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April 2023, Volume 29, Number 2

Labor: Wages, Debt

The US added about 400,000 jobs a month in 2022, keeping the unemployment rate below four percent. In January 2023, employment rose by over 500,000, pushing the unemployment rate to 3.4 percent; the labor force participation rate was stable at 62.4 percent.

US workers are returning to in-person work. Three-fourths of the business establishments in a DOL survey reported that their employees worked almost exclusively in person in 2022, up from 60 percent in 2021. In-person work is expected to increase as firms try to increase productivity.

Some tech firms announced layoffs of 10,000 or more workers, many of whom were hired during the pandemic. Meanwhile, health care facilities and hotels and restaurants are adding jobs faster than tech is laying off workers, so that these two sectors account for almost two-thirds of private sector job gains.

The Federal Reserve in March 2023 raised interest rates a quarter percent to curb inflation, which is running at a six percent annual rate. The Fed also took steps to prevent runs on mid-sized banks that invested in treasury bonds whose value fell as interest rates rose, causing the bonds to lose value and some depositors to withdraw their money. The Fed bailed out depositors, prompting criticism of bank executives who benefit from high salaries in good times and do not lose when their banks fail.

CPS data show that the labor force participation rate of US- and foreign-born workers who are 16 to 64 continues to diverge. LFPRs converged at 76 percent in 2004-05, and were 76 percent for foreign-born and 74 percent for US born workers at the end of 2022, when there were almost 30 million foreign-born and 125 US-born workers.

The largest gap is for less educated men and women: 91 percent of foreign-born men without college degrees who are 25 to 54, and 84 percent of similar US-born men, were in the labor force at the end of 2022. The LFPRs for similar women were 72 and 63 percent, meaning gaps of 8 to 9 percent for foreign- and US-born prime age workers.

The FLSA prohibits children under 16 from working during school hours, working more than 40 hours a week when they are not in school, and restricts their employment in particular industries such as manufacturing and mining. Central American migrant children under 18 are released to US sponsors within 20 days, which has led to an upsurge in under-18-year-olds found working in meatpacking, cleaning and other jobs, including some who were employed overnight in hazardous jobs.

Wages. Walmart in January 2023 announced that it would raise minimum wages from $12 to $18 an hour to $14 to $19 an hour, affecting 340,000 of Walmart’s 1.3 million hourly workers.

The US Chips Act provides $40 billion to subsidize the fabrication of semiconductor chips in the US to companies that, doe instance, provide child care to their employees. Making chips in the US is up to 50 percent more expensive than making them in Taiwan, and adding child care requirements could make US chips even more expensive.

California’s Fast Food Accountability and Standards Recovery Act (FAST or AB 527) creates a 10-member council to set minimum wages as high as $22 an hour in 2023 for 550,000 workers in fast food restaurants with at least 100 US outlets. However, the Save Local Restaurants coalition qualified a November 2024 ballot measure that halted implementation of FAST until voters confirm the FAST council. The November 2024 ballot will also include a proposition to raise the state’s minimum wage from $15.50 in 2023 to $18.

Many city centers gentrified and attracted white residents to refurbished downtown areas between 2010 and 2020, including Brooklyn, DC, Denver, and Philadelphia. In all these cities, the number of minorities in refurbished areas declined.

Before pensions developed in the 20th century, most people worked until they died or were incapacitated. Pensions allowed workers to leave their jobs, and the age of retirement for full benefits dropped from 65 in the mid-20th century to the low 60s in the 1980s before rising again as lower fertility threatened the viability of pay-as-you-go pension systems financed by ever smaller cohorts of young workers supporting ever more retirees.

In the 21st century, many workers are likely to work 50 or 60 rather than 40 years, and to have portfolio careers, meaning different occupations in different industries, rather than staying in the same job with the same employer.

Longer careers and more frequent employer changes have increased interest in noncompete clauses that prohibit employees from working for competitors or going into business for themselves for several years after quitting. The Federal Trade Commission concluded that noncompetes limit worker mobility and new business formation, and wants to reduce the share of US workers who are required to sign such clauses from the current 20 percent. Sales, engineering and health, and hairdresser occupations are among those mostly likely to require noncompete clauses that California and a few other states refuse to enforce.

Why doesn’t competition eliminate or minimize the extra fees charged by airlines and hotels? Economists note that people attracted to a low basic price may resist starting over on the search for a flight or hotel and rationalize the extra fee as a way to save time, or companies may have a quasi-monopoly, offering the most convenient flights or location. The Biden administration is trying to require firms to be more transparent about fees and tackling monopoly power.

Debt. The US owes $31 trillion, and government debt is projected to increase by $2 trillion a year over the next decade as spending outpaces revenue.

The federal budget is $6 trillion a year, and the federal debt rose from $6 trillion to $23 trillion between 2000 and 2020, and by $8 trillion between 2020 and 2023. Some of the debt was incurred to fight wars against terror in Afghanistan and Iraq, over $6 trillion by one estimate, some reflected tax reductions that reduced federal revenues by $6 trillion, and some reflected covid spending.

Some of the largest contributors to the federal deficit were federal spending in response to the 2008-09 recession and covid in 2020-21. Longer term contributors to the deficit include the growing cost of Medicare and Social Security, which together account for a third of federal government spending. Employers and employees contribute to the cost of both programs; efforts to slow spending on these programs center on raising the retirement age so that employees contribute longer and receive benefits for fewer years.

The US trade deficit widened to near a record $1 trillion in 2022, as imports rose to $4 trillion and exports were worth $3 trillion. The trade deficit with China was almost $400 billion.

US states are divided into four regions. The Northeast region has 57 million people and a median household income of $77,000, the Midwest 69 million and $66,000, the west 78 million and $77,500, and the South 125 million and $63,500. Northeast residents are best educated: almost 40 percent of adults have a college degree or more, compared to 30 percent in the South.

Incomes are lower and credit scores are lower in the South in part because residents are less healthy and have more unpaid medical debts.

Data for 2020 show that the top one percent of US tax filers had incomes of $550,000 or more, had 22 percent of adjusted gross income, and paid 42 percent of federal income tax. The top five percent had incomes of $220,000 or more, had 38 percent of AGI, and paid 63 percent of federal income tax.

Progress. Is scientific progress slowing? One study of 50 million papers published in 2023 suggests that many innovations today provide incremental rather than disruptive breakthroughs as quantity replaces quality. Over 3,000 scientific papers a day are published. A new method aims to separate scientific breakthroughs from incremental gains by developing a CD index to examine citations to previous studies.

Chatbots and other machine-based learning devices are improving. Alan Turing proposed the Turing test of machines in 1950, asking whether humans could determine whether they were interacting with another human or a machine. ChatGPT from OpenAI has passed the Turing test in many situations, from making reservations to writing papers, but chatbots have not yet learned how to respond in unexpected situations.

The neural networks that undergird chatbots and translation services enhance their skills by analyzing data, meaning that they improve over time. Some estimate that up to a third of the jobs in 500 of the 800 occupations defined by DOL, including call center agents and cashiers, could be automated within a decade. Many of these jobs have high turnover, and AI sentiment analysis that measures agent interactions with callers speeds up turnover.

Productivity, the value of the goods produced by an hour of labor, has been declining. Productivity rose by almost three percent a year from the end of WWII until 1973, fell to less than two percent a year in the 1970s and 1980s, rose to over two percent a year in the 1990s and early 2000s, and has been less than two percent since.

How much of the slowdown in productivity growth was due to new regulations, such as the environmental and OSHA regulations approved in the 1970s? Construction provides an example of a sector where labor productivity per worker today is lower than it was in 1970. One reason cited by builders is more regulation, including the need to prepare reports on potential impacts of new projects and to satisfy critics who sue to block new construction.

Responses to covid were also being re-evaluated in spring 2023, three years after most countries closed their borders and urged all but essential workers to stay home. The WHO declared a pandemic on March 11, 2020, and epidemiological models predicted exponential spread and many deaths.

Stay-at-home orders and masks and social distancing in public aimed to flatten the curve or reduce sharply rising cases, but they also provoked a backlash that may make it hard to shut down the economy in response to a future pandemic. The covid experience may tilt future responses against shutdowns when weighing hypothetical worst-case pandemic scenarios against the socioeconomic costs of closing workplaces, schools and businesses.

Education. Many cities have elite high schools that rely on tests to determine who is admitted, resulting in a high share of Asian and fewer Black and Hispanic students selected. Efforts to change from tests to a lottery at the estimated 165 selective public high schools have drawn suits from Asian parents in San Francisco, New York City, and other cities, prompting a return to test-based selection in some cities.

Some elite universities announced in 2023 that they would stop providing data to US News and other ranking providers. When US News began to rank universities in 1983, the major source of data was peer assessment, that is, universities were asked to rank themselves and their peers. Over time, more of the data used to rank colleges and universities comes from publicly available data, so that rankings are likely to continue.

The share of Americans who believe that earning a four-year college degree is necessary for economic success fell toward 40 percent in spring 2023 polls, as a majority of women, seniors and even 18-to-34 year olds believe that graduates often lack specific job skills and have too much debt. Only 60 percent of those who enter four-year colleges graduate, there is a total of $1.7 trillion in student debt, and many colleges charged full tuition during the covid pandemic when they provided classes remotely.

The marketplace in ideas is symbolized by DC-based think tanks whose funders often aim to push policy in a particular direction, such as toward more or less migration or more or less free trade, may emerge in universities as well. Most professors in the humanities and social sciences lean left, while fewer than 20 percent lean right, which is prompting some governors and funders to propose conservative leaning colleges and universities.

The US government uses Blacks or African Americans, Hispanics or Latinos, and American Indians and Alaska Natives to describe racial and ethnic minorities. There are 62 million Hispanic US residents, but efforts to use Latinx to describe them are encountering resistance in some states, where legislatures have banned Latinx in government documents. Latinx is not used in Latin America, but is used on some college campuses.

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