December 2018 decided that app-based firms did not have to pay unemployment insurance taxes on what Uber and Lyft paid to drivers, setting in motion a movement to have enough states agree that app-based workers are independent contractors to pave the way for a federal law.

The app-based firms argue that their workers decide when, where and how long they work. Advocates for employee status argue that app-based firms control employees via customer ratings and because they cancel workers who do not work enough or cancel too many jobs. Worker advocates fear that some firms that now consider their workers employees, such as firms that send repair workers to private homes, could begin to dispatch them using apps and re-classify them as independent contractors.

Illinois became the latest state to raise its minimum wage, from the current $8.25 to $15 by 2025. House Democrats introduced the Raise the Wage Act in March 2019 to raise the federal minimum wage from the current $7.25 an hour to $15 an hour. The federal minimum wage has been $7.25 since July 24, 2009.

McDonald's, which has 800,000 US employees, in March 2019 announced that it would not oppose state and federal efforts to raise the minimum wage; McDonald's reported that the average starting wage in its US restaurants was over $10 an hour. The pledge does not cover the National Owners Association, which represents McDonald's franchisees who operate most McDonald's restaurants.

Health surveillance is a growing issue in workplaces, as employers encourage employees to wear devices made by Fitbit, Garmin or Apple that measure their activity and monitor their health. The devices measure steps as well as the wearer's heart rate and hours of sleep, raising privacy concerns as employers learn more about employees' private lives. Employees are encouraged to wear the devices by cash payments or discounts on health insurance co-pays.

DOL projects employment for 819 occupations, including 166 that have at least 100,000 employees. The highest paying of these 166 occupations is software publishing, where average earnings are $60 an hour. The occupation projected to add the most jobs by 2026, personal care aide, pays $11 an hour, followed by food-prep workers, adding 500,000 jobs, and janitors, adding 250,000. US manufacturing employment peaked at 19.6 million in 1979, reached a nadir of 11.5 million in 2020, and was 12.8 million in 2019.

Ten states have legalized recreational marijuana use, raising questions about the drug tests many employers use to screen applicants. Over half of US employers use drug tests to screen applicants, arguing that they need drug-free employees in warehouses and factories with moving equipment. Some employers have stopped screening for marijuana in the drug tests they administer in California, Colorado, and other states that have legalized marijuana.

H-1B. USCIS changed the lottery system used to determine who gets H-1B visas in January 2019 so that foreigners with master's degrees are more likely to be selected. Employers typically request three times more than the 85,000 H-1B visas available, including 20,000 that are restricted to foreigners with US master's degrees or more. All applicants will be in the pool for the 65,000 visas available to those with a college degree or more, and then a second lottery for 20,000 visas will be held for those with master's degrees from US universities, giving US master's degree holders two chances to be selected.

USCIS is scrutinizing more closely whether the jobs employers want to fill with H-1B workers are really specialty occupations that generally require a college degree. USCIS normally relies on DOL's Occupational Outlook Handbook to determine requirements for specific jobs.

Education. US student debt topped $1.5 trillion at the end of 2018. The average student borrower had $22,000 in debt, which Congress has made hard to eliminate via bankruptcy. Income Share Agreements are an alternative to student loans. They require graduates to repay a share of their income after graduation rather than tuition while studying.

On-line Lambda School, founded in 2017 with venture capital and valued at $150 million, uses ISAs for students who enroll in its six-month nursing and computer classes. Lambda requires graduates to repay 17 percent of their salary for two years if they get a job paying more than $50,000 a year, with a maximum repayment of $30,000. Purdue University says its ISA treats students as "investments" rather than "cash cows." Traditional colleges, the argument runs, get paid by students, parents or the government whether their graduates succeed or fail.

Head Start serves 900,000 low-income children in 1,600 Head Start programs funded directly by the federal government at a cost of $10 billion a year. The lowest-rated 10 percent of programs must compete to keep their funding. Since teachers and classrooms rather than children are evaluated, there is controversy when funding shifts from one provider to another.

Inequality. Growing inequality is likely to be a major theme of the 2020 presidential campaign. Many of the leading candidates for the Democratic presidential nomination have proposed higher tax rates on those with high incomes, and some candidates want to tax wealth as well.

Inequality may fuel conspicuous consumption. Chicago hedge fund manager Ken Griffen paid $238 million for a 24,000 square-foot penthouse on Central Park South, $10,000 per square foot. Griffith has other houses and apartments in Chicago, Miami and London. The largest home in the US is the Versailles house in Windermere, Florida, which has been under construction since 2004 and has five kitchens and a 30-car garage.

US government debt as a share of GDP doubled in a decade, from 34 percent in 2007 to 78 percent in 2018. How much government debt is too much? Some research suggests that debt above 90 percent of GDP, as in Italy, slows growth rates. Others say that, so long as the interest rate on government borrowing is below the rate of economic growth, debt is sustainable.

The US has been growing at three percent, and the interest rate on 10-year Treasuries is 2.7 percent. An aging population should hold down interest rates, since the elderly borrow and spend less.