“Liberals And Wages”: Public Policy Can Do A Lot To Help Workers Without Bringing Down The Wrath Of The Invisible Hand
Hillary Clinton gave her first big economic speech on Monday, and progressives were by and large gratified. For Mrs. Clinton’s core message was that the federal government can and should use its influence to push for higher wages.
Conservatives, however — at least those who could stop chanting “Benghazi! Benghazi! Benghazi!” long enough to pay attention — seemed bemused. They believe that Ronald Reagan proved that government is the problem, not the solution. So wasn’t Mrs. Clinton just reviving defunct “paleoliberalism”? And don’t we know that government intervention in markets produces terrible side effects?
No, she wasn’t, and no, we don’t. In fact, Mrs. Clinton’s speech reflected major changes, deeply grounded in evidence, in our understanding of what determines wages. And a key implication of that new understanding is that public policy can do a lot to help workers without bringing down the wrath of the invisible hand.
Many economists used to think of the labor market as being pretty much like the market for anything else, with the prices of different kinds of labor — that is, wage rates — fully determined by supply and demand. So if wages for many workers have stagnated or declined, it must be because demand for their services is falling.
In particular, the conventional wisdom attributed rising inequality to technological change, which was raising the demand for highly educated workers while devaluing blue-collar work. And there was nothing much policy could do to change the trend, other than aiding low-wage workers via subsidies like the earned-income tax credit.
You still see commentators who haven’t kept up invoking this story as if it were obviously true. But the case for “skill-biased technological change” as the main driver of wage stagnation has largely fallen apart. Most notably, high levels of education have offered no guarantee of rising incomes — for example, wages of recent college graduates, adjusted for inflation, have been flat for 15 years.
Meanwhile, our understanding of wage determination has been transformed by an intellectual revolution — that’s not too strong a word — brought on by a series of remarkable studies of what happens when governments change the minimum wage.
More than two decades ago the economists David Card and Alan Krueger realized that when an individual state raises its minimum wage rate, it in effect performs an experiment on the labor market. Better still, it’s an experiment that offers a natural control group: neighboring states that don’t raise their minimum wages. Mr. Card and Mr. Krueger applied their insight by looking at what happened to the fast-food sector — which is where the effects of the minimum wage should be most pronounced — after New Jersey hiked its minimum wage but Pennsylvania did not.
Until the Card-Krueger study, most economists, myself included, assumed that raising the minimum wage would have a clear negative effect on employment. But they found, if anything, a positive effect. Their result has since been confirmed using data from many episodes. There’s just no evidence that raising the minimum wage costs jobs, at least when the starting point is as low as it is in modern America.
How can this be? There are several answers, but the most important is probably that the market for labor isn’t like the market for, say, wheat, because workers are people. And because they’re people, there are important benefits, even to the employer, from paying them more: better morale, lower turnover, increased productivity. These benefits largely offset the direct effect of higher labor costs, so that raising the minimum wage needn’t cost jobs after all.
The direct takeaway from this intellectual revolution is, of course, that we should raise minimum wages. But there are broader implications, too: Once you take what we’ve learned from minimum-wage studies seriously, you realize that they’re not relevant just to the lowest-paid workers.
For employers always face a trade-off between low-wage and higher-wage strategies — between, say, the traditional Walmart model of paying as little as possible and accepting high turnover and low morale, and the Costco model of higher pay and benefits leading to a more stable work force. And there’s every reason to believe that public policy can, in a variety of ways — including making it easier for workers to organize — encourage more firms to choose the good-wage strategy.
So there was a lot more behind Hillary’s speech than I suspect most commentators realized. And for those trying to play gotcha by pointing out that some of what she said differed from ideas that prevailed when her husband was president, well, many liberals have changed their views in response to new evidence. It’s an interesting experience; conservatives should try it some time.
By: Paul Krugman, Op-Ed Columnist, The New York Times, July 17, 2015
“Bush ‘Woefully Misinformed’ On Overtime Policy”: The Economy, In Other Words, Is Not Bush’s Strong Suit
With Congress unwilling to pass meaningful economic measures, President Obama’s recently unveiled overtime policy is one of the year’s biggest stories on the domestic economy. Jeb Bush, not surprisingly, doesn’t like it, but he may not fully understand it, either.
To briefly recap, under the status quo, there’s an annual income threshold for mandatory overtime: $23,660. Those making more than that can be classified by employers as “managers” who are exempt from overtime rules. The Obama administration’s Labor Department has spent the last several months working on the new plan, which raises the threshold to $50,440 – more than double the current level.
The policy doesn’t just nibble around the edges; its scope includes roughly 5 million American workers. NBC’s Kristin Donnelly reported the administration’s move constitutes “the most ambitious intervention in the wage economy in at least a decade.”
Campaigning in Iowa this week, Jeb Bush said the policy would result in “less overtime pay” and “less wages earned.” The Guardian did some fact-checking.
Numerous economists attacked Bush’s statement, calling him woefully misinformed. And several studies on the rule contradict Bush’s assertion that the overtime rules would “lessen the number of people working”.
Daniel Hamermesh, a University of Texas labor economist, said: “He’s just 100% wrong,” adding that “there will be more overtime pay and more total earnings” and “there’s a huge amount of evidence employers will use more workers”.
Indeed, a Goldman Sachs study estimated that employers would hire 120,000 more workers in response to Obama’s overtime changes. And a similar study commissioned by the National Retail Federation – a fierce opponent of the proposed overtime rules – estimated that as a result of the new salary threshold, employers in the restaurant and retail industries would hire 117,500 new part-time workers.
The Economic Policy Institute’s Ross Eisenbrey added that Bush “should be embarrassed about how misinformed he was.” Noting that the Republican presidential candidate also said Obama’s policy would also prohibit many bonuses, Eisenbrey added, “All of that is exactly wrong – and pretty much nonsense.”
On a surface level, it’s problematic that Bush would flub the issue so poorly, but it’s even more significant in the context of related confusion about economic policy.
Remember, the Florida Republican remains deeply committed to 4% GDP growth – a target no president has reached in the post-WWII era – despite the fact that the number was basically pulled out of thin air.
Bush picked the growth goal because, as he sees it, four is a “round number.” The fact remains, however, that this is “backed by zero substantive analysis of any kind.”
The former governor still sees himself as some kind of economic expert, thanks to Florida’s growth in the 1990s, but as we’ve discussed before, whether Bush is prepared to admit it or not, Florida’s economic growth during his two terms was the result of a housing bubble. In fact, Paul Krugman accurately described it as “the mother of all housing bubbles – and when the bubble burst (luckily for Jeb! just after he left office) it promptly wiped out 900,000” of the 1.3 million jobs created when Bush was in the governor’s office.
The economy, in other words, is not Bush’s strong suit.
By: Steve Benen, The Maddow Blog, July 17, 2015
“Thoughtful And Forward-Looking Policymaking”: Why The 2016 Candidates Ignore The Sharing Economy At Their Own Peril
Before Hillary Clinton gave her big economic speech on Monday, a rumor spread through the tech journalism world: Clinton was about to attack Uber! Based on a passing mention in a Politico article previewing the speech, tech sites played up the rhetorical blitzkrieg to come. “Presidential candidate Hillary Clinton will blast contractor-fueled companies for repressing middle-class wage growth,” said Techcruch. Even after she delivered the speech and there was no actual attack on Uber, articles continued to describe her anodyne remarks about the rise of the sharing economy as a “blast,” a “diss,” and even a declaration of war.
As it happens, Clinton raises an issue that more presidential candidates ought to talk about. We don’t yet have much idea of what she would actually do about the transformations in the economy that are taking place, but we ought to press her and the other presidential candidates, Democratic and Republican, for more specifics.
For the record, here’s what Clinton actually said on this topic, in its entirety:
Meanwhile, many Americans are making extra money renting out a small room, designing websites, selling products they design themselves at home, or even driving their own car. This on-demand, or so-called gig economy is creating exciting economies and unleashing innovation. But it is also raising hard questions about workplace protections and what a good job will look like in the future.
Seldom have I witnessed a political attack of such merciless cruelty.
But here’s the point: In many ways, public policy on the workplace is organized around the way things used to be, when people hoped that they could stay with one employer for their entire career, and that employer would provide them a panoply of benefits including health insurance, paid vacations, and a pension. Today, more and more Americans are cobbling together a living from multiple sources. And even many who aren’t working for a technology-based company like Uber are doing hourly work that makes scheduling their lives exceedingly difficult and doesn’t come with any benefits at all.
Depending on what sort of situation you can put together, it’s possible for that kind of work to offer more rewards than the traditional 9-to-5 job. But for millions, the contemporary American workplace is characterized by insecurity: insecurity that they’ll have enough work this month to pay their bills, insecurity that they’ll be able to put anything away for retirement, insecurity that an illness or family crisis won’t send them into a financial tailspin from which they can’t recover.
So what can government do? Up until now, Democrats have been offering piecemeal proposals that try to ameliorate that insecurity from one angle or another, trying to get people better wages and treatment. All Democrats want to increase the minimum wage. The Obama administration is updating the rules on overtime so more workers can be paid adequately for the extra hours they work. The Affordable Care Act finally made health insurance at least somewhat portable, so that “job lock” — in which you can’t leave your job for fear that you won’t be able to get covered — is a thing of the past. They’re now pushing for mandatory paid sick leave. But most measures like these concern how traditional workers relate to traditional employers.
Republicans, on the other hand, generally look at the state of the workplace today and say, “What’s the problem?” They oppose raising the minimum wage, objected to updating the overtime rules, don’t want employers to have to offer paid sick leave, and of course find the ACA to be a Stalinist nightmare of oppression. They love to fetishize Uber because it fights with entrenched taxi unions (and because they hope it will make them seem young and hip), but don’t have any particular ideas to help workers adapt to the new world.
There are ideas out there; for instance, Nick Hanauer and David Rolf recently proposed that the government create a Shared Security Account that would work something like Social Security, but provide a means to pay for things like vacations and sick leave. Critically, it wouldn’t be at the whim (or under the control) of anyone’s employer, but would travel with workers whether they worked for General Motors, waited tables at the local diner, or did odd jobs for TaskRabbit (I interviewed Hanauer about it here).
That’s just one idea, and hopefully people will come up with others. But we deserve a debate on how as a country we can adapt to the evolution of work in ways that both maximize the benefits of the changes that are taking place and minimize the number of people getting steamrolled by them. The economy needs innovation and disruption, but it also needs thoughtful and forward-looking policymaking. That may be a lot to expect from presidential candidates. But it doesn’t hurt for us to ask.
By: Paul Waldman, Senior Writer, The American Prospect; Contributor, The Week, July 15, 2015
“Behold, The ‘Laffering Laughing’ Stock”: The Remarkable Persistence Of Crackpot Economics In The GOP
The most horrifying article you can read today is not about Ayatollah Khamenei’s troubling comments on the Iran nuclear deal, it’s this piece from Jim Tankersley of The Washington Post about how all the GOP presidential candidates are lining up to receive the wisdom of Arthur Laffer as they formulate their economic plans. This is the rough equivalent of doctors seeking to lead the American College of Pediatricians competing to see which one can win the favor of Jenny McCarthy. Behold:
As the 2016 GOP primary season takes off, Laffer is more in demand than ever before, with Republican candidates embracing tax-cut-for-the-rich policies even as they bemoan economic inequality. Candidates have been meeting with him in recent weeks, and on Friday in Nashville, he says, his schedule includes Rick Perry at 10 a.m., Ben Carson at noon, Jeb Bush at 1:15 p.m. and Bobby Jindal at 5. Dinner is scheduled with Ted Cruz. He has already met at least once with Wisconsin Gov. Scott Walker. …
Some time ago, Laffer recounted, he sat down with Sen. Rand Paul of Kentucky, who was hoping the economist would bless his flat-tax plan. Laffer critiqued it instead as having too many complicated, economy-distorting features. He recalled Paul expressing disappointment he couldn’t endorse it.
After that sit-down, Paul’s advisers kept calling Laffer, he said. When Paul announced his presidential run this week, he touted a tax plan far more in line with Laffer’s vision.
Laffer’s theory is that cutting taxes for the wealthy not only brings an explosion of economic growth but pays for itself; give millionaires and billionaires a break, and the resulting economic activity will be so spectacular that more revenue will come in despite the lower rates. Laffer reduced this idea to the famous “Laffer curve,” which he supposedly sketched on a napkin in 1974 and thereby seduced generations of Republican politicians. It took the perfectly sensible idea that if all income was taxed at 100 percent then no one would have any incentive to work, and turned that into a claim that virtually any reduction in the top rate will increase revenues—and the converse as well, that increasing the top rate will always reduce revenues and stifle growth.
If that were true, then the Clinton years would have been a period of dismal economic doldrums, followed by the glorious George W. Bush boom. In fact, Laffer’s theory has been as thoroughly disproven as phrenology or the notion that the stars are pinholes in the blanket Zeus laid across the sky; Republican economist Greg Mankiw famously referred to those who believe Laffer as “charlatans and cranks.” But in a world where Mike Huckabee convinces people that the Bible contains a secret cancer cure and baseball players wear titanium necklaces in the belief that doing so will align their humours or some such nonsense, there will always be a market for crackpottery, particularly the kind that offers a justification for the thing you already want to do.
And this is why Republicans continue to seek Arthur Laffer’s wisdom and repeat the completely, thoroughly, 100 percent false claim that cutting taxes for the wealthy will always increase revenue. They want those tax cuts for ideological and moral reasons, and when someone with a claim to expertise tells them that not only is there no cost but that such cuts will actually help the little people too, well that’s just too seductive for words. When the world shows them that cutting taxes on the wealthy actually reduces revenue, it doesn’t make them revise their belief that doing so is right and just, because that belief isn’t subject to the test of evidence.
Candidates get a lot of flack for having advisers or supporters who have committed various sins, even if there was no reasonable way the candidate could have been expected to know about or approve those sins, and they won’t have any impact on what the candidate would do if elected. We’ll spend days hounding a candidate because some consultant he hired sent out some offensive tweets five years ago, or because someone who endorsed him said something outrageous at a rally. But here we have a case in which candidates are voluntarily and knowingly asking for the advice and approval of one of America’s foremost economic quacks, specifically for the purposes of formulating policy that would affect every American’s life. Is anybody going to ask them what the hell they’re doing?
By: Paul Waldman, Senior Writer, The American Prospect, April 10, 2015
Share This Blog
Unknown Feed- An error has occurred; the feed is probably down. Try again later.
mykeystrokes.com 