Sentences to ponder

From Brad Plumer:

Mid-wage occupations, paying between $13.83 and $21.13 per hour, made up about 60 percent of the job losses during the recession. But those mid-wage jobs have made up just 27 percent of the jobs gained during the recovery.

By contrast, low-wage occupations paying less than $13.83 per hour have utterly dominated the recovery, with 58 percent of the job gains since 2010. (This data all comes from an earlier report (pdf) from the National Employment Law Project.)

Important throughout.


This suggests that we need to be less concerned about the employment effects of an increase in the minimum wage and more concerned about increasing ngdp growth. A return to the payroll tax cut and an increase in the EITC would be beneficial at this point (given Fed policy), especially if expenditures fall because of the "sequester."

Less concerned? Really?

Or does this mean that the marginal product of labor was artificially high for lower skilled workers in certain industries and after the popping of the bubble, those workers are now earning that true MPL?

How can they be earning the "true MPl" when, even when doing as Martin Feldstein argues of deflating production, wages still trail productivity as far as gains? You're talking total output, MPl measures a ratio.

Anecdotes alert: For years I worked as a US native in California tech companies, with many foreign born immigrant co-workers. On my last job I was the sole(!) US programmer, with 6 in Russia, 1 in Japan, and 1 in the Philippines. (I retired after a nice IPO. At first people I met assumed I retired successfully. Starting around 2010 there was a change. When I said I was retired, one guy said "I'm sorry." The presumption had shifted that retirement was not likely voluntary.)

And so, from my experiences I don't think you can think of marginal product in an old model economy. Price in Russian or Chinese marginal productivity. Strange days.

It means the developed world wage premium to Chindia is decreasing and the next ten years are going to be tough. (Same could be said of the US.) The problems are trickling up from lower wages to higher wages.

means they aint gonna sell many new homes or cars..

It means that homes and cars, or housing and transportation is going to have to decrease in cost. And there will be pressure to remove regulatory restrictions that keep costs high.

Employers are hiring more part time low wage earners instead of full time employees to avoid paying forced insurance in accordance with the new health bill. This trend has recently been staggering

Does anyone have a chart of labor overhead/fixed cost and revenue by year?

Given that they're not paying for health insurance in either scenario, why would the wage rate for a part-time worker be lower than for a full time worker?

What do you mean they aren't paying for health insurance? What are the laws on providing health insurance for part-time versus full-time workers?
"The insurance mandate applies to companies with the equivalent of 50 or more full-time workers, a calculation based on the number of people employed by the company and an average of hours they work in a week. Companies are adjusting schedules now because they will have to review employment rolls for up to a year in advance to determine which workers will be deemed full-time under the law.

A company will have to pay a penalty of $2,000 for every such worker, after the first 30, if it doesn't offer qualifying health coverage. If a company offers health insurance but the coverage is deemed sparse or unaffordable, the company must pay $3,000 for every worker who gets a federal tax subsidy to purchase coverage as an individual."

Let's have a refresher:

Total compensation = wages + benefits (etc.)

The reason employers provide an insurance benefit is that the cost to provide the benefit is less than the value the employee places on the benefit. This equation works as long as insurance is insurance. That is, the value of the risk mitigation to the employee is greater than the cost to provide that risk mitigation. Once "insurance" becomes a direct wealth transfer this equation no longer works and there is no reason for employers to provide insurance- because IT IS NOT INSURANCE.

Health insurance has not been insurance for a long time. While the ACA is likely having an effect, the article you cite says only 32% of employers are "considering" a change.

OTOH one of the benefits of ACA is that employees (and potential entrepreneurs) aren't locked into a job because of insurance and pre-existing conditions. There is an economic value to this benefit, but it's hard to quantify.

Only 32%, just a slight change at the margins. You are aware that if someone changes, lowers costs and has competitive advantage, others will be forced to follow or go out of business.

I don't even know what point you're trying to address.

Rd seemed to be saying that the shift to lower-wage employment was driven by a shift from full-time to part time workers. This shift he said, was driven in part because of the ACA provision forcing employers to give full-time workers health benefits. These seemed like unrelated trends to me, since if a company was already paying for healthcare, the ACA provision wouldn't effect them, and if they weren't paying for healthcare, the there's no reason for the hourly wage to change even if the total number of hours was reduced.

Your first sentence seems to disagree with me, but then you quote a bunch of stuff that's saying exactly the same thing. They you reply to yourself to condescendingly explain what total compensation is and go off on a tangent about how "insurance" is a misnomer for the way healthcare works these days.

But none of this is relevant because Rd's premise started by talking about employees who weren't receiving health benefits from their job. So I'm left confused and reminded why I generally try to avoid reading anything you write here.

--since if a company was already paying for healthcare, the ACA provision wouldn’t effect them--

The ACA makes providing that insurance more expensive and practically mandatory at a certain employment level. Businesses are altering their conduct in accordance with the new regulations. In some instances this means shifting task from full-timers to part-timers, in some instances it means managing your operations so as to work with more ICs. Other times it just means not hiring and dumping more responsibility on existing employees- even if you have to bump wages accordingly, it's still a net saver.

A grand total of zero reasonable people with a remedial knowledge of the relevant considerations are surprised by any of this.

On a tangent, with Hobby Lobby appearing to face fines of $1.3 million / DAY for not including contraception/abortion coverage in its health insurance plan versus fines of roughly $2 million / MONTH for not providing any health insurance, that seems pretty clearly an example of Obama attacking such groups. i.e. those providing most of what the legislation requires are getting fined drastically larger amounts than those not providing any coverage.

Given the shift to part-time contract low wage workers without any margin for benefits because more than a decade ago, you are arguing that the market predicted Obama would sign Obamacare before Obama gave his national speech in the summer of 2004?

I guess the invisible hand demanded Obamacare.

I imagine you blame the increased entitlements and massive increases in debt and deficits since 2001 on Obama as well, because the invisible hand demanded the future destroying out of control government spending debt and deficits of Obama back in 2000.

Health insurance premiums doubled between 1999 and 2006 because of Obamacare?

Or was it merely the crashes of 2007 and 2008 that were caused by Obamacare?

Just 12 years ago, the budget surplus was so high that taxes could be cut and spending increased to give us back our money and make the economy create jobs and wealth faster and then pay off the debt with tax cuts that pay for themselves.

And Social Security could be privatized like CALPERS which has proved Wall Street will provide higher retirement benefits at lower cost than Social Security.

But obviously, Obamacare destroyed everything...

--Given the shift to part-time contract low wage workers without any margin for benefits because more than a decade ago--

If you knew the shift was occurring, how could any reasonable person, in good conscience, promote policies that exacerbate it? It's almost as if one party recognizes the enormous advantage they derive from stifling wages.

Mulp raises an excellent point. The current shift to lower wages pre-dates Obamacare, so it's not the underlying reason. However, I would agree that Obamacare will certainly exacerbate the current trend.

That trend has been going on since well before the ACA.

Isn't this what one would expect with a rapid drop on aggregate demand? A recovery w/ falling price level, wages, etc.

But price level hasn't been falling. Price level has been rising.

In a truly globalized economy, is there any means of justifying a salary above $5K for most North Americans workers, at least until the rest of the world catches up economically and all boats are raised? Even non-exportable service jobs can only pay North American standard wages when most of their customers are earning North American wages.

Except we're not 'in a truly globalized economy'. Not the way economic theory dictates, anyhow.

This is a question from complete ignorance. The answer is yes. First of all, Chinese GDP/capita is already $8500/year. Note that is GDP/capita, not the average wage, much less the average wage of a technically skilled factory worker. Are the Chinese overpaid now too? Second, a US based company is far better off paying a US worker the same wages as a Chinese worker. The break even point is much higher, depending on the nature of the work. There are many reasons for this, but some of them include the reasons that Chinese workers are also paid more than African ones. Third, services (which are generally very difficult to export) make up nearly 70% of the economy. They are far more than a macroeconomic after thought.

The developing world can place downward pressure on wages, but it is really quite a lot more complicated than you make it out to be.

Yeah, of course we're not completely globalized, but fundamental point remains that North Americans aren't massively better educated, stronger, or given the same capital behind them, a lot more productive than much of the rest of the world. The fact that moving somebody from Vietnam to North America instantly boosts their pay many times is an indication that our higher wages are an accident of geography and history, rather than on base fundamentals of the actual labor.

As we devote more and more of our effort to reducing the obstacles that prevent such trade in labor, I would expect a world-wide tendency towards equalization of wages (indeed, one can build a case that that's the only moral outcome). Of course, that's going to make for a very rough generation or two for my children and their descendents.


Do not be so fast to dismis geography and access to the North American market as major factors in keeping US wages up. You have taken a friction less model (which does not exist outside of perhaps the capital markets...see Coase) to an absolute. Commodities, people, and goods for the most part have transportation and freight costs. This can be a major cost and greatly suppress the marginal gains from lower labor costs. Furthermore, the US has some of the cheapest energy in the world now with fracking.

There is also the ability to access the markets. Lets face it, much of the service economy relies on relationships and reputations. When you don't have a physical object to go off of for performance, reputation and relationships are all you have.

I could go longer, but in short, geography matters. A lot. Along with its socio economic implications.

If the basic cost of living, at the most austere, is greater than 5K then, yes, a salary over 5K is justified.
One cannot expect goods or services to be supplied at less than the cost of producing them. With regard to labor that cost is the cost of living.


Mid wage workers should be given tenure.


What do you think are the benefits of tenure?

Excellent question, Andrew'. People have odd ideas about what tenure does, but it quite explicitly does not protect you against either (1) declining incomes, or (2) being fired if the university simply decides it's not going to have your department or field. This can and does happen.

I believe that in most cases it does protect you against declining income, or at least declining nominal pay.

A pay cut is considered a disciplinary action and requires considerable justification, as I understand it.

This is mainly a problem during recessions/depressions. Since we have some actual professors here, correct me where I'm wrong: tenure guarantees you a seat. Your pay is variable. It is extremely variable in fields where much of your compensation comes from winning grants. It may also vary depending on courses taught and service. If there were markets for courses, and there are to some extent, then tenure is much less of a "problem."

I'm not sure about cutting individual salaries, but campus-wide cuts are absolutely possible. Remember faculty furloughs in California from a few years ago?

They basically have the same deal as union workers and anyone with a contract, but for an actual good reason.


My next door neighbor is a former dean. He could not fire the tenured French and Italian tenured faculty to create a Chinese language program.

One neighbor is a 86 year old tenured faculty member, still doing the job he likes.

Job protection and job for life unless you are bought out.

Autor's hollowing out continues apace.

Is immiseration the right word to describe this process?

The free market will fix it.

This development conforms to our macro expectations. If our oil consumption is in secular decline (and it is), then incremental jobs cannot use any additional oil to drive or fly. Any new job in the US involves taking away oil consumption from an incumbent employee. Thus, on average, an incremental employee will be restricted in type of employment and geographic mobility.

Whether or not this leads to lower productivity is a function of the pace at which the economy can increase the efficiency of its oil usage. Since 2005, the pace has been 1.9% per annum; Jim Hamilton back-of-the-envelope estimates this at 2.5% over the longer haul; statistically, the pace has been 3.8% for the last six quarters.

US oil consumption has been declining at a 1.5% per annum pace, thus a 3.8% efficiency gain pace translates into 2.3% GDP growth. Allowing Jim's estimate, GDP growth longer term will tend to 1%. This doesn't mean people can't be re-employed (they are being re-employed in Britain as well), but that the productivity of these incremental workers is disproportionately low: A Growthless Recovery.

I find the income cuts particularly interesting. $13-21 / hour translates into $25,000-45,000 annual income--just those most pressed by rising oil prices. These folks can afford a car, but barely. The resulting jobs are more, I think, in the mass transit rather than automobile range.

To test this theory, we'd want to see distance traveled to work, pre and post. That should either refute or support our model.

So, to reply properly:

The market is trying to fix it, but it can't, due to a resource constraint.

"The free market will fix it."

The free market in government fiat monopoly money? I'd speculate that on a logarithmic weighted scale of issues that libertarians are concerned with that money is almost assuredly #1 by a mile. The question in macro has always been, and the one Keynes addressed, is "why does the free market not fix it the way it fixes almost everything else?" The broad, overlapping categories of answer might be market failure or government failure. One explanation is sticky prices. Government enforcement of nominal contracts is one possible reason.

"What’s more, the NELP report notes, budget cuts to state and local governments have taken away a major source of mid- and higher-wage jobs. And a separate chunk of middle-wage jobs — including carpenters, painters, and electricians — are still waiting for the U.S. housing market to recover."

What fraction of this phenomenon consist of:

1. Building trades, and
2. Ex-state and local government workers who are finding themselves having to accept market-rate salaries for their skills

in the Reagan era, there was a "jobs recovery" and critics pointed out that a large fraction of the new jobs were in low paying industries such as fast food. and there was this debate about whether making a hamburger could be considered "manufacturing" etc.

the bit of news highlighted in this blog entry reminds me of that historical episode, except that, politics being what it is, Obama will likely receive less criticism than Reagan did.

looking back over a thirty or forty year period, it seems that, whether you are on the left or on the right, the American jobs base continues to approach that of an undeveloped country with failing democratic institutions.

The debate over hamburgers and manufacturing jobs arose during Dubya's administration, not Reagan's.

whoops. thanks for the correction.

With Bush, there was a jobs recovery, so it was natural for his critics to say, "Sure, but those aren't good jobs that we're recovering." Under Obama, the unemployment rate is still historically high, labor force participation is low, and underemployment among recent college grads is high. Since there is no jobs recovery, we have not even reached the point of questioning whether the non-existent recovered jobs are any good.

Actually the labor market is starting to upshift again, at least for better quality jobs. It may be anecdotal, but employers are reporting difficulty in filling open (but non-entry level) positions. And the rate of people leaving current jobs for different jobs is almost back to the normal non-recessionary level. (I've seen both trends where I work; we've had a huge amount of turnover in the last year, and we're having trouble even getting temps)

construction jobs - lost due to the recession should recover
manufacturing jobs - lost due to mechanization
insurance jobs - lost due to the internet
real estate jobs - lost due to the recession should recover

The good news is that the median home will, because it must, eventually be affordable to people earning the median income whatever that is. The question is how to increase the demand for lower skilled labor. Higher NGDP?

IMO, this is because of the policy of increasing aggregate demand by handing out benefits at the lowest level. The argument goes that these people will spend more of their income so it makes a better stimulus. But what are they spending it on?
A person on UI isn't going to want to buy a house or a car or new appliances, or even a smartphone or a tablet PC. They're spending all of their disposable income on basic necessities like food.
OK, so we see an inrease in aggregate demand for food and food services. But those are low-wage jobs. Grocery store clerks, fast food workers, stockers and packers. Ergo, the increase in aggregate demand due to extended UI and such is mostly focused on relatively low-wage sectors of the economy, so that's where we see the job gains.

Nice comment.

I'd add that ultralow interest rates should eventually translate into more purchases of the big ticket items (houses, cars) and that's starting to happen. In other words, the recovery is just a slow motion one, but it will get there like they all do. All recoveries start with the lower paying and temp jobs coming back first, then the good jobs kick in.

Maybe what we are seeing is the recovery. Capital costs are more competitive than labor costs, and capital is far less tied to location, driving labor competition even more. The ones who benefit most are those handling the capital and those who benefit from the government's ability to borrow. For everyone else costs go up, wages stagnate or go down. When things start improving a bit, the Fed throttles back, and capital pulls back as well. The beginnings of the last two years at least showed signs of recovery that stalled a few months in.

I thought much stimulus was construction, and construction is cited as about mid-income jobs.

UI benefits don't increase aggregate demand at all. They're spent primarily on mortgage payments, rent and car payments, the absolute most basic necessities. Whatever might be left over goes for cell phone contracts, cigarettes and beer. UI is really insurance for the financing industry.

If only some industry could provide those midrange salaries to HS educated men in NY and California, something like rolling, hauling, installing, steel pipes and rigs, and extracting, hauling, refining, storing some product. If only.

Those Peak Oilers tell me that at one point California was the world's largest oil producer. It wasn't regs that used it up. (But sure, people do head to the Dakotas.)

What recovery?!

With reduced wages, profits are up, and that means stock prices are up, so that obviouslymeans the increased wealth is leading to increased consumption which will create jobs.

After all, the Mitt Romneys and Warren Buffetts upped their iPhone purchases from 100 per week to 150 per week given the increased wealth effect, didn't they?

I find it very interesting to learn that sixty percent of the jobs that were lost in the recession were in the mid-wage range. These dramatic cuts in the work force on people making between $13.83 and $21.13 per hour must be a mirror reflection of how businesses chose to deal with the strenuous pressures that were placed on them in the recession of 2008. Businesses simply decided that the opportunity cost of continuing to support these mid-wage workers was too high and reacted by cutting back these jobs and replacing lost labor with cheaper less experienced labor. The recession has completely shifted the demand towards the low-wage range making it difficult for many middle class Americans to support their families and have jobs that allow people to be able to satisfy their wants, and not only their basic needs. If low-wage jobs continue to dominate the recovery from the depression at a staggering rate of fifty eight percent of new jobs the economy could suffer. This would create a gap between low paying and high paying jobs that will result in many Americans not being able to fully recover from the recession due to structural unemployment. In order to combat this problem many people would benefit from attending a university to obtain a degree and a higher paying job to stay out of the “death range” of jobs ranging from $13.83 and $21.13 per hour.

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