Thursday, February 21, 2013

Minimum Wage and Guaranteed Income: A Paradox

Over the past week there has been a remarkable amount of press about the minimum wage, and some going beyond it.  New York Times economist Paul Krugman, as expected, came out for President Obama’s proposed boost from $7.25 to $9.00, denying, as expected, that it would cost jobs.  Absurd.  How many we don’t know, but it makes no sense whatever to say that forcing employers to raise pay would precipitate 0% of them deciding some workers, for their purposes, would be just too expensive.  Steve Chapman, a former solid conservative now bipartisan, wrote in the Chicago Tribune this morning that not only would companies already be paying workers more if it was good for them, but that higher wages would raise prices. 
Most interesting, though, was in Slate by Matthew Yglesias.  This fine and provocative economics columnist agreed that such an increase would hurt employers and cut jobs, and then went on to something I argued for in Work’s New Age:  guaranteed income. 
What Yglesias called a GBI, or Guaranteed Basic Income, would be a permanent solution to the equally permanent jobs crisis.  The case, as I wrote before, can be made with five points:  1) it would prevent a downward spiral in which people would consume less, leading to fewer jobs, leading in turn to even lower consumption;  2) after extraction, manufacturing, and service positions, what’s next would need to be unpaid;  3) in order for markets to work, people must have money to spend;  4) concentration of income into fewer and fewer people means that, given the same average income, fewer goods and services will be consumed;  5) though the cost of such a program would be daunting indeed, much of it would come back from increased tax collections and an end to programs such as welfare, unemployment benefits, the Earned Income Credit, and food stamps. 
Guaranteed income has had a long, though fringe, tradition in economic thought, with advocates from founding father Thomas Paine through senator and sociologist Daniel Patrick Moynihan and conservative economist Milton Friedman.  Its possible varieties could require or not require activity of some sort, and it could vary in amount, from a Spartan survival assurer, as I advocated, to enough to support a middle-class lifestyle.  As for incentive to work, I contended that most people would want things like cars and restaurant meals that a bare-bones stipend would not cover, so there would be plenty of demand for what is and will continue to be a shrinking pool of jobs.  With that, the minimum wage could go away;  if companies wanted to pay people, say, $2 per hour for a position many might enjoy, they could, and they might well find workers for them. 
That is where the paradox comes in.  A higher minimum wage, which of course would apply only to people in areas and with jobs where workers were actually being paid below the new rate, would damage employers already impeded by low demand, and reduce the number of jobs.  When the Florida lottery started in 1988, people called its legal sanction “The Convenience Store Relief Act,” as it helped 7-Elevens and the like a great deal by giving customers new, popular things and getting people in the stores to buy more.  Similarly, and on a much greater scale, a law passing a guaranteed income would help businesses in almost unimaginably enormous ways.  It would allow them to pay their low-end employees less, if that’s all the tasks they were doing were worth.  It would make it cost-effective for businesses to create new positions now unjustifiable at even $7.25 per hour.  It would give them more and more customers who now simply have no money to buy their products.  Perhaps bizarrely, commentators would say later that it was only when we removed the need for people to have jobs that America finally got back to work again.  Positions would find their own level, and the country could even turn into a larger version of parts of North Dakota, with getting a job about as hard as getting a pizza. 
The problem would be the cost, which could get worse as inflation could go up.  But the current situation is not cheap for anyone.  Each 1% of official unemployment costs the federal government $40 billion per year.  The devil may or may not find work for idle hands, but social problems from a lack of jobs are real, becoming entrenched, and spreading broadly.  Could money for everyone be better for businesses than more money for a few?  Odd, but it may be the case, and there has hardly been a more optimum time for Americans to seriously consider unconventional solutions.  When the doors are locked, we may need to get out of the ceiling, and the doors seem jammed well shut to me.      

Friday, February 15, 2013

State of the Union Address, and Response: Too Little on Jobs

On Tuesday, President Obama delivered his State of the Union Address, or SOTU.  (Love these abbreviations!  Once the province of Washington’s hard-core political followers, they’ve reached the mainstream.)  As I said, the POTUS gave the SOTU, as the SCOTUS didn’t declare it unconstitutional. 
Republican Senator Marco Rubio delivered a Republican response, with the expected level of disagreeability.  Although Obama, of course, called for bipartisan cooperation, the two sides seemed as far apart as ever.  The issue of this blog, though, is the number of American jobs.  So what happened to the prospects for improving that?
Obama said that “after” the recession, 6 million had been created.  That is true, only if you start from the very bottom.  During that time the population has increased over 10 million, so that is no great achievement, especially when defined as starting from the recession’s low point.  He spoke of the need to “reignite the true engine of America’s economic growth: a rising, thriving middle class,” and suggested changing the tax code to drop rates for companies creating United States jobs.  He called “a growing economy that creates good, middle-class jobs” “the North Star that guides our efforts.”
Strong stuff, but what specifics did he offer?  Three good, but small, things:
-          Starting “manufacturing hubs” in conjunction with two government departments
-          An infrastructure program to employ people for “our most urgent repairs”
-          An effort to “reward” (method unnamed) schools creating more science, technology, engineering, and math classes indicated through partnerships with employers.
From a jobs perspective, though, his address went sharply downhill from there.  The only thing on the subject he mentioned after that, enough for commentators to call it one of the most important parts of his speech, was advocacy of a large (24%+) minimum wage increase. 
That idea is misguided.  That mandated boost would neither put people into the middle class, nor help a broad-based set of workers, nor lift large numbers of households up out of other than nominal poverty.  It would, though, cut the number of jobs (how many is very much open to debate, but the direction is not), and raise prices through its higher labor-cost component.  A $9.00 minimum would do little or nothing for the workers of New York or Los Angeles, since they are already at or above that level, but it would force employers in lower-cost areas, many of which have unemployment rates higher than in the large cities, to pay more than market rates for workers.  Squeezing companies already short of customers and therefore short of positions is not the way, and surrendering some jobs to make others slightly better is not what the country needs now.   
What was missing in Obama’s speech?  All three of his specific ideas have merit, but the last two were weak.  America’s deteriorating American infrastructure requires far more than addressing what is needed the most.  The American Society of Civil Engineers in 2009 gave its quality a summary grade of D, and the World Economic Forum, between 2005 and 2012, dropped it from first worldwide to 14th.  Obama has shown real interest in bipartisan efforts, and this one should be a natural;  neither conservatives, who don’t want America to fall further by world standards, nor liberals, who are most willing to spend the money, will let our bridges, highways, roads, airports, and electronic connectivity get much worse.
As for science-related jobs, the field is hardly the wide-open hiring area implied by those who say American universities do not produce enough science graduates.  Many want to work in academia, but as of 2009, only 14% of new degree holders in the life sciences were able to get university positions teaching or researching within five years, a share shrinking steadily since 1979, and reports published in 2010 and 2011 show that private industry has not hired enough science doctorates to make the degrees financially worthwhile.  For one example, between 2000 and 2012, American drug companies cut 300,000 jobs, many formerly providing work for Ph.D.s in chemistry.  As a result of poor opportunities, many scientists with doctoral degrees in various disciplines have now been working as low-paid postdoctoral fellows, customarily one- to two-year apprenticeships of sorts, for as long as ten.
So what about the Republican response?  Rubio mentioned two pro-job things, the need for more vocational training and allowing more oil and gas drilling in federal lands, but mentioned his perceived need for corporate tax reduction more than both.  That is not the way to go, either – companies are accumulating enormous amounts of cash, which with their lack of customers, caused by too few jobs, they cannot profitably spend.  Letting them keep more is not a solution.  However, reducing taxes selectively on companies who not only start but maintain jobs in this country could please both sides, and the Republicans have no business not getting behind it.  Just as Obama should promote the number of jobs more aggressively, the Republicans need to focus on that, instead of on wider-scope ideology, as well. 
As of last month, there were 22.4 million Americans who would work if they thought it was available.  A good governmental policy will reduce that number.  In this State of the Union week, in that direction, we did not see enough.

Friday, February 8, 2013

The Sequester, The Country, and Work

The jobs crisis has almost disappeared from the major newspapers, but the prospect of “the sequester,” or an annual average of $120 billion in spending cuts to take effect automatically starting March 1 if no other agreement is made, is now all over them. 
On Sunday a New York Times editorial titled “A Million Jobs at Stake” called the sequester “a mindless government austerity program that no one in Washington seems able to stop,” and cited the Bipartisan Policy Center and the Congressional Business Office projecting it to cause a loss of somewhere between 1.0 million and 1.4 million jobs by the end of 2014.  Republicans, according to the editorial, are willing to let the sequester happen, with their interest in spending cuts allowing tolerance of a seven-month, $55 billion defense reduction.  The piece called for raising money through tax increases, along with “eliminating tax loopholes for energy companies, hedge fund managers, and other high-end recipients of federal largesse.”  Economist and columnist Paul Krugman went even further four days later, calling a current emphasis on deficit reduction “irresponsible and destructive,” and said that “even Republicans admit, albeit selectively, that spending cuts hurt unemployment.”  He compared the prospects of austerity to Ireland’s hard landing and the effect of the ending of the Cold War on employment. 
On the conservative side, Charles Krauthammer wrote in his Washington Post column yesterday that Republicans should insist on the sequester’s total amount of spending cuts, and negotiate only to rearrange them, without any changes in taxes until the reductions take effect.  He said that last month’s fiscal cliff deal had tax increases and no spending cuts, and the opposite, in deference to the $16 trillion deficit, should happen this time.
So what conclusions can we make? 
1). Reductions in government spending do indeed cost jobs, but the government is not a jobs program.  Some of the areas for spending cuts are overdue, in particular cutting some military expenses that even the Joint Chiefs of Staff do not think are justified, and some are past that, such as the recently announced ending of Saturday non-package mail delivery.  There are still plenty of unwarranted government programs, and the sequester, at its best, could force intelligent reductions.
2). Loopholes and waste are not the low-hanging fruit they seem to be.  The tax code has been negotiated over many decades, and in most cases removing legal dodges would have been done already if enough considered it viable.  Much of what seems to be waste is not really that.  There are certainly areas which should be trimmed down or eliminated entirely, but the vision of budgets with obvious pork items, ready to be cropped off, is inaccurate.  Cutting loopholes and waste will call for more work, more tradeoffs, and more negotiation than Congress has seemed capable of.
3). If the sequester does happen and costs many jobs, businesses, and by extension conservatives, will regret it much more than they think.  Counter to what Speaker John Boehner said, companies do not make hiring decisions based on the size of the deficit, they make them on their customers and opportunities.   One million more people out of work would mean one million more people with less money to spend, which will lead to even more unemployment.  We need to remember the laborer who, upon hearing of the 1929 stock market crash, said “serves those rich bastards right,” and lost his job a week later.
4). The deficit is only one gigantic problem America faces now.  True, the $16 trillion is gargantuan, but interest rates are very low and will stay that way.  As of last month, there were over 22 million Americans with no jobs who wanted to work.  Whether you blame Obamacare or not, health care expenses are still going in only one direction, and faster than inflation.  As David Brooks pointed out, new retirees have paid a mean of $100,000 into Medicare and are expected to receive an average of about $400,000 – both numbers inflation-adjusted.  The polarization between left and right, and lack of willingness of either to consider ideas from the other side, is more severe than it has been during my 56-year lifetime, and we have these festering problems and a Congress with single-digit approval ratings to show for it.  At an internationally competitive time when we need to stand together as a nation, too many continue to emphasize race, sex, and sexual orientation over our common identity as Americans.  Overall, the car is sputtering, but there’s nobody taking it to the shop.
So, once again, it’s time to sort out the big issues and start on them.  Perhaps the sequester, if it goes into effect, will make that even more clear.  Yet its damage will be real as well.  Once again, we must think and choose.

Friday, February 1, 2013

January’s Job Data: Official Unemployment Creeps Up 0.1%, but AJSN Jumps to 22.4 Million

This morning’s U.S. Bureau of Labor Statistics Employment Situation Summary started with two statements.  First, that total nonfarm payroll employment rose 157,000 last month, and second, that “the unemployment rate was essentially unchanged at 7.9 percent.” 
Both numbers, though, are seasonally adjusted.  Otherwise, the story is very different.  The total of Americans working fell over 1.4 million, to 141,614,000, and those officially unemployed were up more than 1.3 million, to 13,181,000.  Those neither working nor technically unemployed increased significantly – people reporting being discouraged fell by 264,000 to 804,000, but the level of those who wanted a job but did not search for work for a year or more was at its highest since August, rising 476,000 to 3,728,000. Accordingly, the American Job Shortage Number (AJSN) reached its maximum point since July, up more than 1.3 million, as follows:     
AJSN - JANUARY 2013TotalLatent Demand %Latent Demand Total
Family Responsibilities237,0003071,100
In School or Training352,00050176,000
Ill Health or Disability187,0001018,700
Did Not Search for Work In  Previous Year3,728,000802,982,400
Not Available to Work Now610,00030183,000
Do Not Want a Job83,088,00054,154,400
Non-Civilian and Institutionalized, 15+6,792,10010679,210
American Expatriates6,320,000201,264,000
TOTAL  22,374,210

The number of people working part-time for economic reasons increased slightly from 7.9 million to 8.0 million.     
Once more, we are in worse shape with jobs than before.  The lack of seasonal adjustment overstates how bad a month January actually was, but it was yet another step in the wrong direction.  The holidays are long over, people are back in school, there has been no huge storm or other short-term crisis with significant employment effect, and over 22 million jobs in the United States could be absorbed immediately.  More than 41 million Americans between 16 and 54 are not in the labor force at all, and that number keeps rising.  The job situation is bad and getting worse.  This is where we are now, and there is no reason, given current conditions and current public policy, for it to do anything but deteriorate more.