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“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

July 19, 2015 Posted by | Economic Policy, Hillary Clinton, Minimum Wage | , , , , , , , , | 1 Comment

“Willful Stupidity In The Obamacare Debate”: Fat Chance, Republicans Are Not Looking For Enlightenment

One of the best arguments for health-insurance reform is that our traditional employer-based system often locked people into jobs they wanted to leave but couldn’t because they feared they wouldn’t be able to get affordable coverage elsewhere.

This worry was pronounced for people with preexisting conditions, but it was not limited to them. Consider families with young children in which one parent would like to get out of the formal labor market for a while to take care of the kids. In the old system, the choices of such couples were constrained if only one of the two received employer-provided family coverage.

Or ponder the fate of a 64-year-old with a condition that leaves her in great pain. She has the savings to retire but can’t exercise this option until she is eligible for Medicare. Is it a good thing to force her to stay in her job? Is it bad to open her job to someone else?

By broadening access to health insurance, the Affordable Care Act (ACA) ends the tyranny of “job lock,” which is what the much-misrepresented Congressional Budget Office (CBO) study of the law released Tuesday shows. The new law increases both personal autonomy and market rationality by ending the distortions in behavior the old arrangements were creating.

But that’s not how the study has been interpreted, particularly by enemies of the law. Typical was a tweet from the National Republican Congressional Committee, declaring that “#ObamaCare is hurting the economy, will cost 2.5 millions [sic] jobs.”

Glenn Kessler, The Post’s intrepid fact checker, replied firmly: “No, CBO did not say Obamacare will kill 2 million jobs.” What the report said, as the Wall Street Journal accurately summarized it, is that the law “will reduce the total number of hours Americans work by the equivalent of 2.3 million full-time jobs.”

Oh my God, say opponents of the ACA, here is the government encouraging sloth! That’s true only if you wish to take away the choices the law gives that 64-year-old or to those parents looking for more time to care for their children. Many on the right love family values until they are taken seriously enough to involve giving parents/workers more control over their lives.

And it’s sometimes an economic benefit when some share of the labor force reduces hours or stops working altogether. At a time of elevated unemployment, others will take their place. The CBO was careful to underscore — the CBO is always careful — that “if some people seek to work less, other applicants will be readily available to fill those positions and the overall effect on employment will be muted.”

The CBO did point to an inevitable problem in how the ACA’s subsidies for buying health insurance operate. As your income rises, your subsidy goes down and eventually disappears. This is, as the CBO notes, a kind of “tax.” The report says that if the “subsidies are phased out with rising income in order to limit their total costs, the phaseout effectively raises people’s marginal tax rates (the tax rates applying to their last dollar of income), thus discouraging work.”

But the answer to this is either to make the law’s subsidies more generous — which the ACA’s detractors would oppose because, as the CBO suggests, doing so would cost more than the current law — or to guarantee everyone health insurance, single-payer style, so there would be no “phaseout” and no “marginal tax rates.” I could go with this, but I doubt many of the ACA’s critics would.

The rest of the CBO report contained much good news for Obamacare: Insurance premiums under the law are 15 percent lower than originally forecast, “the slowdown in Medicare cost growth” is “broad and persistent” and enrollments will catch up over time to where they would have been absent Obamacare’s troubled rollout.

The reaction to the CBO study is an example of how willfully stupid — there’s no other word — the debate over Obamacare has become. Opponents don’t look to a painstaking analysis for enlightenment. They twist its findings and turn them into dishonest slogans. Too often, the media go along by highlighting the study’s political impact rather than focusing on what it actually says. My bet is that citizens are smarter than this. They will ignore the noise and judge Obamacare by how it works.

 

By: E. J. Dionne, Jr., Opinion Writer, The Washington Post, February 5, 2014

February 6, 2014 Posted by | Affordable Care Act, GOP | , , , , , , , , | Leave a comment

“Right-Wing Unemployment Myths Debunked”: When You Look At The Data, It’s Just Not There

Surprising many supporters, a three-month unemployment extension bill survived an initial Senate test Tuesday, with six Republicans joining 37 Democrats in voting to let the bill proceed to debate. But GOP members in both chambers have suggested they’ll withhold or withdraw their support unless Democrats offer up conservative concessions – be they parallel budget cuts, deregulation measures, new requirements for the unemployed or an Obamacare mandate delay. Others have argued that unemployed people would be better off without unemployment benefits.

In a Sunday CNN interview, Wisconsin governor and potential presidential contender Scott Walker argued that “the federal government doesn’t require a lot” of the unemployed, and urged that rather than “just putting a check out,” Congress tie unemployment extension to tightened eligibility requirements.

“Making them jump through more hoops will definitely increase administrative costs, but it’s not going to generate more jobs,” Economic Policy Institute economist Heidi Shierholz countered in a Tuesday interview with Salon. “Unless he’s looking at it as a jobs program to hire more public sector workers.”

Shierholz, a former University of Toronto professor now at the progressive Economic Policy Institute, panned several of the right’s other diagnoses and prognoses for the unemployed. A condensed and edited version of our conversation follows.

Some of the same Republican senators whose votes were necessary for unemployment extension to move forward Tuesday are implying they could still vote against final cloture if it isn’t offset with cuts. Is insisting on budget cuts to “offset” the cost of unemployment extension good policy?

It isn’t in this context. And I say that sort of carefully. Because if we were at full employment, and the economy was humming along, and fully utilizing all its potential, then if you’re going to spend a big chunk of money, you might want to think about offsetting it, because the economy doesn’t need any more demand.

We are so far away from that situation that this is exactly the kind of time where you do not have to worry about trying to do offsets like that.

It’s not a bug of the UI system, it’s a feature that it actually costs money. Because at a time like this, when the labor market is so weak, the economy is so weak, and we know that the overwhelming factor behind that weakness is just weak demand,  we’re operating way below our potential. People don’t have the income, so they’re not spending. Businesses aren’t investing as much as they would if we were in a strong labor market. Weak demand for goods and services means businesses don’t have to ramp up hiring, they don’t have to ramp up to meet the demand, because demand isn’t there.

So the fact that you’re spending this money on UI, you’re getting money into the economy, is actually exactly what we want to do at a time like this. So trying to sort of bend over backwards to offset it actually just undermines one of the key features of extending UI, which is that it increases economic activity at a time when the economy desperately needs it.

Scott Walker told CNN that “one of the biggest challenges people have who are either unemployed or underemployed is many of them don’t have the skills in advanced manufacturing, in healthcare and I.T. where many of those job openings are.” What’s your assessment of that claim?

You hear that claim made a lot: that the reason we have this weak unemployment, or high long-term unemployment, is that workers don’t have the right skills for the jobs that are available.

I think because you hear this anecdote a lot, there’s been a ton of research done on it — a ton. And economists have dug in, and looked at the data from all sides. The overwhelming consensus: People who aren’t just relying on anecdotes, but who are actually digging in and looking for any sign of a skills-mismatch in the data, don’t find it. The divide on who finds this is more those who are relying on anecdotes versus those who have looked at the data, not right-leaning or left-leaning. Because of those who have looked at the data, you just don’t find evidence that the problem right now is due to workers not having the right skills.

If it were due to workers not having the right skills you would have to see some evidence in some meaningfully sized group of workers of actually tight labor markets relative to 2007. [But] unemployment rates are higher now relative to before the recession started across every education group, across every gender, across every age group, across all racial and ethnic categories, in all major occupations, and all major industries.

If we were seeing tight labor markets, you’d see wages being bid up for the workers who can’t be found, people poaching from other companies. And that you also don’t find. You actually find basically no group that is even seeing wage growth keep pace with overall productivity growth. In any group meaningfully sized enough to be actually driving anything, you don’t see any sign of wages being driven up. Same story with hours.

You’re not seeing any sectors of meaningful size where there’s more job openings than people actually looking for those jobs.

You hear anecdotes a lot about people saying, “I just can’t find the workers that I need.” This may be some interesting sort of psychological stuff about the echo chamber of how those things get so much play at a time like this. When you look at the data, it’s just not there.

One of the senators who voted against proceeding with the unemployment bill, Jeff Sessions of Alabama, said, “First and foremost, unemployment insurance is treating the symptoms of the problem. It’s an aspirin for a fever, but the fever has been raging for weeks now.” Is that a revealing analogy in any way?

It’s treating the symptoms and it helps actually be part of the cure.

They actually are a lifeline to the people that were most hurt by the downturn — people who lost their jobs through no fault of their own, and have not been able to find another one in the period of weakest labor market we’ve seen in 70 years. The fact of the matter is that the labor market is still extraordinarily weak. It’s way weaker by far than at any time we’ve ever allowed extensions to expire.

So it definitely is part of dealing with the symptoms. And then it is absolutely part of the cure: You get money in the hands of the long-term unemployed.

Those are people who are almost by definition cash-strapped. They are going to spend that money. It goes straight into the economy and generates demand for goods and services, which generates demand for workers. So it helps strengthen the recovery.

You put out an estimate that not extending unemployment benefits would cost 310,000 jobs this year. How?

Around $25 billion would be spent if the extensions were continued [for a year]. Some spending is actually more stimulative to the economy, and it has everything to do with how fast and how completely that money goes into raising and creating demand. So unemployment benefits are consistently the second most efficient way that a government can spend money — either through direct spending or through tax cuts to support an economy, to generate economic activity. The only thing that consistently comes in ahead is food stamps.

You have that [unemployment] money spent on rent and groceries and clothes. So you increase demand for goods and services. Then there’s the fiscal multiplier. Then from there, that’s where you get the total amount of economic activity generated — the boost to GDP. And then from there, there’s a direct walk to jobs created.

It’s a rough measure. But that’s an idea of the scope.

Scott Walker also argued that instead of “just putting a check out,” the government should require more from people on unemployment, in terms of entering job training and looking more often for work. What do you make of that argument?

We do know that it’s already keeping people in the labor market, looking for work. There’s good evidence that receiving benefits actually keeps people looking for work.

A helpful bit of information, to know if the reason people are long-term unemployed is because they’re not looking hard enough, is the following: You’d want to know if our long-term unemployment situation is somehow weird, if it’s unexpected, if there’s something going on with our long-term unemployed, like they’re not looking as hard as they should, or they’re not being as flexible as they should. Like, is there something about these benefits that’s keeping them from doing those things? And that you don’t find.

So there’s a paper by Jesse Rothstein that looks very carefully at today’s long-term unemployment situation in the historical context. And he found that what we’re experiencing now is exactly what you would expect given three things: given how deep the period of economic weakness has been; how long it’s been as bad as it’s been; and then a little bit of this longer-term trend in long-term unemployment share. Which has to do with declining incidences of temporary layoff and stuff like that — but that’s not a big component.

We’re not seeing something abnormal right now in the long-term unemployment situation, except for an incredibly abnormally weak labor market that’s been incredibly abnormally weak for a very long time. Once you have that, then what’s going on with long-term unemployment is exactly what you would expect.

So it’s not like, “if we just get them to look harder, they’re going to find jobs.” The real problem, why we have this long-term unemployment crisis, is that the labor market has been so weak for so long.

So making them jump through more hoops will definitely increase administrative costs, but it’s not going to generate more jobs. Unless he’s looking at it as a jobs program to hire more public sector workers to deal with more administration. But I don’t think that was probably his angle. The real problem right now is weak demand for workers, and this won’t touch that.

The reason we have elevated unemployment is not that workers don’t have the right skills for the jobs that are available. It’s just that we don’t have jobs available. It’s not like training can never help an individual, but that’s not why we have high unemployment right now.

 

By: Josh Eidelson, Salon, January 8, 2014

January 11, 2014 Posted by | Jobs, Unemployment Benefits | , , , , , , , | 1 Comment

“Forward Economic Momentum”: Obama’s American Recovery And Reinvestment Act Has Been A Success

The short answer is yes, the economy has improved due to the policies President Obama implemented with the support of Congress.

Labor market conditions are the most important indicators of whether the economy has improved. Most people get the majority of their income from paid employment and having a good job, with decent pay and benefits including health insurance, retirement, and policies that make sure employees can also be good caregivers for their families. Most have little savings, if any, to rely on.

The labor market is moving in the right direction and this is a testament to the success of the American Recovery and Reinvestment Act and other steps taken to address the Great Recession. Recent data from the Bureau of Labor Statistics shows that the private sector has added jobs every month since March 2010, with 245,000 jobs added on average over the past three months. This is a remarkable turnaround from when President Obama took office and the economy was shedding about 20,000 jobs per day.

As a result of job creation, the share of Americans with a job in February edged up to 58.6 percent, higher than it’s been since June 2010. Further, there has also been steady progress to bring unemployment down from its peak of 10.0 percent in October 2009 to 8.3 percent in February.

The Recovery Act and other programs worked because they targeted funds toward a variety of specific job-creation efforts that have been shown to have created jobs and been cost-effective. The President’s Council of Economic Advisers credits the Recovery Act with increasing employment through the second quarter of 2011 by 2.2 million to 4.2 million jobs and reducing unemployment by between 0.2 and 1.1 percent. Economists Alan Blinder and Mark Zandi estimate that the Recovery Act and other fiscal policies resulted in 2.7 million jobs, and that without them unemployment would have hit 11 percent and job losses would have totaled 10 million.

Make no mistake, there has been sure and steady progress in the economy. But, these gains would have been much stronger had conservatives not blocked efforts to invest in much-needed infrastructure and help state and local governments keep employees on the job teaching children and policing streets. The forward economic momentum continues to be at risk as Congress and state and local governments move toward an austerity agenda that will hinder, not promote, strong growth and an improved labor market.

 

By: Heather Boushey, Sr. Economist, Center for American Progress, Published in U. S. News and World Report, March 13, 2012

March 14, 2012 Posted by | Economic Recovery, Economy | , , , , , , , | Leave a comment

   

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