Saturday, November 2, 2013

Without Jobs, We'll have to Redistribute the Wealth

Over the last 40 years, falling labor share implies that productivity gains no longer translates into broad rises in pay. Instead, an ever larger share of the benefits of growth accrues to owners of capital (the top 1%).

Technological progress has substituted unskilled labor --- and technology will keep getting better, and will be better at cheaply doing stuff that people used to do.

With the continued offshoring of better-paying jobs to low wage countries (and with 1/3 of all jobs still prone to more offshoring), we have ended up with a slew of low-paying jobs in a service economy. Just from 2000-2010 alone, the U.S. manufacturing sector lost 5.8 million jobs (labor unions and manufacturing have been in a steady decline since 1979).

The tricky bit now, is understanding how—or whether—the bulk of the population will receive its purchasing power if not through wages.

One possibility is broad redistribution. Society could set a basic income (or a guaranteed minimum income) that rises with economy-wide productivity, and as workers' potential earnings fall below that reservation level, they cease working.

But the GOP won't even allow the unemployed to have food stamps, thinking, if you don't have a job (and if you’re poor), somehow you’re shiftless and lazy. The GOP believes that, despite the lack of enough jobs (especially jobs that actually pays a "living wage"), the government is "rewarding the lazy and undeserving" by permitting them to exist.

It's not a sure thing that labor's share will keep dropping (although, it's most likely). If it does, however, our society will face some very difficult decisions. So, in an over-saturated and under-paid labor market, would increasing the population help? The Democrats want more immigrants and the GOP is steadfast against abortion and birth control.

Representative Paul Ryan, the chairman of the House Budget Committee, still believes the safety net is becoming “a hammock that lulls able-bodied people to lives of dependency and complacency.” And Mr. Ryan’s budget proposals involve savage cuts in safety-net programs such as food stamps and Medicaid while 15% on the country lives in poverty and 15% of the country relies on food stamps.

Some economists predict (with a 60% chance of happening) what the labor market will look like far into the future:

  • a lousy labor market if you’re a worker
  • a relatively good labor market if you’re an employer
  • lower demand relative to the size of the economy’s productive potential

As Paul Krugman recently points out in his column, A War on the Poor:

In 1936, when Alf Landon received the Republican nomination for president, he said in his acceptance speech, “Out of this Depression has come, not only the problem of recovery, but also the equally grave problem of caring for the unemployed until recovery is attained. Their relief at all times is a matter of plain duty. We of our Party pledge that this obligation will never be neglected.”

Can you imagine a modern Republican nominee saying such a thing? Not in a party committed to the view that unemployed workers have it too easy, that they’re so coddled by unemployment insurance and food stamps that they have no incentive to go out there and get a job.

Using the broader measure of unemployment (the U-6 rate) there is one job opening for every 6 unemployed. But the GOP is telling us that "able-bodied adults without children" should not be entitled to food stamps after 3 months. But then, what would they eat?

We can start by:

  • taxing capitals as regular wages so that, at the very least, the government will have the funds needed to feed the unemployed and poor.
  • And then, raising the "cap" on Social Security to earnings on up to $1 million a year (so that the elderly can keep paying their rent.)
  • Then we can raise the minimum wage (and index it to inflation) so that the government will no longer need to pay "wage subsidies" to low wage earners.
  • And finally, by eliminating all the loopholes for corporate taxes (reforming the tax code) and imposing pay ratios on the job creators CEOs, so they won't hoard trillions of dollars overseas in offshore banks, but instead, begin hiring people.



    More than four years into an economic recovery, poverty and unemployment remain elevated, while the income gains from economic growth have flowed almost exclusively to the top 1 percent of earners. Yet the pressure for reductions to programs for low-income groups has not subsided, with possible cuts to food stamps and federal unemployment benefits moving to the top of Congress’s agenda. The danger, as always, is that Republicans will pull Democrats in their slipstream, winning their agreement to cuts that are deemed acceptable simply because they are not as harsh as Republicans demanded.

  2. Bud, you are right about the off-shoring of better-paying jobs to foreign countries. But it is not the type of jobs that Nike shifts to low wage countries. Nike used to hire a lot of workers in China, but when wages rose to 2 dollars an hour, it moved the factories to Vietnam and Indonesia where workers are paid 50 cents an hour. The same thing happened for apparel manufacturers, where factories are shifted to Bangladesh.

    The real high wage jobs are actually moving to India, where e.g. IT engineers cost 30% less than for Americans ( . India doesn't do much in terms of manufacturing or producing anything, but it targets all the high skill service industries of Western countries. Once, India used to provide basic computing and call center off-shoring services. Now it aims to take the high end and highly paid jobs in consulting and not just in IT, but in legal, medical, and other professional services; as well as research, from workers in Western countries.

    So, at the low-end, we lose high numbers of lower paid manufacturing jobs to an endless pool of workers in low wage non-English speaking countries. At the high-end, we are being squeezed out of the skilled services jobs by workers in India who are proficient in English.