On reading a recent post by Ed Dolan at Economonitor with some evidence of the lack of a strong Phillips relationship for consumer-price inflation in US data, it occurred to me to try a measure of total compensation per hour with recent data. The wage relationship estimated over all available quarters, using averaged monthly observations for the civilian unemployment rate, is shown above, with a scatter plot and an estimated regression line. Like the relationship estimated by Dolan, the regression line above suffers from a rather loose fit (constant: 6.87; slope coefficient: -.29; R-squared = .02). A complete explanation of inflation is complicated and of course also involves other costs, including raw materials such as fuel. The latter costs are subject of course to “cost-push”-type inflation at times, as are wages. Exchange rates of course affect these costs.

A time series graph below displays both series over the entire sample period, 1948q1 to 2014q1. As some have observed, the exceedingly high unemployment rates of the post-financial-crisis era (blue line) have resulted in very weak or negative compensation growth rates (red line). The latter are not adjusted for inflation in the figures, since we are focusing on nominal data in this post.  The downward trend in nominal wage growth in the right side of the figure (red line) helps to explain recent declines in the so-called wage share, which measures the fraction of national income going to labor costs. (However, see this New York Times article for some evidence that falling unemployment is beginning to bring some inflation-adjusted wage growth to parts of the US.)

By the way, if inflation were to become a large problem (and it seems well-contained now), non-recessionary methods exist to try to alleviate it. Even where the Phillips-curve relationship is strong, the human costs of using it to combat inflation are usually very high, given the existence of alternative policies that could perhaps be given a try in the US.

(The following is an extended version of a piece that originally appeared in Greek in Kathimerini.)

The responses to unemployment by the last three governments in Greece have been characterized by sloppy proposals and an insignificant amount of funds in relation to the size of the problem. Regardless of whether there were political considerations behind it (or not), the recent announcement of the Prime Minister highlights, unfortunately, a relentless continuation of a lack of understanding of reality.

The Prime Minister recently (on January 29) told us that unemployment is a “sneaky enemy” and proceeded to announce measures to tackle the problem. He also indicated that “we do not promise things we cannot do, and we say no to populism and fine words.” The goal of the proposed measures, we heard, is to create 440,000 “work opportunities,” of which 240,000 will target the unemployed 15-24 years of age with no prior work experience. The announced measures totaling 1.4 billion euros will be financed by funds from the National Strategic Reference Framework (NSRF), social funds from the EU, and are classified into three pillars.

Specifically, the first pillar sets a target to recruit 114,000 unemployed for the private sector; an initiative that essentially subsidizes wages and social security contributions for businesses that hire unemployed who are up to 29 years old and some who are unemployed between the ages of 30 and 60. The second pillar concerns 240,000 young persons. This program will provide work experience and training for all unemployed up to 24 years old who have no prior work experience. These unemployed will also go to private companies for some time, or participate in vocational training centers (VTC) to improve their skills in order to find their first job, or both. The third pillar concentrates on hiring 90,000 unemployed from households that have no employed person, who will work in community service projects in the public sector and local government.

Assuming that strict rules are in place, with dedicated control mechanisms that will guarantee non-replacement of existing positions in the private and public sector (really, is there a sufficient number of public sector inspectors for this task?), prima facie, it all sounds positive and leads to the conclusion that at last the Prime Minister himself has publicly accepted his responsibility toward the citizens that have been left without a job. But appearances can be deceiving.

Let’s start with the obvious. continue reading…

Roughly a year after President Johnson used the occasion of his first State of the Union address to declare war on poverty, Hyman Minsky presented a paper on the subject at a conference in Berkeley. Here’s what he wrote:

The war against poverty is a conservative rebuttal to an ancient challenge of the radicals, that capitalism necessarily generates “poverty in the midst of plenty.” This war intends to eliminate poverty by changing people, rather than the economy. Thus the emphasis, even in the Job Corps, is upon training or indoctrination to work rather than on the job and the task to be performed. However, this approach, standing by itself, cannot end poverty. All it can do is give the present poor a better chance at the jobs that exist: it can spread poverty more fairly. A necessary ingredient of any war against poverty is a program of job creation; and it has never been shown that a thorough program of job creation, taking people as they are, will not, by itself, eliminate a large part of the poverty that exists.

The war against poverty cannot be taken seriously as long as the Administration and the Congress tolerate a 5 percent unemployment rate and frame monetary and fiscal policy with a target of eventually achieving a 4 percent unemployment rate. Only if there are more jobs than available workers over a broad spectrum of occupations and locations can we hope to make a dent on poverty by way of income from employment. To achieve and sustain tight labor markets in the United States requires bolder, more imaginative, and more consistent use of expansionary monetary and fiscal policy to create jobs than we have witnessed to date. …

The single most important step toward ending poverty in America would be the achieving and sustaining of tight full employment. Tight full employment exists when over a broad cross-section of occupations, industries, and locations, employers, at going wages and salaries, would prefer to employ more workers than they in fact do. Tight full employment is vital for an anti-poverty campaign. It not only will eliminate that poverty which is solely due to unemployment, but, by setting off market processes which tend to raise low wages faster than high wages, it will in time greatly diminish the poverty due to low incomes from jobs.

Jesse Myerson created a firestorm over mainstream media with his Rolling Stone piece “Five Economic Reforms Millennials Should Be Fighting For.” I’d like to address the very first of these reforms, the Job Guarantee (JG), as Myerson references my proposal for running the program through the non-profit sector and discussed it in several interviews on Tuesday.

Last month, I did a podcast with him about this program. Let me focus on some questions that keep popping up about the proposal, e.g., Josh Barro’s Business Insider piece.

What is the problem?

It is fundamental. It’s not just a problem of today’s deeply ailing economy. It’s permanent. There are always people willing to work, whom profit-driven firms do not wish to hire.  Even when economies are growing rapidly, there are never enough job openings for all who want to work. That number is 24.4 million people today: 10.9 million officially unemployed and 13.5 million in hidden unemployment (bls.gov).

The mark of unemployment is itself an obstacle to getting a job. The average employer equates 9 months of unemployment to 4 years of lost work experience. (Eriksson and Rooth AER, 2014). And so unemployment breeds unemployability, feeding the decades-long uptrend in long-term unemployment, while the economic, political and social costs are mounting.

Whenever I write about unemployment, I always stress the long run. The point is to solve the problem in recessions and expansions. Virtually no economist or pundit outside MMT makes this point. I predict that, while it is fashionable to entertain various solutions for the unemployed today, as soon as the economy recovers sufficiently, they will be forgotten.

It’s time to change the conversation from creating jobs for the jobless now, to creating jobs for the jobless always. The Job Guarantee provides the solution. I have explained elsewhere why neither the private sector nor the flawed bastard Keynesian pump-priming policies can get us there (here and here).

So let’s move right to the design and implementation of a JG through the non-profit sector.* continue reading…

I just returned from the big annual meeting of economists (this time in Philly), at which we had a panel on the Job Guarantee. One of the papers on our panel was by William (Sandy) Darity and Darrick Hamilton, which demonstrated how imperative it is to implement the JG to reduce hiring discrimination in the labor market. Darrick (who presented the paper) pointed out that official unemployment rates for black Americans is chronically twice as high as that for whites; by conventional views of what constitutes Great Depression levels of unemployment, black Americans are in a Great Depression and are always suffering from at least recession levels of unemployment.

Darrick pointed out that even in good times, blacks with some college education have unemployment rates higher than white high school drop-outs, and even as high as whites who’ve been incarcerated. Sandy has supported the Job Guarantee since the earliest days—he was on the first panel we ever organized on the JG (back when we were calling it Public Service Employment). While the JG will not eliminate racial discrimination in the USA, it will go a long way in helping to provide a real opportunity.

The highest unemployment rates are among the young. As Sandy says, black teen high school dropouts have a 95 percent joblessness rate. You read that right. The JG would give them an alternative path to gainful employment.

Some years ago, Marc-André Pigeon and I did a study of joblessness. We found that during the Clinton boom years (when the overall unemployment rate finally reached the lows that were last achieved in the Johnson years), of the 12 million jobs created only 700,000 of them went to workers who had not attended college. We found that even with the relatively robust labor markets of the Clinton boom, “Well over half of noninstitutionalized high school dropouts remain out of the labor force, compared with only a quarter of those who attended college. If the current expansion raises the employment rate for high school dropouts by only about 3 percentage points over a period of 6 years, by simple extrapolation, the expansion would have to continue for another 78 years before the gap could be closed.” YEP. If we could maintain an economic boom for 78 more years, we could get the unemployment rate down across all the groups. That’s how boomy our economy needs to be to generate jobs for workers at the bottom of the queue.

(It won’t happen. We’d get very high inflation and asset bubbles before we boomed for even a decade. See our other article that looks in depth at those who are officially “out of the labor force” but who could be brought in if jobs were available. We estimated there were probably around 26 million potentially employable people left behind. In other work we looked at incarceration rates and compared the probabilities of employment rates and incarceration rates among prime age males across race and level of educational attainment. The results were horrific; I’ll report on that some time.)

Here are three recent, interesting, pieces on the JG proposal, two by Sandy Darity and one by Jesse Myerson at Rolling Stone: continue reading…

Amazon’s Jeff Bezos is all over the news with his statement that drones will sooner or later be delivering packages to your home. Predictably, this has generated two types of buzz: what about the inevitable mishaps, and what about the poor displaced UPS workers?

For me, the first is a wee bit scary. Of course, you now have the prospect of being run over by a UPS driver whose workload has already been increased so much that he doesn’t have the time to drive carefully. With the coming of drones we’ll have to constantly scan the sky for incoming errant flights and packages falling to earth. I suppose the drones are scarier than the trucks.

However, it is the second worry that is getting most of the attention: What are we going to do as robots increasingly replace human workers? That sort of apocalypse has been featured in science fiction from time immemorial. Not only do we have the worry of rising unemployment of humans, but also the growing intelligence of robots as they realize they don’t need no damn humans any more. Ahhhnold Is Baaaack! Open the Bomb Bay Doors, Hal!

An interesting piece in Salon addresses these latter issues. Indeed, the title tells it all: “Amazon, Applebee’s and Google’s job-crushing drones and robot armies: They’re coming for your job next.”

Andrew Leonard lays out the issues nicely:

Nobody knows how it will play out, but one thing seems certain: We won’t have to wait too long to find out whether a robot apocalypse is going to ravage society. The sense of increasing momentum toward a more robot-infested future is undeniable. No matter what the regulators say, I find it impossible to imagine that there won’t be more drones in our skies, more tablet menus replacing human beings, more jobs accomplished by automation. Whether this transition is driven because it delivers true convenience for consumers, or whether it simply makes economic sense for the masters of capital, the logic of this technological evolution is inexorable….

Panglossians believe that robots will perform the world’s drudgery, ushering in an era of affluence and leaving humans free to nurture their creative instincts. Whether our creative instincts will be able to generate the capital necessary to purchase the products of robot labor is as yet unknown. I’ve noted before that the big difference between the current technological revolution and the Industrial Revolution is that the initial technological advances of the 18th century created jobs for unskilled workers, while today’s robot armies are increasingly replacing the jobs of unskilled workers…

When the warehouse and the delivery and the waitress and taxi driver jobs are gone, where do those workers go? Will our education system be robust enough to keep them ahead of the rising technological curve?

The typical economist’s take on this, however, is that by filling the lower-skilled jobs with robots, we will be able to move human workers into the higher-skilled work. Of course, as robots get smarter (or as we continually reduce complex processes to a series of simple steps—which has been the basis of automation since the days of Adam Smith), humans will be funneled into ever-higher-order tasks. Not to worry, say the economists, because we’ll need more and more robots, too. Hence, the final refuge for human workers will be to make the robots that do everything else.

Economist Joan Robinson (who should have been the first woman to win the Nobel for Economics—but was disqualified for taking the winning side of the “Capital Controversy” debate; note all the losers of that debate did get a Nobel, presumably as a consolation prize for losing to Robinson!) saw all this coming long ago when she wondered “But what do we do when robots make the robots?”

Back in 1991, I wrote about all this in a journal article: continue reading…

In this video, Pavlina Tcherneva and Philip Harvey look at the job guarantee and basic income grant proposals in the context of a discussion of economic rights.

Tcherneva begins with the theory behind the job guarantee — a federally-funded (and in Tcherneva’s version, locally-administered) program that would offer a paid job to anyone willing and able to work — and then (16:10) turns to a real-world example that, while not quite a job guarantee, was in the family of direct job creation programs: Argentina’s Plan Jefes. (Tcherneva has a related working paper that analyzes the socially transformative potential of direct job creation, over and above its macroeconomic stabilization benefits, in the context of the alteration of Plan Jefes into a pure cash transfer program, Plan Familias.)

Philip Harvey (31:45) looks at the legal bases of the rights to work and income (beginning with US statutes) before moving on to a comparison of basic income guarantees with job guarantees:

This talk was delivered as part of Columbia’s “Modern Money” series; you can find links to background reading for this seminar here.

(cross-posted from ineteconomics.org)

This week workers in fast food restaurants across the country gathered to protest the minimum wage in the United States, which currently is a paltry $7.25, and to fight for a better standard of living. The battle for a living wage for the nation’s poorest workers is set against the backdrop of mass unemployment and the highest level of economic inequality in the U.S. in almost a century.

The first minimum wage laws in the U.S. were the result of a state-by-state effort in the Progressive era to secure a floor to a decent life to employed women and youth. The first of these was enacted in Massachusetts in 1912 and eventually led to the 1938 Fair Labor Standards Act, which instituted a minimum wage at the federal level.

The objective was fairness, economics opportunity, stability, and social cohesion. The problem was the unequal power between labor and capital—a rationale that even early neoclassical economists embraced on the grounds that it constrained labor’s bargaining power and reduced morale, productivity, and wellbeing.

The solution was to set the “rules of the game” so that working women could support their families and young workers would not fall prey to discriminatory practices of their employers. In the absence of such rules, economists thought, the market mechanism wouldn’t work. Firms simply could not be counted on to self-regulate or reinforce these rules. The minimum wage movement required legislation.

The Supreme Court initially resisted and ruled that the state laws were unconstitutional, but states and organized labor prevailed, and by the time the New Deal rolled around, the Supreme Court had changed its mind. It had begun to work with a much broader definition of “the public interest” and supported various state legislations to protect the “welfare of its citizens.” It was understood that the wellbeing of workers served an important public purpose.

American economists – neoclassical and institutionalists alike – all supported the movement, the legislation, and the rationale. This wonderful excursion in the history of the minimum wage movement and the history of economic thought by Robert Prasch (1999) shows that economists in the U.S. were virtually unanimous in their support. The objections largely came from the British, notably from Professor Pigou, until another British economist, John Maynard Keynes, disproved his argument. Not only were the assumptions behind the labor market mechanism unfounded in Pigou’s analysis, but the notion that the minimum wage caused unemployment was also theoretically and empirically flawed. As Keynes explained, reducing wages as a macroeconomic policy was a “method socially disastrous in the process and socially unjust in the result.”

A federally mandated minimum wage was not enough to secure fairness, economic opportunity, stability, and social cohesion. The missing piece was a policy for full employment – one that guaranteed jobs for all who wished to work. That came later with the work of John Maynard Keynes, John Pierson, William Beveridge, and others. All advanced specific policies for full employment that aimed to secure decent work at decent pay to anyone who was ready, willing, and able, regardless of whether the economy was reeling from a Great Depression or enjoying relative prosperity. The right to work was codified by the international community in the 1948 Universal Declaration of Human Rights and found a special place in Martin Luther King, Jr.’s “I Have a Dream” speech during the 1963 March on Washington for Jobs and Freedom.

The New Deal put full employment front and center on the policy agenda. Though it did not deliver a long-term job guarantee program, it boldly and successfully experimented with direct employment policies. The war mobilization delivered true full employment, but Keynes insisted that public policy could and ought to achieve the same in peacetime.

In 1949, the minimum wage nearly doubled at a time when the economy was as close to true full employment as it has ever been, and when direct job creation was the policy of choice to deal with unemployment. Full employment and high wages ushered in the Golden Age of the American economy.

Today we have neither. Mainstream economists have successfully convinced themselves and policy makers that true full employment is impossible and that the minimum wage is the root of all evil.

Jobs for all (via a Full Employment Program through Social Entrepreneurship, a Green Jobs Corp, or a Job Guarantee) and a doubling of the minimum wage is what the economy needs today. Keynes made the case, Martin Luther King, Jr. made the case, and the international community made the case.

Sometimes the good old ideas are the best new ideas.

Follow me on Twitter at @ptcherneva

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…

(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…