American Job Market

Labor Line

2012-12-31T15:47:00.002-05:00

January 2012___________________________________

Labor line has job news and commentary with a one stop short cut for America's job markets and job related data including the latest data from the Bureau of Labor Statistics.

This month's job and employment summary data are below. This month's inflation data is below.

The Establishment Job Report and Establishment Job Details for data released January 6, 2012.

American Job Market The Chronicle

Current Job and Employment Data

Jobs
Total Non-Farm Establishment Jobs up 200,000 to 131,900,000
Total Private Jobs up 212,000 to 109,928,000
Total Government Employment down 12,000 to 21,972,000

Employment Note
Civilian Non-Institutional Population up 143,000 to 240,584,000
Civilian Labor Force up 4,000 to 153,887,000
Employed up 210,000 to 140,790,000
Employed Men up 304,000 to 75,235,000
Employed Women down 94,000 to 65,555,000
Unemployed down 206,000 to 13,097,000
Not in the Labor Force up 139,000 to 86,697,000

Unemployment Rate down .1 to 8.5%, or 13,097/153,887
Labor Force Participation Rate stayed at 64.0% or 153,887 /240,584

Prices and inflation measured by the Consumer Price Index (CPI) for all Urban Consumers was down 1.69 percent for 2010.

The January CPI report for the 12 months ending with December 2011, shows the

CPI for All Items was up 3.0%
CPI for Food and Beverages was up 4.5%
CPI for Housing was up 1.9%
CPI for Apparel was up 4.6%
CPI for Transportation including gasoline was up 5.2%
CPI for Medical Care was up 3.5%
CPI for Recreation was up .1%
CPI for Education was up 4.6%
CPI for Communication was down 1.2%

This Month's Establishment Jobs Press Report PAYROLL TAX CUT TAKING HOLD

The Bureau of Labor Statistics published its January report of jobs in December. The employed increased by 210,000 for the month with almost all of the newly employed coming from a drop in the unemployed, down by 206,000. The labor force was up by only 4 thousand so population growth did not add much to the labor force. The drop in the unemployed without a drop in the labor force helped decrease the unemployment rate by .1 percent to 8.5 percent.

The seasonally adjusted total of jobs at establishments was up 200 thousand for December. Goods production jobs were up by 48 thousand with 164 thousand more private service providing jobs set against a decline of 12 thousand government jobs.

Goods production did better in December than it has since early 2011. Natural resources, construction and manufacturing were all up for a combined increase of 48 thousand new jobs. The manufacturing increase of 23 thousand jobs all came in durable goods, primarily metal goods, machinery and motor vehicles, mostly automobiles.

Service-providing sectors were up a net of 152 thousand jobs because of the loss of 12 thousand government jobs. The federal government was up 2 thousand jobs despite continued losses at the Postal Service. The net loss of government jobs came due to a loss of 14 thousand local government jobs. State employment held without gain or loss. Jobs at local government were down primarily because of a drop of 9.4 thousand public school jobs. Private education continued to climb, but just barely in December with a net gain of 100 new jobs reported.

The trade, transportation and utilities sector was the big gainer for the second month with 90 thousand more seasonally adjusted jobs. Both wholesale and retail jobs were up a combined 39.5 thousand jobs. Transportation was up 50.2 thousand jobs an unusually large increase; 42.2 thousand of the new jobs were in couriers and messenger services. Truck transportation picked up 5.1 thousand new jobs.

Business and professional services picked up 12 thousand jobs for December, down from last month. Legal services dropped among professional services, but management and technical consulting, accounting and bookkeeping, and computer systems design and related services all had modest gains. Among administrative and support services a loss of 11.6 thousand jobs in employment services was set against job gains in business support services and services to buildings. The loss of employment service jobs including temporary help services suggest more people are finding permanent employment.

Health care had 29 thousand new jobs for December, better than last month but still below the monthly average increase. Health care continues to increase, but the last few months at a rate below long run trends.

Information services gained 6 thousand jobs after last months losses, the motion picture and sound recording industries generated 5.1 thousand of the new jobs. Financial activities jobs were up by only 2 thousand, less than last month but about what to expect based on long term trends.

Leisure and hospitality had a net gain of 21 thousand jobs, but gains came at food services and restaurants which had 24.7 thousand new jobs to set against small losses in arts, entertainment, amusement, gambling and recreation. Non-profit associations added 4.2 thousand new jobs for December.

The January report for December brings a healthy increase of 200 thousand establishment jobs. A year of payroll tax cuts means several thousand dollars a year of new buying power for millions who work for living. Spending by large numbers will create jobs.

The full decline in establishment jobs during the recession from the January 2008 high to the February 2010 low was just under 8.8 million. Since then establishment jobs are up 2.6 million. This month's increase is about 75 thousand additional jobs above population growth. At this pace it will take years to restore employment totals, but at least it's a start.

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December Details

Non Farm Total +200
The Bureau of Labor Statistics (BLS) reported Non-Farm employment for establishments increased from November by 200 thousand jobs for a December total of 131.900 million. (Note 1 below) An increase of 200 thousand each month for the next 12 months represents an annual growth rate of 1.82%. The annual growth rate from a year ago beginning December 2010 was +1.26%; the average annual growth rate from 5 years ago beginning December 2006 was -.74%; from 15 years ago beginning December 1996 it was .58%. America needs growth around 1.5 percent a year to keep itself employed.

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Sector breakdown for 12 Sectors in 000's of jobs

1. Natural Resources +8
Natural Resources including logging and mining were up 8 thousand from November to 825 thousand jobs in December. An increase of 8 thousand each month for the next 12 months would be an annual growth rate of +11.75 percent. Natural resource jobs are up 91 thousand for the 12 months just ended. Jobs in the 1990's totaled around 770 thousand. Job growth here will be small compared to America's job needs. This is the smallest of 12 major sectors of the economy with .62 percent of establishment jobs.

2. Construction +17
Construction jobs were up 17 thousand from November to 5.544 million jobs in December. An increase of 17 thousand jobs each month for the next 12 months would be an annual growth rate of +3.69 percent. Construction jobs are up 46 thousand for the last 12 months. The growth rate for the last 5 years is -6.32%. Construction jobs rank 9th among the 12 sectors with 4.2 percent of non farm employment.

3. Manufacturing +23
Manufacturing jobs were up by 23 thousand from November to 11.790 million in December. An increase of 23 thousand each month for the next 12 months would be an annual growth rate of +2.35 percent. Jobs were up for the last 12 months by 225 thousand. In 1994, manufacturing ranked 2nd but now ranks 6th among 12 major sectors in the economy with 8.9 percent of establishment jobs.

4. Trade, Transportation & Utility +90
Trade, both wholesale and retail, transportation and utility employment was up by 90 thousand jobs from November to 25.142 million jobs in December. These jobs tend to increase at a slower rate than the total of non-farm jobs, but an increase of 90 thousand each month for the next 12 months would be an annual growth rate of +1.6 percent. Jobs are up by 396 thousand for the last 12 months. Growth rates for the last 5 years are -1.01 percent. Jobs in these sectors rank first as the biggest sectors with combined employment of 19.0 percent of total establishment employment.

5. Information Services +6
Information Services employment was up by 6 thousand from November at 2.658 million jobs in December. An increase of 6 thousand each month for the next 12 months would be an annual growth rate of +2.71 percent. (Note 2 below) Jobs are down by 36 thousand for the last 12 months. Monthly employment in information services gyrates and has been doing so for a number of years. Information jobs reached 3.7 million at the end of 2000, but started dropping, reaching 3 million by 2004 and further below 3 million by 2008. Information Services is a small sector ranking 11th of 12 with 2.0 percent of establishment jobs.

6. Financial Activities +2
Financial Activities were up 2 thousand jobs from November to 7.624 million in December. An increase of 2 thousand each month for the next 12 months would be an annual growth rate of +1.26 percent. Jobs are up 7 thousand for the last 12 months. (Note 3 below)This sector also includes real estate as well as real estate lending. Financial Services has been declining with negative annual growth rates, a 5 year growth rate of -1.81 percent, and a 15 year growth rate of
+.52 percent. Financial activities rank 8 of 12 with 5.8 percent of establishment jobs.

7. Business & Professional Services +12
Business and Professional Service jobs went up 12 thousand from November to 17.354 million in December. An increase of 12 thousand each month for the next 12 months would be an annual growth rate of +.83 percent. Jobs are up 452 thousand for the last 12 months. Note 4 The annual growth rate for the last 5 years was -.47%. It ranks as 2nd among the 12 sectors. It was third in May 1993, when manufacturing was bigger and second rank now with 13.2 percent of establishment employment.

8. Education including public and private -6
Education jobs went down 6 thousand jobs from November at 13.502 million in December. These include public and private education. A decrease of 6 thousand each month for the next 12 months would be an annual growth rate of -.54 percent. Jobs are down 22 thousand for the last 12 months. (note 5) Most monthly educational employment goes up, but lately it is down. The 15 year growth rate equals 1.59 percent, faster than the national average. Education ranks 4th among 12 sectors with 10.3 percent of establishment jobs.

9. Health Care +29
Health care jobs were up 29 thousand from November to 16.931 million in December. An increase of 29 thousand each month for the next 12 months would be an annual growth rate of 2.04 percent. Jobs are up 350 thousand for the last 12 months. (note 6) The current month is less than long term trends and less than growth from a year ago when the annual growth rate was +2.11 percent. Health care has been growing at 2.29 percent annual growth rate for 15 years, a rate nearly double the national rate. Health care ranks 3rd of 12 with 12.8 percent of establishment jobs.

10. Leisure and hospitality +21
Leisure and hospitality jobs went up 21 thousand from November to 13.342 million in December. An increase of 21 thousand each month for the next 12 months would be an annual growth rate of +1.89 percent. Jobs are up 268 thousand for the last 12 months. (note 7) The 5 year growth rate is .08%. More than 80 percent of leisure and hospitality are accommodations and restaurants assuring that most of the new jobs are in restaurants. Leisure and hospitality rank 4th of 12 with 10.1 percent of establishment jobs. It moved up from 7th in the 1990's to 5th in the last few years.

11. Other +4
Other Service jobs, which include repair, maintenance, personal services and non-profit organizations went up 4 thousand from November to 5.462 million in December. An increase of 4 thousand each month for the next 12 months would be an annual growth rate of +.88 percent. Jobs are up 44 thousand for the last 12 months. (note 8) Other services had no growth for the last 5 years. These sectors rank 10th of 12 with 4.2 percent of total non-farm establishment jobs.

12. Government, excluding education -5
Government service employment went down 5 thousand from November to 11.726 million in December. A decrease of 5 thousand each month for the next 12 months would be an annual growth rate of -1.54 percent. Jobs are down 181 thousand for the last 12 months. (note 9) Government jobs excluding education tend to increase slowly but surely with a 15 year growth rate of .43 percent. Government, excluding education, ranks 7th of 12 with 8.9 percent of total non-farm establishment jobs.

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Sector Notes___________________________

(1) The total cited above is non-farm establishment employment that counts jobs and not people. If one person has two jobs then two jobs are counted. It excludes agricultural employment and the self employed. Out of a total of people employed agricultural employment typically has about 1.5 percent, the self employed about 6.8 percent, the rest make up wage and salary employment. Jobs and people employed are close to the same, but not identical numbers because jobs are not the same as people employed: some hold two jobs. Remember all these totals are jobs. back

(2) Information Services is part of the new North American Industry Classification System(NAICS). It includes firms or establishments in publishing, motion picture & sound recording, broadcasting, Internet publishing and broadcasting, telecommunications, ISPs, web search portals, data processing, libraries, archives and a few others.back

(3) Financial Activities includes deposit and non-deposit credit firms, most of which are still known as banks, savings and loan and credit unions, but also real estate firms and general and commercial rental and leasing.back

(4) Business and Professional services includes the professional areas such as legal services, architecture, engineering, computing, advertising and supporting services including office services, facilities support, services to buildings, security services, employment agencies and so on.back

(5) Education includes private and public education. Therefore education job totals include public schools and colleges as well as private schools and colleges. back

(6) Health care includes ambulatory care, private hospitals, nursing and residential care, and social services including child care. back

(7) Leisure and hospitality has establishment with arts, entertainment and recreation which has performing arts, spectator sports, gambling, fitness centers and others, which are the leisure part. The hospitality part has accommodations, motels, hotels, RV parks, and full service and fast food restaurants. back

(8) Other is a smorgasbord of repair and maintenance services, especially car repair, personal services and non-profit services of organizations like foundations, social advocacy and civic groups, and business, professional, labor unions, political groups and political parties. back

(9) Government job totals include federal, state, and local government administrative work but without education jobs. back

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Notes

Jobs are not the same as employment because jobs are counted once but one person could have two jobs adding one to employment but two to jobs. Also the employment numbers include agricultural workers, the self employed, unpaid family workers, household workers and those on unpaid leave. Jobs are establishment jobs and non-other. back

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Wages and the Wal-Mart Effect

2012-01-28T12:09:00.003-05:00

Wal-Mart has spawned a cottage industry in books and articles about Wal-Mart stores and what’s wrong with them for America. Discussion varies among many topics but low wages and high turnover get plenty of attention. Allow me to quote from a 2009 addition to the list of Wal-Mart books: the Retail Revolution by Nelson Lichtenstein. note(1) A Wal-Mart exec is quoted: “It’s hard to believe but turnover drops millions of dollars to the bottom line in cost savings for the company. When an experienced associate leaves the company he or she is replaced by an entry level associate at a lower wage. Turnover of associates, for this reason, actually appears from an expense standpoint, to be a competitive advantage.”

Nearly ten million people work as cashiers, retail salespersons, and first line supervisors/managers of retail sales workers. More than 80 percent of these three jobs are in the retail sector. Together they make up 6.8 percent of America’s jobs in 2010. (2)

The effect on wages from high turnover varies by occupation and industry. In the retail industry high turnover generates a specific pattern of wage compression for jobs like cashier and retail salesperson: lower wage employees replace higher wage employees. The pattern is not unique to Wal-Mart, but given its size, employment totals and the admission that turnover helps profit, it is a specific pattern of wage changes that deserves the title, Wal-Mart Effect.

The Wal-Mart Effect can be defined and illustrated using data from the Occupational Employment Survey published annually by Bureau of Labor Statistics (BLS), U. S. Department of Labor. BLS Survey data partitions occupational wages at five percentile ranks: 10th, 25th, median, 75th and 90th percentiles. For example, the 10th percentile wage rate for an occupation is the wage where 10 percent of all workers earn that amount or less and where 90 percent of all workers earn that amount or more. For cashiers in Table I the 10th percentile wage of $12,200 in 2002 meaning 10 percent of America’s cashiers have annual earnings of $12,200 or less and 90 percent have annual earnings of $12,200 or more.

Table I – Cashiers

For cashiers the 10th percentile wage increased to $15,720 by 2010, a 28.9 percent increase in wages for the eight year period. The consumer price index increased by 21.1 percent in the period, which means the lowest paid cashiers got a 6.31 percent increase in inflation adjusted buying power.

Conversely, the 90th percentile wage of $22,810 in 2002 meaning 90 percent of America’s cashiers have annual earnings of $22,810 or less and 10 percent have annual earnings of $22,810 or more. The 90th percentile wage increased to $25,780 in 2010, a 13 percent increase. However, at the 90th percentile wage the increase fell well below the inflation rate, causing a 6.75 percent decrease in buying power for the highest paid cashiers.

The cashier example illustrates the Wal-Mart Effect which can be defined for any occupation where the lowest 25 percent of inflation adjusted wages increase over time as the highest 25 or 50 percent of inflation adjusted wages decrease over the same time period.

Cashiers had 3.3 million jobs in 2010, but wages for retail salespersons in Table II shows the Wal-Mart Effect for the nearly 4.2 million Americans working as retail salespersons. Table III shows the Wal-Mart Effect for more than 1.1 million first line supervisors/managers of retail workers.

Table II – Retail Salespersons

Table III - First-line supervisors/managers of retail sales workers

What happens to the individuals who leave Wal-Mart or the retail industry is not known. We can hope some of them got higher paying jobs in another occupation, but what happens to individuals is irrelevant to what is certain for jobs: the Wal-Mart Effect degrades an occupation and its jobs, whoever holds them. In the eight year period the highest paid of the 3.1 million cashiers lost buying power to the lowest paid cashiers as wages compressed into a narrower distribution of real wages.

The Wal-Mart Effect depends partly on company policy. The more companies do as Wal-Mart does and actively pursue high turnover as a profitable strategy the more likely wages will show the Wal-Mart Effect. Occupations needing college degree skills or other specialized occupational skills tend to be more resistant to the Wal-Mart Effect. Increasing or stable employment also makes it harder for an employer to eliminate more experienced staff. However, skills are not a guarantee because one of the worst examples of the Wal-Mart Effect occurs in the airline industry where Pilots, Co-pilots and Flight Engineers have lost 20 thousand jobs over the last decade and low paid pilots have replaced high paid pilots by the thousand.

Table IV shows the distribution of wages for 1.5 million Elementary School Teachers, Except Special Education, an occupation resistant to the Wal-Mart Effect. Wages in education typically come from a predetermined salary scale published by the local School Board. Individual pay is determined from a grid or spreadsheet of pay steps that depend on education and years of experience. Pay scale pay in education reflects the opinion that teachers can be trusted to improve with experience and education.

Table IV – Elementary School Teachers, Except Special Education

Recent media reports on education incorporate increasing amounts of coverage from critics who attack teachers and teaching. Growing opinion from outside of teaching expect teachers to produce a quality product measured by student test scores. Manufactured products fail as a result of defective materials and workmanship and so the logic follows that students must fail from defective teaching and poor teachers.

The solution reformers demand will adjust teacher salary in proportion to student test scores. Critics emphasize their concern for education, but a merit pay plan puts teacher pay into competition, promotes higher turnover, and increases the chances school districts will cut their budgets with Wal-Mart Effect savings.

Pay scales act as a partial substitute for seniority rules that require layoffs to be in reverse order of years of service. Seniority rules usually have to be negotiated within collective bargaining agreements, but where pay scales have general acceptance then job skills and time on the job make an occupation resistant to the Wal-Mart Effect. The political attack on unions increases the chance that more occupations will show Wal-Mart Effects.

Of the more than 800 occupations reported in the Occupational Employment Survey 68 show the Wal-Mart Effect from 2002 to 2010. Regrettably the job count in these 68 occupations total 23.4 million, mostly concentrated in three occupational categories: sales and related occupations, food preparation and serving occupations, and personal service occupations.

Over 90 percent of retail sales workers including supervisors of sales workers show the Wal-Mart Effect along with almost half of food service workers. Waiters and waitresses escaped Wal-Mart Effect changes probably because they have the best access to customers and customer tips. In restaurant and food service occupations like fast food cooks, dishwashers, and serving staff like counter attendants and hosts and hostesses at restaurants, lounges, and coffee shops turnover helped replace higher wage jobs with lower wage jobs. Among personal service occupations a little over 40 percent show Wal-Mart Effect wage changes, which include hairstylists, barbers, and especially 686 thousand personal and home care aides where turnover can be expected to be high.

In a 2004 article in Workforce Management author David Shuit reported Wal-Mart turnover of 600,000 to 700,000 a year. (3) It is an amazing number for a company that analysts like to describe in superlative terms. It makes Wal-Mart unrivaled in its ability to convert wages to profit by promoting high turnover, which is why the consequence for wages should be known as the Wal-Mart Effect
.
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(1) Nelson Lichtenstein, The Retail Revolution: How Wal-Mart Created a Brave New World of Business (New York, NY: Piccador, A metropolitan book Henry Holt and Company, 2009) page 150

(2) Occupational Employment Survey, United States Department of Labor, 2002, 2010.

(3) Douglas P. Shuit, “People Problems in Every Aisle,” Workforce Management, February 2004, pp. 27-34

Where will you work in the Free for All

2011-12-28T15:11:00.000-05:00

Rosy job reports annoy me. Some of America’s best neo-realistic fiction derives from a one month up tick in jobs. The media looks for any excuse to tell us this month will be the first step in a crescendo of more jobs, but more jobs will not reverse current job trends, nor solve America’s job problems.

Journalists and reporters ought to recognize one of America’s long term job trends because newspaper publishers are one of a group of service industries that have 20 years of a declining count and percentage of America’s jobs. Other service industries using computer technology also have a declining share of America’s jobs, which assures fewer service industries remain to generate replacement jobs and enough new jobs to meet the job requirements of a growing population.

President Lyndon Johnson noticed the long term decline of production jobs back in 1964 when he predicted that the nation would be capable of maintaining its present levels of production in 1975 with 20 million fewer workers. (1) He made the prediction during a period when automation was getting lots of attention. Calculating inflation adjusted GDP dollars per establishment job in 1964 and again for 1975 allows the comparison he was suggesting. He was off in the count; it was 4.5 million fewer workers to produce 1964 production in 1975.

When Lyndon Johnson made his prediction manufacturing was 27 percent of America’s establishment jobs, which was down from a high of 39 percent in 1943. By 1975 it was 22 percent, now it is 8.8 percent. The declining share of America’s jobs in manufacturing reflects part of a long term trend that has advanced far enough since Lyndon Johnson’s day to threaten America’s ability to maintain self supporting work.

Advancing computer technologies have raised productivity in service industries over the last 20 years, which inevitably leads to a smaller share of establishment jobs. For example, retail trade started 1990 with 12.1 percent of America’s jobs. The decade of 1990 to 2000 was a period with job growth faster than population growth. The American economy added 22.3 million jobs when 13.5 million new jobs would have been able to keep up with population growth, but retail ended the decade with only 11.6 percent of America’s jobs.

In contrast the decade of 2000 to 2010 was a period of slow job growth with a precipitous decline of jobs in the recession of 2008 and 2009. The American economy lost nearly 2 million jobs over the decade, but retail trade continued to lose share ending the decade with only 11.1 percent of America’s jobs, a loss of another half percent of America’s establishment jobs.

Over the last two decades other service sectors in addition to retail lost share to higher labor productivity from computer technologies and the ever wider use of the Internet. Services losing percentage share of establishment jobs include wholesale trade, utilities, newspaper, book and periodical publishers, radio and television broadcasting, land line and cell phone communications, banking and financial services.

Declining service sectors and manufacturing, construction and mining defined by the Bureau of Labor Statistics lost 10.5 percent of America’s jobs from 1990 to 2010. The biggest share of expanding service jobs came in health care, education and government service. Another important sector for expanding jobs came in selected professional services like accounting, architecture, engineering, and computer design. Remaining new jobs were in low productivity services like restaurants, gambling, fitness centers, pet care, landscaping, temp work, security, prisons, business support and personal services. These sectors support millions of jobs, but also 10.5 percent more of America’s jobs than 1990.

America needs 1.5 million new jobs a year just to keep up with population growth, but higher productivity keeps shifting the burden of new jobs onto a declining number of service industries. By 2010 manufacturing, construction, mining and the high productivity service sectors have declined to 38.5 percent of America’s jobs. Jobs in these combined sectors have a twenty year record of lower than average growth that guarantees a gradually declining share of America’s jobs. These service sectors had 49 percent of establishment employment in 1990. To have a 49 percent share in 2010 required 13.7 million more jobs. Instead these sectors lost 3.7 million jobs: 17.4 million jobs shifted to other sectors.

It takes an optimistic job forecast to predict that 38.5 percent will not fall further. In effect, job losses in high productivity manufacturing and service sectors assure new jobs will have to come in low productivity service sectors confined to services with just 61.5 percent of jobs as of 2010.

Where will we work in the free-for-all? It’s a question more of us will have to ask in the next decade, but now is the perfect time to start.

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(1) Foster Rhea Dulles, Labor in America: A history, (NY: Thomas K. Crowell Co. 1966) p. 403.

The Revolt of the Rank and File

2011-12-27T13:21:00.002-05:00

Excerpted from the periodical The Nation, Vol. 109, October 25, 1919

The most extraordinary phenomenon of the present time, the most incalculable in its after effects, the most menacing in its threat of immediate consequences, and the most alluring in its possibilities of ultimate good, is the unprecedented revolt of the rank and file. ...

The common man, forgetting the old sanctions, and losing faith in the old leadership, has experienced a new access of self-confidence, or at least a new recklessness, a readiness to take chances on his own account. In consequence, as is by this time clear to discerning men, authority cannot longer be imposed from above; it comes automatically from below. ...

It is by no means impossible, then, that the apparent shift of power indicated by the new movement may bring in the beginning fresh acts of spoliation, a wild riot of red ruin, as many thoughtful observers fear. Such is particularly likely to be the case in the first instance, indeed, if this movement is to be met with nothing but sheer unthinking opposition, with forcible suppression by means of the policeman's club and the soldier's machine gun, if Gary and Huntington and the muzzled steel-towns of the Monongahela Valley are to be the sole reply to this manifestation of the workers' purpose to rule their own lives. Unhappily, our capitalists and politicians seem able to conceive the problem in no other terms. They appear to feel that we are shut up to a choice between ruthless suppression (by the use of armed force, if necessary) of this mutiny of the rank and file, and submission to a "dictatorship of the proletariat," in the worst sense of that horrendous term. ...

This new mass movement of workers cries aloud, not for opposition, but for cooperation; for it cannot be suppressed. It needs understanding, sympathetic guidance, education, rationalization, spiritualization. It needs prophets and teachers, men who shall be at once brave and honest and thoughtful and humble, men who shall have faith and vision and patience. Leaders it will in time find or create; but they must be leaders in a new sense. Theirs it will be not to rule or exercise authority on the one hand, or to assure their own power by flattering the mob on the other, but to discover and proclaim the truth of industrial and social relations, no matter whether it be at the moment popular or not. The future has no place for the soldier; the lawgiver and judge must hold their places by speaking with the voice of reason, not of force. It is time, then, for the powerful and possessing classes, before it is too late, to give up their preoccupation with authority and property, to recognize in this new movement, not the emergence of merely hostile and destructive forces, but the next step in the long march of the human race toward liberty. Let them not fight that movement, but work with it and in it. ...

Candidate Cain and the Economics of Restaurants

2011-11-07T16:20:00.000-05:00

The media continues to press presidential candidate Cain with a few tough questions, but it is time to ask him about minimum wages for restaurant staff. Given his record as past president of the American Restaurant Association he knows about sub minimum wage for tipped employees.

The Federal minimum wage went up to $7.25 an hour on July 24th 2009 but not for tipped employees whose minimum wage remains at $2.13 an hour. When the Fair Labor Standards Act was passed in 1938 restaurant workers, among others, were excluded from the minimum wage. In 1966 they were finally included, but only at 50 percent of the minimum wage. Some in the restaurant owners complained they shouldn’t have to pay any wages because their waiters and waitresses earned plenty from their tips.

Until 1996 the tipped wage went up when Congress raised the minimum wage, but in 1996 and again in 2007 the restaurant industry lobbied Congress to leave the tipped minimum at $2.13 an hour. The Federal tipped minimum has remained at $2.13 an hour since 1991, which makes it only 29 percent of the present $7.25 an hour minimum wage.

The sub minimum wage for tipped employees allows business to further bid down wages where there is a surplus of labor like there is today with 14 million unemployed. The definition of tipped employees governing the sub minimum wage further contributes to a surplus by enlarging the number of occupations and pool of people that can be paid a sub minimum wage. That is because the sub minimum wage can be applied to employees in occupations that customarily receive as little as $30.00 a month in tips.

First, recognize that the monthly minimum wage at $7.25 an hour is $1,160 a month at 40 hours a week and 4 weeks per month. However, the $2.13 an hour sub minimum wage for tipped employees is just $340.80 a month, which means a tipped employee needs $819.20 a month in tips to get themselves up to the minimum wage.

Under federal rules governing the Fair Labor Standards Act employers who pay a sub minimum wage must verify that tips are enough to bring an employee up to at least the minimum wage, a practice known as taking the tip credit. Taking the tip credit requires detailed recordkeeping because employers are required to verify that tips are enough to make up the difference of the minimum and sub minimum wage. If tips are not enough to equal the minimum wage then the employer is expected to make up the difference.

Notice though that tips received up to $819.20 per month are in lieu of normal obligations to pay wages to employees. Even if tipped employees receive tips at or above $819.20 a month, wage costs drop from at least $7.25 an hour to as low as $2.13 an hour. Even when tips are less than $819.20 a month all of the tips recorded become a cost saving for their restaurant owners.

Fair Labor Standards rules also permit valid tip sharing agreements among tipped employees where tips are accumulated and redistributed by predetermined formula. Valid means agreements must be in writing and only include those who customarily receive $30 a month or more in tips. At a full service restaurant a number of different staff will meet the minimum tip requirement, but waiters and waitresses commonly get the largest share of tips over those who work as hosts, hostesses, runners, bartenders or other dinning room attendants and staff.

Tip pooling potentially saves on wage costs by helping to eliminate wage gaps among tipped occupations. Without tip sharing, wages plus tips for waiters and waitresses will tend to be higher than wages and tips for a host or hostess or bartenders, bus staff and other staff with less access to customers. Wage gaps make it harder to get people to do the host and hostess job without paying higher wages as long as we expect that people will want to leave low wage jobs for higher wage jobs. Tip sharing relieves that pressure by transferring tips from waiters and waitresses to hosts, hostess, bartenders and so on. Tip sharing improves the economic situation of these other staff, but at the expense of waiters and waitresses and not their employer. Tip sharing, like the sub minimum wage, saves wage costs for restaurant owners and relieves them of the normal obligation to pay wages.

Tipped employees work mostly in the full service restaurant industry, hotel and motel accommodations, personal services and attendants at parking lots and car washes. The Bureau of Labor Statistics defines 22 occupations in industries that customarily receive tips where employment came to 9.5 million in 2010. Food and beverage serving workers had 7.6 million of these jobs and 2.2 million of them as waiters and waitress. Personal appearance workers had 457 thousand employed in tipped occupations with the majority of them as hairdressers and hair stylists. Maids, bellhops, concierge and other transportation and tourism workers had 964 thousand jobs with nearly 866 thousand as maids. Parking lot attendants, and those cleaning vehicles, mostly at car washes, have another 413 thousand jobs. The total is nearly 7.5 percent of national establishment employment.

Despite the business and restaurant opposition that surrounds Congressional proposals to change the minimum wage, the regulations for the Fair Labor Standards Act provide many exemptions and legal ways to avoid and undermine the minimum wage in addition to the sub minimum wage for tipped employees. In practice the Federal minimum wage does not apply to millions of jobs or wages.

The record shows that America’s restaurant association lobbies to undermine the already low minimum wage. We know there are millions of cheapskates who support the sub minimum wage, but it’s time to ask Mr. Cain if he is one of them, or one of us who work for a living.

America’s Jobs in a Recession

2011-11-01T14:52:00.002-04:00

The ups and downs of jobs usually lag behind the ups and downs of Gross Domestic Product (GDP) that define the start and finish of recessions. Based on changes in GDP the latest recession ran from the end of 2007 until June 2009 but establishment employment reached a high in January 2008 and declined until February 2010. The full decline in establishment jobs was just under 8.8 million from the January 2008 high to the February 2010 low. (1)

Jobs increased by over a million in the last 10 months of 2010 and continue to rise, albeit slowly. The gains are welcome but as the old saw goes the devil is in the details. America’s job trends can be explained in sobering detail using published data from the Bureau of Labor Statistics, a.k.a. BLS. Data is not manna from heaven but has to be produced with a consistent set of definitions and procedures to be comparable between industries, occupations and over time. At BLS they produce labor data within the North American Industry Classification (NAICS) that defines a carefully crafted set of industries. They publish nearly a thousand national data series within these definitions.

Some industries showed little or no employment effect from the recession. For example, health care picked up 663.5 thousand jobs during the recession; a 4.25 percent increase. In the 20 years from 1990 to 2010, health care employment had its low in January 1990 and its high December 2010. Since 1990 there are no months with lower employment than the same month a year before. It continues to increase in the months of 2011.

In addition to health care, education and government services escaped the latest recessionary job losses. From January 2008 until February 2010 private education was up 133.7 thousand jobs and public education added another 37.3 thousand jobs. The Federal government had enough new jobs to offset smaller job losses at state and local government for net gain of 88 thousand more government jobs.

The combined increase of jobs in government, health care and education during a recession magnifies job losses in other service sectors and makes them more vulnerable to recessionary decline. Private service-providing employment dropped 4.6 million jobs during the recession months, a 4.9 percent loss. Given that health care, education and government increased during the recession, other service sectors had to decrease more than 4.9 percent; some dropped much more.

Take wholesale and retail trade where jobs dropped 8.2 percent after reaching an employment high of 21.6 million at the start of the recession in December 2007. The widely reported shift of jobs out of manufacturing and into the service economy does not always mention that replacement jobs came in discretionary services prone to abrupt decline in recession. In wholesale trade, durable goods jobs at merchant wholesalers for auto parts, home furnishings, construction materials and others dropped almost 13 percent. In retail trade, automobile dealers lost 19.2 percent of pre recession jobs; furniture and home furnishings store jobs dropped 22.4 percent; building material and garden supply jobs were down 11 percent.

Trucking employment dropped 12.8 percent from January 2008 until February 2010, the biggest drop in transportation jobs. Combined transportation and warehousing had 9 percent recessionary job losses, but individual sub sectors in air, rail and water transportation, couriers, messengers, warehousing and other support activities were off from 7.5 to 10 percent of jobs. Only local commuter transit was spared from recessionary job losses.

As Americans lost 3.8 million manufacturing jobs from 1990 until 2008, they took 3.6 million new jobs in administrative support. In the North American Industry Classification (NAICS) documentation manual, firms providing administrative and support services perform routine support activities for day-to-day operations of other businesses on a contract or fee basis.

Some of the 3.6 million new administrative support jobs in the 1990 to 2008 period included 1.44 million new jobs in temporary help services, and 517 thousand new jobs in professional employer organizations, which are jobs contracted with client firms to fine-tune employment with the ebb and tide of business. Count 382.6 thousand more jobs in landscaping services, 217.8 thousand more jobs in security guard companies and investigation services, 230.1 thousand more jobs in janitorial services, 140.8 thousand more jobs at telemarketing bureaus and telephone answering services. Include 87.8 thousand more jobs at collection agencies where employment more than doubled since 1990.

Combined administrative support services jobs built up to over 8 million before the latest recession wiped out more than 1 million of them, a 13 percent decline. Employment services including temporary help services proved especially susceptible with a 23.4 percent drop in jobs.

The expanded use of consumer credit and the build up in sub prime home mortgages helped fuel the build up and then collapse of financial services jobs at credit intermediaries for both deposit and non-deposit institutions. Jobs at deposit institutions like banks, savings and loan, and credit unions had modest but steady growth after 2000. Jobs at non deposit institutions like credit card issuers, consumer lenders, and real estate credit jumped 378.5 thousand to its highest employment of 776.3 thousand jobs in 2006. Housing related jobs in real estate and construction also reached their highest employment totals in 2006 as the housing bubble peaked prior to the recession.

Recessionary job losses in credit intermediation were slightly bigger than trade: an 8.43 percent drop. The non-deposit portion of credit intermediation lost 15.1 percent of pre-recession employment, down 219.4 thousand jobs from the 776.3 thousand high for 2006. Real estate jobs including jobs at offices of real estate agents and brokers were down 7.3 percent following their 2006 highs.

Construction took the worst losses from the housing bubble and recessionary declines: a 25.9 percent drop totaling 1.94 million jobs. Only 190.7 thousand jobs were lost in heavy and civil engineering construction, primarily for utilities and highway, street and bridge construction. The rest were for jobs in building construction and specialty trade contractors needed in home construction. Construction losses also affected professional employment where jobs at architectural and engineering service firms were off 11.7 percent, a decline of almost 170 thousand jobs.

Jobs in leisure and hospitality services declined sharply in the tech bubble recession of 2002 and again in the 2008, but otherwise they have acted as replacement jobs for jobs lost in manufacturing and jobs lost from slow growth in service sectors that utilize labor saving computer technology. Since leisure and hospitality combine arts, entertainment, recreation, accommodations and food services, these jobs are supported by discretionary spending prone to decline in a poor economy.

The necessity of eating does not extend to eating at restaurants. Going out to have others cook and serve turns out to be one of many ways to create leisure and hospitality jobs vulnerable to recessionary loss. Restaurants lost 356.3 thousand jobs in the recession but other jobs dependent on discretionary spending include hotel and motel accommodations, music and concerts, team sports, racetracks, nature parks, amusement parks, gambling casinos, golf courses, ski resorts, marinas, fitness centers, ice rinks, swimming pools, bowling alleys, day camps, and a few more. Fitness centers reached a high of 512.3 thousand jobs in 2008 after more than a decade of steady growth, but jobs dropped more than 5 percent in the 2008-2009 recession.

Exercise can be a walk in the park or walk on a treadmill; one has jobs, one does not. The latest recession gives a blunt reminder how easy it is to switch from one to the other. The growing reliance on jobs from discretionary spending is one result of the long term growth in labor productivity. As the growth of productivity in manufacturing and services like publishing, communications, finance and trade reduce jobs more people are forced to find work in low productivity services.

Health care, education and government services have millions of low productivity jobs that continue to be a major source of new jobs. Even though these jobs are more resistant to recessionary decline they depend more on tax financing, or tax subsidies, and political support than other low productivity services. Otherwise Americans are working in a higher percentage of low productivity jobs in discretionary services at restaurants, hotels, gambling casinos, pet care, landscaping, child care, and loans and credit cards. In the next recession these jobs will melt away; by the thousands, or millions.

Note (1) Labor data are from the Bureau of Labor Statistics, U.S. Department of Labor

Job Training and Public Policy

2011-10-14T12:27:00.000-04:00

Free traders, privatizers and devoted deregulators everywhere know job losses in manufacturing make up bad news, which is why they forecast new investment and expansion into sectors with higher productivity and more jobs for the future. They talk vaguely of new high tech jobs, always careful to mention computers and computer technology. They warn these new jobs take college degrees and so they advise, “Get some training.”

Holding out training and education as the path to better jobs shifts the responsibility for failure, or a menial job with low pay, on to the individual and away from business and government policy. Alan Greenspan, the former Federal Reserve Chairman, was very cleaver doing that. When he would testify on Capital Hill an inquiring committee member would ask why America has so many low paid jobs. He would answer people need to get some training so they are ready for today’s new high tech jobs. Today’s jobs require high skills, he would say. In other words, people could have better jobs if they would only take the initiative to get that training; Mr. Greenspan cannot be held to blame.

Committee members would usually stop their questions following his “Get some training” answer. After all making college pay depends on a financial return, which requires complicated calculations. The need for calculating compound interest gives the impression that investment returns are precise and use only one procedure. However, there are different procedures, even though the actual arithmetic is always precise.

Economists, for example, like to include time in college as time away from work. If time in college is time away from work then lost or foregone wages as well as tuition payments will be a cost of college and included in calculations. Those less devoted to the economist’s way might wonder why time in college is time away from work. Many go to college and work. The time in college might come from leisure or free time instead of work. The matter is in doubt and depends partly on preference.

Despite the need for choice in computing educational returns a common procedure compares interest adjusted wage differences over time with interest adjusted tuition and fees over the same time. The process requires interest calculations because money paid for college tuition and expenses could be used to buy stocks and bonds or other interest earning assets. Tuition and expenses amounts to an investment in a higher paying job, even though college students may want to go to college for other reasons. Millions of America’s jobs like cashier need only general workforce skills whereas jobs needing college degree skills like nurse, accountant or teacher earn a higher wage that allows estimating a financial return for the wage difference.

Another method converts college tuition and expenses into an estimate of the minimum salary increase that will make college a paying investment. Suppose in-state tuition at public college is $8,000 per year each year for four years. In some states like North Carolina, the state tuition is reported as $7,008, while in others like Michigan it is $12,634. Some are above, some below $8,000, but we let $8,000 be a representative tuition for 2010. In the first year $8,000 invested in stocks and bonds would earn interest or dividends. Similarly in the second year, except $16,000 would be invested and the second year earns interest or dividends on $16,000. At the end of four years at the time of graduation the principal invested and the interest earned is a total amount, which will equal $36,307.77 at 5 percent interest. Our thanks for the $36,307.77 total go to the built in spreadsheet functions on MS Excel.

Borrowing the tuition does not change the calculation unless interest rates differ between borrowing and investing. To have the college investment pay, a higher income stream from a higher paying job must be equal to, or greater than, monthly earnings on $36,307.77. If we presume the same 5 percent interest rate, then borrowing only changes $36,307.77 of equity investment into $36,307.77 of debt. Either way the college investment amount is $36,307.77 after four years.

The principal amount of $36,307.77 earning 5 percent interest over the next 10 years and compounding monthly will be equal to $59,799.24. Start at graduation and $384.97 of extra income each month over the next 10 years using 5 percent interest will be $59,799.02. The $384.97 equals the minimum extra monthly earnings necessary to pay for a college education at an interest rate of 5 percent. A lower interest rate will lower the amount of necessary earnings; higher interest rate will raise the amount. Using a 2,080 hour year means $4,619.64 a year of extra wage and salary makes college a paying investment. Experiment yourself. Use the Excel help file under FV, which stands for future value. The spreadsheet entries above are =FV(.05/12,120,0,- 36,307.77,1) and =FV(.05/12,120,-384.97,0,0).

Remember that graduation from college for the many who attend college right after high school implies entry into the labor force at age 22. The social security retirement age is 67 years. Congress and the country are expecting 45 years of work. Forty-five years of work means that all the BA graduates since 1965 to the present have not reached retirement age. The total comes to 47.2 million. (1)

The education and skills training necessary to fill America’s occupations varies widely but the Bureau of Labor Statistics developed a skills classification to reflect the current education and training needed for jobs reported within its occupational categories. The BLS categories include occupations that typically require college degree training: baccalaureate degree, masters, doctorate, and professional degree. The term required has a broad use because in some occupations the degree is absolutely necessary to be considered, where in other occupations a college degree is not strictly required but the skills needed for entry are such that candidates without a degree are much less likely to be considered, much less employed.

In 2010, 27.5 million jobs in the U.S. economy needed a BA degree or above for jobs reported from Bureau of Labor Statistics occupational data using the Bureau of Labor Statistics skills classification. Because those with professional, doctorate or masters degree usually have a baccalaureate degree before starting a graduate program, the 47.2 million eligible BA degree holders reported by the National Center for Educational Statistics can be directly compared to 27.5 million jobs that need a BA degree or above. The difference suggests plenty of qualified candidates for America’s jobs that need college degree skills, or conversely that many people with college degrees take jobs that do not need college degree skills.

Making college pay is a financial matter, not a matter of degrees, job title or status. People with college degrees take jobs that do not need college degree skills, but college will pay as long as those with a college degree earn more than a high school graduate in the same job. If college does not pay, it would be necessary to have a college graduate in a high school job and earning no more than high school graduates.

In the present circumstance of jobs, tuition and interest rates, “Get some training” remains good advice, but only for individuals. What works for individuals does not make a public policy applied to the larger society. The number in the labor force with BA degrees keeps going up because new BA degree graduates now exceed 1.5 million a year which is nearly triple the graduates from 45 years ago who are leaving the labor force. More are already attending and finishing college, but jobs needing college degree skills remain stuck under 28 million and continue to be 19 to 22 percent of employment reported in the occupational employment survey.

There is no increase in Americans attending college that will relieve America from low wage jobs and unemployment. Increasing the supply of well trained job applicants does not create the demand to employ them, nor assure them a higher wage to make that training pay. Politicians who want you to “Get some training” give you good personal advice for now, but they are really changing the subject.

Note (1) National Center for Education Statistics, U.S. Dept. of Education

Wisconsin Jobs and Governor Walker

2011-07-28T13:22:00.001-04:00

Governor Walker needs new jobs more than most governors given the controversies over deficit reduction and public employees. The governor’s plan to create private sector jobs sounds like lots to expect from deficit reduction and business tax cuts, but the Bureau of Labor Statistics publishes enough about jobs to assess his chances for success.

Wisconsin reached a monthly average high of 2,884,400 establishment jobs in 2007, but it had 2,833,800 jobs in 2000. In 2010 the monthly average of statewide employment was down to 2,725,900, an average that is off by 107,900 jobs since 2000. The decline in jobs came as a net decrease of 128,500 private sector jobs and a 20,700 net increase in public sector jobs.

Like most states Wisconsin has a decline in manufacturing jobs. In 1990 it held fifth place for states with 22.8 percent of statewide jobs in manufacturing. It reached first place in 2009 even though manufacturing jobs dropped to 15.7 percent of Wisconsin establishment jobs. Now manufacturing jobs are down 165,300 from the high of 594,700 in the 1990’s.

Wisconsin has the best record of states in limiting manufacturing job losses, yet it still needs 165,300 new jobs to replace jobs lost in manufacturing. That will be difficult because some Wisconsin services have a decade long record of decline. Wholesale and retail trade, utilities, information services that include publishing, broadcasting, phone and Internet, real estate services, and repair-maintenance services show a modest but steady decline in jobs and declining percentage of Wisconsin jobs from 2000 to 2010.

Higher labor productivity limits manufacturing jobs but labor saving computer technologies have limited jobs in service industries like wholesale and retail trade. The use of computers for barcodes, inventory management and Internet sales raise sales per work hour and limits jobs. Digital technologies allow Craigslist to supply free classifieds with a few dozen out of state jobs, while netflix knocks out jobs at video stores. Higher quality for automobiles, appliances and machinery limits the need for repairs and the need for repair jobs.

Wisconsin job losses occurred in 11 industry sectors defined and reported by the Bureau of Labor Statistics. Combined these sectors dropped 8 percent of Wisconsin jobs from 2000 to 2010: 55 to 47 percent. While some jobs in construction or transportation should recover in a stronger economy, jobs already decimated from computer technologies and higher labor productivity and with a decade or more of decline will not recover their previous share of Wisconsin jobs.

Percents must total one hundred which guarantees an 8 percent loss equals an 8 percent gain for other industries. Expect new jobs to come from the limited number of services that had higher growth over the last decade. Health care picked up 73 thousand jobs, which were more new jobs than all other private sectors combined. Health care, government jobs including education combined with private education jobs many at colleges were the big gainers since 2000. These three accounted for over 70 percent of the 8 percentage gains over the last decade. The remainder of replacement jobs came from selected professional and financial services, accommodations, restaurants, personal services like salons and laundries and non-profit membership associations.

The governor’s plan eliminates government as a source of new jobs, but health care also needs government support, which the governor apparently opposes. Tax incentives to generate investment capital are risky for creating state jobs because the funds might leave Wisconsin for investment elsewhere.

People in Wisconsin should ask themselves, “Where will I work in the economy the governor wants to have?” I confess it might be in another state.

Texas Jobs

2011-04-28T16:31:00.000-04:00

In the Time magazine April 4, 2011 issue on page 20 you will find a story “Where the Jobs Are.” There is a U.S. map with a red line pointed to the state of Texas. The caption reads Texas added 211,800 jobs in 2010.

I checked the Bureau of Labor Statistics, Current Employment Survey file for statewide Texas jobs and found the numbers to compute the increase. As Time reported Texas establishment jobs were up 211.8 thousand for the 12 months ending December 2010.(1)

Citing the 12 month increase when jobs are going up generates a larger number than comparing another commonly cited figure: the monthly average of jobs for the year. Texas reached its highest monthly average of 10.6 million establishment jobs per month in 2008. Jobs declined to 10.3 million in 2009, but the monthly average improved by only 35 thousand in 2010.

Texas jobs from 2000 to 2010 are up by an average monthly increase of 910.4 thousand, a bigger increase than any other state. However, Texas also had the biggest increase in population in the same period, which was up 4.3 million between 2000 and 2010. Despite the new jobs, population growth was four times faster than jobs.

The figure Time magazine cites suggests a better future for Texas jobs, but the Bureau of Labor Statistics publishes 159 data series that give statewide details of Texas jobs by industry sector and sub sector. As the old saw goes the devil is in the details.

Texas had just under a million manufacturing jobs back in 1990, which was 13.3 percent of statewide employment. Only 811 thousand remain, which is now 7.8 percent of Texas jobs. The 5.5 percentage decline means Texas needs faster than average growth in service industry employment to make up for the declining share in manufacturing.

Trouble is higher productivity restricts jobs in services not just manufacturing. Computer technology limits jobs in wholesale and retail trade where the use of computers for barcodes, inventory management and Internet sales raises sales per work hour and limits jobs. Amazon computers put Borders books in bankruptcy as netflix knocks out jobs at video stores.

Craigslist offers free classified advertising with a few dozen out of state jobs while fewer and fewer bother with the Yellow Pages. More enjoy the convenience of on-line banking from their home computer while fewer drive to a bank to exchange paper with a teller. More use continuously updating Internet stock quotations instead of newspapers.

Services like wholesale and retail trade, newspapers, communications and finance including insurance and real estate dropped as a percentage of statewide jobs between 1990 and 2010, which makes them like manufacturing because they have to be replaced by a declining number of other services.

In all, 12 sectors defined by the Bureau of Labor Statistics lost 11 percent of Texas jobs from 1990 to 2010. Small share losses in natural resources, accommodations and personal services should recover with a better economy, but jobs lost to productivity gains and computers will not recover their previous share of Texas jobs.

The reality of shifting jobs between service sectors together with the long term decline in manufacturing limits the opportunities for Texas jobs. Percents must total one hundred which guarantees an 11 percent loss equals an 11 percent gain for other industries, but the sectors that gained a percentage of Texas jobs over the last two decades will have to continue to do so if Texas can meet its job requirements.

The biggest share of replacement jobs came in health care. Health care picked up 643 thousand new jobs equal to a 3.6 percent bigger share of statewide jobs. Public and private education jobs are up 485 thousand jobs over the last decade, 1.6 percent of statewide jobs. Texas has to support education and further health care expansion and concentrate on producing its health care needs within its borders to expect to meet the need for new jobs.

Private sector services in selected professional and business support services gained another 3.3 percent of Texas jobs. These include 280 thousand more jobs in careers like accounting, architecture, engineering, computer design, management consulting, and scientific research, but also business support services with 318 thousand new jobs in administrative and facilities services, employment services, temporary help services, telemarketing, security, janitorial maintenance, landscaping and a few more.

Professional services give a chance to bring in spending from outside Texas to support jobs with exported services. For 20 years growth rates nearly double the statewide average helped Texas meet its job needs with professional services. However, professional services are increasingly produced and delivered by computer as part of competition in the high productivity global economy. The reality of competition from other states and other countries makes it risky to expect above average job growth for professional services.

After professional services it was leisure and hospitality jobs including 401 thousand more jobs at restaurants that gained percentage share of Texas jobs. Construction, transportation, and repair services, mostly auto repair, also made small percentage gains.

Like so many other states, Texas jobs are shifting out of high productivity industries in the global economy and into low productivity industries in the local economy. Low productivity is the friend of jobs, but low productivity jobs can be divided into career jobs with generally self supporting salaries in health care and education and lower paid jobs in business support, leisure and hospitality as janitors, waiters, waitresses, maids, cashiers, ushers and ticket takers.

In politics the Democrats promise jobs and fail to deliver, the Republicans promise jobs and fail to deliver, and back and forth. Jobs are a long term problem. I reference 1990 and 2000 to emphasize that point. If Texas politicians want jobs they will need to put away their free enterprise slogans and develop some new policy for the long term. But that is a topic for another article.

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Note(1) All job and employment number citations are from the Bureau of Labor Statistics, United States Department of Labor, Current Employment Survey. No exceptions.

Ohio Jobs and Governor Kasich

2011-04-01T17:26:00.000-04:00

Ohio Governor Kasich has picked a tough policy challenge for himself, but far more with jobs than politics. Ohio ranks second for statewide jobs losses over the last decade. Only Michigan did worse.

Ohio establishment jobs are down a monthly average of 603 thousand in 2010 compared to 2000. The Governor's plan to turn jobs around looks doubtful. In the mean time the U.S. Bureau of Labor Statistics publishes plenty about Ohio jobs to assess his chance for success. Note (1)

All of Ohio’s 603 thousand job losses came from the private sector. Ohio state and local government including public education is up by 5 thousand jobs, but losses to federal jobs in Ohio offset the gains. Ohio had 785 thousand government jobs in 2010, the same as 2000, even though statewide establishment jobs dropped from 5.6 to 5 million.

Ohio had just over a million manufacturing jobs back in 1990, which was 21.7 percent of statewide employment. Only 624 thousand remain, which is now 12.4 percent of Ohio jobs. The 9.3 percentage decline means Ohio needs faster than average growth in service industry employment to make up for the declining share of manufacturing.

Trouble is higher productivity restricts jobs in services not just manufacturing. Computer technology limits jobs in wholesale and retail trade where using computers for barcodes, inventory management and Internet selling raises sales per work hour and limits jobs. Amazon computers put Borders books in bankruptcy as netflix knocks out jobs at video stores.

Craigslist offers free classified advertising with a few dozen out of state jobs while fewer and fewer bother with the Yellow Pages. More enjoy the convenience of on-line banking from their home computer while fewer do paper transactions with Ohio’s 21 thousand remaining bank tellers. More use continuously updating Internet stock quotations instead of newspapers.

Computer technologies helped decimate trade jobs in Ohio, which declined 144 thousand since 2000. Information services like newspapers and communications and finance including insurance and real estate lost another 56 thousand jobs with them. Worse these services are like manufacturing because they have a declining percentage of Ohio jobs that have to be replaced by a declining number of other services.

In all, eight industry sectors defined by the Bureau of Labor Statistics lost 8.6 percent of Ohio jobs from 2000 to 2010. Small share losses in construction, utilities, and transportation should recover with a better economy, but jobs lost to computers will not recover their previous share of Ohio jobs.

The biggest share of replacement jobs came in health care. Health care picked up 134 thousand new jobs equal to a 4 percent bigger share of statewide jobs. Government jobs including education did not increase, but government jobs excluding education picked up 1 percent of Ohio jobs. Even though public education jobs are off slightly, private education more than made up the difference. Public and private education jobs are up 1.1 percent of statewide jobs over the last decade.

A service sector defined by the Bureau of Labor Statistics to report jobs for offices of holding companies and corporate, subsidiary and regional managing offices added 23 thousand jobs, a .6 percent share increase. Ohio has lost so many jobs there were small percentage gains for utilities, transportation, selected professional services, accommodations, restaurants, and personal services even though all these services lost a few thousand jobs from 2000 to 2010.

Governor Kasich plan cuts spending and jobs in the principal sectors that did well enough to relieve the misery of statewide job losses over the last decade. Free enterprisers like Governor Kasich ignore the shift out of high productivity employment and the necessity of looking for anything leftover. Increasingly what is left are jobs in health care, education, government and a smorgasbord of low productivity services in accommodations, restaurants, business and personal services.

More health care means more jobs. Ohio desperately needs to keep its manufacturing jobs, but Governor Kasich and the Washington establishment ignore jobs moving abroad in search of cheap labor. Ohio has many jobs left to lose. Gains will be harder, especially with Governor Kasich on the attack.

Note (1) All job and employment number citations are from the Bureau of Labor Statistics, United States Department of Labor, Current Employment Survey. No exceptions.

There is Power in a Union

2011-03-25T14:30:00.002-04:00

There is Power in a Union: The Epic Story of Labor in America, Philip Dray, (NY: Double Day, 2010), 674 pages, $35.00

There is Power in a Union has the narrative history of America’s labor movement from its early beginnings in Lowell, Massachusetts in the 1820’s until 2010. It is a survey, but at 674 pages it is a thorough survey with room for details.

At Lowell, young women from the surrounding farms manned the looms in the textile mills for $2.25 to $4.00 a week. Many lived in boarding houses as the mills expanded and Lowell grew to 18,000 people by the mid 1830’s, but the young women grew restive working 12 and 14 hour days in the dusty, noisy mills. When management ordered a wage cut after a bad year, the women staged a defiant and unified strike; 800 walked out of the mill at once.

The women lost their strike. Management had a big inventory, but it was the beginning of a more expansive effort to organize labor. As industrial production developed labor organizing developed with it. The Lowell Female Labor Reform Association was part of a broader effort to set a 10 hour work day throughout New England factories.

Organizing trades was common in the early years with many of the early labor unions evolving from the discontented in the laboring ranks. Organizers built a following honing their speaking skills preaching a philosophy of personal rights and fair play.

Readers feel the growing violence and mayhem in the era after the Civil War and especially following the 1873 depression as labor relations soured badly when the Erie Railroad failed to meet payroll in March 1874, claiming financial setbacks. Worse came in July 1877 when the Baltimore and Ohio Railroad announced a second wage cut in a year. Oddly the rail workers were not organized but left work anyway. Management brought in scabs, then the police, then the militia, but the violence escalated and spread to other cities and to organized labor in a national labor revolt. One sage from the period was quoted: “The rapidly spreading railroad strike was difficult for authority for the simple reason that it was unorganized.”

Unions primarily sought higher wages and shorter hours in the years before the civil war, but that changed after 1873. Many lost faith in the political system as government and the courts entered labor disputes on the side of business. Courts ruled that labor unions were illegal conspiracies and jailed and executed organizers. Government sent the army along with plenty of ammunition.

Readers learn the background and personal qualities of the socialist and anarchist philosophers of the era who wrote for hundreds of socialist and anarchist daily and weekly newspapers. Outspoken writers like Albert Parsons, August Spies, Johann Most, Emma Goldman, Alexander Berkman and Eugene Debs contrast with the more conservative Terence Powderly, or the more goal oriented and practicable Samuel Gompers, or the dedicated and determined Mother Jones, and Jacob Coxey.

Dray follows a general chronology which at times feels like an account of one strike after another. The tide of strikes and shutdowns in 1877 was followed with accounts of the McCormick Reaper strike and Haymarket Square bombing in Chicago, the Homestead strike in Pittsburgh and the Pullman Palace Car strike in Chicago; all that by 1894.

Narrative in these chapters highlights the varied and chaotic nature of labor protest and the organizing of new unions from the late nineteenth century well into the twentieth. Strikes by unions were everywhere in everything: mining, manufacturing, transportation, government services. Out west Bill Hayward organized the Western Federation of Miners in 1893 after a failed copper strike. In the east, Eugene Debs organized the American Railway Union while Samuel Gompers organized the American Federation of Labor as an amalgamated craft union. A coalition of groups, east and west, organized the Industrial Workers of the World in 1905 as an industrial union open to all.

Organizing inevitably translated into action. Dray narrates the peculiar details of the United Mineworkers strike of 1902, the International Ladies Garment Workers strike of 1909, the Triangle Shirtwaist fire, the Lawrence Massachusetts “Bread and Roses” strike of 1912, the Patterson New Jersey Silk strike of 1913, the awful events in Ludlow Colorado during the strike against John D. Rockefeller’s Colorado Fuel and Iron Company in 1913, and two Arizona Copper strikes and violence in 1917. The year 1919 was another bad year with a general strike in Seattle, the Boston Police strike and strikes in the steel and coal industries.

The election of Franklin Roosevelt brought moderation from government as well as an advocate in Secretary of Labor Francis Perkins, who announced that the Department of Labor should be the Department FOR labor. Labor leaders like John L. Lewis and Sidney Hillman got a chance to influence new labor policy and legislation as insiders: the Norris LaGuardia Act, the National Labor Relations Act.

Labor got new rights and respect and Dray covers the depression era’s legal and political events with expanded detail, but the labor protest continued. Strikes in Toledo at Electric Autolite by the American Federation of Labor, in San Francisco by the International Longshoreman, in North Carolina by the United Textile Workers, in Minneapolis by the Teamsters turned 1934 into days of rage and violence. The renowned GM sit-down strikes in Flint Michigan, the Ford strike where company toughs beat up Walter Reuther at the “Battle of the Overpass” and the violent and deadly Republic Steel strike came in 1937.

The World War II years turned out to be an interlude which Dray covers in a few pages, but the post war labor movement started changing immediately after the war. An industry steel strike, miner’s strike and railroad strike soured public opinion and gave business the opportunity to get Congress to pass limitations to organized labor in the Taft-Hartley amendments to the National Labor Relations Act, events covered in detail.

Much of the 1950’s labor news was the McClellan Committee hearings of corruption and misuse of union funds by labor leaders. Robert Kennedy made a name for himself questioning the Teamsters Dave Beck and Jimmy Hoffa. Labor proved defiant but Congress passed the Landrum-Griffin Act with more restrictions on labor.

Business opposition to organized labor remained the same, but organized labor divided in search of a new identity and a broader social justice. Dray captures the frenetic pace and the internal division of what was inevitably a varied and messy process. Internal battles developed as more people recognized the connection between civil rights, social justice, the Vietnam War and the labor movement. Martin Luther King was one of those people and Dray covers his efforts on behalf of labor including the Memphis sanitation strike. The Vietnam War split organized labor and there is extensive narrative describing these divisions. The principal labor antagonists were Walter Reuther and George Meany, although there were others. Walter Reuther comes off as the more reflective, thoughtful and effective representative of labor interests. Readers feel the end of an era with his loss in a plane crash.

Remaining narrative in these late chapters includes discussion of automation, health and safety issues, the history and background of farm labor and the rise of Cesar Chavez, the Karen Silkwood episode, the Patco strike and Clinton era disputes at Hormel, Caterpillar, United Parcel Service and Russell Athletic wear.

There is Power in a Union is an American book with virtually nothing about foreign labor movements. It reads easily and it is extremely well documented with a lengthy bibliography and thousands of text citations. It was possible to find some of the obscure citations on Internet media services from 19th century newspapers like the New York Times in 1874 and 1877. It was new to me to read entire articles of America’s yellow journalism.

As I finished reading I realized an advantage to a history that combines the separate elements of working America in a unified narrative. It is possible and probably common to know the labor movement in separate details as labor law, human resources, labor economics, labor organizing or specific historical events. In Dray’s narrative there was room to address many details, sometimes in twenty or thirty pages, but events in time move along in a chronology that helps reveal common and long lived threads running through America’s labor movement and American culture.

The accounts of a steady stream of strikes reveals a long and continuous managerial class refusing to bargain or respect strikers who were fired and replaced with scabs. Angry strikers picketed plant sites and blocked gates followed by violent clashes between strikers and requested police, militia or federal troops and attacks from a hostile press. It was a scenario repeated over and over with one class of people lined up against another. It is calmer and less violent now, but is it different? I doubt it, but do some reading and decide for yourself.

Boehner vs. Bush on Jobs

2011-03-08T17:23:00.000-05:00

Back on August 11, 2005 the Associated Press ran a story reporting President Bush’s comments on a transportation-spending bill. “President Bush calls the massive $286.4 billion transportation spending bill he signed into law Wednesday a job creator.” The article goes on to describe the bill that pays for 6,000 favored projects in the districts of nearly every member of Congress. Even though the legislation is $30 billion more than the President recommended he is quoted as “proud to sign it.”

Where is George Bush when we need him? Instead we look at the grim-face of glum and gloomy John Boehner. The Washington Post wrote “House speaker John Boehner dismissed concerns Tuesday about the potential for federal job cuts, saying he thinks the government can’t afford to keep so many workers.” Boehner was quoted when he said “Over the last two years since President Obama has taken office, the federal government has added 200,000 new federal government jobs. And if some those jobs are lost in this, so be it.”

Actually the Federal government excluding the Post Office has 140,800 more jobs since January 2009 as reported by the Bureau of Labor Statistics, which does not offset the losses to jobs in state and local government. State jobs excluding education are down 82.6 thousand from their high in August 2008. Local jobs excluding education are down 203 thousand from their high in July 2009. State and local education jobs reached a high in September 2008, but they are also down by 145 thousand jobs as of December 2010.

Government including education at the state, local and federal level has 22.2 million jobs as of December 2010, which is 17 percent of total establishment employment. Government employment undercounts jobs that are the result of government taxing and spending such as employment in the highway, street and bridge construction industry. These jobs are on private payrolls even though their jobs are really the result of government spending. The terms government contractor, outsourcing and privatization all connote private businesses, but they are private businesses doing government funded and government sponsored work. Government employment added to government sponsored employment is more than a mere 22.2 million: much more.

Private sector jobs dropped 653 thousand during the eight years George Bush was in office from January 2001 to January 2009, which was also a 1.2 percent drop in the percentage share of private sector jobs. Yet the record shows Republican George Bush understood the connection between spending and jobs even as he pursued policies favored by business.

Now Republican Boehner blithely promotes government spending and job cuts with a glib put down, “So be it.” If government jobs are allowed to decline, private sector jobs will decline with them. If Mr. Boehner doubts that he should talk with George Bush.

Obama’s Failure on Jobs

2011-02-24T17:35:00.000-05:00

President-elect Obama set a goal to create 2.5 million jobs in the first two years of his administration, which he revised upward to 3 million in the early months after taking office. When he made his pledge in December 2008 the seasonally adjusted monthly average for jobs was already down 3.6 million from December 2007. By December 2010 jobs were down another 4.1 million to 130.2 million. (1)

The loss of 7.7 million jobs underestimates America’s job needs because the adult civilian population keeps growing. At current population growth America needs 1.7 million new jobs a year to keep up with the increase of the working age population. Like “Alice through the looking glass” America needs all the jobs it can get just to stay in place. Yet the December 2010 job totals are 303 thousand below December 1999. More than a decade of job growth, gone.

Like many democrats President Obama maintains a genial and sympathetic tone toward labor while taking the labor vote for granted and defending poor job news. On January 7th he applauded 103 thousand more jobs reported by the Bureau of Labor Statistics, but failed to mention that 24.5 thousand of the new jobs came at restaurants, along with another 16.1 thousand more jobs at establishments doing amusements, gambling and recreation and 15.9 thousand more jobs in temporary help services.

President Obama and too many others continue to act as though Americans can spend their way into full employment. That policy started with Franklin Roosevelt and continues today. When jobs lag behind we hear proposals for a tax break or two, and the great cry sounds to “get some training” but spending into jobs remains the primary policy.

The president’s plans for more jobs will fail because working Americans no longer earn enough on the job to spend our way to higher employment. To keep ourselves employed we must have steadily rising spending in areas where labor productivity is not growing too fast. America cannot rely on new spending in agriculture, mining, and manufacturing to create jobs since the relentless tide of productivity growth keeps restricting these jobs to a smaller percentage of America’s establishment employment.

Gains in labor productivity in service industries in the 1990’s were enough that jobs in information services like newspapers, broadcasting, phone and the Internet started dropping after 2000, along with other service industry jobs limited by productivity gains. Computer technology increases labor productivity in trade with barcodes, inventory management and Internet sales. Retail and wholesale sales volumes per work hour are up and sometimes at rates comparable to productivity in manufacturing. The expanded use of computers and digital technologies in financial services like banking, lending and insurance limits job growth as Americans slowly shift to a paperless economy and computers replace driving to the bank to exchange paper with a teller.

Jobs in just four sectors of manufacturing, trade, information services and finance have a twenty year record of lower than average growth that guarantees a gradually declining share of America’s jobs. Combined these sectors had 40 percent of establishment employment in 1990, which means they needed 12.1 million more jobs just to maintain 40 percent of jobs in 2010. Instead these jobs declined to just under 4 million to 30.6 percent of establishment jobs, assuring that 16.1 million jobs shifted to other sectors.

As the economy changes a limited number of service sectors have to absorb an ever bigger share of America’s jobs. Health care including social services, primary, secondary and post-secondary education and professional services were the three big gainers from 1990 to 2010. Professional services have jobs in law firms, accounting, architecture, engineering, computer design, management consulting, scientific research, advertising, and veterinary services.

These three sectors have more than two-thirds of percentage job gains from 1990 to 2010. Otherwise it is restaurants, amusements, gambling and recreation, along with temporary help services mentioned above and a few more office and business support services that became replacement jobs for the sectors decimated by higher labor productivity and computer technologies.

The need for more health care, education and professional service jobs to meet America’s job requirements strains our politics and creates ominous signs for the future. Health care relies substantially on government support and funding from taxes, which are taxes and funding many in Congress clamor to cut.

Education relies on local property taxes to fund slightly over 8 million public school jobs, and state funding goes for 2.4 million more education jobs, many at state colleges. Falling home prices and foreclosures threaten local school finance. State budgets are in deficit, which further threatens education jobs. Local public school jobs reached a seasonally adjusted high in September 2008, but lag 160 thousand below their high as of December 2010. Jobs in neighborhood schools are spread out geographically and help maintain a core of jobs in many communities. If these jobs are allowed to decline, other jobs will decline with them.

Professional services reached their highest employment in April 2008, but these jobs remain 363 thousand below their 2008 high. For twenty years these jobs acted as a vital source of career employment for people with college degree skills. Professional jobs are up almost 3 million from 1990 and another 900 thousand since 2000, but there are ominous signs for the future.

Architecture, engineering and related services, computer systems design and related services and management and technical consulting services are the three biggest professional service sub sectors with nearly 50 percent of 2010 jobs, but it is computer based work no longer constrained by borders. More and more of it is moving abroad.

Since 2000 private sector employment is down 2.2 million, a decrease of 1.36 percent of establishment jobs. Government jobs at the local, state and federal level including education are up 1.7 million with a corresponding 1.36 percent increase in the government share. The shift to government occurred even though jobs in health care, private schools and professional services gained in percentage share of America’s jobs from 2000 to 2010. The private sector has not delivered jobs.

In our politics the Democrats promise jobs and fail to deliver, the Republicans promise jobs and fail to deliver, and back and forth. They will continue to fail if they treat jobs as a short term recessionary problem. Jobs are a long term problem. I deliberately reference 1990 and 2010 to emphasize that point. It is time for Americans to accept their long term employment problems and discuss long term solutions.

Note(1) All job and employment number citations are from the Bureau of Labor Statistics, United States Department of Labor, Current Employment Survey. No exceptions.

A Presidency in Peril

2011-01-29T15:35:00.001-05:00

Robert Kuttner, A Presidency in Peril: The Inside Story of Obama’s Promise, Wall Streets’s Power, and the Struggle to Control our Economic Future, (White River Junction, VT, Chelsea Green Publishing, 2010), 274 pages, $25.00

In his second book on the Obama presidency, Robert Kuttner contrasts what President Obama promised in his campaign with what he is delivering as president. He promised a progressive program of change from his predecessor: George Bush. By 2010, the Obama promises started looking like more of the same.

The book opens with a short declaration: Barak Obama is at risk of being a failed president. Kuttner delves briefly into the Obama personality before going on in journalistic fashion to explain how and where he deserted his campaign promises and stopped doing what he said he would do in his campaign.

Following the introduction, the next five chapters take the reader through the issues and policies of Obama the campaigner compared to Obama the President. First, in the Politics of Capture, Kuttner contrasts the campaign and the campaigners with the group that took over after the election. The careers and experience of those that took control had a record of policies and positions from previous work on Wall Street or in previous administrations. The record left by Robert Rubin, Lawrence Summers, Rahm Emanuel and a few others lets Kuttner differentiate the influence of the new people from the progressive speeches of the campaign.

Chapter two titled Continuity and Collusion sketches the fateful choices and feeble policies toward the mortgage mess, bank failures and the timid recession stimulus plan. The discussion emphasizes the similarities of the Bush policies with the Obama policies. Even though Kuttner evaluates the Bush-Obama policies in historical perspective and makes alternative policy suggestions chapter two and the three chapters that follow become a well documented issue oriented narrative of disappointment in Obama, the President and politician.

When Kuttner narrates the reform efforts of former Federal Reserve chair Paul Volker to restore the Glass-Steagall banking act, Obama voters feel what they voted to change slipping away. When Kuttner recounts the reform efforts of Elisabeth Warren to create a new consumer financial protection agency, and describes the tepid efforts to control financial derivatives, Obama voters feel disappointed as the Obama administration abandons reform for the status quo.

In crony capitalism we meet the insiders from Citi bank and Goldman Sachs and the double standard of negotiations and policies between financial bailouts and the bailout of the auto industry. By now readers realize Kuttner was taking daily notes and doing regular interviews as he followed the path of the Obama administration during its first year. Readers get details of policy discussions between Obama insiders and their differences with dissenters in Congress, the independent agencies and the administration.

Chapter six, titled Political Malpractice, returns to the theme of a presidency in peril. It starts with a reminder that a Republican, Scott Brown, easily beat a Democrat, Martha Coakley, in the Massachusetts special election to fill Senator Kennedy’s senate seat. In a famously democratic state the Republican won by 57 to 37 percent as disgusted voters switched parties. Kuttner cites other polls, commentary and events to reinforce the mood of the voters and their growing refusal to accept the President’s apparent identification with narrow financial interests or his refusal to fight for the changes he supported before the election.

The final chapter begins by comparing Obama in the first year with other Democrats, especially Bill Clinton and Harry Truman. The feisty and blunt talking Truman abandoned private negotiation for public confrontation: highlighting differences between the parties in the process. The Harry Truman review stands out in stark contrast to Obama with his bland explanations of behind the scenes dealing.

Kuttner digresses with fiscal, tax and global economic policy suggestions that deliver more for working people, before returning to Obama the organizer and the need for a social movement. In a section, It takes a Movement, he remembers the “stunning capacity to inspire Americans after decades of dashed hopes and failed politicians,” but then admits Obama the organizer is dead, or transformed into an organization man who wants to be accepted by the group he needs to confront.

It is clearly hard for Kuttner to accept his own words because he takes nearly nine pages to describe the historical trials and tribulations that go with organizing effective social movements and the part presidents might play in them. When he writes “Interacting with a President who has been a source of both great hope and disappointment is a tricky affair,” he expresses the same frustration there was with President Clinton and President Carter. Their label was Democrat but they failed to lead social movements or stand up for working people and Democratic causes.

Kuttner ends with a note of optimism that the economy is weak enough, the Republicans empty enough and President Obama practical enough to bring change for a larger social and national interest. Maybe, but Kuttner does a better job showing that the disappointed are a large enough group to elect a Harry Truman candidate who will think big. Who that might be is a good question. I have to confess that reading A Presidency in Peril makes me doubt it is Barak Obama.

Michigan Jobs

2011-01-23T14:46:00.000-05:00

A Comprehensive Review and Analysis of Michigan Jobs (2,175 words)

The dismal state of the Michigan job market continues to be a topic of news and politics. Michigan jobs trended upward through the 1990’s reaching a monthly average high of 4.68 million establishment jobs in 2000, which turned out to be the beginning of a continuous decline. Note (1) By 2009 monthly average jobs were down to 3.88 million, a drop of 70 thousand jobs from 1990 to 2009, and a drop of 800.1 thousand jobs from 2000 and 2009.

Michigan is the only state with a decline in statewide employment from 1990 to 2009. The decline between 2000 and 2009 is the biggest drop among all 50 states and the District of Columbia and the biggest percentage decline, 17.1 percent. Michigan jobs are still dropping, down 32 thousand for 2010 through October.

Given the reality of Michigan labor markets it is not surprising that candidates for state office in the November election typically discussed plans for new jobs, and sometimes in confident tones. Such a long slide makes it hard to blame one party, or one policy, but either party that holds elected office will want to improve the outlook on jobs. Let’s review their circumstance and weigh their prospects for success.

Manufacturing

Michigan had 839 thousand manufacturing jobs in 1990. In the early 1990’s manufacturing jobs dropped briefly below 800 thousand, but ended the decade with a high for manufacturing in Michigan: 898 thousand jobs. By 2009 manufacturing jobs were barely 462 thousand, a loss of 376.6 thousand jobs from 1990 to 2009 and a loss of 435 thousand jobs after 2000.

Even though Michigan suffered heavy manufacturing job losses other states had the same problem. In 1990, Michigan manufacturing employment ranked 10th among the 50 states in percentage of statewide employment with 21.3 percent of statewide jobs. North Carolina ranked first with 26.4 percent of statewide jobs in manufacturing.

Even though North Carolina began to lose manufacturing jobs sooner than Michigan, North Carolina went from 824 thousand manufacturing jobs in 1990 to 447 thousand in 2009. The North Carolina drop of 376.2 thousand jobs is almost identical to the Michigan manufacturing loss of 376.6 thousand in the same years, 1990 to 2009.

North Carolina relied on the Textile industry in similar fashion as Michigan relied on the automobile industry. North Carolina lost 240 thousand textile industry jobs between 1990 and 2009, whereas Michigan lost 208 thousand automobile jobs in the same period. Even though Michigan manufacturing job losses are severe they do not look worse than North Carolina, yet Michigan lost 800.1 thousand statewide jobs from 2000 to 2009 while North Carolina was able to maintain statewide employment in the same period at 3.9 million jobs.

High Productivity Services

Both Michigan and North Carolina need new jobs to replace their lost manufacturing jobs before they can add jobs. That means both states must have faster than average growth in service industry jobs to make up for the decline in manufacturing. Trouble is there are major sectors of the service economy where the jobs don’t grow, or grow too slowly to maintain their share of statewide jobs.

For example, wholesale and retail trade jobs in Michigan declined by 54 thousand from 1990 to a low of 604 thousand in 2009, a loss of 1.1 percent of statewide jobs. Using computer technology in trade, especially for barcodes and inventory management and for Internet sales, increases labor productivity. Retail and wholesale sales volumes per work hour are up and sometimes at rates comparable to productivity in manufacturing.

The expanded use of computers and digital technologies has raised productivity and slowed the growth of jobs in information services like newspapers, broadcasting, phone services and in financial services like banking, lending and insurance as America slowly shift to a paperless economy. The share of these jobs decline as America and Michigan gets more news from the Internet, and electronic banking replaces driving to the bank to exchange paper with a teller.

Health Care, Education and Professional Services

From 1990 to 2009 when Michigan lost 70 thousand jobs, Michigan’s declining sectors lost 475 thousand jobs. The declining sectors guarantee that the difference of 405 thousand jobs shifted to other sectors of the Michigan economy, especially health care, education and professional and technical services.

Health care including social services in the national economy continues to create more jobs month after month where it now has 12.5 percent of America’s establishment jobs. The recent expansion of health care insurance passed by Congress will help the states generate new jobs. Michigan health care has 160 thousand new jobs since 1990 with 13.7 percent of statewide jobs, above the national average and up from 9.4 percent.

Education employment for public and private elementary, secondary and post secondary education continued to grow from 1990 to 2009. Michigan reached a peak of 437 thousand jobs in the years from 2003 to 2005 and then dropped back to 421 thousand in 2009. The share of education in statewide jobs continued to go up reaching 10.9 percent in 2009, even though 2009 education totals are up only 61 thousand jobs since 1990.

Professional and technical services have jobs in law, accounting, architecture, engineering, computer design, management consulting, scientific research, advertising, and veterinary services. Michigan increased professional services jobs between 1990 and 2009 going from 202 thousand to 221 thousand jobs. The 2009 total is 5.7 percent of statewide employment, just equal to the national average in professional services jobs. Michigan needs to expand these services but professional service jobs are down from a high of 276 thousand in 2000 to 221 thousand in 2009.

Low Productivity Services

Health care, education and professional services accounted for 240 thousand of the 405 thousand of the jobs that shifted from declining sectors from 1990 through 2009. The remaining 165 thousand of the 405 thousand replacement jobs shifted into local business support services and leisure and hospitality services, where low productivity helps maintain jobs that pay modest wages.

There were 92 thousand replacement jobs shifted to business support services with jobs in administrative and facilities services, employment services, temporary help services, telemarketing, security, janitorial maintenance, landscaping and a few more. These new jobs are a 2.5 percent increase in the share of Michigan jobs between 1990 and 2009.

An additional shift of Michigan jobs were scattered into leisure and hospitality services such as accommodations, restaurants, performing arts, spectator sports, amusement parks, casinos, golf and country clubs, fitness and recreation centers, selected personal services, and a broad category of non-profit associations that includes foundations, advocacy and civic groups, professional associations and a few more. The total of these replacement jobs come to 73 thousand from 1990 to 2009.

Michigan vs. North Carolina

North Carolina avoided a general decline in statewide employment that plagues Michigan. North Carolina and Michigan had about the same performance in jobs from 1990 to 2000. Differences show up in the period from 2000 to 2009 when North Carolina did better in health care adding 131 thousand jobs and better in education adding 79 thousand jobs. Michigan added only 83 thousand health care jobs and 8 thousand jobs in education. North Carolina did better in professional services adding 31 thousand jobs; Michigan was down 55 thousand professional service jobs in the 2000 to 2009 period.

Otherwise North Carolina maintained itself with local services jobs and by adding 48 thousand jobs in state and local government, excluding education. Michigan had a decline of 14 thousand state and local government jobs excluding education from 2000 to 2009 and much bigger losses in trade, which dropped 141 thousand jobs compared to a loss of only 13 thousand jobs in North Carolina. Even though Michigan has gambling and gambling jobs and North Carolina does not, Michigan lost 19 thousand jobs in leisure and hospitality; North Carolina gained 66 thousand leisure and hospitality jobs.

North Carolina has 448 thousand manufacturing jobs left after losses every single year since 1995; 462 thousand manufacturing jobs remain in Michigan. Both states needs these jobs, but other states want them, the Federal government continues to ignore manufacturing moving abroad and rising labor productivity continues to limit jobs. In the last decade, North Carolina did better than Michigan generating more service jobs buying and selling within their state than Michigan was able to do. In spite of the difference both states have a declining share of manufacturing jobs and a growing share of jobs in local services.

Reality Check

The reality of shifting jobs between service sectors together with the long term decline in manufacturing limits the options for Michigan jobs. As of 2009 35.2 percent of Michigan jobs remain in manufacturing and the service sectors decimated by higher labor productivity and the use of computer technologies. Even though jobs in wholesale and retail trade are restricted from higher labor productivity, the Michigan loss of 141 thousand trade jobs between 2000 and 2009 is especially high. Michigan must do better in trade to have a chance at job growth.

Politicians seldom advocate government jobs as a solution to job needs, but Michigan cannot afford to sit by and let these jobs decline, no matter how unpopular taxes and spending come to be. Government jobs are spread out geographically and help maintain a core of jobs in many communities. If these jobs decline, other jobs will decline with them.

In Michigan and North Carolina, like other states all over the country, jobs are shifting out of high productivity industries and into low productivity industries like leisure and hospitality and personal services. Low productivity is the friend of jobs, but few politicians want to brag about new jobs in leisure and hospitality as waiters, waitresses, maids, cashiers, ushers and ticket takers. Low productivity jobs tend to have low pay and families need two or three of these jobs to pay the bills and survive.

The state legislatures and the governors of Michigan and all states will need to support health care expansion and concentrate on producing as much health care within their respective states as possible if they expect to meet the needs of new jobs. Think of more health care and job growth as the same.

Public education has helped provide new jobs in Michigan for nearly 20 years, which needs to continue if Michigan wants jobs. In the last few years private schools have added jobs while local public school are down more than 40 thousand jobs since just 2004. Private schools and all the state’s colleges have a chance to bring in out of state students and create jobs.

Professional services give a chance to promote services and jobs that brings in spending from outside the state to support jobs with exported services. Health care and education tend to be local services, whereas professional services are increasingly produced and delivered by computer in the global economy. Michigan must expand professional services if it expects to have more jobs.

Combine the 35.2 percent of high productivity sectors where jobs decline with the low productivity sectors where the wages are low, add in government jobs excluding education, and the total comes to 63.3 percent of Michigan jobs. Jobs in health care, education and professional services account for another 30.3 percent of Michigan jobs in 2009, but the percentage has to increase for these jobs to replace the declining sectors. The alternative is more low paid jobs in low productivity services.

Just three other sectors remain with 6.4 percent of Michigan jobs: natural resources, construction, and transportation with public utilities. All are in decline with fewer jobs now than in 1990 and fewer than 2000. Natural resources, which is logging and mining, has 7 thousand jobs left. Construction and transportation and utility jobs are also off from 1990 and 2000. Construction is down from a high of 210 thousand jobs to a monthly average 118 thousand for October of this year.

Michigan politicians make broad promises to create jobs that will be hard to keep. If they concentrate on health care, education, and professional services and bolster the sagging trade sector, then new jobs could generate enough income and spending to boost employment in the supporting sectors. If they review state tax incidence and the financial sector they might be able to make changes that keep more Michigan generated savings and profits in Michigan for reinvestment and job growth. If they revise Michigan labor law, especially overtime rules, they might be able to spread the work to more people and lower the unemployment rate.

Jobs are a long term problem. I deliberately reference 1990 and 2000 to emphasize that point. In our politics the Democrats promise jobs and fail to deliver, the Republicans promise jobs and fail to deliver, and back and forth. They fail because they look for a quickie solution and pursue some other agenda. Michigan could be different. Your job will depend on it.

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Note(1) All job and employment number citations are from the Bureau of Labor Statistics, United States Department of Labor, Current Employment Survey. No exceptions.

Overtime Rules

2011-01-05T15:46:00.000-05:00

The Fair Labor Standards Act includes overtime rules that define overtime pay at wages not less than one and half times regular pay rates after 40 hours of work in a workweek. Any use of overtime means more work for some that could go for more jobs to others. Requiring higher overtime pay for employers gives financial incentive to avoid the added expense of overtime and hire more employees at regular pay, which helps spread available work to more people. The incentives will be more effective if overtime rules apply to all employment. Instead the Fair Labor Standards Act as amended provides exemptions from overtime requirements for broad categories of employees employed in a bona fide executive, administrative, or professional capacity, selected computer employees, outside sales employees, motion picture employees, and other more narrowly defined categories. (1)

Exemptions from overtime rules go back to the 1940’s but changes drafted during the Bush administration and adopted in August 2004 revised Fair Labor Standards Act rules with new language referred to as white collar rules. The new regulations in Title 29 Code of Federal Regulations Part 541 define an employee’s salary and duties to determine exempt work that qualifies for an exemption from overtime pay.

Executive Employees

The general rules for executive employees that qualifies for an overtime pay exemption under white collar rules means an employee “compensated on a salary basis not less than $455 a week, exclusive of board, lodging or other facilities, whose primary duty is the management of the enterprise or a customarily recognized department or subdivision, who customarily and regularly directs the work of at least 2 or more full time employees, who has authority to hire and fire other employees, or whose suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees are given particular weight.” (2)

The definition of management and primary duty in the regulations that establishes exempt work incorporates the traditional managerial prerogatives like hiring, firing, paying, promoting and disciplining as primary duties if they are the principal, main, major or most important duties. (3) Nevertheless, executive employees can be exempt from overtime if they have other non-exempt duties because the regulations allow an employer to exempt an employee who does some exempt work and other activities directly and closely related to exempt work.

The phrase ‘directly and closely related’ means tasks that are related to exempt duties and that contributes to or facilitate performance of exempt work. “Thus, ‘directly and closely related’ work may include physical tasks and menial tasks that arise out of exempt duties, and the routine work without which the exempt employee's exempt work cannot be performed properly.” (4)

The 40-hour work week continues to be the standard full time workweek as it has been for more than eighty years, but exempting executive managers from overtime pay converts three managers working 40 hour weeks into two managers working 60 hour weeks. Using overtime rules to turn three jobs into two makes it easier for employers to economize on wage costs, especially in high wage occupations like executive managers. A lower wage cost with exempt overtime hours also assures fewer jobs in exempted occupations like management.

Occupational Employment Survey data reported by the Bureau of Labor Statistics shows managerial jobs in decline from 1999 to 2009. Managerial occupations were 6 percent of America’s jobs in 1999 with employment just over 8 million. By 2009 managerial occupations were down to 6.1 million jobs and 4.7 percent of the total of occupational employment. The job totals in managerial occupations are for establishment employment, meaning they are jobs at firms, non-profit associations or government.

Undoubtedly the decline in managerial jobs resulted from a combination of factors. It is common now for business to issue laptop computers, cell phones, and Blackberry’s to employees, which makes them available to work overtime in the evening, weekends, or the middle of the night. There are few reports business treats these additional hours of work as time and a half for overtime, but using new technology helps reduce jobs in management anyway.

Administrative Employees

Second on the list of overtime exemptions are the general rules for administrative employees. Any employee employed in a bona fide administrative capacity must be “compensated on a salary or fee basis at a rate of not less than $455 per week, exclusive of board, lodging or other facilities, whose primary duty is the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer's customers, and whose primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.” (5)

“In general, the exercise of discretion and independent judgment involves the comparison and the evaluation of possible courses of conduct, and acting or making a decision after the various possibilities have been considered. The term ‘matters of significance’ refers to the level of importance or consequence of the work performed. The phrase ‘discretion and independent judgment’ must be applied in the light of all the facts involved in the particular employment situation in which the question arises.” (6)

The regulations include a list of example decisions that an employee might make to satisfy the requirement to exercise discretion and independent judgment and also summary wrap up. “The exercise of discretion and independent judgment implies that the employee has authority to make an independent choice, free from immediate direction or supervision. However, employees can exercise discretion and independent judgment even if their decisions or recommendations are reviewed at a higher level. Thus, the term ‘discretion and independent judgment’ does not require that the decisions made by an employee have a finality that goes with unlimited authority and a complete absence of review.” (7)

Section 541.203 of the regulations explains specific example occupations that generally meet the requirements for the administrative exemption: insurance claims adjusters, employees in the financial services industry, executive assistant or administrative assistant, human resources managers, and purchasing agents. A description of the usual duties and decisions for these occupations provides the nature of decision making that will allow exemption from overtime status. For example, “An executive assistant or administrative assistant to a business owner or senior executive of a large business generally meets the duties requirements for the administrative exemption if such employee, without specific instructions or prescribed procedures, has been delegated authority regarding matters of significance.” (8)

Educational establishments also come under rules for administrative employees. Employees qualify as exempt from overtime at educational establishments when “compensated for services on a salary or fee basis at a rate of not less than $455 per week exclusive of board, lodging or other facilities, or on a salary basis which is at least equal to the entrance salary for teachers in the educational establishment by which employed; and whose primary duty is performing administrative functions directly related to academic instruction or training in an educational establishment or department or subdivision thereof.” (9)

These educational employees are cited as generally meeting the requirements for overtime exemption: superintendent, assistants with educational duties, principals and vice principals, department heads, academic counselors and other employees with similar responsibilities.

Professional Employees

The general rules for professional employees apply to the learned professions, creative professions, teaching, law and medicine. “To qualify for the learned professional exemption, an employee's primary duty must be the performance of work requiring advanced knowledge in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction.” (10)

Having an academic degree is cited as prima facie evidence of meeting the requirement of learning customarily acquired by a prolonged course of specialized intellectual instruction. “However, the word ‘customarily’ means that the exemption is also available to employees in such professions who have substantially the same knowledge level and perform substantially the same work as the degreed employees, but who attained the advanced knowledge through a combination of work experience and intellectual instruction.” (11)

The regulations have a list of example professions and a selection of occupations that meet the requirements for the learned professions exemption. Exemptions apply to professions of law, medicine, theology, accounting, actuarial computation, engineering, architecture, teaching, and various types of physical, chemical and biological sciences and pharmacy. Some example jobs signal how far employers can push the definition of learned professions. Jobs that generally meet the requirements for exemption are listed in the regulations: certified medical technologists, registered nurses, dental hygienists, physician assistants, chefs, athletic trainers, funeral directors and embalmers.

Chefs?

“To qualify for the creative professional exemption, an employee's primary duty must be the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor as opposed to routine mental, manual, mechanical or physical work.” (12)

Creative professionals that generally meet the requirements for overtime exemption are listed in the regulations: actors, musicians, composers, conductors, and soloists; painters, cartoonists, essayists, novelists, short-story writers and screen-play writers and journalists.

There are some stipulations for journalists. “Journalists may satisfy the duties requirements for the creative professional exemption if their primary duty is work requiring invention, imagination, originality or talent, as opposed to work which depends primarily on intelligence, diligence and accuracy.” (13)

Teacher exemptions apply to “Any employee with a primary duty of teaching, tutoring, instructing or lecturing in the activity of imparting knowledge and who is employed and engaged in this activity as a teacher in an educational establishment by which the employee is employed.” (14)

Teachers at public or private schools who are permanent, conditional, standard, provisional, temporary, emergency, or unlimited, or certified or not certified, or doing extracurricular activities such as coaching athletic teams or acting as moderators or advisors in such areas as drama, speech, debate or journalism have exempt status for overtime. (15)

The exemption for law and medicine applies to “Any employee who is the holder of a valid license or certificate permitting the practice of law or medicine or any of their branches and is actually engaged in the practice thereof; and any employee who is the holder of the requisite academic degree for the general practice of medicine and is engaged in an internship or resident program pursuant to the practice of the profession.” (16)

Three additional exemptions close out the white collar rules. A computer industry exemption applies to any computer employee compensated on a salary or fee basis not less than $455 a week, and to any computer employee compensated on an hourly basis at a rate not less than $27.63 an hour. (17) Exemptions apply to outside sales employees who make sales or obtain orders or contracts for services and customarily and regularly work away from the employer’s place or places of business. (18) An employee in the motion picture producing industry who is compensated at a base rate of at least $695 a week is also exempt. (19)

Hourly pay and the State of Exemptions

Exempt status eliminates the financial incentive to spread work and hire more people.
Salary and fee basis requirements defining the white collar rules in Title 29 Code of Federal Regulations part 541 does not permit exempt status for most hourly paid jobs. There are exceptions but as a practical matter hourly pay will be preferred for some jobs, especially where work fluctuates, or work has intermittent weeks with less than forty hour schedules.

The Current Population Survey reports the number and percentage of wage and salary workers paid at hourly rates. (20) In 2006, hourly rated employees were 76.5 million and 59.7 percent of wage and salary workers. By 2009 the numbers were down to 72.6 million and 58.3 percent. Having 58.3 percent paid hourly rates leaves 41.7 percent paid on a salary, fee or other basis, which comes to 51.9 million jobs.

Since few hourly paid employees are eligible for white collar exemptions the 51.9 million wage and salary workers not on hourly pay gives a number that meets the first criteria for exempt status: pay on a salary or fee basis. Pay by the hour or by salary continues to be the sole discretion of the employer and as my summary of overtime rules suggests, the new language in the regulations allows more discretion to adjust primary duties to meet the duty tests for exemption from overtime pay.

No agency has a count of salary or fee based employees with exempt status, but the 51.9 million total is big enough to include all employment reported for management, business operations, financial administration, and professional occupations reported by the Bureau of Labor Statistics.

A little over 12 million work in managerial occupations, business operations and other financial administration and the broad wording in the regulations give reason to believe they all qualify, or could easily be adjusted to qualify, for exempt status. Since the regulations specifically include 1.4 million executive secretaries and administrative assistant as exempt administrative employees, financial administration occupations like accountant, loan officer and financial analyst could be expected to meet at least one of the requirements for executive, administrative or professional exemptions as well.

The Bureau of Labor Statistics defines seven major groups of occupations as professional employment with 27.5 million jobs in 2009. (21) Education has the most jobs in professions with 8.5 million in teaching or the exempt duties related to teaching. Health care has another 7.2 million practitioners, which includes 15 thousand athletic trainers specifically cited as an exempted occupation.

Given that embalmers and chefs are not defined in the Standard Occupational classifications as professional jobs but specifically included as learned professions in the overtime rules, we can expect the generous definition of learned professions includes more than the 27.5 million jobs.

Millions of business and professional jobs that support middle class and career minded Americans have no legal right to overtime. Truth is these are just the white collar rules; there are many more overtime exemptions in other parts of Title 29 of the Code of Federal Regulations. Airline employees, seasonal and recreational employees and firefighters working in small public fire departments with less than 5 firefighters are three of many more exemptions from overtime pay.

The Fair Labor Standards Act gives Americans the legal right to the minimum wage and overtime pay beyond 40 hours a week. That comes up at the beginning of the Fair Labor Standards as amended and its regulations. By the end of the regulations millions and millions of Americans have no legal right to overtime pay.

The rules that regulate exempt status for overtime pay are in addition to Fair Labor Standards rules for compensable work. (22) Employees are legally entitled to be compensated for hours worked. Exempt status means exemption from overtime pay at time and half, not exemption from pay for time worked.

Compensable time has a definition and a regulation because disputes can arise over compensable time as well as overtime. If an employee is asked to do an errand on the way to work reasonable people might disagree whether errands on the way to work are compensable time. When disputes occur new and amended definitions are drafted, adopted and published as they have been over the years for many different work disputes under the Fair Labor Standards Act. However, employers are still expected to pay wages and salary for compensable time worked up to and over forty hours if that occurs. Employers cannot legally expect employees to work for free or to work free overtime hours.

Still we have to expect free overtime hours happen anyway. In education, for example, phrasing in teacher contracts makes no allowance for over time: “Teacher shall perform such duties as deemed necessary, shall attend all assigned meetings, shall be present at school during school hours, shall be present at school or other location outside school hours as directed in connection with school events or activities.”

Teacher work days fill up with student contact hours, emails and calls from parents and assigned meetings that leave little time for grading or preparation. Grading and preparation occur in the evenings and weekends. Millions of America’s public school teachers work beyond 40 hours a week, but I am unaware they receive additional compensation for overtime hours. Their overtime appears to be free work; a donation or part of their dedication.

In office based occupations pressure to get the job done and be part of the team make it easy to ignore some extra hours. Salaried employees are not typically encouraged to clock their overtime hours and those who do might be reluctant to request additional pay. Just like unpaid interns, salaried employees may choose not to complain about free overtime as bad for career advancement. Legal rules mean nothing when employees choose to go along or feel good at being dedicated, even without pay.

Economizing on wage costs is a universal practice. Even though laptop computers and overtime rules help save labor costs and reduce jobs there is a difference between them. The former is applied technology; the latter applied politics. When the Bush administration expanded overtime exemptions by writing new overtime rules, they made it easier to economize on wage cost by eliminating the financial incentive to restrict overtime and spread work to more people. Exemption from overtime pay for millions of jobs and free overtime for others helps to build America’s surplus of labor.

Notes

(1) Title 29 Code of Federal Regulations, part 541, available at http://ecfr.gpoaccess.gov

(2) 29 CFR part 541.100

(3) 29 CFR part 541.102

(4) 29 CFR part 541.703

(5) 29 CFR part 541.200

(6) 29 CFR part 541.202

(7) 29 CFR part 541.202

(8) 29 CFR part 541.203

(9) 29 CFR part 541.204

(10) 29 CFR part 541.301

(11) 29 CFR part 541.301

(12) 29 CFR part 541.302

(13) 29 CFR part 541.302

(14) 29 CFR part 541.303-541.304

(15) 29 CFR part 541.303

(16) 29 CFR part 541.304

(17) 29 CFR part 541.400

(18) 29 CFR part 541.500

(19) 29 CFR part 541.709

(20) Bureau of Labor Statistics, U.S. Department of Labor, Characteristics of Minimum Wage Jobs

(21) Data here are from Bureau of Labor Statistics, U.S. Department of Labor, Occupational Employment Survey, May 2010.

(22) Title 29 Code of Federal Regulations part 785

Health Care and Choice

2010-12-18T12:47:00.001-05:00

Shortly before the passage of new health care bill the Washington Post reported a stinging, sustained broadside against health insurance rate increases by President Obama.

A health insurance industry spokesman was quoted as saying “All health plans are in the same situation in trying to deal with the steadily increasing costs in the delivery system, which are not sustainable.” In other words the health insurance industry is only responding to cost increases beyond its control.

To the individuals and families who pay the premiums for insurance, their premiums cover costs that include the delivery system and the burden of supporting separate industry bureaucracies with a separate set of transactions. Outside of the health care industry in other sectors of the economy, bills tend to be a two party transaction between a customer and a vender, but seldom so in health care.

One illness or injury starts a billing shuffle through separate bureaucracies at hospitals, laboratories, clinics, imaging centers, Preferred Provider Organizations(PPOs), Independent Panel Association’s, but also private insurance companies, independent billing agencies and bureaucracies at Medicare, Medicaid, Social Security, workmen’s compensation or the Veterans Administration. Medicare, Medicaid and workmen’s compensation are federal programs with federal bureaucracy, but also administered by the states through 50 separate bureaucracies.

Private insurance companies accept premiums paid into a risk pool that generates a reserve fund to pay losses. Insurance companies analyze actuarial data on accidents, sickness, disability and other risks to construct probability tables that will determine the premiums that will generate reserves to pay future losses.

Otherwise though insurance companies do not provide health care; that is left to doctors, hospitals and medical venders. All those separate entities in medicine have an incentive to bill higher amounts; all the insurance companies have an incentive to pay lower amounts. The two sides maintain bureaucracies with staff to argue and negotiate over the bills from millions of transactions nationwide.

But we can ask our selves what does the insurance industry do that the health care industry cannot do for itself?

The actuarial data for health insurance policies comes from the medical industry so they could employ their own actuaries and do the necessary risk assessment without insurance companies. If the medical venders were organized together as regional or metropolitan entities setting their own premiums to provide their own health care, then millions of transactions would be eliminated, along with the perverse incentives to overcharge and underpay.

If the health care industry was organized with its separate components brought together into comprehensive health care providers, the insurance industry would be unnecessary. It would become a redundant component.

You may recognize the combination I mentioned above as an HMO, or a health maintenance organization, but that is the rub. Many Americans have the idea, aided by the health insurance industry, that health maintenance organizations restrict choice or might deny treatment, even though they have the facility and staff to provide it.

The private insurance industry exists because enough people believe private insurance gives them more choices and better choices. It is a very expensive choice, which is why President Obama is going easy on the health insurance industry when he attacks their increase in premiums. If he was going to get tough he would tell us how we can rid ourselves of the health insurance industry.

Replacement Jobs for Manufacturing

2010-11-10T14:20:00.000-05:00

America’s high unemployment rate will come down as total spending picks up and the economy recovers. Some of the unemployment is the result of the recession but some is the result of long term trends. Many know that manufacturing jobs have a downward trend with jobs off 5.4 million since 2000. When the economy comes back manufacturing jobs will not recover much if at all. Other jobs in service industries will replace the jobs lost in manufacturing, but the new jobs we are taking are different from the jobs we are losing.

The 20 year evolution of America’s eating habits is a good illustration of the differences in the new jobs. In the production-marketing chain of food, restaurants help to have more jobs and probably more than most people realize. Start on the farm and let’s count America’s farmers. Next add all the jobs in pesticide, fertilizer and agricultural chemicals, and all of the jobs in agricultural implement manufacturing. Add in the jobs at farm supply wholesalers, and farm raw material wholesalers.

Then move on to food manufacturing. Add all the manufacturing jobs milling, canning, freezing, bottling, refining, slaughtering, baking, brewing, distilling, fermenting and packaging. Add them to grocery store merchant wholesaler jobs and all the jobs at grocery stores, convenience stores, liquor stores and food stores. The total comes to 6.7 million jobs.

There are 9.3 million jobs in the restaurant business including fast food outlets, bars, and caterers. That was for 2009 a recession year, but there was a monthly average of 9.6 million jobs in 2007 and 2008. The total does not include food service workers at school cafeterias, hospitals, retail stores or ball parks, museums and other recreation facilities. Add them to the total and it comes to almost 11.4 million food service jobs.

Worse, jobs from the farm to the supermarket continue to decline due to productivity growth and imports in the global economy. Restaurants are the only part of the food chain Americans can count on for more jobs.

Gambling is another area like restaurants where Americans spend themselves into jobs as gaming dealers, gaming cage workers, slot key persons, and sports book writers and runners. Gambling employment reached a high of 426 thousand in the private gambling industry in 2007, including casino hotels. Gambling jobs dropped 8 percent in the recession, after nearly two decades of rapid growth.

Work in gambling and restaurants is not the high tech and high wage employment the politicians keep promising for the future, but they are becoming the replacement jobs for manufacturing. The 5.4 million jobs lost in manufacturing are up to 4 percent of America’s jobs, but the jobs people are finding pay less and drop faster in recessions than the manufacturing jobs they replace.

The politicians expect more spending to bring more jobs and restore full employment, but they are ignoring the trend to a higher percentage of jobs in restaurants, gambling, fitness centers, pet care, landscaping, temp work, security, prisons, business and personal services that take the place of manufacturing employment and support millions of jobs.

Politicians are good at counting jobs, but they act like the new jobs are as good as the old ones. The next time you hear the unemployment rate went down; remember the trends in replacement jobs and wonder if we are better off.

Banks and Favors

2010-10-09T12:06:00.000-04:00

The new credit card rules will make it difficult for banks and credit card processors to be tricksters, which is my word for their erratic and arbitrary fees and penalties. Despite the hostile opinions toward banks reported in the popular media they continue to have their way in financial matters.

Take the student loan program where Congress decides that banks will get special favors to make student loans in the student loan program. Starting the early 1990s, college financial offices have been able to choose between a direct government loan and private lending by banks with a government guarantee against default. Summary reports indicate that private loans are now more than half of student loans. In 18 years private lenders jumped from nothing to more than half of student loans.

For the government to make loans the original principal for the loans has to come from a Department of Education appropriation. However, when the government is the lender they receive the interest and principal payments which can then be recycled as new loans.

With principal and interest returned to the government the student loan program can be a self sustaining program without the need of a yearly appropriation. The interest payments received as students pay their loans can be added to the principal to make more loans, reduce interest rates in the future, or fund grants for especially needy students.

With private sector loans the Federal Government accepts the financial risk of default to private lenders, but the interest payment and principal goes to the bank. That means more than half of student loans can generate losses but no revenue for more student loans.

The Obama administration wants to make student loans a self perpetuating program and eliminate student loan guarantees to private banks. A House bill that would make the switch to direct government lending passed in early 2010 over strong industry and Republican opposition. Industry spokesmen say the bill is a government takeover that would squelch competition, diminish services to students and cost jobs.

The use of the word takeover is ironic since the student loan program goes back just over 40 years, but the subsidy for banks was introduced and passed in 1992 with the support of the President Clinton, a democrat. The Obama proposal suggests a take back, but hardly a take over.

Competition in student loans suggests bank offers of discounted interest rates to students to get their business from other banks. Instead, Congress sets the interest rates for both subsidized and unsubsidized student loans with rates reset June 30th of each year. The published interest rate implies a maximum rate, but it serves as a minimum rate.

I say minimum rate because I do not hear of banks offering a rate lower than the published rate. Having one rate and treating it as the rate for student loans eliminates competition that is a normal part of banking. There should be evidence of competition if there is competition.

Judging from the opposition, the subsidy banks want to keep must be larger than I would have guessed. Nearly two years after a banking collapse America has some new rules for credit card users, but nothing else. The media keeps reporting Americans are angry with banks and bankers, but if that is true there is little reform to show for it.

Unemployment

2010-09-16T12:32:00.000-04:00

The President and the Congress continue to worry about unemployment and with good reason. The recent unemployment rate had to drop to reach 9.6 percent. Seasonally adjusted unemployment rings in at 14.9 million. However, if we look at labor force and employment trends of the Bureau of Labor Statistics Current Population Survey back to 2000, the employment situation looks even worse.

The civilian labor force drifts upward but at a lower rate than population growth. The adult population keeps growing at annual rates around 1.2 percent while the labor force grows at annual rates around .9 percent. The difference is small for a year or two but gets significant over time.

Those employed and the unemployed who are looking for work are classified as in the labor force. Otherwise people are classified as not in the labor force. The employed are up since 2000, but at much lower growth rate than the labor force; and at a much lower growth rate than those not in the labor force; and at a much lower growth rate than the unemployed.

The unemployed jumped from an average of 7 million in 2007 to 8.9 million in 2008 to 14.3 million in 2009, but those years were recession years. Part of the spike in unemployment results from the recession, but the glacial pace of growth in the employed back to 2000 suggests that some of the unemployed come from longer term decline unrelated to the business cycle.

In the years from 2000 through 2009 the annual growth rate for the employed averaged .24 percent; from 2000 to 2008 it averaged .75 percent; from 2000 to 2007 it averaged .93 percent. The year 2007 had the highest average for employment of any year of published data, but still with slow growth going back to 2000.

Other questionable trends from 2000 to 2009 include the rapid growth of the part-time employed. Part-time employment was up over 4 million from 2000 to 2009, while the full time employed dropped about a million.

Those employed from the ages of 16 to 54 dropped from 2000 to 2009. Those employed for ages over age 55 were up 8.9 million. Those leaving high school and college can’t find jobs partly because there are not enough of them but also because more of their parents continue to work and maybe because they cannot afford to retire or they need health care from a job.

The recession will end and employment will pick up, but the changes of the last decade point to a trend of a rising share of America’s labor force remaining unemployed or out of the labor force.

When America spends its way out of recessions Americans assume there will be jobs for those who need them. If employment lags behind we hear suggestions for a business tax break or two like we have now, or the great cry sounds to “Get some training” but that is about it for policies on jobs.

The 40 hour work week, eight hours a day with time and a half for over time continues to be the federally mandated work week as it has been for nearly 90 years. If someone suggests a 35 hour work week it might spread the work around to some of those now unemployed. Business hates the idea and politicians won’t touch it, but if the ominous trends in employment continue someone will need to have a new idea. Right now that sounds like a revolution.

Maryland and Virginia

2010-07-31T12:46:00.000-04:00

First published in the Washington Herald Telegraph

Jobs and the Plight of the Maryland and Virginia Governors

Both of the incumbent governors in Virginia, and Maryland have staked their political plans and reputation on creating more jobs. In Virginia, Governor Robert McConnell has pledged to make jobs his top priority while in Maryland Governor Martin O’Malley is defending his record and priorities on jobs. Given the well published need for jobs their promises are easy to understand, but let’s weigh the prospects for success.

Virginia reached its highest monthly average of 3.76 million establishment jobs in 2008 whereas Maryland reached its highest monthly average in 2007 with 2.61 million jobs. Both had declines for 2009 from their previous average highs. In Virginia, jobs were off by a monthly average of 126,000; for Maryland jobs were off a monthly average of 87,000.

The jobs picture is not improving yet (June 2010). The 2010 monthly average of seasonally adjusted jobs through May dropped another 19,000 in Virginia and by another 16,000 in Maryland. To be fair to the governors though, the last decade has not been a good decade for jobs and both governors face similar problems creating jobs.

Both states have well publicized job losses in manufacturing, but the decline goes back many years. Virginia has a loss of 148 thousand manufacturing jobs since 1990. Maryland is down 80 thousand in the same period. For Virginia manufacturing was 13.4 percent of statewide jobs in 1990, but only 6.6 percent by the end of 2009. In Maryland manufacturing accounted for 9.1 percent of statewide jobs in 1990 but only 4.7 percent now.

Both states need new jobs to replace their lost manufacturing jobs before they can add jobs. That means both states must have faster than average growth in service industry jobs to make up for the decline in manufacturing. Trouble is there are major sectors of the service economy that are not growing at all, or growing too slowly to maintain their share of statewide jobs.

For example, wholesale and retail trade accounted for 383 thousand jobs in Maryland for 1990 but 364 thousand trade jobs in 2009. In Virginia trade jobs were 474 thousand jobs in 1990 and 511 thousand in 2009, but the 2009 total is 14 percent of statewide jobs compared to 16.4 percent in 1990. Both states show a continuously declining share of statewide jobs in trade.

Using computer technology in trade, especially for barcodes and inventory management increases labor productivity. Retail and wholesale sales volumes per work hour are up and sometimes at rates comparable to productivity in manufacturing. Higher productivity limits job growth.

The use of digital technologies and business consolidation has affected labor productivity and jobs in other service industries. In addition to manufacturing and trade Maryland and Virginia have a nearly identical group of service industries that have a twenty year record with a declining percentage of jobs. Include mining, utilities, information services such as publishing, broadcasting, and communications, banking, real estate, and repair and maintenance sectors as service industries losing share in statewide jobs. Maryland’s declining industries lost 10 percent of jobs since 1990. In Virginia the losses are 11.4 percent.

Shares must total 100 percent, which assures a higher percentage of jobs in a shrinking number of other services. These other services are health care especially, along with education and selected professional services, particularly computing. Business support services and restaurant jobs show gradual increases, but they are hardly the services that governors want to promote when they discuss new jobs.

Health care including social services continues to create more jobs month after month in the national economy where it now has 12.5 percent of establishment jobs. The recent expansion of health care insurance passed by Congress will help the states generate new jobs. Virginia lags behind in health care jobs with only 10.1 percent of statewide employment. Maryland health care has 12.7 percent of statewide jobs, slightly above the national average, but both governors will need to support health care expansion and concentrate on producing as much health care within their respective states in order to meet their employment goals.

Education like health care has a 20 year record of steady growth in jobs. Maryland jobs in private and public education are now just over 11 percent of statewide employment, above the national average. Education and health care are both sectors where computer technology and the digital revolution have limited ability to raise labor productivity compared to service sectors like finance and communication. Even though many people write checks and do their financial business with paper, the wider use of digital technology could further erode employment in finance, insurance and communications.

Both states have a third service sector with a continuously higher share of jobs: combined business and professional services. Virginia has the best record here with a 4.4 percent jump in professional service employment from 5.9 to 10.3 percent of statewide jobs from 1990 to 2009. Virginia has been able to attract computing design services, which jumped from 45 thousand jobs in 1990 to 137 thousand jobs by 2009.

Maryland has also done well with professional and business service jobs, which are up to 224 thousand in Maryland for 2009, but only 8.9 percent of statewide jobs. Like Virginia, computer design services have the most jobs in professional services, but 60 thousand jobs compared to 137 thousand for Virginia.

Virginia has also been successful in bringing corporate headquarters to northern Virginia. Jobs in the management of companies reached a high of almost 77 thousand in 2008, an impressive total with 2 percent of statewide employment, higher than the national average. Maryland has 20 thousand jobs in this category.

The professional service part of business and professional services has jobs in law, accounting, architecture, engineering, computer design, management consulting, scientific research, advertising, and veterinary services. The business services part has supporting jobs in administrative and facilities services, employment services, and support services in telemarketing, security, janitorial, landscaping services and a few more.

Professional services have the best chance of any services to be sold in other states and in the global economy. Business support services along with health care, education and so many service industries tend to be local services, whereas professional services give both governors a chance to promote services and jobs the bring money from outside their states to support jobs with exported services.

The reality of shifting jobs within the service industry along with the long term decline in manufacturing limits the options of both governors. If they can generate economic activity and jobs in health care, education, and professional services then these should pull along additional jobs in business support services along with leisure, hospitality, and personal service jobs.

Federal, state and local government jobs in both Maryland and Virginia continue to be the biggest employers in both states. Governments have 19.2 percent of Virginia jobs in 2009 including public education; 19.5 percent of Maryland. Politicians seldom advocate government jobs as a solution to job needs, but neither governor can afford to sit by and let these jobs decline, no matter how unpopular taxes and spending come to be. State and local jobs are spread out geographically and help maintain a core of jobs in many communities. If these jobs decline, other jobs will decline with them.

Both governors will need to maintain construction jobs, but neither can expect there will be enough new construction jobs to help much with statewide job needs. Construction employment in the national economy fluctuates around 5 percent year in and year out. It has not gone above 6 percent in the national economy since the 1940’s.

Both Virginia and Maryland are already doing about as well with construction jobs as any state could expect. Virginia had construction jobs above 6 percent of statewide jobs in some years over the last 20 years and continued above 5 percent even through the recession. Maryland has done quite well also with construction jobs above 5 percent through the last twenty years.

Both governors made promises on jobs that will be difficult to keep. We wish them well and want to remind them they are not alone. There are 27 states showing lower employment in 2009 compared to 2000 but Maryland and Virginia are not among them. If the two governors concentrate on health care, education, and professional services, then new jobs could generate enough new spending to boast employment in the supporting service sectors. They are getting off to a slow start, but we can check their progress at a later date.

Value and Work

2010-07-09T12:07:00.000-04:00

Sometimes I hear people say something like “The wealthy worked hard for that money, and free markets determined what they do is of such high value.”

Such statements raise a question for economists. Can value be measured to show that wages reflect individual productive value?

It is an old question that goes back into the 19th century when British and European philosophers and economists applied science reasoning to the craft industries of the day: wheelwrights, blacksmiths, shoemakers and so on.

These economic philosophers suggested that if a shoemaker works 8 hours a day producing 5 pairs of shoes and then sells them at $10.00 each, he produces $50 worth of value.

Then they had the shoemaker hire a helper to specialize in cutting leather while the shoemaker sews and assembles the final product. Together they make 9 pairs of shoes a day.

We can see right away the shoemaker’s shop went from 5 pairs a day to 9 pairs a day so the helper added 4 more pairs to the total produced in a day. His production can be measured in money terms when the product is sold.

Craft industries would be expected to have small local markets so it might be necessary to lower the price to sell 4 more pairs of shoes a day. If the price is lowered to $8 a pair to sell 9 pairs per day instead of 5, then the revenue jumps to $72. With that knowledge we can see the new hire’s work added $22 = $72-$50 of value a day to the firm.

If the hired helper is paid what he is worth to the firm it will be $22. It is a maximum because if pay exceeds $22 the firm’s net revenue will drop below $50 and the shoemaker would do better without the helper. The wage could be less than $22 depending on how many other people apply for the job and how many other shoemakers compete for hired help.

It might be a surprise to learn I have condensed and summarized what continues to be part of current study in economics courses throughout U.S. colleges. It uses the scientific method because only one thing changes, labor time, while everything else remains constant. The additional product of labor can be precisely determined as part of the experiment. Economists continue to use examples like the shoemaker because it applies science to wages and they want people to believe that today’s wages reflect individual productive value as part of science, and not politics or favoritism.

For those who are comfortable transferring the fable of the shoemaker to the wages and incomes in today’s economy, including the wealthy, they will feel comfortable that the wealthy earn what they produce. For some of us though, it is all bluff.

Student Aid and Tuition

2010-06-15T13:03:00.002-04:00

The Education Trust, a nonprofit advocacy group, recently released a report and statements titled “Opportunity Adrift” that criticizes the financial aid practices of public universities. The report used data from 2003 to 2007.

The report accused public research universities of increasing the amount of aid to students whose parents make at least $115,000 a year by 28 percent, to $361.4 million. Also it reported that public colleges routinely award as much in financial aid to students whose parents make more than $80,000 a year as to those whose parents make less than $54,000 a year.

Apparently public universities do have authority to favor the neediest students over those who are better off, but if tuition is going up at a faster rate than the maximum in Federal government need based financial aid then students of modest means will be crowded out anyway.

Posted in-state tuition at the University of Virginia in the 2002-2003 academic year was $4,595; in 2008-2009 it was $9,505. That amounts to an annual compounded rate of increase of 12.88 percent.

Virginia is not alone. At the University of Arizona the increase over the same years was 14.23 percent; at University of California-Berkeley it was 10.52 percent; at the University of Colorado-Boulder it was 12.63 percent and so on.

Federal financial aid comes primarily from grants and loans and it is not keeping pace with the inflation in college tuition. Grants are the best form of aid since they do not have to be paid back, but grants and loans have yearly upper limits.

From 2003 to 2007 the top Pell grant award was frozen at $4,050, but went to $4,731 for 2008. It should have been $5,832 by 2008 if it was keeping up with inflation as measured by the Bureau of labor Statistics education price index, one component of the Consumer Price Index.

But the price index comparison doesn’t measure the short fall of funding in the years 2002-2008. In the 2002-2003 academic year at the University of Virginia a Pell grant covered all but $545 = $4,595-$4,040 of tuition. In 2008 the gap of funding was up to $9,505-$4,731 = $4,774.

The more grants in aid fall below tuition the more difficult it will be for prospective students from moderate income households to finance their education. In the period from 2003-2007 wages were not keeping up with inflation either. Federal student loans have limits and Congress raised interest rates during the years of the study.

In this way we shouldn’t be surprised that State Universities are channeling more financial aid money to higher income applicants because we suspect they have fewer lower income applicants who can afford to fund the rest of their tuition. It also suggests that the Federal Financial Aid program is the problem more than the state universities.

There is reason for optimism because the Obama administration has increased the Pell Grant maximum $5,350. Of course we shouldn’t ignore the policies of state universities in directing their Financial Aid, but the first place to look for problems is at Federal Financial Aid.

The Big Short

2010-06-02T14:46:00.000-04:00

Michael Lewis, The Big Short: Inside the Doomsday Machine, (New York, NY: W.W. Norton & Co. 2010), 266 pages, $27.95

The Big Short tells the story of the 2008 financial crash by following a small cast of characters who saw it coming. In a brief prologue, titled Poltergeist, Lewis recounts his experience on Wall Street in the 1980’s by summarizing the period as a time when a great nation lost its financial mind. He told that story in his first book on Wall Street, Liar’s Poker, published in 1989. That book is still relevant and makes a good preamble for The Big Short.

Back in 1989 Lewis had hope the finance sector would improve. Now he is disgusted that nothing has changed, but he wants to set the record straight by telling the story of the people who not only saw it coming but also had the nerve to bet on the outcome.

The story begins when we meet the first in a cast of characters: Steve Eisman. Eisman got a chance to operate his own hedge fund, Front Point Partners, after some years working at Oppenheimer securities. He invited several other like minded colleagues to help: Vincent Daniel, the numbers guy, and Danny Moses, the trader. Before long Daniels began to notice a high rate of defaults on manufactured housing sold with sub prime mortgages. It was the first in a long list of evidence showing the sub prime mortgage bonds had no real earnings.

In Chapter 2 we meet Michael Burry, who was finishing medical school and starting his medical internship, but found time to pursue his fascination with stock and bonds. He started his own hedge fund: Scion Capital. Mike Burry found he could earn good returns as a contrarian who bet against popular trends, the perfect approach for the sub prime mortgage market.

After we meet Michael Burry but before we meet the partners of Cornwall Capital, the third of the three hedge funds that Lewis features, we meet Greg Lippmann. Lippmann is a Deutsche Bank bond trader who is the wild card of the sub prime mortgage meltdown: an oddball among oddballs. He not only decided that vast numbers of home mortgages were certain to default as soon as home prices stopped rising, he developed a 42 page presentation to promote and sell the idea. The presentation was titled “Shorting Home Equity Mezzanine Tranches.”

To make money the Lippmann way required buying Credit Default Swaps on the worst sub prime mortgage bonds. The Credit Default Swap is a contract sold as an insurance policy against the risk of bond default. A buyer pays periodic premiums over the years of the contract to insure against the loss of principal in a default.

Credit default swaps are not regulated as insurance so it is up to the buyer to discuss the seller’s reserves, or ability to pay if there is a default, but the hedge fund does not need to be insuring against a debt they own. They can enter into a contract to buy a credit default swap because they expect, or hope, a bond will go to default and they will get a payoff.

Markets with buyers of credit default swaps need sellers of default swaps, which turned out to be the insurance giant AIG. They were willing to sell billions of credit default swaps. Beginning on page 72 and going to page 77 we learn more details. We learn that Front Point Partners and Scion Capital were not the only ones buying Credit Default Swaps, Goldman Sachs was also buying them. That put Goldman Sachs in the position of selling bonds to customers while betting on them to default.

There is more however, because Goldman Sachs apparently reasoned that Credit Default Swaps generated a cash flow from premiums payments that was similar to the cash that bond holders get from bond interest. From this idea Goldman Sachs began selling a bond called a synthetic CDO where the buyer received the amount of the credit default swap insurance premium as long as the underlying bond did not default.

To sell these so-called bonds they had to pay what Lewis calls “fat fees” to Moody’s and Standard and Poor’s to falsely rate their synthetics with a triple A rating. In a footnote on page 77 Lewis tells readers they get a gold star if they followed the story so far. I may not deserve a gold star, but readers should be warned I read these pages several times to understand whatever I understand.

By chapter 5 we learn 13,675 hedge funds reporting results and that despite the hard sell of blunt talking Greg Lippmann only 10, or perhaps as many as 20, of these hedge funds are actively bet against sub prime mortgage market.

Chapter 5 is also where we meet the managers of Cornwall Capital, the final hedge fund the Lewis describes. The founders, if that is the word, were two thirty year old guys with a $100,000 Schwab account: Jamie Mai and Charlie Ledley. Later they brought in their neighbor Ben Hockett who had Deutsche Bank experience.

They started by turning a $26,000 purchase of Long Term Equity AnticiPation Securities(LEAPS) into $526,000. LEAP’s we learn are a contract to buy a stock at a fixed price in the future. Eventually Cornwall Capital bought Credit Default Swaps that ended up as millions when the crash came.

The remainder of the book’s narrative follows the trials and troubles of the managers of the three featured hedge funds as they cope with the rest of the financial sector. Even after Cornwall Capital has amassed $30 million we read how they cannot get the “bigshots” of structured finance to take them seriously. We go with them to a Las Vegas conference in January 2007 where Steve Eisman stands up and tells the featured speaker he is wrong and a fool.

Over more than a hundred pages readers learn the personal burdens of predicting a crash. Running a hedge fund full of credit default swaps requires spending money on insurance premiums with nothing coming in until a default and the payoff. The delay of more than two years before the crash took its toll as nervous hedge fund investors questioned the whole strategy. The crash came and the payoffs were millions, but the winners Lewis interviewed sounded depressed more than vindicated. Realizing the financial sector was really out of its mind was not something they wanted to celebrate.

The book ends with an epilogue where Lewis has lunch with his former boss from the 1980’s, John Gutfreund. Recounting the lunch conversation helps tie the recent abuses to their beginning, which Lewis puts at 1985.

In the end the losers lost little because the federal government stepped in to save the bankrupt firms of Wall Street and their CEO’s who gambled with other people’s money and lost. Lewis reminds readers that Congress appropriated funds intended for Secretary Henry Paulson to buy sub prime mortgages from banks, but apparently the money was handed over to Morgan Stanley, Goldman Sachs and others with no strings attached.

Lewis avoids suggestions for reform, even something as simple as a 90 percent tax bracket for the income over several million dollars. I am reminded of a comment of Will Rogers speaking about the scandals of the 1920’s and the Harding Administration. He said it is hard to convince a jury of corruption in these lush times because the jurors secretly admire the people who get away with it. We will hope those sentiments have changed, but it is hard to tell even after reading a book like the Big Short.

Jobs and Deficits

2010-05-26T13:27:00.000-04:00

I clipped a news article way back on August 11, 2005 when the Associated Press reported President Bush’s comments on a new transportation-spending bill. “President Bush calls the massive $286.4 billion transportation spending bill he signed into law Wednesday a job creator.”

The article goes on to describe the bill that will pay for 6,000 favored projects in the districts of nearly every member of Congress. Even though the legislation is $30 billion more than the President recommended he is quoted as “proud to sign it.” Remember too that 2005 was a year when the government reported a Federal deficit of $418.3 billion.

We have to admire President Bush’s candor in this matter because few politicians are prepared to emphasize that transportation projects are for creating jobs instead of transportation.

The effort of President Bush to create jobs sounds very nearly the same as President Obama’s economic stimulus plan. If President Bush recognizes the job creating potential of government spending shouldn’t all the politicians around the country recognize these same intentions in the Obama stimulus plan?

The current worries about the growing Federal deficit could make us forget that deficits are part of government spending. The deficit in 2008 reported by the government’s Bureau of Economic Analysis jumped to $933.6 billion, which was part of the $5.025 trillion of Federal expenditures. Eliminating $933.6 billion of deficit funded Federal Expenditures will eliminate $933.6 billion pumped into the spending stream; spending that both President Bush and President Obama agree helps to create jobs.

If America has less government spending then private sector spending will have to make up the difference. The country needs more spending to create jobs, but we are a country with 10 percent unemployed, and 43 million jobs paying less than $25,000 a year.(1)

We are also a country with a growing inequality of income where entertainers, sports figures and corporate chiefs are paid tens of millions of dollars. Recently NBC announced entertainer Conan O’Brien will get a $33 million dollar salary even though he is leaving his job. If his $33 million salary was divided into $50 thousand dollar pieces it would be $50,000 salaries for 660 families.

Those 660 families might buy 660 cell phones, but we have to doubt Mr. O’Brien will buy that many cell phones. Those 660 families might go to restaurants a couple of times a month. That would be 15,840 (2x12x660) restaurant meals a year, but we have to doubt Mr. O’Brien will eat out that much or create many restaurant jobs. Maybe those 660 families will go to the movies twice a month, and so on?

Working Americans have wages too low and taxes too high to keep us employed with their spending, but the wealthy are not making up the difference in spending or in taxes. If the politicians want to lower the deficit and create jobs in combination they will have to lower taxes on working Americans and raise taxes on the Conan O’Brien’s of the country. It no longer matters who thinks it fair or unfair. When it comes to jobs and deficits, distribution matters.

(1) Occupational Employment Survey, U.S. Bureau of Labor Statistics

Can They Do That?

2010-04-27T15:51:00.000-04:00

Lewis Maltby, Can They Do that? Retaking our Fundamental Rights in the Workplace (New York: Portfolio, Penguin Group (USA) Inc., 2009) 248 pages, plus 6 short appendix.

Lewis Maltby writes in the preface of his book that “Learning how to run a productive, profitable company without violating employees’ human rights became the focus of my life.” The focus of his life took shape after law school, a period as a criminal defense lawyer, board member of the Pennsylvania ACLU, followed by corporate lawyer for a new company and then Head of the Department of Human Resources. The focus of his life is also the focus of the book.

Readers start with an introduction that has examples of the doctrine of employment at will: a legal doctrine of work without due process rights. First, there is a woman who was fired for having a John Kerry bumper sticker. Jobs in America come without freedom of speech. Second, jobs come with surveillance where employers can legally monitor and judge email, cell phones, arrest records, medical histories, credit histories, driving records, and demand drug tests, personality tests and psychological evaluation. Jobs in America come without rights of privacy.

The first eight chapters from a total of sixteen chapters cover the varied issues of free speech and privacy in more detail. Readers learn of the origins of employment at will and how it has been applied over many years, and more recently with the evolution of surveillance technologies. Maltby believes many of these policies are unnecessary and fail as well, but there are many practical examples and legal cases to illustrate these points and help job weary Americans protect themselves. These chapters introduce periodic appeals to get active and help change the system; appeals that are sprinkled throughout book.

In Chapter 4 we meet Roger Boisjoly, an engineer at Morton Thiokol, who warned his higher ups that the company’s O-rings on the Challenger space shuttle were likely to fail in the freezing weather at the Florida launch pad. They did fail and he got fired for being right because due process of law does not apply to America’s jobs. American’s can lose a job for any reason or no reason.

In Chapter 7 we meet Becky Thompson who lost her job in a drug test even though she did not use drugs. That is common because companies sometimes contract with sloppy labs that find many false positive tests. Congress decided to require lab certification for all companies doing government funded drug testing, but nothing for people like Becky Thompson who still have no rights because Congress does nothing about the doctrine of employment at will. Many of the same issues apply to dismissals for medical conditions and gene testing; other issues where Congress has been weak or evasive.

The focus changes from Chapter 9 through Chapter 14. Chapter 9 covers plant closings. Federal legislation passed during the Reagan administration requires 60 days notice for dismissing employees, but then readers learn why so many companies ignore the law. Most are bankrupt and without money to pay and a majority have fewer than a hundred employees, which exempts them from the law.

The next five chapters take the reader through labor law and the rights we do have. Chapter 10 has labor law for union organizing and contract negotiations, which means the National Labor Relations Law and amendments. There is discussion of the trials and troubles for labor organizers and the weaknesses of labor law, but also a reminder that unions help secure labor rights by negotiating labor contracts for members, contracts that courts do enforce. Chapter 11 is titled “The Judge Is Not Your Friend” so we can tell what to expect. Narrative here gives a summary of some major labor law cases, especially appellate court review before the Supreme Court. The chapter that follows has a fairly detailed guide to arbitration applied in labor disputes.

Chapter 13 covers the legislated exceptions to employment at will; those dismissed for reasons of race, creed, color, religion, gender, age, nationality and lately genes have some rights. Enforcement to protect these rights can be expensive and difficult even with some help available through the Federal government’s Equal Opportunity Employment Commission. This chapter includes discussion of the Fair Labor Standards Act and what to expect from America’s minimum wage and overtime rules. Also there is brief mention of defamation by employers.

The fifth chapter of the labor rights chapters shifts to international labor rights in the global economy. Free trade agreements like the North American Free Trade Agreement (NAFTA) usually include minimum standards for labor rights for countries to be eligible for free trade, but alas readers learn they are weak and poorly enforced. Reforms are suggested.

The final two chapters leave specific issues for general and gentle persuasion. Chapter 15, Capitalism and Freedom, argues that capitalism and economic growth do not conflict with human rights. The book ends with a wrap up and suggestions for taking back our rights, meaning taking back human rights on the job.

There are six appendixes: an employee bill of rights, a model corporate privacy policy, sample letters and a National Workrights Membership Application. The book does not have a bibliography and virtually no footnotes or footnote references.

Maltby uses an easy to read conversational style intended for a broad audience. He does not cover job issues related to immigration, nor job issues related to ex-cons who have served time. He avoids partisan politics even though labor and human rights permeate America’s politics. The only exception comes at the end when he lists the labor legislation that gives some protection for employee rights with a reminder that all were passed by Democratic votes and the opposition of the Republican Party.

In my experience people who press to make and enforce more rules in employment, or otherwise, do so with an agenda of control. More rules like drug testing give controlling types of people more opportunities to assert authority and tell others what to do. Evidence that drug testing does not work or leads to unfair results will not persuade controller types, they press forward in relentless determination. Too often people looking for jobs find employers who act like they do us a favor to offer a job. Can They Do That will help you remind these people a job in America is a requirement that should be part of your rights.

The Estate Tax

2010-04-07T14:32:00.000-04:00

Some national politicians continue to support abolishing the estate tax, a tax on the value of assets at death before ownership is transferred to heirs. The Estate tax has been subject to similar pressures and changes as the federal income tax. Up to 1981 estate tax rates up to 70 percent were applied to the entire value of an estate with only a $50,000 exemption.

Since the early 1980’s Congress has repeatedly reduced the number of estates subject to the estate tax, mostly by raising the exemption. By 2001 the exemption was $1 million and the top tax rate 55%, but 2001 was also the year the Congress agreed to a 10 year phase out of the Estate tax. It is a 10 year phase out because next year, the tenth year, the estate tax is eliminated, but only for one year. The Bush era revisions to the estate tax expire in 2011.

Under the rules that remain for 2009 the first $3.5 million of an estate is exempted from estate taxation and the article reported that only around 100 estates will be subject to any tax, which would bring in $266 billion of revenue despite the small numbers.

At a time of colossal federal deficits the Congress has to make up its collective mind and decide if it wants to amend the current law to avoid losing that much revenue for 2010, when the tax will be zero. The decision for 2010 only applies to one year and only a small amount of revenue, but estate taxes have important social repercussions overtime.

Citizens are not citizens just because they live in the same country and share the same geography. Citizens need to share some common experience to understand each other and cooperate politically and socially. One of those common experiences is the need to finish school and find self supporting work.

If the heirs of the 100 people mentioned above receive $266 billion dollars they have no need to work, ever. They can afford household servants, private tutors, and lavish lifestyles without working and without understanding what other people have to do. They also have enough money to influence media and political agendas and perpetuate their status.

As the matter stands the estate tax of 2011 will be restored to the estate tax of 2001 unless the Congress can agree on new legislation. That was as far as Congress could get toward eliminating the estate tax in the early days of the Bush administration.

Critics in Congress keep pushing to permanently eliminate the estate tax. Eliminating the estate tax will begin building a small class of families with extraordinary wealth that can be diversified around a global economy and permanently protected from market forces.

The term “banana republic” describes a pattern of inequality, usually in Latin American countries, where a few dozen land holders have 90 percent or more of the wealth and the rest live on whatever is left. Despite a well documented increase in income inequality the United States distribution of income and wealth is still a long way from that, but abolishing the Estate tax is a step in that direction.

Financial Reform

2010-03-28T15:40:00.000-04:00

More than a year after the 2008 financial collapse Senate Banking Chair Christopher Dodd of Connecticut made a formal release of a proposed financial reform bill. Senator Dodd directed his Banking Committee staff to up load an Acrobat summary of the bill, which is 12 pages and titled “Restoring American Financial Stability.”

The bill intends to create three new independent agencies: the Consumer Financial Protection Agency, the Agency for Financial Stability, the Financial Institutions Regulatory Administration.

It intends to create a new Office of National Insurance at the Department of the Treasury and a new Office of Credit Rating and an Office of Investor Advocate at the Securities and Exchange Commission.

Many of the duties and authorities of the agencies are combined from other existing offices and agencies, especially the Federal Reserve Bank. Under the new bill the Federal Reserve Bank would continue to manage monetary policy and be the lender of last resort, but it would lose many of its consumer and bank regulatory duties.

New duties for the new agencies include authority for the Securities and Exchange Commission (SEC) to regulate derivatives and hedge funds. New SEC duties give authority to examine credit rating agencies, disclose their methodologies and track record and deregister an agency. There are new proposals to regulate municipal securities advisors and dealers with enforcement through the SEC.

The bill provides for an annual assessment of the Securities and Exchange Commission, an apparent attempt to regulate the regulators, where an Investment Advisory Committee will watch over SEC practices and priorities along with a new Office of Investor Advocate.

There are more changes in corporate governance and shareholder rights and a page with the caption “Ending Too Big to Fail” describing new requirements for “limiting large, complex companies and preventing future bailouts.”

Back in 1998 the director of the Commodities Futures Trading Commission, a women named Brooksley Born, argued derivatives should be regulated because banks were taking risks lending money to hedge funds to buy derivatives. To shut her off Congress passed legislation prohibiting the Commodity Futures Trading Commission from writing new rules to regulate derivatives.

A review article [“What went Wrong” Washington Post, 10/15/2008] from last fall quotes former Federal Reserve Chair Alan Greenspan: “Regulation of derivative transactions that are privately negotiated by professionals is unnecessary.”

Apparently Congress agreed with Alan Greenspan that professionals are infallible, but that was in 1998. Now they think they are greedy and irrational and need to be controlled with new agencies and regulations.

Truth is that nothing has changed from the 1990’s or the 1930’s. Financial crises occur because banks only hold a fraction of deposit liabilities in reserve to pay for checks. If banks make enough risky loans for things like derivatives that default they will not be able to clear checks for account holders who need to make payments. Unless there is a bailout, business transactions will halt and the economy will collapse.

Back in the 1930’s there were many gamblers who took risks and bought stocks with borrowed money. After many banks failed Congress passed the National Banking Act of 1933 and the Securities and Exchange Act of 1934, which included Federal Reserve authority to set Margin Requirements: requirements that limit the percentage of borrowed funds to buy financial assets.

Margin requirements are still available for use as they have been since the 1930’s. If Congress thinks derivatives are not covered by Margin Requirements a sentence or two of revision in the regulations would take care of it.

Perhaps a 1,100 page bill reflects a Congressional mania for grandiose solutions, but I have to wonder about their motivation. Do they really want to regulate their friends on Wall Street? We will see.

Jobs and Surplus

2010-03-13T12:10:00.001-05:00

The caption in the Washington Post reads “Obama calls for White House summit on job creation.” [WP 11/13/09] The article reports the summit will be an attempt to signal his concern about the growing ranks of the unemployed and to focus on longer term strategies to improve the job market.

It is a worthy goal but reducing the unemployment rate and the number of unemployed is not the same as creating more jobs. That is because a majority of Americans live in families that make job decisions that depend on their spouse and the circumstance of other family members.

Economists often act as though individuals make independent decisions when it is time to enter the labor force and become part of the labor supply. Instead one person losing their job will often mean that two people start looking for work.

To see why suppose the mister in the Smith family has a job as a tool and die maker working in manufacturing. Tool and die maker is one of America’s better paid production occupations with a median wage reported at $22.32 an hour or $46,430 a year for 2008, and a 90th percentile wage of $34.76 an hour or $72,300 a year. As a family they might earn $60 to $80 thousand dollars.

The Bureau of Labor Statistics reports jobs as tool and die maker in decline every year since the late 1990’s. With a broad base of manufacturing also in decline it is easy to imagine a layoff for Mr. Smith. Economists argue and predict people will work less at lower wages and work more at higher wages so unless Mr. Smith can find work at his tool and die maker wage economists expect him to work less after a layoff than before.

Economists do not base their predictions on interviews, observation or data. Instead they rely on conjecture about preferences. Leisure they argue is valuable and will be traded for work in the personal preferences of individuals. Therefore, at higher wages leisure time is more expensive because it means giving up those higher wages, and people with standard preferences want less of what is more expensive. Conversely, at lower wages leisure time is less expensive because it means giving up lower wages, and people will devote more to leisure when it’s less expensive.

Those less devoted to the economist’s way think the Smith’s will do whatever they can to pay the bills and maintain their economic status. Mr. Smith will take a job in maintenance or construction or whatever he can find at lower wages if necessary, and a second job working evenings or weekends, but we can expect that Mrs. Smith will also enter the workforce looking for work. Together the Smith’s work more hours at lower wages to keep up, just as they might work less if their wage was higher. People like the Smiths assure that lower wages add to the surplus of labor.

Business owners and economists will be invited to the above mentioned summit. Too often job summits end up sounding the great cry: get some training. We will hope they recognize that low pay helps create a surplus of labor that makes more jobs a necessary but not sufficient condition to ease America’s employment problems. Recognizing something new is a lot to hope, but it’s a start.

Skills and Wages

2010-03-01T16:56:00.001-05:00

I have heard people say that the director, the general manager, the CEO, or the boss should make more money, have a higher salary, than the people he or she manages. It may not be a universal thought but in America high wages carry prestige, which many agree brings authority.

Economists commonly reject any idea that a wage depends on prestige or confers authority. In the economists tool chest wages depend on productivity. High productivity means high wages and vice versa.

Take doctors where productivity equals important skills that can only be learned over a long period of time: typically 10 years. The years of medical training are a personal investment, not only because Americans pay their medical school tuition and finance their own education, but because the skills belong to the individual and can be transferred between employers.

A personnel investment is different than a personal investment. Personnel investment is training paid for by an employer. Training typically runs for weeks or months with orientation to specific employer needs. Employers are reluctant to pay for long term, general training because the skills and benefits belong to the individual that can be moved to other employers.

In a society where individuals pay for their own post-secondary education wages must reflect the time and money for investment if we expect people to have skills. We don’t want doctors to be paid low wages because they would not have the ability or willingness to make the investment to learn what we want them to learn.

Late last spring I clipped an article where wages do not reflect the skills Americans expect. The caption was “Panel on Fatal Crash Looks at Pilots’ Pay, Commutes.” [Washington Post, May 14, 2009]

The article detailed the efforts of executives at Colgan Air to defend the low pay of their pilots following the worst airline accident in 7 years. The co-pilot, aged 24, earned “about $16,200” and commuted by air from Seattle to Newark, New Jersey to go to work.

Colgan officials justified the low salary and long commute by saying “Pilots are told what the pay scales are. Our pay scales are within the industry standard.”

The Bureau of Labor Statistics reports a median national wage of $111,680 for an occupation titled Airline Pilots, Co-pilots, and Flight Engineers.

There was a time, not too long ago, when airline pilots were almost universally trained by the military at public expense. When pilots left military service to find commercial jobs as pilots, the airlines knew they were hiring thoroughly trained pilots.

The time has passed when airlines can rely on finding applicants trained by the military, but if airlines pay for military style pilot training they know their pilots can leave and go elsewhere. The weak financial incentive for airlines to pay for pilot training puts the burden on individuals who now find it necessary to pay for their own training.

Much of the incentive for individuals depends on the wage they can earn. Going beyond the minimum to be a well trained pilot requires an early investment of time, money and lost wages. A salary of $16,200 will not pay for that investment.

We want pilots to make more the $16,200, but not because we want them to have prestige. We want them to make more because our safety depends on it.

Do it Yourself and Taxation

2010-02-13T12:59:00.000-05:00

One of the seldom discussed advantages of owning a home compared to renting an apartment is the do-it-yourself opportunities it allows. Homeowners can pick a few, or many, of the maintenance and repair chores to do themselves. Where renters pay rent it must cover the full cost of commercial maintenance and repair; homeowners can provide untaxed labor that reduces their need for cash flow and income.

I am unaware that Congress or the state legislatures consider the do-it-yourself effects of their policies and taxes. Mostly they do the opposite because the U.S. economy depends on the volume of spending. To keep the economy going our governments would rather pressure us to work like demons and spend like maniacs.

Back in the great depression farmers produced a cash crop for market, but cash earnings were only part of their income. Fruits, vegetables, maple sugar and a high percentage of everything put on the family's table could be produced on the farm. Do-it-yourself production does not require a transaction but it means consumption and supports a family's standard of living in the same way dollar income producing on the job supports consumption.

In today’s economy we can drop our magazine subscriptions, our cable TV and the health club, but notice the recent “Cash for Clunkers” and tax breaks for first time home buyers provide help for spending and spenders, but not for those out of work and looking for ways to save. Policies of aid give aid to those with cash to pump up spending.

For the unemployed homeowner, or those with periods of unemployment, the pressure to pay property taxes continues without relief. America’s property tax system pressures people to keep their property in use or sell it to someone who will. If the United States was a country without property taxes, it would give those who owned homes a better opportunity to withdraw from the market place and turn more to do-it-yourself work.

America primarily uses a combination of income taxes, property taxes and sales, use and consumption taxes that demands a relentless tide of cash. As long as our politicians want us to spend our way out of recessions that is not likely to change.

A tax system that reduces income, payroll and property taxes in exchange for more emphasis on sales and consumption taxes would increase cash flow from wages and permit people to keep more of their interest earnings from saving. Higher consumption taxes on goods and services raise more revenue from those with the income and preference to spend, but lets others choose more do-it-yourself opportunities.

Recently I was speaking with someone who grew up on a farm in the 1930’s. He told me his father was required to grade and maintain the county road that went along their property as were all the farmers in the district. Well of course, it makes sense with farmers short of cash but time and equipment to exchange for taxes. It sure beats eviction.

Americans have millions of people short of cash like the hard pressed farmers of the 1930’s. America can give them better choices than the have now.

Public Debt and Private Debt

2010-02-02T15:03:00.000-05:00

The United States Treasury will lose borrowing authority when the national debt reaches the legislated ceiling passed by Congress. Treasury Secretary Geithner will have to ask for an increase, which the Congress will grant, but he is bracing for the usual politics. Many in Congress use the opportunity to make government debt their number one worry in order to attach conditions eliminating programs they don’t support.

It is common for them to make comparisons between Government debt and personal debt. “My constituents pay their debts and keep their house in order and it’s time for the government to do the same.” That one is a favorite, but most of the announcements from members of Congress play on constituent anxiety and bias about their personal debts.

When people think of their private debts they worry they won’t be able to pay, but that is not the problem with public debt. The public debt must be managed as part of every administration’s duty to manage the economy. Federal Reserve Bank monetary and interest rate policy gets lots of attention, but without mention that it is also debt management.

When the Federal Reserve wants to lower interest rates to expand the economy, it begins buying outstanding Federal Bills, Notes and Bonds. Payments are by check and when the checks are deposited into bank accounts or converted to cash they become part of America’s money supply.

Buying Federal Bills, Notes and Bonds converts outstanding Federal debt to money and the government and Federal Reserve Bank can do that at anytime and in any amount.

Because the government and Federal Reserve Bank have money in any amount officials could retire the entire federal debt at anytime. They don’t do that because the increase in the money supply would generate inflation and retiring the debt is not a goal of economic policy.

The Federal Government also owns assets and has taxing authority and Federal officials could double or triple taxes and begin selling off its land and other assets to pay off the federal debt. They don’t do that either because it would depress the economy and cause deflation and retiring the debt is not a goal of economic policy.

The British government has done some of its borrowing using a bond called the British Consol, which has no maturity, but is sold in perpetuity. The owner gets periodic interest and can sell their Consol to someone else, but the government has no obligation to pay the principal, ever.

America does not have any equivalent to the British Consol. That’s because Americans think of debt as a symbol of excess that should be retired and they want a date when that will occur. They regard public debt as the equivalent of private debt.
Truth is America’s debt will never be retired, but will go up and down as meets the needs of economic policy. The politicians know this and they will raise the debt ceiling, but in the meantime we will have to listen to their excess.

Transportation and Free Enterprise

2010-01-16T12:32:00.001-05:00

Shortly after taking office President Obama announced plans for government spending that calls for “billions of dollars to rebuild roads and bridges, modernize public schools, and construct wind farms and other alternative sources of energy.”

He didn’t say much about railroads but it is common to ignore the differences between America’s highways and railroads. With highways everyone has equal access. Anyone can start a trucking company and be ready to haul freight and pay fuel taxes by using Federal highways and the interstate highway system. The trucking companies are private enterprise, but the roads are public enterprise so truck transportation becomes a joint partnership of business and government.

Railroads are private companies that build and maintain their right of way and they own their locomotives and rolling stock. America’s rail routes go back to the 19th century when the Federal government provided land grants to investors who built the lines.

Suppose for the last 50 or 100 years that anyone who invested in a locomotive and freight cars had the right to use the entire rail network as long as they paid fuel taxes just like truckers do for the highways. That way new shippers and new investors could decide trucks or rail without the need to spend billions building and maintaining their own railroads.

Think of a big shipper like United Parcel Service that started way back in 1907. Now they operate their own airplanes and their own trucks, but using the rails means an additional set of transactions with railroads. Shipping rates must cover the cost of fuel, locomotives and freight cars, but also the cost of capital and profit for the railroads.

When it’s time to decide rail or truck, the decision depends on different financial considerations rather than the best way to move freight. Since rail is not available with just the expense of locomotives, freight cars, fuel and fuel tax like it is for trucks, decisions favor trucks.

A whole highway, street and bridge construction industry has grown up from America’s system of interest free and pay as we go fuel tax finance for highways but not railroads. Railroads have to resort to risky private funding and fluctuating interest rates.

We can only speculate how much more rail transportation America would have if the rails and roads had equal access to financing, but even more important, if shippers could use the rails like they use the highways.

During the presidential campaign the Republicans pulled out their favorite bogeyman and called Mr. Obama a Socialist. The terms capitalism and socialism have special definitions in American politics. Socialists are bad guys in political campaigns, but socialist projects like the Interstate Highway System get funded anyway. We can also see that capitalism and socialism are not really the issue; it’s the rules and the finance that make the difference.

Retail Costs and Manufacturing

2010-01-06T16:13:00.000-05:00

The decline of the American Textile industry is well documented. In 1990 there were 928 thousand working in just the apparel industry; by 2008 it was down to 198 thousand. The decline is more than double the jobs lost in the automobile industry.

Most of us see our clothes marked "Made in China" or some far eastern country. In the debate over free trade economists have offered excuses for the made in China label. They said textiles and the cut and sew clothing industry are labor intensive and American labor is too expensive to compete with the Chinese.

News coverage on the global clothing industry often includes a picture of Asian women lined up in long rows at sewing machines suggesting another excuse: low cost needs large scale.

Large firms are common in manufacturing because manufacturing industries typically starts out with many companies that gradually consolidate into a few large scale producers. The automobile industry started out with hundreds of firms at the beginning of the last century. Gradually they combined into fewer, but bigger producers, until only three American companies survive in a small group of global auto companies.

The cut and sew clothing industry was never like the automobile industry, but large firms produced clothing to be sold and shipped to other firms in the wholesale and retail parts of the marketing chain.

Lately though creative retailers are finding small scale clothing production can be cost competitive when it is combined with their own retail operations. Retailers that produce on site in their own space capture the entire marketing margin; that is the sales price above their manufacturing costs.

Producing on site eliminates the wholesaler and has the potential to cut inventory and transportation costs. Clothing sales have seasonal fluctuations with peak sales in late summer and again in December. Staff doing cut and sew in off peak periods can be moved to retail selling in peak sales periods making more intensive use of staff and raising labor productivity and lowering costs.

Shipping charges from the Far East are eliminated with local production. Freight charges from China to Long Beach are only part of the expense to import clothing. There are Long Beach handling charges, warehouse in and out fees, forklift fees, customs entry fees, and customs duties, but the clothing shipment is still in Long Beach. Add the shipping fee from Long Beach to wherever, and when it is all added up shipping charges are not insignificant in the costs for importing clothing.

It is unusual for an industry to transform itself from a few dominate firms to many small firms in competition. It can happen though. For many years IBM dominated the computer industry. Then the microprocessor chip transformed the industry allowing hundreds of new firms to enter the hardware and software industry. The PC revolution created many jobs with firms only a fraction of IBM.

In the combined textile and apparel industries more than a million jobs are gone, but that should not mean it was inevitable as economist’s like to say. What looks inevitable may not be. America needs jobs and new ideas; maybe a smaller scale, fully integrated clothing industry is one place to look.

Health Care and Inequality

2009-12-22T11:44:00.000-05:00

The debate over health care reform drags on with charges and counter charges. When the groups opposed to change want to throw down the gauntlet they will describe the Democrat’s proposals as a “complete takeover of the health care industry.”

Using the words “complete takeover” makes it sound like the private insurance industry once served people who now get health care provided through the government, or have no health care at all.

Opposition groups define the duty to provide health care as their right in private markets. They want health care to be an option that goes with a job. Otherwise the saga of America’s health care is a government takeover of groups ignored, and groups abandoned by the fee for service private sector.

Health care provided through employment leaves retirees out of health care, which is why those over 66, the Social Security retirement age, have Medicare health coverage. Notice that Medicare maintains the fee for service principles favored by the private sector. That’s because Medicare is financed with a 1.45 percent tax on wages, which fee for service advocates contend is just like an insurance premium.

Medicare is just one of the partial and patchwork solutions to health insurance. Since health care for those younger than 66 assumes employment, the unemployed are left out. Congress responded to the unemployed with legislation known as COBRA that allows the unemployed to buy their group health insurance at group rates, but only for 18 months. The time limit assumes the unemployed will find more work with health insurance.

Since jobs that pay low wages, or jobs that use low skills, do not always include health care the working poor are left out. Congress responded with Medicaid, but with strict limits on income and assets. The limits are so low that many families above the Medicaid limit are without health insurance. Congress responded with legislation known as SCHIP (State children’s health Insurance Program) as a Medicaid supplement to cover children, but not their parents.

Workmen’s compensation, which is really health insurance for injuries on the job, duplicates some of the coverage for private insurance policies but ignores the unemployed since it too requires a job.

If a job does not include health care insurance individual and family policies get mysteriously expensive and unaffordable for millions with wages too low to pay fees and premiums charged.

The patchwork of government health care reflects the limitations imposed by private sector advocates with the political strength to maintain fee for service principles.
To have health insurance for the uninsured it will be necessary to address the inequality of wages and income outside a fee for service system. The wealthy will have to pay higher income taxes to support health care subsidies to have health care reform. Most of the public debate tries to disguise this requirement, but reform that insures the uninsured must have subsidies to make up for low income.

The debate goes on, but the wealthy are resisting. Health care reform remains doubtful, but we will see.

Gambling and Taxes

2009-12-14T13:49:00.000-05:00

House democrats announced a plan to raise personal income tax rates up to 5.4 percent on incomes over $350,000. The Obama Administration is supporting a similar plan. The additional tax revenue will be used to pay for health care proposals that extend coverage to 37 million people who are currently without coverage.

In a recent article about the proposal in the Washington Post [Health-Care Plan Would Add Surtax On Wealthy, July 15] there were several objections quoted. One objection caught my eye. It was from Senator Ben Nelson of Nebraska.

He said, "Tax is a four-letter word" with voters. Even families not ranking in the top 1 percent of earners hope they're going to be there someday. So they don't necessarily think it's fair."

He used percent to define the rich, which is significant because America is a democracy. Remember in a democracy 50 percent plus one win elections. Therefore, if Senator Nelson is right then the other 99 percent of American voters, not ranking in the top 1 percent, accept having low taxes for the wealthy because it gives them hope they might become wealthy. The 99 percent would include voters from the 37 million without health care; unless someone thinks the richest 1 percent go without health care.

Notice the word “hope” in his statement. Hope is a word often associated with gambling rather than tax policy, or fairness, or anything else. Americans and politicians talk about what is fair and what is unfair, but when it’s time to vote no one has to consider what is fair. They can vote for any reason they want including the hope they will win a state lottery and pay low taxes on their winnings.

There was a time when the wealthy paid 90 percent of their incremental income as income tax. That was back nearly 50 years ago, but it was also a time when state lotteries and gambling was mostly illegal.

For the millions who lived on a wage 50 years ago, there was little hope of becoming wealthy without years of saving, if saving was possible. Gambling mostly took place in black markets and went untaxed.

For the millions who live on a wage today, there is little hope of becoming wealthy without years of saving, if saving is possible, but the gradual rise of gambling overlaps the decline of the top income tax rate, which dropped to 35 percent back in 2003.

I read the media stories about lobbyists and the influence of money in politics, but the vote has not been abolished in the United States. The richest one percent of Americans cannot have low taxes in a democracy without the acceptance or support of millions.

Senator Nelson’s statement adds anecdotal confirmation to what I have long suspected: gambling has more influence on America’s tax policy than any of us want to admit. Gambling gives hope to the many, but low taxes to the rich. Just ask Senator Nelson.

Telecommuting and Green Jobs

2009-12-03T15:45:00.000-05:00

President Obama announced plans to create “green jobs” as part of the Reinvestment and Recovery Act passed earlier this spring. He was quoted as saying "A green, renewable-energy economy isn't some pie-in-the-sky, far-off future. It is now. It is creating jobs now."

The new law provides money and development programs for adopting environmental technologies and helping to expand green projects. Green projects that reduce the use of fossil fuels and expand renewable energy, retrofit buildings, expand mass transit, or longer term initiatives like solar power, wind mill farms and bio-fuels will increase jobs and employment.

Telecommuting could save fossil fuels and reduce green house emissions, which makes it a green initiative but unlike the green projects mentioned above it conflicts with work and jobs. Telecommuting and outsourcing are possible because digital technologies applied in computing and communications let people work anywhere and anytime.

Outsourcing usually has more attention than telecommuting in the popular media, but they are nearly the same and have the same potential to reduce employment. For example, take the customer service representative, which holds 8th place among America’s occupations with 2.1 million total jobs in nearly every sector of the economy, but especially when we need assistance in finance and insurance.

Customer Service Representative gets media attention because America’s corporations outsource some of this work to India and other countries. Many regard outsourcing as the action of ruthless corporate tycoons ripping the heart out of America, but allow me to suggest outsourcing is very much a telecommuting issue.

Over 80 percent of Customer Service Representative jobs are reported for the country’s metropolitan areas, where millions commute by car and donate thousands of hours of their time using up gasoline and wearing out their cars so that others might work. Unlike production workers who must work at factories, Customer Service Representatives work can be anywhere with a computer and a telephone, as the companies themselves have so definitely proved.

Doing computer work from home as telecommuters not only reduces jobs in the automobile industry, car repairs, gasoline, cement, and highway construction, but also for jobs in real estate, office rental, building maintenance, building repair and local government. Quarter-time telecommuting potentially reduces office demand by 25 percent.

The Obama energy initiatives attempt to develop new supplies of energy that will cut down on fossil fuels and green house emissions and create jobs. Politically it should be much easier to do because it avoids sacrifice. Telecommuting confronts America with conflicts and trade offs. Telecommuting can save resources and reduce green house emissions, it will also eliminate jobs.

Business has similar incentives to expand telecommuting as it does outsourcing to other countries. Government has begun to experiment with limited telecommuting. If America gets serious about green house gases it should expect to confront the conflict between energy and jobs. The Obama plan does the easy things first, but it may not be enough. More green initiatives will require us to change the way we think about work and jobs.

Minimum Wages and Work

2009-11-16T13:12:00.000-05:00

The minimum wage went up to $7.25 an hour on July 24th as the last of a three year planned increase passed by Congress. The increase is $.70 an hour over the minimum in 2008, a 10.7 percent increase. Since inflation is reported at 3.8 percent for the year the buying power of the minimum wage went up for 2009.

Despite three years of increase, the Federal minimum wage has a history of falling buying power. During the years 1997 to 2007 the federal minimum wage was frozen at $5.15 per hour. Even with annual inflation in the one to three percent range the minimum wage lost 25 percent of its buying power. A wage of $5.15 an hour in 2007 would only buy what $3.99 would buy in 1997.

The Bureau of Labor Statistics publishes wage ranges by occupation as part of its occupational employment survey. The median wage is often quoted in the popular press but there are wage ranges published that include the 10th, 25th, 75th and 90th percentile wages by occupation. For example, the 2008 data show 3.5 million employed nationwide as cashiers with a 10th percentile wage of $6.88. That means that 10 percent, or 350 thousand jobs, can be expected to have wages equal to or less than $6.88 an hour.

The 2008 data show cashier and 30 other occupations with 18 million jobs that have 10th percentile wages of $7.25 or less, which means 1.8 million of the total can expect a boost in pay. It is a $1,456.00 annual increase over the old minimum for a full time job, but still only $15,080 a year and barely half of a self supporting wage.

Business tends to oppose any increase in the minimum wage and economists predict in sinister tones that higher minimum wages lead to falling employment, hurting those who expect to be helped. However, the tendency to use less labor at higher wages is universal and not confined to just minimum wage jobs.

For example, the Bureau of Labor Statistics reports managerial jobs in decline with a drop from just over 8 million in 1999 to barely 6 million in 2008. Engineering managers are down by nearly 70 thousand as median wages went steadily up reaching $115,000 in 2008.

Economizing on high paid engineering managers puts engineers in surplus as long as we expect former engineering managers to be looking for engineering work in occupations related to engineering. Most engineering specialties like civil engineering and mechanical engineering have median wages in the mid $70’s. Engineering technician jobs have median wages in the $40’s.

Civil and mechanical engineering jobs are up with some of the unemployed engineering managers adding to the supply of labor, but we can’t be sure who got the engineering jobs. If it is former engineering managers it will certainly mean a pay cut for them.

It could be an engineer who was working as a lower paid engineering technician. If that is the case it will mean a pay raise for them, but it could also be a college graduate in engineering who had been working in a minimum wage job. If that is the case it will mean a pay raise for them.

During the years from 2006 to the present when the minimum wage jumped by $2.10 an hour, jobs as fast food cooks dropped from over 600 thousand to 559 thousand. Maybe that is due to the higher minimum wage, but during the same period there were other labor markets where a surplus of labor kept wages lower and helped expand employment, but in wage ranges well above the minimum.

Economists tend to ignore what is happening in high wage job markets when they predict changes for markets with the lowest wage. A higher minimum wage can eliminate low wage jobs, but that does not relegate the people who had them to endless unemployment, nor prevent them from getting higher wage jobs. That is because changes in job markets create surplus labor in many occupations in other wage ranges, both high and low.

Families are a second wage issue that economists tend to ignore. Economists act as though individuals make independent decisions when it is time to enter the labor force and become part of the labor supply. Yet a majority of Americans live in families and make job decisions that depend on their spouse and the circumstance of other family members.

Suppose the mister in the Smith family has a job as a tool and die maker working in manufacturing and his wife works part time in retail. Tool and die maker is one of America’s better paid production occupations with a median wage reported at $22.32 an hour or $46,430 a year for 2008, and a 90th percentile wage of $34.76 an hour or $72,300 a year. Together they might earn $60 to $80 thousand dollars.

The Bureau of Labor Statistics reports jobs as tool and die maker in decline every year since the late 1990’s. With a broad base of manufacturing also in decline it is easy to imagine a layoff for Mr. Smith. Economists argue and predict people will work less at lower wages and work more at higher wages so unless Mr. Smith can find work at his tool and die maker wage economists expect him to work less after a layoff than before.

Economists do not base their predictions on interviews, observation or data. Instead they rely on conjecture about preferences. Leisure they argue is valuable and will be traded for work in the personal preferences of individuals. Therefore, at higher wages leisure is more expensive because it means giving up those higher wages, and people with standard preferences want less of what is more expensive. Conversely, at lower wages leisure is less expensive because it means giving up lower wages, and people will want more leisure because it’s less expensive.

Those less devoted to the economist’s way think the Smith’s will do whatever they can to pay the bills and maintain their economic status. Mr. Smith will take a job in maintenance or construction or whatever he can find at lower wages if necessary, and a second job working evenings or weekends. Mrs. Smith will work more hours in retail. Together the Smith’s work more hours at lower wages to keep up, just as they might work less if their wage was higher. People like the Smiths assure that lower wages add to the surplus of labor.

It is easy to understand the business opposition to the minimum wage: it converts profits to costs at $1,456 dollars per full time minimum wage employee. The economist’s opposition to a higher minimum wage is different; they argue that forcing up wages is bad for labor by reducing jobs and raising unemployment as more people look for work at the higher wage.

Economists ignore the two possibilities mentioned above: that those who lose low wage jobs can find surplus markets and other jobs at higher wages and that families work more at lower wages. If either is true then economists are giving bad advice.

This July 24th Secretary of Labor Hilda L. Solis announced “This administration is committed to improving the lives of working families across the nation, and the increase in the minimum wage is another important step in the right direction. This well-deserved increase will help workers better provide for their families in the face of today's economic challenges.”

Politicians often exaggerate the significance of what they do and it does sound like high praise for a wage of $7.25 an hour. It is not enough increase to be the important step she says, but it is in the right direction.

Banks and Hedge Funds

2009-11-08T13:57:00.000-05:00

Banks are essential, but troublesome institutions that keep checking accounts for depositors, but only hold a fraction of deposit liabilities in reserve to pay for checks.

Normally 15 cents on the dollar will be adequate reserves because those writing checks will about equal those making deposits. Normally borrowers will be paying principal and interest to further assure that banks have reserves to pay on their checking accounts.

Because a bank’s liabilities include personal and business checking accounts, i.e. money, the larger society has a special need to regulate banks to make sure they have reserves to meet their account liabilities.

Even though bank regulations requiring minimum reserves have been around a long time banks have been left to decide which loans to make and which loans to refuse. Individual banks decided when to make loans to hedge funds and how much to loan.

To make payments on their loans hedge fund managers need to have their own reserve funds from investors, or profits, but hedge funds are unregulated so it is up to hedge fund managers to decide their reserves.

More than a few people urge that hedge funds should be regulated like banks because they are taking risks more risky than banks, which can bring down the financial system.

To judge the risk yourself suppose it is 1993 and you are the manager at Long Term Capital Management, a new hedge fund. You notice in August that a new 30 year Treasury bond with coupon interest of 7.2 percent starts trading at 7.24 percent interest and a price of $980.84 for a $1,000 bond, but another 30 year Treasury bond first sold in February 1993 is trading for 7.36 percent interest at a price of $995.13.
(Price calculations are from MS Excel function PRICE)

To exploit the difference of price, the spread, you get a loan to buy the cheaper and older $1,000 bond at $980.84. Then you borrow the other bond from a brokerage house like Merrill-Lynch and immediately sell it for $995.13 cash.

The two transactions will be profitable if the interest rates converge over time: the low one rises and the high one falls. Economic theory predicts price differences will be temporary for a product or service; low prices rise and high prices fall until all are equal.

Suppose in two months the interest rates do converge to 7.3 percent.

At 7.3 percent interest you can sell the older bond for $987.83: a $6.99 profit. You buy back the newer bond for $987.77 and return it to Merrill-Lynch. Since you sold it for $995.13 you make $7.36 on the second transaction. Total profit equals $14.35.
Earning $14.35 will not make you rich, but if a bank will lend you $1 billion to buy many bonds and interest rates do converge then you can get rich.

Banks made billions in loans to hedge funds and many made profits doing the same and similar transactions as the one above. Eventually though, interest rates diverged and some countries and companies defaulted on the bonds in hedge fund portfolios.

Hedge funds could only sell their bonds at a loss, if at all, and without reserves or cash they defaulted on billions in loans. Banks needed those loan payments to have enough reserves to clear checking accounts: my money and yours. That was the downward spiral, the crisis.

Maybe it’s high finance? Maybe it’s gambling? Maybe it’s time to regulate hedge funds like banks?

Thoughts on Used Cars

2009-11-01T14:49:00.000-05:00

Automobiles have a unique place in American consumption and personal finance. Nothing else remains our personal choice that costs so much and depreciates so fast.

As everyone knows cars are more than transportation. For people in business it is often important to have a late model car to project an image of prestige and prosperity. Others are interested in style and performance and buy one car over another for a range of personal reasons.

For those who buy cars to minimize their personal expense, they buy a used car. Automobile companies, dealers and car traders have to publish price and sales information to do their business, which makes it possible to follow depreciation from the manufacturers suggested retail price through years of resale.

Used car buyers know the first rule of used cars: age lowers used car prices faster than mileage. They also know mileage lowers the value of a car more than age. Take an example like the Toyota Camry Sedan. In 1999 a new Camry had a manufacturers suggested retail price of $21,888. This spring, 10 years later, various sales guides show a used car price around $6,400, which is depreciation of almost $15,500, or roughly 71 percent depreciation.

A buyer getting a 10 year old Camry for $6,400 pays 29 percent of the original manufacturers suggested retail price so here is a good question to ask yourself: Can I get more than 29 percent of the car’s total mileage? A 10 year old Camry in decent shape that passes state inspections and with less than 100 thousand miles almost certainly has more than half its usable miles.

Cars last longer and break down less than they used to do, both foreign and domestic. In spite of higher quality, resale prices still drop much faster by age than by miles. As long as that is true used car buyers can capture more of the benefits of higher quality by driving the last miles of a car rather than the first.

Remember as well that a used car means additional savings because the lower price lets you earn interest on the money you saved, or avoid interest on the money you did not need to borrow.

I have checked other makes and models and when I compare reported used car prices of 10 year old cars as a ratio to the manufacturers suggested retail price I find the ratio stays in the low 70 percent range. For the Honda Accord it was 70 percent, the Acura and the Maxima 76 percent, the Mustang 69 percent. Even a Ford, Crown Victoria turned out to be 76 percent.

I often hear people say they buy a foreign car over a domestic car because it retains its value longer. Mine is a small sample but if many other makes and models also lose 70 to 76 percent of their value in 10 years, then cars lose value at about the same rate, suggesting quality is more the same than many of us believe.

Find yourself a 10 year old car; keep it under 100 thousand miles; pay as much less than 70 percent of the manufacturer’s suggested retail price as you can negotiate and save a bundle.

Labor News

2009-10-15T12:04:00.055-04:00

National labor union Congress - Baltimore 1866

From the address to the workingmen of the United States

"What is wanted then is for every union to help inculcate the grand, enobling idea that the interests of labor are one; that there should be no distinction of race or nationality; no classification of jew or gentile; that there is but one dividing line - that which separats mankind into two great class, the class that labors and the class that lives by other's labor."

"Is there any man here or women - let me say is there any child - who does not know the seeds of war are in industrial and commerical rivalry?"
President Woodrow Wilson September 5, 1918

"The ballot box is simply a capitalist concession. Dropping pieces of paper into a hole in a box never did achieve emanicpation for the working class, and to my mind never will acheve it."
---father Thomas Hagerty from the Industrial Workers of the World organizing convention June 27th - July 8th 1905.

December 14, 2011-Now that the Supreme Court has decided to hear the Arizona immigration case we can suppose they understand how much business likes cheap labor and how much commercial interests love that big supply of low paid immigrants. The law sounds draconian in the summaries I have read and reviewed. Even moderate enforcement of its clauses and conditions will empty the state of unauthorized immigrants. Good by low wages. Hello California.

Arizona’s just the beginning if the Supreme Court lets states decide their own immigration rules which I have to doubt they will, but the mystery for me is to speculate on the politics. Politicians know how much business likes cheap foreign labor, but they also know business avoids announcing their preference in the public media: talk about bad PR. They leave it to politicians to make excuses for them. At least I thought so until the Arizona governor decided to defend the angry electoral block that has to compete with cheap foreign labor.

Maybe the governor has promised to provide some cheap prison labor after the low paid immigrants make their exit? But I just don’t see how she can win election and do what business doesn’t want. Maybe she is counting on the Supreme Court to bail her out?

The caption in the Washington Post reads “Bechtel to move 625 jobs from Md. to Fairfax County.” Early in the article readers learn that transferring 625 jobs to Virginia is just the “latest round of bragging rights in the commonwealth’s cross border rivalry with Maryland to land big businesses.”

The article quoted Virginia Governor McDonnell who said “The company[Bechtel] was attracted to the commonwealth due to its business environment, cost, and ability to attract the best workforce to meet future growth needs, especially IT and engineering employees in the area.”

Then we learn more of what attracts companies because Maryland paid Bechtel $10 million to keep 1,250 jobs in Maryland as the Virginia governor was approving $6.5 million in Virginia Economic Development Incentive Grants to buy 625 jobs for Virginia.

If we do our arithmetic here we find that Maryland paid $8,000 per job to keep 1,250 jobs while Virginia paid $10,400 per job to buy 625 jobs from Maryland, reassuring us that jobs go to the highest bidder. I was relieved that no one quoted in the article called this a job creation strategy, although everyone quoted accepted or justified the practice.

No mention though where Bechtel might move next.

from November 11, 2011----

The Washington Post caption reads "Veterans jobs bill passes in Senate, 95 to 0." The bill would expend tax credits to businesses that hire unemployed veterans. It apparently makes good politics, but it doesn't create a single job. Transactions that generate revenue and work for business create jobs. It will do nothing for veterans, but it is good for business.

The caption on the article reads, "Job listings say the unemployed need not apply."

Hundreds of job listings posted on Monster.com and other jobs sites explicitly state that people who are unemployed would be less attractive applicants, with some telling the long-term unemployed to not even bother with applying.

The New York Times' Catherine Rampell said she found preferences for the already employed or only recently laid off in listings for "hotel concierges, restaurant managers, teachers, I.T. specialists, business analysts, sales directors, account executives, orthopedics device salesmen, auditors and air-conditioning technicians." Even the massive University of Phoenix stated that preference, but removed the listings when the Times started asking questions.

From a business and financial standpoint it is an utterly stupid practice since it eliminates part of the surplus of labor that keeps wages low and saves business costs. It also makes it necessary to pay more to the currently employed to get them to change jobs. It also suggests in a more blunt way than usual that business likes to taunt people and emphasize their control.

The Washington Post ran a story May 18th 2011 titled “The Rust Belt shows some luster.” In it they describe 1,000 applicants for $7.50 an hour manufacturing jobs making EdenPure space heaters, vacuums, and air purifiers at a company known as Suarez Corporation in Ohio. If a family puts two full time people into the Suarez factory they will have $31,200 dollars of gross income. The article calls this a budding revival in American manufacturing and quotes others including a professor from the University of Michigan-Flint stupid enough to call this the “shining star of the U.S. recovery.”

These articles keep popping up like weeds but they turn into a hodge-podge of disparate quotes and scattered facts in a futile effort to make any new jobs a really good thing. The new production will be in the better known Hoover corporation plant, which was abandoned after they moved to Mexico. By quoting the founder and chief executive of the Suarez Corporation, Ben Suarez, we learn that he decided to come back from China because it takes two months to get products to markets. He got a cheap factory and some very cheap labor, but he warns that his costs are still higher than China. We learn that he will hire 2,500 in the next 18 months but he can only pay commensurate with skills, but we learn the jobs assembling space heaters require relatively simple work. We learn that Suarez has a profit sharing plan, but the new hires will be through contractors who do not receive profit sharing. American renaissance.

The National Labor Relations Board decided to defend organized labor: an incredible turn of events. In the instant case the Boeing Corporation declared their intention to move some production from Washington State to South Carolina, a right to work state whose political officials are hostile to organized labor. The National Labor Relations Act officially makes overt acts of union busting an unfair labor practice, but it is normally easy to evade with some innocuous and empty blather. Boeing must have decided there are no longer limits to their scorn for labor, or gotten the message mixed up, to leave any overt trail.

Business will do anything for cheap labor, but what else is new? The South Carolina governor Nikki Haley was quoted as furious, but last time I heard the vote has not been abolished in South Carolina. Maybe in the Palmetto state a majority think they’re part of the management class. 4/29/11

Yet it seems that the more the sense of class increases, the weaker labor becomes. There is more scabbing, more strike breaking, the fewer people voting to join. Also, the weaker labor becomes, the more it is resented. --- written in 1991, Thomas Geoghegan, labor lawyer-author, Which Side are You On?

The Washington Post story from April 14th reads Maine Politics: the Big Picture. The Maine Governor, Paul LePage, got angry and ripped down a labor mural commissioned by the Federal Government and painted by a Maine resident. The mural depicts scenes from United States labor history and includes Francis Perkins, FDR’s labor secretary. The governor decided it was like the murals the communists use in North Korea to “brainwash the masses.” Someone on the Governor’s staff named Adrienne Bennett explained the governor has a new agenda. She said the governor wants a mural with job creators.

Since Maine jobs have dropped below 600 thousand, less than 2000, Maine is a little short of job creators right now. What is odd is the politics. The governor ridicules and debases working people, but he can’t possibly be elected without their votes. Maybe in Maine working people are so brainwashed they think they’re part of the Govrnors dream. 4/14/11

The Washington Post ran a story April 5th covering hiring practices of the Prince Georges County MD school district in suburban Washington. Apparently the school district hires foreign teachers under the H1-B visa program. They had to apply through the Department of Labor under rules that require them to pay the prevailing wage, which the labor department sets from the Occupational Employment Survey. The Department of Labor has labeled them as willful violators because they steal large four figure sums from their wages and call them recruitment costs. Of course, they deny it is a wage cutting scheme.

Most people in the business community know that foreign labor certification will help enlarge the surplus of labor and hold down wages over time. Why break the rules when the rules are rigged up in you favor? All you need is a little patience, but in PG county they don’t have sense enough for that. Why be sensible when you can be crude?

In Wisconsin the teachers and public employees need to organize themselves through the social media and become more active protecting their own rights outside the confines of Federal and State labor law, which is so tricked up with delays and restrictions it is possibly worse the useless.

Do members of unions let their membership be a substitute for collective action? Does the union staff make decisions for their members as a result of member apathy? Does it make sense to use union dues to support full time salaries for administrative union staff if it does not bring more member participation or collective action?

There are 395 thousand public employees in Wisconsin with 159 thousand in the local schools. If this group pooled their assets and formed their own bank or credit union some of the money they now pay in union dues could go there to earn some interest and be a personal strike fund. Public employees could control the operation of the bank with complete authority to guarantee that loanable funds stay in the state of Wisconsin and be used only for public employee member-depositors or other approved purposes.

“The challenge of American workers is to save truly free enterprise from death at the hands of its self-appointed champions.” Walter Reuther United Auto Workers

Virginia is a union free state but on March 20, 2011 the Washington Post ran an article interviewing Governor McDonnell who says it’s easier to slash budgets and cut costs without unions. “We didn’t have to go and sit down and negotiate with a number of unions about how we were going to do that, McDonnell said. “We just did it.” It is not too hard to suspect he likes solving problems by firing people: no fuss no muss.

AT & T wants to buy T-mobile. It is worth wondering about competition, but if it goes through the consolidation will lower employment in communications.

The Washington Post reaches a new level of sleaze publishing a piece by Governor Walker on March 18, 2011. We already got his editorial opinion when he was recorded bragging to his billionaire donor over the phone. It doesn’t matter that he was duped in that recording, he gave everyone his true opinion and we don’t need his propaganda now. The Post has been going down hill for sometime but I thought we could expect better than this.

A liberal is a conservative who ignores the class distinctions and privileges the rich regard as their right.

There is no teacher good enough that someone can’t run them down if the want to. There is no teacher bad enough that someone can’t defend them if they want to.

Does American labor law help labor?

Take a casual look at America’s labor law and as you read you will realize that labor law helped labor when the statute was first passed. Gradually though there are a few changes and additions as the money interests that own the Congress and the state legislatures begin to pass amendments.

When the National Labor Relations Act was passed back in the 1930’s it was described as the Magna Charta of organized labor. That was followed by the Taft Hartley amendments in 1947, which all by itself tipped the balance of power back to management.

Now organizing a union is a long tortuous, legal and bureaucratic process of requesting and waiting that can be defeated or stalled for years. For those willing to pander to bureaucrats and overcome endless hurdles, the resulting union is an identifiable legal entity that can be threatened with fines, injunctions and law suits. Every issue is bogged down in bureaucracy. A simple grievance can be stalled for years. In the mean time you are expected to listen to sanctimonious politicians and pompous judges reciting endless rules, or wait for months for a case to be dismissed by the saboteurs the Republicans appoint to the National Labor Relations Board.

Working Americans have the legal status of brain damaged children. Labor law is for management.

When will working Americans stop ringing their hands and get mad enough to organize themselves around social networks? Working Americans could be a formidable force, but what there is now; it’s pathetic.

Union Membership down Slightly Among Federal Employees

from the Washington Post, Jan 25, 2011 1/28/10

Ed O'Keefe writes Union membership among federal employees dropped below 1 million last year: 984 thousand members. It is a drop of 1.2 percent from the previous year although about 1.1 million Federal workers are actually represented by unions. The drop is primarily tied to wider use of contractors, but some unions for veterans affairs, the Bureau of Prisons and National Treasury Employees Union increased membership.

Obama Brings Industry to Table
Taps Immelt for Jobs Panel

from the Washington Post, Jan 22, 2011 1/24/10

Zachery Goldfarb and Perry Bacon Jr write that President Obama will bring Jeffery Immelt of General Electric company into the administration to try to boost jobs with more exports. Immelt's role will be to develop ideas for "investing in innovation to provide the companies with the tools they need to compete." There are many doubters however. It was reported in the article that GE had 170 thousand jobs in America when Mr. Immelt's took over the company ten years ago, but 134,000 jobs in America now.

Union Membership

from U.S, Bureau of Labor Statistics Jan 22, 2011 1/22/10

BLS reports union membership down 612,000 members with 11.9 percent of the labor force

Minimum wage earners in 7 states getting raises

from the Associated Press, Dec. 30, 2010 12/31/10

Kristen Wyatt reports that about 650,000 employees will get small raises in 2011 in 7 seven states: Arizona, Colorado, Montana, Ohio, Oregon, Vermont and Washington. Washington State has the highest minimum wage at $8.67 an hour. In Colorade it will by up 11 cents to $7.36.

Obama Proposes Two Year Pay Freeze

from the Washington Post, Nov. 30, 2010 12/2/10

Lisa Rein and Perry Bacon Jr write that "President Obama proposed a two year pay freeze for most of the 1.9 million civilians that work for the federal government, as he tried to address concerns over a mushrooming deficit and placate Republicans who have targeted the workforce for big cuts."

The Bush era tax cuts have been around for 10 years but they have not generated enough jobs. Lawrence Mishel of the Economic Policy Institute was quoted. "This is another example of the administration's tendency to bargain with itself rather than Republicans and the process reinforces ... the myth that federal workers are overpaid."

Senate votes, 60-40, to advance jobless benefits legislation

from the Washington Post, July, 21, 2010 7/21/10

Lori Montgomery wrote the Senate broke a months-long stalemate to restore emergency jobless benefits to people who have been out of work for more than six months, voting to advance the measure over Republican objections that it would add $34 billion to the nation's bloated budget deficit. The vote was 60 to 40 in the Senate. The House is expected to pass the measure when a final vote is taken Wednesday. Two Republicans voted for the bill and one democrate voted against it. Republicans are fretting about the deficit; Democrats worry about jobs.

The bill will revive benefits for more than 2.5 million people whose checks were cut off when the program expired June 2. It allows up to 99 weeks of income support for jobless workers through the end of November.

Democrats seek to extend emergency jobless benefits

from the Washington Post, June, 29, 2010 7/1/10

Lori Montgomery writes that Congressional Democrats are struggling to revive a plan to extend emergency unemployment benefits for millions of jobless workers. After trying for weeks to extend jobless benefits as part of a broader economic package, Democrats said Tuesday that they would jettison all other provisions and push solely for a six-month extension of jobless benefits and a small adjustment to a tax credit for home buyers.

If Congress fails to act before the July 4 recess, the Labor Department projects that more than 2 million people will have their checks cut off before lawmakers return to Washington.

Unemployment-benefits bill stalls in Senate as GOP rejects revised plan

from the Washington Post, June 24, 2010 6/24/10

Lori Montgomery writes Republicans rejected the Democrats latest offer to pare down the size and cost of the jobs bill that has been before Congress for some months. The Bill includes tax breaks for businesses and individuals, as well as emergency support for millions of jobless workers who have exhausted their regular 26-week state benefits. Again they must pass something or many unemployed will stop receiving unemployment benefits. Democrats offered some further cuts to state aid but did not get the additional votes needed.

Jobs bill blocked in Senate

from the Washington Post, June 17, 2010 6/17/10

Lori Montgomery and Brady Dennis write The Senate effectively rejected a slimmed-down package of jobless benefits and state aid late Thursday, rebuffing President Obama's call for urgent action to bolster the economic recovery. Sens. Ben Nelson (D-Neb.) and Joseph I. Lieberman (I-Conn.) voted with a united Republican caucus to block the approximately $120 billion package. The measure needed 60 votes to advance, but garnered only 56. Republicans claim the country is more worried about the deficit.

The measure would protect doctors from a steep cut in Medicare rates, extend emergency unemployment benefits and extend some tax breaks to business and individuals.

The Democrats reduced the size of the package that narrowly passed the House. Senator harry Reid tried to add $24 billion of local government aid by trying to cut the amount of unemployment checks. The deficit dropped from $200 billion to $55 billion, but the bill still failed. Finance Committee Chairman Max Baucus (D-Mont.) said they would regroup Friday and try to pass the bill because the public wants jobs.

Congressional Democrats downshift on spending, cut provisions to jobs bill

from the Washington Post, May 29, 2010 6/3/10

Lori Montgomery and Shailagh Murray write about an agonizing week where the House narrowly approved a jobs bill that started out at $200 billion but was scaled back to $116 billion. This new bill will extend unemployment benefits to November 30th, after the election, at a cost of $39.5 billion. Much of the rest of the bill is special tax favors. Congress passed an extension of unemployment benefits earlier this spring but it runs out June 5th. In the Senate, the bill hasn't moved an inch as of Memorial day.

100,000 teachers nationwide face layoffs

from the Washington Post, May 27, 2010 6/1/10

Nick Anderson writes Senior congressional Democrats and the Obama administration scrambled Wednesday to line up support for $23 billion in federal aid to avert an estimated 100,000 or more school layoffs in a brutal year for education budgets coast to coast.

The House expects to take up the issue as part of the war funding bill, but republicans are against it. They argue it is too expensive. If the House approves the measure, proponents hope to overcome Senate obstacles where Senator Harkin of Iowa says he has a majority but not sixty votes.

Focus is on legal workers
Senate Dems to give federal commission say over legal immigrant workers

from Bloomberg news May 24, 2010 5/25/10

Laura Litvan writes The Democrats are thinking of creating a Federal Commission with power to regulate the flow of legal immigrant labor. The plan would require Congress, in certain cases, to vote when immigrant labor is deemed out of line with demand. It would have a major role in regulating low-skilled foreign labor.

Employers or industries that hire lower-skilled immigrants could petition the commission for temporary waivers of visa caps, although the commission would first need to determine that it wouldn't be possible to hire U.S. workers for the jobs.

The commission would issue recommendations for high-skilled worker visas and wage levels, the aide said. For lower-skilled occupations, the commission could declare "emergencies" when it sees an imbalance between foreign-worker supply and demand. A vote in Congress would be required for the panel's recommended immigration levels for these workers.

The overhaul measure would secure the U.S.-Mexico border, create a temporary-worker program and forge a path to citizenship for the estimated 11 million people in the country illegally.

Obama wants federal agencies to hit the gas on hiring

from the Washington Post, May 11, 2010 5/14/10

John Davidson and Ed Okeefe write President Obama plans to instruct federal agencies to radically overhaul the process now used to hire government workers. The change is expected to cut in half the time it takes to fill vacancies and allow the government to better compete with the private sector for top talent.

The Government Accountability Office has been calling for changes since 2001, and a host of outside voices have criticized the byzantine nature of federal hiring, with its stacks of paperwork and endless rounds of interviews that can keep an applicant hanging for months.

Obama's plan, to be announced Tuesday morning, would cut hiring time to about 80 days from the date a vacancy is announced to the point a candidate is hired. Obama also wants to get managers more involved in the process of deciding on new hires, rather than leaving the final approval to an agency's personnel office. Interviews need to be done by hiring managers that are the closest to the job.

Agencies also will be required to tell applicants when the application is received, when they are deemed qualified, when the applicant is referred for an interview, and finally if they are hired or not. Abandonment by an agency without notification is an abuse to end under the new rules.

Andy Stern Resigns

4/23/10

Andy Stern is leaving as President of the Service Employees International Union(SEIU), which increased its membership during his 14 years as President. It was a time when labor was declining generally. He was instrumental in "Justice for Janitors" a program to organize the lowest paid of America's labor force. He emphasized organizing and increasing union membership and union influence. He also had SEIU break away from the AFL-CIO, emphasized negotiations and deal making with business and government and alienated others in the labor movement. His legacy on Laborline is best remembered for his organizing efforts for the lowest wage workers, janitors along with hotel and garment workers and several others. Raising the wages for the lowest wage workers will eventually push up other wages and act to unite labor as a unified political and economic force.

Uncle Sam is Hiring
Find out where on the National Mall May 8th

wherethejobsare.org May 8, 2010 4/17/10

Job categories are security and compliance, medical and public health, Energy and environment, Administration and program management and international affairs. According to Partnership for Public Service the federal government will need to fill 600,000 positions in the next four years including 270,000 mission critical jobs. Jobs are available in many skills and in the 50 states.

Congress Finally Votes Jobless Benefits

from April 16, 2010 4/17/10

Congress finally agreed yesterday April 15th to restore jobless benefits. This time both houses agreed. The Senate voted 59 to 38 and the Huse 289 to 112. It continues unemployment benefits until June 2. It also blocks cuts to Medicare payments to doctors. The bill gives time to work on extending the current law to allow jobless benefits up to 99 weeks.

Bill could give boost to working from Home

from the Washington Post, April 15, 2010 4/16/10

Jesse Markan writes that a house panel advances a measure called the Telework Improvement Act that sets policies on government telework. It has the support of the House Oversight and Government Reform Committee and will go to the floor May 5. The Federal government has promoted telework for years, but progress is slow because of past resistence from managers and the need to maintain security.

Jobless benefits clear Senate hurdle with GOP votes

from the Washington Post, April 13, 2010 4/13/10

Ben Pershing writes The Senate moved closer to extending jobless benefits that expired a week ago. The Senate voted to 60 to 39 with four Republicans to extend unemployment insurance, subsidies and COBRA and Federal Flood insurance through May 5. The Republicans remain unhappy about $9 billion more spending without other cuts to offset the spending.

Proposal to extend jobless benefits faces showdown
Deficit Hawks Rally in Senate
Republicans seek cuts to offset $9 billion costs

from the Washington Post April 12, 2010 4/12/10

Ben Pershing writes Congress is posed for another partisan showdown over extending unemployment insurance. The bill hashed out in March got put off and now it is back. The extension of jobless benefits, subsidies for COBRA health incsurance and federal flood insurance through May 5 got through the House but not the Senate where Oklahoma Senator Tom Coburn stood in the way. They want to cut the $9 billion cost elsewhere. Many Republicans are threatening to vote against the newer bill.

Deadlock is Ending on Labor Board
the New York Times, April 1, 2010 4/7/10

Steven Greenhouse writes that President Obama made two recess apointments to the National Labor Relations Board. Appointees are Craig Becker and Mark Pearce. Both appointees have labor law and union experience. The Board should have 5 members but only two prior to the new appointments, which bring the new board to four.

The board is responsible to review and make determination on claims of Unfair Labor Practices of unions or management under the National Labor Relations Law. With only two votes out of five the board deadlocked and stopped work so there is a backlog of outstanding cases. Business does not like the appointments; labor is optimistic cases will be resolved and the law applied. Bush era appointees often ruled against union practices like orgqanizing efforts for graduate assistents. The Bush era board, which also filled with recess appointments, ruled that graduate assistents are not employees and could not organize.

Green Jobs

from the Department of Labor March 16, 2010 3/28/10

The Bureau of Labor Statistics has solicited comments on the definition it will use in measuring green jobs, the industry list, and to develop the number of, and trend over time, of green jobs, the industrial, occupational and geographic distribution of the jobs and the wages of workers on these jobs.

Several categories of green economic activity are nearly universally cited: renewable energy, energy efficiency, pollution prevention and clean-up, and natural
resources conservation.

Two approaches will be used: 1. the output approach and 2. the process approach.

In the output approach the Bureau of Labor Statistics is concerned with jobs created producing a specific set of green goods and services and not the environmental effect of the production process. In the process approach the conern is with the production process and whether it limits any environmental effect. The process approach is relevant to any industry.

In the process of counting jobs the North American Industry Classification(NAICS) of industry definitions and the Standard Occupational Classificaton of Occupatons(SOC) will be used.

Green goods and services should have a postive impact on the environment or natural resources conservation. These would be research and development, production, storage or distribution of 1. renewable energy, 2. energy efficiency, 3. greenhouse gas reduction, 4. pollution reduction and cleanup 5. recycling and waste reduction, 6. agricultural and resources conservation, 7. education, compliance, public awareness and training.

The production of green goods and services can 1. direct goods and services like pollution control equipment and weatherization of buildings, 2. indirect goods and services like electricity production from renewable sources, nonpolluting dry cleaning services, hybrid vehicles and mercury free batters, 3. specialized inputs like USDA approved fertilizers for organic crops, wind turbine blades, or mass transit rail cars, and 4. distribution of green goods like transportation and warehouse services, wholesale and retail services, rental and leasing services and restaurants.

To measure the number of green jobs any establishment producing a single green good or service will have all jobs counted, for establishments producing green goods and services and other goods and services the percentage of revenue from green goods will be applied to all jobs to get a green jobs count. BLS has identified potential green goods and services industries, which are NAICS industries that could be producing green jobs. Only establishments actually producing green goods and services from the list of potential green establishments are actually counted. Occupational employment will be estimated from these establishments.

In the Process approach the Bureau of Labor Statistics will estimate jobs associated with using environmentally friendly production processes. Processes include production of green goods and services for use for use within and establishment and use methods, procedures or practices that have a positive environmental effect. BLS would determine if any workers are employed who have primary duties related to environmental processes. These might be research to develop chemical processes that reduce air pollution, or a job operating renewable energy generation equipment, or jobs instaling or maintaining control systems that reduce water pollution.

Comments go to Richard Clayton, Office of Industry Employment Statistics, BLS, green AT bls.gov

Jobless benefits set to expire on April 5

from the Washington Post March 26, 2010 3/26/10

Ben Pershing writes again about the trials and troubles of the House and Senate to pass an extension of unemployment benefits. They keep voting on various proposals that they change and send back to the other chamber. The House approved a $9 billion dollar measure for a one month extension of unemployment benefits, COBRA health benefits and flood insurance, but the Senate refused it. Senator Tom Coburn of Oklahoma objected to the bill and was quoted to say "by adding to the Federal deficit we are stealing future opportunities from our children."

Mitch McConnell offered a one or two week extension that would be fully funded. Speaker Pelosi said no. Stay tuned.

Initial Unemployment Claims

Unemployment Claims are Starting to Decline 3/26/10

Seasonally adjusted 4 week moving average of initial unemployment claims settled back to below 454,000 thousand in the 4 weeks ending March 20, 2010. It is dropped back from 478,000, which was the high in the weeks since January. The 4-week moving average of continuing unemployment claims have also dropped for the seventh week to 5.396 million from its 5.770 million high earlier in the year..

Because unemployment goes up and down depending on initial and continuing unemployment claims the future suggests a decline in the unemployment rate in the future; maybe to 9.6 percent. We shall see.

Senate Passes $140 Billion in tax breaks, aid to unemployed
Legislation could face obstacles in the House

from the Washington Post March 11, 2010 3/12/10

Ben Pershing writes that the Senate voted 62 to 36 to approve the $140 billion of tax breaks and aid to the unemployed. The Senate bill has a one year extension of unemployment benefits and COBRA health insurance plus extra money for states to fund Medicaid. The bill would also block scheduled cuts in Medicare payments to doctors.

The Senate has very different proposals than the House. They emphasize tax breaks to business rather than direct aid to the unemployed. However, the Senate is expected to vote on the $15 billion dollar job subsidy measure passed by the House as mentioned below.

House Passes $15 Billion Job Creation Measure

from the Washington Post March 5, 2010 3/6/10

The House vote was 217 to 201 for $15 billion of tax breaks to companies for hiring new employees. The bill was revised frm the Senate version and so must go

back to the Senate. The Senate continued with amendments to a $150 billion jobs bill that includes a 1 year extension of unemployment benefits and COBRA health benefits among several other benefits to state and local governments.

Workers wait on promise of jobs as Obama agenda stalls on Hill

from the Washington Post February 27, 2010 3/1/10

Lori Montgomery writes that even though President Obama declared jobs his "number one focus," Congress has been unable to push through a single measure aimed at putting people back to work. The House delayed a vote to extend tax breaks for employers who hire new workers. The Senate stalled a measure to extend unemployment benefits, a measure about to expire.

The house delayed a vote to extend tax breaks for employers. The Senate did not vote on a House-passed bill that would have extended emergency unemployment benefits.

The bill pending in the House has a $13 billion payroll tax credit aimed at employers who hire people who have been out of work for at least 60 days. It passed the Senate last week with five GOP votes. A larger package contains $80 billion to extend emergency unemployment benefits for a year and $25 billion to aid strapped state governments. But the measure would also devote $31 billion to revive expired tax breaks supported by Republicans. It would finance no new job-creation measures. Democrats in the House are pushing for a public jobs bill. Other democrats want summer jobs for youth and more job training, but nothing is passed yet.

White House crafts jobs bill, a year into stimulus effort

from the Washington Post February 18, 2010 2/20/10

Neil Irwin, Lori Montgomery and Alec MacGillis write about the Obama press conference marking the one year anniversary of the stimulus spending but acknowledging thespending has not yet helped relieve joblessness.

Most of the press conference and article discussed additional measures for the future. These measures include $267 billion spending to support job creation. In addition, the White House called for $167 billion to extend tax cuts and spending in the original stimulus package, including tax credits worth $400 per year to individuals and $800 to married couples, additional aid for cash-strapped state governments, extension of unemployment benefits through much of this year, and an additional $250 lump-sum "economic recovery" payment to Social Security recipients this year.

The administration also wants to put an additional $100 billion toward an immediate jobs bill. One of the most significant ideas would award tax credits worth as much as $5,000 per new hire to employers that expand their payrolls this year. By the administration's calculations, the tax credit would create 600,000 jobs at a cost to the government of about $33 billion.

Not all of the projects and spending from last year's stimulus have started and other billions have not yet entered the spending stream. When it all gets going the Whitehouse is hoping for a big jump in jobs.

White house report forecasts tepid job growth this year
Unemployment rate expected to stablize, fall to 8.2 percent by 2012

from the Washington Post February 12, 2010 2/13/10

Neil Irwin writes about the release of this year's Whitehouse forecast in the Economic Report of the President. They are projecting new jobs at 95,000 a month, which is too slow to keep up with population growth. They are forecasting 10 percent unemployment through 2010 and then dropping to 8.2 percent in 2012. The report suggests the economy is driven more by business investment and exports.

Reid to Push pared-down bill desiged to create jobs
Feb. 22 Vote Scheduled
Fast-tracked provisions have bipartisan support

from the Washington Post February 12, 2010 2/13/10

Shailagh Murray and Ben Pershing write about Senator Harry Reid's announcement to pass a new job's bill. The centerpiece of the Senate jobs package would exempt companies from paying Social Security taxes for the remainder of 2010 on every new worker who had been unemployed for at least 60 days.

The Senate bill also adds new transportation infra structure spending, expanded investment breaks for small business, and added subsidies for local governments pay for new schools, court houses and other public projects.

However, Reid delayed renewal of several business tax credits, unemployment insurance mentioned below and COBRA health insurance extensions.

Decision Time on Long Term jobless

from the Washington Post February 9, 2010 2/10/10

The $787 billion economic stimulus bill passed by Congress included a measure to have additional unemployment benefits in states with high unemployment rates. Unemployment benefits were extended to 99 weeks even though 26 weeks is the normal amount of time for benefits. Benefits were extended from 79 to 99 weeks by Congress about a year ago, but they must vote again. The bill includes almost $13 billion a month to fund them because Congress is paying for the benefits that are over 26 weeks. Benefits are about 36 percent of weekly pay or an average of $325 a week.

Obama's budget calls for jobs bill and tax changes
Proposal includes health care overhaul

from the Washington Post February 1, 2010 2/3/10

President Obama's budget plan calls for billions more of new spending to combat persistently high unemployment and bolster the middle class. It slashes some programs and raises taxes on banks and the wealthy. $100 billion goes for a jobs bill that includes tax cuts for small businesses, social safety net programs, and aid to state and local government.

Assessing Obama's promises of jobs in a hub of manufacturing

from the Washington Post January 22, 2010 1/29/10

Michael A. Fletcher writes about President Obama's trip to Elyria, Ohio where he talked about job creation. During his campaign he told workers at the National Gypsum drywall factory that he would work on job creation, but the plant is now closed with a loss of 58 jobs. Many other plants in the Lorain county of Ohio are closed. The stimulus money helped but not now in the post stimulus period. Jobs continue to move overseas.

Obama, labor reach a deal on health care
Union members would get reprieve from tax on high-cost insurance

from the Washington Post January 15, 2010 1/14/10

Lori Montgomery and Michael D. Shear write about the deal betwee President Obama and organized labor oveer the tax on high-cost insurance policies. An agreement was reached to exempt unon members from a proposed surtax on expensive insurance plans until 2018, five years after the legislation takes effect.

The 40 percent excise tax on family policies over $23,000, over $8,500 for individual policies, has become increasingly unpopular politically. Labor leaders have argued the tax would especially hard on union members who have bargained for more generous benefits in lieu of higher wages. The deal just made would raise the value of policies subject to tax to $24,000 and $8,900. Some other benefits like dental and vision plans were exempted starting in 2015.The cuts are expected to reduce revenue by $60 billion over 10 years.

As Defense agencies hire, others look to trim staff
Departments offer incentives as they try to shed 37,000 workers

from the Washington Post December 30, 2009 1/4/10

Ed O'Keefe writes The Federal Government hired 97,445 people in the Departments of Defense, Homeland Security and Veterans Affairs, but laid off about 37,000 in all other departments.

The Postal Service and nearly every other department have begun offering buyouts with an offer of $25,000. Most of the buyouts are for economic reasons rather than a change of workforce needs.

States' Jobless funds are being drained in recession

from the Washington Post December 22, 2009 12/22/09

Peter Whorisky writes "The recession's jobless toll is draining unemployment-compensation funds so fast that according to federal projections, 40 state programs will go broke within two years and need $90 billion in loans to keep issuing the benefit checks."

The article describes state benefit programs and problems for states in general and quotes and comments for the states of South Carolina, Kentucky, Nevada, Kansas, Vermont, Virginia and Indiana. States have borrowed from the Federal Government to keep up and pay benefits. Not all states fund their programs adequately but shortfalls mean raising taxes or cutting benefits.

Initial Unemployment Claims
Unemployment Claims are Starting to Decline12/10/09

Seasonally adjusted initial unemployment claims dropped below 500 thousand in the 4 weeks ending November 21, 2009 for the first time in 2009. They remained below 500 thousand for the week of November 28, 2009. Continuing unemployment claims have also dropped from over 6 million in October to less than 4.5 million by this December. Because unemployment goes up and down depending on initial and continuing unemployment claims the future suggests a decline in the unemployment rate in the future. This month it is 10.0 percent, but next it will drop.

Jobs plan will 'jump-start' hiring

from the Associated Press December 4, 2009 12/4/09

Philip Elliott and Andrew Taylor write "Even as he trumpeted a slowdown in the nation's job losses Friday, President Barack Obama put finishing touches on a proposal he'll unveil next week to "jump-start" business hiring across America." His remarks were part of a speech in Allentown PA

President Obama plans to send Congress an initial list of ideas he supports for a new jobs bill. Expected suggestions include gives people cash incentives to fix up their homes with energy-saving materials, tax incentives and incentives for small business to hire, and more spending on construction projects through the states.

Bernanke Offers grim job outlook, help for dollar

from the Washington Post November 17, 2009 11/18/09

Neil Irwin and Ylan Mui write that Federla Reserve Chairman Ben Bernanke will focus on the weak job market. He continues to believe inflation will remain subdued so he will support growth by leaving interest rates at rockbottom lows.

Bernanke said "The best thing we can say about the job market right now is that it is maybe getting worse more slowly." He said Fed policies will help assure the dollar remains strong.

Obama Calls for Whitehouse Conference on Job Creation
Unemployment is 'one of the great challenges that remains'

from the Washington Post November 13, 2009 11/14/09

Michael A. Fletcher and Neil Irwin write "President Obama plans to hold a Whitehouse forum on job creation next month an to attempt to signal his concern about the growing ranks of the unemployed and build concensus on future action to stoke the economy."

Small business owners, corporate executives, economists, and financial experts will discuss ideas for accelerating job creation. The artice suggests the Whitehouse says it wants to focus on long term strategies.

Returing Workers Face Steep Pay cuts
Many bouncing back from layoffs struggle to recoup earning power as wage erosion threatens a slow economic recovery

from Wall Street Journal November 12, 2009 11/13/09

Ianthe Jean Dugan writes Nearly 5 million lost unemployment benefits in the last year but many return to steep pay cuts. Wage increases at private companies just 1.2%, adjusted for inflation, for the year ending September 2009. Wages are expected to turn negative based on experience from 2001 and earlier recessions.

Job Openings Increase in Latest Hopeful Indicator

from Wall Street Journal November 11, 2009 11/12/09

Mark Whitehouse and Sara Murray write U.S. companies are gradually catching up their search for workers for the Department of Labor found with the August and September job openings and labor turnover survey. The Labor Department also found the share of companies planning to recall workers laid off for at least 31 days increased to 33 percent in the thrid quarter over 29% in the thrid quarter a year ago.

Unions Push Issues on State Capitals

from Wall Street Journal November 11, 2009 11/12/09

Kris Maher writes Unions are pushing state lawmakers to pass legislation that would make would make organizing workers easier, as efforts to rewrite federal organizing laws remained stalled in Congress. Oregon passed legislation prohibiting companies from holding mandatory employee meetings to counter employee organizing. Law suits are expected to challenge the law. Similar bills are introduced in Connecticut and Michigan.

Congress and the President extends unemployment insurance

Press Release November 6, 2009 11/7/09

The Congress extended unemployment insurance benefits by 20 weeks

White House Faces Pressure on Jobs
Despite Stimulus Successes, More Action Sought

from the Washington Post October 9, 2009 10/12/09

Neil Irwin, Lori Montgomery and Michael A. Fletcher write "Eight months after enacting a massive economic stimulus package, the Obama administration is facing rising pressure from some congressional Democrats to move more aggressively to jump-start the moribund job market and try to spur a housing recovery."

Those in the Democratic party worry the Whitehouse staff is pre-occupied with health care and is ignoring jobs. Democrats in the house have already voted to extend unemployment benefits but they want to extend subsidies to first time home buyers and consider other options for creating jobs through additional public works-stimulus plan projects.

Employers' Hiring Plans Show Continued Anxiety About Future

from the WAshington Post September 24, 2009 9/28/09

V. Dion Haynes writes Even with rosier economic forecasts for next year, a survey of Washington area employers suggests skepticism. Employers appeared less optimistic about the future this year than last year, with more planning to freeze salaries and hire fewer new workers.

That is summary discussion of a survey by the Human Resource Association of the National Capital Area. Other comments describe the Washington area as in a better position than most with expected increases in Federal Hiring.

Holiday Jobs Look Scarce As Pessimism Grips Retail

from the Wall Street Journal September 23, 2009 9/28/09

Ann Zimmerman and Elizabeth Holmes write Nearly half of the nation's 25 biggest retail chains expect to hire fewer holdiay workers this seasn than they did last year. About 40 percent of the stores surveyed expect to hire 5 to 35 percent fewer temporary help in the fourth quarter.

Federal Minimum Wage

Press release from the Department of Labor July 2009 7/30/09

The U.S. Department of Labor reminds employers and employees that the federal minimum wage will increase to $7.25 on Friday, July 24. With this change, employees who are covered by the federal Fair Labor Standards Act (FLSA) will be entitled to pay no less than $7.25 per hour.

This increase is the last of three provided by the enactment of the Fair Minimum Wage Act of 2007, which amended the FLSA to increase the federal minimum wage in three steps: to $5.85 per hour effective July 24, 2007; to $6.55 per hour effective July 24, 2008; and now to $7.25 per hour effective July 24, 2009. The latest change will directly benefit workers in 30 states (Alabama, Alaska, Arkansas, Delaware, Florida, Georgia, Idaho, Indiana, Kansas, Louisiana, Maryland, Minnesota, Mississippi, Missouri, Montana, Nebraska, New Jersey, New York, North Carolina, North Dakota, Oklahoma, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Wisconsin and Wyoming) where the state minimum wage is currently at or below the federal minimum wage, or there is no state minimum wage. The DC minimum wage is $1 above the national minimum.

A family with a full-time minimum wage earner would see its monthly income increase by about $120.

Pay Raises are the Smallest in Decades, Survey Shows

from the Wall Street Journal July 21, 2009 7/23/09

Michael Sanserino writes Two surveys released Tuesady by Watson Wyatt World Wide Inc and the Hay Group show that median pay raises for 2009 increased between 2 percent and 3 percent, a low increase compared to almost all years. The surveys are private surveys but consistent with data published by the Bureau of Labor Statistics.

Fed Sees Heightened Joblessness Drawing Out Recovery

from the Washington Post July 16, 2009 7/16/09

Neil Irwin writes that the Federal Reserve projected that the unemployment rate may surpass 10 percent by year's end and warned that the economy may not return to full health for at least five years.

The Fed's forecasts suggest that the recovery, when it comes, is unlikely to have much immediate impact on the job market. Most of the Fed governors and regional bank presidents expect that the unemployment rate will be 10 percent or higher in the final quarter of the year, according to projections released along with minutes of a June policymaking meeting.

While economic growth and job creation often go hand in hand, that relationship has broken down in the aftermaths of the past two recessions. This could reflect efforts by companies to become more efficient as they emerge from hard times.

Then the article writes that economists are not sure of the reason, but low wages and high taxes and severe inequality of income might be another reason.

Ruling Upends Race's Role in Hiring

from the Wall Street Journal June 30, 2008 7/1/09

Jess Bravin and Suzanne Satoline write "The Supreme Court set a new standard for Employee's use of race in hiring decisions, . . ."

The New Haven, Connecticut city government wrongly discriminated against a group of mostly white fire fighters when it threw out a promotions exam when no black people scored well enought to be promoted.

Justice Kennedy wrote that employers must show a "strong basis in evidence" before ignoring results of empoyment-related tests so as not to frustrate other applicants.

The court concluded the city violated Title VII of the 1964 Civil Rights Act because the city made its decision based on race by rejecting test results solely because higher scoring candidates were white. The only reason to negate an exam is if there is evidence the exam discriminates.

What Helps New Ph.D.s Land Jobs in Academia? A Passport

from the Wall Street Journal June 19, 2008 6/20/09

Erica Alini writes "The scramble for faculty jobs is prompting graduate students and newly minted Ph.Ds to look overseas."

Cuts in government spending and shrinking endowments are taking a toll on many U.S. Universities. Hiring in English and foreign languages fell 20 percent this year.

Jack Schuster of Claremont Graduate School is quoted "The supply -demand ratio is a bit out of whack in the academic job market in general."

June Inflation Report Shows No Inflation

from Bureau of Labor Statistics(BLS) May 17, 2009 6/18/09

The BLS published its new consumer price index numbers for May 2009. Prices for the all items index dropped 1.3 percent. Price changes are for the 12 months ending in May 2009. Some prices were up but those increases were offset by a 14.3 percent decrease in fuel prices for transportation. Food and beverages were up 2.7 percent. The two industry sectors that have been doing well with increaseing jobs also had prices increases. These were medical care with 3.2 percent price increases from May a year ago and 5.5 percent increases for education. Housing and apparel were up but less than one percent.

Unions Look to Labor Board Picks to Reverse Bush Rulings

from the Wall Street journal June 3, 2009 6/7/09

Melanie Trottman writes "Unions are counting on President Obama's new appointees to the National Labor Relations Board to reverse Bush era rulings they sya hamper their efforts to organize workers."

The National Labor Relations Board(NLRB) has a 5 member board that oversees elections and resolves labor disputes. The new chair Wilma Liebman is already on the board and there are two new Obama nominees, Craig Becker and Mark Pearce. Together they will create a majority favorable toward labor and labor union needs and arguments.

Ms. Liebman is former legal counsel to the Teamsters and Bricklayers union. Mr. Becker is legal counsel to the Service Employees International Union. Mr Pearce is a founding partner of a law representing unions.

Many issues of conduct during union organizing are likely to come before the board.

Labor Department Suspends Farmworker Rules

The Labor Department proposed suspending the Bush Administration rules in March. The proposals described earlier on this link were suspended as the U.S. Labor Department restored old regulations governing the H-2A guest worker program. Officials will write new rules.

The announcement was for May 30, 2009. 6/1/09

Layoff Update

Layoff announcments dating from May 19th to May 21, 2009. 5/26/09

American Express said it will eliminate 4,000 jobs in the process of cutting costs by $800 million. It is 6 percent of its global workforce. American Express cut 7,000 jobs in October 2008.

Lockheed announces 130 job cuts from defense department budget cuts for helicopters.

Capital One of McClean to cut 180 jobs in Baton Rouge, LA as part of a consolidation of credit card operations and telephone sales.

Despite Stimulus Funds States to Cut More Jobs
Budget Shortfalls Prompt Mass Layoffs
from the Washington Post May 12, 2009 5/14/09

Alec MacGillis writes "Eleven weeks after Congress settled on a stimulus package that provided $135 billion to limit layoffs in state governments, many states are finding that the funds are not enough and are moving to lay off thousands of public employees."

Layoffs mentioned are Washington State public colleges, 1000; Massachusetts 250 layoffs; Arizona already had 800 layoffs; Maine cut 250 jobs; Florida cut 200 jobs in the last 18 months; Virginia layoffs eliminated 1,500 jobs. California, Georgia and New Jersey are reported as ordering furloughs.

They better try more simulus with the private sector still sinking and jobs falling elsewhere.

Under Restructuring, GM To build More Cars Overseas
from the Washington Post May 10, 2009 5/12/09

Peter Whoriskey writes "The U.S. government is pouring billions into General Moters in hopes of reviving the domestic economy, but when the automaker completes its restructuring plan many ofthe company's new jobs will be filled by workers overseas."

The company admits the number of cars that GM sells in the United States and builds in Mexico, China and South Korea will roughly double. The percentage of cars sold domestically and manufactured in the above low wage countries will rise to 23 Percent from 15 percent. Labor costs are lower in those countries, which may not have health care, workman's compensation, unemployment insurance and social security burdens quite so big as the United States.

Initial Unemployment Claims
Unemployment Claims are Starting to Decline 5/8/09

The initial unemployment claims reached a high of 659 thousand in the 4 weeks ending March 28, 2009. The have been dropping and reached 622 thousand by the week of May 2, 2009. Because unemployment goes up and down along a straight line of graph with initial unemployment claims the future suggests some dropping unemployment in the future. This month it is 8.9 percent, but let's be optimistic and let the numbers do the talking a predict the unemployment rate will stop rising.

Plan to Cut Weapons Programs Disputed
Defense Supporters Say 100,000 Jobs are in Jeopardy
from the Washington Post April 28, 2009 4/29/09

Dan Eggen writes "Some of the nation's largest defense contractors, labor unions and trade groups are banding together to argue that the Obama Administration is putting 100,000 or mor3e jobs at risk by proposing deep cuts in weapons programs." Some of the contractors are quoted from Lockheed and a place called the Aerospace Industries Association. They express worry about jobs but have little to say about defense. Defense sounds like an expensive jobs program.

GM's New Road Map: Partial Nationalization
Automatker to Shed Brands and Workers; Future Hinges on Deal With Bondholders
from the Washington Post April 28, 2009 4/29/09

Steven Mufson writes "... under new sweeping plan that would also shut down GM's Pontiac operations, lay off 21,000 workers and impose harsh terms on the company's bondholders." It is hard to keep up with auto layoffs there have been so many such announcments. Gm announced layoffs of 10,000 on February 11th and then 50,000 on February 18th.

Delta Air Ends Use of India Call Centers
from the Wall Street Journal April 18, 2009 4/24/09

Paulo Prada aned Niraj Sheth write that Delta Airlines has stopped using India based call centers to hadle sales and reservations. Cusomters complained they had trouble with communicating with Indian Agents. The company said it was fundamentally cheapter to use Indian agents, but the article suggested moving the jobs back to America could be a smart public relations move. "The customer acceptance of call centers in foreign countries is low," said Richard Anderson, Delta's chief executive. Delta also has call centers in Jamaica, Soth Africa El Salvador and Guatemala.

GM set to Trim 1600 More Jobs
from the Washington Post from April 21, 2009 4/23/09

Kendra Marr writes that GM's president plans are for layoffs of whitecollar workers in the next few days to speed cost cutting to qualify for more federal loans. Separate negotiations have begun to cut 47,000 blue collar workers by the end of
the year. The GM will spare engineers working on the new Chevrolet Volt, but otherwise reductions will be targeted to marketing and communicatins personnel.

Labor-Management Partnerships Poised to Revive
from the Federal Diary in the Washington Post from April 15, 2009 4/17/09

Apparently partnerships in the Federal government date from 1993 as an executive order of Bill Clinton. The aim was to "build a more cooperative relationship at the workplace between management and employees, which could reduce tensions and formal complaints, including grievances and charges of unfair labor practice." George W. Bush issued hs own order revoking Clinton's less than a month after taking office. It was always hard to think of George Bush as cooperating with anybody.

GAO Report Faults Labor Dept. on Wage Complaints
Division Failed to Take Action from the Washington Post April 7, 2009 4/8/09

Chris Jenkins writes about the General Accounting Office nine-month investigation of worker claims filed with the Labor Department's Wage and Hour Division. The report is titled "Wage and Hour Division’s Complaint Intake and Investigative Processes Leave Low Wage Workers Vulnerable to Wage Theft." GAO investigators posed as frustrated workers filing claims. The Wages and Hours division mishandled cases 9 out of 10 times. Caseworkers discouraged the undercover investigators from filing complaints, instead telling them to hire attorneys. Child labor law violations were not investigated. Cases were not entered into agency databases.

"This investigation clearly shows that Labor has left thousands of actual victims of wage theft who sought federal government assistance with nowhere to turn."

The report covered years of the Bush Administration and Elaine Chao as Labor Secretary. Some may regard this report is their intended legacy.

SLM Transfers Overseas Jobs to U.S.
Reston Student Lender to Move 2,000 Jobs Out of Asia from the Washington Post April 7, 2009 4/8/09

Thomas Heath writes "Sallie Mae yesterday announced plans to move 2,000 overseas jobs back to the United States from India and the Philippines, reversing a cost saving measure the company took a year ago."

Sallie Mae makes private student loans and loans backed by the federal government. It bundles the loans and sells them as securities to outside investors. Sallie Mae's chief executive Albert Lord said the company moved the jobs overseas about a year ago when the credit crisis was hurting Sallie Mae's bottom line. "It was a tough decision to move these jobs overseas," Lord said. "It was a lot easier to make the decision to bring them back."

However, all is not well in the student lending and President Obama has proposed an end to subsides for student loan providers such as Sallie Mae and Citi-Group. Government would be the sole provider.

Rep. Paul Kanjorski described the decision as a patriotic act, but the article noted his district will get 600 of the new Sallie Mae jobs. Kanjorski chairs the House Financial Services subcommitte that oversees securities. It was further reported that Sallie Mae is the biggest contributor to Rep. kanjorski's political campaigns, giving $86,000.

Initiative on Worker Safety Gets Poor Marks
IG's Report Links Weak Enforcements to Job Fatalities from the Washington Post April 2, 2009 4/4/09

R. Jeffery Smith writes "A special government program to improve worker safety in hazardous industries rarely fulfilled its promise, a Labor Department audit concluded yesterday[4/1/09], and over the past six years, dozens of deaths occurred at firms that should have been subjected to much tighter federal safety enforcement."

Apparently the program was started by the Bush Administration, but assistant inspector General Elliot P Lewis who did the above mentioned audit cited a failure of enforcement that did not correct workplace hazards of 45 emloyers where 58 fatalities occurred. The audit also concluded that more than half of the 282 workplace fatalities should have been included in the Enhanced Enforcement Program were not properly logged, partly because of poor training at Occupational Health and Saftety Administration.

Donald Shalhoub at the Occupational Health and Saftety Administration acknowledges "the program may not have been consistently accomplishing its purpose and intent." Maybe the program was just a public relations scam, but officials didn't say that.

Union Bill's Declining Chances Give Rise to Alternatives
from the Washington Post March 29th 4/2/09

Alec MacGillis writes about the Employee Free Choice Act, a law that makes it easier for unions to organize new union representation. The law would allow active employees to sign cards rather than sign cards and wait to vote in representation election. The law continues to make the news and draw comments and new proposals.

"This is not the time or the place" for card check, said Sen. Blanche Lincoln (D-Ark.), who backed the bill in 2007. "To continue to attempt to bring up something that has already worked its way into being so divisive and distracting is unproductive."

"Labor law reform is long overdue," said Mike Asensio, a Columbus, Ohio, lawyer with Baker Hostetler who represents corporations. However, he says the debate will not advance until union supporters scrap the bill and start over. "If they make it all or nothing, they enhance their chances of getting nothing."

Joel Rogers, a pro-labor law professor at the University of Wisconsin, called the rules "ossified." Rogers supports card check but said there may be other ways to limit intimidation by employers, such as exceedingly high penalties. "The problem is not secret ballot versus card check, it's the fear that workers have."

But Robert Bruno, a labor relations professor at the University of Illinois at Chicago, doubts reforms short of card check can work. It is unrealistic, he said, to create neutral, civic-style elections in workplaces dominated by employers. Employers "would have to agree to an environment where they give up a lot of control, a lot of prerogative."

David Radelet, a Chicago lawyer who represents corporations, said Sen Arlen Specter's 2010 warnings [that he might be replaced with a democrate] should be heeded. "It does create pressure for the business community to get something done now," he said.

Keith Smith, director of employment policy at the National Association of Manufacturers, said his group is asking its members which reforms they might accept. "We're going to see something again soon. It's all a matter of what it will look like and how it will move," he said.

EEOC Willfully Violated Pay Law, Arbitrator Rules from the Washington Post March 31th 4/1/09

Steve Vogal writes "The Equal Employment Opportunity Commisssion, responsible for ensuring that the nation's workers are treated failry, has itself willfully violated the Fair Labor Standards Act on a nationwide basis with its own employees, an arbitrator has rule."

The arbitrator's ruling stated that the EEOC offered compensatory time off rather than overtime pay, which amounted to "forced volunteering" and was a knowing violation of the law and went beyond mere negliegence. The employees were pressured into working extra hours but not offered extra pay.

Further readers learn the agency has an unprecendented increase in discrimination claims after 8 years of budget cuts and a reduction of 25 percent of staff; all a legacy of the Bush Administration.

Artictects the Latest Dominoes to Fall
Slowdown Signals a Static Horizon from the Washington Post March 28th 3/29/09

Paul Schwartzman chronicles Washington area jobs for architects describing projects halted and the discouraging job search for laid off architects. Construction layoffs get more media attention but architecture layoffs are a slow down of planning for projects in the future.

The Bureau of Labor Statistics reports 217 thousand jobs at Architecture firms in 2008, up slightly from 214 thousand in 2007. Over 90 percent of architects work in architecture firms or as self employed individuals. Since 2000 architecture jobs have been growing at faster than the national average growth for jobs and adding an average of 4,600 jobs a year. There are up to 4,500 architecture jobs in the Washington Metropolitan area according to analysts at the District's Department of Employment Services.

Times Co. Announces Temporary Salary Cuts from the NY Times March 27th 3/29/09

Richard Perez-Pena writes "The New York Times Company budget plans announced Thursday, including a temporary 5 percent salary cut for most employees, should avert newsroom staff cuts at the flagship Times newspaper this year . . . "

Cuts are for management and non-union and Newspaper Guild staff in the newsroom. The pay cuts are for 9 months.

In addition, the Times annouceed 100 layoffs in business operations or about 5 percent of business operations staff. The company laid off 27 in the advertising department last month and about 500 people in January. Other parts of the company including about.com will have 2.5 percent cuts and 5 days of furlough.

By the end of 2008, the company had 9,346 employees, down from 10,710 working the same operations two years ago.

IBM to Cut 5,000 Jobs; D.C. Area Largely Not Affected from the Washington Post March 27th 3/28/09

Kim Hart writes "IBM has told its employees that the company plans to cut about 5,000 jobs this week, according to industry sources with knowledge of the layoffs."

IBM is reported to be shifting a large number of jobs to lower cost regions, such as India. Most of the jobs being eliminated come from the global services division, which ranges from software developers to data center managers. IBM has been shifting jobs abroad for about a decade. Layoffs come two months after previous layoffs of 4,000 in sales jobs.

Post Offers Another Round of Buyouts from the Washington Post March 27th 3/27/09

Frank Ahrens writes "The Washington Post offered employees another round of early retirement packages yesterday - the fourth since 2003 and second within a year - as part of its ongoing effort to cut costs to compensate for declining circulation and advertising revenue."

The Washington Post continues to lose money despite its reputation as quality journalism. Jobs in newspaper publishing are down from 422,600 to 325,900 in the years since 2000. Jobs in all publishing industries are down from 774,000 in 2000 to 619,000 in 2008. Paper will soon be obsolete.

Specter Will Vote To Block Union Bill
Decision is a Blow to 'Card Check' from the Washington Post March 25th 3/27/09

Alec MacGillis writes that "Sen Arlen Specter (Pa.), the only Republican senator who did not actively oppose the Employee Free Choice Act in the previous Congress, said yesterday that he will vote to block it this year, dealing a blow to the pro-labor legislation."

While Specter agrees with unions that the current system is broken, he prefers more limited reforms. Only if more limited reforms prove ineffective will he reconsider when the economy returns to normalcy.

Business keeps saying they don't like so called 'card check' because they want democracy in unions. With current rules there is a lengthy delay after a majority of the workforce requests a certification election and before union members vote for representation. It is reported that business uses the time to bully, threaten and intimidate their workforce. Perhaps Mr. Specter would support immediate elections without delay.

Job Related Stimulus Funds Fuel Debate
Expanded Unemployment Benefits Would Hurt Business, Va. Republicans Say from the Washington Post, March 25th 3/26/09

Chris Jenkins writes "Thousands of jobless Virginians could be eligible for enhanced unemployment benefits under the stimulus package passed by Congress last month, but a group of Republican lawmakers is urging the state to reject the $125 million in federal money saying it will mean higher taxes for businesses once the money is exhausted."

Virginia business only spends $98 a year per employee to provide the meager Virginia unemployment benefits compared to a national average of $258. The federal money comes with the requirement that states expand their benefits somewhat to be eligible and the Republicans don't want their business friends to have pick up the tab later on, after two years, when the federal money is scheduled to stop.

Apparently they are worried they won't be able to eliminate those extra benefits two years along when Virginia business might have to pay so they would rather throw away $125 million of economic revival money rather than risk it. These particular Republicans seem to forget that money goes round and round; when they unemployed with wages spend their benefits it goes back to business. Only a small detail.

Consumer Price IndexThe Bureau of Labor Statistics released its Consumer Price Index for February on 3/20/09

The overall price increase for all urban consumer was up .2 percent for the 12 months ended Februrary 2009. Small but the price index for food and beverages was up 4.7 percent. Transportation was down -11 percent, mostly because fuel prices are way down from a year ago. Details on the labor line.

Local Tech Community In Uproar over Labor Rights Bill from the Washington Post 3/16/09

Kim Hart writes about the Washington area reaction to the Employee Free Choice Act, which makes it easier for unions to organize by using a system whereby workers can organize union representation after a majority of active employees sign cards instead of having an election.

Business opponents say such things as "The legislation would undermine efforts to attract businesses to Virginia, which is a right to work state." Also ". . . it will embolden unions to try to overturn right-to-work laws." And "If all of a sudden you have a layer of bureaucracy that has a different set of rules for hiring, firing and rewarding employees, that's going to stifle creativity and our ability to innovate."

Labor proponents say "By allowing more workers the ability to bargain for better wages, benefits and retirement security, the Employee Free Choice Act will put more money in the pockets of consumers so they can purchase needed goods and services from companies on Main Streets across our nation." And ". . . Millions of working families are a step closer to gaining real bargaining rights that will enable them to have a better life and will help move our nation along the road to economic recovery."

Labor Secretary Proposes Suspending Farm Rules from the NY Times 3/14/09

Steven Greenhouse writes that Labor Secretary Hilda Solis announced that she would suspend regulations that the Bush administration introduced in December 18, 2008 to make it easier and cheaper for agricultural employers to use foreign workers in temporary jobs. Last year tens of thousands of foreign workers were brought in under the temporary agricultural program, known as H-2A to harvest lettuce, sweet potatoes, cucumbers, sugar cane and other crops. The Bush rules cut the wages that many of these workers will receive, reduced the amount growers had to reimburse workers for travel and eliminated other administrative burdens.

Labor unions applauded the bill. A growers representative said "A lot of people have placed orders for these workers, and this will cause some panic in the industry."

Corporations Up Drive Against Bill to Ease Unionization from the Wall Street Journal, March 7, 2009 3/11/09

Kris Mahler writes President Obama's public backing this week of a bill that would make union organizing easier is driving companies to step up opposition. The bill is called the Employee Free Choice Act, which allows workers to opt for unioinization by signing cards, rather than through secret-ballet elections.

Business sources were quoted who don't want the bill claiming it will hurt their ability to boost productivity and keep their work forces flexible enough to respond to changine markets. At Wal-Mart they complained it "effectively eliminates free choice and the right to a secret-ballet election."

Labor and some businesses were quoted as supporting the bill. Labor argues unions can contribute to productivity, safety and training. The AFL-CIO has been able to find some corporate supporters.

The article does not discuss the issue of business interference in union elections and organizing.

Unemployment Rate by Fred Siegmund 3/7/09

On February 17th last month I forecast the unemployment rate to rise from 7.6 percent to 8.2 percent for the March 6th release date. It turned out to be 8.1 percent. I got the unemployed almost exactly but I thought the labor force would decline just slightly, when in fact those not in the labor force entered and began looking for jobs. That held down the rate slightly.

How I do my forecast is not a mystery because as I mentioned the initial unemployment claims in the 4 to 8 weeks ahead give a good indication of next month's unemployment rate. A rise of the 4 week moving average of 1000 claims will bring a 20 to 21 thousand increase in the unemployed for the next month. In forecaster talk it is a tight linear trend.

The bad news is that the 4-week moving average is going up, up, up and now the same tight linear trend is forecasting 8.9 percent unemployment for March. Stay tuned.

Many Hires Needed for Budget Goals
Tens of Thousands Could Be Added to Government Payroll Washington Post 3/3/09

Philip Rucker writes President Obama's budget is so ambitious, with vast new spending on health care, energy independence, education and services for veterans, that experts say he probably will need to hire tens of thousands of new federal government workets to realize his goals.

The article discusses how many jobs might be created. Officials at the Department of Veterans Affairs are going to hire 17,000 new employees, which they say will be 7,900 new nurses, 3,300 new doctors, 3,800 new clerks, and 2,400 new practical nurses.

Those are the only specific job numbers mentioned, other increases are speculations. The Heritage Foundation says 100,000 more jobs, the Center for Data Analysis suggest 230 to 260 thousand more jobs.

Federal Government employment including postal employees has an annual average of 2.777 million jobs. Exclude postal jobs and the total is just a few over 2 million, with about 343 thousand of those jobs in the Washington DC metropolitan area. Federal jobs have not changed much, up or down, for more than a decade. They were 3.2 million in 1990.

Based on published staffing in the federal government with a general increase of 200,000 jobs expect 19 thousand new managerial jobs, 10 to 11 thousand new Management Analysts, 22.1 thousand new Business Operations Specialists, 11.3 new Computer Specialists, 9 thousand new Lawyers, and 17 to 18 thousand new jobs in office administration.

Extended Mass Layoffs 3/2/09

The Bureau of Labor Statistics reported 3,140 employer initiated mass layoff events for the fourth quarter of 2008, which resulted in the separation of 508,859 workers from their jobs for at least 31 days. It is the highest reported total of extended mass layoffs reported for a single quarter and 1,326 higher than the fourth quarter a year ago.

Extended mass layoffs are 50 or more initial claims for unemployment insurance benefits from an employer during a 5-week period, with at least 50 workers separated for more than 30 days. In effect, extended mass layoffs are layoffs of 50 or more initial unemployment claims filed against a single employer that go on a long time.

Manufacturing had 35.1 percent of the 508,859 separations and construction was next with 26.8 percent, which combined is 286,658 of the mass layoff separations.

The 369 metropolitan areas had 42.7 percent, or 217,268 of the 508,859 separations. The midwest had the most of any Census region with 202,392 separations. Include 55,229 in Illinois, 38,820 in Michigan and 30,295 in Ohio.

Of the 508,859 separations 13.7 percent, or 69,471 came in just 36 layoff events with over a 1,000 separations; 19.8 percent came in 1,447 layoffs of 50 to 99; 66.4 percent came in 1,657 layoffs of 100 to 99 separations.

Of the 508,859 separations 16,061 were separations that included the movement of work to new locations within the company or to work taken over by another company; 12,206 to domestic companies, 3,775 to foreign locations.

GM, Chrysler Seek Billions More in Aid
Firms to Cut 50,000 Jobs, Drop 6 brands from Washington Post 2/1/09

Peter Whoriskey and Kendra Marr write about the continued decline of the auto industry, which is requesting aid from the U.S. government, Canada, Germany, Great Britain, Sweden and Thailand. Labor issues cover reductions in wages, benefits and retiree health benefits as well as the 50,000 job cuts. There has been not agreement for how the companies will pay $20 billion of health care obligations to retirees. Both companies have been asked to consider bankruptcy.

Once-Mighty UAW Yields to MarketWage
Reductions, Job cuts and Loss of Benefits Among Likely Recorvery Concessions From Washington Post February 18, 2009

V. Dion Haynes and Kendra Marr write "The United Auto Workers, which once set the standard for organized labor for wages and job protection, said it is making concessions as part of the recovery plan submitted by General Motors and Chrysler." ... UAW President Ron Gettlefinger said "These changes will help these companies face the extraordinarily difficult economic climate in which they operate." ... Other views are quoted. Some at Universities expressed optimism that current conditions could bring a resurgence of the labor movement. The financial world is blaming the labor movement for dragging down the recovery.

It is hard to understand how lower wages will help increase buying power in country that expects to spend its way out of recession.

Initial Unemployment Claims from Fred Siegmund February 18, 2009

The average of the previous4 weeks of initial unemployment claims went up from 526 to 583 thousand for the week ending January 31. That might not sound like much but during those 4 weeks there were 2.3 million inital unemployment claims. The unemployed will not go up by 2.3 million in February because many previously unemployed find a job and go back to work, or leave the labor force.

As you might expect though the unemployment reported the first Friday of each month is closely related to initial unemployment claims. Based strictly on past performance I know that a rise of the 4 week moving average of 1000 claims will bring a 20 to 21 thousand increase in the unemployed for the next month, which will be reported the first Friday of the new month. Even though its just an average, which could be more or less, the average is the best forecaster. Therefore, I forecast 12.6 million unemployed and 8.2 percent unemployment rate for February. We'll just have to wait and see.

Congress Passes Stimulus Package
After Voting Largely Along Party Lines from the Washington Post, February 14, 2009

Shailagh Murray and Pane Kane write Congress approved a $787 billion stimulus package that aims to spur millions of jobs through massive new investments in energy, transportation, education and health care projects, while reviving the social safety-net programs that have been shrinking for nearly three decades.

The package combines tax cuts with new spending and three quarters of the money is planned to reach state capitals, businesses and individual taxpayers by the end of 2010.

The stimulus package is 5.5% of Gross Domestic Production, or $787/$14,267 (in billions of Seasonally Adusted dollars).

Gross Domestic Product went up $770.8 billion for 2006 over 2005. It was a time that establishment jobs were up 2,139,000.

Gross Domestic Product went up $646.6 billion for 2007 over 2006. Jobs were up 1,152,000 in that same period. 3.5 million new jobs?

Trim to Stimulus Carves Into Goals for Job Creation from Washington Post Feb 13, 2009

Lori Montgomery writes the Obama stimulus bill sold as a jobs bill. Congressional negotiators have trimmed the final bill to $789 billion, which "is not going to pack the same jobs punch." Estimates cited vary from 1.5 to 3.5 million jobs. There are many quotes of the optimisitic and the pessimistic.

Employers Fighting Unemployment Benefits
More Firms Contest Workers Claims by Alleging Wrongdoing, Quitting from the Washington Post 2/12/09

Peter Whoriskey writes that proportion of claims disputed by former employers and state agencies has reached record levels in recent years according to Labor Department numbers tallied by the Urban Institute. Under state and federal laws, employees who are fired for misbehavior or quit are ineligible for unemployment compensation. Employers save money when claims are blocked because unemployment insurance rates are based on the amount of claims. Disputed claims have reached 26%.

The Audacity of Hope Meets the Enormity of Inequality from the website Extremeinequality/ February 9, 2009

Sam Pizzigati writes about the symbolic value of President Obama's $500,000 pay cap on executive pay at bailed-out banking giants and the growing inequality of America's income and wealth. The article cites recently release IRS data showing the top 400 tax returns with an average of $263,000,000 of income with an average tax rate of 17.2%.

Labor Bill Targets Builders
Low-Wage Workers a worry from the Washington Post 2/9/08

Lisa Rein writes Building contractors are not paying SS taxes claiming their workforce are independent contractors. The state of Maryland hints it might take legislative action.

Deluge is Holding up Benefits to Unemployed
Decline in Funding Forces Staff Cuts as Claims Swell from the Washington Post 2/5/09

Chris L Jenkins writes that thousands of people in the Washinton Area and hundreds of thousands more across the cuntry are waiting longer than they should for unemployment benefits at a time when they need the money the most because rising joblessness is overwhelming claims offices, records show. The problem is compounded by a simultaneous decrease in federal funding, which has reduced staffing at some local government offices.

American Union Ranks Grow After "Bottoming Out"
First Significant Increase in 25 Years from the Washington Post Jan 29 2009

Peter Whoriskey writes The Percentage of American Workers belonging to a union has jumped in 2008, the first statistically significant increase in 25 years. union workers represent 12.4% of the workforce up from 12.1%.

Breakaway Union Exposes Labor Rift
Some Fear Loss of Unity at Crucial Times from the Washington Post Jan 29 2009

Alec MacGillis writes The leaders of one of the largest chapters of the Service Employers International Unions, the nation's fastest growing and most influential labor organization, broke off from the parent organization yesterday. ... A California chapter of SEIU is resisting changes made to officers and board memebers by SEIU president Andy Stern.

More than a Day Job from the Washington Post Jan 4, 2009

Nancy Trejos writes With a grim economic outlook for 2009 more Americans are not just cutting costs, but are finding ways to make more money by taking part time or odd jobs employers and economists said. Many are doing it because their wages have stalled while the cost of living has gone up. Others are pickng up extra work to pay off debt or cushion their savings. for others, it's a backup plan in case they get laid off from their full time jobs.

Michigan and the Knowledge Economy

2009-10-06T14:36:00.000-04:00

In an article “Michigan and the Knowledge Economy” published in the June 16th Wall Street Journal the author, William McGurn, tells readers the middle class can no longer rely on jobs in manufacturing. The automobile industry and manufacturing jobs leaving Michigan will not be back, but must be replaced with new jobs in the “knowledge economy.”

The author defines the knowledge economy to be industries with 30 percent or more of jobs using college or professional degree skills. He names knowledge industries from the federal government’s list of service industries: information services, finance and insurance, professional services, health care and education.

If Michigander’s produced everything they bought and sold they wouldn’t need to buy oranges from Florida, furniture from North Carolina, digital cameras from China, or shoes from Taiwan. As long as they buy out of state their money leaves Michigan and their spending creates jobs elsewhere.

Buying from out of state requires selling out of state if Michigan expects to keep itself employed. Otherwise it must produce and sell more services to replace lost manufacturing jobs.

Take social services. Like all states Michigan has social service facilities staffed with college educated counselors and social workers. Most of these jobs require at least a master’s degree, which puts them in the knowledge economy.

Social services are local services, produced and used by Michigan residents. Like all services they are hard to sell out of state. If Michiganders will buy fewer oranges from Florida, or fewer cameras and electronics from China, but more social services from each other then college educated social service jobs will replace auto manufacturing jobs; otherwise not.

Take Education, where all faculty jobs and many administrative jobs require college degrees. Education serves local residents, which makes it hard to sell out of state. College students might be an exception, but even if it is politically feasible and economically successful to attract out of state students with lower tuition other states could do the same and compete for students.

Competition adds to the difficulty of selling services out of state since other states can easily copy Michigan strategies and try to export their services. For services like information services in publishing and communications, and finance, insurance, and some professional services, inexpensive digital technology allows easy entry and competition between states and other countries: outsourcing to India for instance.

Take tourism where Michigan has the advantage of the Great Lakes and out door recreation. Bringing in out of state money with tourism might help despite competition, but jobs are at hotels, motels, restaurants, boat marinas and golf courses and not part of a knowledge economy.

Competition and the local use of services make it economically difficult to replace manufacturing jobs with service jobs. Many service industries have jobs that need college degree skills and pay good salaries, but having these jobs, or more of these jobs, is different from expecting them to replace manufacturing jobs.

Michigan needs manufacturing. America needs manufacturing. The knowledge economy offers only false hopes.

Health Care and Doctors

2009-09-29T11:28:00.000-04:00

The need for health care reform and new health care policies keeps making the news almost every day. Better access to health care includes better access to the knowledge and services of physicians. That would imply new health care graduates should grow as the population grows, but medical school degree data published by the National Center for Education Statistics shows no growth at all. For the academic year 1985-86, they report 15,938 Medical School Degrees. They have not reported a number as high as that since, although MD degrees reached 15,730 for the year ending June 2007.

In that same period the resident population reported by the Bureau of Census increased 66.2 million. It was 237.9 million in 1985 but reached 304.1 million in 2008. Despite continuous growth in America’s population it does not train more physicians.

Becoming a physician is a long and expensive process that takes four years of college prior to 4 years of medical school. Medical school tuition reported by the American Association of Medical Colleges in 2008 averaged $23,593 for the 75 public university medical schools; $41,235 for the 50 private university medical schools.

In some states a medical school graduate can get a license to practice medicine after completing a one year internship, but most states require two years in a medical residency program. During residency programs hospitals typically define pay as a stipend, apparently to save money paying low wages, so the residency period continues to be a period of financial drain on medical students.

Those admitted to America’s service academies at Annapolis, Maryland and West Point, New York pay no tuition. America trains its military officers at public expense. For medicine though America puts the burden to pay for at least 10 years of training on the individual. Much of this medical expense comes during a time in life when people usually begin to support themselves and pay their own living expenses. For many in medical training living expenses are a burden that generates even more debt to pay off later.

Some of the strain in the current system shows up in physician employment reported by the Bureau of Labor Statistics. Family and General Practitioner jobs are in decline. There were 135 thousand reported as recently as 2001, but 106 thousand reported for 2008. It also has the lowest entry pay of reported physician specialties, $73 thousand.

An entry wage of $73 thousand dollars will not be sufficient to support a family and pay the debt from 10 years of medical education. It is time to recognize that a major component in health care reform needs to be more physicians. They need to grow at least as fast as the population. That is not happening with the current system and we have to doubt it ever will. It’s time to train our physicians like we train our generals: at public expense.

Taxes and Health Care Reform

2009-09-16T13:01:00.000-04:00

The headline in the Washington Post reads “Tax on Health Benefits Weighed: Senate Calls Levy ‘Perhaps the Best Way’ to pay for Overhaul.” [June 10, 2009] Actually it was Senator Max Baucus who is drafting the legislation for the Senate who said that, but we can be sure he discussed it with his Senate colleagues.

The qualifier “perhaps” in front of best should be translated into the best we can do given that a majority in Congress wants to avoid raising income tax rates at the top of the Federal income tax scale. The top rate continues to be 35 percent, which began in 2003.

The Internal Revenue Service publishes detailed income and tax data on its website. The latest detail is for 2006, a year in which 940,384 returns had taxable income over $500,000. Suppose Congress declared a one percent increase in the tax rate for just the taxable incomes over $500,000. Having a 36 percent top marginal rate instead of 35 percent for tax year 2006 comes to $9.5 billion dollars of additional revenue.

Higher incomes in 2009 would make it more than 9.5 billion. Raising the top marginal rate 4.6 percent to 39.6 percent will bring in more than $40 billion. A top marginal rate of 39.6 was the top marginal tax rate from 1993 to 2000.

Congress knows taxing employer health benefits is a regressive tax because employer health care benefits do not go up in proportion to income. Taxing health benefits when benefits decline as a percent of higher income guarantees those with higher incomes will pay a lower percentage of income in tax. Ignoring dividends and capital gains only makes their proposal more regressive.

Senator Baucus is already retreating and offering moderating qualifications like phasing in, and a “grandfather” clause for union negotiated health plans. Maybe he is anxious making proposals for regressive taxes, but others in Congress are making other proposals.

Other proposals include, higher alcohol taxes, a new tax on flexible savings accounts and health reimbursement accounts, taxing half of all employer provided health premiums, eliminating tax deductions for high medical expenses, and a “3-cent tax” on sugary drinks. Many proposals, but all regressive and none to raise marginal tax rates.

America’s health care is too expensive for millions. To have health care for everyone some will have to pay more to finance health care for others who can only pay less or America will continue to exclude millions.

American’s need to feel concern for their fellow citizens to help pay subsidies, but the regressive finance proposals reflect the attitudes and political strength of the well placed and the well to do. If a family of four in 2008 used the standard deduction, a 39.6 marginal tax rate instead of the current 35 percent rate, increases taxes by $5,615.13 on $500,000 of gross income. Those high earners do not want to pay and Congress continues to go along. It makes it hard to feel optimism for extending health care to all.

Productivity and Jobs

2009-08-29T11:51:00.000-04:00

America’s annual gain in productivity in many sectors of the economy is often overlooked as a source of saving. Productivity is measured by output per work hour and the gain in productivity is measured by the percentage increase in output per work hour.

If productivity in appliance manufacturing goes up 3 percent, then a 3 percent increase in appliance manufacturing takes place at the same cost, or the same output can be produced with a 3 percent cost savings, or a combination. The manufacturing firm is the first beneficiary of the savings from a productivity increase because it lowers costs and the savings translates into profits.

Selling extra output puts downward pressure on prices because it is almost always necessary to lower price to sell more output, including appliances. In this way a productivity increase can generate savings for consumers from lower prices.

Productivity also affects employment. If a price decrease leads to a 3 percent increase in appliance sales following a 3 percent increase in productivity, then employment will remain the same.

However, there could be more than, or less than, a 3 percent increase in appliance sales. If it’s more than 3 percent, then more jobs will be needed and employment will go up, but if it’s less, then layoffs result. The newly unemployed will have to look for work at other firms or other industries.

Whenever productivity goes up there are savings with potential benefits for business owners as higher profits, consumers as lower prices, and job holders as more jobs and higher wages. In the 1980’s advances in computer technologies raised productivity so much that business earned new profits, consumers saved with falling prices, and new jobs opened up as business competition for workers with computer skills raised wages and employment.

National productivity continues to go up across many industries, but lately at modest rates. How the savings from productivity are distributed varies, but working Americans are in the worst position to benefit. For nearly 20 years manufacturing productivity and sales have been going up but jobs in manufacturing have been going down. As people leave manufacturing for other jobs they flood service sector job markets.

With a growing percentage of Americans looking for work in service industries, it gets harder and harder for labor to share in productivity gains with better wages. For industries like health care and education where productivity gains generally lag behind, continued growth of these services helps to increase jobs. The skills needed for these jobs limit applicants and make it necessary to pay better wages.

For other service industry though wages are not going up and productivity gains go to business. Productivity gains amount to national savings, which can benefit everyone. Lately though they are contributing to America’s inequality of income.

Depression Economics

2009-08-06T12:23:00.000-04:00

The Return of Depression Economics and the Crisis of 2008, Paul Krugman, (New York: W.W. Norton & Co., 2009), 191 pages, no index or bibliography, $24.95.

The first sentence in The Return of Depression Economics reads “Most economists, to the extent that they think about the subject at all, regard the Great Depression of the 1930’s as a gratuitous, unnecessary tragedy.” That is economists agree on the causes of depressions and the policies that end them.

Since the economics profession agrees the Great Depression was caused by inadequate aggregate demand, or inadequate total spending, made worse by a folly of bad policy, depressions are a problem solved, and a thing of the past.

But not so fast, says Krugman, who argues through the remainder of the book that recent global crises have similarities to each other and the Great Depression, especially similarities in banking and credit.

Banks are essential, but troublesome institutions that keep checking accounts for depositors, but only hold a fraction of deposit liabilities in reserve to pay for checks. In practice they hold around 15 cents on the dollar in reserve and make loans with the other 85 cents.

In the normal course of business 15 cents will be adequate because those writing checks will about equal those making deposits. In the normal course of business borrowers will be paying monthly principal and interest to further assure that banks have reserves to pay on their checking accounts.

Banks direct savings back into the spending stream as investment spending. Loans can generate more income and employment and help the economy grow, but banks can disrupt the flow of spending when they make risky and foolish loans. Loans that default disrupt the flow of spending and can create recessions and depressions.

There in lies the trouble, or moral hazard, a term used by Krugman to characterize “any situation in which one person makes the decision about how much risk to take, while someone else bears the cost if things go badly.”

Krugman gets right to the heart of the matter on page 63 when he writes “Borrowed money is inherently likely to produce moral hazard. Then he makes up a story of a modern moral hazard.

“Suppose that I’m a smart guy, but without any capital, and that based on my evident cleverness you decide to lend me a billion dollars to invest any way I see fit, as long as I promise to repay within a year’s time. … If the investment prospers, so will I; if it does not, I will declare personal bankruptcy, and walk away. Heads I win, tails you lose.”

Walking away from billions in loans brings a halt to billions in transactions that amount to hoarding cash and pulling money out of the spending stream. It can also lead to panic selling of financial assets.

Krugman’s story and narrative accounts of global recessions reflect his tendency to believe that people can be greedy, irrational and destructive in their economic behavior. Unlike so many in the economics profession he does not see panics, crises and recessions as just another technical matter. Narrative from the recent panics and crisis of Mexico, Japan and Asia that dominate the first four chapters reflects his views on human perversity.

Chapter 5 is the first of four more topical chapters that cover the problems of currency speculation and then “hedge funds” and their relation to crisis, panics and recessions. Krugman takes a few jabs at former Federal Reserve Chairman Alan Greenspan in Chapter 7 titled “Greenspan’s Bubbles.” The bubbles are the stock market bubble and housing market bubble.

Chapter 8 takes a quick tour through banking in order to define shadow banking. Because a bank’s liabilities include personal and business checking accounts, i.e. money, the larger society has a special need to regulate banks to make sure they have reserves to meet their account liabilities. Shadow bankers figured out new and innovative ways to make loans with other people’s money like banks do, but avoid regulations requiring a minimum of reserves to meet account liabilities.

Shadow bankers did the same thing as Krugman’s smart guy above so we are not surprised when he writes this simple rule: “… anything that does what a bank does, anything that has to be rescued in crises the way banks are, should be regulated like a bank.”

The first eight chapters are really a preliminary for Chapter 9 because elements of the crisis in Latin American, Japan and Asia all re-occur in the American crisis of 2008 and 2009. Krugman brings them all together in a chronology starting with America’s housing bubble, then America’s hedge fund failures and the worst of all, the collapse in monetary policy as an economic stimulant to total spending.

The last chapter makes sobering reading as its title, The Return of Depression Economics, so well implies. Krugman defines depression economics as recession brought about by inadequate aggregate demand: decline amongst plenty.

He suggests two immediate policies to get through the 2008 and 2009 recession: get credit flowing again and prop up spending. The phrase “get credit flowing again” jumps out like a jewel on the head of a toad, at least to those in economics, banking and policy. That is because monetary policy and lower interest rates should always get credit flowing again.

Instead of traditional policies Krugman breaks with the past and suggests direct action to recapitalize banks and have the Federal Reserve Bank enter commercial paper and other lending markets. Likewise he doubts monetary policies will be effective and recommends government spending as a stimulus for right now, or as long as necessary. He doubts tax cuts will be effective either; after all taxpayers can save, not spend.

Krugman is one of a small group who are well known within the academic ranks but decide to write to a larger general audience. Lester Thurow would be another but the list is short. It is hard to do because academic journals will not publish journalism, but the popular press must have something readable and saleable.

Depression Economics is relevant and current events journalism with some elements of a textbook. It has some enduring economic analysis and historical material but remains readable and avoids the strident tone of a crusader. He does criticize his opposition and Alan Greenspan. There is nothing about income inequality or its contribution to inadequate demand.

Unlike so many in economics who will not acknowledge that free enterprise breaks down or fails, Krugman sees a break from the past and argues for what works and whatever is necessary. Depression Economics reflects that approach.

Risk and Health Insurance

2009-07-15T14:45:00.001-04:00

With a new President, America has a new pledge to expand health insurance coverage to everyone. It is a complicated subject but all types of insurance are supposed to let people pay premiums into a risk pool that generates a reserve fund to pay losses. Insurance companies employ mathematicians to analyze actuarial data on mortality: accidents, sickness, disability, retirement and other risks. Actuarial data are necessary to construct probability tables that will determine the premium payments to charge that will generate cash reserves to pay future losses.

The risk pool has to be defined and the probability tables have to be calculated as random risk. Life insurance actuaries use data accumulated from many years to know the random risk that someone age 50 will die during their 51st year. They don’t know who will die but they know the probability, which lets them determine the premiums necessary to build an adequate reserve fund. Life insurance policies typically exclude death caused to soldiers in warfare because it is not random risk and prevents actuaries from building a reserve fund.

In home owners insurance, the premiums go to cover only those homes, and those risks, that occur in a random fashion. Insurance companies exclude flooding from homeowner’s policies because flooding is not random. The home in the valley or next to the stream always gets flooded while the home on the hill never gets flooded.

Risks and losses from flooding along rivers, flood plains or hurricane zones are high enough that excluded home owners acted through the political system to pressure Congress. To insure against the single peril, flooding, means defining a risk pool of homes and property with risk of flooding. With a risk pool of potential flood victims, premiums create a reserve fund to pay losses from random flooding to those in the risk pool. However, homeowners and property owners subject to flooding are widely scattered and geographically spread out in a way that has prevented private sector insurance companies from creating a large and random risk pool for flood victims.

The answer turns out to be a government sponsored National Flood Insurance Program(NFIP) administered through FEMA, the Federal Emergency Management Agency. On their website they explain that communities participate in the program by adopting and enforcing floodplain management ordinances to reduce flood damage in exchange for federally backed flood insurance available to homeowners, renters and business owners in these communities.

The NFIP identifies and maps the Nation's floodplains to provide the data needed for floodplain management programs and to actuarially rate new construction for flood insurance. In other words, Congress turned to the government for a solution to a problem that the private sector could not solve.

Similar problems with risk have plagued the health care system for many years. President Truman advocated and proposed national health insurance 60 years ago, which the American Medical Association opposed and defeated. During the Eisenhower administration the medical profession decided to build and expand the private health care insurance system as a way to reduce the pressure for national health insurance.

From the beginning of the expansion of private health insurance in the 1950’s, there were problems with random risk. Someone who already has heart disease or diabetes when they apply for insurance has a health problem, but they are not insurable in a private health plan because they are not a risk, they are a certainty. To use insurance jargon they have a pre-existing condition. In effect, their probability of loss is one and their premium would have to equal the cost of treatment to avoid draining a reserve fund.

In the early 1950’s insurance companies started marketing group policies in large numbers and defined a risk pool through the work place. People started buying health insurance and hence joining a risk pool through their employer.

One trouble with a health care risk pool that depends on jobs comes at retirement, when people lose their employer sponsored health insurance. Age and the likelihood of pre-existing conditions assure it will be difficult or impossible for retirees to re-enter a risk pool and buy insurance. Pressure to cover retirees increased when the United Auto Workers convinced the auto companies to cover retiree’s health care in the 1950’s. Pressure continued until the passage of Medicare health insurance for retirees in the Johnson Administration.

The second trouble with a health care risk pool that depends on jobs is that not everyone has one, or has one they can keep until age 65 when they become eligible for Medicare. Employers without health care amount to an exclusion from a health insurance risk pool. Layoffs and unemployment are not just loss of income, but removal from health insurance.

Before a layoff someone is in a risk pool they may have entered long ago when they were young and healthy. In the mean time they may have developed heart disease or some medical condition that is not a risk for a private insurance company, but a certainty or pre-existing condition, which cannot be covered when someone has to reapply for health insurance in mid-life.

In this way defining a risk pool for health care is a problem of timing. If everyone entered a common risk pool at birth and stayed in the same national risk pool until death then all Americans would share in the risks of all our injury and illness. The pre-existing condition for someone age fifty would be a random risk to share by all if the risk pool started after birth and continued to death.

Private health insurance companies do not have the ability to define a national risk pool. They have to process applications when they receive them, or go out and propose and sell group policies to employers. Other private insurance companies do the same thing and each of them has an incentive to assemble risk pools with the healthiest people they can find, and avoid the sick and all those with pre-existing conditions.

There is nothing in an economic system of private contracts and market competition that will move private health insurance to a national risk pool, or provide health care insurance that includes everyone. Private health insurance creates an expectation that cannot be served. Only the Federal government has the ability to maintain a national risk pool. Private health insurance cannot solve America’s health care failures, but will leave people without health insurance, exactly as it has been doing for more than 60 years.

The Health of Social Security

2009-07-08T12:29:00.001-04:00

first published on Automaticfinances.com

A committee of Social Security trustees has published another report on the financial health of the Social Security System. The new report tells us what social security reports always tell us; the social security system is failing, or headed for collapse “Alarm Sounded, on Social Security” the caption reads on the Washington Post article of May 13th.

New Social Security reports allow politicians to reassure retirees of their commitment to shore up the system and make sure it remains solvent. It also allows these same politicians to recite the status quo by telling us they have only two choices: cut benefits or add another percent on to the steeply regressive payroll tax.

This time is the same as always. The article quotes unnamed administration sources who say Congress can save the system by raising payroll taxes from 12.4 to 14.4 percent, or it can cut benefits 13 percent or a combination.

As of 2009 the payroll tax for Social Security, the OASDI(Old Age Survivors and Dependents Insurance) deduction on pay stubs, continues to be 6.2 percent with an additional Medicare tax of 1.45 percent for employees. The OASDI tax is actually 12.4 because the employer has to match the employee contribution. The same matching occurs with the Medicare portion of the payroll tax, but there is a difference because OASDI has a wage cap, which stops the tax for wages over the cap.

In 2009 the cap is $106,800; in 2008 the cap was $102,000; in 2007 it was $97,500. Beginning in 1991 Congress doubled the cap on the Medicare part of the tax. In 1994 the rising cost of health care convinced a majority of Congress to lift the cap for the Medicare portion of the tax, but they did not do so for the 6.2 percent of payroll taxes going to OASDI.

The Social Security Administration reports data for the distribution of workers by compensation. The year 2007 is the most recent year reported, which shows 146.7 million workers with wages of $99,999.99 or less. It shows 8,869,798 with wages above $100,000 including 151 who earned wages of $50 million or more. In other words, 146.7 million pay a 6.2 percent payroll tax on all of their wages while 8.9 million get a special privilege and pay nothing on wages over the cap.

Someone earning a salary of $25,000 already pays $1,912.50 of payroll tax for Social Security. Raising the tax as proposed would bring it to $2,162.50, before any other taxes are paid.

If the Congress adds another percent to the employee half of the payroll tax, making it 7.2 percent, then the extra revenue will be $51.3 billion, using the same data as above.

If the Congress treated America’s wage earners equally and applied the 6.2 percent tax to all of America’s wages reported by the Social Security administration, then the additional OASDI revenue from the employee half of the tax comes to $103.9 billion dollars. Dropping the wage cap would end a lucrative privilege for the well to do and the very rich and raise lots of money for the allegedly failing Social Security system, but as always that is a topic the politicians refuse to talk about.

Computer Billing in Health Care

2009-06-24T12:31:00.000-04:00

First published on Automaticfinances.com

The Obama Administration is described as computer savvy. They apparently made excellent use of computer technology during the election campaign and continue to apply computer technologies in their White House duties. They have suggested over hauling America’s health care records system by computerizing records and billing, and reducing or eliminating paper billing and records. America’s health care system has lots of paper to save, but there is reason to worry about jobs.

Monthly employment in health care establishments averaged 14.6 million jobs in 2008 for health care sectors in ambulatory care, hospital care, nursing and residential care. The jobs in these sectors can be divided among three groups of occupations. The first is health care practitioners who are mostly doctor, dentist, pharmacist, nurse, therapy and technology jobs. Health care practitioners actually deliver health care to patients and the jobs tend to have college and professional degree requirements. Few can be performed without a license.

Health care practitioners are the biggest segment of health care with 5.7 million jobs, 2.2 million of them nurses. Next are health care support occupations. All of them have aide, assistant or attendant in their job title: nurses aide, therapy assistant and so on. Jobs in support occupations are 3.1 million of the 14.6 million of the health care total. The third segment might be called administration and overhead, which are jobs in managing, record keeping and billing. These are 5.8 million jobs.

In other sectors of the economy, bills tend to be a two party transaction between a customer and a vender, but seldom so in health care. One illness or injury starts a billing shuffle through separate bureaucracies at hospitals, laboratories, clinics, HMO’s, PPO’s, IPO’s, but also private insurance companies, independent billing agencies and bureaucracies at Medicare, Medicaid, Social Security, workmen’s compensation or the Veterans Administration. Medicare, Medicaid and workmen’s compensation are federal programs with federal bureaucracy, but also administered by the states through 50 separate bureaucracies.

More health care in a paper world brings growth to jobs as financial clerks and information and records clerks, which are bill and account collectors, billing and posting clerks, bookkeepers, office clerks, receptionists, and secretaries. Those jobs exceed 2.6 million for those who work within the health care industry sending out the bills. It doesn’t count the insurance company or government bureaucracy jobs for the people who take them in.

Computerized billing would lead to standardization and cost saving efficiency and better and more detailed records. It should be done, but like many good things it will have noticeable side effects. At the Obama administration jobs will be a bigger problem than they may realize.

Parkinson's Law

2009-06-16T11:23:00.000-04:00

Parkinson’s Law and America’s Labor Markets

"Work expands so as to fill the time available for its completion."
-C. Northcote Parkinson

Back in the 1950’s Mr. Parkinson published a book that started with Parkinson’s Law cited above. It was a thin book with big fonts and bigger margins. He had some stories with anecdotal material to support the law. I cannot remember a single one of the stories but they were unnecessary. No one contradicted Parkinson’s Law.

Notice if you reverse the first two words Parkinson’s Law becomes a policy. Expand work so as to fill the time available for its completion. Now we have a directive not a prediction. A slight variation might be, expand expenditures so as to fill your whole life with work.

Writing Parkinson’s Law as Parkinson’s Policy is important because a law usually feels like something natural and inevitable and not a decision. Policy is a decision and people make decisions. The federal government is in the best position to expand work so as to fill the time available for completion because it can tax and spend, and controls money and credit, both of which allow increasing the country’s total spending as necessary to create jobs.

Back on August 11, 2005 the Associated Press reported President Bush’s comments on a transportation-spending bill. “President Bush calls the massive $286.4 billion transportation spending bill he signed into law Wednesday a job creator.” The article goes on to describe the bill that pays for 6,000 favored projects in the districts of nearly every member of Congress. Even though the legislation is $30 billion more than the President recommended he is quoted as “proud to sign it.”

Imagine my surprise at the candor of Mr. Bush with his reputation as a devotee of free enterprise. Free enterprisers expect jobs to be part of free markets where supply and demand determine output, prices and wages as if guided by an “invisible hand” and with the Adam Smith condition that society’s bread will not be due to the benevolence of the baker, but to his self-interest.

It is easier for those outside elected office to favor free markets and its policy of waiting since they do not have to take responsibility for the unemployed. It is different for politicians like Mr. Bush who apparently understand that a job in America is a requirement.

Over the last twenty years America’s total spending and Gross Domestic Product(GDP) are up, which helps meet that job requirement, and helps counter the mordant, mournful decline of 4.3 million manufacturing jobs since 1990.

The economist's way of looking at this reality is to say "Wow, this is terrific because the economy has growth with more goods and less hours of work and now 4.3 million people can be released to produce more products and services in other industries." Economists like to talk about alternative uses and labor released for alternative employment can help raise economic growth.

Economists see a natural flow of reallocation as inevitable, but the Obama administration is not prepared to wait for the economist’s reallocation. They have adopted the Parkinson policy of filling the time available for work.

The new stimulus package is loaded up with job creating building projects: roads, rail, solar panels, windmills and plenty more. Adopting building projects as a Parkinson Policy will create jobs, as it did for Mr. Bush, and it has the advantage that Americans will have something to use when the projects are finished.

When Mr. Parkinson published his book he was more concerned about the growth of rigmarole in bureaucracies, especially government. He saw bureaucracies growing with the growth in transactions, which are recorded, counted, and taxed through many bureaucracies.

America administers dedicated taxes and charges through multiple bureaucracies for federal, state and local taxes on income, sales, property, utilities, alcohol, tobacco and charges for workmen’s compensation, unemployment insurance, social security, Medicare and a few more. Every new job in America brings action at tax bureaucracies of work and jobs in recording, filing, collecting and dispersing. There is no natural law that requires each little tax to go with each little service, but it sure is good for jobs.

Filling bureaucracies with Parkinson’s policy helps moderate the relentless tide of jobs lost to labor saving technologies and computer use in the economist’s reallocation. Ominous trends for jobs in information services, especially publishing and telecommunications, finance, even retail and wholesale trade add trouble to the jobs disappearing in manufacturing, natural resources, and agriculture.

From 2000 through 2008 publishing jobs dropped over 150 thousand while broadcasting jobs went down 27 thousand. Telecommunications jobs are off 375 thousand where jobs lost in landline service are not replaced by the trickle of new jobs in cell phones. In today’s digital world landline, cell, and cable companies offer phone services as well as Internet and cable TV services using the same or similar technologies. Their low cost to the incremental customer and the ability of individual companies to offer multiple services through one network pressures firms to consolidate, cut costs, and eliminate jobs.

It is much the same story in finance where jobs have dropped back to 2000 totals. Bank mergers and consolidations typically go with layoffs, but money and finance are nothing but computer code, which can be managed by ever fewer people. On-line banking wipes out jobs even though not everybody likes the efficient digital world. Some still want to drive to the bank and exchange paper with a teller. America now employs 600 thousand tellers. If Americans decide to go digital, America will have fewer tellers, a lot fewer.

Retail jobs are down 633 thousand for the twelve months ending April 2009, but retail job growth has been sluggish for years. Computers raise productivity especially with barcodes and inventory management, raising sales volumes per employee and reducing employment opportunities. Growth in on-line sales will reduce jobs further.

Economists continue to tell anyone who listens that jobs lost to reallocation will be replaced as more Americans resolve to “get some training” for the new high tech jobs of their future. The Bureau of Labor Statistics publishes industry and occupational data that tell a different story. Count 370 thousand new jobs in landscaping services, 300 thousand new jobs in security guard companies and investigation services, 242 thousand new jobs in janitorial services, 471 thousand new jobs in child day care, 151 thousand new jobs at telephone call centers, all since 1990. Include 90 thousand new jobs at parking lots and car washes, 92 thousand new jobs at collection agencies. No one should forget 1.187 million more jobs for those employed through temporary help agencies.

Restaurant jobs are up 3.1 million also since 1990 along with 172 thousand new jobs in gambling and casino hotels, 273 thousand new jobs at amusement parks, arcades, golf courses, country clubs, ski hills, and marinas. Include fitness centers with more jobs than all of gambling and 236 thousand new jobs since 1990. Count 255 thousand more jobs in pet supply stores, and pet care services, including veterinarian services.

These are the industries where America works when technology saves labor and we create jobs with the Parkinson policy. More jobs in computing technologies relieve the decline, but not much. If we look at all the job growth in the multiple of computing industries, by adding new jobs since 1990 in software publishers, data processing, Internet service providers, web search portals, custom computer programming, computer system design, computer services management and related services, computer and office machinery rental and leasing and computer and office machinery repair, the gain comes to 1.334 million new jobs; less than half of jobs lost in manufacturing or jobs gained in restaurants in the same period.

Engineers are high tech, but the majority of them need work in manufacturing. The just published Bureau of Labor Statistics occupational data for 2008 shows 1.516 million engineering jobs just 65 thousand more than 2000. Education jobs are up with 4.1 million more jobs since 1990, but those are mostly public jobs. As such they are part of the Parkinson Policy, hardly the economist’s solution.

The Obama administration will have nightmares trying to replace the jobs already lost, just since taking office. Economists have faith in reallocation, but America needs jobs. The Parkinson Policy will create jobs. Long live Parkinson, only he is not the solution, but solutions are topics for other articles.

Banks and Nationalization

2009-06-03T13:08:00.001-04:00

First published on Automaticfinances.com

In the current banking crisis there continue to be people in banking and business calling for nationalizing banks. One recent example was an article in the Atlantic Magazine titled “The Quiet Coup.” It turns out the author is from the International Monetary Fund with experience from international financial crises. He writes nationalization would not mean permanent state ownership. “It would allow the government to wipe out bank shareholders, replace failed management clean up the balance sheets, and then sell the banks back to a private sector.”

Nationalization does not solve one problem that could not be solved without it. America has to have a banking system and wiping out one to replace it with another does nothing to address the political causes of the banking crisis. America’s bankers played the central role in creating America’s banking crisis, but their influence continues to prevent the reforms that are needed.

Bankers and the financial community gained extra political power beginning in the Reagan administration, but continuing through the Clinton years and to the present. Congress slowly changed or abandoned regulatory protections that began as far back as 1933 with the Glass-Steagall Banking Act.

America’s banking regulations previously recognized the unique and paramount responsibility of commercial banks. That is to provide customers with checking account services and guarantee reserves are available to pay on customer checks. Congress passed the Glass-Steagall Act to prohibit commercial banks from diversification into other financial services such as using loanable funds to underwrite corporate security offerings.

In 1933 Congress feared a bank’s security offerings department would pressure the bank’s lending department to take risks that could lead to bank failure. They feared banks could manipulate stock prices or pressure their loan customers to buy stock offerings, or take control of other non-financial corporations.

By the 1980’s and 1990’s, the relentless pressure of financial groups and plenty of campaign contributions turned caution into compliance; Congress allowed banks to diversify and consolidate into giant risk takers too big to fail.

Million bought bank stocks because banks will never be obsolete and they had the reputation of being steady, safe and conservative investments paying steady but modest dividends. Even without nationalization those millions have lost dividend income that will never be recovered and 50 to 90 percent of stock value. Those same millions had nothing to do with the gambling and risk taking of the banks they supposedly own but do not control.

Wiping them out with no further chance to recover some of their losses is unfair but also unnecessary. The so-called toxic assets will have to be written off with or without nationalization. Reserves will have to be restored to the banking system with or without nationalization. Nationalization does not reform the banking laws but just starts the whole thing over. Nationalization does nothing to encourage anyone to invest in banks, ever.

We can be thankful the Obama Administration has been resisting these calls. We hope they continue and we hope they will get around to proposing the necessary return to cautious banking practices. Perhaps the time is not right in their political judgment. We will wait, but in the mean time nationalizing banks is a loser.

Snowball

2009-05-29T13:18:00.001-04:00

The SnowBall: Warren Buffett and the Business of Life, by Alice Schroeder, (New York: Bantam Dell Books, 2008), 837 pages, $35.00.

The Snowball begins in 1999 at a Sun Valley conference: an annual series of discussions and seminars. We hear a new term “elephant-bumping,” a quip defined by Buffett as getting big shots together to reassure them they are really big shots. Readers begin by meeting Buffett at retirement age and get the highlights of his conference presentation, where he confronts the big shots with some financial ideas they do not all want to hear.

Following the introduction the book chronicles Buffett’s life and career from the beginning in 1930 through September 2008. His father, Howard Buffett, was a successful stockbroker in depression era Omaha where Buffett grew up delivering papers and collecting stamps. He purchased his first stock in the spring of 1942: 3 shares of Cities Service Preferred.

Buffet graduated from Woodrow Wilson High School in Washington, DC, where he lived and spent most of his time after his father was elected to Congress in November 1942. We hear about his Washington life and go with him for his two years at the University of Pennsylvania, but then back to Nebraska where he finished college at the University of Nebraska.

It is about this time readers get the strongest whiff of the Buffett obsession with money making as a competition in itself. He was turned down at Harvard Business School but gets a special late admission to Columbia to study finance and stock analysis under Benjamin Graham and others well known in Security Analysis.

His business studies at Columbia turned out to be a transition into his lifelong career in investing. By the time he took a job on August 2, 1954 with the Graham-Newman investment partnership in New York he already had considerable knowledge and experience despite his young age of 24.

At Graham-Newman he studied Standard and Poors and Moody’s manual looking for companies his mentor, Ben Graham called Cigar butts. Cigar butts Graham defined as cheap and unloved stocks that had been cast aside like the sticky mashed stub of a stogie left on the sidewalk; a stogie that might have one last free puff.

One example turned out to be a company run as a pubic utility in New Bedford Massachusetts called the Union Street Railway. His review of the company showed it was selling for half the value of its cash in the bank. It was a real cigar butt but there would be more.

After several years Graham and Newman retired and the Graham-Newman partnership was shut down. Buffett decided to form his own partnership, which started May 1, 1956 as Buffett Associates, Ltd. It was set up as an investment partnership based in, and operated from, Omaha, Nebraska and not New York city. He had seven partners.

The author’s discussion of the partnership begins on page 201. The remaining 636 pages describe Buffett’s businesses, his investments and investment strategies over 53 years. We learn about Berkshire-Hathaway, GEICO, Kay Graham and the Washington Post and all his well known and not so well known investments, but there is much more in what is a very long book.

Business principles surface through pithy slogans and aphorisms and sometimes by example. He was one of the first to warn about, and object to, the use of derivatives and other speculations. He got to see how correct he was when he worked to rescue Salomon Brothers and Long Term Capital Management. He avoided leverage and the risk that goes with it. He was never a passive investor, but exerted his influence directly and by finding the right people to manage the companies he acquired.

Buffett sayings: Rule number one, don’t lose money. Rule number two, don’t forget rule number one. Rule number three, don’t go in to debt. There are more rules and principles.

Business issues and career decisions mix through the book with long narrative discussions of family members and their personal lives: relationships, careers and interests. Readers meet many business and personal friends, often with lengthy asides and narrative profiles. Readers go to parties and travel to many places. We learn Warren Buffet has simple tastes and the culinary habits of an eight year old, along with other personal matters.

Direct quotes from the author’s interviews run through the book and they are set in italics, an especially good feature. These interviews help the reader to understand the philosophy and strategies that brought personal and financial success. Extensive quotations from interviews let readers do more of their own interpretation unfiltered by the author.

His political views and social attitudes emerge in both the narrative and quotations. He supported civil rights when it mattered the most and progressive politics generally. He turned into a vocal opponent of the Bush tax policies and especially opposes eliminating the estate tax.

Throughout the book the author kept giving financial progress reports even from Buffett’s early years in Omaha. She wrote now Warren has $120; now Warren has $2 billion; now Warren has $7 billion and so on. It was unnecessary at least for me. I did not read the book to be counting money I wanted to learn something about a man who did something unusual that virtually no one else has ever done.

By the end of the book I felt the success of someone who is patient enough, cautious enough, hard working enough and savvy enough to do something extraordinary that he set out to do, and without losing his ethical compass. In an age of speculative failures where rogues and scoundrels are everywhere that makes him a unique success, at least in my book.

Banks and Bailouts

2009-05-26T14:21:00.000-04:00

First published on automaticfinances.com

Banks keep making news. One caption in the April 18th Washington Post reads "Bank Profits Mask Peril Still Lurking." Readers learn the biggest of America's banks like Citigroup and J. P. Morgan Chase are reporting large first quarter profits, but remain pessimistic about their future and the future of the economy.

The Federal government has been bailing out the nation’s banks since last summer, handing out billions in emergency reserves with as many as 500 banks mentioned, always with a press release telling the public there must be bailouts or the banks and economy will collapse.

A collapse of the financial system is more complicated than the government wants to talk about. One type of collapse would occur if banks could not clear checks for their checking account customers. You and I go to pay our phone bill and the check bounces, but it’s not our fault the bank has run out of reserves.

That could be called a calamitous collapse. Technically it could occur because the United States uses a fractional banking system, which means individual banks only hold a fraction of their checking account liabilities as reserves to pay checks. Typically the Federal Reserve requires monetary reserves around 15 percent for checking account liabilities, the rest can go to loans. When customers with checking accounts also make deposits and borrowers make their loan payments 15 percent will be enough.

When borrowers default by the billion, banks will not have reserves to pay on their checking accounts, which signals a collapse of the banking system. Not to worry though because the Federal Reserve bank has the ability and full authority to provide the necessary reserves to America’s banks and they have been doing just that.

Making sure there are reserves for checking account customers could be called an essential and adequate bailout. It is the minimum that must be done to keep payments flowing and prevent an economic collapse.

However, the government is going far beyond that minimum with its bank bailouts. They press billions more of reserves on the banks, telling them to forget about defaulters and go find some more borrowers. In effect, the government wants our banking system to lead America out of recession. It is not working though, at least not so far.

The bank profits mentioned in the article above are coming from more recent loans for spending made with the bailout reserves, but bank officials themselves are saying these loans went to other weak and potentially defaulting borrowers. Many banks, especially large ones, have been doing a large share of their business in credit cards for some time, but wages and employment are in no shape to expect credit card lending to revive the economy.

We need spending to get the economy going, but right we will have to trust the Obama spending plan and not the banks. Banks will follow America out of recession, but there is no sign yet they will lead us where we need to go.

Henry Ford and Mass Production

2009-05-14T14:25:00.000-04:00

First published in the pulsereview.com April 24, 2009

Mass production needs mass markets. It’s not a new idea. Back in 1914 Henry Ford opened his Model T auto plant using the assembly-line method; a new invention at the time. To the anger and indignation of the nation’s business community, he offered the unheard of high wage of $5 a day.

Apparently he knew he would be producing more cars than Americans could buy, but the higher wage would help him sell what he could produce. Now, almost a hundred years later, America can produce millions of new cars Americans cannot afford, and the industry Henry Ford founded totters on the brink of bankruptcy.

When a country does not buy what it can produce it will have idle factories and idle workers: a recession as America is having now. Back in the 1930’s during the Great Depression the Roosevelt administration adopted a policy of spending the country out of depression. Having the government borrow and spend comes with worries and conflicts over debt and deficits, but it does pump money into the spending stream and create jobs.

The Roosevelt policy was the start of a great tradition in American politics for both Republicans and Democrats, who always adopt a policy of spending America out of recession. The Obama stimulus plan is in that great tradition. In the current down turn the government plans to spend on many new projects, pumping money into states and communities and leading the way for private sector spending.

The presumption of the stimulus policy is the same as always: government spending is regarded as inferior to private spending and therefore a temporary stimulus until private sector spending takes over. But in the recession of 2009 we may want to remember Henry Ford just to remind ourselves that adequate private sector buying power cannot be assumed.

A policy to spend America back into prosperity needs people and families who return all their money to the spending stream in stable and predictable ways. A married couple supporting themselves as cashiers can be expected to spend all their money on room and board, car loans, gasoline, phone service, clothing and, we hope, a little left over for health care and entertainment.

Cashier is one of America’s two biggest jobs, which are retail salesperson and cashier. Together they make up 8 million jobs, or almost 6 percent of America’s jobs at establishments. The median wage for a cashier reported by the Bureau of Labor Statistics is $17,160, but the 90th percentile wage is still only $24,600. For a couple both earning $24,600 the Federal income and payroll taxes come to $7,656.30, not to mention state income taxes, sales taxes, utility taxes, gas taxes and a few more. Retail sales and cashier are just two jobs, the Bureau of Labor Statistics reports hundreds more with millions employed earning wages no more than cashiers.

The millions who earn low wages and pay high taxes contrast sharply with news of the very rich and news of the growing inequality of income. Corporate heads with bonus and severance packages get millions of dollars. Hedge fund managers get paid in capital gains that have favorably lower tax rates than wages.

Recently the Statistics on Income Division of the IRS published its report on the 400 individual tax returns with the highest adjusted gross incomes. It is for the years 1992 to 2006. For 2006, they report the adjusted gross income for each of the top 400 was an average of $263.3 million dollars. The top 400 taxpayers divvy up a total of $105.3 billion dollars

So often discussion of the rich and the taxes they pay, or don’t pay, starts and ends with what is fair. The rich should pay their “fair share”, whatever that might be. But in a country that expects to spend itself into prosperity, it is worth asking how and when the rich get their billions back into the spending stream?

For the stimulus plan to work any income not spent as consumption, has to make its way back into the economy as loans to borrowers. After all, mass markets need mass production, which means saving has to be turned into loans for projects that support jobs building factories, rapid rail lines, solar panels and other real capital.

Financial intermediaries, formerly known as banks, savings and loans, credit unions, finance companies, mortgage or investment banks and a few more, cumulate the savings of savers in order to make loans to borrowers. They act as intermediaries because they are like agents in the middle of a transaction between savers and borrowers. Their sole function is to channel the savings of net savers back into the spending stream as loans to net borrowers.

There was a time when it was common for borrowers to create long lived assets, but back in the 1980’s adventurous money managers starting having loanable funds to buy thousands of real estate mortgages, which they bundled for resale into an interest earning asset like a bond. They called them Collateralized Debt Obligations (CDO), or Collateralized Mortgage Obligations (CMO) and more recently, Mortgage Backed Securities (MBS). In that way mortgages could be resold to smaller investors who would not normally buy individual mortgages.

What is important to notice though is that repackaging and reselling mortgages does not create new assets. Reselling mortgages means more transactions that allow money managers to charge fees and potentially make money with price fluctuations, but nothing new or usable results from the repeated resale of mortgages.

As the 1980’s passed through the 1990’s and into the new millennium the traditional means of finance like stocks and bonds were still available, but they gave way to Mortgage Backed Securities and new and exotic investment derivatives: principal only strips, interest only strips, credit default swaps and on and on.

Reselling mortgages as Mortgage Backed Securities got so lucrative that money managers started running out of mortgages to bundle and resell. To keep it going it was necessary to start lending to unqualified homebuyers, a practice that many will remember as sub prime lending and sub prime loans.

We have to think financial intermediaries with qualified homebuyers, or qualified business and corporate borrowers, would lend to them before lending to unqualified borrowers in the sub prime lending market. Lending billions to unqualified borrowers suggests there was a large surplus of loanable funds.

It is not surprising that a bubble of surplus loanable funds and the fantastic growth in Mortgage Backed Securities took place after tax cuts that further reduced tax rates at the highest incomes, but especially for reductions in taxes on capital gains and the new tax reductions on corporate dividends. These reductions helped increase disposable incomes for the richest Americans, as the IRS data so clearly shows.

Recall a recent need for loanable funds to rebuild New Orleans following hurricane Katrina. Instead America’s loanable funds went for transactions where nothing happened, save for gambling in speculative financial derivatives. And then we realize tax cuts for the rich helped generate an immense surplus of loanable funds that were wasted on financial speculation rather than building productive capacity because millions of wage earners could not buy what America can produce.

Where are you Henry Ford when we need you? In 1975 America taxed the rich at a 70 percent marginal tax rate, but not that many years before marginal tax rates were 90 percent. Now the rich tend to pay 15 percent on capital gains and dividends.

The rich failed themselves, but they also failed the country, which is why America needs to return to taxing the rich at 90 percent.

Nurses

2009-04-19T12:46:00.001-04:00

"Jobs Scarce, Even for Nurses" reads the caption of an article from the Washington Post from April 5th. Readers hear that the current economy freezes the field of nursing once short of workers. The article has interviews with area nurses looking for jobs and hospital administrators in charge of patient care services. Applicants complain they do not even get courtesy call backs. At Calvert Memorial Hospital the VP for patient care said "In medical and surgical, I have absolutely zero openings."

It sounds gloomy, but the truth comes later when the author admits the current situation is a "blip when the [bad] economy masks the true nursing shortage." The author also reported "that 27,771 qualified applicants were turned away by nursing schools last year largely because a lack of instructors."

Over the last 12 months the total of America’s jobs are down 4.8 million, but health care jobs are up 377,000 anyway. Only education and government have any job increases, but health care has more than double the increase there.

There are few occupations with a better job outlook than registered nursing, which is the 6th largest occupation if we combine all elementary and secondary education teaching as one occupation. Register nursing with 2.5 million jobs is 4 to 5 times the number of physicians and more than any other healthcare job.

Registered nurses make up the biggest share of hospital jobs: generally 25 to 30 percent of hospital staffing. No other occupation comes close to that share and no hospital can operate without them. Right now about 60 percent of the nation’s 2.5 million registered nurses work in hospitals whereas only 26 percent of the nation’s 749,000 Licensed Practical Nurses and 29 percent of the nation’s 1.5 million Nurses Aides work in hospitals. Registered nursing has more employment than Licensed Practical Nursing and Nurses Aides combined, and the gap is growing.

Hospitals are not finding ways to reduce their registered nursing needs and maintain patient care, nor substitute cheaper Licensed Practical Nurses or Nurses aides in their place. Instead, registered nursing jobs are up an average 39,810 a year between 2000 and 2007; Licensed Practice Nurses are up 5,681; Nurses Aides are up 16,686. Registered nursing is growing faster than jobs in the national economy and faster than Licensed Practical nursing and nurses aides.

Registered nurses have opportunities to advance to higher specialties as advance practice nurses: nurse practitioners, clinical nurse specialists, certified nurse midwives, and certified registered nurse anesthetists. These possibilities for advancement are not open to Licensed Practical Nurses or Nurses Aides unless they return to school for degree training to be registered nurses.

The 40 percent of registered nursing jobs outside of hospitals are scattered in ambulatory health care, especially office practice, nursing facilities, education and government. All of these sectors including education and government employment continue to grow despite the recession with some of their new jobs in nursing and nursing instructors, also in short supply.

Need a job? Be a nurse. Now you know.

Recession Sends Lawyers Home

2009-03-11T18:01:00.000-04:00

Recession sends lawyers home is the caption on a Washington Post article of March 9, 2009. On the first line readers learn "Across the Country, the recession is putting increasing pressure on law firms to slash spending and discount their service." A sharp decline in litigation and the demand for lower prices has prompted firms to outsource document review work to India, hire temp lawyers, work for fixed fees and eliminate staff.

The article introduces the "virtual" law firm, which is billed as "much better suited to the current economic conditions." A "virtual" law uses the telephone, the Internet and video conferencing to avoid the expense of law offices and staff. Lawyers need to be able to type and be their own secretary in the virtual law firm.

Even though lawyers are a learned profession their jobs are part of the service economy where many services turn out to be optional and expendable in hard times. That's because for years the laid off from manufacturing have been finding jobs for services like gambling, yard work, lawn care, dining out, fast food, spas, personal trainers, wedding planners, college consultants, nannies, maids, salons, pet care, dog walkers, diet plans, weight loss, tanning, tattoo parlors.

Many working in the leisure and hospitality industry are vulnerable because their customers can be "do-it-yourselfers." For example, jobs at Fitness Centers and Recreational Sports Centers reached a high of 594,000 in July of 2008, but dropped to 472,000 by December. People need exercise but they can jog in the park or jog on a treadmill; one has jobs, one does not. Health clubs support transactions and jobs where fitness and aerobics instructors exceeded 220 thousand across the country, at least before the recession sent thousands of them to the unemployment office.

Jobs are created by spending and production and President Obama's Stimulus plan will help create jobs. It is probably not enough spending given the number of America's vulnerable and expendable service jobs. Service jobs sink and sink fast in a recession as they are now, but it will take ever increasing amounts of spending to get jobs to recover in America's service economy. Lawyers have some ways to cut costs and offer discounts to help revive their industry. Others are not so lucky.

How the Crash will Reshape America

2009-02-27T15:52:00.002-05:00

"How the Crash Will Reshape America" by Richard Florida, Atlantic Magazine, Volume 303, No. 2, March 2009

In "How the Crash Will Reshape America" Richard Florida tells readers no place in the United States will escape the long and deep recession he sees ahead, but the keyword in the title is "Reshape." At the end of the introductory paragraphs he predicts recession and decline spreading outward from New York to Detroit and the Sun Belt in a way that will permanently alter, or reshape, America’s economic landscape. In apocalyptic words, he writes, " … it will permanently and profoundly alter the country’s economic landscape . I believe it marks the end of a chapter in American economic history, and indeed, the end of a whole way of life."

The article runs 8 pages, which is long enough to develop and explain thesis predictions. After the brief introduction, material divided into 7 sub-headings develops his thesis: place matters in economic growth with the advantage going to a discrete number of mega-regions around the world. He argues place matters in economic geography because some cities and regions have an advantage in attracting highly educated people.

Little is said about mega-regions around the world, but Florida takes readers around the United States: New York, Detroit, Pittsburgh, Charlotte, Los Angeles, San Jose, Phoenix. Mostly he tells readers how these areas once prospered doing things that will no longer generate growth. Phoenix, for example, relied too much on real estate.

In the third section he tells readers educational attainment shows "Cities like Seattle, San Francisco, Austin, Raleigh and Boston now have two to three times the college graduates of Akron or Buffalo."

Florida does not cite data on educational attainment, nor do much to develop educational attainment, nor develop his earlier suggestion that cities with highly educated people will have an advantage in the future. Instead, he tells readers about a pioneering theory of urban evolution by a multidisciplinary team of researchers at the Santa Fe Institute. Their theory is called "urban metabolism." These researchers found that trends in innovation, patent activity, wages, and GDP are the opposite of biological organisms; they tend to grow faster as they get bigger. Florida quotes the Santa Fe Institute: "the larger a city’s population, the greater the innovation and wealth creation per person." Further he concludes "Places like New York with finance and media, Los Angeles with film and music, and Silicon Valley with high tech are all examples of high-metabolism places."

There are a few policy suggestions by the closing page. He wants to remove subsidies for home ownership, which he argues restricts mobility and uses resources that would be better used in medical technology, software and alternative energy. He predicts jobs will cluster in a smaller number of bigger cities so he favors making these elite cities more attractive and affordable. Decline in other areas cannot be stopped and it would be foolish to try.

For an article that starts out with bold assertions and a bold prediction I reached the end feeling disappointed. Forecasting growth for “high metabolism places” has a trendy ring, but I am from the old school where people move out of low wage places with declining jobs to go to higher wage places with more jobs. I can agree with Mr. Florida: the crash will "Reshape" America. I am still unsure how.

Savings and Layoffs

2009-02-24T15:18:00.000-05:00

The superintendent at my local school district has announced plans for upcoming layoffs to save money caused by a budget shortfall. He plans to layoff one from office staff and one from the janitorial staff at each school. They expect to enlarge class size to cut back on teachers.

Layoffs put people into the job market adding to job seekers and making it easier for employers to offer lower wages. We might call that the obvious effect, but savings from layoffs have another effect: an increase in uncompensated work.

Teachers have never been hourly rated employees. Phrasing in teacher contracts assures long work hours. “Teacher shall perform such duties as deemed necessary, shall attend all assigned meetings, shall be present at school during school hours, shall be present at school or other location outside school hours as directed in connection with school events or activities.”

With a contract clause like that school officials can save money giving teachers more students and more work, like suggesting they may need to empty a few wastebaskets and fill out or file a few extra forms; work formally done by those laid off janitors and office staff.

Overtime pay rules in the Federal Fair Labor Standards Act require time and a half pay for hourly rated employees working over 40 hours a week. However, over the last 8 years many new exemptions and amendments were made to overtime work rules. Executive, administrative, professional and outside sales employees paid on a salary basis can be exempted from over time pay. The new rules can be found on the U.S. Department of Labor website.

The 40-hour work week has been the standard full time workweek for more than eighty years, but pressuring people to work additional hours makes it easier to turn layoffs into a permanent loss of jobs.

The worst abuses are apparently in the managerial ranks where the Bureau of Labor Statistics reports a decline 2 million managerial jobs at establishments since 1999. Managerial jobs for 1999 are reported at 8,063,410; managerial jobs for 2007 are reported at 6,003,930. Three people working 40 hours a week equals two people working 60 hours a week but with a one-third savings in labor costs.

My superintendent’s cost cutting plan comes right as the Congress debates billions of dollars in bailouts for defaulting homeowners, bankrupting car companies and failing banks. Maybe they could pass of few million along to my school district, but it will not matter much unless they get to the real problem: wages and employment. They could start with the Fair Labor Standards Act and fix those destructive overtime rules.