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April 2021, Volume 27, Number 2

Labor: Minimum Wage

The US had 150 million employees on nonfarm payrolls in March 2020, and 143 million in March 2021, when the unemployment rate was six percent. The US added 916,000 jobs in March 2021 and stock markets reached record highs.

Minimum Wage. The Raise the Wage Act (HR 582) would increase the federal minimum wage from $7.25 to $9.50 soon after enactment and to $15 an hour by 2025. The federal minimum wage would be indexed to increase with the median hourly wage of all employees as determined by the Bureau of Labor Statistics, and subminimum wages for tipped workers would be phased out.

The federal minimum wage hike was included in the $1.9 trillion American Rescue Plan Act of 2021 approved by the House, but Senate Democrats were unable to use budget reconciliation, which requires a simple majority vote, to include the minimum wage hike in their version of the pandemic bill.

The Congressional Budget Office estimated that increasing the minimum wage to $15 by 2025 would raise wages for 17 million workers while eliminating 1.4 million jobs and encourage especially restaurants to raise prices. Another 10 million workers who earn slightly more than $15 an hour could get raises in order to maintain the wage structure.

Walmart announced in February 2021 that it would raise wages for over 425,000 employees so that half of its 1.5 million US workers would earn at least $15 an hour. Target, Amazon and other retailers have raised their minimum wage to at least $15 an hour, and Costco in February 2021 said that its minimum pay would rise to $16 an hour for its 160,000 hourly employees.

One study suggested that, as large corporations raise wages to at least $15 an hour, smaller employers are forced to follow suit to retain their employees. Some employers reduce hours as minimum wages rise, but researchers find little evidence of fewer jobs in areas where wages are pushed up by firms paying at least $15.

Some economists advocate government-guaranteed jobs that pay at least $15 an hour, arguing that such a program would put a floor under wages and working conditions in the labor market. The cost of a full-time government job paying $15 an hour is $30,000 in wages and another $20,000 or more in payroll taxes and administrative costs. However, most studies find that private employers do not value the skills that workers may gain in government jobs programs, prompting most economists to recommend expanding further the earned-income tax credit rather than creating government jobs.

States operate the unemployment insurance system under federal guidelines, collecting taxes from employers to pay benefits to laid off workers. The UI system is covering fewer jobless workers and replacing less of their previous wages. In 2019, an average 27 percent of jobless workers received UI benefits, and they received an average of one-third of their previous earnings.

States set payroll tax rates based on industry- and employer-specific experience with jobless claims. A farm employer may pay UI taxes of five percent on the first $7,000 of wages paid, while a utility pays one percent.

States vary in the level of benefits paid to jobless workers and their duration. Maximum weekly benefits range from less than $300 to $1,000, and from 12 to 26 weeks. The Biden Administration is expected to encourage states to raise UI taxes and expand the level and duration of benefits.

California?s unemployment insurance debt was $21 billion in March 2021, and is expected to top $48 billion by the end of 2021 as jobless workers receive more in benefits than the state?s employers pay in taxes.

Covid. Congress approved almost $6 trillion in federal spending to cope with the pandemic between March 2020 and March 2021. The US spent $4.5 trillion in 2021 dollars to fight WWII, and $5.5 trillion to combat Covid. Some Democrats hope that the one-year, $300 a month expansion of the Earned Income Tax Credit, which now covers over 90 percent of US children, will become a permanent income guarantee for low-income families with children.

BLS revised its projections of job growth between 2019 and 2029 to reflect the impact of the pandemic, which BLS expects to reduce overall job growth while increasing remote work. The 10 occupations expected to have the fastest job growth are health-related, while the 10 occupations projected to have the slowest job growth are in hospitality and transportation.

Covid is expected to speed job changes that were already underway, eliminating in-person jobs such as cashiers and servers. Jobs for workers with a high-school diploma or less are projected to shrink during the 2020s.

There may also be displacement of college-educated workers, as robotic process automation replaces workers in call centers and accounting departments. Professionals whose work involves routine information processing and some judgment and discretion are at risk of being displaced by algorithms that learn over time.

Automation normally creates more jobs than it eliminates, in part because continued economic growth generates new jobs in new industries. However, automation may change where jobs are, as when grocery store self-checkout machines eliminate checkers and create jobs for those who make and maintain scanning machines.

Covid affected most aspects of the US economy, including the housing market. The demand for houses increased during the pandemic as people sought more space outside central cities, but the supply of houses for sale did not increase, in part because many baby boomers did not want to downsize during the pandemic. With fewer homes for sale, buyers had to pay higher prices in cities such as Austin, Texas.

H-1B/OPT. After comprehensive immigration reform that included an increase in the 65,000 a year cap in H-1B visas failed in the Senate in 2006, Microsoft successfully encouraged DHS to expand paid Optional Practical Training for foreign students who graduate from US universities. Instead of one year of OPT after graduation, DHS allowed foreign graduates to work for 29 months after graduation if they earned a STEM degree. Earning a second STEM degree opens another 29-month period of OPT.

There are no limits on the number of foreign graduates with STEM degrees who can engage in paid OPT and, until 2016, there were no wage or other requirements. Since 2016, US employers must attest that OPT workers will not replace US workers, and that the wages paid to OPT workers are ?commensurate? with ?similarly situated? US workers. Most OPT workers are from India.

The number of OPT work authorizations exceeds the number of H-1B visas issued. Some 203,000 OPT work authorizations were issued in 2018, when there were 411,000 OPT workers. About three-fourths of OPT workers are employed by businesses led by Amazon and Google and a quarter by universities that often serve as a last-resort employer for their graduates.

OPT has been called the ?Wild West? of guest-worker programs, created by DHS regulation rather than approved by Congress. Critics say that OPT allows employers to hire foreign workers cheaply, since OPT workers who want to stay in the US, but are unable to obtain H-1B visas, can be desperate to find a US employer, inducing some to work for low or no wages.

Universities that know foreign graduates want to work in the US after graduation often advertise that their graduates can become OPT workers. In this way, some low-rated computer science programs charge foreigners $70,000 to earn Master?s degrees.

The share of K-12 public school students who are white fell from 65 percent in 1995 to 50 percent in 2014, and is projected to be 44 percent in 2029. Non-Hispanic whites of all ages are projected to fall below half of the US population in 2045. By 2065, non-Hispanic whites are projected to be 46 percent of US residents, Hispanics 24 percent, Asian Americans 14 percent, and Blacks 13 percent.

Debt. Under President Trump, US government debt rose from $14 trillion to $21 trillion, more than the US GDP of $20 trillion in 2020. President Biden?s $1.9 trillion Covid-aid package adds to government debt, and the $2 trillion spending package to foster green energy and improve infrastructure would add more federal debt.

Critics of debt growing faster than GDP warn of higher inflation and a falling dollar if more US government debt encourages foreigners to buy fewer US government bonds. Others counter that rising savings in China and other aging societies will keep a lid on inflation. Some US exporters complain that the high value of the US dollar curbs US exports, and worry that rising US interest rates will further strengthen the dollar.

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