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Article Artículo

United States

Workers

The Wage Dividend from Low Unemployment: Blacks and Whites

As we previously pointed out, the most disadvantaged segments of the labor market benefit disproportionately from low unemployment. This shows up both in terms of getting a disproportionate share of the job growth and also from seeing more rapid wage growth as a result of the tightening of the labor market they face.

The logic is straightforward. When the economy goes into a slump, it is more likely that a retail clerk or person on the factory floor will lose their job than a manager or a highly educated professional, like a doctor or dentist.

This means that when the unemployment rate soars, as it did in the Great Recession, it is the workers at the bottom of the ladder who are at greatest risk of losing their jobs. They are also the ones who see the largest loss in pay, as their bargaining power diminishes with their employment opportunities.

Dean Baker and Daniella Zessoules / September 19, 2017

Article Artículo

Latin America and the Caribbean

Venezuela

World

How Venezuela Ended Up Becoming an “Extraordinary Security Threat” and Got Sanctioned For It

In 2015, the Obama administration announced that Venezuela had thrown the United States into a “national emergency” because Venezuela constituted “an unusual and extraordinary threat to the national security and foreign policy of the United States.” On August 25, the Trump administration cited this ongoing emergency to justify financial sanctions against Venezuela that are likely to deepen the economic crisis there and generate greater human suffering.

How does a country with a fraction of the US’s military budget and a government with no history of international aggression cause a national emergency in the most powerful state in the world? Sure, the short answer is always “politics.” But in this case, there’s a forty-year history of presidential overreach and unaccountability that calls for a closer look.

In 1976, the House and Senate, with Democratic supermajorities in both, were looking to curb executive power in the wake of the Vietnam War. On trial was the concept of the “national emergency,” a term derived from an amendment to the 1917 Trading with the Enemy Act (TWEA). This World War I law gave the president authority to impose unilateral sanctions and restrict trade with warring enemy countries. Initially, it said nothing about national emergencies. But in 1933, President Roosevelt amended Trading with the Enemy to include executive authority over “any transactions in foreign exchange, transfers of credit between or payments by banking institutions as defined by the President” during a time of national emergency. Roosevelt declared the first of the US’s newly defined national emergencies, and promptly froze a majority of bank assets to prevent bank runs during the heart of the Great Depression.

CEPR and Jacob Wilson / September 15, 2017

Article Artículo

United States

Workers

The Wage Dividend from Low Unemployment

While the benefit from lower unemployment in terms of more people having jobs is pretty straightforward, there is also a benefit to workers in the form of higher wages. The basic story is that lower unemployment means a tighter labor market and therefore more rapid wage growth.

The relationship between low unemployment and more rapid wage growth shows up most clearly for more disadvantaged workers. When the economy goes into a slump, it is more likely that a retail clerk or person on the factory floor will lose their job, than a manager or a highly educated professional, like a doctor or dentist.

This means that when the unemployment rate soars, as it did in the Great Recession, it is the workers at the bottom of the ladder who are at greatest risk of losing their jobs. They are also the ones who see the largest loss in pay, as their bargaining power diminishes with their employment opportunities.

Dean Baker and Daniella Zessoules / September 14, 2017

Article Artículo

Fighting Bubbles: High Interest Rates Are Not the Best Route

Ruchir Sharma, the chief global strategist at Morgan Stanley Investment Management, used his NYT column to argue that central banks have to include fighting asset bubbles on their agenda, in addition to promoting high employment and low inflation. As someone who has argued this for two decades, I am sympathetic to the point; however, Sharma gets a couple of big things wrong.

First, the big issue with bubbles is whether they are moving the economy. This is something that is easy to determine for folks familiar with introductory economics. The issue here is whether some component of demand is out of line with its long-term trend.

That was easy to see in the late 1990s as the wealth created by the stock bubble led to a consumption boom, pushing the saving rate to a then-record low. The investment share of GDP also became unusually high, with investment concentrated in the tech sector where stock prices were most out of line with corporate profits. 

The same was true of the housing bubble in the last decade. Residential construction hit a record 6.5 percent share of GDP, a level that clearly did not make sense given the underlying demographics of the country. The wealth effect from the bubble created housing wealth led to an even larger consumption boom than the 1990s stock bubble, as savings rates fell even lower than they had in the late 1990s. It is difficult to understand how the Fed could have missed the impact of the bubble or think that these sources of demand could be easily replaced when the bubble burst.

CEPR / September 14, 2017