More About Jared Bernstein

Jared Bernstein

Jared Bernstein joined the Center in May 2011 as a Senior Fellow. From 2009 to 2011, Bernstein was the Chief Economist and Economic Adviser to Vice President Joe Biden, executive director of the White House Task Force on the Middle Class, and a member of President Obama’s economic team. Bernstein’s areas of expertise include federal and state economic and fiscal policies, income inequality and mobility, trends in employment and earnings, international comparisons, and the analysis of financial and housing markets. He is the author and coauthor of numerous books for both popular and academic audiences, including “Crunch: Why Do I Feel So Squeezed?” and nine editions of "The State of Working America." Bernstein has published extensively in various venues, including The New York Times, Washington Post, Financial Times, and Research in Economics and Statistics. He is an on-air commentator for the cable stations CNBC and MSNBC and hosts jaredbernsteinblog.com.

Full bio and recent public appearances | Research archive at CBPP.org


Gradual Phase-In Helps Employers Adapt to Minimum Wage Hike

April 30, 2014 at 10:00 am

The Senate will vote today on a proposal to raise the minimum wage to $10.10 by 2016, providing important, tangible benefits to low-wage workers. Seemingly unaware that the increase phases in over time — in three annual steps of $0.95 (see graph) — some argue that it would constitute a significant shock to low-wage employers.  While there’s no question that a higher minimum wage raises their labor costs, the gradual phase-in is designed to help them adapt to the higher wage level.

As always when a minimum wage increase is proposed, opponents also claim that it would lead to large numbers of layoffs.  But, extensive research doesn’t support that conclusion, as our report explains.  Moderate increases like the one under consideration have been shown to help many more low-wage workers than they hurt.

Since the minimum wage isn’t adjusted for inflation, the longer Congress fails to act, the more its buying power erodes.

Updating Overtime Rules Would Help Millions of Workers

March 14, 2014 at 2:59 pm

My latest post for the New York Times Economix blog explains why and how the federal government should update its rules on overtime pay.  Here’s the opening:

Since the Fair Labor Standards Act of 1938, it has been established that if you’re an hourly paid worker and you work more than 40 hours per week, you should get overtime pay equal to time and a half, meaning 1.5 times your base wage.  For three-quarters of a century, that standard has both rewarded people with a wage premium for working overtime, and provided an important incentive for employers to hire extra workers if they want to avoid paying the overtime premium to their existing work force.

But the law did not stop there.  It recognized that certain salaried and white-collar workers should also benefit from overtime pay, as neither their relatively low salaries nor their duties at work should exempt them.  So the law created a salary threshold below which salaried workers must get overtime and a set of “duties test” to establish whether salaried workers earning above the threshold were truly engaged in exempt duties for most of their time at work, including supervisory, managerial and executive tasks.

Unfortunately, these parts of the overtime rules have eroded, meaning that millions of workers who should be eligible for overtime are not.  Fortunately, President Obama has proposed to update these rules, and double-fortunately, he does not need congressional approval to make this type of regulatory change.

See the whole piece here.

Why We Need a Stronger Minimum Wage

January 29, 2014 at 12:18 pm

Our last post noted that support for expanding the Earned Income Tax Credit (EITC) for childless workers — as President Obama recommended last night — is growing on both sides of the aisle.  Policymakers also should help low-wage workers by strengthening the minimum wage.

Today’s minimum wage is 22 percent below its late 1960s peak, after adjusting for inflation.  Raising it to the $10-an-hour range would help to offset some of the unfavorable trends facing low-wage workers, including stagnant or falling real wages, too little upward mobility, and inadequate bargaining power that leaves them solidly on the “have-not” side of the inequality divide.

The President last night announced an executive order to raise the minimum wage for workers on government contracts to $10.10, thereafter indexed to inflation.  That’s a good first step, as I explain here.

The increase is modeled on a proposal before Congress — the Fair Minimum Wage Act of 2013 (FMWA) — to raise the minimum wage from $7.25 to $10.10 in three annual increments and then index it to inflation.  If policymakers enact the FMWA soon, by 2016 the value of the minimum wage (adjusted for inflation) would be slightly above its late 1960s peak, as the graph shows.

The question of whether raising the minimum wage reduces employment for low-wage workers is one of the most extensively studied issues in empirical economics.  The weight of the evidence is that (1) for minimum wage levels in the range now being discussed, such impacts are small, and (2) minimum-wage increases of the size enacted in the past, and under the proposals now being discussed, are a net benefit to low-wage workers as a group.  Raising the minimum wage also would modestly lower poverty and help push back against rising inequality.

Some opponents of raising the minimum wage argue that it would primarily benefit teenagers working for extra money, but the large majority of those who would benefit are adults, most of them women.  Indeed, the average worker who would benefit brings home half of the family earnings.  This reflects the fact that the low-wage workforce has gotten older (and more educated) in recent decades.

In addition, though opponents often suggest that the EITC obviates the need for a minimum-wage increase, both a strong EITC and an adequate minimum wage are needed to ensure that work “pays” for those in low-wage jobs.  The two policies are complements, not alternatives.

To lift working families’ incomes to an adequate level through the minimum wage alone, policymakers would have to raise it far above its historical level — and to a level that could raise significant concern about the effect on jobs.

Similarly, if policymakers tried to do the job solely through refundable tax credits like the EITC, the cost to the government would be well beyond what they likely would countenance.  Also, low-income workers would get too large a share of their income once a year at tax time, rather than throughout the year in their paychecks.

Working together, however, a decent minimum wage and strong refundable credits can help low-wage workers make ends meet and ensure that those considering whether to work have a strong incentive to take a job.

Income Inequality at Historically High Levels, Census Data Show

September 12, 2012 at 5:21 pm

The shares of the nation’s income going to each of the bottom three fifths of households were the lowest on record last year, in data that go back to 1967, today’s Census Bureau report shows.  The share of income going to the top fifth was the highest on record (see graph).

The bottom 20 percent of households received just 3.2 percent of all household income in 2011, and the middle fifth of households received only 14.3 percent of the income.  But the top 20 percent of households got 51.1 percent of the income in the nation, and the top 5 percent of households garnered 22.3 percent.

In short, as more of the gains of economic growth have accumulated at the top, the shares of the national income going to the bottom and middle have fallen.

Although the economy grew last year, middle-income households continued to lose ground, and the losses were particularly large for working-age households.   It’s a stark reminder that when it comes to the living standards of middle- and low-income families, overall economic growth is necessary but not sufficient.

For these families to get ahead, the economy must not only expand but that expansion must reach more households, particularly those for whom growth has been largely a spectator sport.

Income Mobility Can’t Explain Away Evidence of Increased Inequality

November 29, 2011 at 8:29 am

Some policymakers, like House Budget Committee Chairman Paul Ryan, have tried to dismiss studies like this one from the Congressional Budget Office showing a large rise in income inequality in recent decades by arguing that these studies do not account for income mobility in America.

Here’s their argument:  the data we have showing rising inequality is based on successive “snapshots” of the income ladder over time, but people are not stuck on the same rung over many years; they move up and down the ladder.  Increased income inequality means the rungs of the ladder are further apart, but if there is enough movement up and down that income ladder, where people are in a particular year would tell us very little about where they were a few years earlier or where they will be a few years later.  If mobility has increased enough, the dramatic rise in income inequality over the past thirty years is not an obvious problem.

The problem is, there’s just no evidence that mobility is increasing, and quite solid evidence to the contrary.

A new paper by Federal Reserve economist Katharine Bradbury clearly documents a statistically significant decline in the rate of mobility.  The slowdown isn’t dramatic; Bradbury accurately labels it “slight.”  But it’s there.

This graph, based on Bradbury’s analysis, shows two measures of family income mobility over ten-year spans:  the share of families in the richest fifth who move down the income scale to the middle or lower fifths and the share of families in the poorest fifth who move up to the middle or higher.

The lines basically drift down starting in the late 1970s, meaning there’s less movement between the rungs on the income ladder.  Bradbury found that the downshift over time was statistically significant (see Table 5 of her paper).

The argument that mobility offsets higher inequality may sound plausible, but the facts don’t support it.

Inequality Growing, and Government Doing Less About It

October 27, 2011 at 10:45 am

The Congressional Budget Office has released a fascinating and disturbing analysis on the growth in income inequality among American households over the past few decades.

The key findings are:

  • Inequality increased significantly over this period (see graph).  Between 1979 and 2007, incomes grew by 275 percent for the wealthiest 1 percent of households, 37 percent for the middle 60 percent of households, and 18 percent for the poorest 20 percent of households.  These figures adjust for inflation and account for the impact of taxes and government transfer payments such as Social Security and unemployment benefits.
  • The share of the nation’s total income accruing to the middle 60 percent of households fell from around half in 1979 to a bit above 40 percent in 2007.  Virtually all of this decline (and the decline in the share of income held by the bottom 20 percent of households) is reflected in the increase for the top 1 percent, whose share of the nation’s total income more than doubled.

Income Gains at the Top Dwarfed Those of Low- and Middle-Income Households

The increase in inequality mostly reflects the growing share of market income — that is, income before accounting for taxes and transfer payments — going to higher-income Americans.  Because our tax and transfer system is progressive (e.g., higher-income households pay higher federal income taxes and transfers tend to benefit those with lower incomes), taxes and transfers reduce inequality at any given point in time.

But, given that market incomes have grown more unequal, a good question is whether changes to the tax and transfer system in recent decades have made it more effective in pushing back against this rising tide of inequality.  They haven’t.  In fact, the opposite has happened.  The CBO study finds:  “Between 1979 and 2007, the Gini index [a measure of income inequality] for market income increased by 23 percent … and the index for income measured after transfers and federal taxes increased by 33 percent.”

The reason is that both federal taxes and transfers, while still progressive, have become less so over time.  In a sense, the tides of inequality have been rising, while the levees to hold them back have been shrinking.

Myths and Realities About Small Businesses and Jobs

October 24, 2011 at 11:58 am

Politicians and the small business lobby regularly claim that small businesses are the main drivers of growth in the U.S. economy, but the facts show otherwise, as I explain in an op-ed in today’s New York Times. Here’s the opening:

I challenge you to find a stump speech by a politician running for any office from dog catcher to president that doesn’t invoke the importance of small businesses.

That’s not necessarily a bad thing. It’s a hat tip to American entrepreneurialism, evoking images like that of Steve Jobs planting a seed in his garage that grew into an amazing Apple orchard.  Besides, don’t most people work for small businesses, and aren’t such businesses the engine of job growth?

Actually, no.  In what may be the most misunderstood fact about the job market, although most companies are small — according to 2008 census data, 61 percent are small businesses with fewer than four workers — more than two-thirds of the American work force is employed by companies with more than 100 workers.  You can tweak the definitions, but even if you define “small” as fewer than 500 people (as the federal government does, basically), you still find that half the work force is employed by large businesses.

Click here for the full piece.

Obama’s Plan: Robust and Ambitious

September 9, 2011 at 12:18 pm

President Obama’s new, robust, and ambitious jobs plan is a well-crafted measure that would provide significantly more job and earnings opportunities for working Americans. Given the economic difficulties facing America’s families, Congress should enact it sooner rather than later.

Jobs Act Would Reduce Unemployment Rate Next YearThe President did not estimate how many jobs it would create or save but, at about $450 billion, it’s clearly large enough to cut the unemployment rate over the next year or so.  Moody’s Analytics’ Mark Zandi predicts the plan would add 1.9 million jobs in 2012 and cut the jobless rate — which now stands at 9.1 percent — by a percentage point compared to where it would otherwise be.

In fact, as the chart reveals, if Congress fails to pass any of the measures in the American Jobs Act, we should expect the unemployment rate to be slightly higher next year (9.3 percent).  But with the AJA job-creation measures at work in the economy, the jobless rate would be 8.3 percent.  That’s still too high, but it’s a marked improvement.

As expected, the President called for renewing the payroll tax cut and extending unemployment insurance benefits, both of which are scheduled to expire at the end of this year.  But he also called for considerable extensions of both policies.

On the payroll tax break, he proposed raising the 2 percentage-point cut to 3.1 percentage points (half of the overall payroll tax on employees).  The benefits of the tax cut to a typical worker earning $50,000 per year would grow from $1,000 to $1,550.

Employers also pay a 6.2 percent payroll tax, and the President proposed cutting that in half to 3.1 percent, capped at $5 million of payroll.  In other words, employers would benefit from tax relief of up to $155,000.  Since large businesses have payrolls well over the $5 million cap, the structure of this tax cut favors small businesses.

Just as under the current payroll tax cut, the federal government would transfer general revenues to Social Security to reimburse it for the revenues lost through the payroll tax cut.

The President’s proposed extension of unemployment benefits includes a new $4,000 credit to employers who hire the long-term unemployed (those seeking work for at least six months).

On the infrastructure side, the President’s plan includes $50 billion for surface transportation projects, $30 billion for public school and community college repairs and renovations, and a $10 billion down payment for an infrastructure bank.

Also, given the serious loss of state and local jobs during the downturn, the plan wisely includes $35 billion to preserve jobs of teachers and “first responders” such as police and firefighters.

Other parts of the jobs plan include:

  • a $15 billion neighborhood stabilization fund to help improve and repair low-income housing, including homes vacant due to foreclosure, that can then be sold to low-income homebuyers;
  • a $5 billion “Pathway Back to Work Fund,” including summer jobs for low-income adults and youth, subsidized jobs for members of low-income families, and a training/work placement program.
  • an on-the-job training program for unemployment recipients; and
  • a small business expensing program that allows businesses to write off the cost of certain capital expenses (typically equipment and software) in one year as opposed to the usual many years.

The President proposed paying for the package through revenue increases and spending cuts.  But to avoid canceling out the stimulative impact of the plan, these “pay-fors” would kick in down the road, when the economy is presumably stronger.

Jared Bernstein on Helping the Middle Class

June 23, 2011 at 10:53 am

Senior Fellow Jared Bernstein testified at a hearing of the Senate Health, Education, Labor and Pension Committee today on how middle-class families are struggling to make ends meet.  Here’s an excerpt:

What Are the Policies That Could Help the Middle Class?

. . . Here, I briefly list a few policy areas that could make a difference.  I offer few specifics and more generally just point out areas worthy of more policy research.

  • Retirement Security: Social Security, a guaranteed pension for retirees, is often the first line of defense in retirement security.  Though it is often mistakenly thought to be unimportant to most seniors, in fact, for recipients age 65 and up on, Social Security is about two-thirds of their income and that share grows with age—for the old-elderly, it’s closer to 70 percent of their income.  For a third of those over 65, Social Security accounts for at least 90 percent of their income.So protecting Social Security benefits is a key component of a retirement security agenda.  Beyond that, increasing access to pension savings through work would help future retirees.  The Obama administration has put forth various proposals to encourage pension participation and incentivize employer participation.  Also, with seniors living longer, presenting retirees with annuity options is also worth a close look.
  • Health Care: The Affordable Care Act was clearly targeted at helping to improve middle-class health care security, by lowering the growth of health care spending and premium costs relative to their expected trend.  Analysis by the President’s Council of Economic Advisors that by lowering the growth rate of health care costs, the real income of middle class families in 2020 will be $2,600 higher than would otherwise be the case.In the near-term debate, however, it is very important to the middle class to protect the Medicaid program against deep spending cuts.  Though Medicaid coverage is generally thought of as serving the low-income population, the program is the primary payer for 64 percent of nursing home residents.  With savings and other insurance, middle-class seniors may be able to initially pay for home health or nursing home services, but over time many spend their savings and eventually need Medicaid to step in, as Medicare provides limited coverage for these services.
  • Support for College Tuition: As noted above, college tuition has significantly outpaced inflation and middle-class income growth.  But the large increase in government tuition assistance in recent years has helped offset these costs for both middle-class (American Opportunity Tax Credit) and lower-income students (Pell Grants).  These measures can lower the net cost of tuition well below the “sticker price,” and in doing so, help relieve income-strained families.
  • Jobs and Incomes: The ability of middle-income families to meet the challenges noted thus far, from saving for retirement, balancing work and family, paying for college and health care, and retirement security, will all depend on quantity and quality of jobs available to middle-class families.  While it is beyond the scope of this testimony to discuss a jobs agenda policy set, the ideas that President Obama outlined in his “winning the future” agenda, including investments in new industries such as clean energy, infrastructure, and education should certainly help generate more opportunities.

But there is much more for policy makers to consider in this area, including manufacturing policy (including aggressive pushback against unfair trade practices), a strong, efficient public sector, a balanced playing field for union organizing, appropriate workplace regulation to protect workers’ safety and basic rights, decent minimum wage levels, and consumer protections.

These types of ideas have the potential to form the basis of a new social contract, one that could once again give the American middle class a fighting chance to loosen the squeeze and regain their economic footing.

You can read the full testimony here.

Good news re: Republicans and revenues?

June 21, 2011 at 4:58 pm

Some Republicans may be more open to including revenue increases in a deficit-cutting budget deal.  The latest evidence comes from Sunday’s comments by Sen. Lindsey Graham (R-SC) on NBC’s “Meet the Press,” where he said, “No one on the Republican side is going to vote to raise taxes, but I think many of us would look at flattening the tax code, do away with deductions and exemptions and take that revenue to help pay off the debt.”

Graham’s comments did not arise from nowhere.  Most Senate Republicans voted last week to end tax subsidies for ethanol production, which cost the federal government about $6 billion a year.  Also, Sen. Lamar Alexander (R-TN) is reportedly working on a plan to scale back tax subsidies for oil and gas companies.

What Graham means, and what some other Republicans have echoed, is that they are open to reducing some of the “tax expenditures” in the federal budget.  Tax expenditures are the credits, deductions, and other write-offs that individuals and corporations can claim for certain activities, like producing ethanol (as noted above) or paying interest on a home mortgage. They are a big part of the tax code, draining more than $1 trillion a year in revenues that the federal government would otherwise collect.

Cutting tax expenditures, which tax experts often call “broadening the tax base,” could prove important.  Raising revenues in this way would soften the need for dramatic cuts in vital budget programs.  Were more Republicans willing to follow this path, it could pave the way for a deficit-cutting plan that would be more balanced and that could well achieve more total budget savings than otherwise.

But policymakers should apply most or all of the revenues raised by cutting tax expenditures to deficit cutting.  If, instead, they mostly use those revenues to lower tax rates, that’s almost worse than nothing.  Not only won’t it cut the deficit much, it will make future deficit-cutting harder by taking some of the “low-hanging fruit” on the tax side – that is, particularly egregious tax breaks – off the table.

Don’ts and Do’s for a Fragile Recovery

June 14, 2011 at 9:11 am

With the recent slowing of an already fragile U.S. economic recovery, an increasing number of experts are becoming convinced that the economy needs help.  Economists, columnists, and policymakers have joined a drumbeat stressing ideas that could strengthen the recovery, while warning against policies that risk pushing us back into recession.

What We Shouldn’t Do: Policymakers should adopt a balanced plan—one involving both spending cuts and revenues increases—to rein in medium- and long-term deficits.  But with over 20 million people un- and underemployed, now is not the time to institute large budget cuts or tax hikes.

Aggressive spending cuts this year or next wouldn’t just hurt those most exposed to the tough economy.  By taking money and services away from those who need them most, such cuts would hurt the macroeconomy as well.  Independent research has consistently found that the benefits from safety net programs like unemployment insurance and food assistance and entitlements like Social Security go disproportionately to people who spend the money fairly quickly to meet basic needs.  That, in turn, leads to more economic activity, amplifying the impact.

We should also avoid creating any additional economic “air pockets” in the short term.  That is, as federal stimulus fades and states continue to face budget constraints, we mustn’t allow policies that are boosting demand to fade too soon, as explained below.

Another bad idea right now would be to allow multinational corporations to bring their overseas profits back to the United States at a sharply reduced tax rate.  Instead of generating jobs, the evidence is that this type of tax holiday results in windfall profits for shareholders of a few large companies.

What We Should Do: Clearly, the politics of pivoting to job creation are very tough right now (though if the Mavericks can beat the Heat, anything’s possible!).  But the realities of the tough economy may have created an opening.  Thus, it makes sense to have a ready agenda of ideas that could help:

  • State Fiscal Relief: One of the 2009 Recovery Act’s most effective programs was fiscal relief to help states meet their balanced-budget requirements despite a historic revenue decline.  Over the past three years, states and towns have been aggressively cutting jobs — more than 530,000 since August 2008 — but these job losses would have been much, much worse without the state fiscal relief.  Since most states still face significant budget gaps, another round of fiscal relief would preserve important jobs and services in our communities, like teachers and police.
  • Unemployment Benefits and Payroll Tax Cut: Federal benefits for the long-term unemployed and the current payroll tax cut both expire at the end of this year.  Policymakers should extend both.  In fact, we’ve never failed to extend UI benefits with the unemployment rate as high as it is likely to be at the end of this year.  And while another round of the payroll tax cut would benefit the economy, the federal Treasury must continue to replace any losses to the Social Security Trust Fund, and the tax cut should eventually expire so it doesn’t become a drain on Social Security finances.

Beyond this, ideas have been floated to add to the current payroll tax cut for workers and extend it to employers as well, thus lowering the cost of hiring.  Increasing the payroll tax cut for workers could be particularly important if energy prices remain high, as it has been instrumental in offsetting the negative impact of higher oil prices.

  • Infrastructure: We have deep infrastructure needs and, given the low cost of borrowing and high unemployment among construction workers and builders, infrastructure investment makes a lot of sense right now.  Though it takes a while to get these programs up and running, virtually every economic forecast has unemployment highly elevated for a number of years to come.  So, unfortunately, we have the time to get some traction from an infrastructure program.
  • Manufacturing: President Obama visited an LED lighting factory yesterday that benefited from a smart tax credit (the Advanced Energy Manufacturing Tax Credit) that incentivizes the building of clean energy equipment here in the United States, leveraging about $2 of private capital for every $1 of the credit.  Many in Congress want to renew it, and the Administration has been supportive in the past.
  • Housing: The protracted weakness in the housing market continues to drive foreclosures and falling home prices, and to act as weight on the recovery.  While some “underwater” homeowners would be better off getting out from under a loan they’ll never be able to service, others, with some principal reduction or other modification, could “resurface” and hang onto their home.  An important part of the solution here is for market participants, including the government-sponsored entities (Fannie Mae and Freddie Mac), to do more mortgage modifications, particularly those that provide principal reduction.  Their reluctance to do so is one reason the current “correction” in the housing market is taking so long.

We will continue to stress more ideas like these in days to come.  But the key point is that all the economic signals are pointing to the need to:  a) pivot towards doing more to help the many working families still struggling with the tough job market; and b) pivot away from short-term spending cuts that will hurt those families more while threatening to further slow the fragile recovery.