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July 2022, Volume 28, Number 3

Labor, Inflation, Education

The US labor force was 165 million in February 2020, shrank to a low of 156 million in April 2020, and was 164 million in May 2022. Employment recovered to its pre-pandemic levels of 152 million in mid-2021, but the labor force may remain smaller and grow slower due to earlier retirements and some younger workers deciding not to work for wages. The unemployment rate was 3.6 percent in spring 2022.

Some 40 million people left jobs in 2021, especially in leisure, hospitality and retail. Many were able to move to other jobs that paid better or offered better working conditions. Many workers who were 55 and older retired early.

The US had 28 million foreign-born workers in 2021, making them 17 percent of the 161 million strong US labor force. The unemployment rate of the foreign-born, 5.6 percent, was higher than the rate for US-born workers, 5.3 percent. Hispanics were half of foreign-born workers, and workers born in Asian countries a quarter of foreign-born workers. The median weekly wages of foreign-born workers, $900, were almost 90 percent of the median wages of US-born workers, $1,015.

Real wages are falling, prompting a quest for reasons why. The Department of Justice has begun to sue employers, alleging that they collude to suppress the wages of employees. DOJ filed six cases under the Sherman Antitrust Act in 2021 and 2022 against, for instance, agencies that hire employees to provide in-home care to the elderly. Most DOJ antitrust cases allege that firms collude to raise prices, but analysts say that collusion to hold down wages is also harmful.

Most franchise agreements, including those of McDonald’s, Jiffy Lube and H&R Block, prohibit poaching employees from another outlet; many employers require employees to sign agreements that limit their ability to quit and go to work for competitors for months or years. A seventh of US workers with low levels of education and low wages are required to sign no-compete agreements. However, states including California prohibit employers from enforcing these agreements.

NGO Fight for $15 and a Union released a survey in May 2022 that found 85 percent of 400 fast-food workers in California were victims of wage theft. AB 257 would create a California Fast Food Sector Council to set wages and workplace standards and make franchisors to be jointly liable for the labor law violations of franchisees.

Labor contracts covering 22,000 workers at 29 west coast ports expired in July 2022, raising fears of a strike or slowdown that could aggravate inflation. Unions supported President Biden, and want him to continue tariffs on Chinese imports and requirements that government-funded projects pay union wages and use US-made components.

The US has four million large trucks and 500,000 truck drivers, including half that haul freight long distances. Self-driving trucks are on the roads in southwestern states with safety drivers, and could become robo-rigs by the end of 2023 as their AI-systems improve with experience. Labor is about 20 percent of the cost of operating a truck, so adding $20,000 worth of sensors to a $200,000 truck for 24-hour operation is economically worthwhile. Humans could monitor self-driving trucks remotely and drive trucks in urban areas.

Boeing’s 787 Dreamliner marked a new way to build airplanes, including shifting the construction of many parts to other companies. Boeing delivered about 1,000 787 planes, but defects emerged in 2019, including battery fires and improper connectors. Boeing’s problems with the 737 Max mean that the FAA is insisting that Boeing make 787s correctly the first time rather than fix them after problems appear. As a result, Boeing is bringing the production of more parts in house and checking outside parts more carefully, highlighting the limits of outsourcing for high-tech products.

Inflation. Consumer prices increased at an eight percent annual rate in spring 2022 compared with spring 2021, reflecting higher housing and energy costs; average gas prices topped $5 a gallon in June 2022. The Fed raised interest rates, leading to forecasts of a US recession or a shrinking economy for two consecutive quarters.

There were many analyses of why inflation is high and rising. Many Republicans pointed to the Biden administration’s $1.9 billion pandemic assistance program enacted in March 2021 that, coupled with the Fed expanding the money supply, allowed the demand for goods to exceed the supply. Some Democrats pointed to monopoly businesses that raised prices to increase their profits.

Air travel was one of the services leading inflation higher. When covid led to stay-at-home orders in March 2020, demand for air travel plummeted and airlines and airports laid off employees. Governments provided temporary support for airline employee salaries, but airlines offered buyouts to reduce their employment. When the demand for air travel resumed faster than expected in 2022, airlines and airports were short-staffed, leading to a summer of cancellations and delays.

Proposals to reduce inflation include raising interest rates, reducing federal spending and tariffs, and increasing immigration so that more workers are available.

Productivity, or the value of economic output per hour worked, rose at a three percent annual rate between 1996 and 2004, and has been rising only one percent a year since 2010 despite computers, AI, and other new technologies. Economists are divided about prospects for faster productivity growth. Some believe that current technologies are incremental rather than transformational in the same way that electricity and the internal combustion engine created new industries. Others say that a speed up in productivity is coming.

The prospect of stagflation, a combination of inflation, rising unemployment, and low productivity, may explain the high share of Americans who believe that the US is on the wrong track. Activist Democrats are disappointed that they were unable to enact much of President Biden’s Build Back Better agenda, and fear that 2023 and 2024 may be marked by a Republican-controlled Congress investigating the Biden administration.

NYU’s Scott Galloway argues that economies tend toward inequality because wealthy elites gain control of governments to reduce taxes and competition. Galloway argues that, when inequality gets too extreme, there is a correction, often in the midst of war or revolution. Galloway says that most of the $7 trillion in covid-relief spending went to the elite, and calls a large middle class a conscious product of policy rather than a natural result of market forces.

Some public pension funds that do not have enough money to meet promises to retirees are using borrowed money to gain leverage to increase returns. The largest, Calpers with $440 billion, plans to add leverage equivalent to five percent of its assets in July 2022 to raise its returns to seven percent.

Education. The US Supreme Court in Plyler v. Doe in 1982 held that unauthorized children were entitled to free public K-12 schooling. There was no federal law penalizing US employers who hired unauthorized workers until 1986, which was one of the factors cited by the USSC to require free K-12 schooling. Today, a million unauthorized children are believed to be in K-12 schools.

Democrats are perceived as the party best able to educate children, while Republicans often stress tough on crime policies. However, the closure of public schools during much of 2020 and 2021 as well as mask and vaccine mandates turned some Democrats into Republicans, especially in northeastern states.

Some 45 million Americans owe $1.7 trillion in federal student loan debt; a third of this debt is tied to graduate education. Seven million borrowers are in default, including a third who owe up to $10,000. About 40 percent of those who took out student loans did not graduate from college within six years, including three-fourths of those who enrolled at private and for-profit institutions. A third of outstanding student debt will likely not be repaid.

Some 80 million US adults have or had student loans, so 35 million have repaid them.

The Biden administration suspended payments and interest on federal student loans until August 2022, saving the average borrower $5,500 and costing the US government over $100 billion. In June 2022, Biden announced plans to forgive up to $10,000 of student debt for individuals who earn less than $150,000 a year, costing the federal government about $230 billion and benefitting mostly high-earners. Biden also cancelled $5.8 billion in loans taken by 560,000 students who attended for-profit Corinthian Colleges, which went bankrupt in 2015.

The number of US college students fell in spring 2022, suggesting that some youth who put off going to college when instruction went online decided not to attend when in-person instruction resumed. There were about 14 million students enrolled in undergraduate programs in spring 2022, down from 15 million in 2019. Another four million students were enrolled in professional and graduate programs.

The US Supreme Court will deal with affirmative action policies at Harvard and UNC in its 2022-23 term. By looking only at the text of the Civil Rights Act of 1964, which prohibits discrimination based on race, the USSC may ban race-conscious admissions policies.

H-1B. The US allows employers to hire 65,000 college-educated foreigners a year, plus 20,000 who have graduate degrees from US universities, plus an unlimited number for US nonprofits. Employers want to raise the cap on H-1B visas. They argue that, if the cap is not raised, more US tech jobs will move abroad.

Two-thirds of H-1B visas approved in FY21 went to Indian and Chinese men. Tech companies want to raise the quota, but may have to accept tighter regulation of the program, including a requirement to offer higher wages and try to recruit US workers before being approved to hire H-1B workers.

Fewer than five percent of US tech employees are Black, which raises the question of why tech companies prefer to raise the quota for H-1B workers rather than hire more Black workers who earn STEM degrees. Many tech companies have partnered with Black universities, but they also develop tech talent in China and India that can be productive as soon as the workers arrive in the US. Black tech workers, by contrast, often wind up working for governments.

Wealth. Forbes assembled its first list of billionaires in the early 1980s, when shipping magnate Daniel Ludwig topped the list with $2 billion ($6 billion today). The 2022 list includes 2,668 billionaires globally, led by Elon Musk, $220 billion, and Jeff Bezos, $170 billion. A third of the world’s billionaires, 735, are Americans.

The number of billionaires began rising rapidly in the 1980s as rich-world economies deregulated key industries and finance began more important than manufacturing. The tech revolution allowed entrepreneurs to become billionaires with relatively few employees at a time when low interest rates inflated the value of assets, increasing fortunes. Forbes, Bloomberg and Wealth-X maintain billionaire lists that are updated frequently.

Businesses that cater to the wealthy such as Swiss watchmakers are selling more expensive models. Almost 16 million luxury watches were sold in 2021, generating almost $22 billion in revenue or an average $1,375. Breitling, Rolex, Patek Philippe, and other luxury watchmakers say that their watches are more akin to jewelry rather than time keeping devices.

Journalist David Gelles says that GE CEO Jack Welch in the 1980s and 1990s legitimized the idea that the purpose of business is to make profits for shareholders rather than its employees and customers, and made GE the world’s most valuable company. However, Gelles argues that GE under Welch made more profits from buying and selling other firms and acting as a bank than making goods, which left it vulnerable during the 2008-09 recession. Gelles concludes that the Welch approach can increase profits in the short term but weaken a firm in the long run.

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