EPI

The Trump administration was ruining the pre-COVID-19 economy too, just more slowly

Key takeaways:

  • Long before the COVID-19 pandemic the Trump administration was squandering the pockets of strength in the American economy it had inherited.
  • Broad-based prosperity requires strength on the supply, demand, and distributive sides of the economy, and Trump administration policies were either weak or outright damaging on these fronts.
  • Demand: Most of the Trump tax cuts went to already-rich corporations and households, who tend to save rather than spend most of any extra dollar they’re given.
  • Supply: Business investment plummeted under the Trump administration, despite their lavishing tax cuts on corporate business.
  • Distribution: The Trump administration undercut labor standards and rules that can buttress workers’ bargaining power.

You don’t have to be an economist to know how the U.S. economy is doing today: it’s an utter shambles, with tens of millions of workers unable to find the work they need to get by, and with tens of millions of families facing extreme hardship and anxiety. These terrible conditions are mostly the result of the failure to manage and contain the COVID-19 outbreak, and the failure to appropriately respond in the economic policymaking realm.

President Trump, however, clearly wants voters to see the COVID-19 outbreak and fallout as nobody’s fault, and further wants to be graded on how the economy was doing pre-COVID-19. This is obviously absurd; the administration didn’t cause COVID-19, but it is responsible for the botched response to it.

Even besides this, however, it is far from clear that the pre-COVID-19 U.S. economy was evidence of good management or policy, a fact that voters seem increasingly aware of. In fact, Trump administration policies were squandering the pockets of strength in the U.S. economy that they inherited from their predecessors by using them to disguise the rapid erosion their policies were causing to U.S. families’ economic security.

This might seem like an odd claim, given that the stock market grew sharply before the COVID-19 shock, and that the unemployment rate sat at 3.5% at the beginning of 2020. But the stock market is a mostly meaningless indicator of economic security for the vast majority of Americans. The bottom 90% of households, for example, holds just 12% of corporate equities (directly or indirectly). Low unemployment, conversely, is a useful signal of broad-based economic health, but low unemployment is only a necessary condition, not a sufficient one, to declare an economy working well for typical families.

An economy’s overall health, and how well it is serving its basic function of improving human happiness, is mostly a function of three facets: supply, demand, and distribution.

The economy’s supply-side is its underlying productive capacity: how much income it could produce if all available labor and capital were fully utilized. This should grow over time as the workforce and the capital stock get bigger and more efficient, and this hopefully translates into broad-based income growth over time.

The economy’s demand-side is the desired spending of households, businesses, and governments. These spending demands provide the spur to employers to hire people and to make sure that the economy’s potential capacity is put into use and generates actual income for people.

The economy’s distributive-side is the set of institutions and policies that give (at least some) workers leverage and bargaining power to claim a fair share of overall income growth. Collective bargaining is historically the most important such institution.

These three facets of the economy’s health—demand, supply, and distribution—obviously interact. When demand is strong, employers are spurred to hire, which in turn makes available workers scarcer and provides them some leverage to achieve wage gains, affecting distribution. When demand is weak, the resulting glut of workers and depressed wage demands saps the incentive of firms to invest in labor-saving technologies and so growth in the supply-side suffers. When distributive policy leads to concentration of income at the top of the distribution, where households save more than they spend of any additional dollar, demand predictably suffers. In short, an economy that reliably delivers the goods to typical families has to be working well in all three areas.

What has the Trump administration done to strengthen these three facets of economic health? Almost nothing, but it has often undermined them.

The strongest facet of the U.S. economy pre-COVID-19 was demand—spending was strong enough to keep employers robustly hiring and to drive unemployment to its lowest level in decades. Yet Trump administration policies had very little to do with this. The Federal Reserve was unusually supportive of this strong demand growth, and a bipartisan congressional deal in 2018 finally relieved some of the fiscal austerity that had constrained growth before. The main contribution from the Trump administration was their 2017 tax cut, which was extraordinarily inefficient in spurring demand growth, given just how much it cost in terms of fiscal resources. The reason for this inefficiency was obvious: the lion’s share of the tax cut went to already-rich corporations and households, who tend to save rather than spend most of any extra dollar they’re given.

On the supply-side, the Trump administration would claim that this same tax cut boosted incentives for firms to invest in the economy’s capital stock. The data show pretty conclusively this is wrong—business investment was absolutely plummeting well before COVID-19 had even appeared in China, let alone the United States.

On the distributive-side, the administration was extraordinarily active in cramming through regulations and rules that undercut typical workers’ leverage and bargaining power. For decades, policy efforts to undercut workers’ bargaining power had redistributed trillions of dollars upward, and made workers dependent on ever-lower levels of unemployment just to see any wage increases at all. Trump administration policies put this into overdrive.

This distributive assault might explain an odd finding in the data on household income that has characterized the Trump administration: measured correctly, income growth during the Trump administration has been slower than it was for the second Obama administration, even with unemployment lower in the more-recent years. Between 2013 and 2016, income growth averaged 2.6%per year, but in the first three years of the Trump administration, it has averaged just 2.1%. Besides unemployment being slightly lower in the Trump administration, productivity growth has also been slightly more rapid (as employers responded to tightening labor markets by trying to economize on labor costs), and yet median household income still has grown more slowly in the Trump administration.

This poor income growth during the Trump administration could be a statistical fluke. But, it’s also exactly what one would expect from an incompetent economic manager squandering the pockets of strength it inherited from its predecessors. We should all realize now that the economic shock of COVID-19 didn’t just cause economic damage; it also exposed the damage that had been done for decades—and accelerated by the Trump administration—by policymakers who had undermined typical U.S. families’ access to economic security.

Policy solutions to deal with the nation’s teacher shortage—a crisis made worse by COVID-19

Some estimates have put the shortage of teachers relative to the number new of vacancies in classrooms across the country that go unfilled at more than 100,000—a crisis exacerbated by the pandemic. But policy changes can go a long way in addressing this shortfall.

We lay out those policy solutions in our just-released paper titled  “A Policy Agenda to Address the Teacher Shortage in U.S. Public Schools: The Sixth and Final Report in the ‘Perfect Storm in the Teacher Labor Market’ Series.” It is part of an EPI two-year long project documenting the teacher shortage faced by U.S. public schools over the last few years and explaining the multiple factors that contributed to it.

The culmination of this research coincided with the devastating impact of the COVID-19 pandemic on the nation’s education system, which threatens to make the teacher shortage crisis even worse.

The added challenges are mainly arising from three sources.

• First, with respect to the supply of teachers, growing evidence indicates an increase in teachers’ decisions to retire early, as a result of COVID-19 related challenges that either mirror or exacerbate those described in our series of reports, and even bring in new ones:

  • unsafe working environments,
  • lack of supports,
  • stresses associated with remote instruction,
  • burnout, and other professional and personal factors.

At this stage of the pandemic, perceived lack of safety is likely a major factor. Around one in three teachers say that COVID-19 pandemic has made them more likely to retire early or leave the profession, a figure that increases to about one in two or more among those with more than 30 years of experience or those with ages 50 or more (one in six public school teachers are 55 years or more, according to the most recent NCES data).

The shortage in some states was actually artificially small because a significant group of older, more experienced teachers who were eligible to retire had stayed in the classroom into their 60s. Now, as the most vulnerable to COVID-19, they are likely to be the first to go.

Similarly, challenges of teaching remotely and the lack of support needed to do so well, will turn off new (and even less new) teachers, likely increasing already high rates of attrition. Moreover, the combination of losing colleagues to COVID-19 and the intense personal stresses and demands that the pandemic is exacting on virtually all teachers will likely drive out still more.

• Second, the forces driving demand for teachers are in conflict. Meeting the safety requirements public health experts recommend for schools to operate safely, and providing the resources needed to lift up students who have lost ground, will greatly increase demand. At the most basic level, for example, just reducing class sizes to meet social distance requirements in class could substantially increase the number of teachers needed. (We further discuss needs for more, not fewer, highly credentialed teachers, below).

Yet budgets for personnel and other needed resources are moving in the opposite direction.

Severe budget cuts affecting states have already reduced and are expected to further reduce the ability of school districts to satisfy the underlying demand. We know from the Great Recession and from recent estimates that budget cuts have led to severe reductions in public education jobs. Indeed, in April 2020 alone, U.S. public school systems lost close to 470,000 jobs a more sudden and more severe version of what happened in the three years after the onset of the Great Recession, when more than 316,000 education jobs were lost. These losses will almost certainly become more severe as the recession drags on, especially if the federal government continues to fail to counter its impacts.

• Thirdly, is the issue of quality and equity in education, the framework we explored in our series of reports.

The increased attrition among older teachers indicates a double loss, in terms of numbers and credentials, just at a time when the needs for more personalized instruction, smaller class-sizes, and extended school schedules demand the opposite on the same two fronts. These will be especially important in high-poverty schools, where resources are already scarcest relative to the needs.

As troubling as this scenario is, the path forward is eminently viable. The policy agenda we set forth offers an effective strategy to retain highly credentialed teachers and attract new ones into the profession, and with the pandemic the adoption of our recommendations is even more urgent.

We structure the recommendations into two main buckets: system-level recommendations that would improve the education system broadly, and specific policy recommendations targeting the factors that contribute to the teacher shortage.

As the pandemic persists, we cannot emphasize enough how critical it is for policymakers at all levels to act immediately. And they must learn from a critical lesson imparted by the prior recession and from the evidence: failing to understand the close connections among resources, teachers’ working conditions, and the shortage will greatly exacerbate the problems we already faced going into the pandemic.

We can ill afford to make that mistake again. We must make more resources available to enable the relief, recovery, and rebuilding stages that will help us weather the pandemic, address the adverse impacts of COVID-19 on education, and build a stronger, more equitable public education system.

How much would it cost consumers to give farmworkers a significant raise?: A 40% increase in pay would cost just $25 per household

The increased media coverage of the plight of the more than 2 million farmworkers who pick and help produce our food—and whom the Trump administration has deemed to be “essential” workers for the U.S. economy and infrastructure during the coronavirus pandemic—has highlighted the difficult and often dangerous conditions farmworkers face on the job, as well as their central importance to U.S. food supply chains. For example, photographs and videos of farmworkers picking crops under the smoke and fire-filled skies of California have been widely shared across the internet, and some data suggest that the number of farmworkers who have tested positive for COVID-19 is rivaled only by meat processing workers. In addition, around half of farmworkers are unauthorized immigrants and 10% are temporary migrant workers with “nonimmigrant” H-2A visas; those farmworkers have limited labor rights in practice and are vulnerable to wage theft and other abuses due to their immigration status.

Despite the key role they play and the challenges they face, farmworkers are some of the lowest-paid workers in the entire U.S. labor market. The United States Department of Agriculture (USDA) recently announced that it would not collect the data on farmworker earnings that are used to determine minimum wages for H-2A workers, which could further reduce farmworker earnings.

This raises the question: How much would it cost to give farmworkers a significant raise in pay, even if it was paid for entirely by consumers? The answer is, not that much. About the price of a couple of 12-packs of beer, a large pizza, or a nice bottle of wine.

The latest data on consumer expenditures from the Bureau of Labor Statistics (BLS) provides useful information about consumer spending on fresh fruits and vegetables, which in conjunction with other data, allow us to calculate roughly how much it would cost to raise wages for farmworkers. (For a detailed analysis of these data, see this blog post at Rural Migration News.) But to calculate this, first, we have to see how much a typical household spends on fruits and vegetables every year and the share that goes to farm owners and their farmworker employees.

The BLS data show that expenditures by households (referred to in the data as “consumer units”) in 2019 was $320 on fresh fruits and $295 on fresh vegetables, amounting to $615 a year or $11.80 per week. In addition, households spent an additional $110 on processed fruits and $145 on processed vegetables. Interestingly enough, on average, households spent almost as much on alcoholic beverages ($580) as they did on fresh fruits and vegetables ($615).

Data from the U.S. Department of Agriculture’s Economic Research Service show that, on average, farmers receive less than 20% of every retail dollar spent on food, but a slightly higher share of what consumers spend for fresh fruits and vegetables. Figure A shows this share over time for fresh fruits and vegetables: Between 2000 and 2015, farmers received an average 30% of the average retail price of fresh fruits and 26% of the average retail price of fresh vegetables (2015 is the most recent year for which data are available). This means that average consumer expenditures on these items include $173 a year for farmers (0.30 x 320 = $96 + 0.26 x 295 = $77).

Figure AFigure A

According to studies published by the University of California, Davis, farm labor costs are about a third of farm revenue for fresh fruits and vegetables, meaning that farmworker wages and benefits for fresh fruits and vegetables cost the average household $57 per year (0.33 x $173 = $57). (However, in reality, farm labor costs are less than $57 per year per household because over half of the fresh fruits and one-third of fresh vegetables purchased in the United States are imported.)

To illustrate, that means that farm owners and farmworkers together receive only about one-third of retail spending on fruits and vegetables even though most, and in some cases all, of the work it takes to prepare fresh fruits and vegetables for retail sale takes place on farms (the exact share of the price farmers receive varies slightly by crop). For example, strawberries are picked directly into the containers in which they are sold, and iceberg lettuce is wrapped in the field. Consumers who pay $3 for a pound of strawberries are paying about $1 to the farmer, who pays one-third of that amount to farmworkers, 33 cents. For one pound of iceberg lettuce, which costs about $1.20 on average, farmers receive 40 cents and farmworkers get 13 of those 40 cents.

So, what would it cost to raise the wages of farmworkers? One of the few big wage increases for farmworkers occurred after the Bracero guestworker program ended in 1964. Under the rules of the program, Mexican Braceros were guaranteed a minimum wage of $1.40 an hour at a time when U.S. farm workers were not covered by the minimum wage. Some farmworkers who picked table grapes were paid $1.40 an hour while working alongside Braceros in 1964, and then were offered $1.25 in 1965, prompting a strike. César Chávez became the leader of the strike and won a 40% wage increase in the first United Farm Workers table grape contract in 1966, raising grape workers’ wages to $1.75 an hour.

What would happen if there were a similar 40% wage increase today and the entire wage increase were passed on to consumers? The average hourly earnings of U.S. field and livestock workers were $14 an hour in 2019; a 40% increase would raise them to $19.60 an hour.

For a typical household or consumer unit, a 40% increase in farm labor costs translates into a 4% increase in the retail price of fresh fruits and vegetables (0.30 farm share of retail prices x 0.33 farm labor share of farm revenue = 10%; if farm labor costs rise 40%, retail spending rises 4%). If average farmworker earnings rose by 40%, and the increase were passed on entirely to consumers, average spending on fresh fruits and vegetables for a typical household would rise by $25 per year (4% of $615 = $24.60).

Many farm labor analysts consider a typical year of work for seasonal farmworkers to be about 1,000 hours. A 40% wage increase for seasonal farmworkers would raise their average earnings from $14,000 for 1,000 hours of work to $19,600. Many farmworkers have children at home, so for them, going from earning $14,000 to $19,600 per year would mean going from earning about half of the federal poverty line for a family of four ($25,750 in 2019) to earning about three-fourths of the poverty line. For a farmworker employed year-round for 2,000 hours, earnings would increase from $28,000 per year to $39,200, allowing them to earn far above the poverty line.

Raising wages for farmworkers by 40% could improve the quality of life for farmworkers without significantly increasing household spending on fruits and vegetables. If there were productivity improvements as farmers responded to higher labor costs, households could pay even less than the additional $25 per year for fresh fruits and vegetables.

If average farmworker earnings were doubled (rose by 100%) through increased spending on fresh fruits and vegetables, a typical household would see costs rise by $61.50 per year (10% of $615). That extra $61.50 per year would increase the wages of seasonal farmworkers to $28,000 for 1,000 hours of work, taking them above the poverty line for a family of four.

Updated state-level unemployment claims data: Workers across the country need Congress to increase unemployment benefits

The most recent unemployment insurance (UI) claims data released today show that another 1.3 million people filed for UI benefits last week. However, trends over time should be interpreted with particular caution right now because California data are being imputed since they have temporarily paused their processing of initial claims. For the past 11 weeks, workers have gone without the extra $600 in weekly UI benefits—which Senate Republicans allowed to expire—and are instead typically receiving around 40% of their pre-virus earnings. This is far too meager, in any state, to sustain workers and their families through lengthy periods of joblessness.

The president’s early August executive memo intended to give recipients an additional $300 or $400 in UI instead resulted in reduced benefits, extreme delays, and left many workers ineligible. In some states, even this inadequate additional benefit is still unavailable to workers. For example, New Jersey workers won’t be able to collect additional benefits until October 19. The mixed messages coming from the White House continued last week when President Trump announced, via Twitter, the end of stimulus negotiations with Democratic leaders. When the stock market declined sharply in response, the president backtracked.

These half-measures and empty promises simply will not do when we are facing a massive jobs deficit and an initial recovery that has already slowed substantially. The UI benefits cuts were the first big gash of austerity that will slow the economy’s recovery. The second will be the cutbacks to state and local government spending and employment that will occur without already long-overdue federal fiscal aid. To ensure a strong recovery, Congress must pass a substantial stimulus bill that goes well beyond the meager bill announced by Senate Majority Leader Mitch McConnell on Tuesday. The stimulus must include a sizeable increase to UI benefits and aid to state and local government.

To give a sense of how many workers are being left behind, Figure A shows the share of workers in each state who either made it through at least the first round of state UI processing (these are known as “continued” claims) or filed initial UI claims in the following weeks. The map includes separate totals for regular UI and Pandemic Unemployment Assistance (PUA), the new program for workers who aren’t eligible for regular UI, such as gig workers.

The map also includes an estimated “grand total,” which includes other programs such as Pandemic Emergency Unemployment Compensation (PEUC), Extended Benefits (EB), and Short-Time Compensation (STC). Almost half the states are reporting that more than one in 10 workers are claiming UI. The components of this total are listed in Table 1, although this estimate should be interpreted with caution.1

Three states had more than half a million workers either receiving regular UI benefits or waiting for their claim to be approved: California (3.0 million), New York (0.8 million), and Texas (0.8 million).

Figure A also displays the numbers of workers in each state who are receiving or waiting for regular UI benefits as a share of the pre-pandemic labor force in February 2020. In three states and the District of Columbia, more than one in 10 workers are receiving regular UI benefits or waiting on their claim to be approved: California (15.5%), Hawaii (14.7%), the District of Columbia (11.9%), and Nevada (10.1%).

Nine states reported that more than one in 10 workers are currently claiming PUA: California (18.9%), Hawaii (18.2%), Arizona (13.8%), Michigan (13.5%), New York (13.5%), Kansas (12.9%), Massachusetts (12.8%), Pennsylvania (12.4%), and Rhode Island (10.5%). This underscores the importance of extending benefits to those who would otherwise not have been eligible, including self-employed and low-wage workers and people who are looking for part-time work.

Figure AFigure A

With workers experiencing long-term unemployment as the crisis persists, they are increasingly relying on PEUC, the 13 additional weeks of benefits available to workers who have exhausted the 26 weeks of regular benefits. For the week ending September 26 (the most recent data available) the increase in PEUC claims mirrored the decrease in regular UI claims. This indicates that while there were some initial delays in getting eligible workers on PEUC (including failing to inform them about the program), those appear to be smoothing out.

As we look at the aggregate measures of economic harm, it is important to remember that this recession is deepening racial inequalities. Black communities are suffering more from this pandemic—both physically and economically—as a result of, and in addition to, systemic racism and violence. At the same time, Black workers face longer delays in receiving UI payments.

Young workers have also been hit particularly hard by this recession, in part because they are disproportionately employed in vulnerable industries like leisure and hospitality. At the same time, young workers who haven’t yet secured a job are not eligible for UI benefits. A jobseeker’s allowance would provide some economic security for these new entrants to the labor market and other excluded groups.

Union representation helps to close racial gaps in UI access. In fact, unionized workers overall are much more likely to apply for and receive UI benefits. This shows how workers, even when facing layoffs, are better able to achieve economic security when they come together in a union. Congress should pass policies that bolster unions in both the public and private sector. And in the long term, they must strengthen other institutions that allow us, collectively, to promote the general welfare, including unemployment insurance and public health insurance.

Table 1Table 1

1. Caution: This is a substantial overestimate. For one thing, initial claims for regular state UI and PUA should be nonoverlapping—that is how DOL has directed agencies to report them—but some individuals are erroneously being counted as being in both programs. Also, some states are including retroactive payments in their continuing PUA claims, which would also lead to double counting. Regular state UI continued claims are for the week ending October 3; PEUC continued claims are for the week ending September 26; regular state UI initial claims are for the week ending October 10. PUA continued claims are for the week ending September 26; PUA initial claims are for the weeks ending October 3 and October 10. “Other programs” are continued claims in other programs for the week ending September 26. A full list of programs can be found in the bottom panel of the table on page 4 at this link https://www.dol.gov/ui/data.pdf

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