Tag Archives: employment

Amodei’s Wonderland: Wherein Economic Vision Becomes Hallucination

One of the more confusing statements from Representative Mark Amodei (R-NV2) concerns how the Republican Tax Scam will affect the economy:

(Part A) “With respect to the effect on businesses, Main Street job creators will see their tax rates reduced through the lowering of the maximum tax rate on business income to no more than 25%. (Part B) Additionally, federal tax rates on corporate taxable income will see a decrease from the highest rate of 35% to a flat corporate tax rate of 20%. (Part C) Each of these changes will help businesses and corporations expand, hire new employees, increase wages, and also give them the resources they need to stay competitive in the global marketplace.”  [Amodei] (“parts” added for discussion)

Let’s begin with Part A, those “main street job creators” are the high income earners discussed yesterday as be beneficiaries of the Pass Through Loophole.   It really doesn’t matter if the firm’s address is Main Street, 5th Avenue, or Wall Street, the result is essentially the same.  After telling Nevadans not to worry about losing their most popular deductions because not all that many people use them and the new standard deductions will take care of them,  Amodei doesn’t apply the same test to the business and corporate deductions.  That Pass Through Loophole, by any and all other names, has resulted in massive revenue losses in Kansas, the state which imprudently serves as a laboratory for the GOP’s ideological economics.  Let’s not confuse Mom and Pop’s Midtown Market with the capital management firm of Grabbem, Gouggem, & Howe.   Both may “create jobs” but there’s no comparison in terms of how much of a tax break each will receive for having essentially the same number of employees.

Moving along to Part B:  Yes.  At present there’s a plethora of corporate accountants employed to create a situation in which a top rate of 39.1% becomes an effective rate far below that maximum rate.  One study of Fortune 500 companies reached the following conclusions:

  • As a group, the 258 corporations paid an effective federal income tax rate of 21.2 percent over the eight-year period, slightly over half the statutory 35 percent tax rate.

  • Eighteen of the corporations, including General Electric, International Paper, Priceline.com and PG&E, paid no federal income tax at all over the eight-year period. A fifth of the corporations (48) paid an effective tax rate of less than 10 percent over that period.
  • Of those corporations in our sample with significant offshore profits, more than half paid higher corporate tax rates to foreign governments where they operate than they paid in the United States on their U.S. profits.

Now, if they’re starting at 39.1% and getting their taxes down by half or even more at present — imagine what they can do when they start from 20-25% and work their way down?  For example, the “intangible drilling costs” loophole seems not to have closed up at all in the House version, and this while it’s acknowledged that seismic testing has significantly reduced the prospect of drilling dry holes.  The old Depletion Allowance survives as it always does, even if other deductions for mere mortals do not.

Or, consider the creative ways corporations use depreciation.  The House Ways and Means Committee version allows corporations to write off the depreciation for new equipment immediately.  Nice, if one is looking for a way to get from 20% down to a 10% tax rate or less.  [WaPo]  Not to put too fine a point to it, but while mere mortals are expected to absorb the elimination of student loan interest deductions, home mortgage interest deductions, and major medical expense deductions — the corporations go almost untouched.

Part C is unalloyed wishful thinking.  Walter Isaacson observes in his new book about Da Vinci that “vision without implementation is hallucination,” and this GOP canard is an almost perfect example.   Where the Tax Cut Fairy Waves Her Magic Wand wonders ensue — commerce increases, new employees will be hired, employees will have higher wages, and we will be “more competitive.”

Let’s step back from the hallucinations and observe what happens in the real world of employment:

“Service businesses, in which payroll is the major cost of providing the service, can take on higher payroll percentages since the payroll is, in fact, producing the revenue. There is likely to be no other significant cost of services to be provided. In such situations, payroll can reach the 50% mark without destroying profitability. Manufacturers, however, must maintain a payroll figure closer to 30% or less as the business must endure the cost of manufacturing the widget plus the payroll. Same with restaurants, given the high cost of food the payroll must stay under thirty percent.”

In order to lend any credence to the overblown rhetoric of GOP apologists for reducing corporate taxes and enacting pass-through loopholes, we have to merge all hiring from all sectors into one grand lump.  No matter the tax rate, what really matters is that the widget factory can keep its payroll allocations to 30% or less of its costs.  Nor can we argue that the sector with the highest payroll allocation, “service,” is all created equal.  This tertiary sector includes everything from health care to banking to education, to media and communications.   At the risk of continuous redundancy, the tax rate doesn’t determine payroll allocation — no one will be hired to do anything unless there is a demand for the goods or services beyond the capability of current staffing levels to deliver an acceptable level of consumer or client satisfaction.

Employees will have higher wages if the corporation gets a tax cut?  Probably not.  We can wade into the deeply arcane economic theoretical weeds and talk about the relationship between labor costs and tax liabilities, but let’s keep our feet on the ground instead.

Nevada has a fairly unique economy given one of our major sectors is “hospitality,” (or how to house, feed, and amuse people whom we want to leave behind large sums of money) establishments.  Therefore, there’s nothing surprising about finding out that we’ll need about 191,141 people working in food service in 2018; a growth rate of 2.8% with about 5,048 new positions expected. [DETR download]  The mean wage for food service workers is $12.74 per hour.  Most dealers are earning about $8.57 plus tips.  What will drive up food service and dealers’ wages?  Which is more likely to drive increases in food services wages: (a) more customers or (b) a bigger tax cut for corporate headquarters?

If you answered “b” then you are willing to wait for the calculations to be completed concerning how much the corporation should allocate for payroll expenditures, and then try to bank the results from this theory:

“Why would anyone think slashing corporate tax rates would increase workers’ wages in the first place? The theory endorsed by the CEA relies on three steps to get from corporate tax cuts to higher wages. First, the corporate tax cut increases companies’ after-tax returns on investment. As a result, firms will make more investments in plant and equipment than they would in a higher-tax-rate environment. Second, greater investment by firms leads to higher productivity by the workers who put those investments to work. Third and finally, workers will receive increased wages in line with those productivity gains.” [vox]

And, if you believe this I have a lovely bridge over the Humboldt River to sell you.  Why? Because corporations can do lots of other things with those savings — higher executive compensation, mergers and acquisitions, stock buy backs, and dividend payments.

Short Form:  Representative Amodei’s analysis requires redefining “job creators,” as those titans of the financial system who don’t necessarily become those doing the hiring; and requires disconnecting wages and salaries from the accepted wisdom about payroll allocation; and, means a person has to roll the dice and hope that the corporation trickles the money down to the counter-man.  In Isaacson’s parlance:  It’s vision without implementation.

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Filed under Economy, Nevada, Nevada economy, Nevada politics, Politics

Income Inequality Matters for Nevada’s Children

child poverty

We ought to be embarrassed.  The Kids Count Data Book 2015 edition is out, and the numbers aren’t pretty.

“Nevada ranks 47th among states in overall child well-being, up one spot from last year. The study found that Nevada ranks 43rd in family and community development indicators, like children living in high-poverty areas; 46th in health statistics, like low birthweight babies; 46th in economic well-being, including parents lacking secure employment; and 50th in educational achievement, including 69% of Nevada’s children not attending pre-school.” [LVSun]

Yes, there we are, ranked down there with Louisiana, Mississippi, and New Mexico.   Overall, things aren’t looking up for children, and there’s an explanation:

“Although we are several years past the end of the recession, millions of families still have not benefited from the economic recovery,” Patrick McCarthy, president and CEO of the Casey Foundation, said in a statement. “While we’ve seen an increase in employment in recent years, many of these jobs are low-wage and cannot support even basic family expenses.” [LVSun]

And why might this be a correct assessment of the situation? There has been income growth since the end of the Great Recession, but the recovery has benefited those at the top –thus much for anything trickling down:

“The states in which all income growth between 2009 and 2012 accrued to the top 1 percent include Delaware, Florida, Missouri, South Carolina, North Carolina, Connecticut, Washington, Louisiana, California, Virginia, Pennsylvania, Idaho, Massachusetts, Colorado, New York, Rhode Island, and Nevada.” [EPI]

Nevada has made some improvements – if bouncing off the bottom is an indication of progress – in health, for example, 5% fewer children are without health insurance, and education in which 69% of our kids aren’t attending pre-schools, up from a previous 72%.  But, the economic picture is bleak at best.  23% of the youngsters live in poverty, 34% are in families experiencing what’s euphemistically called “employment insecurity,” and 39% of the kids live in a situation in which housing costs are eating up the family budget.  [AECfnd]

If we tread deeper into the income inequality waters we can see why the numbers for Nevada youngsters didn’t improve. Here’s the answer: “In four states — Alaska, Michigan, Nevada and Wyoming — average income increased exclusively for the top 1% and declined for the bottom 99%.” [247Wallst]  So, in the Silver State, not only did all the income growth get sucked up by the top 1% during the recovery, but the bottom 99% actually saw their incomes decline.

Most analyses get the first part right.  In the last downturn the bottom fell out of the construction sector in Nevada; the housing bubble burst, and employees were laid off.  Laid off employees have less discretionary income to spend, and less income equates to fewer purchases.  Fewer purchases yield less economic activity in the community, and everyone starts to go down hill.  When we get to the middle part of the explanation some analysts start getting fuzzy.

First Law of Staffing

The question in the middle is how to encourage more employment.  For the umpteenth time here’s the answer:  There is no rational reason to hire anyone to do anything unless the DEMAND for goods and services is greater than the capacity of current staffing levels to provide an acceptable level of customer service.  Amen. Again.

The Small Business Chronicle offers some very sound advice which expands on this generalization.  Their five step process asks: (1) Are your projects or other business activities getting done on time? If yes, then you probably don’t need any additional employees. If no, or the business is thinking of more marketing to drive up revenues then ask (2)  if you were to increase your marketing efforts could your present staff handle the additional work load? The next step (3) is to look at your overtime records. One sure sign that the business is understaffed is increased overtime from current employees.  In the first step the business owner gauged the project or work time, in the next (4) step it’s important to look at the issue from the customer or client’s perspective – if the business is monitoring customer wait time and it seems (or is reported to be) excessive, then the business is understaffed. Finally, in Step (5) a savvy business owner will determine if the increases in demand are continual or seasonal. If seasonal, then temporary employee hiring may be the solution.

What’s not under consideration here?  The advice offered above didn’t include a question about whether Nephew Lester needs a job. Familial ties are wonderful, but they don’t constitute a reason to hire an employee.  Hiring veterans is a healthy business practice – but again, no matter the benefits, if his or her skills aren’t necessary to get things done or made on time, and if a barrel of overtime isn’t on the current books, there’s no rational reason to make a new hire.  Tax breaks for hiring the unemployed are fine – but just as in familial or socially beneficial cases, there’s NO reason to hire anyone for any tax break if there is insufficient good old fashioned demand for the products and services.   It’s at this point that the conservative, trickle down, no new taxes, barrage of talking points becomes almost ludicrous.

tax incentives accounting There is a wonderful leap of logic, stretching that term to its extrapolated limits, in asserting that more tax incentives, tax breaks, tax forbearance, tax limits, tax deductions, and tax treatments will magically yield more employment.   What is required is to believe that if a company is more profitable it will automatically hire more people.   Yes, a more profitable firm is capable of hiring more but NOT if there is no increased demand for the goods or services.  A more profitable firm has the potential for more hiring – but not if it is corporate policy to put more effort into mergers and acquisitions than into actual plant expansion. A more profitable company may hire additional workers but not if the firm has decided that it will put its revenue into stock buy-backs, dividends, or management compensation. Potential may be a powerful argument, but unless it is translated into a realistic appraisal of company or corporate intentions and vision it’s as ephemeral as a fruit fly.  And it’s not really useful for putting food on the table for the kids.

And, now we return to the economic problems of children. If the jobs available for their parents are seasonal, temporary, or permanent but low wage then all the job “expansion” in the nation isn’t going to improve their prospects.

Seasonal employment is relatively easy to understand.  It’s everything from harvest time to Christmas sales.  The sector of the labor market into which more parents are finding themselves is the temporary work force.  About 75% of Fortune 500 firms are relying on third party logistics companies to handle their warehousing, and employment in transportation and materials moving and production now accounts for some 42% of temporary hiring. [NELP]   The advocates of temporary hiring note that only about 3% of the workforce is on temporary status, which is true but doesn’t include the fact that temporary employment grew from just a bit over 0.5% in 1983 to over 2.5% as of 1999. [BLS] Further, the trend is increasing as this graphic from Staffing Industry illustrates in YOY growth from 2013 to 2015:

temp jobs trendsAs this sector of the labor market increases the “employment security” of parents becomes more tenuous.  As long as this trend continues we’ll likely find more youngsters in that “parents lack secure employment category.” 

There’s no reason to believe that corporations in Nevada are functioning any differently than those in the rest of the country in terms of staunch adherence to the Shareholder Value Theory of Management, the interest in mergers and acquisitions rather than plant expansion in general, and the interest in utilizing temporary labor for logistics, warehousing, and service jobs.

In sum, there’s no rational explanation for hiring (temporary or permanent) which doesn’t relate directly to demand – and there’s no reason to expect demand to increase if the jobs created are temporary, low wage service or retail sector, and with reduced hours or misclassification of employees. Meanwhile the kids need housing, clothing, food, medical attention, and school supplies.

We ought to be embarrassed, but we probably won’t be until we can shake the 1% awake to the fact that profitability doesn’t necessarily equate to employment. To the fact that potential employment isn’t actual employment. To the fact that temporary employment isn’t secure employment, and to the fact that taxation has precious little to do with hiring the parents of Nevada’s children.

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Filed under Economy, family issues, Nevada economy, Nevada news, Nevada politics, poverty, Taxation

A Little Common Sense and Economic Literacy Required

The GOP filibuster of the bill to extend unemployment insurance benefits for “long term” unemployed people was broken by a 60-37 vote in the U.S. Senate [vote 2] with both Nevada Senators voting in favor of the cloture motion.  The bill will now move over to the House side where passage is less certain.

While Senator Heller (R-NV) is anxious for us to know that he’s “still a conservative,” [WaPo Fix] he’s also representing a state with a heavy 3.9% long term unemployment rate.  [BusinessInsider]

How They Voted – States with 3% or higher long term unemployment

Rhode Island  4.1%   Reed (D) Whitehouse (D) Yes

Nevada 3.9% Reid (D) Heller (R) Yes

New Jersey 3.9%  Booker (D) Menendez (D) Yes

Illinois 3.7% Durbin (D) Yes Kirk (R) No

California 3.7% Boxer (D) Feinstein (D) Yes

Mississippi 3.6% Cochran (R) Wicker (R) No

North Carolina 3.6% Hagan (D) Yes Burr (R) No

New York 3.5% Gillibrand (D) Schumer (D) Yes

Georgia 3.5% Chambliss (R) Isakson (R) No

Florida 3.3%  Nelson (D) Yes  Rubio (R) No

Michigan 3.3% Levin (D) Stabenow (D) Yes

Pennsylvania 3.0%  Casey (D) Yes  Toomey (R) No

South Carolina 3.0% Graham (R)  Scott (R) No

These “no” votes make no economic sense.   First, we ought to look at some of the statistics related to unemployment in this country.  The BLS report for November 2013 on characteristics of those unemployed show that of the 10,271,000 unemployed persons in the U.S. 5,400,000 were those who had been laid off or who had finished temporary jobs.   For some 4,448,000 these were not temporary lay offs.  3,329,000 were permanent job losses.  1,160,000 were those who had completed temporary jobs.

Secondly, we should look at where the jobs are increasing.  The last comprehensive report issued in November shows some pockets of economic activity which aren’t promising.  For example, in the health care and services category showed increases in most subcategories, approximately 4,000 nursing home care jobs were lost. [BLS]   While mining and logging showed general growth, support services for mining were down 3.1%.  The manufacturing sector slugged along, with significant employment up for motor vehicles and parts, up 6.7%.  Transportation equipment manufacturing was up 4.9%, and fabricated metal products related employment increased by 3.1%.

In the retail sector of the U.S. economy there was more mixed news.  Employment in electronics and appliance stores down 3.6%, in food an beverage stores down 5.4%, in health and personal care stores down 3.4% in a sector which showed an overall 22.3% increase Oct/Nov 2013.  [BLS]

The mixed news created the chart below, indicating that while employment levels were generally higher, this wasn’t necessarily good news for those who were among the long term unemployed (longer than 26 weeks.)

Duration Unemployment 2013Looking at some of the other labor data could indicate some of the employment sector weakness facing the long term unemployed.  Unemployment rates in the construction sector, while far better than in 2012, were still at 8.6% as of November 2013. [BLS]  The unemployment rate in the leisure and hospitality sector was still above the national average at 9%, and unemployment in the agricultural sector was at 9.7%.

Given a situation in which there hasn’t been enough job creation in significant sectors, and in which while employment has generally improved, there remain pockets of losses, and what we don’t want to create are more “discouraged workers.”

BLS Table A-16 puts paid to the conservative theme that the unemployed are sitting on the stoop swilling beverages of choice and “taking” a living from “hard working Americans.”

Discouraged Workers 2013The number of Americans “marginally attached” to the labor force declined from 2,505,000 in 2012 to 2,096,000 in 2013, meaning that there was a decrease in the number of persons “who want a job, have searched for work during the prior 12 months, and were available to take a job during the reference week, but had not looked for work in the past 4 weeks.”

There was also a decline in the “discouraged worker” category, from 979,000 in 2012 to 762,000 in November 2013.   Discouraged workers  are categorized as “those who did not actively look for work in the prior 4 weeks for reasons such as thinks no work available, could not find work, lacks schooling or training, employer thinks too young or old, and other types of discrimination.”  These people obviously didn’t drop into the infamous “other category” because those numbers also declined.

Others is a category which “Includes those who did not actively look for work in the prior 4 weeks for such reasons as school or family responsibilities, ill health, and transportation problems, as well as a number for whom reason for nonparticipation was not determined.”  Those numbers dropped from 1,526,000 to 1,334,000 between November 2012 and November 2013.   It’s truly hard to argue that people are willing to avoid work when even at a point at which there are three applicants for every single job available those who have only the most tenuous connection to the labor force are demonstrating a reduction in their numbers.

When the numbers of “marginal, discouraged, and ‘other'” workers are dropping people are obviously NOT willing to accept “dependency” on the government for their income.

If we are truly interested in improved economic growth then we’d be well advised to take both some long term and short term measures to develop it.

Short term activities should include extending unemployment insurance benefits so that people have the wherewithal to continue to seek work.  No one is giving away gasoline to get to job fairs and interviews.  Further, (once more will feeling) such benefits act as a automatic stabilizer for the economy, keeping spending levels from gyrating wildly in times of economic instability.  DB’s been on this topic at least since April 2011.

Long term investments in infrastructure rehabilitation and construction would go a long way toward providing employment to meet short term needs in the construction sector and long term necessities for economic activity.

However, there may be little hope that the 233 Republicans in the House of Representatives (112th Congress) will manage to throw off the shackles of ideology.  We know that Trickle Down Economics is a hoax.  We’ve had thirty years of it.  We know that tax cuts don’t “boost the economy;” had this been the case the Bush Administration would have been wildly successful.  We know that deregulation produced one amazing financial sector collapse. And, we can see from the BLS statistics that unemployed people are leeches on the body politic.

However, all this information and experience didn’t prevent 37 Republican members of the U.S. Senate from voting to sustain their filibuster of the bill to extend unemployment insurance benefits to the long term unemployed — including some from the states which could have definitely benefited from the legislation.

Common sense and a modicum of economic literacy are in order.

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The Crisis Factory goes Dancing With the Debt Fetish

Marathon DancersOne of the little problems with the Politics of Hyperbole is that eventually someone may notice not every minor annoyance constitutes an emergency.  Not even every major issue is an emergency.  However, nothing has prevented the radicals from manufacturing crisis after crisis in order to monopolize the conversation and distract this country from some very real issues we need to address.

The Distractions

Pillar OnePeople are in imminent danger of becoming dependent upon government.   Hogwash. Only the most extreme social libertarian would contend that having police, fire, and emergency medical personnel creates “dependency,” and how foolish does a person have to be to argue that we don’t need public health inspectors?  Further, if we allow for the old saws that two “heads are better than one,” and “many hands make light work,” then we know there are many tasks at which we do much better when we work together: Building roads, dams and bridges; Conducting relations with foreign countries; Protecting our citizens from or responding to natural and man-made disasters; Promoting our national economy.  And the list goes on.  Or, to introduce yet another well known concept:

“No man is an island,
Entire of itself,
Every man is a piece of the continent,
A part of the main.
If a clod be washed away by the sea,
Europe is the less.
As well as if a promontory were.
As well as if a manor of thy friend’s
Or of thine own were:
Any man’s death diminishes me,
Because I am involved in mankind,
And therefore never send to know for whom the bell tolls;
It tolls for thee.” — John Donne (1572-1631)

Pillar Two: People are burdened by an unconscionable level of federal debt.   This argument is extremely convenient for those who have another agenda — cutting spending on domestic programs with which they are in fundamental disagreement.  The proposition requires adopting a variation on the White Queen’s belief in “six impossible things before breakfast.”

The United States is the most powerful nation, with the most powerful economy in the world.  China’s GDP is $8.227 trillion; U.S. GDP is $15.68 trillion.  Therefore, it is necessary to manufacture PERIL in order to substantiate the claims that we are burdened by indebtedness such that we cannot afford to (fill in the blank with the program one wishes to dismantle).   There are some real issues, just not the ones usually cited in the conservative press.  For example:

The Trifflin Dilemma Peril:  “He pointed out that the country whose currency, being the global reserve currency, foreign nations wish to hold, must be willing to supply the world with an extra supply of its currency to fulfill world demand for these foreign exchange reserves, and thus cause a trade deficit.”  Translation – The stronger the nation the more likely other nations are to want to invest in it, and the more other nations invest in it the more vulnerable the nation becomes to foreign influences on its economy.

A variation on the Trifflin Dilemma often shows up in the conservative media in the form of a new version of the old obnoxious  Yellow Peril argument — What if China called in its investments?  They could OWN us.  Instead of rewriting the posts, this topic has been discussed at more length in “The Republican Debt Wish” (2006), “Something to Think About,” (2008) and “When Willful Ignorance Meets Economic Reality,” (2011).

One one of the consequences of paying attention to the debt, as opposed to focusing on the economic growth which facilitates the repayment of those obligations, is dangerous in itself, as explained by Nobel Prize winning economist Joseph Stiglitz:

“The fundamental problem is not government debt. Over the past few years, the budget deficit has been caused by low growth. If we focus on growth, then we get growth, and our deficit will go down. If we just focus on the deficit, we’re not going to get anywhere.

This deficit fetishism is killing our economy. And you know what? This is linked to inequality. If we go into austerity, that will lead to higher unemployment and will increase inequality. Wages go down, aggregate demand goes down, wealth goes down.” [HuffPo]

Pillar Three: The free market will cure all ills.   When pressed to explain why, for example, the Affordable Care Act, is so onerous, the right is often moved to propose that the “free market” could have solved all the problems associated with health care insurance situation in the United States.

The first question we need to ask in regard to this contention is: Are we using the right tool from the box?  Consider your utensil drawer in the kitchen.  Does it contain at least one table knife, bent at the tip because it was pressed into service as a screw driver or as a lever?  Like the trusty table knife, the free market is an excellent tool for delivering the goods and services we require, but there are some tasks for which is it simply not the best implement to apply.

We could apply the free market to our transportation system by privatizing all our now public roads and charging tolls for their maintenance and use — however, we need to calculate the cost to our economy of raising costs for the factors in our transportation sector.  In this instance, the cost to the trucking industry is a negative factor in economic growth, and it is better policy to “subsidize” the industry by providing well maintained roads and functional bridges to secure the benefits of our economy.

Since we accept that corporations should operate for a profit, then in the realm of health care insurance it makes good free market sense for the company to insure only healthy persons (certainly not those with pre-existing medical conditions, or those who are elderly) and to keep those medical loss ratios at the lowest possible level.  In short, if we allow the free market to function in its purest form in the delivery of health care, then we should rationally expect that the least costly services will be provided, to those who need the least service.  Sometimes it’s really not about the money.

We can quantify the economic contribution of a father or mother in the family, but that doesn’t determine his or her value.  We don’t calculate a cost-benefit analysis in order to decide on marriage. We can quantify the economic contribution of roads, bridges, and airports, but that alone doesn’t determine their value to us.  We can quantify the benefits of education in terms of test scores, but we can’t determine how a person will synthesize information accumulated from the arts and from engineering to determine the best design for a marketable household appliance.

Focus Please

There are issues we need to address, most of which have profound implications for our economy. Among these are:

#1. Global climate change.  This isn’t “lib’rul hype;” this is about living on a planet capable of sustaining human life. Yes, if we foul our nest, the planet will probably last another 6 billion years, but WE won’t.   The 2007 University of Maryland study (pdf) projects economic impacts in terms of agriculture, energy, and transportation; in terms of our eco-system; and, in terms of water and infrastructure elements.   The fifth assessment from the IPCC released recently should convince all but the most delusional that WE are the problem.

The conservatives continue dancing with the Debt Fetish

#2. Student Loan Indebtedness.  If we’d really like to have young people start contributing to our economy, especially in regard to consumer spending, then it would be nice if they had more unencumbered income with which to do just that.  The Wall Street Journal calls the current situation the “Student Loan Straitjacket.”

The conservatives continue to dance with the Debt Fetish, but “What of the debt for our grandchildren?”  Flash Dispatch to the conservatives — These ARE our grandchildren.

#3. Infrastructure issues.  It isn’t like the American Society of Civil Engineers haven’t been trying to get our attention.  The National Report Card is not pleasant or reassuring reading — but it should be read, and we should be paying attention.

The conservatives continue to dance with the Debt Fetish.  How do we pay off any portion of the debt if our physical infrastructure is so dilapidated as to impede the progress of our distribution systems?

#4.  Employment. Of all the associated issues this is the most central.  We could be putting people in the construction sector back to work if we could enact funding for infrastructure projects.  We could be putting people to work in alternative energy projects… We could be putting people back to work in new jobs in new manufacturing sectors.  However, we are still dancing with the Debt Fetish…

…and like the marathon dancers of the Depression Era we will proceed having put a great deal of effort into endeavors promising very paltry results.

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Filed under Economy, Politics

The Numbers Are Nice, What About The People?

Construction project7.5% unemployment sounds good.  If Nevada’s numbers follow the national trend then we’d expect another decrease in statewide unemployment, also a good thing.  However, we need to temper our enthusiasm with a nod to some other numbers which aren’t quite so reassuring.

Not all employment is created equal: “The workweek fell from 34.6 to 34.4 hours.  As a consequence the index of aggregate hours worked fell -0.4%, offsetting last months 0.4% increase.”  [AB] [BLS table B4] It’s fine to have more people working, but if they are working fewer hours then the amount of spending those families can afford doesn’t move the needle in terms of aggregate demand.

Not all wages are created equal:  There’s weakness in average hourly wages as well. Average hourly wages were $23.42 in April 2012 and a year later they’d ticked up to $23.87 — insufficient to keep up with inflation. [BLS Table B3] Leisure and hospitality wages, which are of interest to Nevadans, averaged $13.35 per hour in April 2012 and increased to an average of $13.42 as of April 2013. [TableB3] Rather an underwhelming increase.

Public Sector employment remains weakened:  For the “Drown Government in a Bath Tub” crowd this is taken as good news, but the problem is that public sector employees are also consumers and their contributions to aggregate demand are declining.  Overall employment at all levels was down 11% since March 2013.  This figure breaks down to a decline of 8% in federal employment, a 1% decline in state workers, and a 2% decrease in local government employment.  [BLS TableB1] At some point in the discussion we need to ask just how small the bathtub is supposed to be?

If we exclude radical libertarian ethereal musings about an entirely privatized system in which we all drive on toll roads the moment we leave the driveway, or all hire our own security and fire protection services, and all our schools, libraries, parks, and public health services are for-profit institutions in which you can get only what you can afford to pay for — then we need to specify which public services we expect, and what level of service is acceptable.  How long are we willing to wait for our IRS tax refund checks?  How long is an acceptable response time for police and fire calls?  How many days should the library be open?  How many children in a single classroom are acceptable?  How long should it be between health inspections in work places, medical service providers, restaurants?

Not all jobs are creating assets:  The Construction sector continues to be weak, with YOY nonfarm payroll numbers down 6%, with residential construction down 6.2% and non-residential construction off by 4.8%.  Heavy construction and civil engineering was down 3.8% since last March. [BLS TableB1]

Given the state of our nation’s infrastructure the decline in heavy construction and civil engineering projects is particularly disturbing.  The President’s Rebuild America Partnership proposal remains mired in Congressional inattention, and partisan bickering.  S. 387, a bill to establish an American infrastructure investment fund was introduced in the Senate last February, and now sits in the Senate Commerce, Science and Transportation Committee.   The website for this committee doesn’t show any hearing scheduled for this bill to date.

One of the nicer features of infrastructure investment is that it is a Win-Win proposition; engineers, contractors, and their employees get paychecks and the contracting agency gets valuable assets enhancing the unit’s overall financial position.  Senate inaction, exemplified that the body only managed to pass 2% of the bills put before it so far, isn’t helping our economy by assisting in the creation of construction sector jobs or by aiding the financing of public agency assets.

Not all jobs are full time:  Full time employment is obviously distinct from long term temporary or contracted employment.

What’s changed in the last 20 years is that there’s been an unraveling of job security in the labor market, as well as a diminishment of benefit packages and a deterioration of stable, reliable wages and promotion pathways,” said Katherine Stone, a law professor at the University of California, Los Angeles, and labor specialist. “There’s been a really fundamental shift in the nature of employment — it’s a sea change. Whether you’re talking about the expanded use of short-term employees, temporary workers, project workers, contractors or on-call workers, the use of workers who don’t have regular jobs has increased a lot.”  [CBS]

Regular, traditional long term employment, increases the inclination to secure more expensive long term assets — durable goods and housing. The employment numbers may mask a situation in which we have more people employed, but not in jobs that induce them to make personal investments in durable goods or in long term housing.  While independent contractors may, indeed, prefer project to project employment — there’s the other 50% of temporary workers who would prefer full time employment.

In April, the number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) increased by 278,000 to 7.9 million, largely offsetting a decrease in
March. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.  (See table A-8.) [BLS]

The good news from the unemployment report this month is offset by weakness in the wages and hours figures, nor is it enhanced by the acknowledgement of continued weakness in the construction sector and the inattention to our infrastructure investment needs.  Additionally, we need to carefully monitor the trends toward temporary job creation as compared to more permanent jobs created as a result of increased aggregate demand.

Congress could help.  It could, for example, take up the American Jobs Act instead of attending to a plethora of ceremonial votes to “repeal Obamacare,” and continue its “War on Women.”  The Senate could assist by scheduling hearings and giving consideration to S. 387.

If we’d like even more optimistic news on the economic front it will probably be up to American citizens to insist that our federal legislators focus on JOBS, JOBS, JOBS.

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Filed under Economy

The Post Which Should Not Have To Be Written: Labor Participation Rate in the U.S.

Presidential candidate Willard Mitt Romney:

“So it looks like unemployment is getting better, but the truth is, if the same share of people were participating in the workforce today as on the day the president got elected, our unemployment rate would be around 11 percent,” said Romney. “That’s the real reality of what’s happening out there.” [ABC]

First the birthers, and now the jobbers.  After campaigning vigorously on the theme the President’s economic policies are failures because the unemployment rate was 8% or above, when the BLS reported a downtick to 7.8% the GOP found it incredible.

Candidate Romney may be referring to the labor participation rate, also calculated by the Bureau of Labor Statistics — which some of his surrogates are now disparaging.   The labor participation rate in November 2008 was 65.8%, admittedly higher than 63.6% in the latest report.  However, it was 66% during the month before the 2008 election.  In fact, as the chart indicates, the labor participation rate has been steadily declining since January 2007.

There is also the “Alternative Measures of Labor Underutilization” report, otherwise known as Table A-15.  U1 refers to those who have been unemployed for 15 weeks or longer as a percentage of the civilian labor force; in September 2011 the number was 5.3%, in September 2012 the number dropped to 4.3%.  How about the U2’s — those who have completed temporary jobs and are now looking for work?  In September 2011 the number was 5.2%, in September 2012 the number reported was 4.2%.

Well, maybe it’s in the U4 number, since they didn’t like the 7.8% in the U3 numbers?  In September 2011 the U4 percentage was 9.6%; in September 2012 the U4 the percentage dropped to 8.3%.  OK, if it’s not the U4, then how about the U5 numbers?  U5 reports the unemployed plus discouraged workers, and in September 2011 the U5 figure was 9.6%, by September 2012 the percentage dropped to 9.3.

OK, if it’s not the U1, the U2, the U4, or the U5, maybe it’s the U6? (That’s the number of people who aren’t working for any reason.)  Nope.  The U6 report for September 2011 was 14.8%, dropping to 14.7% by September 2012.

Click on the image to go to the original chart:

In short, no matter which numbers one reports the figures illustrate what we’ve known all along.  Employment is a lagging indicator.  And, those who live in a fact-free universe are often reduced to conspiracy theories to refute news they’d rather not hear.

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Filed under 2012 election, Economy, employment, labor, unemployment

Be careful with questions, they often have answers

Fresh from a convention which dramatically promoted Bold New Ideas from the Nineteenth Century, the ever-innovative GOP has a NEW question for the 2012 campaign — Are you better off than you were four years ago?  Somehow, I think perhaps I’ve heard that before somewhere… oh, I remember, 1980?

And the answer is a resounding YES.  If we are speaking in general economic terms, we are much better off, and trending in the right direction.  Taking one of the most general measures, the Gross Domestic Product, things are looking much better than they were in late 2008 – early 2009.

Now, let’s add some highlights to the same graph:

We get a bonus in this category, not only do the figures indicate we are better off in terms of the improvement in our Gross Domestic Product, but the ARRA appears to have mitigated the worst impact of public sector layoffs, strain on the automatic stabilizers, and problems in the construction sector.

What about employment?  We’re better off in that economic category as well:

Taking a purely Cartesian view of the graph above shows the “numbers” moving from the 3rd Quadrant wherein all things are negative to the 1st Quadrant in which all things are positive.  However, it’s not necessary to have been thrilled to sit in Algebra II in order to observe that in terms of employment the situation is much better than it was in late 2008.

So, why doesn’t it FEEL better?  The CBPP offers this explanation —

“Although employers began to add jobs in 2010, the economy has recovered only about 4 million of the 8.7 million jobs lost between the start of the recession in December 2007 and early 2010. As a result nonfarm payroll employment was 3.4 percent (4.7 million jobs) lower in July 2012 than it was at the start of the recession.” (emphasis added)

A rough analogy might be that we’re economic “sophomores,” one of the traditionally  more difficult years in high school — and the year in which the oldsters now were then parked in that Algebra II class — we knew we weren’t lowly freshman anymore, but the “end” looked to be off in some distant horizon unreachable in human terms.  We obviously have some work to do to get back to pre-recession employment levels.

Another reason the economic situation may not “feel” as good as the days before the Wall Street Wizards drove the American economy into a very deep ditch is that the jobs lost tended to be middle income level,  while the jobs gained tend toward the lower end of the pay scale.  There’s a chart for that, too, from the National Employment Law Project:

Readers preferring the numbers will note the NELP study showed: “Lower-wage occupations constituted 21 percent of recession losses, but 58 percent of recovery growth. Mid-wage occupations constituted 60 percent of recession losses, but only 22 percent of recovery growth.  Higher-wage occupations constituted 19 percent of recession job losses, and 20 percent of recovery growth.”  (emphasis added) See also: NYT.

What American workers are facing is called “job polarization,” as Catherine Rampell explains in her NYT article:

“Job growth has been concentrated in positions that tend to fall into two categories: manual work that must be done in person, like styling hair or serving food, which usually pays relatively little; and more creative, design-oriented work like engineering or surgery, which often pays quite well.

Since 2001, employment has grown 8.7 percent in lower-wage occupations and 6.6 percent in high-wage ones. Over that period, midwage occupation employment has fallen by 7.3 percent.”

Those mid-wage jobs lost tended to be in manufacturing in which automation and off-shoring account for considerable, and permanent, job declines and public sector employment for teachers, law enforcement personnel, firefighters, and other middle class wage level public employees.  [NYT ] Down-sizing government means hiring freezes, or layoffs, and the loss of those wages recycling back into the economy.  To borrow a GOP analogy — it’s not hard to reduce the size of government until it could be drowned in a bath tub — BUT we’re draining those wages out of the economy along with the reductions.

Yet another reason for the bind in middle income jobs is that the construction industry still hasn’t recovered from the Housing Bubble puncture.  Construction sector employment peaked in January 2006 when banks were still happily handing out mortgages of questionable terms and provenance in order to sate their appetite for more fodder to create highly profitable asset based securities and their derivatives.   In numerical terms, the Bubble Collapse and subsequent recession eliminated approximately 2.21 million construction sector jobs. [CalcRisk]

The Prescription:  If we accept three fact-based propositions in regard to the employment bind the policies necessary to address the real issues becomes more clear.  (1) The reality is that the economic pit into which we tumbled was deeper than advertized.  (2)  Most of the jobs lost tended to be middle income employment. (3)  Those middle income jobs tended to be in the public sector and in the construction industry.

In order to address these three realities any “jobs” plan presented by any politician should (1) seek to halt the decline in public sector employment of teachers, police officers, firefighters, and public service personnel who live and work in communities which need their economic contributions to sustain their economies.  Contrary to the half-baked but often served conservative image of The Greedy Public Employee munching vigorously at the trough — these are people who pay taxes, make mortgage payments, purchase automobiles, shop at the local grocery, buy furniture, and otherwise contribute to local economies.

A real “jobs” plan should (2) immediately and directly address the situation in the construction sector.  There is a real opportunity here to reprise our Greatest Generation and repair, replace, or maintain the physical legacy of their efforts especially in terms of our infrastructure.  We have construction companies seeking to bid for infrastructure related contracts, workers ready and willing to work to complete those contracts, and an almost unconscionably long list of roads, bridges, dams, water treatment facilities, airport facilities, and sewer treatment plants that demand renovation.

A real “jobs” plan should (3) acknowledge that some of the manufacturing jobs of old are not coming back, and that in order to promote industrial growth we need to look to new technologies and offer greater support for innovation.  We dismiss new alternative energy technologies at our peril, because while some Republicans are dismissing solar and wind tech as “passing fads” the Germans and the Chinese are investing in them such that they will be permanent and profitable segments of their economies.

The answer to the question is YES, we are better off than we were four years ago, and YES we could be doing better.  The answer is definitely NOT to “elect a Republican, give the top 0.1% another big tax cut, and hope the Chinese and the Germans see the ‘error’ of their ways.”  Such a response is the economic policy equivalent of telling the patient to take two aspirin, and to ignore what’s really causing the pain.

 

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Filed under 2012 election, ARRA, Economy, Infrastructure, public employees, Republicans