While a majority of jobs lost during the downturn were in the middle range of wages, a majority of those added during the recovery have been low paying, according to a new report from the National Employment Law Project.
I've seen this report spun against the theory of the rise of the Zero Marginal Product (ZMP) Worker (workers too useless to be worth employing) I think this pattern is consistent with the ZMP problem. I can see two explanations why: First, it makes more sense for employers to automate the higher paying jobs first if the cost per hour saved is similar. Automate the $20 per hour manual labor job and leave the $9 per hour manual labor job for when the cost of automation drops even further. Second, some of the higher paying jobs became lower paying when demand for them dropped.
Over the last 40 years more people moved up than down as the middle class hollowed out. But the more recent pattern (see above) has been for a growth in jobs at the bottom. I see this as a last step until (increasingly nimble) robots get so cheap that robots become cheaper than minimum wage fast food kitchen workers. Human laborers at McDonald's will become even more sparse than as human laborers at gasoline stations. You'll key in your order, slide a card, and in a few minutes food will slide down out of an opening.
I think manufacturing provides a picture of what the future will be like. In manufacturing only employment for advanced degrees increased and employment for those with bachelors degrees went down by a fairly small amount. Below the bachelors degree level employment plummeted and continues a sharp descent.
Update: Here's another curious fact about the US economy: most of the employment growth is for older workers. That paints a bleak picture for younger workers.
Since January 2010, job seekers age 55 and up have accounted for 70 percent of all employment gains in the US. Viewed over the past decade, the pattern is even more stark. That older group has added some 10 million employees to its ranks, even as employment among other age groups has actually declined by more than 4 million.
What I'd like to know: Are skilled older workers winning over less skilled younger workers? Why the disproportionate job growth for the older? Desperation due to lack of money to retire on? Or something else?
The growth in jobs only at the bottom translates into lower household incomes as compared to the top of the last business cycle.
The decline looks even worse when comparing today’s incomes to those when the recession began in December 2007. Then, the median household income was $54,916, meaning that incomes have fallen 7.2 percent since the economy last peaked.
Welcome to the era of declining living standards. The decline has many causes. It will not be fixed by either political party's proposed policy changes. We are now living in the longest period of lowered incomes since the Great Depression. When world oil production starts going down the decline will get much worse.
VMWare illustrates how much fortune-building no longer depends on having huge factory workforces. When (if ever) will US immigration policy catch up with this fact? Success is about very high quality, not quantity.
“If you think back to 2002, VMware had a great team of 100 engineers who could really make server virtualization sing,” Maritz told Wired this week, during an interview at the company’s massive VMworld trade show in San Francisco. “Having the services of those 100 engineers turned out to be incredibly valuable. They did something that really transformed the industry and they gave rise to an asset that’s worth plus-or-minus $40 billion.
“The same sort of thing is going to happen in the networking industry.”
The article is about how WMWare just bought a company called Nicara for $1.26 billion and how its engineering staff is similar size to VMWare's staff in 10 years ago. We live in an era when robots are becoming more able to displace human workers in factories and wages are in decline. Why import any workers who aren't capable of helping to create businesses with revolutionary technologies? The economy's need for the poor and ignorant is in relentless decline.
Update: Check out trends in employment in manufacturing. The only educational level experiencing an increase in employment in manufacturing industries: advanced degree holders. Manufacturing needs more brains and less brawn. The same is happening in Silicon Valley where companies with large manufacturing divisions have given way to companies with staffs that are half engineers and few manufacturing workers.
1. How is the present automation and productivity conundrum qualitatively different than ones from the past (for example, the classic case of the auto replacing the horse and carriage)? If you do not believe it is qualitatively different, explain how we escape the “zero marginal productivity” worker trap, especially in an era when human capital is shrinking due to a combination of dysgenic birth rate differentials and mass migration of unskilled poor? Note: “Humans are fungible” is not an acceptable cop-out.
2. If, say, most of the profits go to the top 10% in society, while the bottom 90% are unemployed or marginally employed, how is it exactly that those top 10% will be able to extract profits from a customer base that doesn’t have the income stream to afford more than the basic necessities?
I do not think trickle down economics will work to solve this problem because people will end up preferring robots to people. Why have a human maid clean your house if your robot can do it any hour of the day or night, the robot won't steal, the robot won't take vacations, and the robot won't cost as much? I do not see how the menial laborers will be of much use. The convenience of automation will surpass the convenience of lower class servant workers.
Once the upper classes start to look at the lower classes as worthless to them what happens next? What will the upper classes decide to do with the lower classes?
I've written about this previously. See Gregory Clark Expects Unemployable Lower Class, The Rise Of Zero Marginal Product Workers, and Zero Marginal Product Workers A Growing Problem? Also see a Technology Review article about how technological advances are wiping out classes of jobs faster than other classes of jobs are arising to replace them.
Many of you are too young to have experienced the era when it was normal for living standards to go up ever year for the vast majority of workers. Rising productivity was once expected to translate into continuously rising living standards (really). In a Technology Review blog post Christopher Mims considers why hourly worker compensation has been flat since the mid 1970s while productivity per hour has gone up by about a factor of 2.5.
Here's how I would interpret the odd coincidence of these two trends: in a perfectly capitalist system, increased profit produced by automation flows to the owners of the business. Worker compensation stagnates because, while automation makes each worker more productive, it doesn't make them any more valuable. While all these machines and IT infrastructure do require a quasi-elite caste of Mandarins to keep them running, on the whole, the skill required of individual laborers has actually gone down.
It is telling that in the US manufacturing employment has dropped by about a third since the late 1970s while the total value of manufactured goods has gone up by about 50% over the same time period. With greater automation a few things have happened at once:
I do not see a reason why this trend will reverse in the foreseeable future. The capitalists will use more machines that do not need human operators. A resurgence of political support for unions will just drive more factories abroad and increase incentives for even faster development of robots. Lights-out factories with only robotic workers will make poor targets for union strikes.
My advice: Take a hard look at your job and estimate the odds of it being automated out of existence. If your risks of job skill obsolescence are high then start working on a strategy to get yourself ahead of macroeconomic trends. Even if you've been lucky in your career so far that does not mean your luck will hold out until retirement. Step up your game and try to get ahead of coming changes.
Note that highly productive economic activity seems to be concentrating itself in the United States, in a smaller number of locations. Perhaps the same is happening in Europe too. That’s hardly Spain’s biggest problem right now, and migration can in some ways be a blessing for an economy with high unemployment. Still, when the debt overhang is so high, this is troubling news too.
Tyler was responding to an NY Times piece on how Germany is brain-draining southern Europe. What I wonder: Will language barriers within Europe cause a greater migration of higher IQ than lower IQ workers? Will Germany become a focus place for high IQ laborers (with Britain perhaps getting them too due to widespread English fluency by the most educated)? Will the geographic distribution of laborers by IQ become greater in Europe than in the United States? Will this provide a competitive advantage for the European nation-states which currently have the highest living standards?
One way to think about the flat labor force since in the United States (in spite of continued growth of work age people) is that economic activity isn't just concentrating into a smaller number of locations. Economic activity is also concentrating into the hands (or, rather, the minds) of a smaller fraction of the population. This trend will continue.
Workers in an Amazon.com warehouse were routinely sent to the emergency room because of sweltering, suffocating heat that sometimes exceeded 110 degrees — and because Amazon refused to open warehouse doors, fearing theft, according to a devastating exposé in the Allentown, Pennsylvania Morning Call. After workers, an E.R. doctor and a security guard complained, federal regulators investigated the warehouse and recommended changes. Amazon responded with popsicles, bandanas and finger pointing.
This isn't just immoral. It is stupid too. I mean, imagine you had a really hot work place and people were dropping and getting carted off to a hospital. Wouldn't you do something about it given that this is not the 19th century? Is it really that hard to cheaply prevent heat strokes from happening?
This past summer, at least 15 were set to the hospital by ambulance, with another 20 to 30 treated by paramedics on site.
What does it say about the marginal value of manual laborers in America in 2011 that a major company would treat its workers like this? Some of you are too young to have first hand experience, but rising living standards and better work conditions used to be considered normal. In the post-WWII well until the 1970s every year living standards went up. Dangerous workplaces were expected to eventually disappear except where the work was inherently dangerous such as with Alaska deep water fishing or being a cop. But Amazon in 2011 has managed to make fairly simple warehouse labor dangerous.
Some really cheap things could have been done to cut the incidence of heat-caused collapses:
Then then there's the warehouse:
But in the minds of Amazon management these warehouse workers do not rate for any of that.
America has much farther to fall. Manual laborers will continue to experience declining living standards. In America the median household income peaked in 1999 and is now down 7% from that peak. 12 years of rising productivity? Big benefits from Moore's Law, faster fiber optic cables, denser hard drives, smart phones, and the internet? Nope.
Let me underscore this point: compared to its peak in 1999, median household income is down down $3,800 (2010 dollars), more than 7%. The decline is even more dramatic for non-elderly households, those headed by someone less than 65 years old. That value peaked in 2000, and rose only 1 year since then. It’s down $6,300, or 10% since then, including last year’s decline of 2.6% ($1,500), the largest on record going back to 1987.
As living standards decline so do working conditions. Dear readers I implore you again: Raise your game. Get better at what you do or learn to do something more valuable. You will need to raise your game just to stay at your current living standard. Too many pressures are working against a return to rising living standards.
An article in The Atlantic entitled "Can The Middle Class Be Saved" (answer: no) explores rising wage inequality. In the process of comparing the most meritocratic parts of America to the rest the writer reveals that wages are rising more rapidly in Manhattan than Silicon Valley. Hmmmm...
It’s hard to miss just how unevenly the Great Recession has affected different classes of people in different places. From 2009 to 2010, wages were essentially flat nationwide—but they grew by 11.9 percent in Manhattan and 8.7 percent in Silicon Valley. In the Washington, D.C., and San Jose (Silicon Valley) metro areas—both primary habitats for America’s meritocratic winners—job postings in February of this year were almost as numerous as job candidates. In Miami and Detroit, by contrast, for every job posting, six people were unemployed. In March, the national unemployment rate was 12 percent for people with only a high-school diploma, 4.5 percent for college grads, and 2 percent for those with a professional degree.
If this is true then does this mean that the financiers are even gaining ground relative to the most productive workers in America? Or with US corporations increasingly focused overseas do their top managers rake in big bucks on their management global operations from Manhattan headquarters?
My deeply felt advice: Raise your game. Become more ambitious, aim higher, work harder, and advance. You can't stay still. Either you go up or you will go down. The upper class is unmooring itself from national ties and it doesn't need as many Americans to serve it. The competition is getting more intense, the stakes higher. Rise and shine or sink.
Just how far can one sink to? Even as wage inequality rises there's something even worse than stagnant or slowly declining wages: getting relegated to the ranks of the long term unemployed. As Catherine Rampell reported in the New York Times some help wanted ads exclude the long term jobless. For companies that want to hire the very best this bias against the unemployed is even rational.
Since less than 40% of our high school drop-outs have jobs the plight of the least educated is especially bleak. Yet the elite still want a big influx of the least skilled and least educated. Gardeners can never be too cheap.
A Wall Street Journal article about how the US economy isn't generating jobs any more (while US corps generate jobs abroad) has a depressing statistic about the least educated (and need I say least intelligent?) part of the US population: Most high school drop-outs aren't working.
The Bureau of Labor Statistics says there are 25.3 million Americans over age 25 without high-school diplomas: Only 9.8 million, or less than 40% of them, were working in June.
It begs the question: What are they doing? How are they getting food and housing? Obviously, some are in Club Fed and state and local prisons. But for the ones not doing jail time how are they surviving? Soup kitchens? Welfare? Mooching off of friends and family? Drug dealing?
There's no light at the end of the tunnel for the least skilled, least educated, and least intelligent. Manual labor manufacturing jobs continue to get automated or shipped abroad. For reasons hard to fathom our elites continue to favor a big influx of low skilled illegal immigrants. Really, the poorest are paid so little that cutting their incomes even lower by displacing them with immigrants does not save the upper class much money. So why do it? I would like to ask the top 0.1% who effectively rule America why they favor this state of affairs.
Labor market participation rates are down to levels last seen in the early 1980s. A large chunk of the labor force suffers from long term unemployment. And how are they getting by? As Catherine Rampell recently reported in an NY Times piece, employers are explicitly advertising for the already employed or recently unemployed. Anyone who has been out of a job for 6 months gets stamped "Loser". Well, there are lots of people getting stamped "Loser" and that looks set to continue for years to come.
Nike is a powerless corporation that really has very little freedom for maneuver. So feel sympathy for Nike. Maybe help them out by buying a pair of shoes.
SUKABUMI, Indonesia — Workers making Converse sneakers in Indonesia say supervisors throw shoes at them, slap them in the face and call them dogs and pigs.
Dog and horse lovers are of course incensed to read this. Why speak pejoratively of dogs and horses by comparing them to the the lowest status human workers? How about a Western social movement to stop the pejorative usage of names for other species? These supervisors could make other choices. Why not compare the workers to inanimate objects? Or perhaps to other workers of even lower status? Surely, 25 cent per hour worker exists and these Indonesian workers could be insulted by comparison with them.
Nike, the brand’s owner, admits that such abuse has occurred among the contractors that make its hip high-tops but says there was little it could do to stop it.
Really, if you need to use the lowest cost workers possible you've got to use workers who have no legal protections at all. Also, the workers should be desperate for work. This is the only way to maximize profit margins. Nike has few choices to make that would not cut into profits. Poor Nike. To be fair: Nike says it has old contracts to licensees over which it has limited leverage. But it could bribe licensees to modify contracts. Oh wait, my bad. That would cut into profits.
Of course, there's an upside to this sort of story: If you a poor American but can still afford a pair of shoes that costs the equivalent of a couple hundred hours of Indonesian labor then by wearing Converse shoes you can advertise your ability to figuratively walk over lots of people even poorer and lower status than you are.
In the article they say at one plant the workers make 50 cents an hour, which leaves little left over after paying food and bunkhouse-type lodging (Malthusian Trap anyone?). This seems like a symptom of a deeper problem: too many people. Imagine people practiced more birth control. I expect pay and working conditions would improve. Mary Ellen Harte and Anne Ehrlich say overpopulation is the root problem. Jeremy Grantham thinks we are nearing something close to Peak Everything.
The question in my mind: Can we come up with ways to generate energy cheap enough that we can use energy to compensate for dwindling fresh water, minerals, and other resources? Until we do it looks like a Zero Sum future where the sum will start shrinking at some point.
Update: See physics prof Tom Murphy on why long term growth can't be sustained.
A Wall Street Journal FINS article cites a report by glassdoor.com claiming the top 20 companies for tough job interviews aren't familiar names like Microsoft, Apple, or Google.
At the top of the list were: consultancy McKinsey, proprietary trading firm Jane Street Capital and semiconductor manufacturer Cree Inc. Firms like BP (No. 10), Procter & Gamble (No. 12), investment fund Bridgewater Associates (No. 16) and Amazon (No. 18), followed. Notably absent from the top 20 were tech giants like Google and Apple, both notorious for their high levels of competition and challenging interviews.
This all has to be taken with a grain of salt. Obviously, the applicants for clerical positions aren't being asked to solve tough equations. Which jobs in each firm have especially tough questions? How g-loaded are the questions from each firm? How much are the questions dependent on learning specific areas of mathematics or algorithms or engineering domain knowledge? How g-loaded are the questions?
What would be even more interesting: What's the relationship between salary and difficulty of interview? Do some firms have really high standards for jobs that do not even pay $100k per year? Do some firms have easier questions for their $200k per year jobs than other firms do for their $150k per year jobs?
Since BP is the only oil company on the top 20 list I'm skeptical about the sample pool too. For a petroleum engineer applying at BP, Exxon, Chevron, Total, Schlumberger, Transocean, Halliburton, and Cenovus what's going to be the ranking of difficulty of questions asked? If BP really is asking harder questions than its competitors and had been for a long time they should have a bigger competitive advantage.
While looking for news stories about the latest changes in US national unemployment rate I came across a grim story about unemployment rates in some California counties.
In Lake County, unemployment was at 19.5 percent in March, up from 19.2 percent in February and up from the 19 percent recorded in March 2010, the state reported.
Lake County's most recent unemployment rate earned it a statewide rank of 49 out of 58 counties, the same as its February rank.
So 10 other counties in California have unemployment rates higher than 19.5%. How would you like to find yourself living in such a county? This brings to mind Victor Davis Hanson's essay about two Californias. Colusa County's unemployment rate is 26.7%.
Lake's neighboring counties registered the following unemployment rates and statewide ranks: Colusa, 26.7 percent, No. 58; Glenn, 18.6 percent, No. 46; Yolo, 14.8 percent, No. 33; Mendocino, 12.5 percent, No. 22; Napa, 10.3 percent, No. 9; and Sonoma, 10.4 percent, No. 11.
Within-county high points of unemployment go even higher with the Clearlake Oaks area of Lake County Califora at 28.5%
In Lake County, Clearlake Oaks was the area with highest unemployment, 28.5 percent, followed by Nice, 27.8 percent; the city of Clearlake, 27.4 percent; Lucerne, 20.5 percent;
So what about the rest of the United States? How bad does it get? A county-level table of unemployment for all the US from the US Bureau of Labor Local Area Unemployment Statistics (LAUS) has some pretty high unemployment numbers. For the national high Mackinac County Michigan was at 29.0% in February 2011 and 28.2% in March. Here's a graphical view by county:
That picture is a view into our future when Peak Oil causes such high oil prices that the US economy slips into a depression.
Unemployment rate is strongly inversely correlated with level of education. That's not new news. But here's what's weird: Once unemployed the average duration of unemployment is the same regardless of level of education. Why is that? You will see at that link the commenters do not know either. The lengthening time for unemployment benefit eligibility is offered as an explanation. But why wouldn't smarter and higher paid people want to get back into higher paid jobs as rapidly as possible?
Also, the average duration of unemployment has skyrocketed in the latest recession up to nearly 40 weeks. In the 2001-2002 period it was below 20 weeks. The average duration of unemployment grew sharply coming out of that recession peaking in 2004, dropped a bit, and then started back up again. The rate if layoffs is very low. But so is the rate of hiring. The job market is becoming highly segregated between those who have jobs and those who don't.
A related phenomenon: Some employers are averse to hiring the unemployed. Among employer motives for this preference:
None of these items explain why the average duration of unemployment is the same across employment levels. Any ideas why?
Data released today by the National Science Foundation show the recent economic recession had less effect on doctoral degree holders in science, engineering and health (SEH) fields than it did on the general population.
According to a new NSF report, the unemployment rate in October 2008 for SEH doctorate recipients was 1.7 percent, whereas the unemployment rate for the total U.S. labor force was 6.6 percent.
One big advantage they have: When they can't get jobs using Ph.D.-level skills they can move down to take lower paying jobs and less prestigious jobs. Their IQs are high enough they can easily adapt. Take someone whose skills are so limited they can't do more than wash dishes or mop floors. Say they get laid off. They can't make trade-offs to accept a lousier job at lower pay if they already were at minimum wage working the night shift .
Michael Mandel writes a great blog. Our masters are making more while large parts of the private sector lose ground.
This first chart shows the change in wage and salary payments by major industry from 2000-2009, adjusted for inflation, using BEA data. We see that healthcare and social assistance generated $210 billion in real wage gains from 2000 to 2009 (all in 2009 dollars). Next biggest was state and local government, which generated $151 billion in real wage gains. (The exact numbers change a lot if I change the end dates, but the pattern stays the same).
On the other hand, the big losers were manufacturing (-$245 billion), information (-$56 billion), retail trade (-$24 billion), and transportation and warehousing (-$6 billion). It’s interesting that the industries in the global supply chain were the big losers in real wages, but I’m not sure quite what to make of it.
Because some industries took it on the chin and experienced big losses the total dollar gain in private sector compensation from 2000 to 2009 was less than the total compensation gain among government workers. So federal government got 18% of total wage gains, state and local government got 37% and the private sector (which is of course far larger than state and local government) got only 45%. In the 2000 oughts the government became a bigger parasite on the private sector. Government and health care workers made out. Rich people did extremely well and their fates and interests are diverging from that of the bulk of the citizenry. The rest of us? Not so much.
At the state and local level I expect the rise in compensation for government employees to slow or even reverse. The unfunded retirement plans and public opposition to higher taxes combined with continued slow economic growth are squeezing state and local governments. The public has lost patience.
Another compensation pattern Mandel reported in a recent post: the gap between the most and least educated continues to rise. In a nutshell, the manual laborers are eating it. A huge influx of illegal aliens is swelling the ranks of the least skilled while much of the lower skilled manufacturing work is getting shipped abroad and eliminated by automation.
On a related note, I have just ordered Tyler Cowen's new Kindle book for $4: The Great Stagnation: How America Ate All The Low-Hanging Fruit of Modern History,Got Sick, and Will (Eventually) Feel Better. He comments on it here and here.
Tyler Cowen responds to Paul Krugman and Scott Sumner on whether the zero marginal product worker problem is growing. In other words, how many people have productivity which is so low that they are not worth hiring? Is that fraction of the total labor force growing? Tyler thinks it might be. Some other economists are skeptical. I'm in the "of course it is happening" camp.
4. For another take on #3, during the job-destroying periods of 2009, per hour labor productivity growth is rising at astonishing rates, try 3.4, 8.4, 7, and 6 percent, each quarter, annualized. That's not just the regular accretion of technological progress (though some of it may be), it is an artifact from dumping lower quality and zero MP workers. If I look in the second quarter and see labor hours go down 7.9 percent and see per hour productivity rise 8.4 percent, well, that's no proof but I sure go hmm....
5. I would not take it for granted that "normal" productivity growth continues in times of shock and crisis. Maybe yes, maybe no. Scott's talk of the "trend rate" is assuming that the growth and cyclical components are separable and that is begging part of the question.
6. The zero MP hypothesis helps explain why unemployment is so much more severe among the less educated and the lower earners. In contrast, Krugman writes: "As Mike Konczal points out, basically everyone’s unemployment rate has doubled, no matter their education level or location." In reality, that kind of multiplicative relationship is very much consistent with joint AS-AD determination, including a zero MP for many workers in the equilibrium. I'll write an entire blog post on that question soon, and then we'll see that this result actually discriminates against pure AD theories or is at best a neutral pointer.
One of the reasons I think this problem is real is a trend toward companies where the ratio of smarter to dumber workers is very high. The classical big industrial companies which reached their apex in the middle of the 20th century (e.g. General Motors and the other manufacturers) had a small fraction of smart people working as engineers and managers and a much larger work force doing fairly simple tasks which did not require great intellectual skills. Some of the assembly line workers no doubt were smart back before college education was rare. But the jobs did not require much intellectual ability.
Smart people innovated and employed large numbers of less intelligent people to produce what they developed. That's increasingly not how the world works any longer. The ratio of factory workers to engineers (and software developers) has plummeted as the number of factory workers plummeted and the number of engineering workers soared. Michael Mandel recently pointed out that computer software engineer employment in the US has already surpassed the pre-downturn levels of 2007 and 2008. In Silicon Valley the social media companies are bidding up developer salaries.
Unemployment among lower earning workers is extremely high. Tyler on ZMP workers back in July 2010:
There is another striking fact about the recession, namely that unemployment is quite low for highly educated workers but about sixteen percent for the less educated workers with no high school degree. (When it comes to income groups, the lowest decile has an unemployment rate of over thirty percent, while it is three percent for the highest decile; I'm not sure of the time horizon for that income measure.) This is consistent with the zero marginal product hypothesis, and yet few analysts ask whether their preferred explanation for unemployment addresses this pattern.
Philip Greenspun points out that office work has become more intellectually demanding and the costs of mistakes have risen.
Computer networks, however, have made the potential costs of a clueless or careless office worker dramatically higher. Suppose that a company hires a low-skill not-very-alert office worker for $10/hour. This person accepts an email invitation to follow a hyperlink. One click later and the company’s network is infected with a virus. Best case: IT department spends $50,000 cleaning up; worst case: customer lists, customer credit cards, and other private data are compromised, costing millions of dollars.
Arnold Kling points out that in previous recessions output used to fall less than employment as corporations wanted to retain people to use after recessions ended. But not any more.
Until the most recent recessions, the tendency was for output to fluctuate more than employment. Thus, if you drew a trend line for productivity growth, productivity growth would be below trend during recessions and above trend during booms. The more recent recessions, particularly in 2001 and in 2007-2009, have not followed this pattern.
Nick Rowe points out Spain and Ireland also have experienced rising productivity during the latest recession. Nick speculates this is due to lay-offs of construction workers who have fairly low productivity. But the US also experienced rising productivity in 2001. That was a result of the dot com bubble bursting.
Also see my previous post The Rise Of Zero Marginal Product Workers.
Tyler Cowen points to a Foreign Policy article he wrote with Jayme Lemke: 10 Percent Unemployment Forever? Why the good news about the economy doesn't necessarily mean that jobs are coming back anytime soon.
As time passes, it is harder to avoid the notion that a lot of those old jobs simply weren't adding much to the economy. Except for the height of the housing boom -- October 2007 through June 2008 -- real GDP is now higher than it has been in the entirety of U.S. history. The fact that the United States has pre-crisis levels of output with fewer workers raises doubts as to whether those additional workers were producing very much in the first place. If a business owner fires 10 people and a year later output is almost back to normal, it's pretty hard to make the argument that they were doing much in the first place.
They argue that during good times employers were reluctant to invest the effort to identify and lay off the least productive workers and that employers feared the morale effects of doing so. I'm skeptical about the latter explanation. Seems like other perverse internal incentives prevented the needed lay-offs. I've seen organizations that should have cut back even more than they ended up doing so that they could partially replace some workers with better new hires. The result would have been much higher productivity.
Automation and outsourcing have created a large subpopulation that is not worth the cost of hiring, training, insuring, and managing. The management cost is a really big one. A highly motivated talented worker requires far less management labor to keep them busy. If you've never managed people look for an opportunity to try it and see what I mean. Many of the simple highly repetitive tasks that require less management oversight (once you screw on one bolt just keep doing the same the next time a nut and bolt show up in front of you) have been automated and no longer are human jobs.
In essence, we have seen the rise of a large class of "zero marginal product workers," to coin a term. Their productivity may not be literally zero, but it is lower than the cost of training, employing, and insuring them. That is why labor is hurting but capital is doing fine; dumping these employees is tough for the workers themselves -- and arguably bad for society at large -- but it simply doesn't damage profits much. It's a cold, hard reality, and one that we will have to deal with, one way or another.
Note that labor market regulations that make it hard to screen and hard to fire people effectively raise the threshold for how productive you have to be to get a job. If employers could more easily try out lots of workers with lower skills and questionable motivation then disappointing results would be easier to deal with by firing the disappointments. But lighter labor market regulation would just delay the rise of zero marginal product workers.
In a recent article at the Singularity Hub Drew Halley reports on other economists who see automation as pushing up unemployment.
Are robots creating a jobless recovery? A recent forecast by the UCLA Anderson School of Business echoes a common refrain in economic circles: as the economy recovers, jobs might not. The report, released last week, expects that the nation’s GDP will continue to pick up steam next year, but that unemployment will likely remain above 9% for most of 2011. Among their reasons for slow job growth? Automation.
Robots, big server software, web interfaces, very cheap labor in south Asia, and other factors are cutting demand for marginal workers in America and other Western nations.
Edward Leamer, the director of the forecast, told the LA Times: “If you have nothing to offer the job market that cannot be supplied better and cheaper by Robots, Far-away Foreigners, Recent Immigrants or Microprocessors, expect it to be exceedingly difficult to find the job to which you aspire, and plan on doing low-wage service work at the end of a long and painful road of diminished aspirations, no matter what your diploma may suggest.” Not exactly a beacon of hope, Leamer.
American immigration policy ought to be radically changed to a highly skilled-based set of qualifications and illegal immigration should be stopped and reverse. That would slow the growth of the problem of unemployable people.
U Chicago economist Casey Mulligan explains European government policies have been responsible for a much lower rate of employment in Europe. Part of this shows up in higher European unemployment rates. But fewer people in Europe even try to find jobs.
Employment has been consistently lower in Western Europe, with an average employment rate gap of 10 percentage points over the years 1980-2007. Our recent sharp drop still leaves two-thirds of the European-American employment gap that was there a few years ago.
So far Obama has managed to close only one third of the gap that the US has with Europe in terms of employment. He's got to keep the unemployment rate high in order to drive more people out of the labor force and onto welfare (masquerading as extended unemployment benefits) to make the US more like the European welfare states. Can he do it?
Some might argue that lowering the US employment rate is not a long term Obama goal. But it is an obvious predictable outcome of the policies he prefers. So he either does not mind this effect or he wants it. Either way he's effectively aiming for it.
The resulting lower labor market participation rate lowers tax revenues which makes his social programs less affordable. But he wants to solve that problem with higher taxes which will further lower the employment rate to make it closer to Europe. This will lower output and living standards. Seems unavoidable.
Mulligan does not expect the US employment rate to return to as high as it used to be. The government is growing and its policies work against employment.
Our future is likely to have a permanently larger role for government, and that means employment rates may never be as high as they once were. We might enjoy some of the European lifestyle, or recover the jobs lost during this recession, but not both.
I think the United States has peaked in many ways. Tragic. But there it is. We've got too many things working against us now. Hard to make way against such strong head winds.
In the United States the occupations where jobs are growing most rapidly feature below average pay.
While a lack of jobs is arguably the biggest problem facing the labor market, another major concern is the quality of the jobs that are being created. The Figure presents the five fastest growing occupations between 2006 and 2009 and shows that all but one of them pays below the median wage in May 2009 of $15.95 an hour. The two fastest-growing occupations, home health care and food preparation and serving, pay closer to the federal minimum wage of $7.25 per hour than the median wage. A food preparation worker’s typical wage of $8.28 an hour would earn an annual salary of $16,560, based on a typical 2,000-hour work year: That salary is just below the 2009 poverty threshold for a family of three. Warehouse stock clerks, another fast-growing occupation, would earn slightly more than $20,000 per year.
Got few skills? Don't get stuck as a food prep cook (been there, done that, btw), Aim high: Warehouse stock clerk. Yes, you could make $20k per year.
The health care industry is booming by sucking in an increasing fraction of GDP.
In addition, three of the five fastest growing occupations – home health aide, medical assistant and registered nurse -- are in the health care industry. While registered nurses earn a median wage of more than $30 an hour, the disproportionate growth in health care jobs points to a lack of robust job growth across the labor market. The most recent jobs data show that every industry – with the exception of health care, education, and the government – has fewer jobs today than before the recession began, strong evidence that demand is weak across the entire economy.
In part due to immigration the younger and less skilled face a brutal job market with very high unemployment.
- Younger and less-educated natives often do the same jobs as immigrants. In the second quarter of 2010, in the occupations employing the most young and less-educated U.S.-born adults, one in five workers was an immigrant.
- In the second quarter of 2010, the unemployment rate for U.S.-born adults who have not completed high school was 20.8 percent. But even in the second quarter of 2007, before the recession, it was 11.1 percent.
- Using the broader measure of unemployment that includes those who want to work, but have not looked recently, and those forced to work part-time, the rate for those who haven’t completed high school was 29.3 percent in the second quarter of 2010 and 18.7 percent in the same quarter of 2007.
- The unemployment rate for U.S.-born workers, ages 18 to 29, who have only a high school education was 20 percent in the second quarter of 2010 and 9.6 percent in 2007.
- The broader measure of unemployment for 18- to 29-year-old U.S.-born workers with only a high school education was 29.2 percent in the second quarter of 2010 and 16.6 percent in 2007.
These young unemployed people aren't gaining work experiences that would make them more valuable in the job market. It is short-sighted to let in millions of low skilled illegal aliens to compete with America's youth for jobs.
With 47% of Hispanics dropping out of high school and Hispanics the fastest growing population segment in America the unemployment rates for young workers look set to stay quite high. The American economy has little use for all the low skilled workers crowding into the US labor market. Yet our elites keep trying to bring in still more unqualified workers to drive down wages even lower.
The pressure on American and British salaries due to globalization is spreading. Law is joining the long list of occupations getting outsourced to India.
India’s legal outsourcing industry has grown in recent years from an experimental endeavor to a small but mainstream part of the global business of law. Cash-conscious Wall Street banks, mining giants, insurance firms and industrial conglomerates are hiring lawyers in India for document review, due diligence, contract management and more.
Now, to win new clients and take on more sophisticated work, legal outsourcing firms in India are actively recruiting experienced lawyers from the West. And American and British lawyers — who might once have turned up their noses at the idea of moving to India, or harbored an outright hostility to outsourcing legal work in principle — are re-evaluating the sector.
Since the worked that is outsourced was previously done by junior lawyers in law firms this trend is going to cut the flow of supply of people to become partners and senior lawyers who give advice to clients. This reminds me of trend in software development in the United States where older developers now manage Indians. Where is the next generation of US lawyers or software developers going to come from once the older workers retire?
Information technology outsourcing is of course extensive. Lots of legal work does not have to be done anywhere near clients either. The speedy internet makes information flow fast and cheap.
Even the medical profession isn't entirely immune to this trend. Already some radiological images get read in India, especially late at night. Imagine that you could buy a home microfluidic medical testing device (likely by 2020) that could do most common blood and urine tests and even measure breath gases. Then throw in some additional devices that can scan your skin, eyes, tongue at very high res across a wide range of frequencies. The data could be uploaded to a server as often as you test yourself and if anything triggered an alert on server software a doctor in India could look at the results and do a preliminary diagnosis.
A New York Times piece by Catherine Rampell addresses the long term unemployed of workers whose types of jobs aren't coming back.
Sometimes she blames the bad economy in Jacksonville. Sometimes she sees age discrimination. Sometimes she thinks the problem is that she has not been able to afford a haircut in a while. Or perhaps the paper her résumé is printed on is not nice enough.
The problem cannot be that the occupation she has devoted her life to has been largely computerized, she says.
“You can’t replace the human thought process,” she says. “I can anticipate people’s needs. Usually, I give them what they want before they even know they need it. There will never be a machine that can do that.”
The poor woman comforts herself with delusions. Computers can't anticipate people's needs? Sure they can and their ability to do so will steadily increase. The article reports the woman found work as a cashier at Wal-Mart. But Wal-Mart already has self-service check-out lanes. In the longer run will Wal-Mart even continue to employ human greeters? Or will robot greeters become cheaper, more helpful and more entertaining to customers? Surely shelf stocking will be done by robots.
We live in an era where an increasing number of lower IQ jobs are going away and they aren't coming back. It is crazy to have an immigration policy that increases the number of low skilled workers at a time when demand for low skilled workers is on the decline.
The current recession's job losses dwarf every recession since World War II. Expect a slow recovery. Then rising oil prices will choke off the recovery and another recession will begin.
Researchers at Oregon State University find that The kids aren't able or willing to achieve independence as fast as they used to.
In the post-World War II boom, high-paying industrial jobs were plentiful, and a prosperous economy enabled workers with high school degrees (or less) and college degrees alike to find secure employment with decent wages and benefits. Since then, downward trends in wages and economic opportunities can be directly linked to young people staying at home longer, returning home later, and postponing or even forgoing marriage and children.
“Having an income that’s adequate to support oneself and a family — or at least the ability to earn one — has always been a precursor to living independently and taking on adult roles, such as marrying and settling down,” he said.
Some key facts from their article include:
- In 2005, even before the current recession, roughly three in 10 white men (up to age 34) with a high school degree were not in school, in the military or at work. For young black men, the numbers were even higher: More than half were not in school, in the military or at work.
- Even those who do get an education are not as likely as their counterparts in the 1960s and 1970s to get a good paying job. Young men (25-34 years) with a high school degree or less earned about $4,000 less in 2002 than in 1975 (with earnings adjusted for inflation). Men with some college also lost ground, earning about $3,500 a year less in 2002 than in 1975.
- Every single group, except those with graduate-level college education, had greater amounts of people earning below poverty level in 2002 than in 1975.
- In 1969, only about 10 percent of men in their early thirties had wages that were below poverty level. By 2004, the share had more than doubled. Overall, the share of young adults in 2005 living in poverty was higher than the national average.
There are also many differences between now and the early decades of the last century, of course, which Settersten and Ray illustrate. One of the biggest differences is that young people today don’t contribute to the household as they once did. Instead, parents shoulder the burden of launching their children into adulthood.
You have to have sufficient high intelligence (even more than the training received in college) to compete in a job market where automation, an influx of unskilled immigrants (legal and illegal), and the shift of jobs abroad has really gutted the supply of jobs for less intelligent people. This spells much bigger problems for America in the future as the new generation is much less white and has much higher rates of high school drop-out, low achievement in college, higher college drop-out, and otherwise really not up to competing with the Chinese or with robots.
One of the worst developments in the US economy in the last couple of decades has been the growth of a chronically unemployed population. This has many causes including outsourcing, automation, and immigration.
Factory work and even white-collar jobs have moved in recent years to low-cost countries in Asia and Latin America. Automation has helped manufacturing cut 5.6 million jobs since 2000 — the sort of jobs that once provided lower-skilled workers with middle-class paychecks.
As a graphic attached to this article demonstrates the rise in long term unemployment has hit blacks especially hard. That is to be expected because low skilled (mostly illegal) Hispanic immigration has flooded the market for jobs which blacks have done historically. It is an amazing fact of American politics that a part-black President who makes a big point of wanting to help blacks favors immigration policies that severely hurt blacks in the labor market and our worthless elites do not make a peep about it.
Jobs recovery has gotten much slower after recent recessions.
During periods of American economic expansion in the 1950s, ’60s and ’70s, the number of private-sector jobs increased about 3.5 percent a year, according to an analysis of Labor Department data by Lakshman Achuthan, managing director of the Economic Cycle Research Institute, a research firm. During expansions in the 1980s and ’90s, jobs grew just 2.4 percent annually. And during the last decade, job growth fell to 0.9 percent annually.
“The pace of job growth has been getting weaker in each expansion,” Mr. Achuthan said. “There is no indication that this pattern is about to change.”
As a result of slow hiring the number of months it takes for the economy to replace lost jobs after a recession has increased from 21 months to 46 months in the last recession. Given that this current recession is deeper and the economy is beset by more problems (e.g. sick banks, debt-burdened consumers, higher oil prices) the recovery from the current recession will take far longer. In fact, I think it very unlikely that a full recovery will occur before the next recession starts.
Steve Sailer points out that immigration is making the problem far worse.
For example, Ed Rubenstein has been tracking on VDARE.com for years the closest the federal government will come to measuring the impact of immigration on jobs: the ratio of Hispanic to non-Hispanic jobholders. Last Tuesday, Ed reported that Hispanic employment is up 22.4 percent since January 2001, while non-Hispanic employment is down 2.5 percent.
Steve points to a new piece by Don Peck in The Atlantic entitled How a New Jobless Era Will Transform America. In a nutshell: high male joblessness is breaking down all taboos against single motherhood (which used to be called having illegitimate babies back when it was seen as illegitimate to do so). Even the white lower class is becoming highly dysfunctional.
We could at least stop the immigration of low skilled workers. But what to do about the effects of automation? They'll become even more pronounced in the future as robotics enables even more tasks to be fully automated.
Peak Oil is coming too and that'll bring on a downturn more like the Great Depression with much higher unemployment rates. However, a larger fraction of the goods still consumed in the US during that downturn will be manufactured in the US. In his book Why Your World Is About to Get a Whole Lot Smaller: Oil and the End of Globalization (see chapter 5) Jeff Rubin makes the argument that bulk products with low value per unit weight (e.g. cheap furniture) will no longer get shipped across oceans once Peak Oil hits. You can also see an article he co-authored in May 2008 when he was chief economist at CIBC World Markets: Will Soaring Transport Costs Reverse Globalization? Ignore the Adobe Acrobat error and advance to page 4.
Inside the walled city -- one of several compounds run by Foxconn International, a major supplier for Apple Inc -- employees are provided with most of their daily needs. There are dormitories, canteens, recreation facilities, even banks, post offices and bakeries.
The rank-and-file within the compound have little reason to venture outside. That reduces the likelihood of leaks, which in turn lessens the risk of incurring the wrath of Apple and its chief executive, Steve Jobs, whose product launches have turned into long-running, tightly controlled media spectacles.
Didn't Neal Stephenson or Bruce Sterling (or someone else?) write a novel where engineers and scientists left jobs in corporations by being extracted by military-style specialized extraction teams? Anyone remember the science fiction novel I'm thinking of?
An article in BusinessWeek entitled The Disposable Worker looks at the trend toward greater use of temp workers. The huge downturn in employment in this recession is due in part to greater use of temporary workers who are easily laid off.
In a typical downturn, the percentage decline in payrolls is about the same as the percentage decline in gross domestic product. But in the recessions that began in 2001 and 2007, the decline for payrolls was much steeper—1.8 percentage points more during the latest downturn. Worse yet, only about 10% of the layoffs are considered temporary, vs. 20% in the recession of the early 1980s.
About a quarter of the labor force has jobs that are not standard full-time jobs.
The trend toward a perma-temp world has been developing for years. Bosses are no longer rewarded based on how many people they supervise, so they have less incentive to hang on to staff. Instead, the increasing use of bonuses tied to short-term profit performance gives managers an incentive to slash labor costs. The Iowa Policy Project, a nonpartisan think tank, estimates that 26% of the U.S. workforce had jobs in 2005 that were in one way or another "nonstandard." That includes independent contractors, temps, part-timers, and freelancers. Of those, 73% had no access to a retirement plan from their employer and 61% had no health insurance from their employer, the Iowa group said.
The article reports on an increase in hiring of more skilled workers as temporaries. This has been happening with software developers for decades. But now some companies even hire temporary marketing directors and and temps in other management positions.
The situation is especially difficult for young people, many of whom haven't been able to get a first foot on the career ladder. The percentage of people 16 to 24 who have jobs has plummeted by 13 percentage points since the beginning of 2000, while the share of workers 55 and over who have jobs has edged up over the period, despite the recession. Some young people are so desperate to get a start, they're working for free as semi-permanent interns. "Companies that used to use only one or two interns are now asking me for five or six at a time," says Lauren Berger, who runs a company that matches interns with entertainment, marketing, and media companies. Berger also reports a rise in the number of "adult interns," who work for free while trying to break into a new career.
After the 2001 recession jobs came back very slowly. This recession is deeper and the job recovery looks to be just as long. Given the financial crisis I expect the recovery to be much slower.
Those internships might look like plum spots in years to come, for the gloomy trends in the labor market show no sign of abating. Consider some statistics. In the 2001 recession cycle, the economy lost 2% of its jobs and took four years to get them back. This time it has lost more than 5% of its jobs.
The recovery this time will take several years. More jobs will go abroad. Salaries will stagnate at best. If the global recovery becomes strong then oil prices will go so high that our living standards will decline due to high energy prices.
Once upon a time living standards in the United States went up every year for the vast majority of workers. That was then. This is now.
Shockingly, pay for production and nonsupervisory workers—80% of the private workforce—is 9% lower than it was in 1973, adjusted for inflation.
US oil production peaked in 1970. We need to send more and more goods and services abroad to pay for the imported oil. That lowers living standards. But we are still running a large trade deficit. Closing that trade deficit will happen sooner or later and will require lowered US consumption (i.e. lower living standards) to do it.
The nation's December unemployment rate remained unchanged from November at 10 percent, the federal Bureau of Labor Statistics reported yesterday, a sign that the hoped for turnaround in joblessness had not yet arrived.
Barack Obama thinks this is good news.
"This is the best jobs report that we've seen since 2007," the president said then. "I've got to admit, my chief economist, Christy Romer, she got about four hugs when she handed us the report."
Having a female in the position of chief economist means we have to put up with this nonsense about four hugs from our progressive liberal President. How about some rational thinking instead?
Note again that Barack Obama at least claims this report is good news. Does he believe it? The only reason the unemployment rate didn't rise is because 661,000 people gave up trying to find jobs. People gave up looking faster than people lost jobs. If Obama could only do a better job of demoralizing the unemployed he could get the official unemployment rate heading downward.
The Labor Department announced this morning that 589,000 jobs were lost in December. The official unemployment rate remained at 10.0%, as the civilian labor force also shrank by an even larger number, 661,000.
Had the labor force not decreased by 661,000 last month, the jobless rate would have been 10.4 percent, according to economists including David Rosenberg at Gluskin Sheff & Associates in Toronto and Harm Bandholz at UniCredit Research in New York.
All told 1.9 million have given up looking for jobs since May. So the official unemployment rate greatly understates the extent of job loss.
Since May, the labor force has dropped to 153.1 million from nearly 155 million, a 1.2 percent decline. More than 660,000 people exited in December, the most in any single month in 14 years.
In her analysis of the Bureau of Labor Statistics data, Ms. Shierholz noted that according to federal numbers the labor force has decreased by 810,000 since the recession began in 2007 at a time when, due to population growth, it should have increased by 2.8 million. She said that means there are 3.1 million missing workers who should be in the labor force but are not counted as such. They are a group that, when the economy recovers, also will have to be absorbed into the work force.
Over all, an estimated 3.6 million out-of-work people have been uncounted since the recession began in December 2007. They include people who had not recently looked for work and those who would have entered the work force in normal times, like recent high school and college graduates, but remained on the sidelines as jobs disappeared.
The participation rate, or the share of the population in the labor force, fell to 64.6 percent in December, the lowest level since 1985, from 64.9 percent.
In 1Q 2000 the labor force participation rate was 67.3%. Oh, the good old days.
Federal employees making salaries of $100,000 or more jumped from 14% to 19% of civil servants during the recession's first 18 months — and that's before overtime pay and bonuses are counted.
19% make more than $100k per year. They average $70k versus $40k in the private sector and of course they have much better benefits and job security.
While lots of people are experiencing declining salaries, reductions in benefits, and suspension of bonus programs federal workers are more than keeping up with inflation.
Then-president Bush recommended — and Congress approved — across-the-board raises of 3% in January 2008 and 3.9% in January 2009. President Obama has recommended 2% pay raises in January 2010, the smallest since 1975. Most federal workers also get longevity pay hikes — called steps — that average 1.5% per year.
Longevity pay hikes. Imagine that. US government employees live in a cushy parallel economy at our expense.
It is hard to tell what this means. How has the mix of jobs done by US government workers changed over time? For example, does the federal government still employ janitors or are those jobs out-sourced? Has the average skill level risen? I'm skeptical on that point.
Watch this animated sequence of unemployment in the United States by county starting in September 2007. That is all.
Over the past year, U.S. employment of scientists and engineers—the people who create the next generation of products and make the U.S. more competitive over the long term—has fallen by 6.3%, according to a BusinessWeek tabulation of unpublished data. Yet overall employment has fallen only 4.1%.
Is this due to outsourcing?
One can't move some types of jobs abroad. Police, firemen, nuclear power plant workers, road workers, sewer workers, and other people who do jobs where the labor must be done within a nation's borders. But manufacturing workers and designers (e.g. most engineers, computer programmers) do work that in theory can be done anywhere. So are their jobs leaving?
You might think engineering and scientific research are the lifeblood of a modern economy. Knowledge work produces products that substitute for manual labor. If a national economy can't produce as much demand for such knowledge workers as it did in the past is something seriously going wrong? Is this a sign that nation has peaked?
The Bureau of Labor Statistics does not track pay cuts, but it suggests they are reflected in the steep decline of another statistic: total weekly pay for production workers, pilots among them, representing 80 percent of the work force. That index has fallen for nine consecutive months, an unprecedented string over the 44 years the bureau has calculated weekly pay, capturing the large number of people out of work, those working fewer hours and those whose wages have been cut. The old record was a two-month decline, during the 1981-1982 recession.
“What this means,” said Thomas J. Nardone, an assistant commissioner at the bureau, “is that the amount of money people are paid has taken a big hit; not just those who have lost their jobs, but those who are still employed.”
We were living beyond our collective means and still are even with pay cuts. The US Federal government is now spending far more than the nation can afford.
DENVER — When Coloradoans voted to tie the state’s minimum wage to inflation, they were trying to make sure low-wage workers did not fall too far behind the cost of living. But their vote has had an unintended consequence: Colorado plans to lower its minimum wage next year because of falling inflation rates, becoming the first state in the nation do so.
The state’s Department of Labor and Employment said Tuesday that it planned to lower the minimum wage to $7.24 from $7.28, after an August federal consumer price index report showed that the cost of living had fallen in the state.
It is easy to find news articles on pay cuts - especially by state and local governments. Salt Lake County in Utah is cutting wages 2.75%.
Working to save jobs in an economy that continues to create budget challenges, the Salt Lake County Council approved a proposal from Mayor Peter Corroon Tuesday to enact a 2.75 percent across-the-board wage cut next year.
Are we in a deflationary spiral?
Wages for the Colorado Symphony Orchestra will go down 12.5%. The Indianapolis Symphony is also cutting musician pay 12%.
University of Hawaii professors have rejected a proposed five percent pay cut and will instead make their own proposal on how the university can save money.
These profs want to be insulated from the market forces that most of us face. I'd like to see tenured university faculty feel the same market forces the rest of us feel.
U.S. productivity staged its biggest gain in nearly six years in the second quarter despite the contraction in the overall economy, suggesting companies have adjusted to the recession by cutting jobs and workers' hours.
Nonfarm business productivity rose a higher-than-expected 6.4% at an annual rate last quarter, the most since the third quarter of 2003, the Labor Department said in preliminary figures released Tuesday.
When companies lay off people and productivity rises this means they are laying off lower productivity workers. Why don't they just cut wages of lower productivity workers?
In early 2009 high school graduates had twice the unemployment of college graduates. Less educated and lower productivity workers get laid off more. Why is that? Why don't employers just pay the less educated less money and use them just as much? I figure part of the explanation has got to be such low productivity that the transaction costs of dealing with low productivity labor end up higher than the value produced by low productivity workers. A growing ranks of unemployable people might be the long term result. Why deal with frustrating workers of unknown quality when robots beckon?
James J. Heckman and Paul A. LaFontaine said in a February 2008 report the income gap between high school graduates and drop-outs is soaring and yet drop-outs are rising.
During the past 25 years, growing wage differentials between high school graduates and dropouts increased the economic incentives to graduate high school. The real wages of high school dropouts have declined since the early 1970s while those of more skilled workers have risen sharply.1 Heckman, Lochner, and Todd (2008) show that in recent decades, the internal rate of return to graduating high school compared to dropping out has increased dramatically and is now over 50 percent. Therefore, it is surprising and disturbing that, at a time when the premium for skills has increased and the return to graduating high school has risen, the high school dropout rate in America is increasing. America is becoming a polarised society. Proportionately more American youth are going to college and graduating than ever before. At the same time, proportionately more are failing to complete high school.
Black and Hispanic graduation rates are much lower - and they are growing portions of the US population.
After adjusting for multiple sources of bias and differences in sample construction, we establish that (1) the U.S. high school graduation rate peaked at around 80 percent in the late 1960s and then declined by 4-5 percentage points; (2) the actual high school graduation rate is substantially lower than the 88 percent official estimate; (3) about 65 percent of blacks and Hispanics leave school with a high school diploma and minority graduation rates are still substantially below the rates for non-Hispanic whites. Contrary to claims based on the official statistics, we find no evidence of convergence in minority-majority graduation rates over the past 35 years. (4) Exclusion of incarcerated populations from the official statistics greatly biases the reported high school graduation rate for blacks.
* Department of Labor data show that among high school dropouts over the age of 25, the unemployment rate in June 2009 was 15.5 percent -- almost double the June 2008 rate of 8 percent.
* In June 2009, the comparable unemployment rate for high school graduates with no college was 9.8 percent, or just over the national average of 9.5 percent.
The unemployment rate for out-of-school youth age 16 to 24 was 14.2 percent in October 2008. Among the educational attainment categories, unemployment rates for youth not in school were highest for those with- out a high school diploma--26.3 percent for young men and 25.0 percent for young women. In contrast, the unemployment rates for young male and female college graduates were 8.7 and 6.6 percent, respectively. Black out-of-school youth had an unemployment rate of 23.7 percent in October 2008, compared with 12.4 percent for whites, 15.1 percent for Hispanics, and 7.3 percent for Asians.
Gregory Clark, historian and author of the noted book A Farewell to Alms: A Brief Economic History of the World, has an op/ed in the Washington Post on his expectation that smart machines will make the lower skilled human workers unemployable.
The battle will be over how to get the economy's winners to pay for an increasingly costly poor. Last weekend Treasury Secretary Timothy Geithner and Lawrence Summers, the director of the White House's National Economic Council, refused to rule out raising taxes. Despite the White House's subsequent denials, this may be an early acknowledgment of an inexorable trend. In a future with higher taxes, the divide between rich and poor would be the central economic challenge.
Lower IQ people will become irrelevant as they are increasingly replaced by robots and other machines.
Even outsourcing of phone calls to very cheap Indian call-center workers is getting replaced by computers.
I recently carried out a complicated phone transaction with United Airlines but never once spoke to a human; my mechanical interlocutor seemed no less capable than the Indian call-center operatives it replaced. Outsourcing to India and China may be only a brief historical interlude before the great outsourcing yet to come -- to machines. And as machines expand their domain, basic wages could easily fall so low that families cannot support themselves without public assistance.
If Indians getting paid much less than American minimum wage can't compete what to do about our growing lower class?
Clark expects unemployment on a massive scale.
With the march of technology, the size of a future American underclass dependent on public support for part of its livelihood is hard to predict: 10 million, 20 million, 100 million? We could imagine cities where entire neighborhoods are populated by people on state support.
More than half the American population has an IQ of less than 100 and that percentage is growing. We really need to stop letting people enter the country to do manual labor. The people stuck in the lower classes will feel their decline in status. Whether they are given make-work jobs or welfare they will feel frustrated and angry at their low status and lower power.
Also see my post Robots To Cause Mass Unemployment Of Low IQ Workers.
Update: In the comments someone who doubts the eventual unemployability of most low IQ people points to sweeping as a job still requires human labor. I have a couple of answers for this that you can buy right now:
Imagine what cleaning robots will do 20 years from now.
In a Forbes article about the best cities for tech jobs by Joel Kotkin in Forbes an interesting pair of numbers jumped out: Silicon Valley peaked in its number of tech jobs in 1997.
Equally critical, it seems clear that simply being a high-tech magnet does not make a region a prodigious job creator. The San Jose metropolitan area, better known as the heart of Silicon Valley, boasted over 960,000 jobs in 1997. Last year, even after the ballyhooed Version 2.0 of the dot-com boom, that number had actually declined--to barely 900,000. According to figures from economic-strategy firm Praxis Strategy Group, other traditionally tech-heavy areas, including San Francisco and Boston, also did poorly in terms of growth through the balance of this decade.
The article provides a list of cities which have experienced high percentage growth in tech jobs since 2000. Most of the high percentage growth cities have low absolute numbers of tech jobs. But a few (e.g. Seattle, Orlando Florida) stand out as having a lot in total terms, though still far smaller than Silicon Valley.
My impression is that the internet is reducing the value for a firm to co-location near other firms in the related lines of business. Also, companies increasingly use labor in lower cost areas (e.g. India) to do many projects or parts of projects. So a company can be headquartered in Silicon Valley while having a larger percentage of its work force elsewhere.
Granted, there are still advantages to a place like Silicon Valley, most notably in the form of a labor pool that has lots of specialists when the need arises. But while the advantages of the place are substantial they aren't as big as they used to be. At the same time, California's problems are weighing on the Valley.
But even if the pay for newly created jobs could compare with the $28 an hour that laid-off GM workers make, it's not clear that those thrown out of work have the skills or training needed to fill them. The number of "discouraged workers"—those who have given up looking for work because they don't believe a job is available for them—has nearly doubled in the past year. The number of long-term unemployed (jobless at least 27 weeks) increased by 268,000 in May, to 3.9 million. That number has tripled since the beginning of the recession, indicating that there may be a mismatch between open positions and workers' skill sets, geographical location, or desired rate of pay.
GM is laying off while Wal-Mart is planning a big expansion. All those minimum wage jobs. Yum, yum. Eat 'em up kids. I expect the middle will shrink while the lower class grows and the upper class grows to a lesser extent.
The manufacturing sector's decline has a disproportionate impact on less educated workers, who already face an unemployment rate significantly higher than that of college graduates.
"The concern is for workers that have only a high school degree or less," says NELP's Stettner. "We're losing lots of good jobs for people with that level of education. Unless the manufacturing sector recovers—or we somehow upgrade the level of jobs in the service sector—the job market will become even more unequal."
America has millions more high school drop-outs in its future. I do not see the logic of importing a new underclass. But that's what our elite wants to do.
Jobs that do not require a lot of thought are getting wiped out by automation (in case you didn't already notice).
Want to blame something? Blame new knowledge. Knowledge created the electronic gadgets and software that can now do almost any routine task. This goes well beyond the factory floor. America also used to have lots of elevator operators, telephone operators, bank tellers and service-station attendants. Remember? Most have been replaced by technology. Supermarket check-out clerks are being replaced by automatic scanners. The Internet has taken over the routine tasks of travel agents, real estate brokers, stock brokers and even accountants. With digitization and high-speed data networks a lot of back office work can now be done more cheaply abroad.
Any job that's even slightly routine is disappearing from the U.S. But this doesn't mean we are left with fewer jobs. It means only that we have fewer routine jobs, including traditional manufacturing. When the U.S. economy gets back on track, many routine jobs won't be returning--but new jobs will take their place. A quarter of all Americans now work in jobs that weren't listed in the Census Bureau's occupation codes in 1967. Technophobes, neo-Luddites and anti-globalists be warned: You're on the wrong side of history. You see only the loss of old jobs. You're overlooking all the new ones.
What is the defining characteristic of the routine jobs that are getting automated out of existence? They place low cognitive demands on workers. So the jobs that are going away are the jobs that dummies can do. The demand for workers on the left half of the IQ Bell Curve is declining. That's the most important trend in the labor force of America and every other industrialized nation.
What types of jobs are experiencing demand growth? Brain jobs. Occupations where you have to be smart to be productive. That's the flip side of the decline in jobs for dummies: more jobs for smarties.
The reason they're so easy to overlook is that so much of the new value added is invisible. A growing percent of every consumer dollar goes to people who analyze, manipulate, innovate and create. These people are responsible for research and development, design and engineering. Or for high-level sales, marketing and advertising. They're composers, writers and producers. They're lawyers, journalists, doctors and management consultants. I call this "symbolic analytic" work because most of it has to do with analyzing, manipulating and communicating through numbers, shapes, words, ideas.
Robert Reich, when you served as Bill Clinton's Labor Secretary didn't you get the memo? Low skilled Hispanic immigrants are needed for economic growth even though the demand for low skilled routine labor is dropping. Now, I do not understand logically how to reconcile the need for more supply when demand is falling. Using logical reasoning I'm not able to divine how the wisdom of our elites makes any sense. But that is what they tell us.
On the bright side, this future that Reich describes bodes well for his students at UC Berkeley. They've got the skills needed for the kinds of jobs the US economy is producing. But on the not-so-bright side, the average skill set of the US labor force is looking less and less like the graduates of UC Berkeley.
Women in finance suffer the biggest decline in earnings from taking time off to raise kids. The medical profession gives women far better conditions in which to make babies and raise them.
One set of statistics neatly summarizes the findings. After surveying Harvard College alumni 15 years after graduation, Ms. Goldin and Mr. Katz estimated the average financial penalty for someone who had taken a year and a half off and then returned to work. In medicine, that person earned 16 percent less than a similar doctor who had not taken time off. Among people with no graduate degree, the gap was 25 percent. For both lawyers and Ph.D.’s, it was about 29 percent.
For M.B.A.’s, a group dominated by finance workers and consultants, it was 41 percent. Given how much money many make, they can probably do just fine even after such a pay cut. Yet the size of it suggests that time off puts them on a completely different career track.
I'm not surprised by these results. In high finance winning is more all or nothing and big deals get put together or not. With medicine the units of work are smaller and less intertwined with each other. Each patient does not take that much time. What you do for one patient is unknown to most of the other patients you deal with. Medicine is many smaller transactions which are less related to each other.
Barack Obama is clearly a tool of the anti-union capitalists. By deciding to shaft the secured creditors of Chrysler and GM Obama has driven up the cost of credit to unionized companies, putting them at a competitive disadvantage against their non-union counterparts.
To gauge whether those cases have made debtholders wary of other companies with so-called favored political classes, Garman compared spreads, or bonds' extra yields over U.S. Treasury yields, for companies with collective bargaining agreements with the high-yield bond market as a whole.
The secret titans of capitalism probably agreed to this move at a Bilderberger meeting. The credit losses they take on on GM and Chrysler bonds are small potatoes compared to what they'll gain with bets made on non-union companies.
While the two performed in line with each other since 2003, they diverged sharply in February, with spreads on companies with organized labor gapping nearly 11 percentage points higher than the market as a whole, according to Garman's research.
Barack Obama, the heroic fighter against unionism. He's so clever that he undermines union power while pretending to support and prop up unions. The UAW gets his support but that support comes at the very high cost of undermining the union movement as a whole. Sun Tzu would approve. Talk about a clever strategy of indirection.
Obama will next try to undermine black lower class wages by trying to get a big immigration amnesty passed. Bring in more low skilled Hispanic labor and reduce the manual laborers into wards of the government. Obama is a tireless class warrior for the upper class. He's like a Manchurian candidate in reverse. What an enigma.
CHICAGO, May 18, 2009 - With only a few days until the official start of vacation season, money, anxiety and guilt are causing some workers to scrap their vacation plans. More than a third (35 percent) of workers say they haven’t gone on or aren’t planning to take a vacation in 2009; 71 percent of those indicate it is because they just can’t afford it, according CareerBuilder’s annual vacation survey. The survey was conducted from February 20 through March 11, 2009 among more than 4,400 workers. Additionally, close to one-in-five workers indicate that they are either afraid of losing their jobs if they go on vacation or feel guilty being away from the office.
Taking a vacation doesn’t necessarily mean a clean break from the office. Half (50%) of employers say they expect employees to check in with the office while they are away, with 40 percent indicating it’ll be necessary only if they are working on a big project or there is a major issue going on with the company. Close to three-in-ten (28 percent) workers say they plan to contact the office at least once, regardless of what they are working on, while they are on vacation.
Harris Interactive did the survey I assume this was by phone.
In the factory worker era one could escape work by walking out the factory gates. You could only work while on the grounds of the factory. A day off was a day escape from work. Not any more with emails and instant messages asking for technical support, sales prospect questions, and the like.
So look, it is hard to escape from work. Get wealthy, save more money, make more money, and then do not spend it. Freedom comes from cash. Want to stop worrying about work? Make more. Spend less. Save more. Even if you can't get away from work you can at least feel less worried about the continuation of your job.
While the US jobless rate has hit 8.9% some groups are much harder hit than others. Blacks are especially hard hit.
The unemployment rate reached 15 percent among African-Americans, 21.5 percent for teenagers, and 9.4 percent for adult men.
If Obama wants to help blacks he should start deporting large numbers of illegal aliens to open up jobs for black men and women. Instead Obama is talking about comprehensive immigration reform which is Washington DC code-talk for immigration amnesty.
The unemployment rate is much higher if people who have given up looking for a job are counted.
Those figures do not account for the millions of people working part time because their hours have been cut or they have failed to land full-time jobs. When those people are counted along with those who would like jobs but have given up looking, the so-called underemployment rate reached 15.8 percent — up from 15.6 percent in March and 9.2 percent a year earlier.
So then the black underemployment rate is over 20%.
For those out of work, this recession has already proven to be the most punishing since the government began tracking the length of unemployment in 1948: Among the officially jobless, 27.2 percent were unemployed for more than six months, the highest figure on record.
This recession is breaking post-WWII records. When will it start breaking pre-WWII records?
One way to figure out which side of an issue to be on is to look at the fools promoting one side or the other. Alan Greenspan says illegal immigration helps the economy. But Greenspan is still living in 2006 when he didn't think that his monetary policy was causing grievous damage to the economy by feeding a housing and credit bubble.
Greenspan sounds especially oblivious to the facts on the ground when we look at immigrant employment. Let me remind you again about a recent report by Steven A. Camarota and Karen Jensenius of the Center for Immigration Studies finds that immigrant unemployment has risen far more than native unemployment.
Hispanic immigrant unemployment has risen more than for non-Hispanic immigrants.
The bottom portions of Tables 1 and 2 report unemployment for Hispanic immigrants. They show that Hispanic immigrants accounted for 66 percent of the increase in the number of unemployed immigrants since the third quarter of 2007. Hispanic immigrants accounted for 50 percent of all immigrant workers in 2007. Unemployment among foreign-born Hispanics increased dramatically, from 4.5 percent to 12.1 percent — a 7.6 percentage-point increase. This indicates that Hispanic immigrants were disproportionately hit by the recession. However, unemployment among non-Hispanic immigrants increased dramatically as well. In the third quarter of 2007 it was 3.6 percent, by the first quarter of 2009 it was 7.4 percent — a 3.8 percentage- point increase. Thus, it is not just Hispanic immigrants who have experienced a dramatic increase in unemployment.
This result makes sense because the least skilled suffer the highest unemployment rates. Also, the housing industry has been especially hard hit and large numbers of illegal Hispanics worked in construction. The lower skill levels of Hispanics put them most directly into competition for dwindling numbers of jobs with lower skills requirements. If Obama wanted to help blacks he'd reduce the competition they face in the labor market.
Holman Jenkins of the Wall Street Journal argues that Obama will not go thru with it and put GM into bankruptcy.
President Obama rightly says "sacrifices" must be made if GM is to emerge as a viable company. But there's one sacrifice he won't make: his re-election chances, by leaving the fate of the UAW truly up to a bankruptcy judge.
Keep that in mind amid the defenestration of Rick Wagoner, who was not as popular with UAW Chief Ron Gettelfinger as Mr. Wagoner's replacement, Fritz Henderson. Keep that in mind amid reports the administration favors a "quick and surgical" bankruptcy. It's a bluff. The same administration that inserted itself into GM's corporate governance to order the resignation of a CEO is hardly likely to defer to the prescribed legal order for a failing company, namely bankruptcy. Even a "prepackaged" filing runs too much risk of a judge imposing more "sacrifice" on the UAW than the administration is prepared to tolerate.
During the Delphi bankruptcy UAW hourly labor rates got slashed. Does Obama want to save GM and Chrysler UAW workers from this fate? One big problem: GM and Chrysler (and Ford for that matter) can not compete in the long run unless their hourly rates go below Toyota's in the US. The Big (and shrinking) Three must compete with all the foreign transplants and cheap cars imported from other countries. Chinese car makers are on the horizon. The Big Three need much lower labor costs or they will not compete.
Can a prepackaged filing protect the UAW? Will the prepackaged filing just allow shutting down lots of dealers while also shafting debt and equity holders? If the UAW doesn't take a much bigger hit then all the losses by dealers, stockholders, and bold holders won't prevent further market loss and another trip into bankruptcy.
The Wagner Act and state-level dealer franchise laws are both products of government and two of the biggest obstacles to a Big Three turn-around.
Investment banker Wilbur L. Ross Jr. gives a GM bankruptcy about 50:50 odds. That's a pretty good interview of him.
Of course Chinese, Japanese, Korean, and south Asian residents of America are invisible. Don't know how they managed to pull that off. But how often do you see them mentioned in news articles about unemployment, crime, incarceration, adultery, illegitimate births, high school drop-outs, or other problems? You'd never know that they have lower rates of all those problems. They do not fit the reigning narrative on race which Attorney General Eric Holder is trying to defend by calling us cowards. Black and Hispanic unemployment levels are higher than the white unemployment level.
9.7 percent: The unemployment rate for Hispanics in January 2009, an increase of 3.5 percentage points from December 2007 and the highest level since 1995.
12.6 percent: The unemployment rate for African Americans in January 2009, an increase of 3.7 percentage points since December 2007 and the highest level since 1994.
6.9 percent: The unemployment rate for whites, an increase of 2.5 percentage points since December 2007 and the highest level since 1983.
Since I prefer a society that works better to one that works worse (making myself somewhat of a statistical outlier apparently) I immediately ask "Why not stop letting in Hispanics who will suffer higher levels of unemployment?" Do our liberal leaders want more unemployment, more high school drop-outs, more illegitimate births, and more other social pathology?
Did you know that Hispanic immigration lowers black employment and lowers black wages? As if things weren't bad enough already we've got to make them worse. Maybe our leaders want to have massive problems to solve. They just do not feel challenged enough. Let us run up massive trade deficits, massive budget deficits, raise unemployment rates, raise crime rates, increase pollution, increase strains on ecosystems, lower average levels of education, just really mess things up. Then see if their brilliances can solve all these problems. It is like someone playing tennis with one hand tied behind their back while lugging around a bowling ball tied to their ankle.
Hey, why not wear blindfolds too? That seems like one of their techniques. Show that the blind can achieve just as much as the seeing. That's gotta be what political correctness is all about. Handicap us by denying access to the truth. Then try to manage society with falsehoods. That's America in the post-1960s era.
Over the past 30 years, the returns have gradually disappeared under the pressure of foreign and domestic competition. Yet despite the gradual decline in the power of the union movement, autoworkers have nonetheless been able to negotiate pay and benefits, job security and work rules that have remained significantly more favorable than those at nonunionized factories run by foreign firms in the United States. Now, as General Motors and Chrysler enter the final phase of what amounts to a bankruptcy-like reorganization under the auspices of the U.S. Treasury, that unsustainable old model is at long last being put to rest.
Instead, a new model is emerging that follows the outline of earlier restructurings in the steel and other heavily unionized industries. Under such a model, Detroit's Big Three customers would finally be treated to cars that offer competitive performance and styling to go along with the competitive pricing of recent years.
Employees would be forced to accept lower base pay and benefits, in exchange for a reasonable share of company profits through a combination of performance bonuses and company stock held by the union health and retirement fund.
This is really the end of an era. It is amazing to me that the UAW has managed to ride the Big Three down to such an extreme before they finally had to stop getting wages and benefits so far above the market rate for low skilled manual labor. The losses the Big Three (and their creditors, suppliers, and stockholders) have experienced on the way down have been immense - especially in this final chapter.
The UAW has agreed to cuts in layoff benefits. Those layoff benefits mean the Big Three have to shell out large sums during recessions to supplement unemployment payments that laid off auto workers receive.
The United Auto Workers union, in deals with General Motors Corp. and other U.S. automakers, tentatively agreed to concessions that may include a pay freeze, cuts in layoff benefits and reductions in so-called skilled-trade positions, people familiar with the talks said.
The administration stepped back over the weekend from naming a "car czar," as it had planned, to oversee the restructuring. But according to people familiar with the task force, it named former Lazard Freres & Co. investment banker Ron Bloom a key adviser. Mr. Bloom, who made a name advising U.S. steelworkers to accept major concessions in several bankruptcy cases, is expected to take the task force's lead role, a senior U.S. Treasury official says.
People who know Mr. Bloom expect him to be tough on the auto makers, the United Auto Workers and other parties involved in their restructuring.
President Barack Obama’s top spokesman told reporters aboard Air Force One on Tuesday that he wouldn’t rule out bankruptcy for the Detroit automakers. But GM Chief Operating Officer Fritz Henderson said the bankruptcy scenarios the company has looked into would cost the government more than $30 billion. The worst would cost $100 billion because GM’s revenue would severely drop, he said, citing research suggesting that sales for a bankrupt automaker would “fall off a cliff.”
If the Big Three do not get big enough concessions they'll end up in bankruptcy in 2010 or 2011 if not sooner. BusinessWeek has a pretty good summary of where the Big Three stand with the UAW, debt holders, and their total costs.
In November, the unemployment rate among workers with a college degree or higher reached 3.1 percent. While that figure is modest compared with the national unemployment rate of 6.7 percent -- and nowhere near the 10.5 percent unemployment rate among those without a high school diploma -- it hasn't been that high since 2003. Because the unemployment rate tends to lag behind other economic indicators, analysts think unemployment among college-educated workers is likely to surpass 4 percent, which would be the highest rate since the Bureau of Labor Statistics began tracking unemployment by education level in 1970.
But most of the college grads who are losing their jobs aren't showing up among the officially unemployed.
Last month, the number of college graduates working fell by 282,000, but the number of college graduates counted as unemployed rose by only 2,000 to 1.413 million.
Do smarter people give up job searching more quickly because they figure out more quickly how hopeless it is? Or are they more specialized and therefore have fewer choices to choose among? Or do they have more cash saved up on average and therefore are less desperate and don't want to work at lower paying and in other ways less desirable jobs? Or do they see lower paid and lower skilled jobs as bad marks they want to keep off their resumes?
Watch this video. Such a highly efficient plant would be impossible to set up in the US - at least by Chrysler, Ford, or GM. Of course, Toyota, Honda, and other companies in the anti-union Old South could do it. Have they already?
During those years of oligopoly, the Big Three's first loyalty (after their loyalty to management) was loyalty to the union. The worst thing that could happen to a Big Three manager was a strike. Making a car that is reliable is only partly a matter of engineering; it's mostly a matter of extremely tight control over the assembly process. That tight control is necessarily less pleasing to the workers than looser rules. The unions could severely hurt a company with a strike. Whereas the customers? The customers could only go to another company where the same union was negotiating the same loose work rules.
(Yes, yes, I know that Toyota does it differently, with group responsibility. But Toyota's system was developed in the absence of a strong union; the adversarial model that the UAW had developed along, however historically necessary, made the Toyota example completely unworkable in a Detroit plant.)
After the unions, for the Big Three, the government was the next most worrisome constituent, followed by the dealers, then the suppliers. The customers were somewhere down there with the mayor of Youngstown, Ohio, in emotional importance to Detroit managers. It's not that the managers in Detroit had anything against their customers, and I've no doubt that they had lots of meetings in which moving testimonials to the gosh-darned swellness of Chevy or Buick or Mercury buyers. But the buyers had little power to punish them, and their other constituencies could make their lives miserable.
My fear is that anything less than bankruptcy won't break through the pull that other interests have on how the car companies function.
Why is UAW President Gettelfinger claiming that Republican Senators are in league with foreign car companies to break the UAW? A June 2007 agreement between the United Auto Workers union and Delphi during Delphi's bankruptcy gives an insight into what the UAW is afraid of and why the UAW wants the US Congress to loan money to Chrysler and General Motors. Delphi UAW worker salaries went down by almost a third because bankruptcy gave Delphi leverage to renegotiate with the UAW.
The historic restructuring of the American auto industry cleared another major hurdle Friday with the announcement of a deal covering wage cuts and factory closures between bankrupt Delphi Corp. and the United Auto Workers.
The tentative agreement includes a payout of $105,000 over three years that will be offered to about 4,000 of Delphi's 17,000 UAW workers. In return, the workers' pay will be cut from about $27 an hour to a maximum of $18.50 an hour by Oct. 1.
There's a lot more at stake between the Big Three and the UAW aside from hourly wage rates. Retirement benefits and payment for not working during slow periods are both areas where the UAW doesn't want to give up anything.
If GM and Chrysler do not enter bankruptcy and if the US Congress does not force the UAW to make concessions then high UAW wages and benefits will continue until the Big Three burn thru the US Treasury loans that they and the UAW want them to get.
The Big Three need to get their costs down with a big shaving on their bonds (basically mark down the face values and perhaps exchange some of the debt for equity) and also with big labor union concessions on wages, benefits, and hourly rates. The UAW turned down the Republican Senate offer precisely in order to avoid making any concessions. If the Obama Administration lets them get away with this then the effect will be to delay the bankruptcies, not avoid them.
Daniel Gross at Slate explains how different measures of labor underutilization show bigger declines in employment than the headline unemployment rate.
The data on people not in the work force show the number of people not looking for work because they're discouraged about finding jobs has risen from 276,000 in September 2007 to 467,000 in September 2008—up 70 percent. The percentage of people unemployed for more than 15 weeks stood at 2.3 percent in September 2008, up from 1.6 percent in September 2007, a rise of nearly 45 percent. But the most troublesome is the U6. The U6 is sort of the summa of job angst, a shorthand tally for the aggregate of job-related frustration. (Moneybox covered some of this terrain back in 2004.) To compile the U6, the BLS takes the number of unemployed, plus all marginally attached workers, plus all of those employed part-time for economic reasons, and then calculates that total as a percentage of the sum of the entire civilian labor force plus marginally attached workers.
The U6 in September rose to 11 percent, its highest level since the data series started in 1994 and significantly higher than it was in the last recession, in 2001.
That U6 number is already higher than in 2001 even though economists predict the unemployment rate will go much higher.
That rate (called “U-6”) in November? A whopping 12.5%.
This expected rise in unemployment will push mortgage defaults up much higher. How many more banks will fail as a result?
Moody's Economy.com now sees the unemployment rate peaking at 8.7% in the first quarter of 2010, rising from the 6.5% peak it forecast in September.
How much of an impact does unemployment have? Barclays Capital estimates that a 1% increase in the unemployment rate, like that between May and October, could push up losses on securities made up of pools of mortgages by as much as 35%.
The US unemployment rate hit 10.8% in 1982 and some economists are saying recession will be the deepest since WWII. So that opens up the possibility of double digit unemployment.
The Irish economy is labouring under the collapse in residential construction and a severe decline in consumer spending and as a result unemployment is expected to reach 10 per cent in 2008 and may peak at 12 per cent in 2010, according to the report.
Richard Sylla, an economic historian at New York University, says that his rule of thumb for a depression would be double-digit unemployment rates lasting for more than a few months. The only times that occurred in the U.S. were during the Great Depression and the 1890s. The deep recession that ended in 1982 briefly saw unemployment rise above 10%.
Berkeley economic historian Brad DeLong’s definition of a depression is in a similar vein: Unemployment hits 12%, or it stays above 10% for three years.
Another measure of depression involves the size of the economic contraction. I do not expect to see depression levels of economic contraction. But the financial markets keep throwing up surprises. So hard to say for sure.
While in terms of raw numbers the November job losses are the largest since 1974, it is important to realize that the economy and labor market are much larger than they were in 1974. In percentage terms, the number of establishment jobs declined by 0.4 percent. In comparison, the December 1974 job losses of 602,000 were twice that number—a 0.8 percent decline from the previous month. The size of the decline in percentages is the same as the peak job losses in the 1981-82 recession but twice that as compared to peak job losses in the 1990-91 and 2001 recessions.
So the 1973-1975 recession still looks bigger than the current recession. We would need to see a huge increase in job losses to get up into 1974 territory.
The November jobs report is one of the worst jobs reports in 30 years. Job losses totaling over a half a million is a very worrisome number. However, it is important to realize that the numbers are not as bad as the 1973-75 recession. The employment picture is already worse than the last two recessions, but right now the 1981-82 recession appears to be an apt comparison due to the increased relative scale of our economy.
One thing different today that gives policy makers a lot more latitude: much lower inflation rate. The Fed can do massive bond buying and take other measures to expand the money supply to counteract the contraction.
After years of boom and bust, the administration of President Luiz Inácio Lula da Silva is projecting a period of sustained growth, with the gross domestic product increasing 5 percent a year, from now to 2010, and about 3 and 4 percent annually for the decade after.
But many companies and economists, including some inside the government, say the dearth of highly skilled labor, particularly engineers and tradesmen, will jeopardize those goals, and Brazil’s economic and political rise.
“The lack of availability of technical ability may be a constraint on growth, no doubt about it,” José Sergio Gabrielli, president of Petrobras, the state-run oil company, said in an interview. “It is a big challenge for the country.”
The engineering shortage here is spreading across industries. The lack of civil and construction engineers threatens infrastructure projects; areas like banking, aircraft manufacture, petrochemicals and metals are all competing for the same top graduates. In the booming oil and gas industries, companies are turning to foreign labor because there are not enough qualified Brazilians to go around.
Brazil is doing well in large part because of excellent agricultural land, lots of oil, and lots of other natural resources. Much like the resource rich Persian Gulf countries Brazil ends up pulling in skilled workers from abroad. But its ability to pull in engineers and scientists is limited by its national language of Portuguese. Outside of Brazil only Portugal with 10.7 million people shares the same national language.
Brazil could still try to bring in foreign engineers who speak English. Lots of European corporations use English for a substantial portion of their internal communications. A greater embrace of English by their managers and engineers would let them use more highly skilled foreign workers. Anyone have a sense of what fraction of the Brazilian engineers and large corporation managers are fluent in English?
The average level of education in Brazil is very low.
The average Brazilian worker has six years of schooling, compared with 10 years in South Korea, 11 in Japan and 12 in the United States and Europe, according to the National Confederation of Industry study.
Of the few Brazilians who go to a university, fewer than one in five take engineering, science, mathematic or computing, according to a recent World Bank study on the links between education and economic growth.
Brazil has an average IQ of 87 versus 105 for Japan, 106 for South Korea, and 98 for the United States. So these results are not surprising.
Lots of skilled American farmers are setting up farms in Brazil and American capital is flowing into the Brazilian agricultural sector. These farmers can hire foremen who speak both English and Portuguese who can manage manual laborers. American farmers in Brazil operate huge farms.
The gains, though always uncertain, come from both operating income and appreciating land values. John and Kelly Carroll also considered Brazilian farming a good bet. "We put every penny we had into it," says John, 27. A couple from west-central Illinois, they graduated from college in 2003, got married, and honeymooned 10 days later in Brazil.
John's 5,000-acre family farm in Illinois raises corn, soy, and hogs. Here, in the northeastern Brazilian state of Bahia, he mostly grows cotton and operates a cotton gin. Along with other investors, he's running 20,000 acres with 100 full-time employees—a distinctly bigger operation than typically seen in the Midwest.
I wonder how many white farmers from Zimbabwe have made it to Brazil and started farming there.
Google and Amazon are two high profile companies with dog friendly workplaces. This is a growing trend. Dog friendly workplaces are draw for prospective employees.
"There are more companies that are shifting toward offering dog-friendly work policies because they can use that to attract employees," says Cameron Woo, publisher of Bark magazine. "People are realizing that the button-down white shirt and tie office environment that our parents grew up with doesn't have to [continue]."
According to the Society of Human Resource Management's (SHRM) 2007 Benefits Survey, 6 percent of respondents allow employees to bring pets to work, up from 4 percent in 2006. A newly released survey of 1,000 adults by the American Pet Products Manufacturers Association found that 17 percent are permitted to bring pets to the workplace.
Advocates of the policy believe it benefits both employers and employees. People working long days can bring an element of their home life into the workplace, while those who work regular hours needn't get antsy about dashing home to walk the dog. Another plus: Not having to pay for a dog-sitter.
The dogs are seen as breaking down barriers of communications and lowering stress.
One has to consider pack politics when choosing which dogs can stay in the office.
Policies vary from company to company. Many are thorough and clearly delineated. (Sermo, for instance, has an etiquette memo and stipulates that contract workers can't bring their dogs to work because they'll disrupt the harmony of the established pack.)
Whether that makes sense depends on how often regular workers bring their dogs and whether all dogs interact. Even in smaller companies people can be split up between buildings and packs can be pretty small.
Contracts are written in dollars, and as much as 60% to 80% of Indian service providers' revenue is in U.S. dollars, but more than half of their costs are incurred in rupees, according to an October report from Forrester. Indian outsourcing powerhouses like Wipro are feeling the squeeze. They've strived to cut costs, and now they're raising prices to keep margins from narrowing further. "We are relentlessly driving for higher pricing for our services and have seen price increases from our customers in the range of 3% to 6%, and our new customers are coming in at around 5% higher than our average," Wipro Chairman Azim Premji said on a conference call with investors on Jan. 18.
Duke University professor Arie Lewin estimates that the benefit of doing business, from a labor-cost point of view, in such locales as Bangalore, India, will disappear for some companies in three to four years. That's due to a combination of dollar depreciation, wage inflation, and other costs. Others say it will take longer. "Costs are escalating, so the level of labor arbitrage isn't as great as it used to be, but that's not to say labor arbitrage is disappearing, nor will it disappear in the next 10 years or so," says Sid Pai, partner and managing director of TPI India, a sourcing advisory firm.
How fast that arbitrage advantage disappears depends in part on how far and fast the US dollar drops.
IT workers in Argentina are (surprisingly) about as cheap as in India. I would not have expected that. We are told relentlessly by open borders supporters that Mexicans are dirt poor and we have to let them into the United States out of charity. Yet Mexico has about twice the salary level for IT workers as Argentina.
The average annual salary for an IT worker in the U.S. is about $75,000, according to a late 2007 report by Alsbridge, an outsourcing consulting firm. In India it's about $7,779 and in Argentina, it's slightly higher at $9,478. In Brazil, the annual wage jumps to $13,163, and in Mexico it climbs to $17,899.
Argentina, with a national average IQ 9 points above Mexico, looks like it might be an IT employer bargain. The Western Hemisphere time advantage is an important consideration in that calculation. Supervising people 12 time zones away isn't easy.
Workers who frequently change employers risk negative consequences to their paychecks, according to new research published in the February issue of the American Sociological Review, the flagship journal of the American Sociological Association.
Note that while the lady conducting this research is at a Canadian university the dataset she is using was collected on Americans. So these results are relevant to people in the American labor market.
To determine the impact of career mobility on worker’s wages, sociologist Sylvia Fuller of the University of British Columbia examined data from the 1979 National Longitudinal Survey of Youth, tracking nearly 6,000 workers during their first 12 years in the labor market.
Despite the frequent job moves made by young Americans today, Fuller’s research suggests that workers who frequently change jobs generally end up earning less than their more stable counterparts.
“The past 30 years have seen the erosion of long-term employment, and young people are increasingly told to expect ongoing employer changes throughout their careers,” said Fuller. “However, this research examines the cumulative changes workers make, or are forced to make, and demonstrates that these career moves may not always result in higher earnings.”
Hopping around helps more in the early stages of a career.
By and large any benefits of job mobility accrue mainly in a worker’s early career. Fuller finds that both men and women typically experience substantial mobility during their early careers, although women change employers slightly less frequently than men.
Fuller’s research indicates that mobility can be a wage asset when it is concentrated in the early years of employment and not coupled with layoffs, discharges, employment gaps or family-related leave. In this case, moderate or even high levels of mobility can lead to equal or better wage outcomes than stability.
Stay in a job at least 5 years if you can.
Aside from this exception, Fuller finds that wage outcomes deteriorate as mobility rises.
One reason for lower wage trajectories among high-mobility workers is their failure to accumulate valuable early tenure associated with staying up to five years with an employer. In the first five years of a job, each year of tenure is associated with approximately 2.4 percent higher wages for men and 2.9 percent higher wages for women. However, after five years with an employer, women’s gains from tenure plateau and men’s begin to erode.
Think about this intuitively. If you stay in a job longer you can get to know more people and how to work across teams and layers of a particular company. Suppose you are a high performer. Your odds of impressing someone who can eventually reward you goes up with time. You can have a bad manager but eventually get transferred to a different manager who has noticed your performance or who knows someone else who has made notice of your capabilities.
Just as there is an investor flight to safety with Treasury bills so there is an engineer and software developer flight to safety in high tech.
Mr. Kher is part of a new flight to safety among tech-industry workers as the economy struggles. In growing numbers, these workers are gravitating to larger companies that they hope can better weather a downturn. Ian Arcuri, an engineer in Research Triangle Park, N.C., left a local tech start-up to join giant Cisco Systems Inc. in October. "If I have to live through an economic downturn for three years, then I'd like to be at a company with a big war chest," he says.
There's no data on these job shifts, and recruiters and companies say the trend is nascent. Start-ups certainly aren't being abandoned en masse. But early signs of a mind-set shift are unmistakable, evoking memories of previous migrations to stabler jobs. During the dot-com bust that began in the year 2000, dozens of Silicon Valley start-ups withered or disappeared, while many large tech firms survived. Sure, big tech companies eventually began firing as well, but engineers who leaped to safety early were more likely to survive cutbacks.
The full article is worth reading if you do tech work.
Over 7 years from starting to hitting an IPO for start-ups today. I didn't expect that.
The dream of nearly every start-up -- IPO riches -- is taking longer to materialize, when it happens at all. Tech start-ups today take an average of just over seven years to get to an initial public offering, up from about three years in 2000, according to research firm VentureOne. And the number of tech IPOs remains far off the peak of the dot-com boom: Last year, just 34 tech start-ups went public, down from 105 in 2000, according to VentureOne.
Think about your job and decide whether you need to do your own personal flight to quality. Another alternative: work harder to boost your perceived value to your employers. Also, if you are in a position to make a difference in sales then try hard to win new business that will keep your company busy during the next couple of years of hard times.
A good article in the New York Times looks at changing patterns in the US labor market.
In 1994, 30 million people were hired into new and existing private-sector jobs, according to the Labor Department. By 2000, the number of hires had expanded to 34 million. A year later, in the midst of the recession, hiring slackened to 31.6 million, while layoffs winnowed the work force.
In 2003, with the economy again growing, layoffs slowed, but the private sector hired only 29.8 million — a figure that has nudged up only a little in the years since.
Rather than hire and risk having to fire in another downturn, companies added hours for those already on the payroll and relied more on temporary workers, said Mr. McKelvey, the Goldman Sachs economist. Manufacturing companies continued to automate, to squeeze more production out of the same number of workers, while shifting jobs to lower-cost countries like China and Mexico. For lower-skilled workers, that intensifies the competition for the jobs that remain.
Fewer low skilled jobs remain. Yet our elites relentlessly tell us there are plenty of jobs Americans won't do and that we need millions of people to come up from south of the border to do these jobs. The remaining manual labor jobs have lower salaries. Yet, as the article shows, plenty of poor Americans are desperate to get these jobs.
Some of the jobs are getting automated out of existence. Other jobs go to illegal immigrants and their children. Still other jobs move abroad to Mexico and Central America. An even larger number of jobs moving abroad go to China, India, and southeast Asia.
Economic recoveries are slowing down in their rates of lost jobs recovery. The ranks of the long term unemployed have grown.
Before 1990, it took an average of 21 months for the economy to add back the jobs shed during a recession, according to an analysis by the Economic Policy Institute and the National Employment Law Project, a worker advocacy group. Yet in the last two recessions, in 1990 and 2001, it took 31 months and 46 months, respectively, for employment levels to recover fully.
In the recessions of the early 1980s and the early 1990s, the ranks of the so-called long-term unemployed — those out of work for 27 weeks or more — jumped to well above 20 percent of all unemployed people. But in both cases, that share eventually settled back to close to 10 percent of the unemployed.
After the 2001 recession, however, the long-term share stayed above 20 percent from the fall of 2002 until the spring of 2005. In the months since, it has never dipped below 16 percent. In January, 18 percent of those unemployed had been without work for at least 27 weeks, according to the Labor Department.
The decline in the labor market participation rates for black men is especially worrisome. I do not see how it is going to recover. As my grandmother used to say "Idle hands are the devil's workshop."
Steve Sailer points to a Wall Street Journal article about how our political elites have decided to bail out the real estate speculators and try to prevent a full price correction in the real estate market.
Any debate about a housing bailout can be put aside -- the bailout is underway, even in advance of specific plans being shopped around Washington by Bank of America to prop up home prices with direct subsidies to homeowners whose debt exceeds the value of their houses. No, the perverse effect won't be a replay of the '30s, or even Japan's decade of stagnation in the '90s, but the latter is your model, with a little inflation thrown in. The goal: avoid foreclosures and slow the fall of home prices to market-clearing levels.
Notice that today's bailout will be the opposite of the misnamed S&L bailout of the '80s. Then, only depositors, whose money was guaranteed under federal law, were bailed out. The federal government closed down thrifts, wiped out their shareholders, seized loan collateral and dumped it back on the market, even at firesale prices.
But this time, the liquidationist school has been routed -- so named for Herbert Hoover's Treasury secretary, Andrew Mellon, who said: "Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate. . . . It will purge the rottenness out of the system."
We are not going to purge the rottenness out of the system. What does this mean? Well, the Japanese took the same approach after their late 1980s bubble when they prevented a big series of corporate bankruptcies, bank failures, and larger scale real estate foreclosures. The result: The Japanese economy stayed in one long recession for the entire 1990s and into the 21st century.
Think about that. We've got a weak labor market with a flood of immigrants and outsources of work abroad. Plus, our political elites want to prevent the sort of market correction that will purge all the accumulated debt and bad investments. On top of that, the price of oil is going up even during a recession. We've got inflationary pressures due to dwindling oil reserves and rapidly growing Asian demand for commodities. This is not the time to stretch out a bubble.
The decision by our fearless leaders to prop up housing prices poses practical problems for would-be homeowners. You might like the convenience of owning your own home. But if you live in one of the areas where there has been a big housing bubble then home buying is unwise. The prices of houses will eventually correct. But Congress and the President have decided you are not allowed to buy at the market price. This decision of theirs will reduce labor mobility and also push more people into rentals. It will also lengthen the recession we are entering and slow the economic recovery. Work hard and try to hold on to your job.
Major League Baseball teams in Florida, Texas and Washington benefit from having no state income taxes because they are able to get free agents to accept offers of lower salaries, according to the authors of "Baseball Salaries and State Income Taxes: The 'Home Field Advantage' of Income Taxes on Free Agent Salaries."
Unlike the pre-tax salaries reported in the media, MLB players compare after-tax salaries when considering offers, according to the authors. The study found that differences in state income taxes and local taxes in U.S. cities with MLB teams ranges up to about 10 percent.
"The basic implication of this tax difference is a competitive edge for teams in low-tax areas because they have lower team expenses in signing free agents to contracts that pay the same after-tax wage to players," according to the study.
So when a state raises its state income tax some businesses end up paying higher salaries and therefore the businesses and not just the employees pay for the higher state income taxes.
The teams in states with higher state income taxes end up having to up their offers to free agents to compensate for the costs of state income taxes.
"We find that individuals choosing to play in cities with income taxes must be paid higher pre-tax salaries by an amount that ranges from $150,00 to $300,000," the study found.
For example, a trade involving several players during the winter of 2002-03 involving Florida, Colorado and Atlanta almost fell through in its final stages when Charles Johnson refused to void a no-trade clause in his contract unless he received an additional $1 million to move from Florida to Colorado, the study said.
Players on Canadian teams pay even higher taxes than players in California.
Five of the 30 Major League Baseball teams have no state or local income taxes: Florida, Tampa Bay, Houston, Texas and Seattle. The states with the highest marginal tax rates paid by players were California at 9.30 percent, Minnesota at 7.85 percent and Ohio at 7.50. Rates for the two Canadian teams, Toronto and then-Montreal, were even higher.
All else equal, higher earning people should migrate to lower state income tax states.
What I wonder: Do any Silicon Valley venture capital start-up winners move to no-income-tax states after their companies go public so they can sell their stock without paying California state income tax?
What I also wonder: Do some American very high earners get their corporations to open offices in low tax states so they can work remotely from main offices and earn their big bucks? Do some even go and live abroad for this purpose?
The next generation of United Auto Workers will receive lower pay and benefits than their predecessors, judging by the contracts reached or ratified this week.
If there's a big pattern in the current round of auto-industry bargaining, that's it.
Officially, pay cuts aren't part of the deals. But the launch of a two-tier system, offering many new hires lower wages, raises the curtain on an era when overall pay will be lower.
In benefits, a new contract ratified by UAW workers this week allows General Motors to contribute to a cash-balance retirement plan for new entry-level workers, rather than providing a guaranteed pension.
Meanwhile, in deals cut this year and in 2005, union workers and retirees will be shouldering more of the rising costs for healthcare, and the companies less.
Given the higher labor costs that the Big (but shrinking) Three are saddled with it is amazing they've survived this long. The hourly labor cost gap is enormous.
GM, Ford Motor Co. and Chrysler LLC headed into contract talks with about $25 an hour more in labor costs than Toyota, Honda Motor Co. and Nissan Motor Co., according to industry estimates.
About $13 an hour of this gap can be attributed to retiree pension and health benefits, which could be dramatically reduced by the proposed VEBA trust fund for health care.
The new UAW agreement with GM will eventually put GM's labor costs close to Toyota's current labor costs but still higher.
The new deal would put GM “right on top” of Toyota within a few years, said Rod Lache, an analyst with Deutsche Bank. It could reduce GM’s labor costs from $70 an hour to about $50 an hour, Lache estimates. Toyota’s labor cost is about $47 an hour. “It’s a big, big closing of the gap,” he said.
Even as GM and Chrysler secure deals with the UAW that will close much of the labor cost gap Toyota and Honda are looking to open that gap right back up again.
The internal report suggested tying Toyota production wages and benefits to the surrounding region for plants, instead of trying to keep up with the pay scale of the overall U.S. auto industry — one traditionally set by UAW contracts.
Honda appears to be following a similar strategy. When its new plant in Greensburg, Ind., opens next year, Honda plans to start production workers at $14.84 an hour with an automatic $3.71-an-hour raise in 2009, according to report by the Indianapolis Star. The average wage rate for production workers at GM, Ford and Chrysler is about $28 an hour.
So Honda is starting new workers at a way lower rate than the hourly wage of the Big (but shrinking) Three. Plus, the UAW workers have many more benefits.
ANDERSON, Ind. -- When Honda Motor Co. announced last year that it was building a new plant amid the farms of southeastern Indiana, Hoosiers cheered. Then Honda announced in August that only people living in 20 of the state's 92 counties could apply for jobs -- a move that excluded most of the state's thousands of unionized laid-off auto workers.
Look for the US auto makers to shift more manufacturing abroad. Granted, the current UAW agreements restrict how many plants they can close. But they can't win back market share without getting their labor costs even lower.
Workers left their jobs at 11 a.m. Eastern time, after a strike deadline set by the union late Sunday passed without a deal. Negotiators from the two sides were back at the bargaining table by early this afternoon. But industry analysts said that given how far apart the two sides appear to be, the strike could last for weeks.
The stalemate apparently arose over the union’s demand for job protection for its work force at G.M., which is one-fifth its size in 1990. G.M., in return, had pushed for the creation of a trust that would assume responsibility for its $55 billion liability for health care benefits for workers, retirees and their families.
Although the two sides agreed last week on the framework of the trust, they could not reach an agreement without addressing other contract issues, which in turn would determine how much money G.M. could invest in the trust.
This monopoly labor supplier for the US auto industry wants job security. Well, yes, and so do most people. But the US auto makers have long ago ceased to be the oligopoly suppliers of cars to the American people. Most people realize that in today's economy with global competition there's no job security. But the UAW want an unachievable goal that private sector workers can't have. The UAW is an anachronism.
Every time the UAW strikes against a US maker that maker loses marketshare that it does not gain back. Seems to me the UAW was way too fast to go out on strike. They are further weakening the wounded behemoth that they they count on being able to feed on.
The UAW sort of understands that the Moderately-Big-But-Shrinking Three are, well, shrinking under an onslaught from competitors that have cheaper labor costs. But the UAW isn't willing to give up much to save GM, Ford, and Chrysler from bankruptcy.
For his part, Mr. Gettelfinger said the union was “very concerned” about the long-term outlook for G.M., which was passed this year by Toyota as the world’s biggest auto company.“We’ve done a lot of things to help that company,” he said. “But look, there comes a point in time where you have to draw a line in the sand.”
How long can General Motors survive a strike before they hit a liquidity crunch? At the moment I doubt that GM can borrow any more money. How fast can GM shift all their production abroad?
Half Sigma points to an article in the New York Times about American fruit and vegetable farmers who are setting up farming operations in Mexico in part due to much cheaper labor costs.
CELAYA, Mexico — Steve Scaroni, a farmer from California, looked across a luxuriant field of lettuce here in central Mexico and liked what he saw: full-strength crews of Mexican farm workers with no immigration problems.Farming since he was a teenager, Mr. Scaroni, 50, built a $50 million business growing lettuce and broccoli in the fields of California, relying on the hands of immigrant workers, most of them Mexican and many probably in the United States illegally. But early last year he began shifting part of his operation to rented fields here. Now some 500 Mexicans tend his crops in Mexico, where they run no risk of deportation.
American farmers are also setting up operations n Brazil where the growing seasons are even longer. Brazil also has lower labor costs and much lower land costs. .
Large American agribusinesses are operating in Mexico.
Western Growers, an association representing farmers in California and Arizona, conducted an informal telephone survey of its members in the spring. Twelve large agribusinesses that acknowledged having operations in Mexico reported a total of 11,000 workers here.
The farmers are following in the footsteps of factory owners and for similar reasons.
Labor is about an order of magnitude cheaper in Mexico.
He acknowledges that wages are much lower in Mexico; he pays $11 a day here as opposed to about $9 an hour in California. But without legal workers in California, he said, “I have no choice but to offshore my operation.”
Note: I do not see low paying industries as great national treasures that we should try to hang onto. Really, if the only way an industry can compete is to pay low wages with no medical benefits then I say send that industry packing. Bye bye.
Low wage industries socialize costs. Higher income workers have to pay taxes to fund medical care and education and other services for the poor and poorly paid. That's not capitalism. That's socialism.
Since the vast majority of agricultural workers in America are foreign nationals we don't even protect American jobs when we keep this work in America. So I say let these jobs go to Mexico and send the illegals in America back to Mexico to work on farms there.
The Department of Labor has reported that 53 percent of the 2.5 million farm workers in the United States are illegal immigrants; growers and labor unions say as much as 70 percent of younger field hands are illegal.
Florida's growing season is pretty similar in length to that of Mexico. But Florida has both higher land prices and higher labor costs.
"The North American tomato market is grossly oversupplied," Brown said. "Throughout the year, farmers in Mexico and Canada continue to squirt out tomatoes and send them somewhere." The cost of labor on Florida tomato farms is steadily increasing. The average farm worker earned $12.46 per hour last year, according to committee reports.Still, farmers are losing workers to jobs inside cities that pay more, said Gene McAvoy, a vegetable agent at Hendry County Extension. "With the rapid pace of development, they can make more money building houses in Naples or working at a restaurant, hotel or golf course," McAvoy said. Strict border relations with Mexico "“ where many farm workers come from "“ and guest worker legislation are not yet big concerns for farmers.
American farmers need to automate because labor costs will continue to be much lower in Brazil and Mexico.
Norway surpasses the US in productive value per hour worked but that might be due to North Sea oil wealth. I'd like to know how Norway's hourly productivity trend has changed since North Sea oil production peaked.
GENEVA (ILO News) – While productivity levels have increased worldwide over the past decade, gaps remain wide between the industrialized region and most others, although South Asia, East Asia, and Central & South-Eastern Europe (non-European Union) & CIS have begun to catch up, the International Labour Office (ILO) said in a new report (Note 1) published today.
The ILO report, entitled “Key Indicators of the Labour Market (KILM), fifth Edition” indicates that the U.S. still leads the world by far in labour productivity per person employed in 2006 despite a rapid increase of productivity in East Asia where workers now produce twice as much as they did 10 years ago.
What’s more, the report also shows that the productivity gap between the US and most other developed economies continued to widen. The acceleration of productivity growth in the US has outpaced that of many other developed economies: With US$ 63,885 of value added per person employed in 2006, the United States was followed at a considerable distance by Ireland (US$ 55,986), Luxembourg (US$ 55,641), Belgium (US$ 55,235) and France (US$ 54,609).
However, Americans work more hours per year than workers in most other developed economies. This is why, measured as value added per hour worked, Norway has the highest labour productivity level (US$ 37.99), followed by the United States (US$ 35.63) and France (US$ 35.08).
Norway's results are inflated by oil wealth. France's results are more telling. High tax and high regulation France does not trail the US by much. Why is that?
To make these comparisons more meaningful I'd like to see the value added per hour worked measure broken out by age, race, and sex. My fear is that demographic forces are going to cause a drop in the productive potential of the US labor force and that the same could happen to some other countries as well. We should start to see this effect as the baby boomers retire and less skilled ethnic groups become larger fraction of the US labor force.
East Asia has witnessed the biggest percentage increase in labor productivity over the last decade.
In East Asia where productivity levels showed the fastest increase, doubling in ten years, output per worker was up from one-eighth in 1996 to one-fifth of the level found in the industrialized countries in 2006. Meanwhile, in South-East Asia & the Pacific productivity levels were seven times less and in South Asia eight times less than in the industrialized countries, the report reveals.
In the Middle East and Latin America & the Caribbean, the value added per person employed is nearly three times less than it is in the developed economies; in Central & South Eastern Europe (non-EU) & CIS the level is 3.5 times less, and four times less in North Africa. The widest gap is observed in sub-Saharan Africa where the productivity level per person employed is one-twelfth of that of a worker in the industrialized countries.
The UN International Labour Organisation (ILO) said the average Australian, Canadian and Japanese worker worked about 100 hours, or 2.5 weeks less per year than the average American.
Brazilians and British workers worked 250 hours, or more than five weeks less, while Germans worked roughly 500 hours, or 12.5 weeks less.
The U.S. employee put in an average 1,804 hours of work in 2006, the report said. That compared with 1,407.1 hours for the Norwegian worker and 1,564.4 for the French.
It pales, however, in comparison with the annual hours worked per person in Asia, where seven economies — South Korea, Bangladesh, Sri Lanka, Hong Kong, China, Malaysia and Thailand — surpassed 2,200 average hours per worker. But those countries had lower productivity rates.
The migration of Chinese people from farms into city jobs causes a huge increase in labor productivity.
The vast differences among China's sectors tell part of the story. Whereas a Chinese industrial worker produces $12,642 worth of output — almost eight times more than in 1980 — a laborer in the farm and fisheries sector contributes a paltry $910 to gross domestic product.
Here is some bad news about US agricultural productivity which probably comes from letting in masses of low skilled workers from south of the US border with Mexico:
The difference is much less pronounced in the United States, where a manufacturing employee produced an unprecedented $104,606 of value in 2005. An American farm laborer, meanwhile, created $52,585 worth of output, down 10 percent from seven years ago, when U.S. agricultural productivity peaked.
We should deport all the illegal aliens and stop allowing in migrant workers to do farm work. Farmers can modernize with machinery and other practices that can substitute for the use of cheap labor.
Farmers say that farming is an incredibly valuable activity. But if farming was so valuable then the amount of economic value created per farm worker wouldn't be so low.
I am reminded of the recent Gene Expression interview of UC Davis economic historian Gregory Clark about his book A Farewell to Alms: A Brief Economic History of the World where Professor Clark argues that economic institutions matter far less for economic performance than economists believe.
3. What do you think are the weakest links in the now-conventional "Institutions Matter" chain of reasoning?
Clark: The book challenges the modern orthodoxy of economics - that people are essentially the same everywhere, and with the right set of institutions, growth is inevitable - in three ways. First by showing that there were societies like medieval England where the institutional structure provided every incentive for growth, yet there was no growth. Second by pointing out that by objective measures the institutions of many highly successful modern economies, such as in Scandinavia, provide much poorer incentives to individuals than those of very poor economies. And lastly by showing that in the long run economic institutions that would prevent growth tend to get replaced endogenously by ones that are pro-growth.
France has a larger government as a percentage of total economy, more labor market regulation, and more restrictions on hours worked as compared to the United States. In spite of that the French end up being almost as productive per hour worked as Americans. This supports Clark's argument.
One argument for why the French lag so little is that they keep more of the lower productivity people on welfare and hence out of the pool of people who work and get their hourly productivity measured. But the percentage of their population kept unemployed does not strike me as large enough to account for the small gap between US and American hourly labor productivity.
As recently as 1996, agriculture accounted for 42 percent of world employment, with another 21 percent of workers in goods-producing industries and 37 percent in services. By last year, the ILO says in a report released over the weekend, 42 percent were in services, 37 percent in agriculture, and 22 percent in industry.
It's too soon to talk about a white-collar world. Many of these newly urbanized workers aren't employed so much as they are scraping for survival on city streets. Mr. De Santos's own life has become easier, yet he recalls his father's farm as "a civilized life compared to the life the poor live today in big cities."
Automation is going to continue to cut back on the use of human labor in agriculture.
Here's yet another way that employers can adapt to restricted low skilled labor supply (which we are going to get as a result of tougher immigration law enforcement).
The owner of a fast food joint in Montana's booming oil patch found himself outsourcing the drive-thru window to a Texas telemarketing firm, not because it's cheaper but because he can't find workers.
I do not believe the owner's claim. Of course the telemarketing service is cheaper. He could find the workers if he was willing to pay more than $10 per hour. He does not want to pay the market rate for labor. Um, I remember when rising market rates for labor used to be considered a good thing, not a problem. I still think rising hourly rates and wages are a good thing.
Record low unemployment across parts of the West has created tough working conditions for business owners, who in places are being forced to boost wages or be creative to fill their jobs.
John Francis, who owns the McDonald's in Sidney, Mont., said he tried advertising in the local newspaper and even offered up to $10 an hour to compete with higher-paying oil field jobs. Yet the only calls were from other business owners upset they would have to raise wages, too. Of course, Francis' current employees also wanted a pay hike.
See, he uses the telemarketing service in order to save money. He reduced his total demand for labor to avoid higher unit labor costs.
His method of saving money is a great idea which reduces the total amount of labor needed. A worker manning a drive-thru window isn't going to be busy much of the time. Picture hundreds or thousands of restaurants with drive-thru windows all using telemarketing firms to take orders. The total number of order takers could be much lower since each phone worker could be busy for a much larger fraction of the time. No time wasted waiting for a car to pull past after giving an order. No time wasted when there are no cars waiting.
This idea is great for seasonal businesses too. Different areas have seasonal rushes at different times of the year. A telemarketing order taker could work Florida restaurants in the winter and Lake Georgia New York restaurants during the summer.
Telemarketing with human order takers still uses human labor though. The next obvious step is self-serve order entry in kiosks or via PDAs and cellphones. No need to waste human labor to get order info and to accept credit card or debit card payments.
Beyond automated order taking the next step is automated food preparation. Large scale deportation of illegal aliens combined with a halt to all low skilled immigration would create economic conditions (i.e. higher priced low skilled labor) conducive to automation of food preparation. Look at hamburger cooking for example. That seems like an automatable task. Take a burger out of a refrigerated stack and via a conveyor belt place it in a cooking unit. The cooking unit could time the cooking and control the temperature for a more consistent result. What is needed to make it happen? Higher labor prices. Higher labor prices drive innovation.
The EU study showed that, compared with the Swedes' entitlement of 33 days of paid vacation in 2006, Germans had 30, Italians had 28 and Estonians, who ranked last, had 20.
(These numbers include the statutory minimum paid leave, as well as days added by collective bargaining agreements, but not public holidays. Not all EU countries are included in the study, since the way of gathering data relating to vacations is different in a way that makes comparisons difficult.)
Even more strikingly, Americans had, on average, only nine days of paid vacation in 2006, according to a recent report from the Center for Economic and Policy Research in Washington. That discrepancy is, in large measure, because the United States has no statutory minimum of paid vacation days.
In the face of this kind of global competition, some are now saying that Swedes must seriously consider giving up some of their cherished summer days off.
The article describes the pressures on Swedish business to keep factories and other facilities running more days of the year. Also, since we use more services even when vacationing the demand for holiday workers has probably risen as a proportion of the total economy.
In a way it makes sense for some governments to legislate more days off. People feel a need to work long hours to compete with others in status hierarchies. Mandatory vacation amounts to a mutually agreed upon ceasefire period where shifts up and down status hierarchies can't happen. People can escape the need to compete because they can know that their competitors are also not spending vacation times competing.
Michigan, hard hit by the declining domestic auto industry, has the lowest worker confidence of 8 large American states (the others: California, Florida, New York, Illinois, Ohio, Texas, Pennsylvania)
One-fourth of all workers in Michigan are unhappy with their jobs and fear being laid off, a trend that is pushing worker confidence in the state down to its lowest point since January 2004, according to a monthly survey of the eight most populous states
According to the Hudson Employment Index, worker confidence in Michigan fell in June to 72, which is 12.9 points lower than last June's 84.9 reading. At its peak, the state index hit 108.5 in September 2004.
In the last 12 months the highest national index of this employment index was in March 2007 at 109 and the national index has since gone down to 101.2. The Michigan high point of the last year was in November 2006 at 94.9. The decay to 72 is a huge change.
Does one of the other 42 states have workers whose job fears rival those of Michiganers? I'm doubting it.
For example, 9 percent of those asked from Macomb County (where only 21 percent of residents have a bachelor's degree or higher) said they felt certain they would move out of Michigan.
By contrast, no one surveyed from Oakland County (where 41 percent of residents have a bachelor's or higher) was planning to leave.
College kids are, by and large, planning to stay. The survey found only 7 percent of those with college degrees planning to fly.
Meanwhile, those holding only high school diplomas were twice as likely to leave. Meanwhile, 18 percent of those with no degree of any kind said they would be willing to move.
Nor is the solid middle class planning to head to Manitoba. Just 3 percent of those earning between $75,000 and $100,000 were planning on leaving. But by contrast, those earning between $25,000 and $50,000 were six times as likely to report that they are discouraged and looking for sunnier pastures.government.
That bodes well for an eventual recovery. Michigan has some excellent universities and lots of smart workers who can start new businesses and create new products and services.
Last year, Michigan was the only state with a shrinking gross domestic product, or GDP, Johnson noted. GDP is the value of all goods and services produced in the state, and in 2006 it fell 0.5 percent, while the national GDP grew 3.4 percent. In 2003, Michigan's GDP ranked 23rd in the United States. Last year it fell to 35th.
If rising oil prices push the US into a recession then Michigan is going to turn down even deeper. That's a bad place to find yourself unemployed.
Income inequality grew significantly in 2005, with the top 1 percent of Americans — those with incomes that year of more than $348,000 — receiving their largest share of national income since 1928, analysis of newly released tax data shows.
The top 10 percent, roughly those earning more than $100,000, also reached a level of income share not seen since before the Depression.
While total national wealth grew substantially in 2005 incomes for the bottom 90% went down!
While total reported income in the United States increased almost 9 percent in 2005, the most recent year for which such data is available, average incomes for those in the bottom 90 percent dipped slightly compared with the year before, dropping $172, or 0.6 percent.
The gains went largely to the top 1 percent, whose incomes rose to an average of more than $1.1 million each, an increase of more than $139,000, or about 14 percent.
The new data also shows that the top 300,000 Americans collectively enjoyed almost as much income as the bottom 150 million Americans. Per person, the top group received 440 times as much as the average person in the bottom half earned, nearly doubling the gap from 1980.
What I wonder: How fast does the membership in that top 300,000 change? If someone sells their stock options in a successful VC start-up then they might pop up into that top group for a year and then not show up again in that group.
One of my worries with such drastic income inequality: A large chunk of total demand depends on a much smaller number of people who, if they get spooked, could just stop buying and throw the country into a deep recession or even depression. The rich do not need to buy much new stuff each year because they already own so much. Therefore their demand for goods is a lot more optional than is the case for the middle and lower classes. So is this trend putting us at risk of another great depression?
The gap between rich and poor grew at a faster rate in New England than in any other region of the nation over the last 15 years, according to a University of New Hampshire study released Thursday.
The widening income gap has shrunk New England's middle class and disrupted many of the region's communities, according to the study's authors from UNH's Carsey Institute.
I would expect that result. Why? Because New England probably has the highest average IQ of any region in the United States. Income inequality is being driven by the huge earnings of a portion of the brightest. Not every very bright person is scoring big time in business and professions. But enough are that a population that has a lot of very bright people is going to have more big winners and therefore larger income inequality.
Capitalism is not making people more happy. How come? People are becoming less satisfied with their jobs.
Americans are growing increasingly unhappy with their jobs, The Conference Board reports today. The decline in job satisfaction is widespread among workers of all ages and across all income brackets.
Half of all Americans today say they are satisfied with their jobs, down from nearly 60 percent in 1995. But among the 50 percent who say they are content, only 14 percent say they are “very satisfied.”
This report, which is based on a representative sample of 5,000 U.S. households, conducted for The Conference Board by TNS, a leading market information company (LSE: TNN), also includes information collected independently by TNS. This information reveals that approximately one-quarter of the American workforce is simply “showing up to collect a paycheck.”
My guess is that some of the people who are just showing up to collect a paycheck are holding back on the truth.
Rising productivity demands. Work longer hours of uncompensated time. Use lousy tools under lousy working conditions (noise, annoying intercom announcements, the heater is broken). Why be satisfied with all of that?
“Rapid technological changes, rising productivity demands and changing employee expectations have all contributed to the decline in job satisfaction,” says Lynn Franco, Director of The Conference Board’s Consumer Research Center. “As large numbers of baby boomers prepare to leave the workforce, they will be increasingly replaced by younger workers, who tend to be as dissatisfied with their jobs, but have different attitudes and expectations about the role of work in their lives. This transition will present a new challenge for employers.”
Are people growing dissatisfied due to rising expectations? Or at least due to rising dreams?
Job satisfaction has even declined in upper income brackets. Though I'm skeptical that those making a million dollars a year are feeling dissatisfied.
The survey finds that job satisfaction has declined across all income brackets in the last nine years. While 55 percent of workers earning more than $50,000 are satisfied with their jobs, only 14 percent claim they are very satisfied. At the other end of the pay scale (workers earning less than $15,000), about 45 percent of workers are satisfied, but only 17 percent express a strong level of satisfaction.
Money sounds like it is the biggest cause of dissatisfaction.
The survey also finds that employees are least satisfied with their companies’ bonus plans, promotion policies, health plans and pensions. The majority are most satisfied with their commutes to work and their relationships with colleagues.
The biggest decline is at early middle age.
Why would people making less than $35,000 per year have previously had a 55.7% job satisfaction? That seems high for jobs with such low pay.
Will this growing wave of dissatisfaction find political expression? If so, in what form? What demands will dissatisfied workers make of elected office holders?
Update: My guess: One of the causes of rising dissatisfaction is increased knowledge of how more successful people live. Everything from TV shows like Cribs (which shows the houses of rock star and rapper celebrities) to HGTV channel shows on expensive houses across America show how the higher income people live. The wealthy flaunt it to a much greater extent. Cable TV channels show you what they have in detail. Plus, a larger fraction of all wealth is held by a very small fraction of the population.
People would be happier if the wealthy hid their wealth. But the big mansions are too visible and the $60,000 and $100,000 SUVs and cars are too easy to spot. Many people will feel poor and lower status in comparison. And they will compare. The desire for higher status and the attention to status are wired into human brains.
But a review of new information from the federal government suggests that the companies benefiting most from the temporary worker program aren't U.S. companies at all. Rather, they appear to be Indian outsourcing firms, which often hire workers from India to train in the U.S. before returning home to work. Data for the fiscal year 2006, which ended last September, show that 7 of the top 10 applicants for H-1B visas are Indian companies. Giants Infosys Technologies (INFY) and Wipro (WIT) took the top two spots, with 22,600 and 19,400 applications, respectively. The company with the third most applications is Cognizant Technology Solutions (CTSH), which is based in Teaneck, N.J., but has most of its operations in India. All three companies provide services to U.S. companies from India, including technology support and back-office processing.
The only other U.S. companies among the top 10 are the accounting and consulting firm Deloitte & Touche and consultancy Accenture (ACN). They rank seventh and ninth, with 8,000 and 7,000 applications, respectively.
I suspect one reason why the US companies aren't such big H1B users is that they are simply starting more IT projects abroad.
This brings up questions that some big US tech companies would rather not hear asked.
The dominance of Indian outsourcing companies raises public policy questions about the temporary visa program. Some experts say that while the intent of H-1B visas may be to help U.S. companies hire workers with rare skills, the effect in some cases may be to facilitate moving jobs abroad.
A coalition of US companies wants to double the number of H-1B visas issued each year. My guess is this data will make it harder for them to push for their goal. Expansion of a ship-jobs-abroad program is a harder sell in Congress. Though big money talks loud enough that I can't say it is an impossible sell.
After four years in which pay failed to keep pace with price increases, wages for most American workers have begun rising significantly faster than inflation.
With energy prices now sharply lower than a few months ago and the improving job market forcing employers to offer higher raises, the buying power of American workers is now rising at the fastest rate since the economic boom of the late 1990s.
The average hourly wage for workers below management level — everyone from school bus drivers to stockbrokers — rose 2.8 percent from October 2005 to October of this year, after being adjusted for inflation, according to the Bureau of Labor Statistics. Only a year ago, it was falling by 1.5 percent.
Will the housing slump pull the entire economy down into a recession and end this brief period of wage gains?
If wages rise for only a few months, the current expansion, on the verge of entering its sixth year of growth, would still stand out as an unusually bad one for workers — indeed, the only one since World War II without a sustained pay increase.
In the third quarter, which included the early weeks of the recent pay increases, the share of the nation’s economic output going to workers’ pay and benefits fell to its lowest level in 40 years, according to the Commerce Department.
Further, the average hourly wage for a worker in a nonmanagerial position, $16.91 an hour in October, was about the same as it was in 2003 when inflation is taken into account.
Bringing in large numbers of low skilled and low wage Hispanics only makes this problem worse. We do not benefit from growth in the size of our lower classes.
Downward pressures on wages are a really big reason why the Democrats did so well in the recent elections:
In the exit polls conducted on Election Day last month, on the other hand, only 30 percent of voters said they expected life to improve for the next generation of Americans.
America has big demographic problems that are going to make future generations do less well on average. The most obvious problem is the rising HIspanic fraction of the population. On average they do not do as well in school or rise as far in careers as whites do. So as they become a larger fraction of the population the average wage will stagnate and economic growth will slow.
Another problem is the aging of the population.In its earlier stages it was a net plus in one respect: The average experience level of the workforce rose. The rise of middle aged workers increased productivity in highly skilled occupations. But the trend toward an older population is going farther toward the ages where productivity declines and people stop working altogether.
Census Bureau data released last week underlined the difficulties for young workers, showing that median income for families with at least one parent age 25 to 34 fell $3,009 from 2000 to 2005, sliding to $48,405, a 5.9 percent drop, after having jumped 12 percent in the late 1990’s.
The good times rolled in the 1990s. But globalization and the pop of the dot com boom have been hard for many American workers.
Debts for college graduates have soared even as starting salaries have dropped.
In 2004, 50 percent of graduating seniors borrowed some money for college, with their debt load averaging $19,000, Dr. Rouse said. That was a sharp increase from 1993, when 35 percent of seniors borrowed for college and their debt averaged $12,500, in today’s dollars.
Even though the economy has grown strongly in recent years, wages for young workers, especially college graduates, have been depressed by several factors, including the end of the high-tech boom and the trend of sending jobs overseas. From 2001 to 2005, entry-level wages for male college graduates fell by 7.3 percent, to $19.72 an hour, while wages for female graduates declined 3.5 percent, to $17.08, according to the Economic Policy Institute, a liberal research group.
What I wonder: Have students responded to higher college tuition and lower starting salaries by choosing majors which provide more and better job skills? If they have shifted toward better paying training then the drop in college graduate wages understates the decline in demand for people with college degrees.
Health care coverage is down for jobs college graduates take.
In a steep drop over a short time, 64 percent of college graduates received health coverage in entry-level jobs in 2005, down from 71 percent five years earlier.
College has become too expensive. Time to make lectures available on DVDs and automate education.
John Lonski, chief economist at Moody's Investors Service, points to the gross domestic product report, the broadest measure of the economy. Wage and salary costs of nonfinancial corporations were up 9.7 percent from a year ago, according to the GDP report released Wednesday. That's the biggest increase since the fourth quarter of 1984. Total compensation grew by 9.3 percent year over year, also the steepest increase since 1984's fourth quarter.
But this increase in demand is coming years into an economic recovery which probably does not have a lot of time left to run.
Among the most exposed are those who bought into one of the great fads in mortgage lending in recent years -- adjustable rates. Next year, $1 trillion worth of adjustable-rate mortgages -- about 11 percent of all outstanding mortgage debt -- is scheduled to readjust to a higher interest rate for the first time, according to LoanPerformance, a research company. This will come after more than $400 billion of readjustments this year. That means millions of homeowners will either have to refinance or shoulder an increase of perhaps 25 percent in their monthly payments.
The higher payments for mortgages will cut demand for a wide variety of goods and services. The political fallout of wage trends, higher interest rates, and higher fuel costs works against Republican candidates.
"Republicans are worried," added R. Bruce Josten, an executive vice president of the U.S. Chamber of Commerce, a significant backer of pro-business -- and therefore predominantly Republican -- congressional candidates. "You have a portion of the middle class that doesn't believe it's benefiting from good economic news, and, in fact, it's not. . . . All the blame doesn't go to Congress, but voters are going to take it out on Congress anyway."
The Republicans should have hiked the minimum wage and deported all the illegal aliens. Their lower class voters would be more inclined to vote Republican.
Once upon a time America went through a Gilded Age. We can see economic parallels between that bygone era and today. Steven Greenhouse and David Leonhardt of the New York Times report that the median hourly wage of American workers has declined even as productivity has risen.
The median hourly wage for American workers has declined 2 percent since 2003, after factoring in inflation. The drop has been especially notable, economists say, because productivity — the amount that an average worker produces in an hour and the basic wellspring of a nation’s living standards — has risen steadily over the same period.
As a result, wages and salaries now make up the lowest share of the nation’s gross domestic product since the government began recording the data in 1947, while corporate profits have climbed to their highest share since the 1960’s. UBS, the investment bank, recently described the current period as “the golden era of profitability.”
Until the last year, stagnating wages were somewhat offset by the rising value of benefits, especially health insurance, which caused overall compensation for most Americans to continue increasing. Since last summer, however, the value of workers’ benefits has also failed to keep pace with inflation, according to government data.
Good for you if you are not in the bottom half.
The 3.8 percent growth in manufacturing productivity and 5.8 percent rise in output over the past four quarters has resulted in expanding employment. Production employment over the last 12 months has increased by 170,000, the largest number of job created over a 12-month period in eight years. The overall increase in the number of jobs rests on 225,000 jobs being created in 11 of the 22 major manufacturing industries, while only 55,000 jobs were lost in the other 11 industries. Job creation has primarily occurred in four industries: computers and electronic products, transportation (excluding motor vehicles), fabricated metals and machinery. Job loss has also been concentrated in four industries, including textile mills, paper products, apparel and textile products. Interestingly, the sectors responsible for job creation also account for a quarter of the U.S. total exports and produce the bulk of equipment purchased by U.S. businesses.
A new dichotomy between production and non-production workers has developed over the last year as well. The rebound in employment has mainly been on the factory floor. Non-production employment has continued to decline, falling 153,000 this past year. Consolidation, efficiency gains and outsourcing are among the many likely reasons for the decline, when combined with the fact that the government only counts employees at establishments that actually produce products as manufacturing employees.
The NAM also sees wage stagnation due to a number of factors.
Despite increases in real compensation, wages are not rising. Higher costs for benefits like health care are partially to blame, however surging energy prices are the main reason wages have not kept pace with inflation, according to the report. In fact, the overall consumer price of energy has increased by 80 percent during the current expansion, eating into worker paychecks and reducing real wages. Overall, real hourly wages have fallen 0.6 percent, while real wages among manufacturing workers are down 1.7 percent.
Harold Meyerson of the Washington Post looks back longingly on the by-gone era when rises in productivity were translated into increased living standards for the bulk of the population. "The Age of the Great Upward Redistribution" is a bit too bulky.
The young may be understandably incredulous, but the Great Compression, as economists call it, was the single most important social fact in our country in the decades after World War II. From 1947 through 1973, American productivity rose by a whopping 104 percent, and median family income rose by the very same 104 percent. More Americans bought homes and new cars and sent their kids to college than ever before. In ways more difficult to quantify, the mass prosperity fostered a generosity of spirit: The civil rights revolution and the Marshall Plan both emanated from an America in which most people were imbued with a sense of economic security.
That America is as dead as the dodo. Ours is the age of the Great Upward Redistribution. The median hourly wage for Americans has declined by 2 percent since 2003, though productivity has been rising handsomely. Last year, according to figures released just yesterday by the Census Bureau, wages for men declined by 1.8 percent and for women by 1.3 percent.
His terminology also misses the point that the cognitive elite are producing the increased amount of wealth that is not flowing down to the lower IQ workers. The faster the computers, the fancier the software, and the more powerful the robots the less the masses are needed to make goods or provide services.
The declining prices for lower skilled labor is the market's way of telling us that it does not need as many lower IQ workers. But the US government is more responsive to those who benefit from lots of low priced low skilled labor. So the US government ignores the signals from the wider market and continues to let in lots of low skilled low IQ workers..
The nation’s median household income rose slightly faster than inflation last year for the first time in six years, the Census Bureau reported yesterday.
The rise, however, had little to do with bigger paychecks — in fact, both men and women earned less in 2005 than 2004. Rather, census officials said, more family members were taking jobs to make ends meet, and some people made more money from investments and other sources beyond wages.
The bad and not so bad news is geographically clustered.
The 5.9 percent drop in median household income since 1999 was not shared equally around the country. In Michigan, median household income fell 11.9 percent between 1999 and 2005. In North Carolina, it was 11.2 percent, in Utah 10.4 percent and in Indiana 9.5 percent. But in some states, the impact was not nearly so great: a drop of 2.5 percent in New York, 2.4 percent in South Dakota and 1.9 percent in New Hampshire. In the District of Columbia and six states — Hawaii, Maine, Maryland, Montana, North Dakota and Virginia — the change was so small that it fell within the survey’s margin of error.
North Carolina makes sense. It has experienced a large influx of illegal Hispanic immigrants. That'll drive down native wages and increase the population of poor outsiders.
The U.S. House of Representatives early Saturday passed the first increase in the minimum wage in a decade, paired with a cut in inheritance taxes on multimillion-dollar estates. The House bill increases the $5.15 hourly minimum wage to $7.25 in three steps: $5.85 on Jan. 1, $6.55 on June 1, 2008, and $7.25 on June 1, 2009.
The rise to $7.25 has to be considered in inflation adjusted terms. If inflation runs at 3% in the next 3 years then cut about 9.3% from the $7.25 to get to $6.28 in 2006 dollars. If a recession cools down the inflation rate to 2% then the $7.25 becomes $6.81 in 2006 dollars.
Full-time workers at minimum wage make less than $900 a month to pay rent, food, healthcare, gas and everything else. No wonder the U.S. Conference of Mayors Hunger and Homelessness Survey found that 40 percent of adults requesting emergency food assistance were employed, as were 15 percent of the homeless.
So much for the "trickle down" theory:
Today's minimum wage workers have less buying power than minimum wage workers did back in 1950 when Harry Truman was president. The 1950 minimum wage is $6.30 in 2006 dollars, according to the Bureau of Labor Statistics Inflation Calculator. It would take $9.31 today to match the value of the minimum wage of 1968. It takes nearly two minimum wage workers to make what one worker made four decades ago.
The Center on Budget and Policy Priorities puts forth a different inflation adjustment analysis on wages. CBPP claims the inflation adjusted peak minimum was only at $7.54 per hour.
But their third footnote says they are using a less widely used method of adjusting for inflation and that the more widely used CPI-U series would put the peak of minimum wage at $8.88 in 2005 dollars.
We adjust for inflation using the CPI-RS (research series). The “RS” is a historically consistent series used by many analysts, including the US Bureau of the Census, to adjust for price changes. Relative to the more commonly used CPI-U, the CPI-RS grows more slowly, meaning that the real minimum wage deflated by the CPI-U has a higher peak level: $8.88 in 1968 in today’s dollars.
Why use CPI-RS? Anyone know a reason?
Another site puts the 1968 minimum wage at $9.12 in 2005 dollars. You can see the graph of real inflation adjusted minimum wage as rising pretty rapidly in the 1950s and 1960s and then declining some in the 1970s but most heavily declining in the 1980s.
But inflation adjustment is not the only consideration when looking at the historical minimum wage. Economic output per worker has soared since 1968. How has economic output changed since 1968? One reads many comparisons using per capita GDP. But the US Department of Labor Bureau of Labor Statistics Office of Productivity and Technology uses the far more interesting (at least to me) measure: Real GDP per Employed Person Converted to U.S. Dollars using PPPs (or Purchasing Power Parities). Click through to that PDF file and go to page 11 for a time series using that measure for the United States and 15 other countries. A comparison of the United States for 1968 and 2005 shows a 69% growth rate during that time. So production per worker soared even as the minimum wage plummeted. So much for "trickle down". Using 2002 dollars in PPP the 1968 per capita GDP of employed people was $47,898 versus 2005 with $81,024.
America's lower class is not doing well. Why swell its size with low skilled immigration? Why not jack up the minimum wage to $10 per hour. That'll raise wages for those who keep their jobs and cut the demand for low skilled illegal immigrants. The average skill level of illegal immigrants will rise as only those who are worth at least $10 per hour will try to come and the lower skilled lower wage illegals will self deport.
A digression from talk about minimum wage: That BLS document also makes for interesting reading for comparisons of output per worker in industrialized countries. If you go to that PDF file also check out table 2 which shows a time series of per capita GDP of 15 other industrialized countries as a fraction of to the United States per capita GDP. Following down each column you can see where each country peaked versus the United States. For example, Canada peaked at 88.5% of US per capita GDP in 1981 and current is at 80.5%. Australia peaked at 81.5% in 1960 and currently is at 76.5%. Japan peaked at 86.2% and currently is at 76.5%.
That document's table 4 repeats the same analysis as table 2 but using per capita GDP per employed person. By that analysis Canada peaks against the United States in 1977 at 89.3%, Australia peaks in 1982 at 82.5% and Japan still peaks in 1991 but at 77.1%. Also using table 4 as of 2005 Norway at 94.6% came closest to equalling the United States. North Sea oil and high oil prices partly account for the strong showing by Norway. Belgium comes next at 93.3%. Part of Belgium's strong showing per worker is in part due to a lower labor market participation rate of 40.3% versus, for example, Denmark at 50.4%. Those who do not work are less talented than those who do. So a lower labor market participation pushes up average productivity per actual worker.
Wages are rising more than twice as fast for highly paid workers in the Washington area as they are for low-paid workers, an analysis of federal data by The Washington Post shows.
This is happening right where America's leaders live. The consequences of their policies aren't hidden from them. Policies which exacerbate this trend are causing changes in their towns.
Salaries for lower income workers are not keeping up with inflation.
Such innovations help explain why, from 2003 to 2005, the average wage for people in the lowest pay bracket, with salaries around $20,000, rose only 5.4 percent in the Washington region -- not enough to keep up with rising prices. For the jobs that pay around $60,000, salaries rose 12.4 percent, well ahead of the 6.8 percent inflation in that period.
The market faithful want to believe that a rising tide lifts all boats. But some of the boats have leaks.
The top folks are doing very nicely.
In the highest wage bracket, where chief executives, lawyers and other professionals earn six figures, average wages rose 8.5 percent from 2003 to 2005. The increase in their incomes is probably even higher, because employees at that level also often get better benefits, partnership income, stock options or other compensation.
Nationwide, the wage gap is widening more slowly: The average wage for upper-middle-income jobs rose 5.8 percent, and low-wage jobs saw pay increases of 3.4 percent, from 2003 to 2005.
Technology is cutting down the demand for less skilled workers.
In the 1990s boom, Prising said, there was a shortage of low-skilled as well as high-skilled talent, sending wages up across the board.
What changed? Many new technologies and ways of operating -- often aimed at cutting labor costs -- were in their infancy in the late 1990s. Now they are maturing, tamping demand for low-skilled workers.
The article goes on to give examples such as internet ordering replacing more labor intensive phone ordering and a decline in the ratio of bank tellers to bank deposits as ATMs and internet banking cut the need for face-to-face banking. This trend is going to continue and perhaps even accelerate.
The gap based on ability is also widening across national boundaries. In spite of NAFTA and market reforms in Mexico the US economy has been growing faster than the Mexican economy for decades and the growth gap might even be widening. The higher IQ nations should wall themselves off from the lower IQ nations because the gap in per capita GDPs will only get wider in the future. I can't see this trend changing until genetic engineering provides the ability to enhance offspring intelligence. Even then the wealthier nations will embrace such technology more rapidly than the poorer nations. The problem this poses inside wealthier societies is that humans and other primates resent those who make more. A society with a wider IQ range is going to be a society with greater resentment in the lower classes. That's one of the biggest reasons why America's immigration policy is such a disaster. It is building up resentment.
But women's rush to employment stopped in 2000 and started to decline, as they began to join their male counterparts in retirement, go out on disability and delay paid employment to get more education. Some economists think the high-water mark of female participation in the labor force was in 2000, when it hit 60.3 percent.
Family responsibilities are declining as a reason for women to offer for why they do not work.
While nonworking women are still much more likely than men to cite "home responsibilities" as their reason for not holding or seeking a job, that's actually less true now than it was in the past. The share of women aged 25 to 54, considered to be in their "prime" working years, who gave that reason for not seeking employment has shrunk for more than a decade. The share of men citing that reason has edged up over the same period, according to a Labor Department analysis of census survey figures from 1990 to 2003.
The female participation rate peaked below the men's, though, because women still take out more time to care for children and other relatives, analysts say and the data show.
People spending time training and retraining.
More younger workers are staying in school longer to juice up their future career prospects in an increasingly information-based economy. Many middle-aged workers have lost industrial jobs and have gone back to school for retraining or have given up looking for new work.
The overall labor force participation rate is declining.
Now, without a growing share of female workers to offset the departing men, the national labor force participation rate dropped to 66.1 percent in May from a peak of 67.3 percent in early 2000.
I'd like to know what is behind this trend. Some sufficiently affluent people do not work because they value leisure time more than additional money. Others, however, have given up getting jobs that pay enough to make legal work worthwhile. More time spent in school is not behind the huge decline in black male labor market participation.
Among 20 to 24 year old black males, employment rates also have declined considerably from their peak values of 77 to 83 percent in the mid to late 1960s to dramatic 50-year lows more recently. During 2003, for example, just 56 percent of such young black men ages 20 to 24 was employed.
High affluence can not explain this result either. Immigration, trade, and automation are all driving down the wages of the least skilled. Millions of black men have given up on making an honest living.
The US Department of Labor, Bureau of Labor Statistics reports on patterns in labor market participation. A report of theirs suggests to me that perhaps lack of skills might be driving down labor market participation in an economy with a declining demand for less skilled workers.
The sharpest decline in labor force participation between the first quarter of 2001 and the second quarter of 2003 occurred among persons aged 16 to 24. During this period the participation rate for this group fell by 3.6 percentage points, compared with a decline of 0.6 percentage point between the third quarter of 1990 and the third quarter of 1992.
Participation rates during the most recent labor market downturn also declined among both women (from 76.8 to 75.9 percent) and men (from 91.6 to 90.7 percent) aged 25 to 54. By comparison, during the early 1990s, the rate for women in that age group actually continued to rise, increasing from 74.0 to 74.7 percent, while the rate for men was little changed.
Partially offsetting the declines in participation among the other age groups, the labor force participation rate for individuals aged 55 and older rose by 2.8 percentage points over the most recent recession and the year and a half following. The rise in labor force participation rates among older workers may reflect several factors that affect work and retirement decisions such as changes to Social Security regulations, falling stock market prices, and declining interest rates.
The BLS probably reports higher labor market participation than the first article above because the BLS restricts to ages 25 to 54.
The 16-24 population has less skills because they are younger. They also have less skills because that portion of the US population has a much higher Hispanic fraction and Hispanics have low educational attainment. Come a recession demand for younger and less skilled workers might have declined more than the decline for more skilled workers. The labor market participation of women might also have declined due to lower average skills. Since men work more (on average) they probably accumulate more job skills (again, on average). A lessening demand for less skilled workers might fall harder on women.
The federal minimum wage has been $5.15 an hour since 1997. On a procedural measure Wednesday, senators voted 52 to 46 in favor of raising the wage to $7.25 in three steps, but 60 votes were needed to move the legislation forward.
By historical standards the inflation-adjusted minimum wage is very low.
The federal minimum wage is the lowest it has been in more than 50 years relative to the cost of living, according to a study by the liberal Economic Policy Institute. The average full-time minimum wage worker earns $10,712 a year, about $900 more than the federal poverty level for one person and $2,500 less than the poverty level for a couple.
In inflation-adjusted terms the minimum wage peaked in 1968 at $9.12 per hour in 2005 dollars. Check out the chart at that link. Note that once upon a time the minimum wage trended upward. Then it peaked and incomes for those at the bottom have been trending downward for decades in spite of big advances in labor productivity. A rising tide does not lift all boats.
But whether the fortunes of these 8 million Americans, earning less than $7.25 an hour, would rise or falter under the first government-ordered wage hike in 10 years is the broader debate spreading from restaurant kitchens on Capitol Hill to the grocery store aisles of Atlanta.
Some 48 percent, or 3.5 million, are between 25 and 64 years old who, on average, contribute more than half of the income in their households, experts say. Raising the minimum wage is a $18.4 billion proposition that is supported by 83 percent of Americans, according to the Pew Center for the People and the Press.
Of Americans making less than $7.25 an hour, half are over 24 years old, and about half are primary household earners. Sixty-two percent are white, 16 percent are black, and 17 percent are Hispanic. Nearly twice as many are women than men.
Check out these pie charts on who make the minimum wage. Only 30% of them are teenagers.
An April survey by the Pew Research Center shows 83 percent of the public favors raising the minimum wage by $2. That figure includes 72 percent of Republicans, and 76 percent of people with household incomes of $75,000 or higher.
If we stopped the influx of low skilled Hispanics then salaries would rise at the bottom. Businesses would respond by investing more in labor-saving technologies and the rate of increase in productivity would rise.