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Category: labor markets

Published on Leave a comment on The Right To Strike

Charles Whalen writes about the 25th anniversary of the PATCO strike in "Echoes of a Broken Strike," which made my local paper today. Somehow, the article manages to conclude as follows:

Through the International Labor Organization (ILO), governments around the world have declared that the right to strike is part of the freedom of association. In short, it is a human right. The ILO has also found that the U.S. permanent-replacement doctrine undermines that right.

That's a fascinating perversion of language--one would not ordinarily think that freedom of association, particularly in the context of a human right, would be forfeited simply by owning the capital used in production. Here's how he develops his argument:

This week marks the 25th anniversary of one of the most devastating strikes in modern U.S. labor history. On Aug. 3, 1981, more than 12,000 members of the Professional Air Traffic Controllers Organization (PATCO) walked off their jobs. It was not the first illegal strike by public-sector workers, but conventional means of resolving such cases failed to impress President Ronald Reagan: He discharged and permanently replaced those who would not promptly return to work. The U.S. labor movement has never recovered, and working families across the nation continue to pay the price.

It was an illegal strike. Reagan took an appropriate course of action. But as you can tell from the last line of this opening paragraph, Whalen wants to link this event to bigger changes in the labor market. The transition begins:

In the immediate aftermath of the PATCO strike, many observers reported that Reagan's action marked a turning point in U.S. labor relations.

History has shown this assessment was right on the mark. If it is true that the strike is labor's "only true weapon," as some unionists suggest, then practically the entire movement has been disarmed. This also indicates that the legal right of workers to organize and bargain collectively has little real meaning.

Hyperbole, anyone? Unionized workers have the right to act collectively--they do not and should not have the right to act coercively. Collective action prevents the employer from treating one union member as a substitute for another. That restriction has value. It obviously does not have as much value as a prohibition on using other workers as substitutes for the union members. This is what has Mr. Whalen so animated:

Private-sector companies have had the right to permanently replace workers during bargaining disputes since 1938. Until 1981 few employers took advantage of this option. In the 1950s and 1960s, for example, there was only one documented use of permanent replacements for about every 80 major work stoppages, according to a calculation by Joseph A. McCartin of Georgetown University. In the first 10 years after 1981, however, there was one documented use of permanent replacements for every seven work stoppages.

Private companies began calling the unions' bluff--that there was something inherently more productive about the union as a whole than other workers. That activity should have been a wake-up call to the unions--that their real value-added could come from promoting training, skill development, and continuing education by their members. I'd be the biggest supporter of organized labor you could find if unions were organized around this principle.

Published on Leave a comment on A Trifecta at the Big Picture

Barry Ritholtz of The Big Picture provides some of the very best real-time commentary on the macroeconomy. He offers up three excellent posts today on the release of the July employment figures. The top line number came in at 113,000 net new payroll jobs, with the unemployment rate moving up to 4.8 percent.

In "NFP: Final Piece in Fed Puzzle?" he suggests that the Fed will likely stop its rate increases by September, if not with the next meeting. More interestingly, he provides the explanation for why I have never been interested in the high-frequency activities at the Fed:

All the teeth gnashing over a 1/4 point hike -- is there THAT much difference between 5.5% or 5.25%? I find it quite telling, as it reveals how fragile this recovery actually is. A robust economy with strong job growth and healthy organic expansion wouldn't care a whit about a 5.5% Fed funds rate. Yet the markets have been wailing about the Fed as if they had Bernanke's boot on their collective throats.

This is quite true. A quarter of a point shouldn't really be of such profound interest in the market. It certainly isn't in my book.

In "Where are the Household survey Bulls?" he points out that normally, when we have a weak showing in the payroll (or establishment) survey, those who like to be cheerleaders point to a possibly different outcome in the labor market talk up the unemployment rate (which is fine) or the employment number from the household survey (not fine). Well, this month, the unemployment rate increased. So where are the opportunists this month?

And, finally, in "Where are the bodies? In line at Unemployment," he makes an interesting case for supplementing our monthly news from the payroll and household surveys with weekly news from the Unemployment Insurance Weekly Claims Report. These data pertain to insured (not total) unemployment, the difference being that not everyone who is unemployed is eligible for unemployment insurance. Picking up on a report by Paul Kasriel of Northern Trust, he considers the year-over-year change in initial claims for unemployment insurance. The rationale is as follows:

[T]he recent behavior of initial jobless claims clears up some ambiguity about the interpretation of the weaker payroll growth of the past three months. Some have hypothesized that the recent weak payroll numbers are a result of a shortage of employable bodies rather than slower demand for those bodies. If that were the case, we would expect that employers would be firing considerably fewer employees now than they were a year ago. In fact, they are firing about the same number each week.

Presumably, one could find more detailed information, with a two month lag, at the Job Openings and Labor Turnover Survey.

Published on Leave a comment on David Brooks on Men Not Working

Behind the prophylactic barrier known as the TimesSelect subscription wall, David Brooks adds his 2 cents (give or take a penny) on the recent New York Times article on "Men Not Working," which I discussed here and here. His offering is titled, "Bye-Bye, Bootstraps," and begins:

In all healthy societies, the middle-class people have wholesome middle-class values while the upper-crust bluebloods lead lives of cosseted leisure interrupted by infidelity, overdoses and hunting accidents. But in America today we’ve got this all bollixed up.

Through some screw-up in the moral superstructure, we now have a plutocratic upper class infused with the staid industriousness of Ben Franklin, while we are apparently seeing the emergence of a Wal-Mart leisure class — devil-may-care middle-age slackers who live off home-equity loans and disability payments so they can surf the History Channel and enjoy fantasy football leagues.

Where's the evidence for this being a change? The largest part of being rich is being talented and industrious. But this isn't really knew--I think it is a good description of the six decades since World War II, at the very least. And I've never really considered the rich to be particulaly idle, on the whole. Given my location, consider the particular case of Nelson Rockefeller. It would not have been possible for him to have been born any richer, and he was the furthest thing from idle. It's hard to imagine any of today's super wealthy out-hustling him. (For an excellent biography, read The Imperial Rockefeller by Joe Persico.)

The part of Brooks's story that is a change is the extent to which middle class men are opting out of the labor force. But Brooks ascribes too much of it to character and not enough to positive changes that may be facilitating it. Middle class men now have home equity and wives' earnings to fall back on. Those are resources that will be consumed in some way eventually. In this case, they are consumed in the form of late career leisure. Would the men and their families be better off tomorrow if they saved them instead of consuming them? Of course, but I don't think Brooks can really make the case that middle class men of a prior generation would not have availed themselves of the same opportunities had they been presented with them.

Brooks does allude to the genuine concern when he refers to disability payments. Sooner or later, "Men Not Working" lead to greater numbers of men (or their surivors) drawing more from the social safety net. For example, choosing not to work in late career, even without receipt of unemployment or disability payments, increases the implicit rate of return on lifetime Social Security taxes paid. It also lowers income tax receipts from what they might otherwise be. Somebody else has to pick up that tab.

The policy response, if there is one, is to consider instruments of fiscal policy that are less redistributive--defined contribution (rather than defined benefit) retirement systems and consumption (rather than income) taxes.

Published on Leave a comment on Direct from Alan Beggerow

An early morning commenter on the blog this morning was none other than Alan Beggerow, recently featured in the New York Times story on "Men Not Working," on which I posted earlier this week. It turns out that he has a blog that provides some additional details on his situation. My excerpts:

When the mill closed I was eligible for unemployment, but chose to retire instead. I have not collected one dime of unemployment since retiring.

When the mill closed I was eligible for retraining money. I chose to retire instead.

I paid off my house years ago. We took out a second mortgage to assist in the payment of medical bills not covered by insurance after my wife's accident and to purchase another vehicle, as hers was totalled in the accident.

There is so much more to life than bustin' your butt, my friends. Money is a necessity, but you would be surprised how much you can get by on if you have to, and if you want to. I got to the point where I no longer owned my possessions. They owned me. The material side of life no longer has the spell on me it once had. Even with things getting tighter financially, I know we will get by with the basics that we need. Our life is frugal, but good.

I'm glad to read more of the details. My one remaining question is, "Why doesn't Alan include Google and Amazon ads on his blog?"

Published on Leave a comment on Why Not Both the Minimum Wage and the EITC?

In my earlier post on the minimum wage, I stated:

Basically, I won't support an increase in the minimum wage until I hear the explanation of why we need a minimum wage if we have an EITC.

Some have suggested that we should not view the two policies as substitutes but as complements. Megan McArdle, guest blogging at Instapundit, hits this one head on:

Indeed, proponents of a higher minimum wage are also in favour of raising the EITC. They argue that we need both for two reasons, both of them unconvincing: first, because "a programme for the poor is a poor programme" (in other words, we need a huge middle class subsidy to give the programme a constituency), and second, because we should be targeting income in multiple ways.

The first is silly, because the EITC has proved politically more popular than the minimum wage; it has been raised in every major tax package in recent history. The second is foolish because when you talk about putting together a package of support programmes, you are generally trying to offset the strengths and weaknesses of the various individual components. But there is no weakness of the EITC that the minimum wage addresses; the EITC is superior on pretty much every count. Why on earth would you tack an economic inefficient, poorly targeted programme which may cause all sorts of adverse effects on poor workers, onto a structure that already works beautifully on its own?

A comment over at Angry Bear points to the counterargument, presented here (along with an interesting numerical example):

But it [a wage subsidy like the EITC] unquestionably does lead to downward pressure on wages as some people accept jobs at levels they would not have without those wage subsidies. And this inevitably gives those low-wage employers an advantage compared to higher-wage employers whose employess are unsubsidized by the government.

This is bad not just because it hurts those higher wage employees and employers, but is bad because it systematically encourages production systems with lower productivity and less skilled workers.

The comment cites a more extensive study of wage insurance here:

What makes the two fit together so well is that the existence of a higher minimum wage actually reduces the negative productivity, fiscal impact, and moral hazard effects of the EITC, while the EITC makes up for the weak target efficiency and income adequacy of the minimum wage.

In a nutshell, some of the benefit of the EITC may be appropriated by the employer of the low-wage worker or come at the expense of higher wage workers. Those shifts can be ameliorated by limiting the downward pressure that the EITC can put on the wages offered to the workers, for example, by establishing a higher minimum wage.

Those are reasonable arguments to make, so the decision comes down to whether the "negative productivity, fiscal impact, and moral hazard effects of the EITC" outweigh the employment effect of the minimum wage. The Eissa and Hoynes study suggests the fiscal impact and moral hazard are not problematic. I'll need to think more about the negative productivity effect. On the other side, I have been persuaded that the negative employment effects of the minimum wage are important. So while I naturally would say that if I have to accept that the minimum wage will go up, then the EITC should rise to offset some of the likely effects, I do not (yet?) sign on for the converse.

Also in the comments at Angry Bear, Bruce Webb asks:

Why should the burden of income security for workers fall entirely on the middle class and be no responsibility of the employer? Prove to me that there is no pricing power involved in setting wages and then we can talk about where the social responsibility lies.

If you thought that the labor market was characterized by monopoly power in hiring (whether from collusion among employers or just a natural monopoly, as in a company town or the like), then you could undo some of the equity effects of that monopoly power by specifying a wage floor. So this is a reasonable point as well, though focused not as much in my mind on alleviating poverty per se as in undoing another market imperfection that may already exist. I'll have to think more about whether in the markets that have come into play as of late--like big box retailers or even low-skilled jobs in the food industry--monopoly power is a large concern.

Published on Leave a comment on Eissa and Hoynes on the EITC

Over the past decade or so, the EITC has been the subject of a considerable amount of research. In a recent working paper (for the NBER's Tax Policy and the Economy volume), Nada Eissa and Hilary Hoynes conclude:

Perhaps the main lesson learned from the evidence is the confirmation that real responses to taxes are important; labor supply does respond to the EITC. The second major lesson is related to the nature of the labor supply response. A consistent finding is that labor supply responses are concentrated along the extensive (entry) margin, rather than the intensive (hours worked) margin.

There is also a short summary of the article in the NBER digest for this month. Here are two interesting excerpts:

The cost of the EITC is offset in part, they note, by a reduction in the number of single mothers receiving welfare. Moreover, the EITC now lifts more children out of poverty than any other government program. In 2002, it removed 4.9 million people, including 2.7 million children from poverty. Advocates see it as promoting the values of both family and work. Traditional welfare programs, according to their critics, do the opposite.

[...]

The largest group of EITC recipients is single mothers, typically in their early thirties with a high-school diploma, and with fewer than two children. Among this group, the EITC is expected to lead to higher rates of employment though fewer hours worked by those already working (through the cash transfer and the lower returns to work in the phase-out range). The expansions in the credit have led to dramatic declines in average tax rates, from 14.5 percent in 1985 to a negative 4.1 percent in 2000; that is, the IRS provided a subsidy equivalent to 4.1 percent of income. The evidence consistently suggests that such EITC expansions raise employment rates. One study finds that 60 percent of the 8.7 percentage point increase in annual employment of single mothers between 1984 and 1996 is attributable to the EITC with its expansion. There is no evidence, however, that the credit leads to reduced hours worked for those already in the labor market. Eissa and Hoynes survey the various explanations for the different responses on participation and hours, including measurement error, the inability of workers to choose continuous hours of work, and the lack of knowledge of the structure of the EITC schedule.

In the case of married mothers, the EITC has indeed led to a small reduction in labor market participation - about 1 percentage point, according to another study by Eissa and Hoynes. This occurs because the credit is based on family earnings and income. If, for example, the husband is the primary earner, and these earnings place the family in the phase-out range of the EITC, then the family gets the credit even if the wife remains out of the labor force. And, if she goes to work, her earnings will decrease the credit. The real boost in family income may be much smaller than the nominal extra earnings and therefore may provide an incentive for the second earner to move out of the labor force. At $10 an hour, for example, the tax rate for married women could be 41 percent of her earnings. These are extremely large marginal tax rates for low- to moderate-income families.

I think that the generally positive impact of the credit, and particularly its positive impact on the group most in need (single mothers), is what accounts for the popularity of the EITC with policy analysts across the political spectrum.

Published on Leave a comment on Men Not Working

Reminding me of one of the earliest threads on Vox Baby--the failure of the labor force participation rate to rebound as the unemployment rate dropped in 2003-04--Louis Uchitelle and David Leonhardt garner a Voxy with "Men Not Working, and Not Wanting Any Job" in today's New York Times.

The thrust of the article is that plenty of the men who are not working and not currently looking for work seem to be content to keep it that way. If you were around during that earlier discussion in October 2004, the article won't likely change your mind, but it does what good feature writing should--it provides interesting stories to fill in what might be missed in the raw data.

Here are the two main vignettes in the story:

“I have come to realize that my free time is worth a lot to me,” he said. To make ends meet, he has tapped the equity in his home through a $30,000 second mortgage, and he is drawing down the family’s savings, at the rate of $7,500 a year. About $60,000 is left. His wife’s income helps them scrape by. “If things really get tight,” Mr. Beggerow said, “I might have to take a low-wage job, but I don’t want to do that.”

and

“To be honest, I’m kind of looking for the home run,” said Christopher Priga, who is 54 and has not had steady work since he lost a job with a six-figure income as an electrical engineer at Xerox in 2002. “There’s no point in hitting for base hits,” he explained. “I’ve been down the road where I did all the things I was supposed to do, and the end result of that is nil.”

Instead, Mr. Priga supports himself by borrowing against the rising value of his Los Angeles home. Other men fall back on wives or family members.

It's hard to know if the unemployment rate is really "missing" them in measuring the strength of the labor market. The article then discusses the role that Social Security's Disability Insurance program is playing in supporting these men, drawing a comparison with a phenomenon that is already widespread in Europe:

In the European Union, 14 percent of men between 25 and 54 were not working last year, up from 7 percent in 1975, according to the Organization for Economic Cooperation and Development. Over the same period in Japan, the proportion of such men rose to 8 percent from 4 percent.

In these countries, too, decently paying blue-collar jobs are disappearing, and as they do men who held them fall back on government benefits for income. But the growth of subsidies through federal and state programs like disability insurance has happened largely without notice in this country while it is a major topic of political debate in Europe.

“We have a de facto welfare system as Europe does,” said Teresa Ghilarducci, a labor economist at the University of Notre Dame. “But we are not proud of it, as they are.”

Well put. The article also gives something of an answer to my concerns about a low savings rate:

Meanwhile the Beggerows’ savings are shrinking. This year, for the first time, they have drawn down so much from their 401(k)’s they have been forced to pay early-withdrawal penalties. But Mr. Beggerow resists being stampeded.

“The future is always a concern, but I no longer allow myself to dwell on it,” he said, waving aside, in his new and precarious life, the preparations for retirement and old age that were a feature of his 30 years as a steelworker.

“When you are in the mode of having money coming in,” he explained, “naturally you think about planning and saving. And then when you don’t have the money coming in, you think less about the future, at least money-wise. It is still a concern, but not a concern that keeps me up at night, not in this life that I am now leading.”

He's not exactly the canonical life-cycle saver, nor does he perceive this to be the healthy part of the business cycle. The article concludes with a discussion of the role that a higher incidence of prison records may be having in this process.

Read the whole thing.

Published on Leave a comment on Minimum Wage Hikes

Congress is considering a hike in the minimum wage from $5.15 to $7.25 over three years, but only if it is tied to other legislation that reduces taxes:

WASHINGTON (AP) -- Republican leaders are willing to allow the first minimum wage increase in a decade but only if it's coupled with a cut in inheritance taxes on multimillion-dollar estates, congressional aides said Friday.

A package GOP leaders planned to bring to a vote Friday or Saturday in the House also would renew several popular tax breaks, including a research and development credit for businesses, and deductions for college tuition and state sales taxes, said a spokesman for House Majority Leader John Boehner, R-Ohio.

Greg Mankiw, Angry Bear, and Dean Baker all have worthwhile posts on the issue. I'll take them in reverse order.

Dean argues that when the minimum wage is reported at two different points in time, it should be adjusted for inflation.

This means that when an article tells readers that a bill in Congress will raise the minimum wage to $7.15 an hour in 2007, from 5.15 an hour at present, it would be helpful to tell readers that this is equal to approximately $5.32 in 1997 dollars, the year the last minimum wage hike took full effect. This means that minimum wage workers would get about a 3.0 percent increase in real wages from 1997 to 2007, if this bill was approved.

I'll agree and go one step further: if someone can convince me that we should have a minimum wage law, then the further argument that it should be indexed to inflation would be an easy one for me to accept. That's a big if, though, to which I'll return in a moment.

PGL of Angry Bear is upset about the coupling of tax breaks for higher income households with the vote on the minimum wage:

Secondly, these “tax cuts’ are nothing more than tax shifts. Someone at some point will have to pay down all these deferred tax liabilities.

The Democratic response is to call for “an up or down vote” (as much as I hate to quote Bill Frist) on the minimum wage proposal. There is absolutely no excuse for the continued fiscal irresponsibility of this Republican led Federal government – regardless of one’s view on the minimum wage controversy.

I'll agree with him in spirit but not entirely. I am repeatedly disappointed with the failure to balance the on-budget account over the business cycle. Spending (in my view) needs to be cut dramatically, and if there is no political will to do so, then revenues certainly should not be cut.

But there is another element here that's worth considering. Greg Mankiw notes, and I fully agree, that even if the minimum wage doesn't substantially reduce low-wage employment, it is a poorly targeted policy to alleviate poverty:

What the facts show is that the minimum wage is poorly targeted as an anti-poverty program. Moreover, while the evidence is controversial, some studies find significant long-term adverse effects. As a result, most economists prefer more efficient and better targeted anti-poverty tools, such as the EITC, which has grown significantly over the past few decades.

If you want to make sure that household heads are above poverty, then make a program directly for them and them alone. That's the EITC. Compared to the minimum wage, the EITC allows us to condition on total hours worked and family status in redistributing income. By all means, argue for its expansion if you want to help low-income heads of household. (And, if you are Dean Baker, include its impact in your comparisons of after-tax income over time.)

Basically, I won't support an increase in the minimum wage until I hear the explanation of why we need a minimum wage if we have an EITC.

One interesting note that I heard while in Washington a few years ago was that Congress used to prefer the minimum wage hike to the EITC because the minimum wage didn't specifically cost the government any revenue in its budget forecasts but the EITC did. The story continues that one change that was implemented in the way the minimum wage legislation was discussed is that it would likely be coupled with tax reductions that softened its impact on small businesses. At the time, I thought this was enlightened policy making--there was now no budgetary reason to favor the minimum wage hike over something like the EITC.

It's disappointing here to see that the tax reductions being proposed here really don't have anything to do with small business per se, so the word "enlightened" certainly doesn't apply. If this minimum wage hike goes through, it should be coupled with tax reductions for small businesses, and those tax reductions should be "paid for" in the budget by reductions in spending elsewhere in the budget.

Published on Leave a comment on Wessel on Freeman on Labor Shortages and Surpluses

David Wessel writes about Richard Freeman's work on future labor markets in his WSJ column today:

There are two strikingly different ways of looking at prospects for American workers.

One view, often heard from business organizations, is that the looming retirement of the huge baby-boom generation will create a great labor shortage. So don't worry about recent distressing trends in wages and benefits; the market will cure that. Worry about where America is going to get the workers, particularly skilled workers, needed to keep the U.S. economy humming.

The counter view is that the emergence of China, India and the former Soviet bloc as modern capitalist economies changes everything. It adds about 1.5 billion workers to the roughly 1.5 billion workers already competing in the global economy and tilts the global balance between labor and capital in favor of capital. So worry -- and worry particularly that China and India are interested not only in low-skilled, low-wage jobs, but are training platoons of scientists, engineers and researchers.

Harvard University labor economist Richard Freeman examines the facts underlying these contrasting stories in a paper to be discussed today at a Federal Reserve Bank of Boston conference. His conclusion, to skip ahead a bit, is that the second case is stronger.

It is a well written column, and the conclusion that surplus will likely outweigh shortage is more unfortunate for future workers in the United States than even this discussion suggests.

It is true that the consumption needs of a large retired population (approaching half the size of the working population) will tend to boost wages under the "shortage" view presented above. But it will boost them not just in the United States. Wages will rise around the globe, in proportion to the ability of those in overseas markets to actually deliver the goods and services. (So wages for barbers go up proportionately more than for computer programmers.) Retirees will be bribing younger cohorts around the world to give up more leisure to provide the products they desire.

But among those younger cohorts who do take the bribe, there will be an added dimension in the United States but not in those other countries that Freeman and Wessel are considering. The added dimension is the substantially higher income tax burden that they will face to pay for the entitlements of the older generations. Entitlement programs like Social Security and Medicare are funded by taxes on payroll and income. The same is largely true of our addiction to budget deficits in the General Fund. To a very large extent, the ones who pay those taxes are the ones who work. So why work, or at the very least, why work in the United States?

Published on Leave a comment on Real Earnings, Not So Much

The BLS released the May CPI report and the associated Real Earnings report. The news is not pretty.

The former reports that the CPI (CPI-U) rose by 5.2 percent at a seasonally adjusted annual rate in the first 5 months of the year of the year. It is not all energy costs--the CPI excluding food (another volatile sector) and energy rose at a 3.1 percent rate during that period. Even the lower number, if it reflected the whole index, should be enough to incline the Fed toward continued rate increases (spoken by a novice Fed watcher). Over the twelve months ended in May, the two indexes are up 4.2 and 2.4 percent, respectively.

But I've never been one to spend a lot of time thinking about inflation per se. What matters to me is whether the price level has risen relative to other macro variables, like compensation. The second report tells us that:

Real average weekly earnings fell by 0.7 percent from April to May after seasonal adjustment, according to preliminary data released today by the Bureau of Labor Statistics of the U.S. Department of Labor. A 0.3 percent decline in average weekly hours and a 0.5 percent increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) were partially offset by a 0.1 percent rise in average hourly earnings.

And the failure for real earnings to advance is evident in every major sector, as shown in this table (focus on the bottom panel, so that the impact of declining hours is reflected). There isn't a single broad industry group where the real average weekly earnings have risen more than 0.8 percent over the past year, and all but two are actually negative.

This isn't the entire workforce--only the 80 percent or so who are production or non-supervisory workers on private, nonfarm payrolls. It isn't total income--just the (pre-tax) earnings component of it. It isn't the whole economy--just the returns to this segment of the labor market. But it isn't good.