Posts Tagged ‘labor market’

quartile

The usual suspects have attacked Bernie Sanders’s proposal for the federal government to guarantee a job paying $15 an hour and health-care benefits to every American worker “who wants or needs one.”

According to Robert J. Samuelson, “The proposal would add to already swollen federal budget deficits. . .Then there’s inflation. The extra spending and higher wages might push prices upward.”

After listing a number of other “unavoidable” problems, Samuelson concludes:

Americans are suckers for great crusades that make the world safe for the pursuit of happiness. In this context, Sanders’s job guarantee seems a masterstroke. The chronically unemployed need jobs; and states and localities have large unmet needs for public and quasi-public services. It’s a bargain made in heaven.

Back here on Earth, the collaboration looks less noble. The object is to appear good and buy political support. Many of the suggested jobs seem best described as make-work. The irony is that, by assigning government tasks likely to fail, the advocates of activist government bring government into disrepute.

And here’s Ed Rogers:

Democrats want to talk about Republicans living in the past, but the new progressives, as they like to call themselves, are in fact a lot like the old socialists. They want free college, free cash, free health care, new mandates for this and that, and so on. The latest progressive policy du jour to be gaining traction among Democratic Party presidential hopefuls is the so-called “job guarantee.”

What they have in common, in addition to the usual red-blooded American red-baiting, is they both cite a liberal critic of the Sanders proposal, Mother Jones blogger Kevin Drum:

even our lefty comrades in social democratic Europe don’t guarantee jobs for everyone. It would cost a fortune; it would massively disrupt the private labor market; it would almost certainly tank productivity; and it’s unlikely in the extreme that the millions of workers in this program could ever be made fully competent at their jobs.

Let’s face it, Drum is right. The proposal would cost a fortune; it would massively disrupt the private labor market; it almost certainly would lower the official level of productivity; and millions of workers would probably never be fully competent at their jobs.

But that’s only because of how bad things are for workers in the United States right now. According to my calculations (illustrated in the chart at the top of the post), a quarter of full-time American workers currently earn less than $15 an hour. We’re talking about something on the order of 32 million people. And that’s not even counting part-time and unemployed workers. Plus all the workers, whether or not they currently have a low-paying job, who have costly or substandard health insurance.

Employing all those people—at $15 an hour, with medical benefits—would cost a fortune. But not employing them at decent wages already costs the United States a fortune, in individual and social costs. Moreover, there’s no doubt that, if people had a good shot at a federally funded job, they’d be more able to refuse the paltry pay and the indecent kinds of jobs private employers are currently offering. And workers on a federal jobs program might not achieve high levels of productivity—but they would be doing jobs, to repair the economic and social infrastructure, most people would benefit from. Finally, such workers might never become fully competent at their jobs. However, they would develop competencies above and beyond what they can manage to acquire when they’re unemployed or underemployed at their current low-paying jobs.

What Drum and others think is a hard-headed, realistic criticism of a job guarantee turns out to be a stinging indictment of American capitalism itself. The fact that there are “50 million people who would be better off with a government-guaranteed job than with the job they have now” calls into question the way the U.S. economy is currently organized.

That’s what’s really insane—sticking with the existing labor market, not the idea of proposing a Federal jobs program.

serfs

Wage growth has been so slow in recent years even the International Monetary Fund has taken notice. They’ve even discovered the reason: the Reserve Army of the Unemployed and Underemployed.

fredgraph-2

Let me explain. Stephan Danninger, writing on IMF Direct, has noted that, while the U.S. labor market seems to have healed (with an official unemployment rate now below 5 percent), wage growth is “still disappointingly low.” (For example, in my chart of average hourly earnings of production and nonsupervisory workers, while wage growth had risen to 2.5 percent in August of this year, it was still almost 1.5 percentage points lower than in October 2008.)

And Danninger’s analysis?

Low wages are a vestige of the crisis. Almost eight years after the height of the crisis, laid-off workers continue to re-enter the labor force, which affects average wage growth. This so-called decomposition effect occurs when new employees are hired for less than the average wage rate. When a worker finds a new job after a long unemployment spell, his or her wages tend to be well below that of peers who remained employed. As a result, these new hires bring down the average hourly wage rate—that is, the rate across all workers.

Moreover,

wage growth for a broad segment of workers is also lower than a decade ago. For instance, wages of so-called job stayers—the vast majority of U.S. workers who remain at the same job—have risen 3.5 percent this year, a full percentage point lower than before the Great Recession. Similarly, earnings in the middle of the wage distribution—the 50th percentile—are also seeing less gains than in the past: they have risen by 3.2 this year compared to 4.1 percent during 2000–07.  The same is true for workers in services and other sectors.

In other words, the existence of the Reserve Army and the movement of workers out of the Reserve Army has had the effect of dampening the wage increases of both rehired workers and of workers who remained on the job. All workers have therefore been disciplined and punished by the Reserve Army of Unemployed and Underemployed workers that was created by the crash of 2007-08.

fredgraph

But, as it turns out, Danninger doesn’t have a long enough view. While wage increases in recent years have been less than workers saw before the crash (e.g., 2005-2007), workers’ wages have been growing at a relatively slow rate for decades now, beginning in 1986. Whereas wages grew at a rate of between 7 and 9 percent a year from 1969 to 1981, those increases have fallen dramatically since then, hovering between 1.5 and 4 percent a year.

The conclusion? American workers have been disciplined and punished not just since the crash, but for at least three decades. That’s why their employers’ profits have skyrocketed and why the working-class itself has fallen further and further behind the tiny group at the top of the U.S. economy.

triumph-over-mastery-1986

Mark Tansey, “Triumph Over Mastery” (1986)

Reading the current debate about how we should approach the teaching of introductory economics, it’s clear the participants actually need to go back and take Epistemology 101.

Now, I’m the first to argue we need to change how we approach Econ 101 (as readers of this blog know). It’s a key course, because it’s the only economics course most college and university students will ever take: it’s where they’re introduced to the kinds of approaches and policies academic economists work with; it’s also a space to discuss the economic dimensions of individual and social life, both historically and in the contemporary world. Given the hundreds of thousands of students who every year are exposed to economics through such a course, its content is crucial.

The course, however, is also often badly taught. That’s in part because the material is many times presented in a mind-numbing manner, as a set of ideas and facts that need to be memorized in order to pass quizzes and exams. But, even more important, it’s because many of those ideas and facts—from the effects of minimum wages to the patterns of international trade—serve to naturalize both mainstream economic theory and the economic and social system celebrated by mainstream economists. In other words, students are generally taught that the limits of debate are defined by the parameters of mainstream economics.

I know, then, I should welcome a debate about what we should teach in Econ 101—but, as it turns out, not this one. Michael R. Strain wants to keep things pretty much as they are:

An economics 101 textbook is a treasure. The information therein captures the leaps forward in intellectual history, in our understanding of society — indeed, in our understanding of daily life. . .

Look. Understanding society and the economy is tough business. Economics 101 textbooks have a large responsibility to do that right and well. Does the theory of comparative advantage presented in 101 tell you most of what you need to know to understand the Trans-Pacific Partnership trade agreement? Nope. But that’s a ridiculous standard to hold for an intro class. Are economics 101 textbooks perfect? Of course not, and they can and should be improved. But existing 101 textbooks are one of the best tools society has to prepare young people for responsible and informed citizenship.

James Kwak, following Noah Smith, argues Econ 101 should be based on a combination of the mainstream theoretical models Strain wants to focus on (which, in Kwak’s view, provide “some incredibly useful analytical tools”) with empirical studies.

A friend and labor economist said to me that when thinking about the impact of a minimum wage, the natural starting point is the supply-and-demand diagram, because it’s so powerful—but you don’t stop there. The model is incomplete, like all models, and if you don’t realize that you will make mistakes.

Professional economists know all this, and hence many think that models need to be balanced by empirical research, even in first-year classes. Strain doesn’t buy this because “economists’ empirical studies don’t agree on many important policy issues.” I don’t understand this argument. The minimum wage may or may not increase unemployment, depending on a host of other factors. The fact that economists don’t agree reflects the messiness of the world. That’s a feature, not a bug.

Here’s the problem: both sides of the current debate (Strain as well as Kwak and Smith) treat theory and facts radically separate from one another. Thus, for them, there is one theory (separate from the facts) and one set of facts (separate from the theory).

This is where Epistemology 101 comes in. If the participants in the current debate took such a course, they’d learn that the idea of separate theories and facts forms the basis of only one theory of knowledge (which comes in two forms, rationalism and empiricism). But they’d also learn there’s an alternative theory of knowledge, according to which there are different theories and different sets of facts. Each theory has its own set of facts (and, of course, its own validity criterion). And, of course, these different theories and sets of facts interact and change over time.

From the perspective of the second theory of knowledge, then, the professors of Econ 101 would introduce students to different economic theories (neoclassical supply and demand, to be sure, but also other theories that serve as criticisms of and alternatives to neoclassical economics) and different sets of facts (including wages that are equal to the marginal productivity of labor as well as wages that are equal to the value of labor power, after which there is exploitation). And they would include the complex, discontinuous history of those theories and facts, including the debates amongst and between them.

Now, that would be an introductory economics course worthy of the name—and one that is consistent with Epistemology 101.