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Article Artículo

Workers

Update on the Thirteen States that Raised their Minimum Wage

In a series of recent blogposts, we updated a methodology used by Goldman Sachs to evaluate the impact of minimum-wage increases in 13 states at the beginning of this year. A number of publications, including USA Today and The New York Times, cited these blog posts in pieces on the minimum wage.

As we noted at the time, the Goldman Sachs’ methodology is not ideal for a number of reasons. Now, economists Saul Hoffman and Wai-Kit (Ricky) Shum from the University of Delaware have done a more formal analysis of these 13 states and found qualitatively similar results to the pieces using the Goldman Sachs method. Specifically, all of the analyses have found no evidence of negative employment impacts. If anything, the results have indicated that minimum wage increases are associated with more rapid employment growth, although this relationship is not statistically significant.

CEPR and Ben Wolcott / August 06, 2014

Article Artículo

What's Holding the Economy Back: Revised Version

In the NYT Upshot section Neil Irwin had an interesting piece assessing which sectors are most responsible for the weakness of the economy. His culprits (in order) were residential invesment (housing), state and local government, durable goods consumption, business equipment investment, and federal spending. Irwin's methodology was to take the Congressional Budget Office's estimate of potential GDP (roughly 5 percent higher than the current level) and then assume that each component has the same share of this potential as its average of GDP over the two decades from 1993 to 2013. The difference between this hypothetical level of demand from a component and the actual level of demand from that component in the second quarter of 2014 is the basis for determining the shortfall.

I decided to do a similar exercise with a couple of minor differences. The table below shows the difference between each component's average share of GDP in the period from 1990-2013 (this was an accident -- misread Irwin's start point) and the average for the first two quarters of 2014. The two quarters are taken together because for many components a strong second quarter offset a weak first quarter. I have also lumped components together (e.g. the categories of consumption are all together). The categories in bold are the major components that together add to GDP.

  Percentage Point Change
  Average 1990-2013
  Minus 2014
Consumption expenditures -2.3
Durable goods 0.7
Nondurable goods -0.1
Services -2.9
Nonresidential investment 0.0
Structures 0.0
Equipment 0.4
Intellectual property products -0.4
Residential 1.1
Change in inventories -0.1
Net exports 0.3
Exports -2.7
Imports -3.0
Government 1.1
Federal 0.5
State and local 0.5

 Source: Bureau of Economic Analysis, National Income and Product Accounts, Table 1.1.5.

 

There are a few points that can be made from this table. First, the items that have fallen substantially as a share of GDP are government spending, which had roughly equal dropoffs at the federal and state and local levels, and residential construction. Net exports are also down as the import share had grown more than the export share. Non-residential investment is at its average level for the 1990-2013 period. The big gainer in shares is consumption, which had a 2.3 percentage points larger share of GDP in 2014 than its average in the prior period.

Dean Baker / August 05, 2014

Article Artículo

Trade, Wages, and Jobs

I see that Gary Hufbauer and Cathleen Cimino have responded to my earlier post criticizing their colleague Adam Posen's Financial Times column touting the wonders of trade. They cover a lot of ground in their response, but I will just address two main points:

1) The pattern of trade that we have put in place over the last three decades has been a major factor reducing the wages of most of the work force (the 70 percent that lack college degrees).

2) The large trade deficit that we have at present is costing the country millions of jobs. If we eliminated the deficit, the direct and indirect effect would lead to roughly 6 million additional jobs, enough to bring the economy back to full employment.


On the first point, Hufbauer and Cimino (HC) focus largely on the impact of NAFTA. Certainly the impact of NAFTA would be considerably less than trade more generally since Mexico only accounts for about 8 percent of our imports and only about 60 percent as much as we import from China. In my column I was referring to the impact of trade more generally on wages, following Posen's piece which was a diatribe about progressives and trade.

While HC are dismissive of the idea that trade can have much negative impact on wages, it is not necessary to look far to find evidence of this effect. Lindsey Oldenski's, whose work is cited by both Posen and by HC, recently wrote a paper which has the following in the abstract:

"I fi nd that o ffshoring by U.S. firms has contributed to relative gains for the
most highly skilled works and relative losses for middle skilled workers. An increase
in off shoring in an industry is associated with an increase in the wage gap between
workers at the 75th percentile and workers with median earnings in that industry,
and with a decrease in the gap between workers earning the median wages and those
at the 25th percentile. This pattern can be explained by the tasks performed by
workers. Off shoring is associated with a decrease in wages for occupations that rely
heavily on routine tasks and an increase in wages if the occupation is nonroutine and
communication task intensive."

I referred to work by David Autor, which also finds a substantial negative impact of trade on the wages of less educated workers as well as a recent analysis by Paul Krugman that suggested the expansion of imports from China likely has a large negative impact on the wages of less-educated workers. At this point, the fact that trade has had a negative impact on the wages of a large segment of the U.S. workforce really should not be controversial. The question is the size.

Dean Baker / August 03, 2014

Article Artículo

Brazil

Latin America and the Caribbean

World

The World Cup Has Come and Gone and Brazil Didn’t Crash and Burn

Election season officially kicked off in Brazil on July 1st. For the past 7 months, amid wide-scale attacks on her competency -- and against the Brazilian economy -- coming from all sides of the political spectrum in the Anglophone media, President Dilma Rousseff’s poll numbers have remained stable, placing her far ahead of her closest competitor, Senator Aécio Neves of Fernando Henrique Cardoso’s PSDB party.  IBOPE, Brazil’s most widely-respected polling agency, released numbers last week showing that 38 percent of the Brazilian public intends to vote for Dilma. According to IBOPE this is the same percentage who intended to vote for her in the last poll that was taken immediately before the World Cup, and roughly the same percentage that have supported her all year.  Brazil has a multi-party system and she is currently far enough ahead of the remaining candidates that if the election were held tomorrow, she would win in the first round.

According to another recent poll by Datafolha [PDF], Dilma is leading in every region in Brazil. The numbers are close in the wealthy Southeast and South, but her lead climbs in the poorer North and Northeast. In the Northeast, Brazil’s poorest and second most populous region, the percentage of people saying they will vote for her climbs to 55 percent.

João Pedro Stedile, one of the national leaders of the Landless Peasants’ Movement (MST), breaks down the choices that voters have this October in the following manner: “Dilma Rousseff and (third-most-popular candidate) Eduardo Campos represent neo-developmentalism, and Aécio Neves represents neoliberalism.” Neo-developmentalism is a term that people on the Brazilian left use to describe the PT’s modern version of developmentalism. Developmentalism is a Keynesian-influenced economic strategy first developed in the 1940s in the Third World by economists like Raúl Prebisch and Celso Furtado  based on income redistribution through social welfare initiatives, government stimulus for national industrial production and consumption, maintaining key sectors of the economy under control of state companies, and a high minimum wage, that was employed at varying levels by Brazilian president João (Jango) Goulart before the U.S.-supported military coup of 1964. Many people on the Brazilian left apply the “neo” prefix to the 12 years of PT government due to the neoliberal policies initiated in the Fernando Henrique Cardoso administration, such as an independent and monetarist Central Bank , that the PT has done little to revert and that blend with traditional developmentalist policies such as large minimum wage hikes, high social spending on welfare programs, maintaining state control over the petroleum industry and mortgage market and subsidizing  the construction and manufacturing industries.

CEPR and Brian Mier (Guest post) / August 01, 2014