Archive for the ‘Progressive Strategies’ Category
Growth is slow, job creation minimal, and real median earnings are in decline. However, for a small group of powerful people things are just dandy. The following chart from an Economic Policy Institute study highlights the enormous gains enjoyed by top CEOs relative to their production/nonsupervisory workers.
The next chart, from a different Economic Policy Institute study, highlights one reason for the divergent economic experiences of those at the top and almost everyone else.
As we can see, companies have generally been successful in maintaining a steady growth in real net productivity. They have also been successful in suppressing any increase in real hourly compensation for production/nonsupervisory workers. The growing gap between the two trends is the basis for these divergent economic experiences. Workers continue to create wealth but an ever greater share is being captured by those at the top.
The New York Times offers this look at the recent movement in median household income. Worthy of note is the fact that the decline continues despite the fact that the economy has officially been in expansion since June 2009.
As I previously discussed, a disproportionately large share of all new jobs created in the current economic expansion are low wage ones. Therefore, it should come as no surprise that growing numbers of people have concluded that economic expansion alone is insufficient to improve majority living and working conditions.
One consequence is the increasingly popular effort to push for a $15 an hour minimum wage. There are those that claim that such a high minimum wage is unthinkable. However, as the chart below from a Huffington Post article shows, if the federal minimum wage in 1968 had been adjusted annually by the rate of productivity growth it would have reached $18.30 in 2013.
It is important to add that many of the firms employing the greatest number of low wage workers have also enjoyed above average rates of productivity growth. One example is Walmart. As the New York Times explains:
[Walmart] is a remarkably innovative exploiter of the latest technologies . . . The economists Barry Bosworth and Jack E. Triplett of the Brookings Institution find in a new book, “Productivity in the U.S. Services Sector” (Brookings Institution Press), that retailing in general has contributed substantially to the nation’s productivity boom since the mid-1990’s. And Wal-Mart is the industry leader.
The Seattle, Washington city council recently approved a $15 an hour minimum wage for workers in the city. As the Guardian newspaper reports:
A University of Washington study (pdf) commissioned by the council said the increase would benefit 100,000 people working in the city, reduce poverty by more than one quarter and save the government money by reducing the number of people claiming food stamps and other welfare payments. The pay of full-time workers on the existing minimum wage would increase by about $11,000 a year.
Opposition to the increase in Seattle has centered on claims that it will drive enterprises with slender profit margins out of business and force restaurants, which employ the largest number of minimum wage workers in the city, to lay off people.
But studies of significant minimum wage increases (pdf) in San Francisco, Santa Fe and San Jose show no evidence of job losses.
This is just one of many efforts by people to change the way our economy operates. Hopefully these efforts will multiply and learn from each other, as well as broaden in terms of their constituencies and demands.
In a fancy bit of marketing U.S. capitalists have been reborn as “job creators.” As such, they were rewarded with lower taxes, weaker labor laws, and relaxed government regulation. However, despite record profits, their job creation performance leaves a lot to be desired.
According to the official data the last U.S. recession began in December 2007 and ended in June 2009. Thus, we have officially been in economic expansion for almost five years.
It is a given that we will experience another recession; the business cycle comes with capitalism. Since times will always be tough for the majority during a recession (by definition), we have a right to expect that things will go well for the majority during the expansion that follows. More precisely, we should expect that the gains from the expansion will be strong and broad based enough to ensure real progress for the majority over the course of the business cycle.
If that doesn’t happen, it is sign that we need a change in our basic economic structure. In other words, it would be foolish to work to sustain an economic structure that was incapable of satisfying majority needs even when it was performing well according to its own logic.
A recent study by the National Employment Law Project titled The Low-Wage Recovery: Industry Employment and Wages Four Years Into the Recovery provides one indicator that it is time for us to pursue a change in the U.S. economic structure. As it shows, the current economic expansion continues the U.S. transition into a low wage economy.
In net terms, the U.S. economy lost private sector jobs every month from January 2008 to February 2010. The private sector posted positive net employment gains every month from March 2010 to March 2014 (the last month considered by the study). Coincidentally, total private sector employment finally recovered its pre-crisis January 2008 peak in March 2014.
Figure 1 from the National Employment Law Project study shows the net private sector job loss by industries classified according to their medium wage from January 2008 to February 2010 and the net private sector job gain using the same classification from March 2010 to March 2014. As we can see, the net job loss in the first period was greatest in high wage industries and the net job creation in the second period was greatest in low wage industries.
Figure 4 presents a visual picture of job growth by industry over the period February 2010 to March 2014.
As the study explains:
The food services and drinking places, administrative and support services (includes temporary help), and retail trade industries are leading private sector job growth during the recent recovery phase. These industries, which pay relatively low wages, accounted for 39 percent of the private sector employment increase over the past four years.
While the study focused on private sector job creation, Figure 4 also shows one consequence of the continuing attack on the public sector: all levels of government have been forced to dramatically slash their employment.
In short, if the hard times of recession disproportionately eliminate high wage jobs and the “so called” good times of recovery bring primarily low wage jobs, it is time to move beyond our current focus on the business cycle and initiate a critical assessment of the way our economy operates and in whose interest.
Floyd Norris, writing in the New York Times, summarizes key economic trends as follows:
Corporate profits are at their highest level in at least 85 years. Employee compensation is at the lowest level in 65 years.
The Commerce Department last week estimated that corporations earned $2.1 trillion during 2013, and paid $419 billion in corporate taxes. The after-tax profit of $1.7 trillion amounted to 10 percent of gross domestic product during the year, the first full year it has been that high. In 2012, it was 9.7 percent, itself a record….
Before taxes, corporate profits accounted for 12.5 percent of the total economy, tying the previous record that was set in 1942, when World War II pushed up profits for many companies. But in 1942, most of those profits were taxed away. The effective corporate tax rate was nearly 55 percent, in sharp contrast to last year’s figure of under 20 percent.
The Commerce Department also said total wages and salaries last year amounted to $7.1 trillion, or 42.5 percent of the entire economy. That was down from 42.6 percent in 2012 and was lower than in any year previously measured.
Including the cost of employer-paid benefits, like health insurance and pensions, as well as the employer’s share of Social Security and Medicare contributions, the total cost of compensation was $8.9 trillion, or 52.7 percent of G.D.P., down from 53 percent in 2012 and the lowest level since 1948.
Benefits were a steadily rising cost for employers for many decades, but that trend seems to have ended. In 2013, the figure was 10.2 percent, the lowest since 2000.
Norris’s article also includes the following chart which presents after-tax corporate profits, effective corporate tax rates, employee compensation, and changes in the S&P index by presidential term.
Two things are worth highlighting.
First, the steady climb in the ratio of after-tax corporate profits to GDP over the Clinton, Bush, and Obama administrations. The ratio is now at a record high.
Second, the decline in employee compensation as a share of GDP. This ratio has tumbled to a post-Truman low.
These pre-and after-tax profit and compensation trends are no accident. They are the result of economic policies which had as their primary goal the enhancement of corporate profitability. These policies include:
- Corporate tax cuts
- Free Trade Agreements designed to promote the globalization of production and finance
- Financial sector liberalization
- Labor law reforms designed to weaken worker organizing and collective action
- Privatization of government services
- Cuts in and the tightening of eligibility standards for social programs
- Public sector bailouts and subsidization of private sector activities.
Unfortunately, while these policies succeeded brilliantly in achieving their goal, success has come at high social cost. They have worsened living and working conditions for growing numbers of people as well as the overall health of the economy.
The following four charts, published by Doug Henwood on his Left Business Observer blog, offer one window on the weakened state of our economy. The charts show the real movement of GDP, Consumption, Investment, and Government Spending through the end of 2013 relative to their respective long term trends (1970-2007).
Note how things fell off a cliff in the recession. GDP, consumption, and government spending are all about 15% below where they’d be had they continued to grow in line with their long-term trend. (The hysteria over out-of-control government spending looks ludicrous in the light of this graph.) Investment is about 25% below where it “should” be thanks largely to the housing collapse, though it’s staging something of a recovery. The other components have yet to begin closing the gap, because the recovery’s been so weak.
The economy’s weak five year expansion has existed comfortably with record profits (and a growing concentration of income and wealth) because the policies which helped to secure the latter tend, by their nature, to weaken economic fundamentals. Think tax cuts, bailouts, free trade agreements, privatization, and the like.
In short, as long as both political parties prioritize corporate profits, we can expect bipartisan support for current policies and thus a continuation of socially negative trends. There is no way forward for the majority of Americans without a fundamental shift in priority and policies.
America stands out for the high share of its labor force that is employed in what economists Samuel Bowles and Arjun Jayadev call “guard labor.”
There are now more people working as private security guards than high school teachers.
The following graph highlights the number of “protective service workers” employed per 10,000 workers and the degree of income inequality in the year 2000 for 16 countries. The United States is tops on both counts.
Two things stand out from this graph beyond U.S. “leadership.” The first is the relationship between the share of protective service workers and inequality. As Bowles and Jayadev comment:
In America, growing inequality has been accompanied by a boom in gated communities and armies of doormen controlling access to upscale apartment buildings. We did not count the doormen, or those producing the gates, locks and security equipment. One could quibble about the numbers; we have elsewhere adopted a broader definition, including prisoners, work supervisors with disciplinary functions, and others.
But however one totes up guard labor in the United States, there is a lot of it, and it seems to go along with economic inequality. States with high levels of income inequality — New York and Louisiana — employ twice as many security workers (as a fraction of their labor force) as less unequal states like Idaho and New Hampshire.
When we look across advanced industrialized countries, we see the same pattern: the more inequality, the more guard labor. As the graph shows, the United States leads in both.
The second is the rapid rise in the U.S. share of guard labor and inequality from 1979 to 2000.
For those who like definitions: The category protective service workers includes those employed as Private Security Guards, Supervisors of Correctional Officers, Supervisors of Police and Detectives, Supervisors of all other Protective Service Workers, Bailiffs, Correctional Officers and Jailers, Detectives and Criminal Investigators, Fish and Game Wardens, Parking Enforcement Workers, Police and Patrol Officers, Transit and Railroad Police, Private Detectives and Investigators, Gaming Surveillance Officers, and Transportation Security Screeners. Inequality is measured by the gini coefficient; the higher the number the greater the degree of inequality.
As noted above Bowles and Jayadev have explored broader measures of guard labor. One such measure adds members of the armed forces, civilian employees of the military, and those that produce weapons to those employed as protective service workers. The total was 5.2 million workers in 2011.
One can only wonder in what ways and for whom this large and growing dependence on guard labor represents a rational use of social resources.
The conventional explanation for our economic problems seems to be that our businesses are strapped for funds. Greater business earnings, it is said, will translate into needed investment, employment, consumption and, finally, sustained economic recovery. Thus, the preferred policy response: provide business with greater regulatory freedom and relief from high taxes and wages.
It is this view that underpins current business and government support for new corporate tax cuts and trade agreements designed to reduce government regulation of business activity, attacks on unions, and opposition to extending unemployment benefits and increasing the minimum wage.
One problem with this story is that businesses are already swimming in money and they haven’t shown the slightest inclination to use their funds for investment or employment.
The first chart below highlights the trend in free cash flow as a percentage of GDP. Free cash flow is one way to represent business profits. More specifically, it is a pretax measure of the money firms have after spending on wages and salaries, depreciation charges, amortization of past loans, and new investment. As you can see that ratio remains at historic highs. In short, business is certainly not short of money.
So what are businesses doing with their funds? The second chart looks at the ratio of net private nonresidential fixed investment to net domestic product. I use “net” rather than “gross” variables in order to focus on investment that goes beyond simply replacing worn out plant and equipment. The ratio makes clear that one reason for the large cash flow is that businesses are not committed to new investment. Indeed quite the opposite is true.
Rather than invest in plant and equipment, businesses are primarily using their funds to repurchase their own stocks in order to boost management earnings and ward off hostile take-overs, pay dividends to stockholders, and accumulate large cash and bond holdings.
Cutting taxes, deregulation, attacking unions and slashing social programs will only intensify these very trends. Time for a new understanding of our problems and a very new response to them.
The federal minimum wage is $7.25 an hour. Several states mandate a higher minimum wage; the state of Washington has the highest, at $9.19.
President Obama recently voiced his support for efforts to increase the minimum wage to $10.10. The federal minimum wage was last raised in 2009 and certainly needs to be increased again. The fact is that the federal minimum wage has not kept up with inflation.
As the New York Times graphic below shows, the current minimum wage is, when adjusted for inflation, 32% below what it was in 1968. It is 8% below what it was in 2010. In other words, those earning the minimum wage are suffering a real decline in income.
As for the appropriate value, why not $22.62? That, as the graphic illustrates, is what the minimum wage would be if it grew at the same rate as the income of the top 1%. As Alan Pyke explains:
[Such a large increase] may seem outlandish, but previous research indicates American workers have just about earned it. Worker productivity has more than doubled since 1968, and if the minimum wage had kept pace with productivity gains it would have been $21.72 last year. From 2000 to 2012 alone workers boosted their productivity by 25 percent yet saw their earnings fall rather than rise, leading some economists to label the early 21st century a lost decade for American workers.
Looked at from that perspective the current movement for a $15 hourly wage at fast food restaurants sounds reasonable.
As the following chart from the Financial Times shows, public sector gross capital investment–which includes government spending on infrastructure, scientific research, education, and other long-term priorities–is now at its lowest level since 1950 as a percent of GDP.
Perhaps even more worrying, net government investment, which takes depreciation into account, is heading towards zero.
Removing spending on defense from the total leaves an even more depressing picture. The Financial Times evaluated all the major budget proposals currently being considered by Congress, and finds, as illustrated in the next chart, that all of them involve significant reductions in non-defense public investment over the next decade.
Slashing public investment is not the way to a healthy economy.
The Wall Street Journal had an interesting article about income inequality.
What follows is a chart from the article which shows that average income for the bottom 90% of families actually fell by over 10% from 2002-2012 while the average income for families in all the top income groups grew. The top 0.01% of families actually saw their average yearly income grow from a bit over $12 million to over $21 million over the same period. And that is adjusted for inflation and without including capital gains.
What was most interesting about the article was its discussion of the dangers of this trend and the costs of reversing it. In brief, the article noted that many financial analysts now worry that inequality has gotten big enough to threaten the future economic and political stability of the country. At the same time, it also pointed out that doing anything about it will likely threaten profits. As the article notes:
But if inequality has risen to a point in which investors need to be worried, any reversal might also hurt.
One reason U.S. corporate profit margins are at records is the share of revenue going to wages is so low. Another is companies are paying a smaller share of profits on taxes. An economy where income and wealth disparities are smaller might be healthier. It would also leave less money flowing to the bottom line, something that will grab fund managers’ attention.
Any bets how those in the financial community will evaluate future policy choices?
The current economic recovery officially began June 2009 and is one of the weakest in the post-World War II period by almost every indicator except growth in profits.
One reason it has offered working people so little is the contraction of government spending and employment. This may sound strange given the steady drumbeat of articles and speeches demanding a further retrenchment of government involvement in the economy, but the fact is that this drumbeat is masking the reality of the situation.
The figure below shows the growth in real spending by federal, state and local governments in the years before and after recessions. The black line shows the average change in public spending over the six business cycles between 1948 and 1980. Each blue line shows government spending for a different recent business cycle and the red line does the same for our current cycle. As you can see, this expansionary period stands out for having the slowest growth in public spending. In fact, in contrast to other recovery periods, public spending is actually declining.
According to Josh Bivens:
public spending following the Great Recession is the slowest on record, and as of the second quarter of 2013 stood roughly 15 percent below what it would have been had it simply matched historical averages. . . . if public spending since 2009 had matched typical business cycles, this spending would be roughly $550 billion higher today, and more than 5 million additional people would have jobs (and most of these would be in the private sector).
The basic stagnation in government spending has actually translated into a significant contraction in public employment. The figure below highlights just how serious the trend is by comparing public sector job growth in the current recovery to the three prior recovery periods.
As Josh Bivens and Heidi Shierholz explain:
the public sector has shed 737,000 jobs since June 2009. However, this raw job-loss figure radically understates the drag of public-sector employment relative to how this sector has normally performed during economic recoveries . . . . (P)ublic-sector employment should naturally grow as the overall population grows. Between 1989 and 2007, for example, the ratio of public employment to overall population was remarkably stable at roughly 7.3 public sector workers for each 100 members of the population. Today’s ratio is 6.9, and if it stood at the historic average of 7.3 instead, we would have 1.3 million more public sector jobs today.
In short, the challenge we face is not deciding between alternative ways to further shrink the public sector but rather of designing and building support for well financed public programs to restructure our economy and generate living wage jobs.
As the Wall Street Journal reports:
Four years into the economic recovery, U.S. workers’ pay still isn’t even keeping up with inflation. The average hourly pay for a nongovernment, non-supervisory worker, adjusted for price increases, declined to $8.77 last month from $8.85 at the end of the recession in June 2009, Labor Department data show.
In other words, as the chart below illustrates, the great majority of workers are experiencing real wage declines over this expansion.
Growth also remains sluggish, increasing “at a seasonally adjusted annual pace of less than 2% for three straight quarters—below the prerecession average of 3.5%.” But by intensifying the pace of work and reducing the pay of their employees, corporations have been able to boost their profits despite the slow growth.
The following chart from an Economic Policy Institute study shows the continuing and growing disconnect between productivity and private sector worker compensation (which includes wages and benefits) using two different measures of compensation.
As the Economic Policy Institute study explains, “there has been no sustained growth in average compensation since 2004. The stagnation began even earlier, in 2003, when considering wages alone. Since 2003, wages as measured by both the ECI and the ECEC (not shown) have not grown at all—a lost decade for wages.”
The point then is that we need a real jobs program, one that is designed to create new meaningful jobs and boost the well-being of those employed. Government efforts to sustain the existing expansion have certainly been responsive to corporate interests. It should now be obvious that such efforts offer workers very little.