Neil Irwin has an Upshot piece making the case for why we should expect to see wages rising soon. He noted a survey of employers showing more are planning to raise wages than in prior years. He also noted the promise by Aetna to place a floor of $16 an hour on its workers’ pay.
However the main piece of evidence is a rise in the number of job opening to a high for the recovery. While this is indeed encouraging, there are three important qualifications that deserve mention.
First, the biggest rise in openings compared with pre-recession levels are in low-paying sectors like retail and restaurant employment. This may mean some shift from these low-paying sectors to higher paying sectors, but the high-paying sectors do not appear to be having trouble getting workers. One exception is the government sector, which has also returned to pre-recession levels of openings. This could reflect the deterioration in the pay and work conditions of government employees.
A second fact worth noting is that real wages were rising very modestly even before the recession. The last time we saw strong real wage growth was at the very beginning of the decade. This series began in December of 2000, just before the 2001 recession kicked in. But the job opening rate was higher in the three months preceeding the recession than the number released by the Labor Department this week, 3.6 percent in 2001 compared to 3.4 percent in November.
Finally, the quit rate at 1.9 percent is below the 2.1-2.2 percent pre-recession level and well below the 2.5 percent rate of 2000-2001. This means that workers still do not feel comfortable leaving their jobs.
Clearly the labor market is improving, but we likely still have a long way to go before most workers see real wage gains. The one wild card is that the Affordable Care Act, by allowing workers to get insurance outside of employment, may make workers more comfortable leaving jobs they don’t like. This could lead the labor market to tighten up more quickly than otherwise would have been the case.
Neil Irwin has an Upshot piece making the case for why we should expect to see wages rising soon. He noted a survey of employers showing more are planning to raise wages than in prior years. He also noted the promise by Aetna to place a floor of $16 an hour on its workers’ pay.
However the main piece of evidence is a rise in the number of job opening to a high for the recovery. While this is indeed encouraging, there are three important qualifications that deserve mention.
First, the biggest rise in openings compared with pre-recession levels are in low-paying sectors like retail and restaurant employment. This may mean some shift from these low-paying sectors to higher paying sectors, but the high-paying sectors do not appear to be having trouble getting workers. One exception is the government sector, which has also returned to pre-recession levels of openings. This could reflect the deterioration in the pay and work conditions of government employees.
A second fact worth noting is that real wages were rising very modestly even before the recession. The last time we saw strong real wage growth was at the very beginning of the decade. This series began in December of 2000, just before the 2001 recession kicked in. But the job opening rate was higher in the three months preceeding the recession than the number released by the Labor Department this week, 3.6 percent in 2001 compared to 3.4 percent in November.
Finally, the quit rate at 1.9 percent is below the 2.1-2.2 percent pre-recession level and well below the 2.5 percent rate of 2000-2001. This means that workers still do not feel comfortable leaving their jobs.
Clearly the labor market is improving, but we likely still have a long way to go before most workers see real wage gains. The one wild card is that the Affordable Care Act, by allowing workers to get insurance outside of employment, may make workers more comfortable leaving jobs they don’t like. This could lead the labor market to tighten up more quickly than otherwise would have been the case.
Read More Leer más Join the discussion Participa en la discusión
The NYT reported on the likelihood of a settlement between Standard and Poors and the Justice Department over accusations that S.&P. had effectively sold investment grade ratings to banks issuing mortgage backed securities (MBS) during the housing bubble years. The claim is that S.&P. knowingly gave ratings to MBS that they did not deserve because rating these issues was a major source of revenue to the company and it did not want to risk the business by giving out honest ratings.
This is a good time to mention the Franken Amendment to the Dodd-Frank bill which would have eliminated the incentive for the rating agencies to exaggerate the quality of MBS by taking the hiring decision away from the banks. Instead of directly hiring a rating agency, an issuer of MBS would contact the SEC, which would then determine which rating agency to assign to the job. While the amendment passed with overwhelming and bi-partisan support in the Senate, it was stripped out in the conference committee, apparently at the request of the Obama administration.
The Securities and Exchange Commission (SEC) then studied the issue for three years and decided that it was not up to the task of picking rating agencies after being inundated with comments from the industry. The gist of these comments was that the SEC might send over an agency that was not competent to rate the bond issue in question. This begs the obvious question of why would any bank be marketing a bond, the quality of which a professional auditor at one of the accredited rating agencies could not accurately assess? Nonetheless the amendment was killed and the pre-crisis system was preserved intact.
And, as economic theory would predict, there is evidence that the rating agencies are again lowering their standards to gain business.
The NYT reported on the likelihood of a settlement between Standard and Poors and the Justice Department over accusations that S.&P. had effectively sold investment grade ratings to banks issuing mortgage backed securities (MBS) during the housing bubble years. The claim is that S.&P. knowingly gave ratings to MBS that they did not deserve because rating these issues was a major source of revenue to the company and it did not want to risk the business by giving out honest ratings.
This is a good time to mention the Franken Amendment to the Dodd-Frank bill which would have eliminated the incentive for the rating agencies to exaggerate the quality of MBS by taking the hiring decision away from the banks. Instead of directly hiring a rating agency, an issuer of MBS would contact the SEC, which would then determine which rating agency to assign to the job. While the amendment passed with overwhelming and bi-partisan support in the Senate, it was stripped out in the conference committee, apparently at the request of the Obama administration.
The Securities and Exchange Commission (SEC) then studied the issue for three years and decided that it was not up to the task of picking rating agencies after being inundated with comments from the industry. The gist of these comments was that the SEC might send over an agency that was not competent to rate the bond issue in question. This begs the obvious question of why would any bank be marketing a bond, the quality of which a professional auditor at one of the accredited rating agencies could not accurately assess? Nonetheless the amendment was killed and the pre-crisis system was preserved intact.
And, as economic theory would predict, there is evidence that the rating agencies are again lowering their standards to gain business.
Read More Leer más Join the discussion Participa en la discusión
In a Wonkblog piece Max Ehrenfreund wrongly described the Democrats proposal for a financial transactions tax as a major tax increase on investors. This is not true. Research shows that trading volume will decline roughly in proportion to the increase in transactions costs that result from this tax.
This means that if the tax increases trading costs by 50 percent, we would expect trading volume to decline by roughly 50 percent. This means that investors might pay 50 percent more for each trade, but since they only trade half as much, the total amount they spend on trading costs would be little affected. The cost of the tax would be borne almost entirely by the financial industry, not investors.
In a Wonkblog piece Max Ehrenfreund wrongly described the Democrats proposal for a financial transactions tax as a major tax increase on investors. This is not true. Research shows that trading volume will decline roughly in proportion to the increase in transactions costs that result from this tax.
This means that if the tax increases trading costs by 50 percent, we would expect trading volume to decline by roughly 50 percent. This means that investors might pay 50 percent more for each trade, but since they only trade half as much, the total amount they spend on trading costs would be little affected. The cost of the tax would be borne almost entirely by the financial industry, not investors.
Read More Leer más Join the discussion Participa en la discusión
The Washington Post reports that the Democrats have a new plan for middle class tax cuts that will be financed in part by a 0.1 percent tax on financial transactions like stocks, bonds, and derivatives. Since the financial industry and its employees will undoubtedly be pushing tirades telling us that this tax will kill middle class savers, BTP decided to call in Mr. Arithmetic to get his assessment of the issue.
Mr. Arithmetic points out that the amount of the tax born by savers will depend in large part on their response to the tax. Since research indicates that trading volume declines roughly in proportion to the increase in trading costs, this means that ordinary savers will bear almost none of the tax.
To see this point, imagine that our middle class saver has $100,000 in a 401(k). Suppose that 20 percent of it is traded every year and that the trading costs average 0.2 percent. This means that our saver is spending $40 a year on trading costs (0.2 percent of $20,000).
With the Democrats’ proposal, trading costs will rise to 0.3 percent assuming that 100 percent of the tax is passed on in higher trading costs. (This is almost certainly an exaggeration, since the industry will probably not be able to pass the tax on in full.) If trading volume were unchanged, then this middle class saver would now pay $60 a year in trading costs (0.3 percent of $20,000).
However research shows that the folks managing the 401(k) will likely cut back their trading by roughly 50 percent in response to this 50 percent increase in trading costs. This would mean that only 10 percent of the 401(k) or $10,000 would be traded each year. In this case, the 401(k) holder would be paying just $30 a year in trading costs (0.3 percent of $10,000).
Instead of going up, trading costs actually fell. Since 401(k) holders don’t on average make money on trading (for every winner there is a loser), they end up better off after the tax. Of course these numbers are approximations and it may well be the case that the decline in trading volume does not fully offset the increase in costs, but the point remains. The vast majority of this tax will fall on the financial industry (think Lloyd Blankfein, Jamie Dimon, and Robert Rubin). The middle class 401(k) holder will be largely unaffected.
The Washington Post reports that the Democrats have a new plan for middle class tax cuts that will be financed in part by a 0.1 percent tax on financial transactions like stocks, bonds, and derivatives. Since the financial industry and its employees will undoubtedly be pushing tirades telling us that this tax will kill middle class savers, BTP decided to call in Mr. Arithmetic to get his assessment of the issue.
Mr. Arithmetic points out that the amount of the tax born by savers will depend in large part on their response to the tax. Since research indicates that trading volume declines roughly in proportion to the increase in trading costs, this means that ordinary savers will bear almost none of the tax.
To see this point, imagine that our middle class saver has $100,000 in a 401(k). Suppose that 20 percent of it is traded every year and that the trading costs average 0.2 percent. This means that our saver is spending $40 a year on trading costs (0.2 percent of $20,000).
With the Democrats’ proposal, trading costs will rise to 0.3 percent assuming that 100 percent of the tax is passed on in higher trading costs. (This is almost certainly an exaggeration, since the industry will probably not be able to pass the tax on in full.) If trading volume were unchanged, then this middle class saver would now pay $60 a year in trading costs (0.3 percent of $20,000).
However research shows that the folks managing the 401(k) will likely cut back their trading by roughly 50 percent in response to this 50 percent increase in trading costs. This would mean that only 10 percent of the 401(k) or $10,000 would be traded each year. In this case, the 401(k) holder would be paying just $30 a year in trading costs (0.3 percent of $10,000).
Instead of going up, trading costs actually fell. Since 401(k) holders don’t on average make money on trading (for every winner there is a loser), they end up better off after the tax. Of course these numbers are approximations and it may well be the case that the decline in trading volume does not fully offset the increase in costs, but the point remains. The vast majority of this tax will fall on the financial industry (think Lloyd Blankfein, Jamie Dimon, and Robert Rubin). The middle class 401(k) holder will be largely unaffected.
Read More Leer más Join the discussion Participa en la discusión
Read More Leer más Join the discussion Participa en la discusión
David Leonhardt has a good discussion of many of the issues surrounding President Obama’s proposal to make community college free. He concludes the piece by noting that we likely need a more educated work force now than in the last century, then adds:
“If nine years of free education was the sensible norm for the masses in the 19th century and 13 years was the sensible norm in the early 20th century, what is the right number in the 21st century?
“Our current system suggests that the answer is still 13. The performance of our economy suggests otherwise.”
Actually almost all of the people who are involved in designing and implementing economic policy have had far more than 13 years of education. The economists who were unable to recognize the $8 trillion housing bubble that wrecked the economy all had well over 20 years of education. Even members of Congress who don’t understand basic economics (e.g. spending creates demand) almost all have had 17 years of education and many have law degrees or other post-college degrees.
The problems of our economy seem to stem from inept economic policy. We don’t have any source of demand to replace the demand generated by the housing bubble. If Leonhardt is claiming the economy’s problems stem from a poorly educated workforce he does not support this with any evidence.
David Leonhardt has a good discussion of many of the issues surrounding President Obama’s proposal to make community college free. He concludes the piece by noting that we likely need a more educated work force now than in the last century, then adds:
“If nine years of free education was the sensible norm for the masses in the 19th century and 13 years was the sensible norm in the early 20th century, what is the right number in the 21st century?
“Our current system suggests that the answer is still 13. The performance of our economy suggests otherwise.”
Actually almost all of the people who are involved in designing and implementing economic policy have had far more than 13 years of education. The economists who were unable to recognize the $8 trillion housing bubble that wrecked the economy all had well over 20 years of education. Even members of Congress who don’t understand basic economics (e.g. spending creates demand) almost all have had 17 years of education and many have law degrees or other post-college degrees.
The problems of our economy seem to stem from inept economic policy. We don’t have any source of demand to replace the demand generated by the housing bubble. If Leonhardt is claiming the economy’s problems stem from a poorly educated workforce he does not support this with any evidence.
Read More Leer más Join the discussion Participa en la discusión
Read More Leer más Join the discussion Participa en la discusión
The Washington Post article on the December jobs numbers told readers:
“Though there were nascent signs of wage growth in November, the data from December showed average hourly earnings slid backward by five cents, to $24.57.
“That wage decrease over the past month, a surprise to economists, indicates that the nation has not yet reached ‘full employment’ — a condition in which demand from employers is broad enough that workers have a degree of leverage and a chance to see pay raises.”
This comment earns a really big OY!
No, the drop in average hourly earnings should not have been a surprise to economists. As some of us were screaming following the November jump in hourly wages, the monthly data are erratic. As I pointed out at the time, the jump reported in November followed two months of very weak wage growth. It simply is not plausible to think that millions of employers who were being tightfisted September and October suddenly got really generous with their workers in November. The world doesn’t work that way.
The more obvious explanation is that the monthly changes are driven largely by measurement error. A weak number in one month is likely to lead to a strong number the next (and vice versa) because a weak number likely understated the true rate of wage growth. If the next month’s number then accurately measures the true wage, then it will appear like a large jump. This is a regular pattern that anyone who follows the data (e.g. economists) would know.
The point about full employment is also seriously off. The employment to population ratio is still close to four percentage points below its pre-recession level. And, contrary to the protestations about this being due to the retirement of the baby boomers, the decline is largely due to prime age workers (age 25-54) leaving the labor force. And it’s a bit hard to believe that all these people in their 30s and 40s just decided they no longer feel like working. In addition, the number of people involuntarily working part-time is still up by more than 2 million from its pre-recession level.
In other words, we are still very far from what would have been considered full employment back in the good old days of the Bush presidency. Folks should be very upset if the Fed starts raising interest rates to slow the economy and keep people from getting jobs.
This piece also misleads readers in saying:
“Another strong sector was professional and business services — accountants, architects, consultants — which added 52,000 positions. The pick-up in better-paying industries is in noted contrast to periods earlier in the recovery, when growth was concentrated in part-time positions and the retail and health sectors.”
Actually, most of the growth in the professional and business services sector (67.7 percent) was in the relatively low-paying administrative and waste services categories.
The Washington Post article on the December jobs numbers told readers:
“Though there were nascent signs of wage growth in November, the data from December showed average hourly earnings slid backward by five cents, to $24.57.
“That wage decrease over the past month, a surprise to economists, indicates that the nation has not yet reached ‘full employment’ — a condition in which demand from employers is broad enough that workers have a degree of leverage and a chance to see pay raises.”
This comment earns a really big OY!
No, the drop in average hourly earnings should not have been a surprise to economists. As some of us were screaming following the November jump in hourly wages, the monthly data are erratic. As I pointed out at the time, the jump reported in November followed two months of very weak wage growth. It simply is not plausible to think that millions of employers who were being tightfisted September and October suddenly got really generous with their workers in November. The world doesn’t work that way.
The more obvious explanation is that the monthly changes are driven largely by measurement error. A weak number in one month is likely to lead to a strong number the next (and vice versa) because a weak number likely understated the true rate of wage growth. If the next month’s number then accurately measures the true wage, then it will appear like a large jump. This is a regular pattern that anyone who follows the data (e.g. economists) would know.
The point about full employment is also seriously off. The employment to population ratio is still close to four percentage points below its pre-recession level. And, contrary to the protestations about this being due to the retirement of the baby boomers, the decline is largely due to prime age workers (age 25-54) leaving the labor force. And it’s a bit hard to believe that all these people in their 30s and 40s just decided they no longer feel like working. In addition, the number of people involuntarily working part-time is still up by more than 2 million from its pre-recession level.
In other words, we are still very far from what would have been considered full employment back in the good old days of the Bush presidency. Folks should be very upset if the Fed starts raising interest rates to slow the economy and keep people from getting jobs.
This piece also misleads readers in saying:
“Another strong sector was professional and business services — accountants, architects, consultants — which added 52,000 positions. The pick-up in better-paying industries is in noted contrast to periods earlier in the recovery, when growth was concentrated in part-time positions and the retail and health sectors.”
Actually, most of the growth in the professional and business services sector (67.7 percent) was in the relatively low-paying administrative and waste services categories.
Read More Leer más Join the discussion Participa en la discusión
Read More Leer más Join the discussion Participa en la discusión
E.J. Dionne is upset about Republican plans to have the Congressional Budget Office (CBO) use dynamic scoring in assessing the effects of tax cuts. He tells readers that dynamic scoring:
“will make it easier for the Republicans to shower money on their favored constituencies while pretending to be fiscally responsible. Dynamic scoring, the Center on Budget and Policy Priorities noted, ‘could facilitate congressional passage of large rate cuts in tax reform by making the rate cuts appear — on paper — less expensive than under a traditional cost estimate.’
“To understand the dynamic-scoring game, imagine a formula based on the idea that because infrastructure spending boosts the economy — which it most certainly does — we should pretend that an expenditure of $100 billion is actually, say, only $80 billion.”
Dynamic scoring means taking account of the growth effects of tax cuts and incorporating them into budget estimates. This is actually a very reasonable thing to do. When Douglas Holtz-Eakin, a conservative Republican economist, was head of CBO, he put out an analysis of the impact of dynamic scoring on budget estimates. The analysis found that the impact of a simple estimate of the impact of a tax cut on growth was small and in fact negative.
The analysis did find larger positive impacts if the tax cut assumption was coupled with other assumptions, such as a later tax increase, which would give people more incentive to work in the period of low taxes. However these modeling exercises showing growth were not in fact analyzing the policy being considered, which was simply a tax cut.
The issue created in this context has nothing to do with dynamic scoring, it is a question of honest scoring. That should be the real concern. If the Republicans want to follow Holtz-Eakin’s analysis and incorporate the negative impact that tax cuts have on growth then there is no reason for anyone to object. However if they just want CBO to make up numbers, their plan is objectionable. But the issue is not dynamic scoring.
This brings up the other side of the equation raised by Dionne. Government investment in infrastructure, education, and research and development does in fact have an impact on growth and CBO should be taking it into account in its projections. Under CBO’s current methodology, if the government stopped spending any money on improving and maintaining the infrastructure or on educating our children it would show up as a boost to the economy.
In CBO’s models, the reduced government spending would free up resources, some of which would end up as private investment. That would lead to higher productivity and more growth. There is something seriously wrong with modeling that implies we could grow the economy better if we stop maintaining our roads and educating our kids.
Finally it is worth taking issue with the use of “fiscally responsible.” The absurd conceptions of fiscal responsibility in place in Washington today are costing the jobs of millions of kids’ parents. This policy, which is ruining the lives of mutiple generations, should not be characterized as “responsible.” Washington politics may make it impossible to beat back deficit fetishism, but there is no reason that serious people should treat it as reasonable policy.
E.J. Dionne is upset about Republican plans to have the Congressional Budget Office (CBO) use dynamic scoring in assessing the effects of tax cuts. He tells readers that dynamic scoring:
“will make it easier for the Republicans to shower money on their favored constituencies while pretending to be fiscally responsible. Dynamic scoring, the Center on Budget and Policy Priorities noted, ‘could facilitate congressional passage of large rate cuts in tax reform by making the rate cuts appear — on paper — less expensive than under a traditional cost estimate.’
“To understand the dynamic-scoring game, imagine a formula based on the idea that because infrastructure spending boosts the economy — which it most certainly does — we should pretend that an expenditure of $100 billion is actually, say, only $80 billion.”
Dynamic scoring means taking account of the growth effects of tax cuts and incorporating them into budget estimates. This is actually a very reasonable thing to do. When Douglas Holtz-Eakin, a conservative Republican economist, was head of CBO, he put out an analysis of the impact of dynamic scoring on budget estimates. The analysis found that the impact of a simple estimate of the impact of a tax cut on growth was small and in fact negative.
The analysis did find larger positive impacts if the tax cut assumption was coupled with other assumptions, such as a later tax increase, which would give people more incentive to work in the period of low taxes. However these modeling exercises showing growth were not in fact analyzing the policy being considered, which was simply a tax cut.
The issue created in this context has nothing to do with dynamic scoring, it is a question of honest scoring. That should be the real concern. If the Republicans want to follow Holtz-Eakin’s analysis and incorporate the negative impact that tax cuts have on growth then there is no reason for anyone to object. However if they just want CBO to make up numbers, their plan is objectionable. But the issue is not dynamic scoring.
This brings up the other side of the equation raised by Dionne. Government investment in infrastructure, education, and research and development does in fact have an impact on growth and CBO should be taking it into account in its projections. Under CBO’s current methodology, if the government stopped spending any money on improving and maintaining the infrastructure or on educating our children it would show up as a boost to the economy.
In CBO’s models, the reduced government spending would free up resources, some of which would end up as private investment. That would lead to higher productivity and more growth. There is something seriously wrong with modeling that implies we could grow the economy better if we stop maintaining our roads and educating our kids.
Finally it is worth taking issue with the use of “fiscally responsible.” The absurd conceptions of fiscal responsibility in place in Washington today are costing the jobs of millions of kids’ parents. This policy, which is ruining the lives of mutiple generations, should not be characterized as “responsible.” Washington politics may make it impossible to beat back deficit fetishism, but there is no reason that serious people should treat it as reasonable policy.
Read More Leer más Join the discussion Participa en la discusión
