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Article Artículo

Wage Wars at the Fed

The NYT article on the March jobs report featured several economists describing the current state of the economy in glowing terms. Scott Clemons, chief investment strategist at Brown Brothers Harriman, described the current economic situation as being a “near Goldlocks scenario.” He said the jobs and wage gains in March were healthy, but not so strong as to prompt the Federal Reserve Board to raise interest rates to slow growth.

Michelle Meyer, deputy head of United States economics at Bank of America Merrill Lynch, described the economic situation as “a best-case scenario.” Michael Gapen, chief United States economist at Barclays, also was very positive about the economy. This view seemed to be reflected in the first two paragraphs in the article which were also overwhelmingly positive about the current state of the economy.

(In fairness, the piece included several comments noting how far the economy has yet to go to recover to pre-recession levels. Also, in addition to the optimism from the bank economists, it included a comment from Claire McKenna, a senior policy analyst with the National Employment Law Project.)

While there is little doubt that the economy is doing much better in recent months than it had been earlier in the recovery and that workers are seeing some gains, it is important to ask about the implicit base of comparison in these comments.

The average hourly wage increased at a 2.3 percent rate over the last year. Its annualized rate of increase over the last three months compared with the prior three months is also 2.3 percent, which indicates no acceleration. Since inflation over the last year was only 1.0 percent, this translates into a 1.3 percent increase in real wages over this period. While this is a decent rate of increase, it is only roughly equal to the trend rate of productivity growth. In other words, this is the rate of wage growth that workers should be able to assume in a normal year.

However, there are two reasons to consider this rate inadequate. First, workers lost an enormous amount of ground in the downturn. The average real hourly wage did not pass its 2008 peak until November of 2014. (Workers had also seen almost no wage growth in the prior business cycle, so they had lots of ground to make up even in 2008.)

Dean Baker / April 02, 2016

Article Artículo

Economic Growth

United States

Workers

Still Not Recovered: Updates to CEPR’s Real Rate of Recovery Series

In March of last year, CEPR released a series of five measures tracking the rate of recovery from the 2008 recession. The series was created in order to show that the labor market is much weaker than the unemployment rate implies.

The five measures have been updated every month at CEPR’s Graphic Economics page after each new jobs report. However, we have modified the series in two ways for the latest jobs figures. These modifications are described below.

Using 2007 Annual Data as Our Starting Point

In CEPR’s “Real Rate of Recovery” series, we determine both the degree to which the economy weakened during the recession and also the extent of recovery since then. In our original series, we used December 2007 — officially the first month of the recession, according to NBER — as our starting point for the pre-recession state of the economy. However, it appears that the economy began weakening even before December 2007. For example, the prime-age employment rate averaged 79.9 percent during 2007 as a whole, but had fallen to 79.7 percent by December. The unemployment rate itself exhibits this tendency, as it jumped from 4.7 to 5.0 percent between November and December.

December 2007 is a flawed starting point, as the economy had already begun shedding jobs by then. Therefore, we have updated our series by taking the average annual data for 2007 as our starting point. This changes our calculations somewhat, as it means that the economy worsened more significantly between 2007 and the recession’s trough than we had originally estimated.

CEPR and Nicolas Buffie / March 31, 2016

Article Artículo

United States

Workers

The Negative Effects of Monetary and Fiscal Austerity

buffie austerity 2016 04 01 fig1

The graph above displays the change in the prime-age employment rate for twenty countries between 2007 and 2015. Included in the graph are the United States, the remaining G-7 countries, various other advanced economies, and Mexico. (Mexico and Canada provide a useful point of comparison with the United States since they are part of the same regional economy.) 


The prime-age employment rate is a far better gauge of the labor market than the unemployment rate. As such, the graph above is useful in determining the level of employment lost in each country as a result of the 2008 recession.

CEPR and Nicolas Buffie / March 31, 2016

Article Artículo

Workers

Did Uber Take the NYT for a Ride?

It is sometimes difficult to distinguish between the paid content and the news stories in the NYT. Farhad Manjoo’s piece on Uber’s new carpooling service could leave any reader confused. Manjoo seems to have taken everything Uber said about this service at face value, just as one would expect in paid content.

We can start with the story that sets up the piece. The story is that Abby is going from San Francisco Tenderloin district to the Noe Valley, a trip which the piece tells us would ordinarily take about 25 minutes by car. She decides to use UberPool instead of driving. Before the UberPool trip ends, it picks up four other passengers. According to the article, the total trip takes 55 minutes (not all of it with Abby, who gets out before the last stop) and covers 10 miles.

The piece then tells readers:

'In total, Uber collected about $48 for the ride, of which the driver kept $35. The company had collapsed five separate rides into a single trip, saving about six miles of travel and removing several cars from the road.'

That might be Uber’s story, but let’s look at this more seriously. The driver has to pay for gas, insurance, and depreciation on the car. The I.R.S. puts these costs at an average of 54 cents a mile. We know the trip covered ten miles, but the driver also has to get to the start point and back from the end point. Let’s conservatively say that adds five miles for a total 15 miles driven. This comes to $8.10, which reduces the hourly pay rate for this ride to $26.90. That’s still not too bad, but remember, this is for the time the driver actually has people in the car. If he has to wait another half hour for his next fare, then the hourly rate falls to $17.90. Keep in mind this is in a city with high living costs where the minimum wage is being raised to $15.00 an hour.

Dean Baker / March 31, 2016

Article Artículo

Honduras

Latin America and the Caribbean

World

Congressional Briefing: “The Assassination of Berta Cáceres and Ongoing Killings and Attacks Targeting Social Activists in Honduras”

“Berta Cáceres, my mother, is not dead. She multiplied. So it is our job, everyone whose lives she touched in some way, to continue multiplying her. From now on, we are committed to carrying on this work.” -Laura Zúñiga Cáceres, indigenous activist and daughter of Berta Cáceres

Berta Cáceres, co-founder of the Civic Council of Indigenous and Popular Organizations of Honduras (COPINH) and recipient of the 2015 Goldman Environmental Prize, was killed by gunmen in her home on March 3rd. Less than two weeks later, one of Cáceres’ colleagues, a COPINH member named Nelson García, was also assassinated following the violent eviction of a Lenca community at Rio Chiquito.

On Wednesday, March 23, Cáceres’ daughter and a COPINH activist were joined by experts on international law and megaprojects to brief U.S. congressional staff and the general public on the events surrounding Cáceres’ assassination and the efforts of Cáceres’ family members and COPINH to seek justice. The congressional briefing, “The Assassination of Berta Cáceres and Ongoing Killings and Attacks Targeting Social Activists in Honduras” was hosted by Representative Hank Johnson (D-Ga.) and moderated by Timi Gerson, Director of Advocacy with American Jewish World Service.

Rebecca Watts / March 30, 2016

Article Artículo

NAFTA and Auto Jobs: Would Importing Doctors from Mexico Increase Demand for Doctors in the U.S.?

Eduardo Porter had an interesting piece in the NYT in which he argued that NAFTA actually saved jobs for auto workers in the United States. The argument is that by allowing U.S. manufacturers to have easier access to low cost labor in Mexico for part of their operation, they were able to keep a larger market share than would otherwise be the case.

The same would apply to foreign manufacturers choosing to locate operations in the United States rather than staying in Europe, Japan, or elsewhere. The argument is that better access to low cost labor in Mexico made locating part of their operating in the United States more attractive.

Currently we import roughly $100 billion a year in cars and parts from Mexico, this compares to total domestic production of around $500 billion. Porter argues that on net, because NAFTA improved the competitiveness of the U.S. industry, it actually saved jobs. This is not impossible, but it does seem implausible. I headlined the case of doctors to see an analogous story.

Suppose that we have large numbers of people going to other countries for major medical procedures to take advantage of the fact that the cost is typically less than half as much and sometimes less than one tenth as much for comparable quality care. (Imagine saving $200,000 on open heart surgery by having the operation in Germany. Most of these surgeries are done on a non-emergency basis, so it is possible.)

In this scenario, suppose that we have a somewhat different NAFTA that made it much easier for Mexican doctors to train to U.S. standards and come practice in the United States. Let’s imagine 200,000 Mexican doctors, or roughly one fifth of our total, chose to take advantage of this opportunity.

Dean Baker / March 30, 2016

Article Artículo

Vox on the Bernie Sanders Tax Tsunami

I'm tied up with many other things, but since folks asked, I will give a quick comment/explanation of the Vox analysis of Bernie Sanders' tax plans. For those who haven't seen it, Vox put together a calculator that allows people to plug in their income and then see how their tax bill would change under the tax plans proposed by Donald Trump, Ted Cruz, Hillary Clinton, and Bernie Sanders. For the first two, most people get tax cuts. There is little change with Clinton, but big tax increases with Sanders.

For example, I took a single person with one kid, who earns $30,000 a year. According to the tax calculator, this person would see an increase in their tax bill of $3,680 as a result of the Sanders' tax package. I can't quite follow the math here, because the calculator says that Sanders plan gives this a person a tax rate of 18.1 percent, compared with 10.3 percent for the current system. This implies an increase in the tax rate of 7.8 percentage points of this person's income. But 7.8 percentage points of $30,000 would get you $2,340 not the $3,680 indicated by the calculator.

Okay, but let's ignore the math problem and get to the underlying issues. Most of the basis for this tax increase for moderate income workers is Sanders' tax to pay for his universal Medicare plan. This would impose a payroll tax on employers of 6.2 percent and a 2.2 tax on individuals for income in excess of the standard deduction (roughly $9,500 for this person). There is also a 0.2 percentage point tax increase to cover the cost of paid family leave. In addition, some of the other taxes will have feedback that will affect moderate income earners, but these taxes are the bulk of the story.

Dean Baker / March 29, 2016

Article Artículo

Honduras

Latin America and the Caribbean

World

The Coup in Honduras and the 2016 US Presidential Elections

In the world’s most dangerous country for environmental activists, Honduran indigenous leader Berta Cáceres was assassinated in her home in the early hours of March 3. Winner of the 2015 Goldman Environmental Prize for her relentless opposition to the construction of the Agua Zarca dam, which would have threatened the livelihoods of indigenous communities in the area, Cáceres had received numerous threats to her life in connection with her work.

In examining cases of journalists murdered since 2003, PEN International noted that Honduras has an impunity rate of 95 percent, a figure that has risen dramatically since a military coup in 2009. Honduras is even more deadly for environmentalists; at least 109 of them were murdered in Honduras between 2010 and 2015. As over 100 members of the U.S. Congress have pointed out, women, indigenous Hondurans, the LGBT community, Hondurans of African descent and other minorities have also been targeted.

CEPR and Ming Chun Tang / March 29, 2016

Article Artículo

Neil Irwin on Donald Trump’s Trade Scorecard

Neil Irwin takes issue with Donald Trump using the trade surplus between countries as a scorecard on trade. He is largely right with a couple of important qualifications.

Irwin notes that a country with a trade surplus should see its currency rise against the dollar if it doesn’t reinvest the money in dollar assets. He then comments that if it does reinvest the money in dollar assets, whether or not it benefits the United States depends on what the money is used for. As Irwin points out, in the last decade the money was used in large part to invest in residential housing and to inflate the housing bubble. This was of course not useful.

But there is a deeper point here. In an era of “secular stagnation,” which means there is not enough demand in the economy, the foreign assets may in effect be invested in nothing. Most of the foreign capital that went into the United States in the housing bubble years did not get directly invested in housing. It was invested in government bonds and short-term deposits.

These investments don’t directly create any jobs; they are simply assets on a balance sheet. Insofar as foreigners invest their surplus dollars in U.S. assets not directly linked to employment (which will generally be the case) a trade deficit will be associated with higher unemployment, unless the economy has some other force generating employment to offset it.

Currently we are running an annual trade deficit of around $540 billion (@ 3 percent of GDP). This could be offset by spending more on education, infrastructure, clean technology or other areas, but the Very Serious People will not let us run larger budget deficits. In that context, it is quite reasonable to link a trade deficit to higher unemployment, so Trump is not wrong in that respect.

Dean Baker / March 27, 2016