Must Reads: In the New York Times, MIT's Simon Johnson looks at what he calls the rich country trap, in which financial institutions and large companies enjoy outsized power and protections. A new Wells Fargo report examines whether the Labor Market Index is a better tool than the unemployment rate for evaluating credit risk. In National Affairs, free-market advocates Eli Lehrer and Lori Sanders of the R Street Institute discuss the idea of relocation grants and migration zones so that low-income workers have the chance to pursue work "wherever it may be found." And in the Manhattan Institute's City Journal, author Kay Hymowitz looks at the recent NYT's recent piece on homelessness called "Invisible Child", and takes a tough view on who is actually to blame for the child's poverty and misfortune.
So many good charts were generated at years in end, it was hard for your editor to exercise restraint. So we will examine some of the best, but you are urged to take a look at them all when you have a chance. ( You also may want to check out CFR's Renewing America blog, which provides some numbers for 2013 on the "good, bad and the ugly" in the U.S. economy.) The NYT's Steven Rattner provides a thought-provoking set of charts on the 2013 economy, here are two:
Not only did trends of recent years continue in 2013 – particularly the diverging fortunes of the rich and everyone else — but in some ways they accelerated. The stock market, as measured by the Standard & Poor’s index, was up a stunning 32 percent (through Dec. 27). Corporate profits rose to a record $2.1 trillion. Meanwhile, incomes remained nearly flat and jobs tallies grew slowly.
Similarly, the American Enterprise Institute's Mark Perry offers up this chart he says sums up the state of play this way:
While the US economy was able to achieve a complete recovery from the Great Recession in terms of real GDP, and is now producing $843 billion more output than in Q4 2007, the new record level of economic output in the US is being produced with two million fewer workers than in the last quarter of 2007 (see red line in chart). The fact that the US economy is producing 5.6% more output now than in 2007 with 2 million fewer workers would explain why corporate profits are at record levels and more than 40% above the pre-recession peak (not adjusted for inflation).
Meanwhile the Huffington Post's Jillian Berman offers two interesting charts on average worker vs CEO pay measured against GDP:
And over at the NYT's Economix blog Casey Mulligan says Americans will likely see shorter work weeks in the New Year"because fiscal policy is now switching from penalizing part-time work to rewarding it":
Will 2014 be the year the economy begins to work for U.S. labor? The Atlantic's Derek Thompson says no, "the story of 2013 will be the story of 2014 and many years to come." Meanwhile, Gawker looks at the "the year in hard times," cataloging some of the stories of "Military veterans. Workers at various low-wage jobs. Unemployed people." And the Washington Post revisits "eight ways robots stole our jobs in 2013." Mother Jones' Kevin Drum looks at the financial affects of long-term unemployment:
What we've mostly had during the Great Recession and the subsequent recovery has been cyclical unemployment. This is unemployment caused by a simple lack of demand, and it goes away when the economy picks up. But structural unemployment is worse: it's caused by a mismatch between the skills employers want and the skills workers have. It's far more pernicious and far harder to combat, and it's what happens when cyclical unemployment is allowed to metastasize. "Skills become obsolete, contacts atrophy, information atrophies, and they get stigmatized," says Harry Holzer of Georgetown University." Economists call this effect "hysteresis," and there's plenty of evidence that we're suffering from it for perhaps the first time in recent American history.
Editorial cartoonist Jeff Daniziger in the LA Times offered up his opinion on the U.S. job doldrums, saying this on globalization:
Over the last 20 years, countries around the world have ditched their communist governments, or at least turned their backs on strict communist economic principles. At the same time, India and other Asian nations have rapidly moved into global trade. This has meant billions more workers around the world competing with American workers to make stuff and offer services. At the same time, shipping has become more efficient and economical, and international communication has become cheap, instantaneous and simple. And since the international workers are willing to accept extremely low wages, they have the advantage. Around the world, subsistence farmers have transformed themselves into subsistence factory workers.And since the international workers are willing to accept extremely low wages, they have the advantage. And during this entire period, what did the United States government do to meet this challenge? Nothing. Our clueless, bellowing national leaders from both parties took no action to meet the effect of this new competition. Many American companies embraced the changes, happy to make profits off underpaid Asian workers while allowing huge swaths of American industry to die.
Meanwhile, CFR's Rebecca Strauss over the Renewing America blog, discusses whether the skills gap is really as bad as some employers make it out to be:
[It] could be that the skills gap is being masked in other ways that are tricky to parse out. Measuring labor shortages has long been a challenge for economists. The Bureau of Labor Statistics has an infamously poor track record at predicting what kinds of jobs will be in the highest demand just a few years out.
For the high-skilled STEM fields, it could be that employers are unwilling to pay what a lot of well-educated Americans have come to expect. In a labor market that is less closed and more global, employers can move STEM jobs to lower-wage India, for example, instead of stomaching the high cost of American employees. This could also help explain why such a large proportion of American STEM PhDs end up working in non-STEM fields for the likes of McKinsey and Goldman Sachs, which pay handsomely.
For less-educated Americans, some economists say the skills mismatch presents itself in the form of rising income inequality. This is the theory most famously posited by Claudia Goldin and Lawrence Katz in their seminal study The Race Between Education and Technology. They claim that up to half of the growth in inequality since the 1950s can be attributed to an education-technology mismatch, with technology advancing much faster than educational attainment.
Check out this interview with the Washington Post's Jim Tankersley and JPMorgan Chase head Jamie Dimon about the skills gap:
As Dimon noted... this “skills gap” — the complaint that businesses simply cannot find the workers they need to fill millions of open jobs (at a wage level that the businesses are willing to pay) — is something you hear a lot about from manufacturing and tech companies. Not so much from banks.
Check out this editorial cartoon from the Boston Globe's Dan Wasserman:
We might expect that the readers of HBR are interested in and sympathetic to the problems facing businesses that directly affect the average person. Given that, it may be surprising that a majority of the comments thought that employers were wrong to pay poverty-level wages. But there were also many who did not believe that such low wages were a moral dilemma for companies paying them... If business success is that sensitive to wages, then employers have been getting quite a break in recent decades, because the minimum wage has declined about 40 percent in real terms since its peak value in 1969. Earnings for the hourly paid in general have also declined since their peak in 1972, about the point when wage increases stopped keeping up with productivity increases. On the other hand, wages have been rising sharply for executives and managers, and commentators have not complained that these increases would kick off inflation, cause layoffs, or force companies out of business.
Over at Salon, Joan Walsh says both parties missed the boat by advocating social programs over higher wages and now Americans are unable to deal with the fact that "a quarter of people who have jobs today make so little money that they also receive some form of public assistance":
The notion that so many millions of people work so hard and are still poor enough to receive public aid is galvanizing: it helps make vivid that low wages, not lack of effort or “dependency,” are part of what’s shrinking the middle class. Not just taxpayers but low-wage workers themselves think rising out of poverty with the help of food stamps and Medicaid and the EITC should only be a temporary victory on the way to a solid place in the labor market where work is fairly compensated. I’m certainly not demonizing public assistance...But every dollar taxpayers spend subsidizing corporations paying poverty wages is a dollar not spent on early childhood programs, building universities or funding college education. Yes we need safety nets, but we also need ladders of opportunity. The government spending that built the post WWII middle class invested in education and research, and it was backed by the New Deal’s most effective anti-poverty initiative: the Wagner Act, which eased labor union organizing.
Interestingly both Cappelli and Walsh note that many current low-wage jobs are place-based and thus not vulnerable to globalization, which should be incentive to increase pay. Conversely to Walsh, Fareed Zakaria in the Washington Post says the government has not spend enough money on the poor and instead focused on the middle class:
Reviving the middle class is clearly the most important challenge, involving the most people. It’s also the hardest and, having begun 40 years ago, is proving to be one without an enduring solution. There is strong evidence that rising inequality is crowding out the middle class. But there is also a powerful story to be told about how technology, globalization and declining American education and skills have contributed to the stagnation of wages for the median worker... Of the three problems, the easiest to fix is the one we spend the least time talking about: the fate of the poor, who number 46 million. Since the poor tend not to vote or lobby, they have not received much attention since Lyndon Johnson’s efforts in the 1960s. American government does not devote much energy or money to the problems of the poor, especially those of impoverished children who suffer from malnutrition, bad health and poor education, which cripples their chances of escaping poverty. The resources needed to change this would be a fraction of what we spend on the middle class.
Lastly Charles Krauthammer opines about a two-tiered minimum wage breadwinners and "everyone else", read Jordan Weissmann's round up on the issue in the Atlantic for more thoughts. Also of interest is this piece in Inc. looking at Buffer's practice of publishing all the salaries of its employees and the methodology behind them.
In this Guardian article, Alison Moodie examines whether the United States is playing catch up on impact investing. And the Economist profiles social entrepreneurship advocate Gregory Dees. Meanwhile over at the Pioneer Post, British analyst Jim Clifford says "social investment doesn't always mean a low rate of return and voluntary and community organizations should set aside their traditional concerns over investor motivation." Nobel Laureate Joseph Stiglitz, in discussing the euro crisis, argues "no country has ever restored prosperity through austerity," and thus "with global growth so tepid, exports will not restore Europe and America to prosperity any time soon." You may be interested in this 2010 CATO working paper on whether the Fed is a failure and what alternative monetary policies the United States might employ. The University of Michigan's Thomas Hemphill, in response to the Pope's recent speech on unfettered capitalism, argues that "when allowed to operate with a reasonable level of efficiency governed by the rule of law and established ethical custom, capitalism can effectively emerge as the primary global driver for moving tens of millions of people out of poverty." You may also want to check out this New Yorker interactive looking at income inequality based on NYC subway lines.