The New Economics of Jobs Is Bad News for Working Class Americans — and Maybe for Trump

The New Economics of Jobs Is Bad News for Working Class Americans — and Maybe for Trump

January 16, 2018

Many political observers still seem flummoxed by the fact that millions of working-class Americans voted for Donald Trump after supporting Barack Obama not once but twice.  One important reason may lie in certain large-scale changes in America’s job market over the last decade.  The growing role of a college degree in landing a job is well documented.  Now, new household employment data reported by the Bureau of Labor Statistics (BLS) show that over the last decade, Americans with college degrees can account for all of the net new jobs created over the last decade.  In stark contrast, the number of Americans with high school degrees or less who are employed, in this ninth year of economic expansion, has fallen by 2,995,000.

We use the household employment survey here instead of the business establishment survey, because it tracks the education of everyone who gains or loses a job, month by month.  In the latest survey covering December 2017, the number of college graduates with jobs jumped by 305,000 – while the numbers of employed Americans with no high school degree fell by 132,000. High school graduates with jobs dropped by 38,000, and employees with some college but no degree declined by 45,000.  That’s a window into what’s happened across the U.S. economy throughout this business cycle – and the fact that GOP rule hasn’t helped working class  Americans with jobs could create problems for them in 2018 and 2020.

The near decade from January 2008 to December 2017 covers every facet of the current business cycle, except its very end.  The first five years from January 2008 to January 2013 included the recession and financial crisis followed by a modest recovery, and the second five years from January 2013 to December 2017 have seen a reasonably steady expansion.  In a normal cycle from recession to recovery, economists expect to see substantial job losses followed by offsetting job gains.  In the aggregate, that is just what happened in the first five years of this cycle: millions of jobs were lost from January 2008 to December 2010; but by January 2013, the number of employed Americans had recovered to nearly the same level as in January 2008.

But the composition of that workforce – who lost their jobs compared to who landed new jobs – changed in decisive ways.  From January 2008 to January 2013, millions of people without college degrees lost jobs and never regained them, while all of the job gains went to the one-third of the labor force (as of January 2008) with at least a B.A. degree. (See the Table below.)  So, while total employment in January 2013 was just 341,000 less than in January 2008, the number of Americans without a high school diploma who were employed fell by more than 1.6 million. The number of high school graduates with jobs fell by more than 2.8 million, and the number of working people with some college training but no BA degree fell by 227,000.  Over those same five years, the number of college-educated Americans with jobs increased more than 4.3 million.

In the following five years of economic expansion, employment rose rapidly.  From January 2013 to December 2017, the BLS household data show that the number of Americans with jobs increased by 10,997,000, for net job growth of 10,656,000 (10,997,000 – 341,000).  Every educational group saw net job gains – but the distribution of those gains very badly short-changed Americans without college degrees.

Consider, to start, the country’s high school graduates.  In January 2013, they comprised 27.3 percent of the labor force – but their job gains of 720,000 from that time to last month account for only 6.8 percent of all employment growth.  Similarly, Americans who attended college but didn’t earn a B.A. degree accounted for 27.9 percent of the U.S. labor force in January 2013, and they claimed only 15.3 percent of the subsequent job gains.  Strikingly, people without high school diplomas found jobs in this period at a rate that more nearly reflected their share of the labor market:  They comprised 8.2 percent of the workforce in January 2013 and claimed 7.0 percent of net new jobs created from that time to the present.  The only big winners were college graduates.  They accounted for 36.5 percent of the U.S. labor force in January 2013; yet, they claimed 71.0 percent of the net new jobs created since then.  To sum up these figures: of the 10,656,000 net new jobs created from January 2013 to the December 2017, 7,564,000 went to college graduates.

Changes in the Employment of Americans, by Education, 1/2008 to 12/2017

 

No HS Degree

HS Diploma

Some College

College Degree

Total

From
Recession to Recovery: January 2008 to January 2013

U.S. Labor Force 1/08

12,343,000

38,302,000

37,441,000

44,655,000

132,741,000

Share of Labor Force

9.3%

28.9%

28.2%

33.6%

100.0%

Net Job Losses or
Gains,

 1,644,000

 2,815,000

  227,000

+ 4,345,000

  341,000

Economic Expansion:
January 2013 to December 2017

U.S. Labor Force 1/13

11,083,000

36,666,000

37,441,000

48,924,000

134,114,000

Share of Labor Force
1/13

8.2%

27.3%

27.9%

36.5%

100.0%

Net Job Gains

744,000

720,000

1,628,000

7,564,000

10,656,000

Share of Job Gains

7.0%

6.8%

15.3%

71.0%

100.0%

Share of Labor Force,
12/17

7.3%

25.7%

27.1%

39.9%

100.0%

As these data above show, the skewed distribution of job opportunities has affected the composition of the labor force.  As job opportunities have increased for college-educated Americans, their share of the U.S. labor force climbed from 33.6 percent in January 2008 to 36.5 percent in 2013 to 39.9 percent in December 2017.  Similarly, as job opportunities narrowed for non-college educated people, more became discouraged and bailed out of the labor force.  Over the last decade, the share of the U.S. labor force comprised of people without high school diplomas fell from 9.3 percent to 7.3 percent, the share with no more than a high school degree fell from 28.9 percent to 25.7 percent, and the share with some college training but no B.A. fell from 28.2 percent to 27.1 percent.  Too often, the downward spiral has not ended with joblessness.  Researchers have found that nearly half of working-age men who have left the labor force use pain killers on a daily basis.  Moreover, new research shows that on a county by county basis, each percentage-point increase in unemployment is now accompanied by a 7.0 percent increase in hospitalizations for opioid overdoses and a 3.6 percent increase in opioid-related deaths.

Americans without college degrees, who continue to comprise 60 percent of the labor force, are now effectively penalized in every phase of the business cycle.  From the first month of the last recession in January 2008 to December 2017, well into year nine of this expansion, the number of employed Americans with high school diplomas contracted by 2,095,000, and the number of people working without a high school diploma fell by 900,000.  Further, the share of all job gains claimed by Americans with some college but no B.A. degree was just over half their share of the labor force.  Through it all, the number of college-educated Americans with jobs jumped by 11,909,000.  That’s 1,253,000 more than the total 10,656,000 net new jobs created across the economy, suggesting that college grads are also now claiming new jobs that used to go to people without a B.A. degree.

If the disappointment of millions of working-age Americans without college degrees helped drive Trump’s 2016 victory, the Republicans’ political prospects may be even worse than voter surveys suggest.  The booming stock market and great top-line employment numbers have not touched these labor market dynamics.  Nor will the GOP’s vaunted tax changes make a difference:  The success of those changes rests on their spurring a capital investment boom, but the technologies that dominate capital investment today are typically used and operated by college-educated workers.  And when the current business cycle finally ends next year or the year after, workers without college degrees will dominate the jobs losses  By 2020 and perhaps this coming November, Trump and his GOP colleagues could well face a political revolt from the same voters who took a chance on them in 2016.



Donald Trump and Paul Ryan’s Plan to Put Foreign Investors First

March 29, 2017

The “Border Adjustment Tax” (BAT) endorsed recently by President Trump is his administration’s first foray into international economics. It is an inauspicious start.

BAT advocates like House Speaker Paul Ryan promise it will cut the trade deficit by making U.S. exports cheaper abroad and foreign imports more expensive here. The truth is, a BAT won’t much affect U.S. exports or imports, and it certainly won’t create jobs. It would produce a large stream of new federal revenues, and it could trigger retaliatory tariffs on some U.S. exports. A BAT also would enrich a great many foreign investors and companies, and leave a lot of American investors and large companies poorer. All told, it’s the kind of “bad deal” that Mr. Trump once railed against.

Mr. Trump and Speaker Ryan never mentioned a BAT until recently, and the reason they like it now is that it’s a cash cow to pay for their sharp cuts in corporate taxes. The Trump-Ryan BAT would give U.S. producers a 20 percent rebate on the wholesale price of any goods or services they export – 20 percent, because that’s the GOP’s preferred corporate tax rate – and impose a 20 percent tax on foreign goods and services imported here from abroad. It would raise trillions of dollars, because we import about $500 billion more per-year than we export.

For conservatives at least, all those revenues should be a red flag. In a populist period, a subsequent President and Congress may well decide to raise corporate taxes — and when they do, the BAT’s fat revenue stream could well go to fund progressive causes.

Mr. Trump still has no Council of Economic Advisers, so maybe he believes that a BAT will spur U.S. exports and create jobs. Even Peter Navarro should to be able to tell him why that won’t happen. At first, a BAT would strengthen demand for U.S. exports and weaken demand for foreign imports here. But those shifts in demand would quickly strengthen the dollar and weaken foreign currencies, perhaps enough to offset the BAT’s initial impact on import and export prices. In theory, the currency movements triggered by the changes in prices brought about by the BAT should restore pre-BAT prices for both imports and exports, so the only change would be a lot of new revenues from taxing net imports.

In practice, the BAT’s impact on the dollar and U.S. trade is a roll of the dice. As Federal Reserve chair Janet Yellen noted recently, no one knows how closely the currency changes will mirror the BAT’s direct effects on prices. If they overshoot, U.S. consumers will pay more for imports; if they undershoot, U.S. export prices won’t fall much. On top of that, no one knows how much of the BAT tax U.S. importers will pass along to American consumers, and how much of the BAT rebates U.S. exporters will pass along to their foreign customers. Finally, painful retaliation might follow, since China and others won’t take kindly to paying a 20 percent tariff on their exports to the United States, and China’s competitors won’t like the BAT’s substantial devaluation in the yuan-dollar exchange rate.

One effect is certain: The BAT will harm U.S. investors and reward foreign investors as the currency changes reduce the dollar value of U.S.-owned assets abroad and increase the foreign-currency value of foreign-owned assets here. The Bureau of Economic Analysis tells us that in the second quarter of 2016, Americans held foreign stocks, corporate and government bonds, and derivatives worth $12.9 trillion; and foreign-owned financial assets in the United States totaled $20.3 trillion.

If we assume the Trump-Ryan BAT leads to a 20 percent increase in the value of the dollar and a corresponding 20 percent decline in the trade-weighted value of foreign currencies, it would reduce the value of U.S.-held financial investments abroad by nearly $2.5 trillion and increase the value of foreign-owned financial investments here by more than $4 trillion. What kind of deal is that, Mr. President?

The trillion-dollar losers will include U.S. investors in European or Asian mutual funds; U.S. companies with profitable foreign subsidiaries, from Microsoft and Facebook to Coca Cola and Pfizer; and U.S. banks that lend to foreign companies. The trillion-dollar winners will include foreign investors with U.S. mutual funds; foreign companies with major American subsidiaries, from Toyota and Anheuser Busch to Unilever and Phillips; and foreign banks who lend to U.S. companies.

Perhaps the best motto for the Trump-Ryan BAT is “Put Foreign Investors First.”

Robert J. Shapiro, chairman of the economic and security advisory firm Sonecon, was Under Secretary of Commerce for Economic Affairs in the Clinton administration. In the 2016 campaign, he advised Hillary Clinton.

 



Get Ready for Cyberattacks across Many Critical Networks

July 13, 2016

In a recent interview, I said that America’s adversaries “may not do us the kindness of attacking only a single infrastructure sector” in future cyberattacks. Let me take you through this dark scenario. Until now, electric utilities, telecom companies, financial institutions and other vital sectors of our economy have each focused on strengthening their own cybersecurity. These efforts are important, but not nearly sufficient.

In a recent study for Homeland Security Secretary Jeh Johnson, conducted by the Homeland Security Advisory Council (HSAC), which I co-chaired, my colleagues and I concluded that our adversaries might well use cyberwarfare to attack multiple infrastructure sectors at the same time. This prospect vastly complicates those industries’ separate efforts to restore electricity, telecommunications, financial transactions and other vital services when the United States faces cyberattacks on the systems on which our economy and national security depend.

Moreover, these critical infrastructure systems are extraordinarily interdependent. If a cyber-adversary takes down our power grid, our electric utility companies will rely on telecommunications systems to restore power — but those telecom systems rely on electricity to function. Similarly, the country’s key financial services companies rely on both the electric grid and telecom services to sustain the economy. Our recent HSAC report found that in a simultaneous strike on all three sectors, the government’s current response plans would fall far short.

The HSAC report offered a series of proposals to begin to address this serious shortfall. We urged Secretary Johnson to revamp the National Cyber Incident Response Plan (NCIRP), so the government can respond more effectively to private-sector requests for assistance in fighting our cyber-enemies. We also called for deeper engagement with governors in efforts to coordinate the restoration of services when several critical infrastructure system are attacked. The first principle in planning for such a scenario is to strengthen planning and coordination between private-sector infrastructure companies and all levels of our government.

These are very challenging tasks, but failing to take them on could leave America vulnerable to a potential nightmare scenario.



Zero Day Exploits — Can We Control the Arms Race? By Sonecon Managing Partner Paul Stockton

April 14, 2014

Yesterday, a new stage of the “roaring debate” over cyber policy made the news, thanks to David Sanger of the New York Times. He revealed that the U.S. government is now one of the biggest purchasers of information about “zero days,” which are software coding flaws that can be used by cyber criminals to penetrate computers and (potentially) wreak havoc on the power grid, financial institutions, or other infrastructure sectors.

When the government identifies a zero day, Sanger reported, the Obama Administration will ordinarily recommend that the vulnerabilities be disclosed so software manufacturers and users can patch them. However, because cyber weapons that exploit zero days can have such devastating effects, the Administration has also decided to keep knowledge of them secret when there is “a clear national security or law enforcement need” to do so.

The United States is one of many buyers in the thriving, unregulated marketplace for zero day exploits, which Michele Goldman and I recently analyzed in Curbing the Market for Cyber Weapons. Russia, China, North Korea, and Iran also eagerly purchase the zero days that hackers sell in this market to any client with the cash, no questions asked.

On balance, allowing this free-for-all cyber weapons bazaar to flourish weakens our national security. Our government gets to purchase powerful zero days, but so do our potential adversaries, who can use them to attack our critical infrastructure and other networks. As more and more nations (and non-state actors such as Al Qaeda) gain access to cyber weapons they could never build on their own, helping the zero day market flourish by sustaining U.S. purchases in it is a dangerous strategy.

The more difficult question is what the United States can do to clamp down on this market. Unilateral disarmament makes no sense: as long as potential adversaries are in the game, stopping our own purchases would be counter-productive. Instead, the Obama Administration should explore how international agreements might be forged to limit the zero day market, and how stronger invectives can be created for software manufacturers to eliminate zero day exploits before our adversaries find them. Both opportunities for progress are examined in Curbing the Market for Cyber Weapons.



Bringing Foreign-Based Cyberterrorists to Justice in America

May 13, 2013

By Paul Stockton

As you read this, U.S. adversaries are scouring our financial system, electric power grid, and other parts of our critical infrastructure for vulnerabilities to cyber sabotage. President Obama’s Deputy National Security Advisor for Homeland Security and Counterterrorism, Lisa Monaco, says that prosecutions of cyberterrorists “will be critical tools for deterrence and disruption” of their attacks. Before we can bring cyberterrorists to justice, however, we have to fill a major gap in our legal framework to prosecute them. Michele Golabek-Goldman and I have a new article in the Stanford Law and Policy Review that examines that gap and how to fill it. (Intrepid readers can access the analysis, “Prosecuting Cyberterrorists: Applying Traditional Jurisdictional Frameworks to a Modern Threat,” through the Social Science Research Network.)

The stakes in the cyber realm could not be higher. Former Defense Secretary Leon Panetta framed this challenge in his customary, direct terms. A few months before leaving office, he warned that the United States is in a “pre-911 moment” in which “attackers are plotting” to attack U.S. infrastructure with potentially devastating effects. Moreover, he warned us all that “a destructive cyberterrorist attack could virtually paralyze the nation.”  (Full disclosure: I was Assistant Secretary of Defense for Homeland Defense under Secretary Panetta, and more than once got the benefit of his salty assessments of the threat — and sometimes of my own performance.)

We need to solve two big problems before we can have a strong, effective system to prosecute cyberterrorists who attack us from abroad. The first challenge lies in strengthening our technical means to accurately and convincingly attribute attacks to their perpetrators. Attribution is especially difficult when attackers hijack thousands of computers across the globe without their owners’ knowledge or consent, and commandeer those computers to conduct a destructive, coordinated “botnet” operation (as in the massive 2007 attack on Estonia). Nevertheless, federal agencies and private companies are making major progress towards solving the attribution problem.

The second problem is just as important but has received far less attention: that is, building the legal framework to prosecute cyberterrorists. The few experts who have examined this problem, such as Oona Hathaway at Yale Law School, generally argue that the United States should extend the reach of our domestic criminal laws to cyberterrorists who attack us from other nations. The problem remains, what is the basis in international law for such an extension of extraterritoriality?  The solution should not only advance U.S. national security interests, but also support our broader effort to build an international consensus and agreements to fight cyberterrorism.

The answer lies in what international law experts call “prescriptive jurisdiction” based on “the protective principle.”  The protective principle says that a nation can exercise jurisdiction over conduct outside its borders when the conduct directly threatens its security or critical government functions. Historically, this principle has extended a country’s jurisdiction in cases involving terrorism, counterfeiting, drug trafficking, and immigration. Courts here and in other countries have agreed that those crimes sufficiently threaten their national security to warrant jurisdiction. On this basis, a foreign-based cyberterrorist attack that could incapacitate our power grid, compromise broad public safety, and jeopardize the economy should also fall under our legal jurisdiction.

The benefits of establishing such a basis for prosecution would be far-reaching. Being able to  prosecute would-be attackers before they strike their targets would be especially important for protecting the power grid and other critical infrastructure, given their importance to our economy and national security. After a few successful prosecutions, the policy might well discourage others from undertaking such attacks. Moreover, as part of a broader global effort to create new international norms and agreements for the cyber realm, a new legal framework for prosecuting these cyberterrorists would rest on tenets of international law.

For the detailed legal and policy analysis of this approach, and how it would help the United States and the international community build a broader framework to prosecute, deter, and foil cyberterrorist attacks, read our article — and send along your comments!

Your views on the larger challenge that cyberattackers pose to America’s critical infrastructure owners and operators are also welcome. Colleagues and I at George Washington University’s Homeland Security Policy Institute are looking at new approaches to establishing market-based incentives for investments that address emerging threats to the electric grid and other critical infrastructure. I would welcome your thoughts as we move forward.