India has ceased to be the automatic easy decision for saving IT worker costs.
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.
Honda finds ways to keep UAW members out of their labor force.
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.
The United Auto Workers are like the dog that bites the hand that feeds it.
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.
Germans work 500 hours less per year than Americans!
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.
But in some Asian countries people work more than 2200 hours per year.
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.
Update: Services jobs have replaced agriculture as the biggest source of world employment.
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 Swedes even surpass the Germans in days vacation per year.
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.
The people most likely to leave are less intellectually able.
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.
The Michigan economy shrunk last year while every other state grew.
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.
The rich are getting richer and the rest are doing worse.
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?
New England has the most severe income inequality in the United States.
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.
- The largest decline in overall job satisfaction, from 60.9% to 49.2%, occurred among workers 35-44.
- The second largest decline took place among workers aged 45-54, with the satisfaction level dropping from 57.3% to 47.7%.
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.
- The largest decline in job satisfaction took place among householders earning $25,000 to $35,000, with satisfaction falling from 55.7% to 41.4%. This income group expressed the second lowest level of overall satisfaction.
- The second largest decline was posted by householders earning $35,000-$50,000. This group experienced a decline from 59.7% to 46.7%.
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.
How long will the good times last?
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.
Young workers are getting paid less.
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.
Yet recently the demand for labor has begun to cause a big increase in compensation.
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.
How unfun.
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 House passed a minimum wage increase.
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.
The measure will probably die in the Senate due to opposition to the cut in inheritance taxes.
People on minimum wage make too little to get by.
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.
- The real value of the minimum wage peaked in 1968, when it was equivalent to a wage of $7.54 an hour.[3] During the 1970s, the wage floor averaged $6.71 an hour in today’s dollars. (See Figure 2 and Table 1.)
- Once an adjustment for inflation is taken into account, the purchasing power of the minimum wage has now declined to its lowest level since 1955, with the exception of 1989.
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.
Most low-paid workers are not teenagers.
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.