Immigration News: April, 2005 - Volume 12

Jobs, Social Security

The US economy added 2.2 million jobs in 2004, the most since 1999, and average hourly earnings were almost $16. The unemployment rate remained at about 5.5 percent because fewer Americans were in the labor force, 66 percent, compared to over 67 percent in mid-2000. Some young people are staying in school rather than looking for jobs, and some older workers have stopped looking for work.

In February 2005, employment rose by 262,000, but the unemployment rate was 5.4 percent as some of those not in the labor force sought jobs; in March 2005, there were 111,000 additional jobs, and the unemployment rate fell to 5.2 percent. California's unemployment rate was 5.8 percent, and employment in the state's information sector crept back toward 500,000. However, half of the 2003-04 job growth in California has been attributed in some way to the booming real estate sector, so that a slowdown in housing could slow job growth.

However, real wages fell for the first time in years in 2004 despite strong productivity growth. Median weekly earnings for the 102 million full-time US wage and salary workers were $650 at the end of 2004, and ranged from $720 for men to $580 for women. Hispanics had a median $470; Blacks, $520; whites, $670; and Asians $700. Adults without a high-school diploma earned a median $400, high school graduates averaged $580, and college graduates $1,000 a week.

Lifetime earnings for those getting BA degrees in 2004 were estimated to be $1.3 million; for MS degrees, $1.7 million; for PhDs $2.6 million; and for professional degrees; $3.6 million. However, among those with college degrees, there were differences in annual earnings. White men with BA degrees averaged $66,000 a year in 2003, compared with $38,000 for women with BA degrees. Black and Asian women with bachelor's degrees earn slightly more than similarly educated white women; among college-educated men, Asians earned $52,000 a year, Hispanics $49,000 and blacks $45,000.

The US minimum wage, $5.15 since 1997, may be raised. A worker employed full time at the minimum earns $10,300 a year, which is just over the poverty line for an individual, $9,570 in 2005. Democrats want to raise the minimum wage by $2 an hour, so that it would be $7.15 an hour in 2007; Republicans favor a smaller $1.10 an hour increase to $6.25 over two years.

A February 2005 study by CareerXroads reported that a third of new hires in major US firms in 2003 resulted from internal referrals, a third from the firm's own web site, and less than 10 percent from web sites such as Monster.com. The study found that web sites such as Monster have so many resumes that hiring managers are unlikely to spot a particular person unless an employee calls attention to him/her.

The 100 largest US firms in 2004 included Wal-Mart, with $285 billion in sales and 1.5 million employees; Exxon-Mobil, with $270 billion and 860,000; GM, $195 billion and 324,000; Ford, $170 billion and 325,000; and GE, $150 billion and 305,000 employees. Major employers among the largest 100 firms ranked by sales include McDonalds, 420,000 employees; IBM, 370,000; UPS, 355,000; Target, 330,000; and Home Depot, 300,000.

Profits/CEOs. Corporate profits rose in 2004, and so did the pay of chief executive officers (CEOs). CEOs receive four major types of pay: salary, bonus, the value of restricted stock at the time of grant, gains from stock-option exercises and other long-term incentive payouts. In a study reported by the Wall Street Journal on February 25, 2005, the median annual total direct compensation of CEOs in 2004 was $4.4 million, about 160 times more than the $28,000 earned by the average US production worker.

Another study estimated that the average total pay (including stock options) of CEOs rose from $3.7 million in 1993 to $10.3 million in 2002. Harvard Law Professor Lucian Bebchuk reported that pay for the top five executives of publicly traded US firms was 10 percent of total corporate profit between 1998 and 2002.

The AFL-CIO, saying there was "a continuing disconnect between CEO pay and performance," highlighted several examples of what it considers excessive CEO pay in April 2005. For example, Amgen CEO Kevin W. Sharer cashed in $42 million in stock options in recent years, but did not own any of the biotech firm's shares outright. Amgen changed its rules in 2002 to require company executives and directors to own more of the company's stock, but granted a five-year window for compliance.

CPS. Since January 1994, the Current Population Survey, which interviews 60,000 households each month, has been collecting data on whether members of the household were born in the US or abroad. The US Department of Labor's Bureau of Labor Statistics prepares a report that includes averages of these monthly data (http://www.bls.gov/news.release/forbrn.nr0.htm).

In 2003, there were 21.1 million foreign-born workers in the US labor force, 14 percent of the 146 million total. The labor force participation rate for the foreign-born was slightly higher than for the US born, 67.4 compared to 66. One percent of those 16 and older were employed or looking for work, and their unemployment rates were also higher, 6.6 compared to 5.9 percent. Foreign-born men were more likely to be in the labor force than US-born men, 81 compared to 72 percent, and foreign-born women less likely, 54 compared to 60 percent.

Foreign-born workers were 60 percent male, while 52 percent of US workers are male. Some 37 percent of the foreign-born workers were in the western states, compared to 20 percent of US workers. About 48 percent of the foreign-born work force was Hispanic and 22 percent was Asian, compared to seven and one percent of US-born workers. By contrast, 20 percent of the foreign-born workers were white, compared to 80 percent of US-born workers. About 30 percent of the foreign-born 25 and older had not completed high school, compared to seven percent of the US-born. Similar percentages had a college degree or more, 31 and 32 percent.

Social Security. In his February 2, 2005 State of the Union address, President Bush called for partial privatization of Social Security, highlighting the challenges facing the US and other aging societies. Federal spending on the elderly was 29 percent of the federal budget in 1990, 35 percent in 2000, and is projected to be 43 percent in 2010, with the fastest spending growth in Medicare and Medicaid. About 40 million Americans, almost 15 percent, receive Social Security benefits, and workers and employers each pay a tax of 6.2 percent of their first $90,000 in annual earnings to cover the cost of the benefits paid.

Bush proposed that workers be allowed to divert a third of their social security taxes to private or personal investment accounts in the hope that higher private returns can offset expected future benefit cuts. However, creating personal accounts does not change the reality that in two decades Social Security benefits owed will exceed the Social Security taxes paid.

Two extremes mark the spectrum of opinion about the implications of aging for the financial stability of governments and societies. At the one extreme, are those who argue that the generosity toward the elderly that was possible as populations were growing rapidly must now be curbed, so that future retirees with fewer children must accept fewer government benefits. In an extreme example of how the demographic twist affects employers, Lucent (formerly part of AT&T) has 20,000 active US workers and 120,000 retirees, and has cut their health benefits.

At the other extreme are those who argue that aging's effects are very manageable if retirement ages are raised gradually and productivity and incomes rise for the fewer workers remaining. The percentage of men 55 to 64 years old in the work force fell steadily from 87 percent in 1950 to under 65 percent in 1994, and has since risen to 70 percent. About 20 percent of men 65 and older are in the labor force.

Other changes that would keep Social Security solvent until 2075 or later include: eliminating the current $90,000 a year cap on earnings subject to Social Security taxes, raising the current payroll tax by two percent, or cutting benefits by 13 percent. About 25 percent of state and local government workers are not in Social Security, and bringing them into the system would increase tax payments. Many conservatives oppose such "tinkering" because they see at least partial privatization of Social Security as a step toward an "ownership and investor" society.

Private retirement plans are changing. Many private companies have shifted from defined benefit to defined contribution pension plans, or from a fixed schedule of retirement benefits to a fixed schedule of contributions with uncertain benefits. In 1979, about 80 percent of workers covered by a company retirement plan had a defined-benefit pension, but only 40 percent did in 2001. The share of large employers offering health insurance to retirees dropped from two-thirds in 1988 to a third in 2004.

If current trends continue, spending on social security is projected to rise 50 percent by 2050, but spending on Medicare and Medicaid is projected to increase by three or four times. When aid to the elderly programs began, age was often a proxy for poverty. That is no longer the case, and many argue that the key to keeping government benefits in an aging society affordable is to do more means-testing of elderly benefit recipients.

The president did not mention immigration as a factor that might mitigate the financial burdens of a changing and aging US population. However, several organizations tried to influence the Social Security debate by releasing studies on immigration and pensions. The National Foundation for American Policy estimated that net legal immigration is 600,000 a year, and net illegal immigration is 300,000 a year, and that if immigration were increased by a third over the next 75 years, the Social Security deficit would fall by 10 percent. Unauthorized foreigners in the US may not receive UI benefits and are generally barred from receiving Social Security and earned income tax credit benefits.

The federal deficit was $521 billion in FY04. President Bush laid out plans to halve the deficit by 2009 by freezing all discretionary spending unrelated to defense or homeland security.