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Article Artículo

Lessons on Labor Economics for the Owner of a Roofing Company in Nebraska

The NYT shows us that the skills shortage is real in an interview with Sarah M. Smith, the owner of a roofing company in Nebraska. In the interview, Ms. Smith explains why she needs foreign workers, on H2-B visas, since she is unable to get native born workers or greencard holders for the $17 an hour she is offering.

Ms. Smith explains:

"We have offered the $17-an-hour wage because it is the prevailing wage determination for this type of work, according to the United States Department of Labor. We do offer incentives and bonuses above that. And just to note, Nebraska’s minimum wage is $9 an hour."

She is then asked why, if she can't find enough workers, she doesn't offer a higher wage. Ms. Smith responds:

"In response to the article, I got an email that said if we were to offer $35 an hour with health care benefits, we would definitely get people to apply; it said people who were highly qualified applicants with years of experience would probably line up at our door.

"My response is: We would love to be able to offer $35 an hour as starting pay, but are you in turn willing to pay premium prices for your next roof replacement? A lot of customers we get through online lead services like Thumbtack are people looking for the best deal. They want to collect proposals from four to five businesses and most of the time choose the cheapest one.

"We want to compensate our employees fairly for the work they do and the risk they take, but we wouldn’t be able to stay in business if we doubled the hourly rate. It’s not just their hourly wage that becomes a factor. Insurance in the roofing industry is extremely expensive. Not only are we required to carry expensive general liability insurance, we also have to have workers’ compensation insurance for employees on the roof. That comes to 40 percent of their wage. And on top of that, there’s payroll tax.

"We also do a lot of insurance restoration work like hail damage claims, and in those cases the insurance provider determines what they pay for labor and we work with it. If we come back saying it’s going to cost us way more on labor to do the job, the homeowner isn’t likely to want to cover the extra cost, especially not above their out-of-pocket deductible."

Okay, let's for the moment ignore the idea that Ms. Smith would pay $35 an hour as starting pay. Let's imagine that she offered $20 an hour, roughly an 18 percent increase over her current pay and presumably substantially more than her competitors.

CEPR / July 14, 2017

Article Artículo

The Business Cycle and the Restaurant Cycle

While business cycles vary in their length and growth rates, there are some consistent patterns. Most obviously, the labor market tightens as the business cycle advances with unemployment falling and the percentage employed rising. This tightening of the labor market increases the bargaining power of workers since they are more likely to have a choice of jobs than they did during the downturn or during the early phase of the recovery. As a result, workers are likely to move to more desirable and better-paying jobs. Better paying jobs are also likely to be more productive jobs, which mean that the shift in employment patterns as a result of a tightening labor market could provide some boost to productivity growth. (This is offset in part by the fact that large numbers of people shifting jobs will reduce productivity.)

This pattern is likely to be especially strong among less-educated workers since they are the ones most likely to lose their jobs in the downturn. An employer is far more likely to lay off a retail clerk or assembly line worker than a store manager or a shift supervisor. This means that the improved labor market situation during the upturn is likely to disproportionately benefit workers at the bottom end of the wage distribution.

Dean Baker and Brian Dew / July 12, 2017

Article Artículo

Are News Outlets Obligated to Do Propaganda for Trade Deals?

Regular readers of the NYT and other leading outlets might well get that impression. The one-sided nature of the discussion of these deals (invariably dubbed "free" trade agreements, because no one can be opposed to freedom) is hard for careful readers to miss.

We got yet another example with a column warning that Donald Trump may kill the bourbon boom with his trade policy. The piece uses the example of bourbon to tell us all the ways in which Trump's decision to pull back from the Trans-Pacific Partnership and other trade deals can harm people in the United States and be bad for the world generally.

Starting at the basics, it tells us:

"Take Vietnam, a TPP member that increased American spirits imports by 173.9 percent between 2015 and 2016, to $45.9 million, making it the category’s fastest-growing importer. Under the trade deal, the country is expected to drastically increase its American whiskey consumption.

"Without American membership in the TPP, a 12-nation pact that created zero tariffs for American products, Vietnam’s 45 percent duty on bourbon and other distilled spirits will no longer be phased out, putting those expectations on ice."

There are several points worth noting here. First, apparently, our whiskey exports to Vietnam appear to be doing just fine even with the 45 percent tariff. Perhaps U.S. whiskey is considered a luxury in Vietnam and the people who buy it are not that concerned about the price. I have no idea whether that is the case, but is possible that the reduction or elimination of the tariff may not affect sales very much.

The second point is that the implicit assumption in this story is that the people in Vietnam have no interest in getting cheaper whiskey. The piece assumes that they will continue to impose a 45 percent tax on the whiskey they buy from the United States for the indefinite future. This is, of course, possible, but it's also possible that Vietnamese with access to textbooks on public finance, or who like U.S. whiskey, will push their government to reduce the 45 percent tax with or without a trade deal.

Finally, we should be asking how people in the United States feel about paying more for their whiskey. After all, there is a limited amount of whiskey that U.S. distilleries can produce, at least in the short-term. If Vietnam and other countries will buy more, then there is less left for us whiskey drinkers back in the United States.

CEPR / July 11, 2017

Article Artículo

Inequality

United States

Workers

The Fed Can Reduce Racial Disparities in Labor Markets

As discussed in a recent Federal Reserve staff working paper, “recessions may impact different groups at different phases of the aggregate business cycle”. The paper finds that in an economic downturn jobs losses disproportionately hit black and Hispanic workers relative to white workers, while periods of unemployment likewise last longer for black and Hispanic Americans. As a result, in the later stages of an economic recovery new jobs are added at a more rapid rate for black and Hispanic workers.

An important monetary policy implication of this finding is that the gap in labor market outcomes for different groups is affected by how quickly the Fed raises interest rates in an economic recovery. Put another way, if the Fed moves too quickly to raise interest rates, it will disproportionately leave black and Hispanic Americans out of the labor market, and particularly black and Hispanic women and youth.

CEPR and Brian Dew / July 10, 2017