Posts Tagged ‘employment’

employment-incomes

U.S. capitalism has a real problem: there don’t seem to be enough workers to keep the economy growing.

And it has another problem: capitalists themselves are to blame for the missing workers.

As is clear from the chart above, the employment-population ratio (the blue line) has collapsed from a high of 64.4 in 2000 to 59 in 2014 (and had risen to only 60.1 by the end of 2017).* During the same period, the average real incomes of the bottom 90 percent of Americans have stagnated—barely increasing from $37,541 to $37,886.

That should be indicator that the problem is on the demand side, that employers’ demand for workers’ labor power has decreased, and not the supply side, that workers are choosing to drop out of the labor force.

But, as I explained back in 2015, that hasn’t stopped mainstream economists from blaming workers themselves—especially women and young people, for being unwilling to work and turning instead to public assistance programs and raising children and being distracted by social media and digital technologies, as well as Baby-Boomers, who are choosing to retire instead of continuing to work.

So, which is it?

Katharine G. Abraham and Melissa S. Kearney have just completed a study in which they review the available evidence and their conclusion could not be clearer:

labor demand factors, in particular trade and the penetration of robots into the labor market, are the most important drivers of observed within-group declines in employment.

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Over the course of the past two decades, U.S. capitalists have decided both to increase trade with China (through outsourcing jobs and importing commodities) and to replace workers with robots and other forms of automation (it is estimated that each robot installed displaces something on the order of 5-6 workers).

That’s the main reason the employment-population ratio has declined so precipitously and that workers’ wages have stagnated in recent years.

Clearly, U.S. capitalists have been remarkably successful at increasing their profits. But they have just as spectacularly failed the vast majority of people who continue to be forced to have the freedom to work for them.

 

*The Bureau of Labor Statistics defines the employment-population ratio as the ratio of total civilian employment to the 16-and-over civilian noninstitutional population. Simply put, it is the portion of the population that is employed. Thus, for example, in 2000, the total number of civilian employees in the United States was 136.9 million and the figure for the civilian noninstitutional population was 212.6 million. By 2014, the civilian noninstitutional population had grown to 247.9 million but the total number of workers had risen to only 146.3 million. The employment-population ratio differs from both the unemployment rate (the number of unemployed divided by the civilian labor force) and the labor force participation rate (the share of the 16-and-over civilian noninstitutional population either working or looking for work).

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Both Donald Trump and Eduardo Porter would have us believe the U.S. trade deficit is a serious problem—and that, if it can brought back into balance, jobs for American workers will be restored.

Nonsense!

Yes, I know, Trump’s attacks on free trade did in fact resonate among working-class voters. And, as I have argued, there is clear evidence that that a tiny group at the top has captured most of the benefits of trade agreements and other measures that have allowed U.S. corporations to engage in increased international trade, both importing and exporting commodities that have boosted their bottom-line.

It’s possible then to make the case (as I did here) that mainstream economists, in their zeal to push globalization forward, ignored those problems and concerns, thus paving the way for Trump’s victory—and, at the same time, that the solutions for those real issues will not come from reducing the trade deficit and supporting a renewal of the manufacturing sector.

First, we have to understand, the U.S. trade deficit has risen and U.S. manufacturing output has fallen not because of the “blind forces” of international trade. For decades now, U.S. corporations have decided to increase their profits by a combination of shifting production to other countries and automating many of the production processes that remain in the United States. And they’ve left the American working-class behind.

Second, there’s no guarantee that increasing manufacturing output within the United States will be accompanied by an equivalent number of new jobs. Just look at the chart at the top of the post. Since 2009, U.S. manufacturing output has increased by more than 38 percent but jobs in the manufacturing sector have only risen by 8.2 percent.

The U.S. trade balance is thus not the problem. The forces of U.S. capitalism have sacrificed the American working-class on the altar of higher profits. They did so before Trump was elected—and they’ve continued to do so since.

Let’s see Trump and Porter balance that.

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It’s clear that, for decades now, American workers have been falling further and further behind. And there’s simply no justification for this sorry state of affairs—nothing that can rationalize or excuse the growing gap between the majority of people who work for a living and the tiny group at the top.

But that doesn’t stop mainstream economists from trying.

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Look, they say, American workers are clearly better off than they were before. Both real weekly earnings (the blue line in the chart) and the median household income (the red line) are higher than they were thirty years ago.

There’s no denying that, on average, the absolute level of worker pay and household income has gone up. That’s proof, mainstream economists argue, that workers are enjoying the fruits of their labor.

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The problem, though, is that the increase in workers’ wages (the blue line, the same as in the previous chart) pales in comparison to the rise in labor productivity (the green line in the chart above): since 1987, real wages have gone up only 8 percent, while productivity has grown by 75 percent.

In other words, American workers are producing more and more but getting only a tiny share of that increase.

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It should come as no surprise, then, that the wage share of national income (the purple line in the chart above) has fallen precipitously—by 8 percent since 1987 and by 16.5 percent since 1970.

American workers are in fact experiencing a relative immiseration compared to their employers, who are able to capture the additional amount their workers are producing in the form of increased profits. Moreover, American employers have every interest—and more and more means at their disposal—to continue to widen the gap between themselves and their workers.

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Not surprisingly, the relative immiseration of American workers shows up in growing inequality—with the share of income captured by the top 1 percent (the orange line in the chart) increasing and the share going to the bottom 90 percent (the brown line in the chart) falling. Each is a consequence of the other.

American workers are getting relatively less of what they produce, which means more is available to distribute to those at the top of the distribution of income.

That’s what mainstream economists can’t or won’t understand: that workers may be worse off even as their wages and incomes rise. That problem flies in the face of every attempt to celebrate the existing order by claiming “just deserts.”

There’s nothing just about the relative immiseration and growing inequality faced by American workers. And nothing that can’t be changed by imagining and creating a radically different set of economic institutions.

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As regular readers know, I have written about minimum wages many times over the years on this blog. However, after reading about the much-publicized study by Ekaterina Jardim et al., according to which Seattle’s decision to raise the minimum wage actually hurt low-wage workers, I decided to turn to my old friend and minimum-wage expert Dale Belman to see what he thought of the study. Dale is a professor in the School of Human Resources & Labor Relations at Michigan State University and coauthor (with Paul J. Wolfson) of What Does the Minimum Wage Do? I am pleased to publish his guest post here. 

Seattle embarked on an audacious policy change in raising its minimum wage from $9.47 to $15.00 over five years.* The first two increments, to $11 in April 2016 and $13.00 in January 2017, have gone into effect. This policy has notable positive effects for employed low-wage workers and also provides an “experiment” central to the ongoing debate over the employment effects of the minimum wage.

The conventional analysis of the minimum wage suggests that, in the face of a typical (downward-sloping demand curve), a higher minimum wage must cause a reduction in the employment of workers “bound” by the new minimum wage–those who currently work between the old and new minimum wage. However, since 2000, a large body of empirical research has found few-if-any employment effects for historical increases in the minimum wage. Although not universally accepted, many economists are increasingly open to the view that moderate increases in the minimum wage may be good policy for low- wage workers, increasing their earnings with negligible employment costs.

An important remaining issue is whether increases outside of the range of historical experience, such as the increases sought by Fight for $15, reduce employment. The Seattle minimum-wage increase provides data to test the employment effect. One study, “Minimum Wage Increases, Wages, and Low-Wage Employment: Evidence from Seattle,” by Jardim et al., uses Washington state unemployment data that, unique among such state data sets, provides not only quarterly earnings, but quarterly hours of work. This allows computation of the hourly wage. Using established regression methods, the authors report that the increase in the minimum wage to $13 resulted in a 6.8-percent decline in low-wage employment in Seattle. It should come as no surprise that this result reinvigorated the argument that the minimum wage causes large declines in employment, and has been widely featured in the Washington Post (but, interestingly, not the New York Times).

The results are not as decisive as portrayed by Jardim et al., as there are several unresolved methodological issues. The first is that the estimated elasticity of employment (the percentage change in employment for a 1% change in the wage) is well outside the bounds of prior research. Jardim et al. report an elasticity of -3. In contrast, the work of [first name] Neumark and [first name] Wascher, the most prominent researchers arguing for a negative employment effect, finds an average elasticity of -1. Jardim et al.’s elasticity is particularly unexpected since, although Seattle’s $13 minimum wage is high for the United States, it is not unusually high relative to Seattle’s wage structure. Second, the study finds the increase in the minimum wage is associated with a 21-percent increase in employment and hours among workers earning at least $19 per hour. Given that high-wage workers employment should only be marginally affected by the increase, this suggests the study does not properly account for the employment effects of Seattle’s booming labor market. Finally, the study excluded the 38 percent of Washington employees who work for firms with multiple locations. These employees cannot be included because the U.I. data does not record whether they work in Seattle. These multi-location firms, which tend to be larger than single location firms, may respond differently to the minimum wage than single location firms. If there is a shift of employment from single- to multi-location firms in response to the minimum wage, the large magnitude of the elasticity may well result from measuring only part of the relevant labor force.

The literature on the minimum wage developed “falsification” tests that can be used to determine whether or not an estimated results from spurious correlations. These include such issues as estimated results that may be well outside the range that could be expected from a minimum wage increase, whether the effect is found among groups that should not have been affected by the minimum wage, and whether the effect of the minimum wage is found prior to its implementation.

Until the authors include these tests in their research, we cannot know if their results do in fact represent a serious challenge to the emerging consensus on the employment effects of increases in the minimum wage.

 

*I want to acknowledge the work of Michael Reich et al. and John Schmidt and Ben Zipperer for the analysis of “Minimum Wage Increases, Wages, and Low-Wage Employment: Evidence from Seattle.”

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Academic freedom is under assault within the new corporate university.

No, the problem is not the much-publicized kerfuffle surrounding recent talks by Charles Murray and other right-wing speakers on U.S. college campuses. That’s what students do: they try to be provocative. Small conservative student groups, emboldened by Donald Trump’s victory and with financing from off-campus groups, invite incendiary speakers to their campuses—and then other students protest those visits. It’s much ado about nothing, except of course when official academic units and administrators lend their names to the invitations and events.

The most disturbing challenge to academic freedom right now is something else: the unilateral decisions by academic administrators to curtail the speech of faculty members.

Just yesterday morning, the Washington Post reported that two professors were fired for expressing controversial views. One, at the University of Delaware, was an adjunct professor who suggested that Otto Warmbier, the American student whose death last week after being imprisoned in North Korea drew worldwide attention, was a “clueless white male” who “got exactly what he deserved.” Another adjunct professor, at Essex County College in Newark, was first suspended and then fired for defending a Black Lives Matter chapter’s decision to host a Memorial Day event exclusively for black people.

In both instances, adjunct professors—who, with other other members of the academic precariat, now make up close to two-thirds of the faculty employed in U.S. colleges and universities—were fired for making public comments academic administrators deemed unsuitable.

And then there’s the case of a tenured professor in the University of North Carolina-Chapel Hill’s [ht: mfa] History Department who found out that his dean made his chair cancel a class he had been scheduled to teach.

It so happens that [Jay] Smith’s class dealt with a topic that unsettled powerful forces on campus: the place of “big-time athletics” in higher education. This issue is a sore spot for UNC-Chapel Hill, which is still recovering from a major “athletics-academics” scandal first revealed several years ago—about which, it so happens, Smith had been particularly outspoken.

In the new academy, faculty governance has been replaced by top-down decision-making and academic administrators treat everything—from employment contracts to course offerings—just like the executives of any other corporation. If they add to the bottom-line, faculty members are rewarded; if they don’t, contracts are terminated and courses are cancelled.

That’s how the new corporate university operates in the United States. It’s not student protests but academic administrators that are creating a chilling effect, by circumscribing faculty speech and ultimately undermining academic freedom.

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The so-called economics experts surveyed by the UK Centre for Macroeconomics—whose aim is to inform “the public about the views held by prominent economists based in Europe on important macroeconomic and public policy questions”—are in substantial agreement that “lower real wage growth was beneficial for employment levels during the Great Recession.” A clear majority (65 percent) either strongly agree or agree, which increases (to 70 percent) when the answers are weighted with self-reported confidence levels.

I would bet, based on their responses to other questions, the analogous group of “experts” in the United States—such as the mainstream economists who comprise the IGM Panel—hold the same view.

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Here’s the problem: the correlation between wages and employment in the United States (measured in terms of percent change from one year ago in the chart above) does not tell us anything about causality. Mainstream economics experts presume (based on the assumptions embedded in their macroeconomic models) that causality runs from wages to employment. So, in their view, low wage growth is beneficial for employment levels.

What they don’t consider is the opposite relationship: that moderate employment growth (especially during and after a recession) leads to low wage growth.

The key is the Industrial Reserve Army, which is missing from the models used by the so-called experts. As I wrote back in 2015,

While mainstream economists congratulate themselves on a successful economic recovery, which has lowered the headline unemployment rate and requires now a return to “normal” monetary policy, they accept a situation in which a large Reserve Army of Unemployed, Underemployed, and Low-Wage Workers has both been created by and, in turn, fueled a recovery characterized by stagnant wages for most and growing profits and high incomes for a tiny minority at the very top.

In other words, all mainstream economists are doing is congratulating themselves for a job well done—in supporting an economic system that exists not to serve the needs of workers, but in which workers exist only to serve the needs of their employers.

As it turns out, that self-congratulatory stance is adopted by so-called economics experts on both sides of the Atlantic.

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Federal government jobs are a pretty good deal, especially for workers without a professional degree or doctorate.

According to a recent study by the Congressional Budget Office (pdf), wages for federal workers with a high-school diploma or less are 34-percent higher than comparable workers in the private sector. And, when you include benefits (especially defined-benefit retirement plans), their total compensation is 53-percent higher. For federal workers with a bachelor’s degree, the numbers are 5 percent (for wages) and 21 percent (for total compensation). Only federal workers with a professional degree or doctorate are paid less than their private-sector counterparts (by 24 percent), resulting in a total compensation that is also less (by 18 percent).

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The problem is, it’s not easy to get those jobs. In contrast to what many people think (my students included), federal employment (excluding the U.S. Postal Service) makes up only 1.4 percent of civilian employment in the United States—just a bit higher than before the Second Great Depression (when it stood at 1.3 percent) but far below what it was in the late 1960s (when it was 2.8 percent).

So, to all those who complain about the growth of the “government bureaucracy,” they should be reminded of the small percentage of total employment represented by federal workers—and the fact that most federal employees (60 percent) work in just three departments in the executive branch: Defense, Veterans Affairs, and Homeland Security.

And for those who argue that federal employees are compensated better than their private-sector counterparts, there’s an easy solution: raise the pay of private-sector workers and improve their benefits!