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.

Recovery Has Created Far More Low-Wage Jobs Than Better-Paid Ones

Annie Lowrey @ NYT:

WASHINGTON — The deep recession wiped out primarily high-wage and middle-wage jobs. Yet the strongest employment growth during the sluggish recovery has been in low-wage work, at places like strip malls and fast-food restaurants.

In essence, the poor economy has replaced good jobs with bad ones. That is the

conclusion of a new report from the National Employment Law Project, a research and advocacy group, analyzing employment trends four years into the recovery.

“Fast food is driving the bulk of the job growth at the low end — the job gains there are absolutely phenomenal,” said Michael Evangelist, the report’s author. “If this is the reality — if these jobs are here to stay and are going to be making up a considerable part of the economy — the question is, how do we make them better?”

The report shows that total employment has finally surpassed its pre-recession level. “The good news is we’re back to zero,” Mr. Evangelist said.

But job losses and gains have been skewed. Higher-wage industries — like accounting and legal work — shed 3.6 million positions during the recession and have added only 2.6 million positions during the recovery. But lower-wage industries lost two million jobs, then added 3.8 million.

Most of the jobs added during the recovery have been in lower-wage industries...

Paul Krugman talks Piketty's "Capital In The 21st Century" with Bill Moyers

The rich got richer

In what is beginning to sound like a "Dog Bites Man" story from the WSJ:

The rich got richer, the poor got poorer.

A recent article by Labor Department senior economist Aaron Cobet highlights the sharp disparity between the wealthiest and poorest Americans in the aftermath of the 2007-2009 recession.

“While average income has returned to pre-recession levels, income gains have been distributed unevenly,” Mr. Cobet said.

The economist mined Labor Department data to show that the top 20% of earners accounted for more than 80% of the rise in household income from 2008-2012. Income fell for the bottom 20%.

The widening productivity and income gap

Atif Mian and Amir Sufi @ House of Debt:

If you must know only one fact about the U.S. economy, it should be this chart:

The chart shows that productivity, or output per hour of work, has quadrupled since 1947 in the United States. This is a spectacular achievement by an advanced economy.

The gains in productivity were quite widely shared from 1947 to 1980. Real income for the median U.S. family doubled during this time just as output per hour of work performed doubled. The rising tide was lifting all boats.

(But there has been a) remarkable separation in productivity and median real income since 1980. While the United States is producing twice as much per hour of work today compared to 1980, a small part of the gain in real income has gone to the bottom half of the income distribution. The gap between productivity and median real income is at an historic all-time high today.

Increasing the minimum wage saves taxpayers food stamps expenditures

"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.

The Minimum Wage Brouhaha According to Comedy Central

Jon Stewart supports fast-food workers' strikes, invokes the populist compassion of the new Pope and takes on the wretched, dim-witted, morally obtuse cretins of cable "business" chatter:

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.

Income soars at the top, falls for the lower half

David Cay Johnston @ Al Jazeera:

Last year the median wage hit its lowest level since 1998, revealing that at least half of American workers are being left behind as the economy slowly recovers from the Great Recession.

But at the top, wages soared — the latest indication in a long-running trend of increasing inequality, with income gains going to top earners while the majority of workers see stagnant or falling wages...

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.

"Not Really Labor’s Day"

Economist Nancy Folbre @ NYT's Economix:

The annual holiday supposedly celebrating labor has long lacked much celebratory feel. Over the last 30 years, employment has become more precarious and real wages for most workers have stagnated. Since 2008, in particular, the corrosive impact of persistent unemployment and declining wages on American workers has been felt at holiday picnics and parades.

The seasonally adjusted July unemployment rate of 7.4 percent showed a slight decline from last year’s 8.2 percent, but the gains came largely as a result of declining labor force participation rather than job creation.

The larger measure of underemployment (known as U-6) that includes people working part time because they cannot find full-time work, and those who want a job and have looked for one in the last 12 months but have given up currently looking, was a seasonally adjusted 14 percent in July, compared with 14.9 percent a year earlier.

Public policies could help. As Jared Bernstein explained in an earlier Economix post, the federal government could become an employer of last resort. A new report from the Urban Institute outlines several specific strategies to lower long-term unemployment in particular.

" The Audacity of the Fight for Higher Wages"

Jared Bernstein @ NYT's Economix:

I was struck Thursday by the juxtaposition of two stories in the news (two and half, really).

First, the banks had another banner quarter in terms of profits, up $42 billion, or 23 percent from last year.  News reports emphasized lower loan losses, meaning the banks had to mark down or charge off fewer nonperforming loans.  That increases the share of their capital that they can put to work spinning off profits, something they are very good at.

A classic case of it takes money to make money.

At the other end of the economy were the striking fast-food workers, calling for an increase in their pay to $15 an hour (the average for these workers is around $9, up from $8.66 in 2009).

I also noted — this is the half-a-report I mentioned above — that in the upward revision to second-quarter gross domestic product that came out on Thursday, corporate profits were  again up near record highs as a share of national income while compensation fell again and is now at the lowest share it has been since the year I was born (1955 — ancient history, I know).

And yet, what I mostly heard about this was about the audacity and the economic illiteracy of the strikers.  Don’t they realize that it’s still a tough economy?  Don’t they get that their employers are not the big corporations but the franchisees who can’t afford to pay more?  Don’t they get that the increase will just have to be passed on in prices?

Median Income Still 6% Below Level at Start of Recession in ’07

Robert Pear @ New York Times:

Median household income has begun to recover over the last two years, but households still have not come close to regaining the purchasing power they had before the financial crisis began, a new study says.

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.

A Stock Market Boom in the midst of a faltering economy

James Surowiecki  @ The New Yorker takes a look at the stock market boom - driven by a growing disconnect between the welfare of Americans and the profits of "U.S." corporations:

With the stock market setting new highs on a nearly daily basis, even as the

real economy just slogs along, there seems to be one question on everyone’s mind: are we in the middle of yet another market bubble? For a growing chorus of money managers and market analysts, the answer is yes: the market is a house of cards, held up by easy money and investor delusion, and we are rushing all too blithely toward an inevitable crash. Given that we’ve recently lived through two huge asset bubbles, it’s easy to see why they’re worried. But in this case the delusion is theirs.

The bubble believers make their case with a blizzard of charts and historical analogies, all illustrating the same point: the future will look much like the past, and that means we’re headed for trouble. Smithers & Company, a London market-research firm, says that, according to a number of market indicators, stocks are, by historical standards, forty to fifty per cent overvalued. The bears admit that corporate profits are high, which makes the market’s price-to-earnings ratio look quite normal, but they insist that this isn’t sustainable.

They think that earnings will return to historical norms, and that, when they do, stock prices will be hit hard. Today, after-tax corporate profits are more than ten per cent of G.D.P., while their historical average is closer to six per cent. That’s a vast gap, and it’s why bears believe that the market is, in the words of the high-profile money manager John Hussman, “overvalued, overbought, overbullish.”

It’s certainly unusual for corporate profits to soar during a slow recovery. But the argument for a stock-market bubble is flawed: when it comes to the role that corporations play in the U.S. economy, the present looks very different from the past, which means that historical comparisons to the nineteen-fifties, let alone the thirties, tell us little. The four most dangerous words in investing may be “This time, it’s different.” But this time it is different.

Take taxes: one big reason that after-tax corporate profits are much higher than their historical norm is that corporations pay much less in taxes than they used to. In 1951, corporations had to pay almost half of reported profits in taxes. In 1965, they had to pay more than thirty per cent. Today, they pay only around twenty per cent.

What's wrong with the economy?

Here's the biggest problem with the US economy:

This is a chart of percentage of national income going to wages:

Since the end of the 1960s, the percentage of national income going to wages has decreased by ten percentage points. That's not a "10% decrease."  That's nearly a 20% decrease - from just below 54% to just below 44%.  This is a national scandal and a shift of wealth from labor to the very wealthy and to corporations - whose earnings are other than "wages" - that is as extreme and structural as any of our myriad economic problems.

In terms of overall economic growth, this suppression of consumer demand and rising inequality is as bad for real businesses that make things and sell things as it is for workers. 

Low inflation isn't necessarily a good thing

Jared Bernstein digs deep into the problems brought by very low inflation:

The Fed announced today that they’ll continue to be the only ones in town trying to do something about the stubbornly high unemployment rate:

The Federal Reserve said Wednesday that its stimulus campaign would press forward at the same pace it has maintained since December, putting to rest for now any suggestion that it was leaning toward doing less.

Another symptom of our demand-weak economy, along with high unemployment and weaker job creation, is the recent deceleration in price growth, shown in the figure below.

The Fed’s “…statement also noted that the pace of inflation had slackened, a potential sign of economic weakness, but it showed little concern about that trend.”

Me, I’m pretty concerned about that trend.  On the one hand, lower price growth means higher real wages, all else equal, and that’s important as slower nominal wage growth is another problem right now.

But on the other hand, low inflation is problematic in ways that are less obvious than the real wage story above.  First off, faster inflation means lower real interest rates, and since the Fed’s already at zero (and can’t go lower), a bit more inflation would help in that regard.  I’d bet we’d see more investment bucks move of the sidelines if that trend in the figure were to reverse course. 

Higher inflation also chips away at nominal debt burdens and thus hastens deleveraging.

But the deeper, and more interesting, reason one worries about too-low inflation right now comes out of the work of Ackerlof et al back in the mid-1990s.  It has to do with sticky wages, something Keynes recognized as contributing to intractably high UK unemployment back in the early 1920s.