Raising the minimum wage and job creation

Teresa Tritch @ NYTs:

The standard argument against a higher minimum wage is that it will lead to job loss as employers, unable to pay more, lay off current workers or don’t hire new ones.

It’s important to state up front that research and experience don’t bear that out.

Bolstering what we already know, new evidence shows that job creation is faster in states that have raised their minimum wages. The Center for Economic and Policy Research used federal labor data to tally job growth in 13 states* that raised their minimums in 2014. In all but one, New Jersey, employment was higher in the first five months of 2014 (after the wage increase) than it was in the last five months of 2013 (before the wage increase). In nine of the 12 states with faster growth, employment gains were above the national median.

The Crisis of Long-Term Unemployment

Economic Policy Institute:

(L)ong-term unemployment is elevated for workers at every education level… while there is considerable variation in long-term unemployment rates across groups—which is always true, in good times and bad—the long-term unemployment rate is substantially higher now than it was before the recession started for all groups. The long-term unemployment rate is between 2.9 and 4.3 times as high now as it was six years ago for all age, education, occupation, industry, gender, and racial and ethnic groups. Today’s long-term unemployment crisis is not at all confined to unlucky or inflexible workers who happen to be looking for work in specific occupations or industries where jobs aren’t available. Long-term unemployment is elevated in every group, in every occupation, in every industry, at all levels of education.

Dooming the long-term unemployed via inflation hysteria

Matthew O'Brian @ The Atlantic:

Are the long-term unemployed just doomed today or doomed forever?

That's the question people are really asking when they ask if labor markets are

starting to get "tight." Now, it's hard to believe that this is even a debate when unemployment is still at 6.7 percent and core inflation is just 1.1 percent. But it is. The new inflation hawks argue that these headline numbers overstate how much slack is left in the economy. That the labor force is smaller than it sounds, because firms won't even consider hiring the long-term unemployed. That our productive capacity is lower than it sounds, because we haven't invested in new factories for too long. And that wages and prices will start rising as companies pay more for the workers and work that they want.

In other words, they think that the financial crisis has made us permanently poorer. That the economy can't grow as fast as it used to, so inflation will pick up sooner than it used to—and we need to get ready to raise rates. (Notice how that's always the answer no matter the question).

There are only two problems with this story: There's not much evidence for it, and we should ignore it even if there is. It's pretty simple. If tighter labor markets were causing wage inflation, they'd have caused wage inflation. But they haven't, not really. Now, it's true that average hourly earnings ticked up in February, but, as Paul Krugman points out, that was probably a weather-related blip. All the snow kept 6.8 million people from working full-time like they normally do, and, historically-speaking, that tends to affect hourly workers more than salaried ones. So higher-paid people probably made up a bigger share of the workforce last month—and voilà, it looked like wages rose. But that was just statistical noise, and if you look at the bigger picture, wage growth is still far below its pre-Lehman levels.

Our infrastructure is near "fail"

A jobs program waiting for investment -
$3.6 trillion to save America:

The latest infrastructure report card from American Society of Civil Engineers - depressing.

"The Fear Economy"

Professor Krugman @ NYTs:

More than a million unemployed Americans are about to get the cruelest of Christmas “gifts.” They’re about to have their unemployment benefits cut off. You see, Republicans in Congress insist that if you haven’t found a job after months of searching, it must be because you aren’t trying hard enough. So you need an extra incentive in the form of sheer desperation.

Pope Francis v. "Unfettered capitalism" and "The tyranny of markets"

The new Pope appears to be taking the church back to basics. Reuters via NYTs:

VATICAN CITY — Pope Francis attacked unfettered capitalism as "a new tyranny" and beseeched global leaders to fight poverty and growing inequality, in a document on Tuesday setting out a platform for his papacy and calling for a renewal of the Catholic Church.

The 84-page document, known as an apostolic exhortation, was the first major

work he has authored alone as pope and makes official many views he has aired in sermons and remarks since he became the first non-European pontiff in 1,300 years in March.

In it, Francis went further than previous comments criticizing the global economic system, attacking the "idolatry of money", and urged politicians to "attack the structural causes of inequality" and strive to provide work, healthcare and education to all citizens. 

He also called on rich people to share their wealth. "Just as the commandment

'Thou shalt not kill' sets a clear limit in order to safeguard the value of human life, today we also have to say 'thou shalt not' to an economy of exclusion and inequality. Such an economy kills," Francis wrote in the document issued on Tuesday. 

"How can it be that it is not a news item when an elderly homeless person dies of exposure, but it is news when the stock market loses 2 points?" 

The pope said renewal of the Church could not be put off and said the Vatican and its entrenched hierarchy "also need to hear the call to pastoral conversion". 

"I prefer a Church which is bruised, hurting and dirty because it has been out on the streets, rather than a Church which is unhealthy from being confined and from clinging to its own security," he wrote. 

Italian theologian Massimo Faggioli greeted the work as "the manifesto of Francis" while veteran Vatican analyst John Thavis called it a "Magna Carta for church reform". 

"The message on poverty sets Pope Francis on a collision course with neo-liberal Catholic thought, especially in the United States," said Faggioli, an expert on the Second Vatican Council and reform in the Catholic Church.

Tales of the Great Recession

Breadlines are making a comeback. At the NYT's Editorial Page Editor's blog, Teresa Tritch:

The Great Recession was the worst downturn since the Great Depression.  And yet, throughout the recent decline and today’s sluggish recovery, conditions have never seemed as bad as they were in the 1930s. Breadlines, for example, have not been commonplace.

That may be about to change.  

In an article published on Monday, The Times’s Patrick McGeehan described a line snaking down Fulton Street in Brooklyn last week, with people waiting to enter a food pantry run by the Bed-Stuy Campaign Against Hunger. The line was not an anomaly. Demand at all of New York City’s food pantries and soup kitchens has spiked since federal food stamps were cut on Nov. 1. The cut — which affects nearly all of the nation’s 48 million food stamp recipients — amounts to a loss of $29 a month for a New York City family of three. On the shoestring meal budgets of food stamp recipients, that’s enough for some 20 individual meals, according to the New York City Coalition Against Hunger.

The food stamp cuts are occurring even though need is still high and opportunity low. In a report released today, the Coalition estimates that one-sixth of the city’s residents and one-fifth of its children live in homes without enough to eat. Those numbers have not improved over the past three years. The lack of economic recovery for low income New Yorkers is at odds with gains at the top of the income ladder, reflected in soaring real estate prices, rising stock prices and big Wall Street bonuses.

The Damage Done...

Professor Krugman @ NYTs:

Five years and eleven months have now passed since the U.S. economy entered recession. Officially, that recession ended in the middle of 2009, but nobody would argue that we’ve had anything like a full recovery. Official unemployment remains high, and it would be much higher if so many people hadn’t dropped out of the labor force. Long-term unemployment — the number of people who have been out of work for six months or more — is four times what it was before the recession.

These dry numbers translate into millions of human tragedies — homes lost, careers destroyed, young people who can’t get their lives started. And many people have pleaded all along for policies that put job creation front and center.

"The Austerians Have a Lot To Answer For"

 Professor Krugman @ NYTs:

Right now the official unemployment rate is 7.3 percent. That’s bad, and many people — myself included — think it understates the true badness of the situation. On the other hand, there are some reasonable people (like Bob Gordon) arguing that at this point, possibly thanks to long-run damage from the Great Recession, “full employment” is now a number north of 6 percent. So there’s considerable uncertainty about just how depressed we are relative to potential.

But we’re clearly still well below potential. And we’ve also had exactly the wrong fiscal policy given that reality plus the zero lower bound on interest rates, with unprecedented austerity. So, how much of our depressed economy can be explained by the bad fiscal policy?

To a first approximation, all of it. By that I mean that to have something that would arguably look like full employment, at this point we wouldn’t need a continuation of actual stimulus; all we’d need is for government spending to have grown normally, instead of shrinking.

Here’s a comparison of two series. One is actual government purchases of goods and services since the Great Recession began (this is at all levels; most of the fall has been state and local, but the Federal government could have prevented that with revenue sharing). The other is what would have happened if those purchases had grown as fast as they did starting in the first quarter of 2001, i.e., in the Bush years.

Stiglitz on inequality...again

Nobel Prize-winning Joe Stiglitz addressed the recent AFL-CIO convention:

I'm an economist-- I study how economies work and don't work. It’s been clear to me that our economy has been sick for a long time.  One of the reasons it's been so sick is inequality, and I decided to write an article and a book about it.

Two years ago, I wrote an article for Vanity Fair called, "Of the 1%, by the 1%, for the 1%,” which really got to the gist of it.  For too long, the hardworking and rule-abiding had seen their paychecks shrink or stay the same, while the rule-breakers raked in huge profits and wealth.  It made our economy sick, and our politics sick, too.  

You all know the facts:  while the productivity of America's workers has soared, wages have stagnated. You've worked hard – since 1979, your output per hour has increased 40%, but pay has barely increased. Meanwhile, the top 1% take home more than 20% of the national income.

The Great Recession made things worse.  Some say that the recession ended in 2009.  But for most Americans, that's simply wrong:  95% of the gains from 2009 to 2012 went to the upper 1%.  The rest — the 99% — never really recovered.

Scary Thought on Labor Day Weekend: Obama's Economic Team Think They Are Doing a Good Job

Dean Baker @ Center for Economic & Policy Research:

Ezra Klein gives us some terrifying news in a Bloomberg column today. President Obama's economic team think they are doing a great job, hence the desire to bring back former teammate Larry Summers as Fed chair. This is terrifying because the economy this Labor Day is described by a set of statistics that can only be described as horrible.

We are almost 9 million jobs below the trend level of employment. The number of people involuntarily working part-time is still up by almost 4 million from its pre-recession level. Wages have been stagnant for a decade and show no signs of increasing any time soon.

And, according to the Congressional Budget Office, the economy is still operating more than $1 trillion (6 percent) below its potential. Oh, and by the way, the financial sector is more concentrated than ever, with top honchos drawing the same sort of paychecks they did before the crisis.

I could go on but what's the point? This is an economy that under other circumstances we would all say is awful. The Obama team can pat themselves on the back for saying its better than a second Great Depression, but that's a bit like saying that the 1962 Mets didn't lose all their games. Horrible is horrible.

Does Walmart create jobs?

Kathleen Grier @ Salon:

Contrary to Walmart’s self-glorifying mythology, the retailer is anything but a job creator — in fact it is a huge job killer. Not only that, destroying jobs is an essential component of Walmart’s anti-worker business model. Let’s put aside Walmart’s happy talk and examine the cold, hard facts.

First, let’s look at the impact of Walmart on local labor markets. The largest, most rigorous study conducted on the subject is this peer-reviewed article from 2008. Its lead author is economist David Neumark, who is no wild-eyed liberal. (See, for example, this anti-minimum wage op-ed he wrote for the Wall Street Journal).

Earlier studies did not adequately deal with selection bias: i.e., the problem that when and where Walmart chooses to open new stores is not random, but tends to be correlated with other variables. Those confounding variables make it difficult to determine whether local employment outcomes are causally related to Walmart‘s entry, or to something else. I’ll skip the technical details, but suffice it to say Neumark and his co-authors devised a sophisticated methodology that accounts for the selection bias. Using data from over 3,000 counties, their results show that when a Walmart store opens, it kills an average 150 retail jobs at the county level, with each Walmart worker replacing about 1.4 retail workers. These results are robust under a variety of models and tests.

Other strong studies found similar results. A 2008 peer-reviewed study that looked at Maryland concluded that Walmart’s presence significantly decreased retail employment, by up to 414 jobs. And a 2009 study by Loyola University found that the opening of a Chicago Walmart store was “a wash,” destroying as many jobs as it created: “There is no evidence that Wal-Mart sparked any significant net growth in economic activity or employment in the area,” according to the report. In short, when Walmart comes to town, it doesn’t “create” anything. All it does is put mom-and-pop stores out of business.

The economy is worse than the lower unemployment rate suggests

Wonkblog/ Ezra Klein @ WaPo:

From the Center on Budget and Policy Priorities:

The core issue here is that the unemployment rate only counts people actively looking for work. That means there are two ways to leave the ranks of the unemployed. One way — the good way — is to get a job. The other way is to stop looking for work, either because you’ve retired, or become discouraged, or begun working off the books.

The yellow line on the left shows the official unemployment rate since 2008. It’s fallen from over 10 percent to under 8 percent. But the red line on the right shows the actual employment rate — that is, the percentage of working-age adults with jobs. What should scare you is that the red line has barely budged.

At the beginning of 2007, the employment rate was 63.3 percent, and the unemployment rate was 4.7 percent. By the end of 2009 — so, after the worst of the recession — it had fallen to 58.3 percent, and unemployment was up to 9.9 percent. Today, it’s 58.7 percent, even though unemployment has fallen to 7.6 percent. That means a lot of the people who’ve left the rolls of the unemployed haven’t gotten a new job. They’ve just left the labor force altogether.

Some of that’s natural. The population is aging, and the labor force was expected to shrink. But it wasn’t expected to shrink this much. The economy is a lot worse than a glance at the unemployment rate suggests. And instead of doing anything to help those people get back to work, Washington canceled the payroll tax cut, permitted sequestration to go into effect, and is now arguing about whether to shut down the federal government — and possibly breach the debt ceiling — in the fall.

"The Lagging Public Sector"

Floyd Norris @ NYT's Economix:

Private sector employment in the United States is growing at about the same rate it did during the best days of the last decade.

The difference is in the government. It continues to shed workers.

Source: Bureau of Labor Statistics, via Haver Analytics  Year-over-year change in employment.

The above chart shows the annual change in employment for the private sector, and for government jobs, since the end of 2002.

Over the last 12 months, private sector employment rose 2 percent. That is down a little from the 2.5 percent rate early last year, but it is about the same as the rate of growth in the fall of 2005.

But government employment continues to fall. It is down 0.2 percent, which is the best year-over-year showing since 2009, when the government cutbacks were starting to be felt.

On a monthly basis, over the last 12 months the economy added an average of 191,000 jobs a month in the private sector, and cut public sector employment by 3,000 jobs a month.

Politicians lamenting the slow pace of recovery might, logically, look for ways to increase hiring in the sector that is lagging the most.

(A note on the data: I used figures before seasonal adjustments, which is possible since annual changes presumably take care of seasonal adjustment. And I dropped from the numbers the temporary surge in government jobs caused by hiring for the 2010 census. Without that change, there would have been a rise in government employment in 2010 and a much steeper decline in 2011.)

The truth about "Job Creators"

The real "Job Creators" are the Middle Class - from Hullabaloo:

Nick Hanauer, successful entrepreneur and one percenter, gave testimony on income inequality a few days ago before the U.S. Senate. His testimony in full should be posted in every break room in America:

For 30 years, Americans on the right and left have accepted a

particular explanation for the origins of  Prosperity in capitalist economies. It is that rich business people like me are “Job Creators.” That if taxes go up on us or our companies, we will create fewer jobs. And that the lower our taxes are, the more jobs we will create and the more general prosperity we'll have.

Many of you in this room are certain that these claims are true. But sometimes the ideas that we know to be true are dead wrong. For thousands of years people were certain, positive, that earth was at the center of the universe. It’s not, and anyone who doesn’t know that would have a very hard time doing astronomy.

My argument today is this: In the same way that it’s a fact that the sun, not earth is the center of the solar system, it’s also a fact that the middle class, not rich business people like me are the center of America’s economy.

Why Washington saved the economy, then permanently destroyed the labor market

Derek Thompson @ The Atlantic:

On April 24, Minnesota Sen. Amy Klobuchar scheduled a hearing. Fun story,

right? A hearing in Washington is like a fern in the rainforest. But this hearing was notable for both its subject and its attendance. It was a meeting about the most important economic crisis facing America today: long-term unemployment.

At 10:30am, the hearing began. She was the only attendant.

***

I have two stories for you about Washington and the economy. Both true. But very different.

The first story is called: How Washington Saved the Economy. You might begin in 2008, when the Federal Reserve went on an unprecedented spree of asset-buying to un-gunk the banks, push down interest rates, and spur investing in mortally weakened economy. This was followed, in 2009, with an equally historic stimulus package aimed at filling holes in state budgets and sending cash back to families and businesses. The government ran steep $1+ trillion deficits to keep as much money in the weak private sector as possible.

There is little question that monetary and fiscal stimulus blunted the recession -- and saved the economy.

The second story is called: How Washington Permanently Scarred the Labor

Market. You might begin this story in 2011, when Congress (led by Republican obstructionism) embarked on a historic quest to crush deficit spending by any means necessary. Hold the economy hostage over the debt ceiling? Check. Kill the American Jobs Act while scheduling a too-awful-to-be-a-real-law sequester? Check. Allow the too-awful-to-be-a-real-law sequester to become a real law? Checkmate.

The deficit fell fast. As unemployment ebbed, the ranks of long-term jobless calcified, creating two separate job markets. One broken market for people out of work for more than six months. And another slowly healing market for everybody else. But the combination of a thermostatic recovery and a deep aversion to stimulus crushed any hope that the long-term unemployed would get the help they needed. Long-term unemployment isn't special just because it's longer; it's special because it's self-perpetuating. Skills atrophy, networks dry up, and employers discriminate, creating a vicious cycle of joblessness that can't be cured by normal economic growth.

There is little question that, in the last two years, Washington has essentially left the long-term unemployed to fend for themselves -- and permanently scarred the labor market.

***

This isn't so much a tale of two cities, but a tale of one city that responded differently to two crises: (1) the collapse of the financial system and (2) the scarring of the labor market. These are both emergencies. So why did we respond to the first emergency like an ambulance siren and the second like a harmless murmur of white noise?

"The Jobless Trap"

Professor Krugman nails our central and persistent economic problem:

F.D.R. told us that the only thing we had to fear was fear itself. But when future historians look back at our monstrously failed response to economic depression, they probably won’t blame fear, per se. Instead, they’ll castigate our leaders for fearing the wrong things.

For the overriding fear driving economic policy has been debt hysteria, fear

that unless we slash spending we’ll turn into Greece any day now. After all, haven’t economists proved that economic growth collapses once public debt exceeds 90 percent of G.D.P.? 

Well, the famous red line on debt, it turns out, was an artifact of dubious statistics, reinforced by bad arithmetic. And America isn’t and can’t be Greece, because countries that borrow in their own currencies operate under very different rules from those that rely on someone else’s money. After years of repeated warnings that fiscal crisis is just around the corner, the U.S. government can still borrow at incredibly low interest rates. 

But while debt fears were and are misguided, there’s a real danger we’ve

ignored: the corrosive effect, social and economic, of persistent high unemployment. And even as the case for debt hysteria is collapsing, our worst fears about the damage from long-term unemployment are being confirmed.

Now, some unemployment is inevitable in an ever-changing economy. Modern America tends to have an unemployment rate of 5 percent or more even in good times. In these good times, however, spells of unemployment are typically brief. Back in 2007 there were about seven million unemployed Americans — but only a small fraction of this total, around 1.2 million, had been out of work more than six months. 

Then financial crisis struck, leading to a terrifying economic plunge followed by a weak recovery. Five years after the crisis, unemployment remains elevated, with almost 12 million Americans out of work. But what’s really striking is the huge number of long-term unemployed, with 4.6 million unemployed more than six months and more than three million who have been jobless for a year or more. Oh, and these numbers don’t count those who have given up looking for work because there are no jobs to be found.

The Great (Income) Depression

Catherine Rampell @ NYT's Economix:

February’s median annual household income was 5.6 percent lower than it was in June 2009, the month the recovery technically began; 7.3 percent lower than in December 2007, when the most recent recession officially started; and 8.4 percent lower than in January 2000, the earliest date that this statistical series became available...

 

Source: Sentier Research analysis of Labor Department data. Note that vertical axis does not start at zero to better show the change...

Corporate Profits Soar As Unemployment Persists

Lawrence Mishel @ Economic Policy Institute:

Newly released data on corporate profitability for 2012 show the continuation of historic levels of profitability despite excessive unemployment and stagnant wages for most workers. Specifically, the share of capital income (such as profits and interest, which are hereafter referred to as ‘profits’) in the corporate sector increased to 25.6 percent in 2012, the highest in any year since 1950-1951 and far higher than the 19.9 percent share prevailing over 1969-2007, the five business cycles preceding the financial crisis.

"Corporate Profits Are Eating the Economy"

Derek Thompson @ The Atlantic:

Here are two things that are true about the economy today.

(1) The Dow Jones industrial average is poised to set a new record as corporate profits stretch to all-time highs.

(2) There are still fewer working Americans today than there were before the start of the Great Recession.

The fact that these two things can be true at the same time might outrage you. But it shouldn't surprise you. In the last 30 years, there has been a great divergence between growth and workers' incomes, as the New York Times reminds us today. Corporate profits have soared, in the last decade especially, particularly because of three things:

Globalization has pushed down the cost of labor available to multinational corporations; technology has allowed companies to make more with fewer workers, in general; and Big Finance has gobbled up the economy, as the banks' share of total corporate profits has tripled to about one-third since the middle of the last century, according to Evan Soltas.

Here's the short story of corporate profits, GDP, and workers' income since the Great Recession. As you can see, corporations rode a wild roller coaster, but they quickly found their way back on top. GDP has been sluggish and overall labor income has struggled to keep up with even that sluggish pace.


Here's the longer view. Zoom out to the turn of the century, and you can see that this isn't a "recession" trend. It's just a trend that the recession has amplified. Corporate profits starting eating the economy around 2003, around the time the housing market started delivering massive profits to finance companies.