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Article Artículo

Severance Pay: An Alternative to Donald Trump Carrier Shows

By Dean Baker and Sarah Rawlins

Many of us had very mixed feelings about the Donald Trump Carrier show, where he got the Carrier Air Conditioner company to keep 800 jobs at one of its plants in Indiana instead of shipping them to Mexico. The state of Indiana, under then Governor Mike Pence, promised millions of dollars in tax concessions as an inducement. There were also reports of threats or promises directed towards Carrier's parent company, United Technologies, which is a major military contractor.

While it was good to see these 800 workers keeping their jobs, this is not the way to protect U.S. manufacturing jobs. At the end of the day, 800 jobs is just a drop in the bucket in a labor force of 150 million or even among the 12.3 million people employed in manufacturing.

We can't expect the president of the United States to be running around from factory to factory to make sure that manufacturing jobs stay in the United States. What we need is a policy.

Fortunately, there is a policy that would discourage companies from shutting down the shop and sending jobs elsewhere: it's called "severance pay." That might not sound new and sexy, because it isn't, but it can radically alter the incentives for employers.

Suppose that workers were entitled to two weeks of severance pay for every year they work for a company. This means that workers who have been employed for over twenty years, as was the case with many of the Carrier workers, would be entitled to at least 40 weeks of severance pay.

This won't get someone in their early fifties through to retirement, but it certainly is a nice going away gift. More importantly, it changes the incentives for company. If a company knows that it will be costly to lay off a large number of long-term workers, it might think harder about ways to keep them employed. This could mean continual retraining to maintain their skills and investment in the most modern equipment to ensure high levels of productivity.

Of course, if a company really has no productive use for a worker, it will still pay to lay them off, but this will not be a decision taken lightly. In effect, we are requiring the company to internalize the cost to the worker and society, since there is a high risk that an older worker who loses their job will be unemployed for a long period of time, collecting unemployment insurance and other benefits.

CEPR / March 01, 2017

Article Artículo

David Ignatius Lies About Trade

It's amazing how it is so acceptable in elite circles to tell outright lies to advance the trade agenda pursued by recent administrations. Everyone remembers when a 2007 Washington Post editorial touting NAFTA claimed that Mexico's economy had quadrupled between 1987 to 2007. According to the I.M.F., the actual figure was 83 percent. The erroneous number can still be found online, since the Post lacks the integrity to correct it.

In this vein we find David Ignatius continuing the Post's denialism, telling readers that workers in the Midwest are wrong to think that trade cost manufacturing jobs.

"Manufacturing employment has indeed declined in America over the past decade, but the major reason is automation, not trade. Robots, not foreign workers, are taking most of the disappearing American jobs. Rather than helping displaced blue-collar workers, Trump’s promises of restoring lost jobs could leave them unprepared for the much bigger wave of automation and job loss that’s ahead.

"The most persuasive numbers were gathered in 2015 by Michael J. Hicks and Srikant Devaraj at Ball State University. They showed that manufacturing has actually experienced something of a revival in the United States. Despite the Great Recession, manufacturing grew by 17.6 percent, or about 2.2 percent a year, from 2006 to 2013. That was only slightly slower than the overall economy.

"But even as manufacturing output was growing, jobs were shrinking. The decade from 2000 to 2010 saw “the largest decline in manufacturing employment in U.S. history,” the Ball State economists concluded. What killed those jobs? For the most part, it wasn’t trade, but productivity gains from automation. Over the decade, the report notes, productivity gains accounted for 87.8 percent of lost manufacturing jobs, while trade was responsible for just 13.4 percent."

The basic story is that we have had automation for a century. Productivity growth has always meant that fewer manufacturing workers could produce the same amount of output. In the decades of the fifties and sixties, when productivity growth was far more rapid than it has been recent years, it was associated with rising wages and low unemployment. Productivity growth is not new and is usually good for workers.

What was new in the years from 2000 to 2007, when we lost over 3 million manufacturing jobs, was the explosion in the trade deficit.

CEPR / March 01, 2017

Article Artículo

News for NYT: Donald Trump and Paul Ryan are Not Political Philosophers

Apparently the paper is confused on this issue since it headlined a front page piece on the budget, "Trump budget sets up clash over ideology within G.O.P." The article lays out this case in the fourth paragraph:

"He [Trump] also set up a battle for control of Republican Party ideology with House Speaker Paul D. Ryan, who for years has staked his policy-making reputation on the argument that taming the budget deficit without tax increases would require that Congress change, and cut, the programs that swallow the bulk of the government’s spending — Social Security, Medicare and Medicaid."

Most of us recognize Donald Trump and Paul Ryan as politicians who hold their jobs as a result of being able to gain the support of important interest groups. It really doesn't make much difference what their political philosophy is. Contrary to what the NYT might lead us to believe, this is not a battle of political philosophy, it is a battle over money.

On this score, the NYT also gets matters seriously confused. First of all, it is wrong to describe Social Security, Medicare, and Medicaid as "the programs that swallow the bulk of government spending." Under the law, Social Security can only spend money raised through its designated taxes, either currently or in the past. For this reason, it is not a drain on the rest of the budget unless Congress changes the law.

Medicaid would also not rank among the three largest programs. The government is projected to spend $592 billion this year on the military compared to $401 billion on Medicaid.

The claim that Paul Ryan is concerned that these programs would "swallow the bulk of government spending" directly contradicts everything Paul Ryan has been explicitly advocating for years. Ryan has repeatedly put forward budgets that would reduce the size of the federal government to zero outside of the military, Social Security, Medicare, and Medicaid. (See Table 2 in the Congressional Budget Office's analysis.) It is difficult to understand how a major newspaper can so completely misrepresent a strongly and repeatedly stated view of one of the country's most important political figures.

CEPR / February 28, 2017

Article Artículo

Economic Growth

Unions

Workers

Does Cutting Taxes and Spending and Beating Up Unions Spur Growth: The Story of Wisconsin and Minnesota

In 2010 Wisconsin elected Scott Walker as governor, a conservative Republican. At this time, Republicans also controlled both houses of Wisconsin’s legislature. Neighboring state Minnesota elected Mark Dayton, a liberal Democrat. Democrats also controlled both houses of Minnesota’s legislature. Both governors were re-elected in 2014.

The two governors took their states on diametrically opposed courses. Walker cut taxes and paid for them with cuts to spending in education and a number of other areas. He also deliberately confronted the state’s public sector unions. He prohibited contracts requiring that all the workers who benefit from a union contract pay for their representation, along with several other measures designed to weaken unions. Later he signed legislation applying the same restriction to private sector contracts.

Dean Baker / February 27, 2017

Article Artículo

The Plunge In Labor Force Participation: Why Were Economists So Stupid a Decade Ago?

Neil Irwin has a good piece this morning discussing the evidence on the economy's growth potential. As he points out, the key question is how much slack remains in the economy. The key issue in this debate is the extent to which we can expect employment to rise.

Most of the debate deals with the extent to which we can expect more people to enter the labor market. The current 4.8 percent unemployment rate is reasonably low by any measure. While it can go somewhat lower, that will not allow for much further expansion of the economy. The bigger question is the extent to which we should expect people who are not in the labor force, meaning they are neither working nor actively looking for work, to come back into the labor force if the job market improved. On this point, there is considerable debate.

The basic story is straightforward, if we focus exclusively on prime-age workers (ages 25–54), the labor force participation rates are close to 2.0 percentage points below pre-recession levels and 4.0 percentage points below 2000 peaks. Those who insist that we are near full employment argue that this is pretty much the best we can do and that these drops are permanent. Those like myself, who think we can do much better, argue that we should be able to return to past rates of labor force participation rates (LFPR) among prime-age workers.

In this respect, I would like to enlist the help of the ghost of forecasters past. The figure below shows projections of prime-age LFPR for men from the Congressional Budget Office (CBO) and the Bureau of Labor Statistics (BLS).

Book3 6110 image001

Source: CBO and BLS.

The first bar is a projection CBO made in 2000 for 2008. It projected a LFPR for 2008 of 90.9 percent. The second projection is also from CBO. In 2007 it projected a LFPR for prime-age men in 2014 of 90.5 percent. The third bar is a 2007 projection from BLS for 2016. It projected a LFPR for prime-age men of 91.3 percent. This compares to an actual LFPR last year of 88.5 percent, almost three full percentage points lower.

CEPR / February 24, 2017