Archive for the ‘Employment’ Category
I have a wobbly relationship with Cafe Hayek. Specifically, I’m a screaming leftie tit, and they’re a mite too free trade for my tastes. I’m Austrian only to the extent that governments should be no bigger than they must be to get things done – but we part company on the matter of exactly how much a government should be doing.
That out of the way. They have been discussing the protectionist rhetoric of Presidential candidate-candidates (that seems right) so far. We talked about this in class, back when we looked at comparative advantage and international trade. Having run through the basics of tariffs, quotas, etc., and how protectionism is about restoring Producer Surplus, we consider how much Consumer Surplus is lost in the process. The question is, what price a job saved? Our textbook has a few figures:
Is it worth the loss in Consumer Surplus of this scale? Bear in mind that the cost is spread across the many consumers, but one is hard-pressed to defend USD50-odd million per job in the rice industry.
In class we discussed “dog whistle” politics – the use of coded language that is meaningless to most of us, but appeals directly to a specific sub-set of the electorate. Going to Michigan and talking about bringing back jobs is an example. “We” hear that, laughingly, while poor bastards in Detroit hear it and, not caring at all the cost to the economy as a whole, like what they hear. And so ad infinitum.
Edwards and Kerry caught my attention in 2004, in this regard, as do Obama and Clinton, now – basically all NAFTA-hassling is dog-whistle protectionism: the only way to come good on the rhetoric is to restrict trade; not for the benefit of all (or for the benefit of under-represented workers in our partner-countries in trade), but for the benefit of a few. Remember the quirk of globalisation/outsourcing/etc.: the benefits are spread very broadly, but the costs are felt very acutely. We respond only to the costs at our peril.
Ultimately I do not like Boudreaux’s “letters” – meaning his responses to the issue. I do think they’re worth reading, though: it’s a dialogue not seen elsewhere. Add Cafe Hayek to your bookmarks for the duration of the election campaign.
Because they can tell any story you like – just the way economists like it.
On Friday, the government will release the latest employment report, which will help clarify whether the economy is slipping into a recession. Wall Street forecasters are predicting that the February unemployment rate will have inched up to 5 percent, from 4.9 percent in January.
Whatever the survey shows, however, you can be sure of one thing: Politicians will be quick to point out that joblessness remains low by historical standards.
Ed Lazear, the chairman of the Council of Economic Advisers of President George W. Bush, said recently that “5 percent is still a low unemployment rate.” He added: “It’s below the average for the last three decades.”
You will note that “the last three decades” conveniently includes one or so in which employment was crap. Hell, we’d do better to compare today’s numbers to the last five decades.
Consider this: The average unemployment rate in this decade, just above 5 percent, has been lower than in any decade since the 1960s.
Yet the percentage of prime-age men (those 25 to 54 years old) who are not working has been higher than in any decade since World War II.
In January, almost 13 percent of prime-age men did not hold jobs, up from 11 percent in 1998, 11 percent in 1988, 9 percent in 1978 and just 6 percent in 1968.
There are only two possible explanations for this bizarre combination of a falling employment rate and a falling unemployment rate. The first is that there has been a big increase in the number of people not working purely by their own choice. You can think of them as the self-unemployed. They include retirees, as well as stay-at-home parents, people caring for aging parents and others doing unpaid work.
If growth in this group were the reason for the confusing statistics, there should be no to worry. It would be perfectly fair to say that unemployment was historically low.
The second possible explanation – a jump in the number of people who are not working, who are not actively looking but who would, in fact, like to find good jobs – is less comforting. It also appears to be the more accurate explanation.
Why the latter is more accurate, I don’t know. In fact, the author has conflated the two. We went through this (hilariously) in class: suppose you’re in your mid/late-fifties and you get laid off. The economy has been in a jobless recovery since 2001, and is now in a jobless plateau/decline. What do you do?
First, the hilarity: a student raised his hand and said “I’d get a job”. Even re-stating the question did not help. I believe he ended up taking my word for the fact that ‘getting another job’ isn’t really on the cards for Hypothetical Man (my University is seriously middle-class and up – I doubt my students, overall, really understand unemployment as a lived concept).
The answer, for the rest of the group, is retire. Or call yourself retired. Live off savings until Social Security kicks in – maybe try for that sweet deal their offering. In the UK – and, no doubt, similar countries – people are going onto disability pensions, which is essentially becoming a path to early retirement for many (what would you rather be on: a disability pension, or unemployment benefits?).
It is my belief that retirement numbers contain a lot of the missing people, and are helping mightly to keep the unemployment statistics nice and low (relatively speaking). This is where the conflation occurs – calling one’s self retired and being retired are two different things (just ask Michael Jordan or Jay Z).
We should, of course, also bear in mind how dangerous/difficult tracking a macroeconomy in real-time is, but the unemployment rates indicate, reasonably clearly, the drivers of unemployment. From the latest release by the Bureau of Labor Statistics:
The over-55’s are the only group for whom the unemployment rate has declined:
And somehow I don’t think the Births/Deaths jobs are going to that group first.
So we should expect some attention to this detail – and we get it:
U.S. productivity decelerated at the end of 2007 along with the economy, yet its climb was much higher than expected, while unit labor costs went up far less than projected.
Nonfarm business productivity increased at a 1.8% annualized rate between October through December, the Labor Department said Wednesday. It had gone up 6.0% in the third quarter, a number revised down from a previously estimated 6.3% surge.
The 1.8% increase was far above Wall Street expectations of a 0.5% rise. Economists had expected a slowdown because the economy braked sharply during the fourth quarter, rising just 0.6% after soaring 4.9% during the third quarter.
Now, me? I’m just a miserable bastard, so my interpretation of this won’t surprise anyone, but
- Productivity wasn’t really up: it was just down less than expected. That isn’t a good outcome: it’s a bad outcome that followed poor prediction (itself a bad indication);
- It was made up of hours worked – meaning fewer people are doing the same amount of work.
This latter point is significant: it means a state of constant whitewater. This is defined by moneyglossary.com as:
Economic, financial, or operational chaos.
Sounds about right (actually – and I’m not kidding – I first learned of the term from a Batman comic).
It means the economy is made up of (i) people losing their jobs, and (ii) people keeping their jobs, but inheriting higher workloads. Either or both ways, the quality of life of the American worker (employed or unemployed) is decreasing. As measured by GDP, this will go down; as not measured by GDP, declining quality of life is a problem for any OECD country.
The Wall Street Journal article contains a handful of ancillary statistics. I quite liked this one:
Nonfarm business output increased 0.4% during the fourth quarter, the Labor Department said in Wednesday’s report. Hours worked fell 1.5%. Hourly compensation increased 3.9%. Real compensation, adjusted for inflation, dropped 0.3%.
That’s right. You either lost your job or had your workload accelerate, but your purchasing power fell. Welcome to the new suburban fable.
Hard as it is to pull from the haystack of needles (that is the current crop of financial reports) a single one. Lennar corp. is coming good on previous promises to be losing more money:
The company took a $1.86bn impairment charge for land, inventory and goodwill in the quarter ending in November, which included a $740m loss on 11,000 lots the company sold to its joint venture with Morgan Stanley. Lennar said its land portfolio was worth $4.5bn at the beginning of its first quarter, down from $7.8bn the year before.
The impairment charge takes the total amount written off by the housebuilding industry to nearly $20bn since the beginning of 2006, according to calculations by Standard & Poor’s.
“You’re going to see a lot more land sales,” said Stephen East, an analyst at Pali Capital. “That’s going to depress land and housing prices further.”
Stuart Miller, Lennar chief executive, called his group’s results “disappointing”. He said: “It is apparent that 2007 was a very tough year. At the back end of this year I do not expect to see sales or price acceleration.”
I’m not one to say ‘I told you so’, so much as ‘oh, hi guys – where in hell have you idiots been?‘ Lennar made this promise, while losing money, back in June of 2007. While everyone else appeared blithely to follow the tripe spoon-fed by the National Association of Realtors, this was a picture of Dorian Gray’s house, becoming more and more ugly.
Now, of course, people are noticing.
The US housing market closed the books on a dismal year on Thursday, recording a 2.2 per cent drop in the pace of existing home sales in December to an annual rate of 4.89m units, which was slower than expected.
The downturn in the US housing market has been at the heart of the credit crisis that has shaken global markets and worsened the outlook for US economy.
Funnily enough the same article contains this nice piece:
Earlier in the day, however, the labour department issued a more upbeat set of figures on the US economy, showing that the number of new jobless claims fell 1,000 to 301,000 in the week ending January 19. The downward move marked a surprise compared to analysts’ expectations of a small rise. It was the fourth weekly decline in new jobless claims.
So, recognition that the economy piled on 1m fewer jobs than last year, and is set to give workers six of the best, pants down, is apparently still going to be a little while coming (watch for ‘the papers’ to be surprised, 4 months from now, to see the employment numbers worse than they expected. It’s like an army of Forrest Gumps: the great thing about being stupid is that you are constantly surprised).
The Wall Street Journal has a good piece pulled together for city-based housing markets (click the image to view the full chart):
Even Manhattan, where prices continued to rise briskly last year, looks more vulnerable to a slowdown. Falling home prices and soaring defaults elsewhere have created more than $100 billion of losses on mortgage-related securities at Wall Street firms, destroying many jobs in the New York area. The number of homes listed for sale in Long Island and Queens at the end of 2007 was enough to last 18 months at the current sales rate, up from a 12-month supply a year before.
Few expect a quick recovery. Stricter credit policies at mortgage lenders have disqualified many potential buyers, and foreclosures are adding to an already glutted supply in many areas.
Ouch. Hardly unexpected, but ouch.
According to the Sydney Morning Herald:
Nurses will be offered a $6000 cash bonus to rejoin the workforce and help fill more than 19,000 hospital vacancies across Australia – but the lure will not be enough to fix the health system, experts said.
The Prime Minister, Kevin Rudd, announced the scheme at Royal Prince Alfred Hospital yesterday, saying he hoped to attract about 7750 nurses back into the system in the next five years.
Nurses who have been out of the system for more than a year will be paid $3000 after six months’ work and another $3000 12 months later. Hospitals will receive $1000 for every nurse retrained.
The acting general secretary of the NSW Nurses Association, Judith Kiejda, said she hoped nurses “would come back in droves”. “If they do, it will ease the pressure on those already in the system and allow them to take a step back and catch their breath,” she said. “But it is not enough – we have 1300 vacancies in NSW and resources are very stretched. Our members are constantly covering these positions, so we want rewards for the nurses who have stuck it out.”
One wonders how this shortage of skilled labour could have arisen. I’ve written a couple of times about the policies of the former government, and their being structured (a) towards getting women out of the workplace, and (b) against them returning.
Hence a shortage of skilled labour, across the board (or, at the very least, a board made up of industries staffed predominantly by women).
The so-called “baby bonus” – originally AUD3,000, now AUD4,187, makes up the fee listed in the title.
This is all an excellent example of why the Austrians don’t like government intervention: offer a subsidy to (on paper) boost the birth-rate, but generate dis-incentives with respect to another very key component of our economic growth: labour force participation. What to do? Well, obviously, offer another set of targeted incentives for specific industries.
Now, the problem is not, necessarily, with recruitment: it is with retention:
“This is a good start, but it is a small part of what is needed. We need an overhaul of the health system and we need the Government to invest very heavily in primary and aged care to keep patient numbers down in public hospitals and take some of the pressure off nurses,” she said.
After 12 years out of the workforce, Karen O’Connor, a former clinical nurse specialist at Royal North Shore’s emergency department, will return to work soon – but refuses to re-enter the public system because staff “are not supported, the work is too stressful and the shifts are not conducive to family life”.
“There are few incentives to get back into nursing. I think the $6000 is a great start, but it’s not enough when you have no support and have to work shifts, including night shift,” Ms O’Connor said.
So what happens in a year or so when – specific to nursing, an under-appreciated and over-worked sector in the economy – nurses get/earn their $6,000, but realise they’re back to the position they were in originally (maybe they even want to have another child?). The government can reasonably be assumed to be containing costs by offering a signing bonus, rather than higher wages (which are dramatically more expensive, raising the costs of every nurse, even incumbent ones) – but short-term incentives usually produce short-term effects.
This is a comparison familiar to Peak Oil types: the fact that oil may reach USD100 per barrel doesn’t make tar sands worth the effort. This is because the net energy gain is too low. Sure, it may (or, frankly, may not – but then, so is modern farming) be net positive, but it’s still a terrible payoff for the expenditure of a limited resource.
So to mining. I had shown this story to my Eco 1 students, during some rant about environmental externalities:
“It takes a minimum of two million tonnes of solid waste to produce a single kilogram of gold. Copper produces around 250 tonnes of solid waste per tonne of copper while uranium produces about 2,400 tonnes of low-level radioactive waste per tonne of uranium oxide.”
Like oil, it is about declining grades in yields, coupled with increasing real and environmental costs of extraction (click for the big version):
The full report is pretty bloody interesting, too.
The mining of gold and other hard-rock minerals on public lands is governed by the General Mining Law of 1872, which has remained virtually unchanged since it was signed by President Grant to encourage settlement of the West. The statute was designed to reward pioneers who survived the trek across the frontier with the opportunity to mine gold and other metals freely and in unlimited amounts.
The prospectors are long gone, but the incentives remain. Today, the highly profitable hard-rock mining industry — much of it foreign-owned — continues to receive generous U.S. tax breaks. And it pays virtually nothing for gold and other precious metals it takes from public lands with few restraints. In sharp contrast, oil, gas and coal companies have been reimbursing taxpayers for decades with billions of dollars in royalties that were paid for resources removed from federal property.
The production of just one gold ring generates about 20 tons of waste, according to one mining policy organization, much of it left to litter the landscape as well as polluting rivers and streams. Today, most gold is mined from open pits, which can run a mile long and equally as deep. Utah’s Bingham Canyon, which produces gold as well as copper, silver and molybdenum, forms a crater large enough to be visible from outer space.
Moreover, once the ore has been excavated, mining companies separate the gold from the rock with cyanide — a substance so toxic that voters in Montana have outlawed its use in outdoor chemical processing. According to the Environmental Protection Agency, taxpayers face a bill of more than $50 billion to clean up the waste and water contamination that gold and other hard-rock mining has left behind.
It’s about to get worse. Driven by record demand and a weak U.S. dollar, investors and speculators are snatching up mining claims at an alarming rate. A recent analysis of government data by the nonpartisan Environmental Working Group found that, in the last five years, there has been an 80% increase in the number of new mining claims in 12 Western states, many within a stone’s throw of Grand Canyon, Yosemite and other national parks.
I mentioned a similarly thing, yesterday, with respect to Big Oil. The crux of this article is legislation, passing through the lower house (sorry, Congress) but likely to find a tougher path through the Senate; it will impose a 4% royalty on Pretty Things Taken From The Public Treasury:
Tourists pay $25 per car to enter Yellowstone National Park. Film crews must spend as much as $750 a day to film on federal land in Nevada. And hunters on a wildlife refuge off the Florida panhandle are charged up to $30 to shoot arrows at white-tailed deer or feral hogs.
But mining companies pay nothing to the federal government to extract billions of dollars worth of gold, copper and other valuable minerals from public property, thanks to an 1872 mining law that allows it. Lawmakers and activists are trying to change the situation.
Not such a burden, is it? Like fun. It seem Senator Reid, Majority Leader, is not keen on the idea (his state does a lot of mining). Meanwhile, States are lifting restrictions on mining all over the shop, it seems.
Eco 1 students! Remember our discussion of why there has been no practical Fiscal policy, helping out Bernanke with this so-called crisis? This goes up as one of the reasons. Moreover, as per the Exponential/Hyperbolic discounting arguments, the cost of cleaning up nature becomes more and more expensive as less and less nature remains.
Meanwhile, we continue to see the same sort of attitude here as to most other commodities: because we like this stuff, it should be nice and cheap so everyone can get it (and corporations can make billions where they can). Insane. Is there an Economics Principles class among any of the members of Congress or the Senate? Anywhere?
Having just written a UAW story. I’m not even a labour economist (hell, I don’t even drive).
Workers at three more United Auto Workers locals have rejected a tentative contract agreement between the union and Chrysler LLC, casting doubt on whether the deal will be ratified.
Although final totals from the 45,000 workers voting on the pact won’t be made known until next week, the size and locations of the locals voting no are not good signs for leaders in Detroit, said Harley Shaiken, a professor at the University of California at Berkeley who specializes in labor issues.
“The early results are abysmal,” Shaiken said. “Members have sent a message of considerable unrest.”
Given that the UAW/GM deal barely passed, overall (65% or so for, from memory), the pessimism and bad feeling setting in is a fairly bad sign (I think), concerning the ultimate prospects. The factories voting differ somewhat, though – specifically in terms of the future expectations of workers.
… 14 of 21 factories … have no future products to make after the current product life cycle or the life of the new contract. Seven were to get future products.
… McDonaugh, who favors the contract, said the vote was better than expected because the Newark plant is slated to be closed by the company. He was appalled at locals voting down the agreement at plants with future product guarantees and accused dissidents of spreading misinformation.
Many “noncore” workers at his plant thought their pay would be cut in half to around $14 per hour under the new contract, but McDonaugh said that isn’t true.
“The language states, no current seniority worker will be assigned entry-level wages even if they are classified in non-core jobs,” McDonaugh said. “They will be on the fork trucks, handling the material and working in the tool stores until they retire, quit or die,” he said.
One can see a problem asking a plant set for closure to vote on a new contract. However, this is still a workers’ union – is there solidarity or is there not? Surely the UAW can reasonably expect it. Given the high risk of the two-tiered workforce driving big splits in unionised labour, the smooth functioning of the workforce (the power of collective bargaining when it’s only half of the collective), to see bitter votes pushing towards the first failure of ratification in a couple of decades (and maybe it’s about time?) can hardly raise smiles in union offices.
There is also the voting itself – is a majority of members, or of plants, required? Reading the AP story, it seems that their success stories come from substantially smaller plants than those at which the ratification is failing.
Columnist for the Nation Max Fraser made this his principle assessment of that last, mad rush to close the Summer and the Summer’s negotiations, for the United Auto Workers.
The historic concessions made by the United Auto Workers, billed as necessary measures to keep the reeling Big Three from bankruptcy, in fact represent something far more ominous. To “save” the domestic auto industry, the union may end up killing itself.
This is a fair assessment (allowing for the trouble the union is having with ratification for the Chrysler deal. The GM deal was ratified – just). The union has protected – more or less – its current members, but has done so at the cost of getting many more. Having established two tiers of auto workers – the new hires, the “non-core” hires, will cost around a third less (depending upon the estimates I see), so the odds of them giving any of what’s left to the union that created that tier is small. Even allowing for the argument that, without that concession, the jobs wouldn’t exist, on any tier (Communication Workers Union, if you’re reading…).
Fraser looks, with some clarity (and some subjectivity, but that’s cool, too) to the future:
… the proliferation of Toyota, Honda and other foreign-owned plants has accounted for virtually all recent growth in domestic auto manufacturing. After decades of watching plants close down and jobs move overseas, the UAW finds itself beset by a process of globalization-in-reverse, as foreign automakers increasingly “insource” production with cheap nonunion labor in right-to-work and Rust Belt states. The global South has arrived in Detroit’s backyard.
If the UAW is to have a future, it must figure out a way into these foreign-owned factories.
More easily said than done. Amongst other things, we’re talking about foreign firms building factories in the US. They aren’t stupid: in the Age of Waltons and Monopsony Employers, they know exactly how to keep both unions, and out-of-work-union-labour-from-out-of-state (read: Detroit) from buggering up their game – while also having learned exactly how Big Firms Appeal to State Legislatures. The UAW probably only had employed, unionised workers for them, and they just mortgaged off most of their future of that resource.
Ultimately, the debate is larger than this, entirely, including such questions as, should the US even make its own cars anymore? Can it compete in the world for the production of elaborately-transformed manufactures? At some point even the protectionist resource allocators may need to decide that there just isn’t a margin in pursuing that final value-added step in production.
Eco 1 students: this is comparative advantage, specialisation and gains from trade. Come the day, we may well look back on the death of Big Union with gratitude, for allowing unimpeded pursuit of points of consumption well outside our production possibilities frontiers. We may also deeply regret it – that’s half the fun of economics (we’re never the ones being squeezed out of our mortgages, you see).
Oh, Royal Mail. Why do your workers insist you bleed slowly to death?
The main postal union, the Communication Workers’ Union (CWU), has announced further details of its forthcoming UK-wide strike action.
Its 130,000 Royal Mail members will walk-out for 48 hours between noon on Thursday, 4 October, and the same time on Saturday, 6 October.
A second 48-hour strike will take place from 0300 BST on Monday, 8 October, to the same time on Wednesday, 10 October.
What is it about this time? The same thing it’s been about every time.
At the centre of the dispute is the CWU’s objection to the Royal Mail’s 2.5% pay offer and modernisation plans.
The union claims the shake-up plans will put about 40,000 jobs at risk.
It just doesn’t change. This time around, managers look like joining:
Royal Mail managers look set to join postal strike action over cuts to pensions.
The managers have previously stepped in to provide cover during strikes by Royal Mail workers but they look likely to join the strikes, according to the Unite union, which represents 12,000 Royal Mail managers.
I’m somewhat sympathetic to the Royal Mail. Somewhat – as I’ve said before, irregardless of the reasons why the Royal Mail has come to this point, 40,000 of its jobs are at risk because it has lost its monopoly on mail delivery in the UK. Soon it will also lose its functioning monopoly on “lest-leg” (i.e. to your door) deliveries. And it’s bleeding customers.
It can lose 40,000 jobs and fit in, in this new world, or it can keep the 40,000 jobs and lose itself. The insistence of workers on striking just seems to me cutting off one’s nose to spite one’s face. Or however that goes. This insistence is common, and commonly justified, by unions. It can easily be true that the a company is being pared back while its own executive level bathes in cocaine and leather-upholstered meeting rooms. I just don’t see that at the Royal Mail.
And I’m Australian – I won’t even cross a picket-line. Also, I’m less sympathetic to going after pensions. These people worked to your conditions, for the fixed income in retirement that you promise. Leave them alone.
In the interests of balance (not to mention interest), another perspective:
With the announcement of new strike dates by the Communication Workers’ Union (all out on 5, 6, 8 and 9 October, with rolling action after that), the Royal Mail bosses have decided to go for broke — for instance by announcing a drastic attack on postal workers’ pensions.
From today’s Financial Times (and I’m late to this one – but I have revisions and mid-terms holding me down, if not under, for at least another week).
The strike call, involving about 80,000 workers at 70 plants, came after a breakdown in talks in Detroit on a new four-year labour contract.
A “breakdown in talks”? Their contract expired how long ago, now, a fortnight? That would be the slowest breakdown in history (speaking of automobiles…). Of the competition:
Talks between the UAW and Ford and Chrysler are on hold pending the outcome of negotiations with GM. The union is likely to use a settlement at GM to extract similar concessions from the other two, who face similar challenges as they seek to cut costs in the face of mounting competition from foreign carmakers.
The union had better bloody hope they extract a settlement, rather than have one extracted from them instead. Meanwhile, optimism for GM remains, apparently, high – much like optimism over a deal has remained high since the September 14 deadline. I’m not sure:
But who am I to argue? The price is still up, relative to earlier in the week. I think people expected some good news today – not a strike.
“The interpretation that I would go with is that this is sort of a last-minute push by the unions to get GM over the hump on a couple of benefits,” auto analyst David Healy of Burnham Securities, told Reuters.
The two sides were negotiating again this afternoon.
Still, the strike marked an unexpected twist after the negotiations seemed to have brought the two sides close to an historic deal that would allow GM to cut its $5 billion annual health-care bill.
And if the strike lingers, it could prove costly. CNBC’s Phil LeBeau said the strike could cost the company $100 million a day in lost revenue as its daily production of 12,200 cars is halted. Because power trains for all GM vehicles in the Americas are made in the United States, he added, a strike would start to hit production in Canada by Thursday and Saturday for production in Mexico and South America.
Wall Street analysts have said establishing a VEBA could cut GM’s annual costs by $3 billion in exchange for a one-off payment expected to top $30 billion.
“A token strike is possible, but we suspect the primary motivation of the strike announcement, coming nine days after contract expiration, may be to pressure GM to finalize lingering issues,” JPMorganChase analyst Himanshu Patel wrote in a note to clients.
Optimism is probably safe enough: the unions face bringing Detroit down more or less entirely with either prolonged action (which, one assumes, its workers cannot afford) or very high demands.