Stupid, Selfish Workers
Posted by
KTK
Joe, over at Evangelical Outpost, cites “Another example of the economic ignorance of Americans“:
close to 46 percent of those surveyed in a new CNN-Opinion Research Corporation Poll out Thursday morning say the country’s economy is in a recession . . .
69 percent of black Americans questioned in the survey say the country’s in a recession while only 42 percent of white Americans feel the same way.
First of all, this isn’t evidence of economic ignorance - just of the difference between a technical definition and people’s common-sense understanding of the situation.
Joe quotes the technical definition of recession:
[T]he National Bureau of Economic Research defines a recession as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough.
[emphasis added]
That is, by definition the recession is over when things literally get so bad they can’t get any worse. Most people would think the recession was still going on at that point.
Most people understand “recession” to mean “economic bad times”, but technically it just meanst anytime economic indicators turn negative. If you think of the strength of the economy following a kind of sine curve, the popular notion of recession would be the period when the curve is below the middle point, either rising or falling, while the technical definition would be whenever the curve is falling, even if it starts from a high point.
So, by the technical definition, we’re kind of weakly out of the Bush recession - that is, some of the things that got so bad they couldn’t get worse have now started to get better. But by any reasonable understanding of the situation, things are in fact still bad in absolute terms. Joe thinks it’s “ignorant” to believe that.
Among other features of Bush’s “recovery”:
- he remains the worst President since at least Eisenhower in terms of average monthly employment gains over his term
- he remains the only President since at least Eisenhower to average negative monthly job growth
- his best month ever in terms of job growth still puts him behind 5 other recent Presidents considered on average over their entire terms (top three finishers: Clinton, Carter, and Johnson)
- even periods of “expansion” and of positive net job growth under Bush have always lagged population growth - there has never been a period under Bush in which more jobs were becoming available to the working population overall
- he is the only President in recent history to sustain continual lagging job growth, with respect to population, throughout his term
- the Bush recession officially “ended” almost two years ago - Bush has averaged a net 33,000 jobs lost per month during the “expansion” period
- Unemployment rates for both blacks and whites declined steadily under Clinton, and rose dramatically under Bush
- the gap between black and white unemployment rates narrowed under Clinton and has widened under Bush
- the black unemployment rate is more than twice the white rate (and would be three times higher if you include the larger percentage of non-imprisoned working-age blacks who are categorized as “not in the labor force” because they’ve simply been unemployed too long)
- GDP growth under Bush has been below the 10-year moving average for most of his term (contrast Clinton: both Bush and Clinton sat through “official recessions” lasting about a year in the first year of their terms - Clinton then not only posted record job-growth for the rest of his Presidency, but GDP growth above the 10-year average almost every quarter therein; George Bush, as we note, has put people out of work by the trainload, while also posting below-average GDP growth most quarters; the “Economic Snapshots” Website notes: “Historically, we have seldom seen real GDP growth this weak except when a recession was near”)
Re: real income, the Economic Policy Institute reports:
despite low unemployment and strong productivity growth, these measures of living standards have yet to recover to their levels of the previous business cycle peak in 2000. . . . in 2006 [there was] an increase in the poverty rolls of 4.9 million persons, including 1.2 million children; median household income in 2006 was . . . about $1,000 dollars (-2.0 %) below its 2000 level (in 2006 dollars). In other words, economic growth over the last six years has totally bypassed the typical middle-class household. . . .
Since 2000, the share of the population without health coverage has increased 2.1 percentage points, an increase of 8.6 million uninsured Americans. . . .
Reflecting the narrow extent to which the growing economy has been showing up in the paychecks of many working-age households, median annual earnings by full-time, year-round workers fell in 2006, for the third year in a row, down about 1% for both men and women. . . .
The unequal distribution of growth between profits and compensation is playing a critical role in this result. . . . the earnings declines among male and female full-year workers last year can be accounted for by a profit squeeze on wages.
Note also that this very weak wage performance has occurred while productivity growth increased 3% per year (2000-06). While economists and policy makers typically stress the positive performance of such indicators as productivity, GDP, or low unemployment, these earnings results clearly reveal that positive macro-conditions have not led to wage growth for typical full-year workers, as customarily had been the case.
So, yes, we’re technically in an “economic expansion” - one that has seen consistently increasing gaps between available jobs and needy workers, declining real income, increasing lack of health insurance, a widening unemployment gap between blacks and whites, record levels of net job losses, and recession-level GDP growth, all during this supposed “expansion”, and all arising uniquely under the Bush administration.
But Joe thinkd it’s a sign of “economic ignorance” that so many workers think they’re worse off only because they’re losing wages, benefits, and employment opportunities, and that blacks are more likely to think they’re worse off only because their unemployment rate is two or three times that of whites and they’re more likely to be counted out of the workforce entirely.
Corporate net profits are up, largely on the basis of those declining wage expenses, so anyone who thinks the economy is bad is clearly wrong. It’s only bad for for the people who do the work - you know, the little people, the ones who don’t count, the ones whose actual personal economic status has no bearing on the real economy, the ones who are “ignorant” for believing that they matter.
The sky is falling! The sky is falling!
Comment 10/23/2007
[…] Lean Left answers the assertion that Americans are economically ignorant for thinking we are in a recession: Corporate net profits are up, largely on the basis of those declining wage expenses, so anyone who thinks the economy is bad is clearly wrong. It’s only bad for for the people who do the work - you know, the little people, the ones who don’t count, the ones whose actual personal economic status has no bearing on the real economy, the ones who are “ignorant” for believing that they matter. Share and Enjoy: These icons link to social bookmarking sites where readers can share and discover new web pages. […]
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KTK, do you have a theory as to why corporations have rfcently been able to squeeeze workers more eeffectively to jump profits?
I can see how tax caanges, relaxd regulation, low interest rates and increases in productvity (plus special tretment for big pharma and oil companies) would contribute, but why sudden ability to squeeze wagess - especially in light of low unempmoyment?
Comment 10/23/2007
KTK, do you have a theory as to why corporations have rfcently been able to squeeeze workers more eeffectively to jump profits?
Well, first, I don’t claim I know more than Alan Greenspan - I only claim I know more than Joe Carter and everyone who votes like him.
But as to your question, part of the answer unquestionably is, again, in the EPI report:
If that’s true, then productivity growth was a result of people working more hours for lower real wages - and the extra corporate income is not being passed on to employees. As for unemployment, it is relatively low in absolute terms but it has been rising steadily - and for blacks it has been between 8-10% since a year or two after Bush took office. So jobs are harder to get, and for some groups just hard in general. I have also heard it said that most recent job growth has been in very low-paying positions - which would also support the statistics about negative real wage growth and increasing hours: even though unemployment is low, changing jobs likely requires a cut in pay, so employees still have to put up with whatever employers dish out, because the alternatives are worse.
Comment 10/23/2007
Which is all well and good, but does not address my question. You claim “Corporate net profits are up, largely on the basis of those declining wage expenses”. I am sure we agree that profit maximization is not a new concept in corporate America. So again, what is your theory as to why corporations are all of a sudden able to drive down wages to increase profits?
I, for one, am unaware of anything that would enable that. On the other hand, the influx of 5 million or so low or unskilled workers over that time span would certainly explain why average wages would decrease in real terms.
Your characterization of unemployment is perhaps a bit biased to your position. Unemployment is very low historically, and excluding the economy run-up for one year before the tech bubble burst, is within 0.3% of the lowest point since the 1970s (at a minimum - didn’t bother to look further back in time than that).
There is polarization of wealth in this country. Unemployment for blacks and certain other minorities does remain stubbornly high. And these are significant problems that need to be addressed. But there is no need to distort other facts to make this case.
Comment 10/24/2007
[UPDATE: Re-edited this to fix garbled quotes in earlier version. [And added a link.]]
Which is all well and good, but does not address my question. You claim “Corporate net profits are up, largely on the basis of those declining wage expenses”. I am sure we agree that profit maximization is not a new concept in corporate America. So again, what is your theory as to why corporations are all of a sudden able to drive down wages to increase profits? I, for one, am unaware of anything that would enable that.
As I said, low unemployment has not strengthened labor’s bargaining power because job creation has mostly been at the low end, meaning changing jobs is usually a loss to the worker.
Quoting yet again from the EPI:
So, they say exactly the same thing, plus the added factors that the absolute number of unemployed is larger (due to growing population) and that unemployment figures do not include the “discouraged unemployed” who have simply run out of places to look.
the influx of 5 million or so low or unskilled workers over that time span would certainly explain why average wages would decrease in real terms.
And it would also explain why unemployment figures are artificially low - those workers expand the total labor force (the denominator of the unemployment ratio) while leaving all the previously unemployed workers (the numberator) still unemployed.
Comment 10/24/2007
I am at a bit of a disadvantage here, I don’t know what report you are quoting from (I might have missed the link above, not sure). But in general I don’t accept statements like “Despite low unemployment, workers’ bargaining power has diminished.” unless they are backed up with hard data.
In general terms, would you agree that if corporate profits are at historic levels, and this is in large part due to declining wage expenses, and this decline is mostly due to a lack of bargaining power by workers, then that lack of bargaining power must be at or near historic levels itself? If not, I am not following your logic. If so, I strongly disagree with that conclusion.
I always get a kick out of comparisons of unemployment, corporate profits, inflation, GDP growth, etc among current and past administrations. Clinton added X jobs. Bush grew the GNP Y. It’s all total bullshit unless one can identify explicit actions taken by an administration that were responsible for the change. And, given the lag between the implementation of any given action and its impact on the economy, probably 50% of any administration’s numbers are the result the previous administration. With the important exception of deficits, which have an unattractive property of jumping as soon as a tax cut is implemented…
Comment 10/24/2007
Ted:
I linked the EPI in the original post, but I’ve added a link above. But . . .
But in general I don’t accept statements like “Despite low unemployment, workers’ bargaining power has diminished.” unless they are backed up with hard data.
The quotes I gave detail the situation extensively in relative terms. The links give official BLS numerical estimates for employment data going back 10 years. The EPI analysis is based on those numbers, but the conclusions essentially speak for themselves. There is (slowly) rising GDP, and there is falling real wages, so by definition companies are making more money and workers are making less. “Productivity” is just GDP per capita and is a simple calculation; if productivity is increasing but wages are falling, it can only be because companies are making more money and keeping it.
Look at it another way: you insist that workers can’t be worse off with low unemployment and rising productivity. But median real wages have been falling for years. So, you explain it.
would you agree that if corporate profits are at historic levels, and this is in large part due to declining wage expenses, and this decline is mostly due to a lack of bargaining power by workers, then that lack of bargaining power must be at or near historic levels itself?
I’m not sure how you measure the “level” of bargaining power. Even then I’m not sure your sort-of-equation holds: given a situation in which several factors all influence one another, it does not necessarily follow that if one is “at historic levels” the others must be as well. (A small leak can sink a big ship - cause and effect magnitudes are not always simply proportional.) In this case, anyway, there is another factor in the equation: the unemployment picture is not as simple as it seems. As the EPI (somewhat implicitly) points out, unemployment numbers stay low even while job growth lags population growth; the reason is that more workers - unemployed spouses, immigrants - are entering the workforce out of necessity, shifting the total-workforce numbers upward even while more and more people are out of jobs.
And in fact the BLS statistics show exactly that:
The unemployment rate fluctuates between 4 and 6%, while the total workforce rises steadily. Why? Note that “Unemployed” fluctuates with the unemployment rate, but “Not in Workforce” is a much larger number and rises virtually in lockstep with the total labor force. “Not in Workforce” is the category BLS uses for both people who do not have jobs - homemakers, the disabled, etc. - and those who have simply given up looking for work. To be “Unemployed” officially, you must not only not have a job, but be actively looking for one (defined as actually contacting employers, not merely looking at ads). So the unemployment rate for the last 10 years has fluctutated as the number of people still looking for work has fluctuated - but the number who simply have no prospects at all has climbed steadily, even as the number of employed workers has also climbed. Essentially, for every worker who enters the workforce, another unemployed worker gives up in despair. The “unemployment” rate is merely the measure of the few who haven’t reached that point yet - about 1/10 the number who don’t have jobs or income but are not officially “unemployed”. That’s why unemployment and wages are both low - any time things look a tiny bit better, there’s a pool of untapped workers up to 10 times larger than the officially “unemployed” who might be enticed to take jobs at still-low wages.
Comment 10/24/2007
Ted:
So again, what is your theory as to why corporations are all of a sudden able to drive down wages to increase profits?
You seem to want to focus on immigration here, but it’s not just that. There are a lot of factors at play here. Outsourcing springs to mind, as does the tendency of companies to move manufacturing jobs to the much-lower-paid South over the last couple of decades.
Also understand that we’re talking in relative terms here, so while wages are still trending upward in absolute dollars, they’re often lagging behind inflation and cost-of-living indices. So what you have is a decrease that can be spun as an increase (see also the government’s numbers on tax revenues).
I’m sure there are other ways in which corporations (and, to be fair, even smaller employers) manage to get away with it, but the bottom line is that when a company needs to reduce costs or increase profits, slashing labor costs is almost always Priority One. Like it or not, ours has become an economy that values investment and devalues work, from our pay scales to our tax codes. Even a way-upper-middle-class to low-upper-class type, making around $200K per year pays 35% on some portion of his income. Warren Buffett pays around 20%.
Comment 10/24/2007
Tgirsch, I don’t want to focus on immigration - I only mentioned it once I think. And I agree wages are lagging and wealth is polarizing - both of which are trends I would like to see reversed. What I am trying to get at is how would we go about achieving that reversal? I am searching for hard data that might give us a clue. I do not subscribe to any theory that is based on Bush is President => corporations are reducing employee compensation => profits are up.
Let’s cut this a different way. Below is a table of wages&income, total compensation (includes health care costs shouldered by employers - which I think is responsible for a piece of the wage stagnation) and corporate profits as a percentage of national income. This analysis has the benefit of zeroing out inflation and overall economy growth or contraction. I think you will be amazed at what the data reveals - or more precisely what it does not reveal in terms of a direct correlation between compensation and profits as well as compensation trends. Data was pulled from
http://www.cbpp.org/8-31-06inc.htm#_ftnref6
Dang. My paste is losing the tabular format. Link to the above and jump down to appendix 3. It is clear that wages are down, and it is also clear that overall compensation is not. So I have a hard time believing that the reduction in wages is responsible for the increase in corporate profits, since clearly the wage reduction has been offset by other compensation costs.
Note that overall compensation as a percent of national income has, on average, been lower in Clinton years than in either Bush tenure. I believe there is zero causal relationship here; I only point it out to show how unreliable such analysis is.
Comment 10/24/2007
Figured I’d put this in a new comment for clarity..
Another one of my economic pet peeves is any analysis that compares how some component of the economy behaves for a fixed period after a group of recessions. That’s like me comparing how long it takes for cyclist A to descend from peak X to cyclist B on peak Y and then drawing a conclusion about their descent abilities.
Comment 10/24/2007
Ted:
One question: Do you suppose that providing employee benefits is itself a non-profit endeavor? If your answer is “no,” then I think you have a large part of your answer.
An even larger part of your answer, I think, lies with misleading averages, because it’s easy to assume that the cost of benefits is spread across the wage spectrum roughly equally to the wage spread itself, which is simply not true. Many (I’d guess most) low-paying jobs come with little or no benefits at all, while higher-end jobs get hugely expensive benefit packages. Use our recent discussion of the auto industry as a microcosm of this — GM versus Toyota. Average them together, and the cost of benefits skews high.
Comment 10/24/2007
tgirsch, which question are you addressing? I don’t mean to be Fred-like; I amtruely confusd. (perhaps delrious due to current stte of the game - 13 1).
Comment 10/24/2007
Ted:
Sorry. You seem to be asking how total compensation could be roughly the same percentage over time, while corporate profits increase because of lower wages. That’s what I was trying to address.
And I’d like to try putting it like this: One of the biggest profit-making businesses in this nation is health care, and health care is easily the most expensive employee benefit to provide. So a much larger percentage of a given workers “total compensation” is diverted to a large profit center for some corporation (not necessarily the one s/he works for) under the auspices of providing a “benefit.”
Of course, I’m not an economist and I don’t play one on TV. But that seems like a fairly reasonable and feasible explanation to me.
You also had another question about how to reverse the trend of the growing gap in income between the haves and the have-nots, and that’s a much tougher nut. I think a more equitable tax code would at least slow that down. I see no reason why wage income should be taxed far more punitively than investment income, for example. I also think that socialized health care, funded through progressive taxation, would go a very long way, but taking a huge cost center away from individuals and businesses alike and spreading it across the entire population/income spectrum.
Comment 10/24/2007
“see no reason why wage income should be taxed far more punitively than investment income, for example.” Punitively? Did you really use that word?
I agree that health care is the reason why compensation costs are holding steady while wages are dropping. But I disagree that this explains why corporate profits have increased. In order for that to be true, the growth in health care industry profits over the past five years (or whatever period you want to analyze) would have to roughly equal the overall growth in total corporate profits. I did some searching to try and find total profits by industry segment but was unable to in find it quickly. I know the data is available through some of the financial analysis sites. I’ll try again when I have more time. I would bet that health care profit growth does not account for more than 10% of the total growth. Which is not to say that rising health care costs are not a huge, and increasing, problem.
I tend to agree with you that tax policy is probably the only way to keep us from devolving into a wealth distribution that might be categorized as “it was the best of times and it was the worst of times” (or something like that)…
Comment 10/25/2007
Punitively? Did you really use that word?
Yeah, I did. *Blush*
But I disagree that this explains why corporate profits have increased.
I wasn’t implying that health care is the whole explanation; just a big part of it.
Another obvious contributing factor is outsourcing of labor costs; those costs aren’t reflected in US labor stats, but the effects are reflected in corporate profits.
Comment 10/25/2007
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