Posts Tagged ‘wages’

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There seems to be a lot of pessimism going around these days. And I’m not referring either to Brexit or the candidates for the U.S. presidency.

The issue is slow economic growth. As I wrote back in February, while there’s a reasonable argument to be made that we would all be better off with less or no growth, capitalism

has a slow-growth problem. And that’s because growth is both a premise and promise of a particularly capitalist way of organizing our economic activities.

Well, that problem continues to be confirmed.

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First, the International Monetary Fund [ht: ja] just announced that, in Italy, current slow growth (of 0.8 percent in 2015 and only 0.3 percent during the first quarter of 2016), on top of the two severe post-2008 recessions (when output fell by almost 10 percent), means that “the economy is not expected to return to its pre-crisis (2007) output peak until the mid-2020s, implying nearly two lost decades.” And, best I can tell, the “two lost decades”—with the resulting unemployment, stagnant wages, high levels of poverty, and growing income inequality—actually represents an optimistic projection. I’m guessing it’s going to be later, perhaps much later.

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Then, there’s the report last week that long-term interest rates hit record lows, which is to say the lowest in the 227-year history of the United States. And while there’s no consensus over the meaning of the record-low rates not just in the United States but in Germany (where rates are now negative) and elsewhere, the “flight to safety” certainly indicates a growing acceptance of a pervasive reality—call it secular stagnation, a Japan-like deflationary spiral, or the continuation of the Second Great Depression—of low (and even negative) price increases and very slow growth.

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Finally, there’s Martin Wolf [ht: bn], in the Financial Times (unfortunately behind a paywall), confirming Robert Gordon’s analysis that we live in “an age of disappointing growth because the technological breakthroughs are relatively narrow.” Basically, their argument is, the U.S. economy has experienced two periods of fast innovation: in 1920-1970 and, at a far slower pace, in 1994-2004. But that growth, based on increases in productivity, may now be over. And, on top of that, what increases there were in overall income during those periods were not evenly shared, especially beginning in the 1970s. And that trend is likely to continue.

Therefore, Wolf concludes,

The view that steady and rapid rises in the standard of living must endure is a pious hope. The tendency to believe that some “structural reforms” will fix this is, similarly, an act of faith. It is essential for policy to promote invention and innovation, so far as it can. But we must not assume an easy return to the long-lost era of dynamism. Meanwhile, the maldistribution of the gains from what growth we have is a growing challenge. These are harsh times.

These are, indeed, harsh times—as long as we stick with the existing way of organizing economic and social life. Its premise and promise are innovation, increases in productivity, and rapid economic growth. But, right now and for the foreseeable future, it simply won’t be able to deliver them.

One possibility, which the IMF recommends for Italy, is to raise the rate of economic growth by engaging in “structural reforms” and thus transferring the costs to those who can least afford to shoulder them. So, the premise of even harsher times—with the promise, however empty, that growth will someday resume.

The other possibility is to realize the existing institutions have run their course, and that alternative ways of organizing economic and social life need to be imagined and created.

That alternative economy—with a different set of presumptions and promises—is really the only way of overcoming harsh times, now and in the future.

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According to Neil Irwin, “the job market is fine.”

I suppose that’s the way it looks in the short view. The official unemployment rate in the United States remains below 5 percent and real hourly wages have continued to increase as the labor market has tightened. Clearly, as unemployment has declined after the worst crisis of capitalism since the first Great Depression, employers have been forced to pay more in order to get access to employees’ ability to work.

However, throughout the entire period of the so-called recovery (from June 2009 through May 2016), real wages for non-managerial labor have risen only 3.8 percent (from $20.48 an hour to $21.25)—and only 4.8 percent above their recessionary low (of $20.27 in October 2012)—and, in both cases, that’s mostly because inflation has been so slow.

If we take a longer view, things look even worse. Real hourly wages (in 2015 dollars) remain less than what they were in April 1978 ($21.48) and even further below their post-1964 peak ($22.37 in January 1973).

So, even though workers’ wages have been climbing, unevenly, from their absolute low (of $18.07 in August 1994), they still remain below what they were more than five decades ago.

In the long run, then, the U.S. labor market has been anything but fine.

Source

The data on wages (hourly wages for production and nonsupervisory employees) and inflation (the Consumer Price Index for urban workers) are from the Federal Reserve Economic Database. I transformed the 1982-84 price index into 2015 dollars and then calculated real hourly wages for the entire period.

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The movements in the chart mirror those in a chart using the existing 1982-84 price index, which is still the only one available in the FRED database.

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Posted: 28 June 2016 in Uncategorized
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No, Uber is not a path to personal freedom and financial independence.

Far from it.

According to internal Uber calculations, provided to BuzzFeed News, based on data spanning more than a million rides and covering thousands of drivers in three major U.S. markets—Denver, Detroit, and Houston—drivers in each of the three markets overall earned less than an average of $13.25 an hour after expenses.

Uber says it doesn’t know how much drivers on its platform actually earn per hour, after expenses. Still, Uber’s internal pricing models, found in the spreadsheets provided to BuzzFeed News, do generate rough estimates of driver net pay. But in internal communications seen by BuzzFeed News, Uber explicitly discourages employees from comparing these estimates to the minimum wage.

A BuzzFeed News review of the rough internal net pay estimates contained in the leaked documents determined that the models Uber used are highly abstracted and oversimplify certain key calculations. Rather than relying on Uber’s figures, BuzzFeed News conducted an independent analysis of the raw trip data and driver data. Uber subsequently recalculated BuzzFeed’s estimates using a broader and more detailed set of internal data — which it declined to share directly with BuzzFeed News. The company did, however, conduct this recalculation according to BuzzFeed News’ methodology — which it said was “solid” — and did so in the presence of a BuzzFeed News editor and reporter.

Based on these calculations, it’s possible to estimate that Uber drivers in late 2015 earned approximately $13.17 per hour after expenses in the Denver market (which includes all of Colorado), $10.75 per hour after expenses in the Houston area, and $8.77 per hour after expenses in the Detroit market, less than any earnings figure previously released by the company.

What this means is that Uber drivers (at least in Denver, Houston, and Detroit) earn about the same as or less than the average for “taxi drivers and chauffeurs,” which in May 2015 (according to the Bureau of Labor Statistics) was $13 an hour.

And just so we understand how little drivers make—inside and outside the so-called sharing economy—the average hourly pay for production and nonsupervisory workers in May of last year was $20.99.

Or just compare that to the net worth of Travis Kalanick, the CEO of Uber Technologies: $6.2 billion.

Clearly, the only sharing going on in Uber is from the bottom up.

RoseEveryone (including the Financial Times) knows that the U.S. middle-class is shrinking— and that’s because the share of income going to those at the very top has increased enormously and average incomes for most of the population have declined over the course of the past three decades.*

But that’s not the story Stephen J. Rose (pdf) wants to tell. According to him, only those at the very bottom (6 percent) have lost ground and the real story is the growth in the size of the upper middle-class—what he calls “a massive shift. . .in the center of gravity of the economy.”

However, Rose’s conclusion is just an illusion created by the bizarre way he divides up the population.

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For example, Rose sets the lower bound of the upper middle-class at $100,000 (ranging up to the “rich,” at $349,999), which is five times the poverty level. However, there’s nothing middle-class about that threshold, not when you consider that (according to the World Wealth and Income Database) the average income in the United States in 2014 was $55,133 while the top 10 percent threshold was $118,140, the top 5 percent threshold was $167,220, and the top 1 percent threshold was $387,810.

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Even with such a strange treatment of income thresholds, Rose finds an enormous increase in inequality between 1979 and 2014: combined, the share of income going to the rich and upper middle-class more than doubled, from 30 to 63.1 percent, while the amount of income going to everyone else—middle-class, lower middle-class, and poor—fell precipitously, to less than 40 percent.

That, in the end, regardless of the names attached to income groups, is the real story. It’s a case of relative immiseration: those at the very top were able to capture a large share of the growing surplus while everyone else—who were forced to have the freedom to work for falling wages—was being left behind.

 

*According to the World Wealth and Income Database, the share of income captured by the top 1 percent more than doubled, from 8.03 in 1979 to 17.85 in 2014, while the average income for the bottom 90 percent of the U.S. population fell (in 2014 dollars) from $34,607 in 1979 to $32,352 in 2014.

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It’s all going according to plan, at least as mainstream economists and politicians see things. Private enterprises, both large and small, on Main Street and Wall Street, were given every condition to lead the economic recovery from the spectacular crash of 2007-08.*

And, according to today’s job report, it worked: the official unemployment fell in May to 4.7 percent, the lowest it’s been since November 2007. That’s basically the full-employment target they’ve been aiming at since the recovery began.

But from the perspective of people who actually work for a living, the situation doesn’t appear as rosy. They’ve been the victims of the plan. They know the only reason the official unemployment rate has dropped is because many workers have dropped out of the labor force (technically, the civilian labor force participation rate decreased by 0.2 percentage point to 62.6 percent). That still left 7.4 million workers who wanted a job but couldn’t find one. In addition, the number of persons employed part time for economic reasons (often referred to as involuntary part-time workers) increased by 468,000 to 6.4 million, and another 1.7 million people remained marginally attached to the labor force (meaning they were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months).

The result was that workers (production and nonsupervisory employees) have seen their incomes barely budge: their hourly wages only increased by 3 cents (to $21.49), while their weekly earnings only rose by 1 dollar (to $722.06). In comparison to a year ago, both hourly wages and weekly earnings have increased by a meager 2.4 percent.

As I explained a month ago, that’s exactly how the reserve army works: even as the official unemployment rate falls, workers’ wages continue to stagnate and their employers’ profits continue to grow.

Exactly, it would seem, according to plan.

 

*A recovery from the crash that the same private sector created, lest we forget.

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This particular protest dates back to 22 May 1816, in Littleport [ht: ja], when about 100 workers left The Globe armed with pitchforks, cleavers, and guns and smashed windows and broke down doors, stealing money, food, and goods from their wealthy neighbors.

The Littleport Riots were not isolated events, but part of “a wave of unrest” from 1815 onwards, according to Anglia Ruskin University historian Rohan McWilliam.

“There was economic dislocation after the end of the Napoleonic Wars and the introduction of the Corn Laws in 1815, which increased taxation on wheat,” he said.

“Labour wages weren’t keeping up with the cost of living, while poor harvests exacerbated the situation.”

Previously common land, on which labourers could grow crops or keep livestock to supplement their wages, was being enclosed by landowners.

Their employment conditions had also changed, said University of Hertfordshire historian Katrina Navickas, to “daily hirings instead of yearly hirings – in essence, the introduction of a type of zero-hours contract”.

This was exacerbated by a breakdown of the Poor Law, which was supposed to help the most vulnerable based on need with small sums of money and “in kind” goods such as shoes. . .

And then to tighten the screw still further, the Game Laws passed in 1816 restricted the hunting of game to landowners, with transportation the penalty for poaching – or even being found in possession of a net at night.

The disturbance broke out when a group of mostly unemployed men met at the Globe Inn, for a meeting of the village Benefit Club.

More than 300 people eventually participated in the riot, which spilled over into Ely and was put down on 24 July by the Cambridgeshire Militia and the 1st (Royal) Regiment of Dragoons.

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On 28 June 1816, five men were hanged, “having been convicted of divers Robberies” during the riots.