Skip to content

Category: labor markets

Published on Leave a comment on The Unhelpful Way To Build Support for Raising the Minimum Wage

I find myself reacting quite negatively to two aspects of the way the White House and its allies are pushing the Raise the Wage agenda to build support for increasing the federal minimum wage from $7.25 to $10.10 per hour.

The first aspect is to compare the federal minimum wage to the poverty level without acknowledging that the Earned Income Credit provides income support for those with low incomes. The chart below gives an example from the White House webpage linked above:

The orange curve should be augmented by the appropriate EIC amount for the family type in question. In that case, we would see levels of income that are higher relative to the various poverty lines. That might or might not persuade you that the minimum wage is high enough, but it would give a fairer accounting of income relative to poverty and it would suggest another avenue for providing support.

The President's proposed FY15 budget includes provisions to expand the EIC and make more workers eligible. If income support is society's obligation, then it should be done through the tax code. There is no need to interfere with the workings of marketplaces, particularly in a way that discourages employers from creating the low-wage jobs that unskilled laborers depend on, to meet that obligation. Perhaps the Republicans will make that case and strike a deal -- adopt the higher EIC and the suggested mechanisms to pay for it and say no to the higher minimum wage.

The second negative aspect of this campaign is to produce narratives about single moms in which there is no discussion of the children's father's resources. Here's an example from an e-mail sent out today by Secretary of Labor Tom Perez:

Semethia's a 36-year-old single mom. Her son hopes to go to college one day. Her daughter wants to take gymnastics lessons. But with a service job that pays just $8.25 an hour, Semethia relies on food stamps and help from friends and family just to keep food on the table -- much less build the future she'd like for her kids.

That's all we learn about Semethia from the e-mail. You can find other vignettes in the popular press, like these two at the New York Times Motherlode blog. They are compelling stories. These moms are struggling, and they shouldn't have to go it alone.

What about the children's father?  Why are his earnings and resources not being applied to alleviate the financial burden on his children? If he is deceased, there should be survivor benefits from Social Security. If he is not deceased but they are divorced, then there should be divorce agreement stipulating child support, and courts should actively ensure that child support is being paid. If they were never married and his resources are not being offered voluntarily, then the appropriate policy is to enhance the ability for courts and others to obtain child support. All of these issues should find their way into the public discussion.

Let me be clear. I am not saying that Semethia should be married to the children's father or that he should even be a presence in their lives. What I react negatively to is that the policy in question -- raising the minimum wage -- would presume to take resources from Semethia's employer, the employer's customers, or other potential employees at this employer without first taking the resources from Semethia's children's father. The minimum wage is a tax on employers who provide employment for people like Semethia whose best opportunities in the labor force generate output that is valued at only $8.25. I do not see the wisdom in making it harder for an employer to do that.

Published on Leave a comment on Your Daily Dose of Spin

The February employment report shows a net increase of 227,000 payroll jobs.  Combined with continued sub-400k weeks for initial unemployment insurance claims, it looks like the labor market is finally on a solid upswing.  (For more, see this presentation from last month.)  This is going to give President Obama some of the election-year momentum that he needs.

Here's how Rep. Kevin Brady (R-TX), Vice Chairman of the Joint Economic Committee, spun the numbers this morning:

“While I am pleased that the economy is at long last adding more than the approximately 130,000 jobs necessary to keep up with the growth in population, Brady said,” “we still have a long way back to where we were before the last recession.”

“The recession ended in June 2009, more than 32 months ago,” Brady continued. “I do not think those still out of work or looking for work will take much comfort in today’s job numbers.”

“I find it incredible that the Obama administration is attributing this all too slow increase in payroll jobs to its policies,” Brady said. “This is the crowd that told us that its stimulus proposals would hold the unemployment rate below 8% and that it would be cut to nearly 6% by February 2012. A more accurate description of the economic news is that, any improvement that we are seeing is the result of the hard work of the American people and the resilience of the American economy, not from the administration’s policies, but in spite of them.”

Shorter version?  You are making inadequate progress getting us out of the hole we dug for you despite our opposition to every program you propose.

Published on Leave a comment on CEO Succession

I was surprised to learn in Good to Great that outside CEOs were not associated with the transition from good companies to great companies. Harvard Business School Professor Joseph Bower picks up on this theme in his recent Marketplace commentary:

What companies really need is what I call in my new book, The CEO Within, an "inside outsider" -- that is, an outstanding inside performer who has retained his or her objectivity. They have energy, ambition and intellectual integrity. They see the magnitude of change needed, and because they are insiders they can move quickly with a real chance of success because they know the people, systems, culture and assets of the company.

Why aren't there more candidates like this available? To begin, a surprising number of companies don't have a real succession process. They treat succession as an uncomfortable event. Managing the development of leaders inside the company requires investment in every aspect of the way the firm is managed: who is recruited, how businesses are organized, how executives are paid and promoted, and how operations are planned and resources allocated. The process requires years, not days, of preparation. Companies need to change their ways on CEO succession or pay a price that goes far beyond the new CEO's compensation package.

At Dartmouth, the Board of Trustees are gearing up for a search for a successor to Jim Wright as the College's president. I wonder if this will have any bearing on the selection of Dartmouth's next president.

Published on Leave a comment on Good Jobs at Good Wages

I know, the employment report has no good news in it, but this front page story in The New York Times is sure to get some attention. The concept:

Would six-figure salaries attract better teachers?

A New York City charter school set to open in 2009 in Washington Heights will test one of the most fundamental questions in education: Whether significantly higher pay for teachers is the key to improving schools.

The school, which will run from fifth to eighth grades, is promising to pay teachers $125,000, plus a potential bonus based on schoolwide performance. That is nearly twice as much as the average New York City public school teacher earns, roughly two and a half times the national average teacher salary and higher than the base salary of all but the most senior teachers in the most generous districts nationwide.

The school’s creator and first principal, Zeke M. Vanderhoek, contends that high salaries will lure the best teachers. He says he wants to put into practice the conclusion reached by a growing body of research: that teacher quality — not star principals, laptop computers or abundant electives — is the crucial ingredient for success.

“I would much rather put a phenomenal, great teacher in a field with 30 kids and nothing else than take the mediocre teacher and give them half the number of students and give them all the technology in the world,” said Mr. Vanderhoek, 31, a Yale graduate and former middle school teacher who built a test preparation company that pays its tutors far more than the competition.

I would much rather see that, too. At this school, teachers will be paid so well that they'll make more than the principal, an inversion which generated this:

Ernest A. Logan, president of the city principals’ union, called the notion of paying the principal less than the teachers “the craziest thing I’ve ever heard.”

“It’s nice to have a first violinist, a first tuba, but you’ve got to have someone who brings them all together,” Mr. Logan said. “If you cheapen the role of the school leader, you’re going to have anarchy and chaos.”

Randi Weingarten, president of the United Federation of Teachers, called the hefty salaries “a good experiment.” But she said that when teachers were not unionized, and most charter school teachers are not, their performance can be hampered by a lack of power in dealing with the principal. “What happens the first time a teacher says something like, ‘I don’t agree with you?’ ”

Presumably, the principal listens to what the teacher has to say and then makes a decision, which may or may not accommodate the teacher's disagreement. Millions of businesses, and even some educational institutions, operate on this principle. Those that operate in competitive markets don't prosper by ignoring good advice or treating talented employees as if they are inconsequential. And the teacher is not an indentured servant here--"nothing" prevents a teacher dissatisfied with a principal from starting a rival school with better policies.

The Age of Friedman is not dead yet.

Published on Leave a comment on The Drop in Labor Force Participation

Following a comment on yesterday's post, here is an article from the the St. Paul Pioneer Press two years ago discussing voluntary withdrawal from the labor market. The key paragraphs:

So who is dropping out, and why?

Primarily the declines since 2001 are among younger workers ages 16 to 24 and women ages 25 to 45. Proportionally, since the teens account for a small number of workers in the state, women dropouts are mainly driving the changes.

The change with young workers can be more easily explained. Most don’t have to work. When jobs are flush and pay well, more take jobs. If jobs are slim and pay tight, homework and hanging out win out. “If jobs aren’t readily available they are not going to be searching for them and calling themselves in the labor market,” Stinson said.

The reasons why women are leaving are more elusive.

Julie Hotchkiss, a research economist and policy adviser with the Federal Reserve Bank in Atlanta, has studied why women leave the work force.

She found that women with college degrees were less likely to participate in the labor force in 2005 than they were just five years earlier. Women were still getting college degrees at the same rate but the degrees were less of a pull into the labor market.

The increase in Hispanic women, who traditionally are less likely to be in the labor force, is another factor, as is the increase in women with children under age 6. Still, “unobserved” factors that couldn’t be explained, more than anything else, contributed to the reasons why women are dropping out, she said.

Read the whole thing.

Published on Leave a comment on What the Unemployment Rate Misses

In his Economic Scene column in today's New York Times, David Leonhardt discusses the challenges of measuring unemployment and using the unemployment rate to assess the state of the labor market. In a nutshell, we have a fairly low official unemployment rate and yet many people not working. In this excerpt, he focuses on a distinction that his colleague Paul Krugman once glossed over (to much fanfare in my first month of blogging):

There are only two possible explanations for this bizarre combination of a falling employment rate and a falling unemployment rate. The first is that there has been a big increase in the number of people not working purely by their own choice. You can think of them as the self-unemployed. They include retirees, as well as stay-at-home parents, people caring for aging parents and others doing unpaid work.

If growth in this group were the reason for the confusing statistics, we wouldn’t need to worry. It would be perfectly fair to say that unemployment was historically low.

The second possible explanation — a jump in the number of people who aren’t working, who aren’t actively looking but who would, in fact, like to find a good job — is less comforting. It also appears to be the more accurate explanation.

As we discussed briefly then, the BLS does collect measures of unemployment that progressively relax the condition that individuals have to be actively looking for work. Leonhardt characterizes them as "broader but not especially useful." I don't think they should be dismissed so readily. They are found in Table A-12 of the monthly employment report. You can get the historical data here. Let's go to the picture.

The 4 curves are as follows:

  • Blue: The conventionally measured unemployment rate, currently at 5 percent and low by historical standards. This is the number unemployed divided by the total number in the labor force (employed plus unemployed).

  • Red: Add people classified as discouraged workers--those who have given a job-market related reason for not currently looking for a job--to the unemployed. The increase is very slight--historically between 0.1 and 0.4 percentage points.

  • Yellow: Add people classified as marginally attached (beyond being discouraged)--those who currently are not looking for work but indicate that they want and are available for a job and have looked for work sometime in the recent past. This currently adds 0.8 percentage points to the unemployment rate, which is typical of the full 14 year time period.

  • Green: Add people classified as employed part time for economic reasons--those who want and are available for full-time work but have had to settle for a part-time schedule. This number is currently 9 percentage points of the labor force (augmented to include those marginally attached or employed part time for economic reasons).

The last measure seems to be a pretty good measure of labor underutilization. What does it tell us about what the conventional unemployment rate misses? In April 2006, the gap between the two shrank to 3.4 percentage points, compared to 4.1 percent today. The latter figure is about the size of the gap that prevailed around the recent peak in the unemployment rate in 2003. The gap was greater than 4.1 percent in most of the months shown prior to 1997. The gap was as narrow as 3 percentage points as the unemployment rate reached its lowest values in 2000.

The more comprehensive measures of labor underutilization are available and are consistent with the story being told in the article, though you have to get to "employed part time for economic reasons" to get much of a gap. I think they would be more "useful" to journalists if journalists chose to report them.

Barry Ritholtz also comments on the story and refers back to a measure of the "augmented unemployment rate," which doesn't include the economic part timers but also doesn't require that those who want a job have actually looked for one. (This information can be calculated from Table A-1 of the monthly employment report.) At present, there are about 5 million who "want a job" among the roughly 80 million who are not in the labor force, or about 6.25 percent. This proportion has stayed around 6 percent for several years.

Published on Leave a comment on Workaholics Are Us

Here is the abstract from a new article by Dan Hamermesh and Joel Slemrod:

A large literature examines the addictive properties of such behaviors as smoking, drinking alcohol, gambling and eating. We argue that for some people addictive behavior may apply to a much more central aspect of economic life: working. Although workaholism raises some of the same health-related concerns as other addictions, compared to most of the more familiar addictions it is more likely to be a problem of higher-income individuals and is more likely to generate negative spillovers onto individuals around the workaholic. Using the Retirement History Survey and the Panel Study of Income Dynamics, we show that high-income, highly educated people exhibit behavior that is consistent with workaholism with regard to retiring–they are more likely to postpone earlier plans for retirement. The theory and evidence suggest that the presence of workaholism calls for a more progressive income tax system than otherwise, although other more targeted policies may be part of optimal policy.

The full paper is here. The reference to negative spillovers and a progressive income tax reminded me of this earlier discussion.

Published on Leave a comment on Nickel and Dimed at Dartmouth

Last evening, the Ethics Institute and the Dartmouth Centers Forum hosted a public lecture by Barbara Ehrenreich, "Working for Change," based on her book, Nickel and Dimed: On (Not) Getting By in America.

She's a compelling story teller. Here's an example of something that I had not previously appreciated--paying rent. For the working poor, the monthly payment isn't the only or even the main challenge. Coming up with the first and last month's payments is more than most can manage. So this puts them into a different type of housing--the residential motel, which is less cost effective but allows more of a day-to-day payment. These facilities often lack a refrigerator and a microwave, which in turn means that nutrition suffers as well, with fast food taking the place of better meals. Problems cascade, and keeping it all together becomes more of a struggle, to say nothing of actually getting ahead. The Dartmouth has more of a recap of her talk.

She's also an occasional blogger. Here's her rather unconventional take on the economic stimulus plan, from a month ago.

Published on Leave a comment on The January Employment Report

The headline number from today's employment report was a decline of 17,000 jobs in January. (Permanent link likely here.) This number is not significantly different from zero, so the BLS calls it "essentially unchanged." However, the point estimate at this point is the first negative number since August 2003, and that will likely dominate the news.

The January report is also where we see some revisions for calendar year 2007, and these are worth considering when trying to get a fix on where we are in the business cycle. Year-end nonfarm payroll employment was revised downward by 376,000 jobs relative to prior estimates. Very little of this revision pertained to the 4th quarter. Factoring in the January number, employment growth has averaged 66,000 over the last 4 months. That's weak growth in anybody's book.

Looking at the household survey, the unemployment rate was also "essentially unchanged" with a 0.1 percentage point decline. Digging a little deeper, the two alternative measures of unemployment that incorporate marginally attached workers (and in one, those employed part-time for economic reasons) ticked up by 0.2 percentage points. These numbers are presented in Table A-12 of the report.

For more on the details, read Barry Ritholz at The Big Picture.

Published on Leave a comment on Narrowing, Widening, and Polarizing

This new NBER working paper by Claudia Goldin and Larry Katz just made it to the top of the must-read pile. The title and abstract (with my emphasis added):

Long-Run Changes in the U.S. Wage Structure: Narrowing, Widening, Polarizing

The U.S. wage structure evolved across the last century: narrowing from 1910 to 1950, fairly stable in the 1950s and 1960s, widening rapidly during the 1980s, and “polarizing” since the late 1980s. We document the spectacular rise of U.S. wage inequality after 1980 and place recent changes into a century-long historical perspective to understand the sources of change. The majority of the increase in wage inequality since 1980 can be accounted for by rising educational wage differentials, just as a substantial part of the decrease in wage inequality in the earlier era can be accounted for by decreasing educational wage differentials.

Although skill-biased technological change has generated rapid growth in the relative demand for more-educated workers for at least the past century, increases in the supply of skills, from rising educational attainment of the U.S. work force, more than kept pace for most of the twentieth century. Since 1980, however, a sharp decline in skill supply growth driven by a slowdown in the rise of educational attainment of successive U.S. born cohorts has been a major factor in the surge in educational wage differentials. Polarization set in during the late 1980s with employment shifts into high- and low-wage jobs at the expense of the middle leading to rapidly rising upper tail wage inequality but modestly falling lower tail wage inequality.

The sentences that I have highlighted seem directly relevant to this earlier discussion in August 2006 about whether Paul Krugman was right to accuse Treasury Secretary Paulson of "falsely implying that rising inequality is mainly a story about rising wages for the highly educated." (See follow up posts here and here.)

I'll look forward to reading the paper and revisiting the broader issue.