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Article Artículo

Weak Labor Market: President Obama Hides Behind Automation

It really is shameful how so many people, who certainly should know better, argue that automation is the factor depressing the wages of large segments of the workforce and that education (i.e. blame the ignorant workers) is the solution. President Obama takes center stage in this picture since he said almost exactly this in his farewell address earlier in the week. This misconception is repeated in a Claire Cain Miller's NYT column today. Just about every part of the story is wrong.

Starting with the basic story of automation replacing workers, we have a simple way of measuring this process, it's called "productivity growth." And contrary to what the automation folks tell you, productivity growth has actually been very slow lately.  

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Source: Bureau of Labor Statistics.

The figure above shows average annual rates of productivity growth for five year periods, going back to 1952. As can be seen, the pace of automation (productivity growth) has actually been quite slow in recent years. It is also projected by the Congressional Budget Office and most other forecasters to remain slow for the foreseeable future, so the prospect of mass displacement of jobs by automation runs completely counter to what we have been seeing in the labor market.

CEPR / January 13, 2017

Article Artículo

Think of the Money Physicians' Families Would Save on Health Care Costs If We Ended Protectionism for Doctors

One positive item that is on the agenda of the Republican Congress is an overhaul of the corporate tax code. The basic plan is to hugely simplify the tax in a way that would eliminate almost all deductions, most importantly the deduction for interest payments.

I am big fan of this change because the tax shelter industry is both an enormous source of waste in the economy and major generator of inequality. In particular, the private equity (PE) industry is largely about tax arbitrage, with much of the profits in the sector due to the fact that PE companies can radically reduce the liability of the companies they buy. This allows them to make a fortune when they resell them to the public, typically within a few years after they buy them. (See the book by my colleague Eileen Appelbaum and Rose Batt, Private Equity at Work: When Wall Street Manages Main Street.)

PE is the source of many of the biggest incomes in the country. Think of folks like Mitt Romney and Peter Peterson. PE partners often make tens of millions of dollars a year, and paychecks in excess of a hundred million are not uncommon. Eliminating this sort of tax arbitrage, as the Republican tax reform would do, would get rid of this source of waste generated enormous inequality.

For some reason, this part of the story has barely been mentioned. Ironically, the issue that has been highlighted is the treatment of imports and exports. While the tax is not directly a value-added tax like the ones in place in European countries, it has many features of a value-added tax. (A value-added tax is essentially a sales tax.) The proposed tax can be thought of as a hybrid between a value-added tax and an income tax.

Anyhow, the proposal would treat the tax in the same way that countries treat a value-added tax. It is applied to all imported items and refunded on exported items. Some proponents of the tax argue that this tax treatment is one of the great advantages of the tax since it would promote U.S. exports. The econ theorist types dismiss the argument by saying that changes in currency values, specifically a rise in the value of the dollar, would offset any gains in the competitiveness of U.S. goods and services from the tax.

Color me as skeptical on the full offset argument, but ironically the prospect of a full offset is being put forward as an argument against the tax. Neil Irwin makes the case in his column in the NYT this morning.

CEPR / January 09, 2017