Last year, Nike brought back their Air Cortez sneaker in the White/Varsity Royal-Varsity Red color scheme– the very same style Tom Hanks was seen donning in the 1994 movie Forrest Gump. Producing this shoe is incredibly labor-intensive– its leather stitching, exposed padding on the nylon tongue, and crisp white laces have undoubtedly been produced in one of hundreds of Nike’s manufacturing plants outside of the United States. However, a significant portion of what consumers pay for when purchasing shoes like the “Forrest Gump sneaker” go not only towards manufacturing costs, wages, and shipping, but also tariffs and shoe taxes. Unbeknownst to many, outdated shoe tariffs have been contributing to the rising costs of shoes and have led to many Americans, like Forrest Gump, running their shoes into the ground.

With a globalized economy and companies increasingly outsourcing plants to take advantage of cheaper labor, brands produced in the United States have difficulty competing with low prices. In order to counter the low costs of the textiles and apparel imports, the United States government has imposed tariffs of up to 67.5 percent compared to an average 1.4 percent on most other goods to protect the United States’ dwindling domestic manufacturing supply chain (The Hill). However, with only one percent of shoes manufactured in the United States, American consumers could be the ones suffering the burden through unnecessarily high costs of shoes.

The shoe tariff was created in 1930, when the United States boasted a large domestic footwear manufacturing base (The Hill) that needed protection from foreign companies. Back then, footwear manufacturing was even more labor intensive than it is now, with each stitch handmade and leather meticulously done. Numerous European craftsmen brought with them knowledge and credibility in the art of shoemaking, which helped the United States manufacturing base flourish. Since the rapid globalization of the shoe industry, cheaper labor across seas made manufacturing in the United States less practical. Today, European shoemakers are not competing with the United States for shoe manufacturing, but counterfeits and cheaper goods from countries like Vietnam and China.

Generally, imposing high tariffs are meant as a supportive measure for the domestic manufacturing market. Raising prices of incoming goods keeps prices competitive for imports and domestic products, thereby encouraging United States consumers to continue supporting the United States economy on a local level. In the United States, over 99 percent of shoes are imported, mostly from Asia (Wall Street Journal). However, these tariffs still exist to protect the remaining one percent, whilst most Americans cannot name one American shoe companies manufactured in the United States.

An example of a company benefitting from the high tariffs is New Balance, an American sneaker company, and one of the last to continue manufacturing in the United States. Even New Balance, however, says that it is struggling to keep manufacturing in the United States. Though Robert DeMartini, CEO of New Balance, insists on keeping manufacturing in the United States, stating that New Balance’s U.S. plants are “twice as effective” as Asian plants, and that “we learned a lot because we had to in order to survive” (Wall Street Journal), the company is still facing difficulties to keep work at home. Manufacturing in the United States costs 25 to 35 percent more than to manufacture abroad in Asia (Daily News), and a majority of New Balance’s shoes have parts manufactured outside of the United States. In fact, the company manufactures two-thirds of its shoes across waters and relies heavily on machinery in order to keep costs low. Though the main argument for maintaining the high shoe tariffs is to keep manufacturing jobs at home, are they simply supporting jobs that we can no longer afford to keep in the United States?

Nike is one company protesting the high tariffs. Nike claims that current money going towards tariffs and taxes could go towards research and development advancing sustainability and innovation. The company argues that lowering tariffs can actually increase manufacturing jobs in the United States by allowing the company to develop advanced manufacturing methods that would make keeping jobs in the U.S. more practical. However, many Americans are skeptical of Nike’s promises to create jobs if tariffs are cut, especially as the company continues to move jobs overseas. Lori Wallach, the director of Public Citizen’s Global Trade Watch, is one skeptic. She says, “Nike’s job creation claim mimics the broken job creation promises that multinational corporations have used to push for past controversial trade pacts, only to turn around and offshore U.S. jobs after the pacts took effect” (NPR). Though Nike is viewed as having the financial and political backing to end shoe tariffs in the United States, the reality is that many Americans would rather trust a company like New Balance on an issue concerning American jobs due to its positive association of being made by Americans, for Americans.

The 99 percent of shoes manufactured abroad pay a significant portion of their budget towards shoe taxes, which in turn ups the prices of shoes for unsuspecting Americans. Shoe tariffs are enforced based on shoe classification, which are assigned in a complicated process based on the shoe material, function, target gender, size, construction, and value. Generally, shoes that are more likely to have been produced through cheap, foreign labor have a higher tariff imposed. These shoe tariffs range from zero percent for men’s golf shoes, to 84 percent for cheap sandals and are implemented by volume, per shoe (Harmonized Tariff Schedule). Annually, these shoe tariffs provide an additional 2.7 billion dollars for Congress (NPR). Because most Americans purchase 7.3 pairs of shoes annually each regardless of age, the estimated 2.4 billion dollars that Americans could be saving according to industry analysis could be going towards other household expenses.

Due to the fact that shoe tariffs disproportionately affect prices on the cheapest shoes to manufacture — children’s shoes and low-cost-to-produce sneakers, the Americans hit hardest by shoe tariffs are often those who cannot afford to pay the extra costs. According to Economist Bryan Riley, shoe tariffs increase costs of the cheapest shoes by about one-third. For example, if shoe tariffs were removed on a $10 shoe, they would be reduced by $3. This in turn impacts how families living paycheck-to-paycheck end up spending money in other household necessities like groceries. Purchasing goods and services to support their children and their family’s health are affected unnecessarily.

Though the 1930s shoe tariffs were intended to protect the United States shoe manufacturing industry, the tariff is now outdated as American manufacturing work has since traveled overseas. Americans are left paying the costs of keeping a slim number of manufacturing jobs at home. Most Americans are unaware of the shoe tariffs, and with companies like Nike and New Balance arguing both sides of whether or not to keep them, Americans who are informed are decidedly split on the issue. As tariffs come to the forefront of politics, it will be interesting to see whether or not Americans decide to kick the tariffs costing them so much.

Sources:

New Balance Opposes Push to End U.S. Shoe Tariffs

https://hts.usitc.gov/?search_txt=shoes&query=shoes

http://sneakerfactory.net/sneakers/2015/02/importing-shoes-hts-shoe-import-duty-shoe-tariffs/

Tariff Reduction Initiatives

http://www.usalovelist.com/american-made-shoes-ultimate-source-list/http://www.aei.org/publication/the-us-has-imposed-protective-shoe-tariffs-on-americans-for-decades-even-with-no-domestic-shoe-industry-to-protect/

The Economy and a Pair of Shoes

http://www.npr.org/sections/itsallpolitics/2015/05/08/405196569/would-lower-shoe-tariffs-actually-encourage-american-jobs

Footwear needs tariff relief

http://www.wsj.com/articles/SB10001424127887323764804578312461184782312

http://money.usnews.com/money/personal-finance/articles/2011/10/28/how-consumers-and-communities-can-benefit-from-buying-local

http://www.usnews.com/opinion/blogs/economic-intelligence/2012/09/21/the-wasteful-culture-of-forever-21-hm-and-fast-fashion

http://www.forbes.com/sites/danikenson/2013/07/23/textile-protectionism-in-the-trans-pacific-partnership/#275d91d593a8

http://www.wsj.com/articles/SB10001424127887324735104578123523795505336

http://hypebeast.com/2016/7/nike-classic-cortez-og-forrest-gump

Behind the Vote

Brexit. A term that filled newsrooms, Facebook feeds, and local pubs all summer long.

It’s the word that became a reality on June 23^rd, 2016, when the UK voted to revoke its membership from the European Union with a 52% majority vote. The decision sent shockwaves around the world, as countries questioned what the future of Europe would look like. With such a slim victory margin from the “Leave” campaign, the decision was highly controversial and has continued to cause political, social, and economic anxiety in the months since.

The official campaign for Britain was called Vote Leave, and was built on the notion that the UK had to leave the EU in order to protect its borders, strengthen its economy, and increase employment and wages for British nationals. Immigration was one of the most important components of the Vote Leave campaign, as proponents argued that until the UK had full control of its own immigration policy, it would not be able to handle the influx of European immigrants that arrive each year. However, according to the Office for National Statistics, of the 636,000 people who immigrated to the UK in 2015 only 270,000 were EU citizens. “Leave” voters also argued that immigrants were driving down wages in certain sectors and taking away many low-level jobs from British workers.

As for the economy, “Leave” voters claimed that Britain’s ties to the EU were preventing it from formulating trade relationships in emerging markets, such as China and India, where there is no major trade deal at present. Furthermore, these voters argued that leaving the EU would not affect London’s position as one of the world’s leading financial centers nor would banks relocate their headquarters. This is largely because Britain has very low corporate tax rates. Lastly, the Vote Leave campaign argued that an exit from the EU would mean that UK tax payers would no longer have to subsidize and bail out European countries that use the Euro and already have a majority in the Union. Instead, this money would be used to fund and support domestic issues such as the education system, NHS, and affordable subsidized housing.

“Remain” voters, however, argued that Brexit would seriously hurt UK trade levels and foreign direct investment. These voters believed that a decision to leave could prove extremely challenging for the UK, as it would sever the existing economic, social, and political relationships that it had with many EU nations. As for the question of jobs, the “Remain” side claimed that around three million jobs were linked to the EU which, if taken away, would destabilize the economy. Additionally, “Remain” voters insisted that businesses would be less likely to invest in the UK if they were not in the EU. This would be extremely disruptive because, according to a report by the Bank of England, foreign direct investment accounted for 10% of UK’s assets and liabilities in 2015 equaling around £10.6 trillion ($13.1M). The feeling of uncertainty surrounding Brexit was clearly felt in the UK’s financial market in the months leading up to the vote, as the Financial Times reported that UK investment declined by 2.1% in the final three months of 2015, despite growing by an average of 1.4% in the previous quarter.

 

 UK Job Market on the Ballot

 The implications of Brexit on the workforce was a key issue heading into the vote. Many economists argued that a decision to leave would trigger an economic downturn in the UK which could significantly weaken the British pound and lower employment levels. The British Treasury released a report in May 2016, which claimed that if Brexit were to happen, unemployment would be 520,000 higher, wages 2.8% lower and house prices 10% down. These statistics demonstrate why there was a high anxiety throughout the UK, as economists and citizens alike were trying to predict what the future of the UK may or may not look like.

 

 

 

 

 

 

 

However, because no other country had left the EU before there was no precedent for economists to compare the UK with. This meant that many of the arguments from both sides involved an element of speculation.

When the European Union was formed, it was created with the idea that there would be “free movement of labor” across all member nations. This meant that any citizen of the EU would be able to travel to Britain and seek employment without any formal job offer. Therefore, “Leave” voters viewed Brexit as an opportunity to gain back the jobs given to those immigrants and to increase national employment levels. According to research by Oxford University’s Migration Observatory, as of June 2016, there were 2.2 million EU workers in the UK composing for 6.6% of the total workforce.

The referendum drove voters to ask serious questions about long-term job security and availability. Would Brexit make it easier for young people to find jobs in the UK? Would wages increase as the result of a decreased supply of labor? What would happen to those jobs of migrants forced to leave? Where will the UK stand in terms of the international workplace?

Some economists predicted that in the short term, companies would choose to either transition their operations overseas or put a hold on hiring new employees until there was more economic certainty. The “Leave” campaigners argued that certain sector jobs, previously given to migrants, would now be available to British nationals.

However, there is very little evidence proving that immigration lowers wages or increases unemployment. According to Jonathan Wadsworth, an economist at the Center for Economic Performance at the London School of Economics, he says: “there is still no evidence of an overall negative impact of immigration on jobs or wages.” His claim was further supported research published by the UK Office for Budget Responsibility in 2015, which found that there was a small negative effect of migration on wages of workers in the semi-skilled and unskilled service sector such as shop assistants and restaurant and bar workers.

 

But do UK nationals really want those jobs?

While many argue that that Brexit will supply a large number of low-level jobs for UK nationals, the question must be asked of whether or not people are actually going to be willing to take them.

As seen below, EU workers are predominantly industry based with the manufacturing, retail, and health services accounting for the largest number of workers. Because the UK relies heavily on migrants to fill these low-skilled roles, the vote brought anxiety to employers in these industries, as they had to determine whether or not they will be able to fulfil their quotas if their workers were to be deported because of Brexit. While “Leave” campaigners argued that British nationals would seek these jobs if the referendum happened, “Remain” voters countered this by saying that British workers had not sought out these jobs before… so why would they now?

Amy Smith, a student at the University of Sheffield, expressed her concern, saying:

“Having grown up in Germany, I witnessed the benefits of immigration first-hand. Immigrants are vital for filling the low level positions German natives are less willing to take. I think the UK needs to recognize that the same implications can and will happen here.”

This issue was further discussed by economist Jonathan Porte, who described the demand for immigrant jobs as not being just a zero-sum game. In an article published by the Guardian he explained, “it’s true that, if an immigrant takes a job, then a British worker can’t take that job – but it doesn’t mean he or she won’t find another one that may have been created, directly or indirectly, as a result of immigration.”

Porte’s argument stands exactly opposite to that of the Vote Leave campaign, as he argues that a rejuvenation in the UK workforce will not occur simply by deporting migrants. Rather, it will happen with innovation and the exchange of ideas – which are a direct result of migration.

 

 Current State of the Workforce

 It has been four months since the vote, and economic numbers are showing more promise than expected. Although there was fear from the ‘remain’ voters that a decision to leave the EU would cause widespread job losses, economic data following Brexit is saying the opposite.

October figures from the Office for National Statistics (ONS) show that the UK unemployment rate remains steady at 4.9%, its lowest rate since 2005. According to the Guardian, this number remained unchanged since August, despite a 10,000 increase in unemployment.

Furthermore, the employment rate has remained at a record high of 74.5%. However, employment growth slowed from 173,000 in the three months leading up to July to 106,000 in August, with a large proportion of these being part-time workers.

So with these economic forces showing positive signs for the UK, does this mean that the workforce still has to worry?

Maybe not so fast.

While UK employment continues to rise, the country has seen a sharp rise in inflation which poses a major threat to job levels and wages. According to the ONS report, the UK’s inflation rate increased from 0.6% in August to 1% in September – the highest it has been since November 2014.

The issue of inflation is further exacerbated by the decreased value of the pound, which hit a new 31-year low against the dollar in October, and now exchanges at $1.22. This is largely driven by the uncertainty surrounding the terms of Britain’s exit from the EU, as financial markets lack confidence in the UK’s long term economic prospects.

An increase in inflation could potentially affect the UK’s unemployment rate going forward, as market anxiety can lead to decreased investment and lower economic growth in the workforce.

Furthermore, because the drop in the pound’s value has increased the cost of imports for British manufactures, certain sector jobs may be taken away as companies adjust to higher costs and decreased demand for goods.

But for now, until an official decision is made on Brexit’s terms, workers and immigrants across the UK must patiently wait… and hope that the decision to leave didn’t take their jobs with them.

 

 

 

SOURCES:  

https://www.ft.com/content/953671ba-b784-37f6-8f29-45402e846d50

https://www.theguardian.com/business/2016/aug/17/uk-unemployment-claimant-count-falls-after-brexit

http://www.telegraph.co.uk/business/2016/08/19/what-brexit-apocalypse-no-sign-of-economic-woe-after-the-referen/

http://www.independent.co.uk/news/business/news/brexit-uk-economy-eu-referendum-result-jobs-employers-hiring-a7191381.html

https://www.ft.com/content/3d0de756-1764-11e6-b197-a4af20d5575e

http://www.independent.co.uk/news/uk/politics/points-based-immigration-system-theresa-may-explained-brexit-referendum-australia-a7227001.html

http://www.voteleavetakecontrol.org/why_vote_leave.html

http://www.telegraph.co.uk/business/2016/06/28/brexit-will-foreign-investment-dry-up/

http://www.bankofengland.co.uk/publications/Documents/speeches/2015/euboe211015.pdf

https://www.ft.com/content/cca62354-e052-11e5-9217-6ae3733a2cd1

http://www.ons.gov.uk/peoplepopulationandcommunity/populationandmigration/internationalmigration/bulletins/migrationstatisticsquarterlyreport/may2016

https://www.ft.com/content/0deacb52-178b-11e6-9d98-00386a18e39d

http://ukandeu.ac.uk/fact-figures/where-do-eu-migrants-in-the-uk-work/

 

 

 

The Problem

Pursuing a degree in higher education is often romanticized. Education is revered as the investment of a lifetime, and a staple of the American dream. However, the price tag associated with this dream has either left millions in anxiety-inducing debt or deterred people from pursuing a degree at all.

In 2016, The White House released a study that evaluated the benefits and challenges of student debt. According to the study, “the average full-time worker over age 25 with a bachelor’s degree earns nearly $1 million more than those with a high school diploma.” Therefore, those with more debt due to pursuing a master’s degree, M.D., or J.D. will have greater ability to pay off their debt over time. This should make us feel better; it is statistically proven we will not be in debt forever. Despite this, it might as well be forever as paying off student loans can take decades. Additionally, the benefits of a degree still do not justify the rise in student debt, as there are many issues within the Federal system of student loans.

According to the “Student Loan Servicing” report by the Consumer Financial Protection Bureau (CFPB), student loan debt is up to $1.2 trillion (a decade ago it was $300 billion,) spread among 40 million borrowers, with an average debt of $30,000 per borrower. The annual report “Trends in Student Aid” by the College Board, revealed a 48% increase in loan borrowing from 2000-01 and 2005-06 (in inflation-adjusted dollars.) This increased to 65% by 2010-11. Although loan borrowing decreased by 23% from 2011-12 to 2015-16 student debt has only continued to increase.

Looking at those who received their degree from a public four-year, the average debt level went from $11,300 in 1999-00 to $15,900 in 2014-15, a 40% increase overall. For a private four-year, the average debt went from 15,000 in 1999-00 to 19,900 in 2015-16, a 32% increase overall. Those who did not complete college had even higher debt averages.

To some, it is too soon to call the student loan debt issue a crisis. The White House study acknowledges there are changes to be made, but public concern should be low. Additionally, economists such as Joel Elvery from the Federal Reserve Bank of Cleveland agree with this. According to the CFPB, the average monthly payment for those in the 20 to 30-year-old range is $351. Despite statistics like this, Elvery believes that post-grad earnings and repayment options offset these charges.

So how did we get here? Why has this happened? I will do my best to answer these pressing questions. However, the most important question is why should you care? If everyone eventually pays back his or her student loans, how does this affect the economy?

The Economy

If you take a step back and look at the big picture student loan debt affects everything in one way or another. Consumer spending and the housing market are the main concerns. Barbara O’Neill, a specialist in financial resource management for Rutgers University, believes student loan debt has slowed down the economy. As student loan payments become a priority, major life decisions (aka the ones that cost you the most) such as purchasing a car, and buying a home are put off for longer spans of time. Living to witness the entire U.S. financial system collapse does not help one’s views on financial well-being. If people doubt their financial ability, it is only logical that frugality will be the result.

The Census Bureau revealed that the housing market has dramatically shifted from owner-occupied to renter-occupied, which is mostly thanks to millennial’s (the most recent college graduates.)

When looking at homeownership trends, the Federal Reserve found that fewer 30-year-olds have bought homes since the recession. Millennial’s join the work-force, wages rise, but purchases of single-family homes were down 6.0% in May according to the Commerce Department. Although this rose in September by 3.2%, the combination of high housing demand and low supply (you can only build so many homes) has increased housing prices.

One of the largest investments Americans will make in their lifetime is the mortgage. Mortgages are an important part of our GDP, and if purchasing of mortgages continues to decrease, there are consequences. For example, those who are currently trying to sell their homes are forced to sell below value, or worse off, not sell at all. We can’t blame millennial’s and their student debt entirely for issues in the housing market. Nonetheless, there is no denying that millennials are the future of our economy, and their halt in spending will have long-term negative effects.

Another concern is the fact that not everyone pays back student loans. In 2015, The Federal Reserve Bank of New York performed an analysis on repayment. They found that only 37% of borrowers were actively making payments, and 17% were delinquent. From the pool of borrowers that were struggling, 70% were from lower income zip codes. However, 35% of people from higher income zip codes also struggled with repayment. Higher delinquency rates are associated with not finishing school, but default rates still exist for those who did complete school. The highest percent of people who default (35%) have loans for $5,000 or less. This just goes to show that everyone is struggling with student loan debt in some shape, way, or form. It’s not fair to blame the borrowers entirely when all they wanted was the opportunity to get an education. Allowing more access to student loans was a good idea overall, but it is time we face the reality that the government may have been too generous.

The Screwed Up System

The main problem with student loan debt is that as tuition prices rise, a number of loans distributed must rise too. It is a continuous, vicious cycle. Private universities who have strong financial aid programs claim the right to have high tuition prices to make up for the deficit of those covered by aid. The problem is no better in public universities. Back in the 1970’s, public four-year institutions were the cheapest alternative. Although they are still cheaper than private universities, it is unknown how long it can stay this way. According to the College Board’s “Trends in College Pricing” from 1986-87 to 1996-97 there was a 3.9% average annual increase in tuition; from 1996-97 to 2006-07 there was a 4.2% increase, and by 2016-17 a 3.5% increase. As you can see, this is a pretty steady increase per year. Today, tuition plus room and board at a public four-year costs around $20,000, when it was closer to $10,000 in 1996.

One of the reasons for this is the decrease in state funding. According to the Center on Budget and Policy Priorities, the average state is spending 18% less per student post-recession. The worst part is that these tuition spikes only make up for the deficit due to less state funding. The opportunities for students are not as plentiful as they could be when faculty must be fired to make a tight budget work.

A more obvious reason for tuition increase is economics 101: supply and demand. As more people enroll in college, the demand goes up. Despite there being plenty of colleges for every American, the supply or availability of spots at high ranking universities decreases. Colleges love to see how much they can charge before demand goes down. So far, we have all given into this experiment and paid the price. Additionally, the promise of a wonderful education from an affordable state school creates even more demand, but at some point, there must be cut-offs.

Finally, the main concern is the system itself. According to U.S. Department of Education, undergraduate students are allowed to defer loans if they have half-time enrollment in school, graduate school, face economic hardship, or a period of unemployment. Deferment is available for up to three years in most cases. Although this is a way to help students, some students use it as a way to put off loan payment for long periods of time. The current interest rate for direct loans is 3.76%. However, if the average borrower has $30,000 in undergraduate loans, $40,000+ in graduate loans, and interest, this can lead to repayment issues. Perhaps not default in every case, but it only takes a few late payments to hurt your credit score. If your credit score drops, eligibility for other loans such as for cars and mortgages are negatively affected.

Thankfully, there are precautionary measures that exist. The Obama Student Loan Forgiveness program provides many solutions for loan repayment. This includes income-based payments and interest rate reductions. Better yet, loans can be forgiven after 20 years if enrolled in the corresponding payment plan Pay As You Earn. Even with options of Pay As You Earn, the people in lower income regions are the ones who are still struggling with repayment. All these preventative measures will likely help, but it will take years to see the results. If tuition continues to rise at a steady rate, the need for student loans will increase ten-fold, and only so many steps can be taken to aid students in repayment.

There is no perfect solution, but ideally, putting tighter restrictions on loan availability and deferment could lower student loan debt. In addition, many borrowers are not fully aware of the binding loan contracts they are signing. If our high schools prioritized loan counseling as a part of college advisement, students may feel less inclined to borrow or make the effort to attend a more affordable university. Student loan debt is something that will most likely haunt us for decades to come, but hopefully, a decrease in student loan debt over time will jumpstart the economy. The economy may be doing well now, but the reality is the student loan debt crisis is a bubble waiting to burst. If we can decrease student loan debt, then the spending habits of young adults will also change and therefore increase long-term economic stability.