Friday, December 31, 2010

Footnote to the Footnote

This is the real takeaway from the article linked in the preceding post, the buried comment that reveals much more than the naked numbers do:
With the inflation rate stagnating at only 1.2% and hourly wages rising 1.6%, employers have little incentive now to add jobs, [Kenneth] Goldstein[, a labor economist at the Conference Board,] says. "If it's going to cost you 1.6% more to hire that person and you're only going to get back 1.2% on whatever you sell, even with a productivity dividend it's awfully hard to see where you're going to make money on the deal," he says.
Okay, two things. The first, less important one, is that the math is screwy. You can't directly compare percentages like that unless the original quantities were equal - which here the two (labor cost and unit sale price) obviously are not. It just makes no sense. Just consider that if your labor costs are 50% of your total unit cost and they have gone up 1.6%, then the unit cost has gone up 0.8%. So if the unit price goes up 1.2%, than yes, you are making money on the deal. Maybe not as much as you want, but you are making money. (Yes, I know other unit costs might have increased which could change the final answer, etc., etc., but that's irrelevant to the point that you can't simply say that if wages go up faster than prices you are losing money. It is mathematically absurd.)

The second is much more important because it reveals the attitude driving the decisions, the attitude of the bosses, the attitude, bluntly, of capitalism. What Goldstein is saying, when you strip it down to its real on-the-gound meaning, is that unless prices are going up faster than wages, that is, unless workers are losing ground, seeing their real wages shrink, then there won't be jobs. Your long-term choice as a worker is to be unemployed and lose ground rapidly or be employed and lose ground less rapidly. The idea of real gains is denied you and your only hope of getting such gains is to get them at the expense of others increasingly discouraged, increasingly marginalized, increasingly left to their fates.

You think that's overstated? You think I'm reading too much into it? Think again.
Goldstein predicts that unemployment will remain above 6% as late as 2014 or 2015. In fact, employment may never return to earlier levels, he forecasts, because businesses found it was profitable to cut jobs. "Some of those folks in their 40s and 50s may not realize it, but they are not going back to work, period," he says.
And those workers, those people who have hoped, planned, and worked to support themselves and their families and dreamed of leaving a better life for their children will be denounced by the caterwauling chorus of the comfortable as lazy lay-abouts, a drain on society, as good-for-nothings, as demonstrating the "need" for more "discipline" for workers and as "proof" that "wasteful" programs like welfare, food stamps, unemployment, subsidized health care, public housing, and all the rest have only bred "indolence" and "destroyed self-reliance." We will be asked - indeed, there are already those who are in effect asking - "Are there no prisons? Are there no workhouses?" And more and more, the response to an answer of "No" will be "Why not?"

All because, I keep saying it, we know who must be protected.


Marc McDonald said...

I've read about how the real jobless rate is around 20 percent, when one includes those discouraged workers who're no longer seeking a job.
Add to this the fact that tens of millions of Americans work for minimum wage. I would dispute whether those people have "jobs" at all. After all, the sick joke that is today's minimum wage doesn't even begin to cover the basic costs of living. And a lot of these people are holding down two and even three jobs.
I think economists pay too much attention to the official government figures for the total number of jobs being lost or created. To them, a job is a job. They don't seem to make any distinction between a crap Wal-Mart job and a six-figure health-care job.
Given that most "jobs" being created these days are of the crap Wal-Mart category, I'd say the actual national employment picture is far bleaker than what many of these ivory-tower economists would have us believe.

LarryE said...

Great to see you here, guy!

I have no disagreements with what you say - but I am going to use it as an excuse for a few particulars.

Using BLS figures (yes, I know, but they're the best we have), when you include those working part-time for economic reasons (i.e., who want to work full-time) and those "marginally attached to the labor force" (which includes "discouraged" workers), the real jobless rate is 17.3 percent.

Minimum wage, yup, a sick joke. At $7.25 an hour, 40 hours a week, 52 weeks a year, that's $15,080. Federal poverty level income for 2009 for the lower 48 was $14,570 for a family of two; it was $22,050 for a family of four. (Higher in Alaska and Hawai'i.) And the notion that it's only, as the Heritage Foundation insists, "suburban teenagers" who are making minimum wage, the BLS says that half of the total is over 25.

And you're also right about the "a job is a job is a job" attitude. That's part of that devotion to the macroeconomics of GDPs and corporate profits rather than the microeconomics of real people that I denounced in an earlier post.

Some of that devotion, I think, is based on laziness, on not wanting to deal with the complexity; some on the related desire to have a few simple numbers that (at least appear to) sum up the whole; some of it on simple bias. Whatever the source or combination of sources, the result is most economists fail or refuse to see that as the distribution of wealth and income becomes more and more skewed, the measures they use become less and less relevant to the lives of more and more people.

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