## Monday, April 30, 2012

### white particle magic

not much on green lantern fancy

but for those of a verdent  hue amongst you

"In 1991, the eruption of Mount Pinatubo in the Philippines created a haze of sulfur in the higher atmosphere that cooled the entire planet approximately half a degree Celsius for two years afterwards"

sulfur is the star among white particles

if we had sulfur stacks out in the middle of our oceans ...

### firm balance sheet determinism

firm balance sheet determinism
is a product of atomized production systems

the notion too widely  worshipped
we need firms killed off  massively and periodically
to keep the production and commercial systems healthy

this a   outrageously poor metaphor
in an era of potential hyper credit flow integration

there is much to learn pro and con
from the dot com boom/bust
about the value of failure in discovering success
at least
in a context of over rich credit flows

### wage control update

three graphs :

notice the interval below the  strangulation red line
for  wage target proxy aka core inflation

note the spikey temperament of this series
like new england weather
wait a moment and it changes qualitatively

this suggests no relation between depth of contraction and rate of reovery

nb

properly goosed and squoozen you could make
the inventory swings in a contraction and recovery
look like  completely gratuitous
slap stick hook and ladder rear end antics

### RPCE on new... limper ...trend line

but here is the iron claw at work:

that interval there 08 to middle of last year
suggests real  wages got a nut squeeze in this slump

surprised ?

## Sunday, April 29, 2012

### toy thinking : considering the equation below...does the volume of investment determine profits or vica versa ?

$\textstyle P=C_P+I$,

in a simple model this holds  of income is either profits or wages and each class is distinct
and if wages every period are always spent in full  the next  period

P(t) => C( t + 1) + I( t +1)
OR
C (t) + I (t)=> P (t+1)

“The answer to this question depends on which of these items is directly subject to the decisions of capitalists. "

"Now, it is clear that capitalists may decide to consume and to invest more in a given period than in the preceding one, but they cannot decide to earn more."
yes they can spended their income or les then their income

" therefore, their investment and consumption decisions which determine profits, and not vice versa”.[

voila sez  M Kalecki
if so consider C (T)
( capitalist class spending on household products)

lets hold C constant from t to t+1

then P in (t +1 ) is a function of I(t)
next period profits are a function of  this period I

generalize some

let C vary over T
using
a fixed part A
and some fraction  q of P
ie
$\textstyle C_P=A+q \cdot P\,\$

BRING back in I
if
I = P -(A +q.P)
then
P = I + (A + q.P)
or

$\textstyle P= \frac{A+I}{1-q} \,\$ ***

okay can we use this to claim to push for higher  effective demand  along the following  lines ?
can we force up investment  ?  in a liquidy trap no

so enter public spending G  and  is offset taxes on profits T
forget the taxes on wages  hey say they don't exist
all  taxes are on profits

if G-T this period t is  larger then last period  P(t-1) - ( I  (t) + C(t) )
then this period P will be larger then if G-T equals zero

or
why would corporate elites now prefer stagnation in the oecd

*** P=I + A +q.P

P - q.P =I + A

P(1-q) = A+I

P=A +I/1- q

### hi fi top dog "compensation"

"In a way bankers are Marx's dream, it's the workers getting the fruits of their labours. "

jolly words of a  stupid  ass of a  clown dog

"fruits of  their labor"...who's labor  ??

an analytic decomposition of top dog compensation
needs doing in a very public and protracted fashion

i have my notions

so if a few big feet get it started...

as to the middle dogs of hi fi

"As external auditors we get to see the big banks  payroll reports.
.. It's striking how people seem to make quite a lot more in jobs that are generic in nature. If you are in HR you are doing the same work as in any other industry,
yet you make 20, 30% more, plus a 10k bonus. Not every year but often enough.… "

"The money is a pull factor, to go into finance, why wouldn't it be? If you are offered two identical jobs and one pays 20% extra, which are you going to choose? …"

spreading the pelf among the troops

### defending the idiotic is fun ..if it pays well

we flew and flew successfully
before we had serious areodynamic models
macro policy does not require analytic clarity at the micro level
however micro stick figuring
adds nothing to the policy armamentorium
new keynesianism provides nothing policy hands
didn't comprehend since .....well ....
the post WWII peace boom
paine said in reply to paine...
the long shadow of the late 70's policy crisis
still dominates wonk minds ..unfortunately
paine said in reply to paine...
gist of lesson learned :

keep wage inflation as close to zero as is safe
practical number marks:
NAIRU line of plus 5% UE
wage driven inflation target 1.5 to 3 %
its all balderdash

### butt plug pop out

brit macro-nit

nigel lewis carroll  Halfmoon-Smitherington

"  Internal consistency rather than external consistency
is the admissibility criteria for microfounded models."

translation :

"macroeconomic models will be rejected
if some parts are theoretically inconsistent with other parts
but not if some model property is inconsistent with the data."

".. the motivation for a paper will often be a ‘puzzle’,
which is an empirical fact that cannot as yet by explained
by a model....however .the paper is not required
to be consistent will all other relevant facts"

------------------------------------------
thru the looking glass:

stick figure parables
just so  fables

### rational anticipations herd expectations and markets nonsense

pk's rational expectations
based on CBO projections of U and inflation
means long rates now of under 2%

### each of the sub intervals has its own story line

Table 1Table 1 (continued)

#### Reconciling growth in median hourly compensation and productivity, 1973–2011

1973–791979–951995–002000–111973–11
A. Basic trends (annual growth)
Median hourly wage-0.26-0.151.500.050.10
Median hourly compensation0.56-0.171.130.350.27
Average hourly compensation0.590.552.100.950.87
Productivity1.081.292.331.881.56
Productivity-median compensation gap0.521.461.211.531.30
B. Explanatory factors (percentage-point contribution to gap)
Inequality of compensation0.020.720.970.590.61
Shifts in labor's share of income0.030.23-0.400.690.25
Divergence of consumer and output prices0.460.510.640.240.44
Total0.521.461.221.521.29
C. Explanatory factors (percent contribution to gap)
Inequality of compensation4.8%49.6%80.0%38.9%46.9%
Shifts in labor's share of income5.5%15.4%-32.5%45.3%19.0%
Divergence of consumer and output prices89.7%35.0%52.5%15.8%34.0%
Total100.0%100.0%100.0%100.0%100.0%
--------------------------------------------------------------------------

 73-79 cost of living change out stripped productivity and wage change 79-95 triple crown inequality of compensation

wage share and cost of living outstripping general labor productivity growth

95-00

golden years
for compensation share
recovers most of lost ground

but inequality of compensation grew rapidly
and the cost of living versus average labor productivity
saw COL in acclerated outstripping

00-11

another triple crown era
with very strong wage share loss

-----------------------

note i'd like to see the 79-95 sub  interval
to say

79-86

and
86- 95
ie
split at about the time the plaza accords of  86
cut in
and then alan greenstain  took the fed helm

### pk compiles an o'bama fiscal rap sheet

$800 billion per year shortfall. spending? over trebd by around$300 billion:
"mainly about the category CBO calls “income security”, mainly food stamps and unemployment insurance"

" the federal deficit is all, yes all, about the recession and aftermath."

" we’ve been imposing fiscal austerity, not stimulus"

### wage price spirals and CB accomodations

the great fear of the establishment from 1946 to 1970
finally came true after 1971

with the ending of the fire wall holding down inflation
call bretton woods

the trade boom of the 50's and 60's was mediated and mediated more or less effectively
by
ie quasi  fixed exchange rates for all and gold drain fears for uncle

yes some currencies were chronically under valued
most  notably the mark and the yen
some like uncle's dollar and Sterling were over valued
all this "by design" of course

but a design that finally proved unsustainable by 1970

so dick nixon acted in 1971 !~

### Devaluation as a way to partition capital flows part I

the effect of  large devaluation is a de facto repatriation of  currency

and as a potential outcome devaluation threats
imply a possible " penalty " to holding that currency

fear of a run out

MNCs thrive obviously on capital flows ,,,,,,,moving funds across borders
to mediate their domination of cross border trad and direct investment
not to mention playing the various hot money cross border
cross currency and cross security games

if a CB will act decisively in the interest of a majority  job class
the global capitalists aren't safe playing in that currency its denominated securities
the use and effectiveness of this weapon is obvious

if internal class struggle requires a flexible exchange rate to avoid cyclical BOP crises
then control of the CB by the job class is an obvious strategic objective

british capital controled labor governments from the mid 60's thru the mid 70's
with well time BOP crises
after breton woods that became impossible
but the same result was achieved by other means
once the CB ....the BOL got the hang of flex policy
and the class struggle resumed
first
by simple wage hike escape
thru price spirals accomodated by the credit system

then by an independent LOB using its dfuardian powers to
stop further spirals

much of todays conventional wisdom
stems from the wrong reading of that early post bretton woods era

and obviously not only Thatcherism and Reaganism  but evern the crisis of 2008
were the product of that interval
1973-1979

## Saturday, April 28, 2012

### Nit wit Econ con sited at random but with malice

"........most economists believe that the 70s inflation was caused by loose monetary policy (and possibly oil shocks), not by fiscal policy."

### fisher effects can be part of overt peoples' macronautics

this paper has a hot topic rising debt loads
it has a simple but startling conclusion

"if average rates of growth, inflation and interest had remained the same after 1980 as before

1980, household debt burdens in 2011 would have been roughly the same as they were in the

early 1950s,"

yes if we were running the combo of low rates and sturdy inflation paced by rising wages
then the present debt load would be no big whoop

lesson brisk inflation of wages and product prices combined with low interest rates contains the burden of debt
by in essence reducing its real weight ..outcome despite all the homestead price bubbling of the '00's
few today would be underwater and talk about a win win our homesteads resale value wouldn't have plunged
oddly the paper recommends a debt jubilee instead of resuming the giddy pace of wages and prices
prior to the Volcker dammerung under jimmy carter

if there was a time to emulate it was of course 1940 to 51

clamp a people's hammer lock on the FED and declare war on wall street and the browning of the planet
and its readily do able !!!!

### share recovery during clinton second term "miracle"...but since ...

"labor share fell from 1973 to the mid-1990s and then

rebounded during the robust growth of the second

half of the 1990s"

note :
however there was a serious rise in upper end share in earned compensation between 95-00

so

cycle peaks of 1973 and 2000

the labour share

fell only 1.1 percentage points."

however

"the fall between 2000 and 2011

4.6 % from 63.1 per cent

to 58.5 per cent of GDP"

### where it all went

data.
Table 1Table 1 (continued)

#### Reconciling growth in median hourly compensation and productivity, 1973–2011

197379197995199500200011197311
A. Basic trends (annual growth)
Median hourly wage-0.26-0.151.500.050.10
Median hourly compensation0.56-0.171.130.350.27
Average hourly compensation0.590.552.100.950.87
Productivity1.081.292.331.881.56
Productivity-median compensation gap0.521.461.211.531.30
B. Explanatory factors (percentage-point contribution to gap)
Inequality of compensation0.020.720.970.590.61
Shifts in labor's share of income0.030.23-0.400.690.25
Divergence of consumer and output prices0.460.510.640.240.44
Total0.521.461.221.521.29
C. Explanatory factors (percent contribution to gap)
Inequality of compensation4.8%49.6%80.0%38.9%46.9%
Shifts in labor's share of income5.5%15.4%-32.5%45.3%19.0%
Divergence of consumer and output prices89.7%35.0%52.5%15.8%34.0%
Total100.0%100.0%100.0%100.0%100.0%
Note: Totals for panels A and B do not exactly match due to rounding
Source: Analysis of Mishel and Gee (2012) Table 1

"Labour productivity was

$33.68 (2011 dollars) in 1973 grew an average of 1.56 per cent per year to$60.77 in 2011"

33 to 60

### The new executive of the Reagan revival

The new ...now old executive of our giant corporations is really a hi fi sector guy restricted to one corporation There as a result is no serious contradiction between these CEO types and the private equity LBO IBO VC and vulture outfits The civic statesmen among them are no different at heart then the hacksaw guys Attempts to appeal to production companies to rally against the wall street parasites Is ridiculous

### Combo mark upwarrent market and weintraub taxes

Imagine there's a price for warrant renewals But new warrants are auctioned The auction price is then the next rounds renewal price staggering the timing shortens the gap Between feed back thru auction and renewal price Perhaps the auction is just prior to renewal
States can recapture much of the gains from trade by using the border to toll the products and services crossing either way Auctions may work better in conjunction with tariffs Auctions allow at the margin price discovery if collusion can be pre empted

### However states should capture the max out of total gains from trade

States can recapture much of the gains from trade by using the border to toll the products and services crossing either way Auctions may work better in conjunction with tariffs Auctions allow at the margin price discovery if collusion can be pre empted

### There are no small trading states in real international markets

All trading states have a sub set of trading partners that either impact or are impacted by that states changes in trading policy These convenient assumptions go out the window too one world market leads to one world price There are multiple prices and no rapid arbitrage based closure In fact. Arbitrageurs work to maintain these opportunities Small states can however never capture all existing arbitrage gain if trading is mediated on both ends by corporate traders that are in essence free to control pre tax or pre quota prices for both imports and exports

### The stations of the cross

First lesson in Marshall graphs The various crossing positions including no crosses Linear non linear This frees the mind from the iconic Marshall cross With one positive and one negative sloped linear pairings Then the difference between a function and the larger category called a relation Too many students of Econ con 101 Have too little prior contact with these graphs in their vastly varied splendid algebraic geometric Dancing postures

### Fisher dynamics revisited

When neo hicksians of the monetary policy cyclopian variety like gentle Ben and Paul the rug rat Circa. 2000 ie the era of japan bashing and superior posing of policy Rx's They attack the so called liquidity trap state of the market economy Thru lowering the real interest rate when now with a system in LT They can no longer lower the nominal rate Once all intertemporal securities with a fixed nominal value Have a zero rate the burden of new debt can't be nominally lower In a rationed credit system except by changing the term structure And of course the amount available on credit lines The resort is a direct attack of the real value of existing debt itself since simply recycling existing debt can't any longer reduce the de t burden beyond zero Apart from lengthening the term of repayment or offering no payment initial periods The only way to further reduce the burden of debt in a slump Is to rev up inflation by devaluations and if that isn't acceptable By some how changing inflational expectations This is pure reverse fisher effect sort of a back end to pigou effect But regardless what are the dynamics of this route even if it succeeds in changing inflationary expectations And how does this process and policy compare with the straight out deficit spending and tax holiday approach Conjecture The back up version of pigou would be far slower
Imagine a contraction has occurred but is now over and the system stabilized Might certain "players " in a for profit game refer to keep the pressure on weak competitors? Ie not rapidly refloat the production system and the commercial system Even the financial system might have a core of strong firms that prefer hard times ...for now Strong firms might prefer a shake out period once the contraction is over In this light Perhaps instead of calling for more employment we need to appeal to corporate self interests Call for more profits A faster bigger recovery means more profits ...no? If yes then prove it and sell it baby sell it BUT if you can't prove a faster bigger recovery would be more profitable If in fact your devised model proves just the opposite If a stag is indeed at lesst for now ...more profitable ...then maybe you know why a faster bigger recovery isn't happening Of course this exercise would be played out in wonderland A battle of toy models We would still require a leap of conviction to take hold But at least the debate would reach to possible conflict of class interests no? Yes a faster bigger recovery is good for the job class But is it better for the profit

### The Mellon preference

Imagine a contraction has occurred but is now over and the system stabilized Might certain "players " in a for profit game refer to keep the pressure on weak competitors? Ie not rapidly refloat the production system and the commercial system Even the financial system might have a core of strong firms that prefer hard times ...for now Strong firms might prefer a shake out period once the contraction is over

### What level of macro output is most profitable ?

Why is the following question not asked ? Given the system we have ie a profit driven production system What level of demand produces the maximum profits ? No we have no realistic models particularly closed form models That spit out determinate answers But the ball needs to get in play here why would a community of for profit firms not want a profit Max macro policy? Imagine now what it means that try obviously right now DON' T want as fast an output recovery as possible here ? Too much time is wasted repeating the existing pro and con arguments Vis a vis inflation and employment When profits are all that interests the most powerful political force in this country Corporations

## Thursday, April 26, 2012

### sam webbs stages to ..people's government

"Socialism - more than a good idea, is "imperative," as Webb put it, "to preserve peace and our planet, expand democracy, eliminate gross racial, gender, and other forms of inequality, and to provide a secure life for the billions living on this earth."
Given their commitment to this goal, the delegates are preparing to discuss the various stages through which they see the struggle for socialism progressing.
Defeating right-wing extremism is seen as simply the first stage of the fight. Webb warned of that stage's critical nature. "If you don't believe me," he added, "take a look at Wisconsin, Michigan, and Ohio, where Republicans took control of the levers of power in 2010 and then ruthlessly rolled back rights, eliminated social programs, and attacked the labor movement.
Assuming an eventual victory over the right wing, the Communists see workers and allies then being able to enter an "anti-corporate" stage of the struggle, where they expect the fight for a peoples' agenda will bring the labor movement at odds with corporate/economic political power.
"This stage of struggle doesn't supplant capitalism," Webb remarked. Instead, it "brings the socialist stage closer as tens of millions become convinced in the course of the struggle that capitalism doesn't work for them."
In the next stage (the socialist stage), Communists see a substantial shift to the left among the "core forces" of social change, a deepening of anti-racist consciousness and practice, the consolidation of the anti-corporate alliance, and the growth of the Communist Party and other left organizations.
"This stage will culminate in the election of a peoples' government," Webb stated.
Important parts of this stage, he noted, are "steps to control the movement of capital, to institute a tax policy that weighs heavily on the wealthy, and to place under democratic control sectors of the economy, such as finance, that are a threat to the peoples' government and a socialist revolution."
Some of this is still a way off, and so another focus on the part of the Communists is turning their party into a far bigger one than it currently is."

### toxic dixit

Princeton emeritus professor Avinash Dixit

When

designing

and

implementing

my

ideal

safety

net,

governments

will

thoughtfully

balance

needs

of

the

short

run

and

the

long

run.

Short

run

economic

and

political

imperatives

are

real

and

should

not

be

neglected,

but

they

often

to

excessive

stimulus

spending,

preservation

of

firms

and

industries

that

should

be

wound

down,

and

so

on.

## Wednesday, April 25, 2012

### greider is a gravel brained blimp

"As a longstanding critic of the Federal Reserve, I am
experiencing a role reversal of my own. In the new
circumstances, I find myself feeling sympathy and a
measure of admiration for Bernanke's willingness to
stand up for unorthodox ideas and to switch sides on the
sensitive matter of debt reduction for failing
homeowners."

" For many years, I have assailed the institution's unaccountable power
and anti-democratic qualities, its incestuous relations
with powerful banks and investment houses.
Those flaws and contradictions remain unreformed"

"yet I now think the country needs a
stronger Fed-a central bank not afraid to use its
awesome powers to help the real economy more directly."

### bairish sheila

"The Fed has maintained interest rates at or near zero for four years running
even though the financial system has been relatively stable since 2009. "

the fed went to ZIRP as part of the anti contraction campaign
it stayed at ZIRP because despite financial market recovery
job markets are still zonked out
so let the easy credit flow ...into free reserves

"The Fed's actions have kept Treasury bond prices high (while keeping the government's interest costs low), but the fundamentals do not support the high valuations, given the fiscal mess we are in."

what ?

the  next 5 years of deficits  will drive  up rates dramatically ?

" Sooner or later, the bond bubble will burst "

maybe it'll be
just a slow goodby sheila
history suggests that route is plausible
as well as fed doable

but i'm not the only one to call Clio to the stand...

" History has shown .."

".. a structurally weak economy combined with a fiscally irresponsible government propped up by accommodative central-bank lending .."
gra something nailed to the floor ..

poor Clio she can be forced to testify to anything .....in absentia

that always suggests we are hearing argument not fact

now comes the jeremiah shutter

" Absent a change in policies,
a toxic brew of volatile interest rates and uncontrollable inflation
could define our future"

a toxic brew of volatile interest rates
and uncontrollable inflation !!!!!!!!

a nice compact suticase full of shit sheila

### internal piigs devaluation proceeds in reverse or at best a snails pace

look at italian wage increases compared to germany

best cases
portugal gains 3 % on germany
ireland  gains 5%
half that is the   yearly progress

literally the wages of a frozen forex

### share of low wage in wages part of the wage wars .... yanks win

Paine said...
France has a law that sets the minimum wage at a fixed percentage of the median wage
We can do the same
Of course that doesn't change two present trends
The upper 5% of the job force taking a larger share of the total job compensation aggregate
And that aggregate slowly losing share of total value added to non work income sources
Ya ya
You need to see all that non work share as a sy
Urplus extracted by an exploitation mechanism
To really get burned over this
But leaving it as just household income inequality is growing
And fighting over a the present size of the gap and how fast its growing and is it acceletating
misses the pressure points the lines of cleavage
Which are really between the non work income sources and the income that essentially pays to guard expand and secure the present system of exploitation
Paine said in reply to Paine...
Obviously CEO work income is a fraction of their total compensation
They are really just like private equity partners
Buying selling and carving up their subsidiaries as opposed to the private equity outfits like mitt ran that simply range over
the strays and management led IBO's
Call it firm self governance failure
not market failure
Firm governance failure is part of the systemic failure
Of social production systems Principal paradigm
Open exchange with labor markets ordered by a self interest guided
" voluntary complacence "
Which amounts to
Worshipping an invisible providential force
Okay that's the market reified into an over soul of production
The god that failed to prevent firm failure

Co ordination failure commitment failure. Third party failure
Enforcement failure you name it
It's Nick name is the firm
anne said in reply to Paine...
France has a law that sets the minimum wage at a fixed percentage of the median wage
http://g-mond.parisschoolofeconomics.eu/topincomes/
May, 2011
Top .5 Percent Income Share in France, 1980-2006
1915 ( 14.49)
1920 ( 14.12)
1925 ( 14.00)
1928 ( 13.24)
1930 ( 11.59)
1932 ( 10.89)
1935 ( 11.21)
1940 ( 9.89)
1945 ( 5.04)
1950 ( 6.23)
1955 ( 6.30)
1960 ( 6.48)
1965 ( 6.27)
1970 ( 5.45)
1975 ( 5.56)
1980 ( 5.01)
1981 ( 4.95) Mitterand
1982 ( 4.61)
1983 ( 4.51)
1984 ( 4.51)
1985 ( 4.66)
1986 ( 4.85)
1987 ( 5.13)
1988 ( 5.28)
1989 ( 5.51)
1990 ( 5.52)
1991 ( 5.30)
1992 ( 5.12)
1993 ( 5.05)
1994 ( 5.10)
1995 ( 5.03) Chirac
1996 ( 5.11)
1997 ( 5.26)
1998 ( 5.25)
1999 ( 5.42)
2000 ( 5.54)
2001 ( 5.67)
2002 ( 5.69)
2003 ( 5.77)
2004 ( 5.91)
2005 ( 5.97)
2006 ( 6.15)
-- Anthony B. Atkinson, Thomas Piketty, and Emmanuel Saez
anne said in reply to anne...
http://g-mond.parisschoolofeconomics.eu/topincomes/
March, 2012
Top .5 Percent Income Share in the United States, 1980-2010
(Including capital gains) *
1915 ( 14.58)
1920 ( 11.14)
1928 ( 19.40) (High)
1932 ( 11.62)
1973 ( 6.30) (Low excluding capital gains)
1976 ( 6.07) (Low including capital gains)
1980 ( 7.15)
1981 ( 7.23) Reagan
1982 ( 7.97)
1983 ( 8.63)
1984 ( 9.04)
1985 ( 9.63)
1986 ( 12.62)
1987 ( 9.45)
1988 ( 12.09)
1989 ( 11.08) Bush
1990 ( 10.94)
1991 ( 9.99)
1992 ( 11.20)
1993 ( 10.78) Clinton
1994 ( 10.73)
1995 ( 11.57)
1996 ( 12.91)
1997 ( 14.16)
1998 ( 15.18)
1999 ( 16.04)
2000 ( 17.46)
2001 ( 14.32) Bush
2002 ( 13.04)
2003 ( 13.67)
2004 ( 15.74)
2005 ( 17.77)
2006 ( 18.62)
2007 ( 19.31)
2008 ( 16.87)
2009 ( 14.15) Obama
2010 ( 15.71)
* Top .5 percent or 624,668 families in 2010 had market income above $521,246 Top 1-.5% families had income between$352,055 and $521,246 Top 5-1% families had income between$150,400 and $352,055 Top 10-5% families had income between$108,024 and $150,400 -- Thomas Piketty and Emmanuel Saez Mark A. Sadowski said... A partial repost: The graph comes from this paper which is essentail reading: http://www.cepr.net/documents/publications/low-wage-2012-01.pdf To summarize, the paper argues there are five lessons: Lesson 1: Economic Growth is not a Solution to the Problem of Low-wage Work Statistical analysis shows no relationship between economic growth and the incidence of low wage work. This should not be surprising given the recent US history of a disconnect between productivity and compensation. Lesson 2: More “Inclusive” Labor-market Institutions Lead to Lower Levels of Low-wage Work By "Inclusive" the paper is referring to collective bargaining coverage and the degree of socila benefits. Lesson 3: The United States is a Poor Model for Combating Low-wage Work Lesson 3A: The U.S. Minimum Wage is Set Too Low to Reduce the Share of Low-wage Work In countries where the rate of low wage work is low the minimum wage is set closer to the low wage threshold. The US minimum wage is far below that rate (See Figure 7). Lesson 3B: The Earned Income Tax Credit (EITC) has Contradictory Effects on the Volume of Low-wage Work and on the Well-being of Low-wage Workers The EITC has the perverse effect of expanding both the demand for and supply of workers at a level below the low wage threshold. Lesson 4: Low-wage Work is Not a Clear-cut Stepping Stone to Higher-wage Work Low wage work is "sticky." Lesson 5: In the United States, Low Wages are among the Least of the Problems Facing Low-wage Workers U.S. workers have the lowest level of employment security in the OECD and no legal right to paid vacations, paid sick days, or paid parental leave. But the most critical problem facing low-wage workers is the lack of access to health care. So the solutions are common sense and should be quite familiar: 1) Raise the minimum wage closer to the definition of low wage. 2) Raise the wage levels at which EITC applies correspondingly. 3) Expand the right to bargain colllectively. 4) Increase social benefits. 5) Increase the legal rights of workers with respect to job security, paid vacations, paid sick days, and paid parental leave. 6) Establish universal healthcare. Edward Lambert said in reply to Mark A. Sadowski... The level of EITC is correct... when you fix the other things... a minimum wage closer to a living wage, better collective bargaining, better social benefits and legal rights to a better standard of living... then the EITC will be less needed... The EITC is still needed to protect against failures in the other things you mentioned. Mark A. Sadowski said in reply to Edward Lambert... I think you missunderstand what "raising the wage levels at which EITC applies correspondingly" entails and why this paper argues it would be desirable given the other proposals. Currently EITC is primarily effective over the low wage range. In other words it creates an incentive structure that increases the amount of low wage work. While the additional compensation may be desirable having a quarter of our workers enaged in deadend occupations certainly is not. If you shift the minimum wage rate closer to the low wage definition you will also be effectively eliminating a great deal of EITC benefits. That's why it is necessary to shift the entire range at which EITC applies upward. EMichael said... Little grammar correction needed here. Unless of course all of these workers are wroking at CBS News. :) Richard A. said... How many here think migrant farm workers are overpaid? Many of our political leaders do. Their solution to overpaid migrant farm labor is to grant agribusiness an expanded privilege to import foreign indentured labor as guest workers to put downward wage pressure on these workers. This scheme is coming from primarily Republicans who like to talk tough on the immigration issue. They don't do this for the Hispanic vote--that's just their cover story. jonathan said... I've found more striking that so much attention is paid to working conditions in China, notably at Foxconn, which seems to do better than other Chinese employers. It's weird because even a little digging shows working conditions in the US can be worse. E.g., a writer worked at the largest warehouse fulfillment center in the US. Even though the supervisors were friendly, they were driven by handheld computers that set standards which meant they were always behind. As in, the item isn't in the right bin so you have to scan every item in the bin to prove it but that doesn't come off your mandatory items "picked" quota. If you were even a minute late during the first weeks, you were fired. If you had to go into certain areas, you were shocked by contact with metal. The book area was constant static shocks. It's a better story that other countries mistreat workers because we don't want to believe that is true about ourselves. John B. Chilton said... 10% of US born workers have less than a high school degree. Of people employed in the US and having less than 8 years of education 70% are immigrants here legally. Depending on the data source employees can include undocumented immigrants, and this may be 30% of all immigrants. I'm not convinced that for those of us born in the US the US is a low wage country. If a large portion of low wage jobs are held by immigrants does mean the US is a low wage country -- no, it means the US offers opportunities superior to what the immigrants find in their country of origin. EMichael said in reply to John B. Chilton... Explain to me why there should be a difference stated between a legal immigrant and a US born citizen that would mean we do not have a low wage country? Are the legal immigrants citizens? Or working towards citizenship? They should not count the same as a US born citizen? And why should the "country of origin" and its "opportunities" have anything whatsoever to do with anything? OhNoNotAgain said in reply to John B. Chilton... So what ? Low wages, even for legal immigrants, push down wages for all other workers. It accelerates inequality, no matter who is on the receiving end of the wages. This is why we have minimum wage laws, ferchrissakes. If we didn't, then employment would eventually devolve into indentured servitude, like it always has when left unchecked. We're getting close to that now - just look at the stories coming out about the abuse of internships and those here on work visas. DrDick said... "US has the highest share of employees performing relatively low wage work " Along with an extremely wealthy elite, this is what we call "advanced capitalism." ken melvin said... If cheap labor's the solution, why is ...? Aaron said... I wonder how much of this is due to an overvalued Euro, and what the bar chart would look like if the Euro where to depreciate against the dollar by 30 to 49 percent, or if you used the exchange rates from the fall of 2001. Aaron said in reply to Aaron... correction: 30 to 40 percent. Paine said in reply to Aaron... Use ppp rates Mark A. Sadowski said... Low wage work is defined as work earning less than 2/3 of the median wage. Thus low wage work is not defined in absolute terms. It is a measure of income distribution. A change in the exchange rate would be more or less irrelevant. Aaron said in reply to Mark A. Sadowski... Ok, it looks like you're right, but then why should we care about some measure that is not related to purchasing power? It seems a country with a floor, or an almost a floor on the low end of the distribution is going look better for particular statistic that a country with a more naturally continuously falling wage rate. Aaron said in reply to Aaron... correction: ... is going to look better on this particular statistic than a country with a more naturally continuously falling wage rate. Mark A. Sadowski said in reply to Aaron... Because low-wage work in these terms tends to be a persistent and recurring state. Consequently low-wages may contribute to broader income and wealth inequality and constitute a threat to social cohesion. Michael Harrington also defined poverty in relative and not absolute terms for similar reasons. Beyond a certain threshold (Harrington estimated it to be 50% of the median income in "The Other America," 1962) people are unable to fully participate as members of their communities. As a result there is a diminishment in equality of opportunity and a consequent loss of economic efficiency. Aaron said in reply to Mark A. Sadowski... like the American way where if you work hard, and adjust your skills to what is in demand, you will most of the time have a decent paying job. If you start your own company, or rise up in a corporation you can make a ton of money. I think the real social problems (as in social unrest) happen when the route to the upper income gets cut off by elites. Maybe a reason we don't have major social unrest in this country is that if you have the skill, energy, and intelligence to be a successful agitator or revolutionary, you could probably put these skills to more profitable use in the private sector. I regards to the issue, if you tinker around with a distribution you can rig it so two similar looking distributions, with some differences at the tails, could produce the results in the chart. Mark A. Sadowski said in reply to Aaron... "like the American way where if you work hard, and adjust your skills to what is in demand, you will most of the time have a decent paying job." If by most of the time you mean more than 50% of the time I agree. It's the people who for reasons of market failure or simple want that can't even get to the first rung of the ladder that I am concerned. And not only for them, but for the tragic degree of economic waste tt this represents. "If you start your own company, or rise up in a corporation you can make a ton of money." Certainly. You can also lose a lot of money. That's the nature of the entrepreneurial game: risk. "I think the real social problems (as in social unrest) happen when the route to the upper income gets cut off by elites." Precisely. Who do you think is so intent on reducing wages and cutting social benefits? It's all about reducing equality of opportunity. What better way is there to eliminate competition and obtain economic rents? "Maybe a reason we don't have major social unrest in this country is that if you have the skill, energy, and intelligence to be a successful agitator or revolutionary, you could probably put these skills to more profitable use in the private sector." If OWS is any evidence I think we're already well on the way to major social unrest. "I regards to the issue, if you tinker around with a distribution you can rig it so two similar looking distributions, with some differences at the tails, could produce the results in the chart." The two thirds of median as a criterion for low wage work is somewhat arbitrary, but not very. It's slightly higher than Michael Harrington's definition of poverty (50% of median). I think people who have spent time examining the issue have come to rather similar conclusions. Given the definition of low-wage work then, there is no possible way to make that chart any different than it is. No amount of statistical tinkering can conceal a higher degree of variation relative to a median. Aaron said in reply to Mark A. Sadowski... I'm also uncomfortable by the low wages young people are earning coming out of college, forcing them to live in their parents house when they should be out socializing, dating, and finding someone to live with. However, I blame this on the weak economy and think the new focus on the wealthy is a distraction. The economy was no more egalitarian under Reagan in 1980s, Clinton in the 1990s, or under G.W. Bush, yet we did not have all the pessimism that we hear today. By the way, when where the good old days? The 1960s with its race riots, assignations, and the Vietnam War? Was it the 1970s with impeachment, gas lines, and inflation? How about the 1950s, now we’re going back to Neanderthal America in terms of technology, race relations, strikes, over managing of the economy, and the cold war (which was pretty hot at the start of the decade). The 1940s, WWII put a damper on that decade. And the 1930s we had a depression that only a world war got us out of. I don't think there has ever been a better time to be alive then today. We don't need a new system, what we need, paraphrasing a line from the movie trading places, it to "Turn those machines back on!" Aaron said in reply to Aaron... correction: when were EMichael said in reply to Aaron... Real social problems start when low wage workers who work hard cannot make a wage that sustains a minimal way of life. The lowest paid, least skilled worker in the US today makes 33% less than the lowest paid, least skilled worker in 1968. As that stagnation at lower levels moves up into the 2x minimum wage class, and they find out that no matter how hard they work they are one paycheck from disaster; have no health insurance; no savings; and are working 600 hours more a year than their parents did while making the same amount of money. Then you have the 3 times minimum wage class whose parents made more than they did while working the same job and working less hours. They have no health insurance or savings, and are a couple of paychecks from disaster. And it keeps trickling up the income scale. It is the real Reaganomics. And when it reaches a majority of the workers in the country(and we are not far from that), then you will see the social unrest. Geez, you might even see some communists mixed into the mix. The reason the revolution has not yet come is because most people blame themselves for their problems. They believe the bs spouted by their parents(who lived in a totally different US and have no conception what their kids are really facing). But there is a limit. When these problems get to that 75% or so income level, and it continues for another generation, or maybe even a couple of decades, the proverbial offal will hit the fan. I watch my grand neices and nephews and it is obvious they have nowhere near the opportunities I had. If they work just as hard as I did, their results will not be remotely the same. This country has been brought to the brink, and ideological imbeciles attribute the problem to a younger generation that will not work or did not choose the right major. They ignore the numbers in terms of incomes and the cost of education, and spout about the land of opportunity. They somehow think the land is the same as when they were 20. It is not close. And it is not getting better. "How long? Not long, because no lie can live forever." pete said... Low wage? Wow, and Baker and Krugman think wages are too high and sticky downward, with the solution being price inflation to drive up the marginal value of product above the wage rate. Firms are sure to hire more workers if wages rise? Check out the biggest issue, unending structural inner city unemployment. Here there is no demand for like 25% of the young labor market, even at the minimum wage, which in fact rose 20% during the great recession. This was kind of like wage hikes in 1937. So raising the minimum wage even more will surely make these folks more likely to be hired? This is really weird economics. EMichael said in reply to pete... Any chance you could link to " Baker and Krugman think wages are too high and sticky downward"? pete said in reply to EMichael... They are both devout Keynesians...wages are too high and sticky downward is the mantra...and certainly they are calling for higher inflation, almost everyday. I didn't think this would be news. I think most folks who follow these guys do not understand how inflation raises output by lowering real wages. The main concern with macroeconomics is unemployment, not worker income. Keynes was a capitalist, not a socialist. Increase output by increasing firm profitability, to hell with the distribution. I.e., prices must rise faster than wages. See, for instance the last 40 years, huge growth in income inequality after doubling the inflation rate from 2% to 4%. 1968 was peak equality, just before going off the gold standard. Mark A. Sadowski said in reply to pete... Pete, I think you're getting your causalities all mixed up. Those advocating a higher inflation rate target see the source of that inflation (whther explicitly stated or not) as increased aggregate demand. According a simple conventional AD/AS model an increase in AD will lead to increased output (and employment) and an increased rate of inflation. Since real wages are typically procyclical (this is an empirical fact) a higher inflation rate is correlated with a faster rate of increase in real wages. OhNoNotAgain said in reply to pete... "gold standard" And there it is. I knew it was coming...it was only a matter of time. It always starts with the spectre of inflation. Paine said in reply to EMichael... He's so confused he needs his mind thrown into a centrifuge EMichael said in reply to Paine... You must be convinced(and I agree) since you replied in a complete sentence. DrDick said in reply to Paine... Mind???!! Mark A. Sadowski said in reply to pete... "Here there is no demand for like 25% of the young labor market, even at the minimum wage, which in fact rose 20% during the great recession. This was kind of like wage hikes in 1937. So raising the minimum wage even more will surely make these folks more likely to be hired? This is really weird economics." Not really that weird. Much of this is covered in Econ 101. While Baker and Krugman are talking about downward stickiness of nominal wages in general, low wages are a particular segment of the labor market. There is good reason to believe most low wage labor markets are characterized by monopsonistic competition in which large employers have significantly more market power than do unorganized workers. This monopsony could be a result of intentional collusion between employers, or factors such as segmented markets, search costs, information costs, imperfect mobility etc. In such a sitation both wage rates and the amount of labor employed would be lower than would be the case under perfect competition. This is a type of market failure and results in workers being paid less than their marginal value. In these conditions an appropriately set minimum wage could increase both wages and employment, with the optimal level being equal to the marginal productivity of labor. Most importantly, in such a situation the higher wage is unlikely to be passed through in the form of higher product prices. In addition, research studies by Card and Kreuger on the fast food industry suggest that higher minimum wages reduce turnover which in turn reduces training costs and raises productivity. And, finally, minimum wage workers typically represent such a small proportion of a business's cost that the increase is too small to matter. A good book covering recent research on the minimum wage is: Myth and Measurement: The New Economics of the Minimum Wage David Card & Alan B. Krueger http://press.princeton.edu/titles/5632.html P.S. I also think it is important to remember that not all low wage workers are teenage high schoolers. The average age of a low-wage worker is 34.9 and 43.2% have some college or are college graduates (Table 1): http://www.cepr.net/documents/publications/min-wage3-2012-04.pdf Eric377 said in reply to Mark A. Sadowski... One of the best fast food franchisees that I ever met would dispute this. She felt that there was very little scope in her operation for wages to significantly attract and retain exceptional workers - maybe a manager role at a very high volume location. She embraced turnover and made it a positive by knowing the local business community so well that her word that such-and-such was a good hire was gold. She was the connection for hundreds of young people to the second rung. Of course it wasn't without a large slice of self-interest as from younger siblings alone she had a pipeline of workers eager for the experience she offered. Business owners are usually bright when it comes to their specific businesses and rarely need more persuasion than the prospect of higher profits. If paying better translates to higher profits they do it quickly. If it doesn't, barring legal requirements, you'll be waiting a lifetime to see wages go up. The role of unions was critical and could be again as they are one source of pressure where a business can truthfully conclude that higher compensation is more profitable as labor peace has a value. paine said in reply to Eric377... excellent comment paine said in reply to paine... just don't extend your praise beyond businesses with less then 100 employees Paine said... I suggest as social improvers The pattern of change we should use: Industrial wages from the 1920's to the 1950's A 40 year period If our service sector organizes itself like industry did back then we could see similar improvement I note education is not a factor in either case Paine said in reply to Paine... Eitc phobia Is I'll founded It simply ought to be seen as a way to distribute the social dividend So long as our retireds get a dividend too Dividend is the word of choice Ie discretionary as to timing and amount Timing ? Counter cyclical Amount scaled at the peak of the cycle to turn the minimum wage and threshold yearly hours into a living income Paine said in reply to Paine... Obviously the scale goes up from the peak to the trough anne said in reply to Paine... Earned Income Tax Credit phobia Is ill founded It simply ought to be seen as a way to distribute the social dividend So long as our retireds get a dividend too [Nice, but I wonder about whether the EITC is a rationale for paying lower wages and benefits. Were there really to be universal health care or a form of Medicare for all, I would be completely comfortable with the EITC.] paine said in reply to anne... it may be but it need not be that is what the minimum wage and premium for over time hours are about the entire wage structure requires overt management for maximum social welfare anne said in reply to paine... Earned Income Tax Credit: it may be but it need not be that is what the minimum wage and premium for over time hours are about the entire wage structure requires overt management for maximum social welfare [Nice.] revelo said... I fail to see the problem with large numbers of low wage workers. 50% of the workers must, of mathematical necessity, earn less than the median wage. So? What the chart above shows is the distribution of incomes is less concentrated in the US than in European countries, which is another way of saying we have more income inequality than elsewhere. No news here. Most regulars in this forum would probably agree that taxes should be raised at the top and lowered at the bottom, and other measures taken to reduce the income (and also wealth) disparities. The bigger issue is whether higher wages (in real terms) is the way forwards for the average American worker. I would say no. Americans already consume too high a percentage of the world resources, which is another way of saying average American wages are too high in real terms and need to come down. The way forwards for raising the American standard of living is lower costs and lower consumption of resources, so that low wages are enough to buy a high standard of living, not higher wages together with high prices and high consumption of resources. More walking, less driving. More consumption of services (restaurants, gyms and other preventative healthcare, tourism) less consumption of goods that require huge amounts of energy to build and maintain (motor vehicles, McMansions). Most importantly, more part-time job, more leisure and less work, and especially less make-work (think defense, sickcare, edumacation, legal, prison and other industrial complexes) which merely raises everyone's costs without really improving the standard of living. In other words, the Walmart way is the way forwards, given the realities of global competition. Part-time jobs and low wages for most people, but rock-bottom prices that allow those low wages to go a long way. EMichael said in reply to revelo... "In other words, the Walmart way is the way forwards, given the realities of global competition. Part-time jobs and low wages for most people, but rock-bottom prices that allow those low wages to go a long way." Is this satire? Exactly how much of a low wage income can be spent at "rock bottom prices"? Rent? Health Insurance? Education? Lord, that is a recipe for a third world country. revelo said in reply to EMichael... Rents need to go down. There needs to be a consciousness-raising among people that a collapse of housing prices is a good thing, not a disaster. By "health insurance" I assume you mean medical care for the sick ("sickcare"). No one ever suffered from lack of insurance. Sickcare and edumacation are both industrial complexes (half public/half private bastardizations) which need to be Walmartized (radical improvements in productivity, collapse of prices). EMichael said in reply to revelo... Strange. Rents are moving up all over the country. And I have not seen any signs of an increase in housing prices, let alone a renewed housing market. paine said in reply to EMichael... i think revelo is struggling with the real issues let him work his way thru here if he stops where he is then blow him out of the water it will do him good the maximum minimum full employment wage is the goal along side a EITC system that offers a living wage to all wage workers working say 1300 hours a year the hard part is the macro policy that keeps us at full employment and i don't mean NAIRU this will require both agressive forex adjustments to keep trade in balance and green tariffs and tax tariffs prolly best done with periodic warrant auction quotas to flex the system gota discover the appropriate tariff rate since the intent here is an arbitrage ending ajustment here not protection and some way to manage price level dynamics with a weintraud tax or lerner mark up warants system or some blend of the two as to what is a sustainable share and size of the consumption basic of a basic american wage earner well lets start with the consumption out of unearned income first once that's closing in on zero we can look at the structure of real compensation for job work btw the real wage system over all might not need to shrink if we could shrink the overhead costs of the system by moving away from corporate free range privateering OhNoNotAgain said in reply to revelo... This is patronizing BS. As EMichael correctly states, the things that low-wage workers cannot afford are not the things that Wal-Mart sells, they are the things that US companies are able to charge any rate that they want. Besides that point, the game is this: 1) Companies make products in low-wage countries, bring them back into the US and charge just slightly less than what they did when the products were made in the US. They pocket the difference. 2) If the companies sell these same products in other countries, they only charge what that market will bear in those countries. The arbitrage is only in one direction, against the US worker. US workers can't go and buy these same products directly from these other countries at their prices and have them shipped here. They are subject to a squeeze on both ends - their income and their expenses. And this is in addition to the burden being placed on them to try and purchase monopolistic services like health insurance/care and education that are only made available by US companies. So, you'll have to excuse the US worker if they tell you to go piss up a rope. You can't force people to drastically reduce their standard of living and then tell them "don't worry, things will work out in the end". Especially when they sit there at home after work watching some rich people on TV throw a$60,000 birthday party for their 7-year old kid.
paine said in reply to OhNoNotAgain...
really clear and on point
multinational corporations scoop up the bulk of the gains from cross border trading
and they work day and night
trying to get a bigger share of the gains even as they seek out new sources of super gain by crashing thru borders everywhere
its a two way stret
but the MNCs run all the toll booths now state protectionism is verboten
ya
guess who gained from tariff reductions
mrrunangun said...
US median family income last year was $31,000 and median in France was$19,000. Rough numbers. only in the USA would an income of $20,000 be regarded as poverty. Inequality is the issue of course. Raising the minimum wage is good for unionized workers with contracts tied to minimum wage. Not so good for the inexperienced undereducated low-skilled kids trying to get on the first rung on the ladder. Weakening of collective bargaining laws did not send our neighbors' jobs to the American South in the seventies, Japan in the eighties, Mexico in the nineties, or to China over the past 20 years. Collective bargaining contributed to that. We midwesterners got the idea that the companies were our greatest enemies because they resisted our wage demands. In fact our greatest enemies were the guys in other places whom we had never heard of who ended up with our jobs. Strengthening collective bargaining will only work if we protect our production from low wage producers. It's not 1965 anymore. Collective bargaining, higher taxes, higher inflation, etc will not bring 1965 back. The country has almost twice the population to support and it has competition to contend with that has much more competent government than we have. That competition knows that there is a game on while our elites remain in denial regarding the limits of our resources and the consequent need to make difficult choices about how to deploy those resources. The steadily worsening degree of corruption in government has left it open to capture by small well-financed groups who use the government to exploit the citizenry. As long as the populace regards partisan election victory as more important than keeping corruption closer to the necessary minimum, the corrupters will thwart well-intentioned attempts to improve the well-being of the general public. EMichael said in reply to mrrunangun... "Not so good for the inexperienced undereducated low-skilled kids trying to get on the first rung on the ladder." Would you explain to me how increasing the minimum wage would be "not so good" for minimum wage workers? revelo said in reply to EMichael... Because for many of them it would mean trading minimum wage for no wage (unemployment).$8/hour is a lot by world standards and the hard reality is that American workers are in competition with the rest of the world. If you want to propose extreme protectionism, go ahead, but it won't fly politically. Making the United States efficient and productive, as mrrunangun suggests, is more realistic. The plutocracy is not unified. There are plenty of Main Street tycoons who are not happy with bailouts, crony capitalism, financialization, deindustrialization, militarism, etc.
OhNoNotAgain said in reply to revelo...
"If you want to propose extreme protectionism, go ahead, but it won't fly politically"
Oh, okay, so the problem isn't an economic one, rather one of political power ? So there would be no problem with the US worker voting to protect their interests, no ? Or is that simply not allowed ?
EMichael said in reply to revelo...
SO you bleive that the number of employees a business has is deterined by the total wages?
Ever run a business? The number of employees is determined by the amount of work. If I have three people working for me, I do not hire more if their wages go down, I hire more if the work increases.
Just like if the minimum wage goes up, I do not decrease my workers unless the work goes down. Especially when my competitors have that same minimum wage.
Your thought is as silly as tax cuts increase workers. Only if the businessman is an imbecile.
DrDick said in reply to EMichael...
And the data show that when minimum wage rises, demand increases because more people have more money to spend. It is always a demand side economy.
Eric377 said in reply to EMichael...
If you consider minimum wage workers as two groups, the first engaged in career very-low wage employment and the second as primarily young people taking a first job so as to quickly get to a second, "better" job, then increasing minimum wage is very much a good development for the first group but not as good for the second. For the person that gets the job anyway, sure another \$1/hour is good, but if it takes more time to find the job, or if the sum total of such jobs is diminished it hurts somebody. I am much more in favor of increasing social benefits than trying to jigger wages too much. Health care, good transportation plus maybe a low wage transportation credit, higher quality child-care in low income areas, with grants and/or low interest loans to assist in paying for it. If it is just telling business people to spend more on a unit of labor, they'll buy less labor. But there needs to be the political will to increase taxes to get the revenue to implement such changes.
paine said in reply to EMichael...
he's full of wild oats
the per hour compensation of a french median wage earner and the after tax after transfer per job hour income of a median french wage worker is not 2/3 of the us median
my guess its higher
that more leisure might count as a prefered good
to what more job hours and a lower wage rate might earn
seems out of mc-rum-dumbs calculation