Archive for the ‘Employment’ Category

A Quantum of Herring

Thomas Masterson | July 17, 2013

Casey B. Mulligan, of whom I have written before, has a new post on the New York Times Economix blog, in which he attempts to school the less wise what policy impact assessment is all about. It is not about Red Herrings, for example. He references one of his recent posts that I opted to mostly let go at the time. Though I did make a comment not unlike the one he disparages.

In this post he says that the point of policy impact assessment is to compare what will happen if a policy is implemented to a baseline, without the policy. Fair enough, but is that enough? He says:

Policy impact quantifies how things are different as a consequence of the policy. [emphasis mine]

His analysis of the impact of the Affordable Care Act on the part-time labor market concludes that two of the things that keep people in full-time employment, access to health insurance coverage and higher pay, will be eroded by the ACA. The bit about the insurance coverage is obvious enough. Well done! The bit about the higher pay is not quite as obvious. The numbers Mulligan uses are telling, however.

continue reading…

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How BIG is BIG Enough: Would the Basic Income Guarantee Satisfy the Unemployed?

L. Randall Wray | July 10, 2013

(This is a prequel, Part 1 on BIG; I already did Part 2. Sorry it is longish, but not technical.)

Last week I criticized an article by Allan Sheahan who argued that “Jobs Are Not the Answer” to America’s unemployment problem. The thesis was based on two propositions. First, labor productivity has grown so we’d never be able to find sufficient work for all. Second, we don’t need jobs anyway because:

“Job creation is a completely wrong approach because the world doesn’t need everyone to have a job in order to produce what is needed for us to live a decent, comfortable life. We need to re-think the whole concept of having a job. When we say we need more jobs, what we really mean is we need is more money to live on. One answer is to establish a basic income guarantee (BIG), enough at least to get by on — just above the poverty level — for everyone. Each of us could then try to find work to earn more.”

I devoted most of the space in my response to the first point. Labor productivity has been rising since caveman first grabbed a club. Productivity’s importance as a cause of unemployment is at best of second order importance and certainly not new. The real cause is money. To be more specific, it is because we choose to organize a huge part of our social provisioning process through the monetary system, with much of our production controlled by capitalists. It is a monetary production economy—capitalists will not employ labor if they do not believe it will be profitable. (Note that is a statement of fact, not a criticism.)

The problem is not that we cannot find useful things for people to do. Any one of the readers of this blog could come up with a list of hundreds of useful things to do that are not being done because no one can think of a way to make profits at them. So we can use the JG/ELR to put people to work doing useful things without worrying about profiting off their labor.

And if all else fails, we can share the work that we can imagine by cutting the work day and the work week, and providing vacations to Americans. Why not the 30 day type of vacation that other rich nations provide? Four day work weeks? A legal right to six months paid paternal and maternal care? Paid sabbaticals for all, one year off out of every seven? (Why should tenured faculty have all the fun?)

Ok, ‘nuff said on that one. I think many readers agree with me. All we need is the Job Guarantee/Employer of Last Resort and we will get everyone employed. And we can simultaneously work toward more paid time off—if the JG/ELR program offers it, private employers will, too.

So what we need to do is to look at the second argument in more detail. Many readers apparently do not know what a BIG is. And just how BIG a BIG is supposed to be. In other words, what it is supposed to accomplish. continue reading…

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Are More Jobs the Answer? The “BIG” Bait and Switch

L. Randall Wray | July 1, 2013

Last week Allan Sheahan published a piece arguing that “Jobs Are Not the Answer” to America’s unemployment problem. Here’s his reasoning:

“The current unemployment rate of 7.5% percent means close to 20 million Americans remain unemployed or underemployed. Nobody states the obvious truth: that the marketplace has changed and there will never again be enough jobs for everyone who wants one — no matter who is in the White House or in Congress. Fifty years ago, economists predicted that automation and technology would displace thousands of workers a year. Now we even have robots doing human work. Job losses will only get worse as the 21st century progresses.”

In fact, economists have recognized this possibility since at least the early 19th century, when David Ricardo posed it as “the machine problem.”  “Robots” have been doing “human work” since the time of Adam Smith’s pin factory. Or, indeed, since the first proto-human discovered the fulcrum and lever so that one could do the work of four.

However, “unemployment” has existed only since the development of production for market. Our tribal ancestors “worked” about a dozen hours a week to provide the food, clothing, and shelter required for the standard of life they deemed acceptable. They occupied themselves the rest of the time with all the other human activities that we regard as “culture”: dancing, singing, tattooing, shaman-ing, piercing, ritualizing sacrifices, child rearing, storytelling, marrying, fighting, debating, drawing, and thinking.

Neither were our peasant forebearers, who had access to the main means of production—agricultural land—unemployed. They might have worked much longer days, and they grudgingly turned over an ever-rising portion of their production to rapacious feudal lords, but they were not unemployed. It is only once they lost access to land through enclosures, etc, that their livelihood depended on the whims of the employing class.

Why didn’t the inexorable trend to greater use of “robots” from the time of Smith forward lead to the dis-employment of all (or most all) human labor? First we raised living standards (arguably, of course, since it is not altogether clear that we live better than our tribal cousins in all important respects), always finding other ways to employ humans to produce products that our ancient ancestors never knew they needed. Second, we reduced the workweek—adding “weekends” and “holidays,” and reducing the daily grind from 16 hours to 12, and hence to 10 and finally 8. And there it got stuck—at least in America.

Further, being a Puritanical/Calvinist sort, Americans really never embraced the idea of vacations, anyway, and so unlike every other civilized society on earth, there is no considered right to a vacation and most Americans either don’t get them or don’t want them.

In recent years, it seems that involuntary unemployment and underemployment in the US has been rising. There are a number of reasons. continue reading…

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A Fiscal Fallacy?

Greg Hannsgen | June 17, 2013

We have been advocates of the theory that fiscal tightening is threatening economic recovery (last week, for example).

John Taylor objects to the view that fiscal tightness has been the key to the slowness of growth in the recovery.

In his blog, he states, “As a matter of national income and product accounting, it is true that cuts in state and local government purchases subtract from GDP, but these cuts are mainly an endogenous consequence not an exogenous cause of the weak recovery.

Taylor’s reasoning is that state and local government spending has been constrained by weak tax revenues. This is certainly true.

However, Taylor’s argument seems to imply and rely upon another false dichotomy—variables are either exogenous causes or endogenous outcomes. Is it not more reasonable to say that these reductions in spending at the state and local level are “mainly an endogenous consequence and endogenous cause of the weak recovery”?

(Note for further reading: This scheme of cumulative causation or positive feedback is part of the fiscal trap thesis advanced in a brief I wrote with Dimitri Papadimitriou last summer and fall: especially in a non-sovereign-currency system, spending cuts and slow growth can be part of a vicious cycle or downward spiral. This 2010 Levy Institute brief, among other publications, assessed the extent to which fiscal stimulus of various types can help to break the cycle.)

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UK Debate and the Facts Moving in Opposite Directions

Michael Stephens | June 7, 2013

Today in the Guardian, Philip Pilkington notices the British Labour party potentially inching away from their scaled-down proposal for a “job guarantee,” an idea fleshed out by Hyman Minsky:

Minsky’s theories of financial instability suggested that capitalist economies were prone to serious downturns in which huge amounts of the labour force would find themselves unemployed. What’s more, this would lead to large shortfalls in demand for goods and services which would further exacerbate such downturns. The result was a vicious circle that would become worse and worse as the financial system evolved into an increasingly fragile entity and households and businesses became increasingly mired in debt. …

While progressive taxation and unemployment benefits went some way toward both protecting workers and propping up demand during downturns, it did not, according to Minsky and his followers, go nearly far enough. They believed that governments should offer a job to anyone willing and able to work and then pay for these jobs by engaging in increased deficit spending …

Read the whole thing.  Pilkington notes that the original Labour proposal differed from Minsky’s “employer of last resort” in both its scope (limited to the long-term unemployed) and its compulsory nature (the ELR is meant to be voluntary, in Minsky’s original formulation), but the proposal did at least represent a departure from the Conservative government’s fixation with the budget deficit and an attempt to do something about the long-term unemployment crisis.

Pilkington now sees Labour leaders positioning themselves closer to the ruling Conservatives’ pro-austerity stance.  That may or may not be a shrewd political move, but in terms of policy, what recent economic events have made austerity look more attractive?  The UK just posted a blistering GDP growth number of 0.3 percent (thus barely avoiding its third slide into recession in the last five years), and as Michael Linden illustrates (pdf) with the figure below, since Cameron’s austerity measures were imposed in 2010, the UK’s projected debt-to-GDP ratios have gone up instead of down.  Assuming the goal was to reduce the debt ratio, and not simply reduce government spending for its own sake, austerity seems to be failing:

UK Debt to GDP Fail_Linden

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Hyman Minsky and the Employer of Last Resort

L. Randall Wray | May 17, 2013

A couple of weeks ago, I mentioned Hyman Minsky’s new book, Ending Poverty: Jobs, Not Welfare (there is also a Kindle version).  Take a look at the cover – Minsky looking like a bit of a rougue!

I thought you might enjoy my powerpoint presentation, given at the Levy-Ford annual Minsky conference in NYC in mid-April. It summarizes some of the main arguments of the book. However, you really need the book – it is brilliant, and a good antidote to all the silly arguments made by economists that we “need” to keep tens of millions of Americans unemployed.

As Keynes put it:

“The Conservative belief that there is some law of nature which prevents men from being employed, that it is ‘rash’ to employ men, and that it is financially ‘sound’ to maintain a tenth of the population in idleness is crazily improbable – the sort of thing which no man could believe who had not had his head fuddled with nonsense for years and years….” (J. M. Keynes)

Here’s the powerpoint.

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A Budget Surplus by 2015?

Michael Stephens | May 15, 2013

That’s the implication of a James Pethokoukis post linked to here by Reihan Salam.  Let’s assume for the sake argument that a federal budget surplus does emerge in 2015 (yesterday’s CBO report projected the 2015 deficit would be a mere 2.1% of GDP).  Salam expresses concern that such a scenario would leave Republicans, who have been banging the austerity drum since inauguration day 2009, in a political and policy bind.  It would allow Democrats to declare “mission accomplished,” as Salam puts it, leaving Republicans with no agenda.

One problem with this analysis is that it assumes the voting public would even recognize/concede the existence of a budget surplus.  If you’ve been paying any attention to US public affairs, you’ll have observed that the realm of empirical fact is a fiercely contested battlefield (see warming, global).  And on budget matters, as Dimitri Papadimitriou has pointed out, the battlefield is tilted in one direction:  “The deficit has arguably gained the distinction of being the single most widely misunderstood public policy issue in America. Just 6% (6!) of respondents in a recent poll correctly stated that it had been shrinking, which has in fact been the case for several years, while 10 times more, 62%, wrongly believed that it’s been getting bigger.”

Now, it ought to be mentioned that no one should get any credit for a budget surplus in 2015 (or for a deficit as low as 2.1% of GDP, as the CBO predicts).  Under current economic conditions, this would represent the continuation of an inexcusable fiscal policy error — and the reason it would be an error points to another problem with Salam and Pethokoukis’s political concerns. continue reading…

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This Growth Rate Would Be Insufficient Even If the Economy Weren’t Broken

Michael Stephens | April 26, 2013

Today’s GDP report estimated that the US economy grew at an annual rate of 2.5 percent in the first quarter of 2013.  If the economy were translating GDP growth into jobs at rates similar to those seen in the past, this 2.5 percent pace would not get us to full employment until, say, the end of Hillary Clinton or Jeb Bush’s second term.  But evidence suggests that, in fact, the link between output and jobs has been weakening for the past thirty years or so.  In other words, we need higher growth rates today than we did thirty years ago to produce the same employment increases.  In that context, 2.5 percent growth is nowhere near good enough.

In a new policy note, Michalis Nikiforos looks closely at US employment recovery (or lack thereof) after the “Great Recession.”  In part, the dismal job creation record — which, says Nikiforos, is more accurately reflected by looking at the total number of employed workers rather than just the unemployment rate — is due to slow growth rates.  Such slow growth is to be expected for an economy recovering from a financial crisis, he explains:  “following the burst of a bubble and a financial crisis, the private sector seeks to minimize the debt it accumulated before the crisis.  This leads to a large private sector financial surplus, which in turn weakens demand and thus output growth.”

But in addition to these slow growth rates, Nikiforos details the increasingly weak link between output growth and job creation:  “[D]uring the recovery in the second half of the 1970s, a 1 percent increase in output led to an increase in employment of 0.714 percent. This number has been decreasing since the late 1970s and stands at 0.288 in the current recovery (i.e. 2009Q2–2012Q4).”  In the policy note he runs through some possible reasons for this degraded link between output and jobs (including some research from a forthcoming paper by Deepankar Basu and Duncan Foley that points the finger at the growing share of the financial sector in GDP, which, they argue, leads to an overestimation of real economic activity).  To give a sense of the challenge we’re facing, Nikiforos observes that just bringing the unemployment rate down to 5.5 percent by the end of 2014 would require the economy to grow at an annualized rate of 3.4 percent this year and 6.3 percent next year.

Read the policy note here.

(Note: this is a follow-up to the Levy Institute’s most recent Strategic Analysis.)

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Weakened Link between Output and Jobs Makes Higher Deficits a Necessity

Michael Stephens | April 10, 2013

In the LA Times, Dimitri Papadimitriou explains that the link between growth and employment has been steadily weakening over the last several decades, and that this makes getting help from fiscal policy — increasing the deficit in the short run — more urgent than ever.  If we want to get back to pre-crisis unemployment rates (below 4.6%) anytime soon, the private sector isn’t going to be able to do it on its own, and certainly not with payroll tax increases and indiscriminate budget cuts weighing down already-insufficient growth rates:

While we are seeing some economic growth, the unemployment rate is not responding as strongly to the gains as it did in the past.

This slow job growth — today’s “jobless recovery” — isn’t an outlier. It’s a phenomenon that has been increasing over the last three decades, with jobs coming back more and more slowly after a downturn, even when GDP is increasing. The weak employment response has been an almost straight-line trend for more than 30 years.

Our institute’s newest econometric models show that each 1% boost in the GDP today will create, roughly, only a third as much improvement to the unemployment rate as the same 1% rise did in the late 1970s.

Read the op-ed here.

For more on this broken link between output and jobs, the background research can be found here.

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A New Collection of Minsky’s Work

Michael Stephens | April 8, 2013

Hyman Minsky is probably best known for his work on financial instability and financial reform, but he also wrote extensively about how to address the persistent problem of all those left behind by our increasingly financialized economy; about how to design policies that would put an end to income poverty in the midst of plenty. Despite the fact that far more attention has been paid to his writing on financial fragility, these were intimately related issues in Minsky’s research, connecting the financial and “real” economies.

As with his work on finance, Minsky’s approach to poverty did not fit comfortably within the confines of the status quo. With “trickle-down” on one side, pure tax-and-transfer approaches on the other, and vague calls for retraining floating somewhere in the middle, Minsky found the conventional menu of policy options incomplete and inadequate (a menu that has changed very little over the last several decades). Calling for “upgrading” workers without ensuring there are enough jobs to go around is, as Minsky put it, “analogous to the great error-producing sin of infielders — throwing the ball before you have it.” What’s missing, he thought, is a commitment to ensuring that paying jobs are available to all who are ready and able to work; a commitment to “tight full employment.” The question is how to get there without sparking runaway inflation or inducing financial crises. Private markets, left to their own devices, aren’t going to get us there. For part of the answer, Minsky turned to a forgotten side of the New Deal:  direct job creation.

In the interests of providing a more complete picture of Minsky’s intellectual legacy, the Levy Institute has published a collection of his central writings on poverty and full employment: Ending Poverty: Jobs, Not Welfare. The chapters span roughly three decades of Minsky’s writing and feature four never-before-published pieces. The earliest were written in the context of the “War on Poverty” of the Kennedy and Johnson years, but readers will find more than mere historical interest here. Minsky’s critiques of both the “neoclassical synthesis” and the welfare state hold up rather well. If anything, the material is even more relevant today, given our widening income inequality and chronic rates of long-term unemployment — and the fact that the battle against poverty, while not won, has largely been forgotten.

The paperback is now available on Amazon; the Kindle version will be appearing shortly.

Ending Poverty_cover

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