Labor Economics – Page 95 – artdiamondblog.com

Pay Rebounds in Silicon Valley

Source of graphic: online version of the WSJ article cited below.

Silicon Valley’s nascent economic recovery gathered steam last year, with the nation’s technology capital adding more than 30,000 jobs and showing gains in areas such as average annual wages and household income.

That was the conclusion of an annual report from Joint Venture Silicon Valley, a nonprofit group representing businesses and government agencies in the San Francisco and San Jose, Calif., area.

"Silicon Valley is back and it’s rebooting," said Russell Hancock, Joint Venture’s president and chief executive. "This is familiar since the Valley has already done it five or six times over its history. It regroups, then reboots."

The report comes as Silicon Valley, which prospered during the dot-com frenzy in the late 1990s, has struggled to remake itself in the wake of the tech crash in 2000. In the years since, the region has experienced job losses and a slowdown in growth at many tech companies. The area began to turn the corner in 2005 when a net gain of 2,000 jobs was recorded, the first time since 2001 that there had been an overall increase in jobs. Start-up activity has also become widespread again, with Internet firms specializing in online video, social networking and "clean technology" springing up.

For the full story, see:

PUI-WING TAM. "No Longer Down in Silicon Valley Jobs, Wages Show Gains As Bust Fades Further; Small Firms Fuel Rebound." The Wall Street Journal (Mon., January 29, 2007): B5.

Union Decline Continues in United States

Source of graphic: online version of the NYT article cited below.

Union membership dropped sharply last year in the United States, as the percentage of manufacturing workers in unions fell below the percentage of American workers in unions for the first time in modern history.

The Bureau of Labor Statistics reported Thursday that union membership fell by 326,000 in 2006, to 15.4 million workers, bringing the percentage of employees in unions to 12 percent, down from 12.5 percent in 2005. Those figures are down from 20 percent in 1983 and from 35 percent in the 1950s.

Work force experts said the decline in union membership was caused by large-scale layoffs and buyouts in the auto industry and other manufacturing industries, together with the labor movement’s difficulties in organizing nonunion workers fast enough to offset those losses.

For the full story, see:

STEVEN GREENHOUSE. "Sharp Decline in Union Members in ’06." The New York Times (Fri., January 26, 2007): A11.

Fed Chairman Bernanke’s Omaha Speech

Bernanke in Omaha addressing the Chamber of Commerce (left) and after receiving a plaque officially appointing him as an "admiral" of the Nebraska Navy (right, ha, ha). Source of the left photo: http://www.omaha.com/neo-images/photos/large/ap-nenh10102061909.jpg Source of the right photo: online version of the NYT article cited below.

Last week, on 2/6/07, I attended a large Chamber of Commerce luncheon at which Federal Reserve Chair Ben Bernanke was the featured speaker. The talk was subtle and restrained, but interesting. Apparently it was one of the first speeches by Bernanke, since becoming chair, to address an economic issue broader than the macro policy issues that the fed usually addresses. The headlines in the Omaha World-Herald and the Wall Street Journal missed the main point, I think.

The main point was not to criticize the inequality of the United States economy, but to praise its dynamism. He pointed out the extent to which living standards have improved as a result of that dynamism. And he wanted mainly to suggest that when we adopt policies aimed at reducing inequality, we be careful to be sure that the policies do not have the unintended consequence of reducing the dynamism.

In particular, he suggested that much of the inequality was driven by an increasing skill premium, and that the most constructive way to reduce inequality would be to reduce the skill premium by increasing the supply of skilled labor. This implies that individuals, and government, invest in increasing skills through increased access to community colleges, universities, online education, and the like.

For the full NYT article, see:

"Bernanke Suggests How to Narrow Wage Gap." The New York Times (Weds., February 7, 2007): C13.

For the full WSJ article, see:

DAVID WESSEL. "Fed Chief Warns of Widening Inequality; Bernanke Urges Steps That Avoid Harm to Economy." The Wall Street Journal (Weds., February 7, 2007): A6.

For the full Omaha World-Herald article, see:

STEVE JORDON. "Fed chief says income gap poses problems." Omaha World-Herald (Wednesday, February 7, 2007): 1D & 2D.

(Note: the online version of the article had the slightly different title "Growing income gap poses problems, Fed chief says" and is dated 2/6/07. The article may have first appeared in the paper’s evening edition on 2/6/07. My copy was the morning edition of 2/7/07.)

For the text of Bernanke’s "The Level and Distrubution of Economic Well-Being" presentation, see: http://www.federalreserve.gov/boarddocs/Speeches/2007/20070206/default.htm

Source of graphic: online version of the WSJ article cited above.

Investment Firms’ Advice Biased Towards Over-Saving

Graphic on optimal savings. Source of graphic: online version of the NYT article cited below.

Could it be possible that you are saving too much for your retirement?

. . .

. . . , a small band of economists from universities, research institutions and the government are clearly expressing the blasphemy that many Americans could be saving less than they are being told to by the financial services industry — and spending more — while they are younger. The negative savings rate, they say, is wildly distorted.

According to them, the financial industry, with its ostensibly objective online calculators, overstates how much money someone will need in retirement. Some, in fact, contend that financial firms have a pointed interest in persuading people to save much more than they need because the companies earn fees on managing that money.

The more realistic amount could be as little as half the typical recommendation made by Fidelity, Vanguard or any number of other financial institutions.

For a middle-income couple, that could mean trading $400,000 in retirement money for about $3,000 a year more during prime working years to spend on education or home improvement. “For a middle-class household, that’s a lot of money,” said Laurence J. Kotlikoff, a Boston University economics professor, who is on the forefront of this research into spending and savings, and is selling his own retirement calculator.

. . .

Nevertheless, the loose confederation of well-regarded economists, who have not been working in concert, say their research points to the startling conclusion that many Americans are saving too much, not too little. Indeed, their studies of the savings and spending habits of the generation born between 1931 and 1941 revealed that at least 80 percent had accumulated more than enough wealth for retirement. While they have not studied the baby boom generation as closely, they believe that the greater wealth of that generation should also leave those retirees secure.

A study last October by another group of economists, including two working for the Federal Reserve Board, found 88 percent of retirees age 51 and older had adequate wealth.

“Even the most casual reading of the popular press will have you convinced that Americans are heading like lemmings over a cliff,” said John Karl Scholz, an economics professor at the University of Wisconsin at Madison. “Going into this, I had no idea that we’d find any results anything like this.”

. . .

Mr. Scholz said he and his co-authors of a study, “Are Americans Saving ‘Optimally’ for Retirement?” found oversaving across all economic and education levels and most ethnic or racial groups as well. (It found that Hispanics tended to save less.) Those who were not saving enough were usually missing their target by only a small amount.

The one exception to this optimism involves people who enter retirement single, either because their spouse died early, they divorced, or they never married. The studies found this group did not save enough.

For the full story, see:

DAMON DARLIN. "Your Money; A Contrarian View: Save Less and Still Retire With Enough." The New York Times (Sat., January 27, 2007): ??.

(Note: ellipses added.)

Plastic Pipes Need Less Labor, So Unions Oppose

Residential plastic pipe. Source of photo: http://www.omaha.com/index.php?u_pg=46

(p. D1) The City of Omaha is considering allowing an alternative to copper pipes in residential plumbing, a move the local builders association says could keep new home prices from rising so fast.

. . .

(p. D2) "Omaha is kind of unique in not allowing plastic. It’s kind of an isolated pocket," said Blas Hernandez, Papillion’s chief building official, who also has worked in the Kansas City, Denver, upstate New York and central Nebraska areas.

Mike Lipke, western regional manager for FlowGuard Gold CPVC pipes, agreed. He said Omaha and Chicago stand out among Midwestern cities for not allowing plastic water pipes.

Several people with long tenure in the building industry said they believe Omaha has lagged in adoption of plastics because the material is less labor-intensive to install and organized labor has fought to protect work for its members.

Stephen Andersen, business manager for the 470-member Omaha Plumbers Local 16, said he doesn’t think it’s necessarily faster to install plastic pipes, and he personally favors copper "because it’s such a good product, a proven product."

. . .

With the housing market slowed and copper prices still high, now may be the time to make affordability the most important consideration, said Paul Frazier, president of the Frazier Co. and a member of the Metro Omaha Builders Association’s board.

"MOBA is fully behind" the proposed change, President Rocky Goodwin said. Frazier represented MOBA in discussions with the Omaha Plumbing Board.

"We’re long overdue for this," Frazier said. "Anything that holds costs down while doing as good or better job is a good thing.

. . .

Lipke, who sells CPVC, said all the model codes and all 50 states approve the use of plastic and plastic has captured two-thirds of the market.

. . .

"People might try it because it’s less money, but they won’t keep using it if it doesn’t work," Lipke said. "It’s a good product, and it certainly shouldn’t be banned the way it is in Omaha."

For the full story, see:

DEBORAH SHANAHAN. "Omaha may lift ban on residential plastic pipe." Omaha World-Herald (Wednesday, January 24, 2007): D1 & D2.

(Note: ellipses added.)

[Joseph Schumpeter was born on February 8, 1883.]

Increase in Minimum Wage Hurts Poor

The strong bipartisan support for increasing the federal minimum wage to $7.25 an hour from the current $5.15 — a 40% increase — is a sad example of how interest-group politics and the public’s ignorance of economics can combine to give us laws that manage to be both inefficient and inegalitarian.

An increase in the minimum wage raises the costs of fast foods and other goods produced with large inputs of unskilled labor. Producers adjust both by substituting capital inputs and/or high-skilled labor for minimum-wage workers and, because the substitutes are more costly (otherwise the substitutions would have been made already), by raising prices. The higher prices reduce the producers’ output and thus their demand for labor. The adjustments to the hike in the minimum wage are inefficient because they are motivated not by a higher real cost of low-skilled labor but by a government-mandated increase in the price of that labor. That increase has the same misallocative effect as monopoly pricing.

Although some workers benefit — those who were paid the old minimum wage but are worth the new, higher one to the employers — others are pushed into unemployment, the underground economy or crime. The losers are therefore likely to lose more than the gainers gain; they are also likely to be poorer people. And poor families are disproportionately hurt by the rise in the price of fast foods and other goods produced with low-skilled labor because these families spend a relatively large fraction of their incomes on such goods. And many, maybe most, of the gainers from a higher minimum wage are not poor. Most minimum-wage workers are part time, and for the majority their minimum-wage income supplements an income derived from other sources. Examples are retirees living on Social Security or private pensions who want to get out of the house part of the day and earn pin money, stay-at-home spouses who want to supplement their spouse’s earnings, and teenagers working after school. An increase in the minimum wage will thus provide a windfall to many workers who are not poor.

Some economists deny that a minimum wage reduces employment, though most disagree. And because most increases in the minimum wage have been slight, their effects are difficult to disentangle from other factors that affect employment. But a 40% increase would be too large to have no employment effect; about a tenth of the work force makes less than $7.25 an hour. Even defenders of minimum-wage laws must believe that beyond some point a higher minimum would cause unemployment. Otherwise why don’t they propose $10, or $15, or an even higher figure?

A number of countries, including France, have conducted such experiments; the ratio of the minimum wage to the average wage is much higher in these countries than in the U.S. Economists Guy Laroque and Bernard Salanie find that the high minimum wage in France explains a significant part of the low employment rate of married women. Mr. Salanie has argued that the minimum wage also contributes to the dismal employment prospects of young persons in France, including Muslim youths, an estimated 40% of whom are unemployed.

For the full commentary, see:

GARY S. BECKER and RICHARD A. POSNER. "How to Make the Poor Poorer." The Wall Street Journal (Fri., January 26, 2007): A11.

Barney Frank on Schumpeter’s “Great Concept”

Barney Frank. Source of photo: http://www.house.gov/frank/welcome.html

Policy-makers are often enthused by the innovation unleashed by Schumpeter’s process of creative destruction, but draw back out of fear of the destruction of jobs. In the passage below, Barney Frank expresses that fear.

I think that there are answers to the fear. More and better jobs are created, than destroyed; workers can invest in general skills that do not depreciate, and retool the specific skills that do depreciate; and conscientious workers suffer from lack of recognition and upward mobility, when creative destruction is stiffled. The pain is less than usually thought, and the gain is greater.

One of the consequences of this separation between economic growth and the well-being of the great majority of citizens is that an increasing number of citizens don’t care about economic growth. Not surprising. Not only do they not benefit, but in many cases they get the short-term disruptive effects.

I mean, there was a great concept from Joseph Schumpeter of creative destruction in which, as the old economic order is destroyed, resources are freed up for the new order.

Well, increasingly, we have people who see the destruction in their own lives, but don’t see that they’re going to be part of the new creation.

Source:

Transcript of remarks delivered at the National Press Club on "Wages" by Democratic Representative Barney Frank of Massachusetts, on January 3, 2007.

Increase in Minimum Wage, Decreases Employment Among Low-Skill Workers

Basic price theory seems to imply that raising the minimum wage, will result in greater unemployment. Almost all economists accepted this conclusion until several years ago, when some empirical results seemed to challenge it. Now there is active debate.

Here is the abstract of a relevant, just-published, article in the leading journal in the field of labor economics:

We infer the employment response to a minimum wage change by calibrating a model of employment for the restaurant industry. Whereas perfect competition implies that employment falls and prices rise after a minimum wage increase, the monopsony model potentially implies the opposite. We show that estimated price responses are consistent with the competitive model. We place fairly tight bounds on the employment response, with the most plausible parameter values suggesting that a 10% increase in the minimum wage lowers low-skill employment by 2%-4% and total restaurant employment by 1%-3%.

The article reference is:

Aaronson, Daniel, and Eric French. "Product Market Evidence on the Employment Effects of the Minimum Wage." Journal of Labor Economics 25, no. 1 (Jan. 2007): 167-200.

Your Tax Dollars at Work: Government Protecting Us from Bling-Bling

A dental grill, one form of the hip-hop jewelry sometimes called "bling-bling." Source of image: http://www.thesmokinggun.com/archive/0410062teeth1.html

If all you want for Christmas is to gild your front teeth, you may have to buy the bling-bling somewhere other than the Gold Plaza II kiosk at Crossroads Mall.

That’s because an employee of that shop, Bhavin Dalal, faces a felony charge of practicing dentistry without a license. He’s accused of helping customers fit their teeth for glittering mouthpieces known as grills.

It’s the first such case in Nebraska involving the hot hip-hop fashion accessory. And Dalal and his attorney, James Martin Davis, plan to fight it tooth and nail.

Dalal entered a not guilty plea Friday in Douglas County Court. Davis blasted the Nebraska Health and Human Services System for its investigation of Dalal and the charge that resulted.

"It’s overzealousness on the part of a bunch of bureaucrats" who don’t want people to wear grills, Davis said.

For the full story, see:

CHRISTOPHER BURBACH. "Dental Grill Seller Feels State Law’s Bite." Omaha World-Herald (Saturday, December 2, 2006): 1A & 2A.

(Note: the slightly different online title for the article is: "State puts bite on grill seller")

“Forgotten not for lack of importance, but for lack of theoretical frame-works”

A paper by current head of the President’s Council of Economic Advisors, Ed Lazear, is significant for what it says near the end about economists forgetting facts, because the facts do not fit into current theory.

(p. 260) Human capital theory is primarily a supply-side approach that focuses on the characteristics and skills of the individual workers. It pays far less attention to the environments in which workers work. As such, the human capital framework has led researchers to focus on one class of questions, but to ignore others. Specifically, little attention has been paid to the jobs in which workers are employed.

(p. 263) The fact that some jobs and some job characteristics are more likely to lead to promotions than other jobs is not surprising. But the analysis suggests that other ways of thinking about wage determination, namely, through job selection, may have been unduly ignored in the past.

. . .

Researchers have begun to make jobs rather than individuals the unit of analysis. This change of focus can illuminate new issues and provide answers to questions that were once posed and forgotten. The questions were forgotten not for lack of importance, but for lack of theoretical frame-works. The theory is now developed and awaits confirmation in the data.

For the full paper, see:

Lazear, Edward P. "A Jobs-Based Analysis of Labor Markets." American Economic Review 85, no. 2 (May 1995): 260-265.

(Note: elipsis added.)

“Smart People Can’t Come Here”

Several years ago, I got up in the middle of the night to call the United States embassy in Beijing, in order to beg an embassy official to issue a visa to our best applicant for our open Research Assistant position. He did not want to do so, solely on the grounds that she might not return to China. The woman we wanted to hire had sky-high credentials by every measurable criterion, and based on letters of recommendation, was exceptional by the non-measurable criteria too.

How bizarre is the immigration policy of the United States when we view it as a problem that such a person might honor us by wanting to stay in the United States?

PALO ALTO, Calif. – Some of technology’s biggest names shared the stage at Stanford University last week to discuss the future of American innovation.

Yahoo co-founder Jerry Yang and Kleiner Perkins Caufield & Byers venture capitalist John Doerr were among the members of two panels at a technology summit at the university.

The third annual innovation summit, where industry leaders talked about emerging trends and government technology policy, was organized by TechNet, an advocacy group that lobbies on behalf of tech executives.

. . .

The executives also lamented government policies limiting student and work visas, warning that this shuts out people like Google co-founder Sergey Brin and former Intel chief executive Andrew Grove.

"We have this crazy policy in the U.S. that says smart people can’t come here. I think we all agree it makes absolutely no sense," Yang said. "Are people going to want to build a company in the U.S. . . . or in the new talent centers?"

For the full story, see:

SAN JOSE MERCURY NEWS. "Technology summit sees risks for U.S." Omaha World-Herald (Sunday, November 19, 2006): 7D.

(Note: the ellipsis between paragraphs was added; the ellipsis in the Yang quote was in the original article.)