“Higher Profits, Smaller Paychecks”: Corporations Increasing Profits At The Expense Of Workers
Two cheers for the comeback of American manufacturing. Or maybe just one.
The manufacturing sector has experienced a modest renaissance since it hit bottom during the Great Recession. The number of manufacturing jobs is set to rise this year, as it has every year since 2010. Profits are soaring — in 2012, after-tax profits of manufacturing firms hit a record high of $289 billion. Share values have soared with them. The Standard & Poor’s 500 Industrials Index has risen 59 percent more than the overall 500-stock index since 2009, Bloomberg reported last month.
Wages, however, are falling. Although the average wage for all workers, adjusted for inflation, has declined by about 1 percent since May 2009, Bloomberg reported, it has declined by 3 percent for workers in the more-profitable-than- ever manufacturing sector.
Numbers like these explain the epic drama playing out in Washington’s Puget Sound region, from which Boeing, long the area’s dominant employer, has threatened to at least partially decamp. Several weeks ago, with the reluctant blessing of union leaders who feared the company might relocate production, Boeing presented its workers with an ultimatum: Either they had to agree that the new hires who would build the company’s new 777X passenger jetliner would have to work for 16 years, rather than the current norm of six, to bump up to full union scale, or Boeing would build the plane elsewhere. Instead of making roughly $28 an hour to build one of the world’s most sophisticated pieces of machinery, workers would make roughly $17 an hour, or less, until they’d put in a decade and a half on the job.
By a 2-to-1 margin, the workers rejected their leaders’ recommendation and voted down the offer. Boeing then initiated a bidding war to see how much in tax breaks it could wring from states that wanted the work. More than a half-dozen states have sent in bids, some with side agreements from local unions that members would work at reduced rates, some with no such agreements because unions barely exist in their states.
It’s not as if Boeing is a clothing manufacturer scrambling to meet the price competition of rivals that make their goods in Bangladesh. Boeing’s sole competitor in the large-scale passenger-plane market is Airbus, the European conglomerate whose workers’ wages are comparable to those in the United States. But Boeing has already located one major plant in South Carolina, where workers make about $10 an hour less than their Puget Sound counterparts. It’s through such moves, and the threat of further such changes, that U.S. manufacturers have increased their profits at the expense of their workers’ paychecks.
None of the workers at either end of Boeing’s pay scale makes anything like the federal minimum wage, but I suspect the anxiety instilled by these kinds of stories is one reason there is wide, and growing, support for raising the minimum wage. It takes no great imaginative leap to see a time in the not-too-distant future when the incomes of all but a fortunate, talented tenth of the U.S. workforce are reduced or held stagnant. Indeed, the median inflation-adjusted salary for American men is already lower today than it was in 1969. Tyler Cowen, a heterodox libertarian economist, has written that the U.S. economy is morphing into one in which 10 to 15 percent of the workforce will be wealthy and the remainder will resign themselves to making do with less. He foresees little likelihood that the eradication of the broad middle class will lead to a United States “torn by unrest.”
I am not sure that the docility of the American people can be so readily assumed. The adoption of minimum-wage increases and living-wage ordinances throughout increasingly liberal cities and blue states suggests that where workers have the capacity to rebalance the economy through legislation, they’ll do just that. With the near-elimination of unions from the private-sector economy, legislation remains the sole means available for workers to bargain for their fair share of their company’s revenue, particularly in sectors, such as retail, that can’t really relocate. That’s why the victories of those workers demonstrating at Wal-Mart and fast-food outlets have taken the form of legislated increases in local minimum wages, rather than resulting in union contracts.
The fight for higher minimum wages may be just the beginning of a long battle to rebalance the economy. If laws are not changed to enable workers to form unions without fear of being fired, the battle for higher median, not just minimum, wages will eventually be fought in the legislative arena as well. Profits that come at the expense of downwardly mobile workers may find little honor — or legislative support — in their own country.
By: Harol Meyerson, Opinion Writer, The Washington Post, December 13, 2013
“The Punishment Cure”: The GOP Pattern Of Afflicting The Afflicted While Comforting The Comfortable
Six years have passed since the United States economy entered the Great Recession, four and a half since it officially began to recover, but long-term unemployment remains disastrously high. And Republicans have a theory about why this is happening. Their theory is, as it happens, completely wrong. But they’re sticking to it — and as a result, 1.3 million American workers, many of them in desperate financial straits, are set to lose unemployment benefits at the end of December.
Merry Christmas.
Now, the G.O.P.’s desire to punish the unemployed doesn’t arise solely from bad economics; it’s part of a general pattern of afflicting the afflicted while comforting the comfortable (no to food stamps, yes to farm subsidies). But ideas do matter — as John Maynard Keynes famously wrote, they are “dangerous for good or evil.” And the case of unemployment benefits is an especially clear example of superficially plausible but wrong economic ideas being dangerous for evil.
Here’s the world as many Republicans see it: Unemployment insurance, which generally pays eligible workers between 40 and 50 percent of their previous pay, reduces the incentive to search for a new job. As a result, the story goes, workers stay unemployed longer. In particular, it’s claimed that the Emergency Unemployment Compensation program, which lets workers collect benefits beyond the usual limit of 26 weeks, explains why there are four million long-term unemployed workers in America today, up from just one million in 2007.
Correspondingly, the G.O.P. answer to the problem of long-term unemployment is to increase the pain of the long-term unemployed: Cut off their benefits, and they’ll go out and find jobs. How, exactly, will they find jobs when there are three times as many job-seekers as job vacancies? Details, details.
Proponents of this story like to cite academic research — some of it from Democratic-leaning economists — that seemingly confirms the idea that unemployment insurance causes unemployment. They’re not equally fond of pointing out that this research is two or more decades old, has not stood the test of time, and is irrelevant in any case given our current economic situation.
The view of most labor economists now is that unemployment benefits have only a modest negative effect on job search — and in today’s economy have no negative effect at all on overall employment. On the contrary, unemployment benefits help create jobs, and cutting those benefits would depress the economy as a whole.
Ask yourself how, exactly, ending unemployment benefits would create more jobs. It’s true that some of the currently unemployed, finding themselves even more desperate than before, might manage to snatch jobs away from those who currently have them. But what would give businesses a reason to employ more workers as opposed to replacing existing workers?
You might be tempted to argue that more intense competition among workers would lead to lower wages, and that cheap labor would encourage hiring. But that argument involves a fallacy of composition. Cut the wages of some workers relative to those of other workers, and those accepting the wage cuts may gain a competitive edge. Cut everyone’s wages, however, and nobody gains an edge. All that happens is a general fall in income — which, among other things, increases the burden of household debt, and is therefore a net negative for overall employment.
The point is that employment in today’s American economy is limited by demand, not supply. Businesses aren’t failing to hire because they can’t find willing workers; they’re failing to hire because they can’t find enough customers. And slashing unemployment benefits — which would have the side effect of reducing incomes and hence consumer spending — would just make the situation worse.
Still, don’t expect prominent Republicans to change their views, except maybe to come up with additional reasons to punish the unemployed. For example, Senator Rand Paul recently cited research suggesting that the long-term unemployed have a hard time re-entering the work force as a reason to, you guessed it, cut off long-term unemployment benefits. You see, those benefits are actually a “disservice” to the unemployed.
The good news, such as it is, is that the White House and Senate Democrats are trying to make an issue of expiring unemployment benefits. The bad news is that they don’t sound willing to make extending benefits a precondition for a budget deal, which means that they aren’t really willing to make a stand.
So the odds, I’m sorry to say, are that the long-term unemployed will be cut off, thanks to a perfect marriage of callousness — a complete lack of empathy for the unfortunate — with bad economics. But then, hasn’t that been the story of just about everything lately?
By: Paul Krugman, Op-Ed Columnist, The New York Times, December 8, 2013
“An Undead Policy Idea”: Rand Paul Pulls Out His Dog-Eared Playbook
Sen. Rand Paul decamped in Detroit today to open a new GOP office (good luck with that), and while he was at it, pulled out his thin, dog-eared playbook of conservative urban policy ideas, as reported by Slate‘s Emma Roller:
Paul’s real mission in Detroit is his new plan to stimulate the bankrupt city’s economy. In a call with reporters Thursday, Paul announced a bill that he insists is not a stimulus. The gist: radically lower taxes for areas that have 1.5 times the national unemployment rate, or roughly 11 percent. As of August, unemployment in Wayne County was at 11.1 percent, and 17.7 percent in Detroit proper.
Yes, it’s “enterprise zones,” the crown jewel of 1980s-style Republican expressions of concern for urban areas, associated especially with HUD secretary and conservative warhorse Jack Kemp. As Roller notes, it hasn’t been a particularly successful idea:
Would insanely low corporate taxes convince Jeff Bezos to build Amazon’s next warehouse in some long-abandoned Detroit building? Would they even convince business owners in adjacent Macomb County—which has an only 9.5 percent unemployment rate—to venture into the city? Critics (as they are wont to be) are skeptical:
“Enterprise zones are not especially effective at increasing overall economic activity or raising incomes for the poor,” said Len Burman, director of the Urban-Brookings Tax Policy Center and a former Clinton administration official. “They just seem to move the locus of activity across the zone’s boundary — reducing activity outside the zone and increasing it inside.”
Burman might well know, because probably the most extensive application of the enterprise zone concept was actually as a small element of the Clinton administration’s “empowerment zone” initiative, which packaged federal grants with tax concessions in urban areas agreeing to undertake a comprehensive strategy for self-improvement. This was not one of my favorite Clinton policies (as I expressed once in a magazine op-ed that enraged the initiative’s majordomo, a guy named Andrew Cuomo), but it was a lot better than the original GOP model.
But here it is again, a truly undead policy idea.
Once when I was involved in rural development efforts in Georgia I wrote (for the private amusement of my colleagues at the state agency where I worked) a savage parody of enterprise zones by “proposing” that we offer poor counties the opportunity to legalize every kind of income-producing vice: prostitution, gambling, drugs, you name it. They’d be called “erogenous zones.” A quarter century later, enterprise zones haven’t become any less worthy of ridicule.
By: Ed Kilgore, Contributing Writer, Washington Monthly Political Animal, December 5, 2013
“Inequality And Self-Righteousness”: President Obama Challenges The Emotional Heart Of Conservative Politics
Here’s a passage from the president’s speech at CAP yesterday, which was a bit of a watershed, consolidating his varying perspectives on inequality and government’s role in the economy:
[W]e need to set aside the belief that government cannot do anything about reducing inequality. It’s true that government cannot prevent all the downsides of the technological change and global competition that are out there right now — and some of those forces are also some of the things that are helping us grow. And it’s also true that some programs in the past, like welfare before it was reformed, were sometimes poorly designed, created disincentives to work, but we’ve also seen how government action time and again can make an enormous difference in increasing opportunity and bolstering ladders into the middle class. Investments in education, laws establishing collective bargaining and a minimum wage — (applause) — these all contributed to rising standards of living for massive numbers of Americans.
Likewise, when previous generations declared that every citizen of this country deserved a basic measure of security, a floor through which they could not fall, we helped millions of Americans live in dignity and gave millions more the confidence to aspire to something better by taking a risk on a great idea. Without Social Security nearly half of seniors would be living in poverty — half. Today fewer than 1 in 10 do. Before Medicare, only half of all seniors had some form of health insurance. Today virtually all do. And because we’ve strengthened that safety net and expanded pro-work and pro- family tax credits like the Earned Income Tax Credit, a recent study found that the poverty rate has fallen by 40 percent since the 1960s.
What he’s doing here is challenging the idea that you can defend the “good” government interventions in the economy that are now part of the national landscape while opposing contemporary efforts to expand opportunity and reduce inequality. This strikes directly at the politics of selfishness and self-righteousness that is at the emotional heart of conservative politics at present.
The opportunity gap in America is now as much about class as it is about race. And that gap is growing. So if we’re going to take on growing inequality and try to improve upward mobility for all people, we’ve got to move beyond the false notion that this is an issue exclusively of minority concern. And we have to reject a politics that suggests any effort to address it in a meaningful way somehow pits the interests of a deserving middle class against those of an undeserving poor in search of handouts.
This can’t be said too often.
By: Ed Kilgore, Contributing Writer, Washington Monthly Political Animal, December 5, 2013
“The Wages Are Too Damn Low”: Hiking The Minimum Wage Has Little Or No Adverse Effect On Employment
As I mentioned in the lunch link roundup, increasing the minimum wage is all the rage in lefty precincts today. DC is considering a raise, and Democrats generally are smelling a winning issue. (For a deeper look, Arindrajit Dube had a long piece on it over the weekend.)
Conventional economists tend to despise minimum wage laws, because they’re a form of price control, and that gives The Market a sad. Setting a minimum price of labor, according to Econ 101, should increase unemployment, because some people won’t have a marginal product above the wage floor. But as Paul Krugman pointed out in his column this morning, the evidence just doesn’t support this conclusion:
Still, even if international competition isn’t an issue, can we really help workers simply by legislating a higher wage? Doesn’t that violate the law of supply and demand? Won’t the market gods smite us with their invisible hand? The answer is that we have a lot of evidence on what happens when you raise the minimum wage. And the evidence is overwhelmingly positive: hiking the minimum wage has little or no adverse effect on employment, while significantly increasing workers’ earnings.
It’s important to understand how good this evidence is. Normally, economic analysis is handicapped by the absence of controlled experiments. For example, we can look at what happened to the U.S. economy after the Obama stimulus went into effect, but we can’t observe an alternative universe in which there was no stimulus, and compare the results.
When it comes to the minimum wage, however, we have a number of cases in which a state raised its own minimum wage while a neighboring state did not. If there were anything to the notion that minimum wage increases have big negative effects on employment, that result should show up in state-to-state comparisons. It doesn’t.
As others have noted, there’s good reason to believe that increased wages at large businesses would work out well for the businesses themselves. Businesses would both reduce turnover—the hiring process is expensive, and there is a great deal of churn at the bottom of the labor market—and increase their employees purchasing power, a hefty fraction of which would likely be spent at their own place of employment or somewhere similar. I’d guess that wages are held down out of class panic and a desire for increased profits for their own sake rather than some strict business reason.
Personally, if I had to choose, I would rather see more broad-based economic stimulus through fiscal and monetary action rather than a minimum wage hike. (Though I would still support one on its own merits.) But if they don’t like it, American elites have no one to blame for this but themselves. If the power structure can’t ensure full employment through normal channels, then demands for economic justice through more easily-understood channels will only become more common.
By: Ryan Cooper, Washington Monthly Political Animal, December 2, 2013
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