Posts Tagged ‘youth’

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Special mention

193070_600 March 18, 2017

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In discussing the textbook treatment of the minimum wage, James Kwak provides a perfect example of how contemporary mainstream economics “can be more misleading than it is helpful.”

Kwak refers to the problem as “economism.”* For me, borrowing from a different tradition, it is a case of “vulgar economics.”

The argument against increasing the minimum wage often relies on what I call “economism”—the misleading application of basic lessons from Economics 101 to real-world problems, creating the illusion of consensus and reducing a complex topic to a simple, open-and-shut case. According to economism, a pair of supply and demand curves proves that a minimum wage increases unemployment and hurts exactly the low-wage workers it is supposed to help. The argument goes like this: Low-skilled labor is bought and sold in a market, just like any good or service, and its price should be set by supply and demand. A minimum wage, however, upsets this happy equilibrium because it sets a price floor in the market for labor. If it is below the natural wage rate, then nothing changes. But if the minimum (say, $7.25 an hour) is above the natural wage (say, $6 per hour), it distorts the market. More people want jobs at $7.25 than at $6, but companies want to hire fewer employees. The result: more unemployment. The people who are still employed are better off, because they are being paid more for the same work; their gain is exactly balanced by their employers’ loss. But society as a whole is worse off, as transactions that would have benefited both buyers and suppliers of labor will not occur because of the minimum wage. These are jobs that someone would have been willing to do for less than $6 per hour and for which some company would have been willing to pay more than $6 per hour. Now those jobs are gone, as well as the goods and services that they would have produced.

That’s exactly the argument presented by Harvard’s Gregory Mankiw in his best-selling textbook Principles of Microeconomics. He uses neoclassical economic theory to distinguish (as in the figure above) a “free labor market,” where the market is in equilibrium and there is full employment, and a “labor market with a binding minimum wage,” where there is a surplus of labor or unemployment. In the latter, at a minimum wage above the equilibrium wage, the quantity demanded of labor (by employers) is less than the quantity supplied of labor (by workers). Thus, in his view,

the minimum wage raises the incomes of those workers who have jobs, but it lowers the incomes of workers who cannot find jobs.

Mankiw then supplements his discussion of the negative effects of the minimum wage by asserting it “has it greatest impact on the market for teenage labor.” Low wages, he argues, are appropriate for such workers because they “are among the least skilled and least experienced members of the labor force.”**

Only after presenting the model of unemployment created by a minimum wage and focusing on teenage workers does Mankiw admit that the minimum wage “is a frequent topic of debate” among economists, who “are about evenly divided on the issue.”***

Nowhere does Mankiw discuss the history of the minimum wage nor the determinants of either the supply of or demand for workers who are forced to have the freedom to sell their ability to work for a wage at or below the minimum wage. He is thus content, like many nineteenth-century economists, to “interpret, systematise and defend in doctrinaire fashion the conceptions of the agents of bourgeois production who are entrapped in bourgeois production relations.”

That is the very definition, in our own time, of vulgar economics.

 

*I hesitate to use Kwak’s term economism because, in my view, it signifies something different: the reduction of all social phenomena, in the first or last instance, to the economy (or some part thereof, such as the relations or forces of production). In other words, economism is an economic determinism—the positing of some kind of economic essence. The irony, of course, is that neoclassical economics represents an essentialism but of a different sort: it reduces all economic and social phenomena to a given human nature. Neoclassical economics is therefore a theoretical humanism.

**Later, he adds that such teenagers are “from middle-class homes working at part-time jobs for extra spending money.” Even less reason, then, to worry about such low-wage workers. According to the Bureau of Labor Statistics, minimum-wage workers do tend to be young. But they’re not just teenagers. In 2015, more than 2.5 million workers in the United States received wages at or below the federal minimum wage (3.3 percent of the labor force), of whom 1.4 million were 25 years or older (2.2 percent of the labor force).

***The 2006 survey Mankiw refers to was conducted only among members of the American Economic Association, the main organization of mainstream economists in the United States. It is interesting that the minimum wage is one of the few issues on which there was no consensus, even among mainstream economists. About 38 percent wanted it increased, while 47 percent wanted it eliminated entirely.

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Over the course of the next month, millions of high-school and college students will be graduating. And, to judge by the circumstances of other young workers these days, the world that awaits them is pretty dismal.

It’s not their fault. They may be gifted and full of energy but the economic stars are aligned against them. Capitalism is failing them.

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Consider high-school graduates. According to the Economic Policy Institute, the official unemployment rate is 17.9 percent (compared to an overall rate of 5 percent)—and the underemployment rate (which combines official unemployment with workers who would like a full-time job but can only find part-time work and those who are so discouraged they’ve given up even looking for work) is an extraordinary 33.7 percent.

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Even college graduates, whose official unemployment rate is much lower (at 5.6 percent), face a very high underemployment rate (of 12.6 percent). That’s 1 in 8. And that doesn’t even take into consideration college graduates who are forced to have the freedom to take  jobs that don’t even require a college degree (e.g., the young college graduate working as a data-entry clerk).

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And there’s the issue of wages if and when they find a job. The real hourly wages for high-school graduates—both young and overall—are no higher today (at $10.66 and $17.11, respectively) than they were at the beginning of 2000 (when they earned $10.86 and $17.01).

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Again, college graduates are better off than workers with a high-school degree. But their wages, too, have been stagnant for the past decade and a half. Young college graduates today can expect to earn, on average, about $18.53 an hour today compared to $18.39 in early 2000; while all workers with a bachelor’s degree receive $31.40 an hour today, which is only slightly higher than in 2000 (when it was $29.39).

The usual argument one hears is that young people should be encouraged to go to college, after which they’ll face lower unemployment and receive higher wages.

That’s fine. I’m all in favor of increasing the chances and lowering the barriers for young people to study in the nation’s colleges and universities. But for young people, no matter how much education they’ve managed to obtain, current economic arrangements are failing them.

The members of the Class of 2016, no matter how gifted, have every right to be worried about what’s next.

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We already knew that Millenials are “generation screwed.” Now we know, thanks to the latest Harvard Public Opinion Project survey, that the majority (51 percent) does not support capitalism—and even fewer (just 19 percent) identify as capitalists.*

It also seems the members of Generation Y don’t see socialism as the preferred alternative (only 33 percent support it)—but at least those who have participated in Democratic primaries have been voting overwhelmingly for the democratic socialist candidate.

 

*A subsequent survey that included people of all ages found that somewhat older Americans also are skeptical of capitalism. Only among respondents at least 50 years old was the majority in support of capitalism.

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You’re not going to read or hear anything positive about the Bernie Sanders campaign from the usual liberal commentators and pundits. So, it falls to an unlikely source, conservative columnist Ross Douthat:

on his way to winning more caucuses and primaries than Dean or Bradley, Sanders has proved two important points about his party’s voters. First, they are quite ambitious. Many of them see the liberal policy victories of the Obama years (the health care law, Dodd-Frank, Lily Ledbetter Fair Pay Act) as first steps rather than capstones to the liberal project. Many of them regard Hillary Clinton’s leftward progress on issues like immigration and criminal-justice reform as admirable but wildly insufficient. And they’re eager for ideas — single payer! free college! a $15 minimum wage! — that would stamp their party as thoroughly rather than just partially left wing.

Second, their ambitions have demographic momentum on their side. The leftward, ever leftward impulse is concentrated among the party’s younger constituents, with whom Sanders has rolled up ridiculous margins. So there’s every reason to expect that a future left-wing insurgency could surpass his success even as he surpassed [Bill] Bradley’s and [Howard] Dean’s.

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According to the American Enterprise Institute (as conservative as they come), prior to New York,

Among the 20 states that have held their Democratic primaries and caucuses thus far and for which exit poll data are available, Bernie Sanders has won the youngest cohort (generally speaking, 18- to 29-year-olds) in every state except two—Alabama and Mississippi. In these two states, his support among younger voters was still stronger than among any other age group. Other than in his home state of Vermont where he won 17- to 29-year-olds with 95 percent of their vote, Sanders carried the most young voters in Illinois with 86 percent. The least amount of support he received from this age group while still carrying it was 54 percent in Georgia and South Carolina. In each of these 20 contests, the youngest age group made up no more than 20 percent of voters.

In New York, Sanders trounced Clinton among young voters, winning roughly 3 out of 4 voters younger than 29.

Clearly, young people represent a hope we can believe in.

A new report from the UCLA Labor Center [ht: ja], “I am a #YOUNGWORKER,” challenges the prevailing cliché of “young people as self-indulgent millennials who live with their parents, idly wait for the perfect job, and collect paychecks mostly for shopping and weekend leisure.”

In reality, many employers rely on youth to supply “cheap, surplus, temporary and easy-to-discipline labor” that can be recruited or disposed of according to the whims of the business cycle. Adults often portray these early jobs as brief interludes or rites of passage to justify the precarious conditions of “youth” forms of work.

The study focuses on workers between the ages of 18 and 29 in retail and food service, the two largest employers of young people in Los Angeles. Together, they employ a quarter-million young workers—almost half (42.6%) their workforce.

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The authors of the report discovered that young workers are often employed in part-time jobs, they play an integral role in supporting their families, and one in ten live below the poverty line.

In addition, young workers struggle to balance work and school (“They need to work in order to afford school, and they need to attend school so they can get ahead at work”) and owe increasing amounts of educational debt (more than $19 thousand on average).

On the job, most (90 percent) do not have a set schedule, since they are forced to “depend on schedule assignments that are staggered weekly and build an intricate web of overlapping shifts that ensure that workers are constantly present on the store floor or stockrooms.” They are also vulnerable to various forms of wage threat (not getting paid for overtime or working off the clock), are often harassed by both bosses and customers, and do not receive the benefits (such as sick days, vacation, and health insurance) other workers have managed to secure.

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As if that were not bad enough, the youth unemployment rate (11.2 percent) is more than twice the official rate (5 percent).

In other words, young workers today are often living on a “dead end street.”

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Special mention

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