Tag Archives: minimum wages

Graphing Carefully: Wages and The Way We See Them

Perhaps one of these days we’ll have a serious discussion about wages and salaries during which someone doesn’t abuse charts and graphs.  Not that I’m all that optimistic about the prospect, but I’d be more enthusiastic if more people were better at reading graphs and charts — and not taking the first graph at face value.  Here’s an example.

I print out a graph from one of my favorite sources, FRED, concerning wages and salaries in the United States since 1964.

Average Hours dollar value

Note that the graph is labeled “dollars per hour.”  Looks nice doesn’t it? What could employees possibly have to argue about when the thin blue line climbs upward?  And has done since 1964.  (We’ll leave inflation for another day.)

Wait a minute, we can take the same basic graph, reset the Y axis, to “percent change from the previous year,” and suddenly there’s a declivitous drop in what employees might expect in the pay packet, with ramifications for  financial planning.

Average Hours percent change

Not to mince too many words, but if workers in the 1980s were expecting a general upward trend to continue in the increase in their earnings YOY they’d be sorely disappointed.  This has some implications for financial planning.  If Family A expects earnings to increase over a twenty year period — or thirty in the case of a common mortgage — then they’re probably guessing that the percentage increase in their hourly earnings will be in positive territory on an annual basis — but that’s not what happened.

There’s a third way to look at essentially the same basic data.  Let’s change the Y Axis to “Change from a year ago, dollar value.”  Now the graph looks like this:

Average Hours change YOY

The shaded gray areas indicate recessions.  Notice it took until about 1987 before the trend started to regain lost ground in the YOY “dollars per hour” after the recession in the 1980s.  The current recessionary period was about as long, but note it hasn’t taken quite as long to recover in terms of YOY “dollars per hour.”

If we put the last two graphs together,  we can see a situation in which families can see a trend in which their income from wages as expressed in dollars per hour is “coming back.”  However, what they can’t assume is that  the percentage increase in their income from wages will be as assuring as it was before the recession of the 1980s.

Now, go read the article in Business Insider concerning the acceleration of wages and its implications for Federal Reserve monetary policy.

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Late Night Recommended Reading Roundup

Newspapers glassesThe Nevada Progressive connects the dots in “The Secretive Climate Denial Campaign in Our Backyard.”  The AFP connected to the NPRI, the NPRI connected to the Tea Party, the Tea Party connected to the Republicans, now hear the Words of the Koch Brothers!  Highly recommended reading.

Stay tuned to the Sin City Siren for information about the upcoming Las Vegas, NV hate crime event.  Calendar marking information for those in the area here.

Talk about a business tax is waning in the Nevada Legislature; In case you missed it,  The Nevada View has a good summary, complete with a must see chart on taxation in the Silver State.  Buzzlzarownd discusses tax topics in the current session of the Assembled Wisdom.

L’Affaire Brooks  is covered in the Nevada State Employee Focus blog, and there’s more from Steve Sebelius at Slash/Politics.

Yes, there’s a big difference between deficit and indebtedness, and the Nevada Rural Democratic Caucus blog makes this clear while providing some ammunition with which to push back against the Republican’s Tocsin in regard to the Great Big Horrible Debt Which Will Consume Us Faster Than An A Speeding Meteor… or something.

Speaking of Things Financial:  Begin with the post on Crooks and Liars  about the depredations of HSBC; then proceed to “Call the Waaambulance!” for C&L’s observations on the bankers’ pearl clutching fainting couch landing after being assaulted, I say Assaulted, by Massachusetts Senior Senator Warren.  The Huffington Post describes the whining from Wall Street. Now, read the New York Times article concerning the $35 million settlement agreed to by a mortgage firm that was involved in a six year scheme to prepare and file perhaps a million (or more?) fraudulently signed documents.   Unsettling huh?  If you aren’t sufficiently annoyed by the corporate cavorting over the U.S. tax system — read “The Loophole Lobby.”

What is it that scares Republicans even more than the thought of increasing the minimum wage?  Politicususa has the answer.   And, then there’s the Tennessee Congressional Representative, who during a nostalgic tale of How I Grew Up Self Sufficient Making The Minimum Wage inadvertently made the President’s point for him.  Oh, and by the way, back in the days of the Bush Administration there were 65 Republicans pushing for an increase in the minimum wage. Who’da thunk it.

Then they went on vacation — The Congress is on vacation — again — meanwhile the Violence Against Women Act re-authorization sits awaiting action in the House.  Meanwhile, a prosecutor in Detroit is spearheading efforts to tackle the huge backlog of untested rape kits in police storage.

No, radical gun enthusiasts — Chicago is NOT proof that reasonable controls on guns don’t work.  Look at the Chart.

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Beware of Politicians Speaking of Greeks: Updated

If the current situation playing out in Athens were a melodrama it would be difficult to pick out the protagonists from the antagonists.  The Greeks, after all, gave us these theatrical terms and now we are watching the drama of a Parliament giving in to the austerity measures demanded by the international bankers, Athens on fire, and a host of serious questions unanswered.  [Bloomberg]  Here is a sample:

(1) If we don’t pay down our national debt are we going the way of the Greeks? Quick answer: NO.  Longer answer:  For starters, Greece has the 41st largest economy in the world, if we measure by GDP.  That would put it in the $325 billion range. [CIA] By contrast, the U.S. Department of Commerce estimates that the GDP of California was $1.89 trillion in 2009. [EconPost] Structurally, Greece depends on its public sector (40%?) and tourism, which accounts for about 15% of its total.  Again, the contrast between the two economies, one not even enough to put it into a Top Ten List of U.S. state economies, with the total U.S. output of $12.982 billion (December 2011 GDP) and there is obviously no comparison. [BEA]

A second point should be made for all those who are attempting to compare economic apples with ideological oranges.  Headlines like “US debt now bigger than (fill in the blank with some year’s GDP)” aren’t really helpful.  The point isn’t the size of the debt, it’s the ability to pay it off.  The BBC provides this handy graph:

Now, let’s look at another chart from the BBC report:

If the ratio were the sole determinant, what to make of the fact that the probability of repayment is less for Spain than for the United Kingdom which actually has a higher debt ratio?  The answer lies in the strength and diversity of the underlying economy allowing it to eventually pay off its obligations.

The “budget deficit” part of the graph doesn’t explain the probabilities in graph One either.  Again, Spain has almost the same deficit ratio as the U.K but is above it in terms of probability of payment.  Once more, it’s not the ratios that determine the direction, but the likelihood that the underlying economies of Germany, the U.K, and the U.S. can sustain obligations much more capably than the less dynamic and diversified economies of Italy, Greece, Portugal, and Ireland.

(2) Will austerity measures solve the Greek problem?   Short answer: Maybe.  And, then again maybe not.  Longer answer:  We need to look at the individual austerity measures, and then ask how productive these initiatives might be.  The package calls for (a) a 22% cut in the minimum wage; (b) 150,000 public sector jobs cut by 2015; (c) pension cuts by $370 million this year; and (d) the enaction of laws making it easier to lay off workers, and (e) spending cuts for health care services and defense. [TDJ]

The first question we might want to ask is if the Greek minimum wage was artificially inflated?  What we find is that the comparison of the Greek minimum wage to other European countries is difficult because several like Germany, Sweden, Finland, the Czech Republic, and Italy don’t have statutorily mandated minimum wages.  What the EuroStats information does tell us is that as of 2009, the Greek minimum wage level was comparable to that in Spain and Portugal, but higher than that in what used to be the Eastern European bloc. [EuroStat pdf]

If the Greek minimum wage isn’t already substantially higher than other members of the Eurozone, then what might the impact be of cutting it by 22%-22%?  Here we come to the part where the rubber meets the road and realities diverge from economic ideologies.

For all the glitzy graphs and equally glittering generalities on offer, there is one problem economists cannot solve with their models — there is no way to establish the one, the crucial, and the absolutely necessary, component in scientific research — the control.  It isn’t like we can divide nations into a control group with no austerity programs and no wage cuts, and establish a test group with comparable austerity programs, and then statistically compare the two groups.  Without a control group there is no scientifically definitive way to control for causality, or even to find rational correlations.  And, if we can’t even measure correlations, then we’re left at our starting point — taking economic proposals as articles of faith. [See also: GuardianUK]

One side will propose that creating a more “business friendly environment” with lower wages, lower or no pensions, and more latitude for corporate management will cause economic growth, which will in turn drive increased capacity to meet indebtedness.  The other will argue that depressing consumer spending by decreasing wages will simply serve to drive the economy downward, prolonging the hard times.  [FalseEconomy] At least one major  piece of “meta-research” appears to lend credence to the latter, [IPPR pdf] but without any control we’re still arguing possibilities not statistical probabilities.

(3) Will the Greek problem spread to the U.S?  Short answer: Not necessarily. Longer answer: It depends on the problems in the financial sector.  To test the waters, we might first observe who’s freaking out about the Greek situation?   The answer may be that the more exposure to Greek debt, the greater the possible  Freak Out factor.

1. Spanish government debt exposure to Greece is about $502 million, with a total lending exposure of approximately $1.5 billion.  2. The Swiss government’s exposure is about $529 million, with a total lending exposure of $3 billion. 3. The Belgian government has $1.9 billion, with a total lending exposure of $10.5 billion.  4. The U.S. government has an exposure of $1.94 billion, with a total lending exposure (including private sector) of $8.7 billion.  5. The Italian government exposure is $2.4 billion, with a total exposure of $4.5 billion.  6. The British government has an exposure of $3.96 billion with a total lending exposure of $14.7 billion. 7. The French government is exposed to some $13.4 billion, with a total lending exposure of $56.94 billion.  8. German government exposure totals $14.1 billion, while its total lending exposure equals $23.8 billion.  [BusInsider] * See charts added below.

A quick and dirty analysis would say that the German government has the most exposure to the Greek indebtedness mess, while French bankers are up to their armpits in it.  Banks in the U.S. are much lower in this dubious ranking.  Of the eight countries with significant chunks of Greek debt, the U.S. is among the bottom four.   We might infer from this that the anguish expressed in the United States will be more a function of how major banks perceive the impact of a Greek default on their bottom lines than how much effect a potential default will actually have on the U.S. economy as a whole.

One effect we might well bet on is that should the Greek’s program fail there will be great gnashing of teeth and rending of cloth on Wall Street.   It’s probably safe to predict that the Stock Market would report a drop in stock prices in the event of a Greek failure, as The Herd sees an equally predictable decline in the financial sector’s estimated short term revenues.  The problem in the United States may be to engage in deep breathing while The Herd thunders and panics over its “exposure” and possible consequent decline in bonuses and executive compensation?

Just as the banks securitized every U.S. mortgage on which they could lay hands during the Housing Bubble and then sliced diced and traded the portions in unregulated derivatives to their detriment, they decided to lend some $8.7 billion to the Greeks — which may or may not be paid back.  Bluntly speaking this is more an example of “reduced lending standards” to be endured than a reason for U.S. citizens to pony up any coin of the realm to further bail out institutions which decry regulation while demonstrating exactly why they need it.

Update: The following charts illustrate the numbers provided in the text –

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Filed under banking, Economy, financial regulation