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Article Artículo

Workers

Folks Worried About Robots Taking Our Jobs Need to Learn Arithmetic

Matt O’Brien had a very good piece on the silliness of the robots taking our jobs story. The basic point is that it is silly to worry about a possible future in which robots are taking our jobs, when we currently face a situation in which people don’t have jobs just because Congress won’t spend the money. I couldn’t agree more.

We can all see the really cool things that can be done by robots and advanced computers, but the fact is they are not doing it now. As Matt notes, productivity growth has been very slow in the last decade, the story of robots taking our jobs is one in which productivity growth is very fast.

There are two points worth adding to Matt’s comments. First, he refers to an often cited analysis that finds 47 percent of all jobs are at risk of being automated over the next twenty years. Sounds pretty scary, right? Well let’s imagine that all of the 47 percent of those at risk jobs gets computerized over the next two decades. (The study just identifies these as “at risk” jobs, a high proportion of which will be computerized, not all of them.)

This rate of computerization would translate into 3.1 percent annual productivity growth. That’s a hair higher than the 2.9 percent annual rate of productivity growth that we saw in the Golden Age from 1947–1973. That was a period of low unemployment and rapid real wage and income growth. If there is a reason that we should be scared in this story it is not because of the productivity growth, but rather an institutional structure that prevents most workers from benefitting from this growth.

Dean Baker / February 26, 2016

Article Artículo

Globalization and Trade

Fareed Zakaria Is Wrong: The Left Has Plenty of Good Solutions for Inequality, They Just Don’t Get Mentioned in the WaPo Opinion Pages

Fareed Zakaria used his column in the Washington Post this week to approvingly quote former British foreign minister David Miliband saying:

“The right has no good answer to the problem that globalization erodes people’s identities. The left has no good answer to the problem that it exacerbates inequality...”

Actually, the left has plenty of good answers on inequality, they just get ignored or misrepresented in outlets like the Washington Post.

For example, many progressives (including Senator Bernie Sanders) have long supported a financial transactions tax. This would raise tens of billions of dollars annually that would come almost exclusively out of the hides of the high-flyers in the financial sector. Progressives also want to end the government’s “too big to fail” insurance for the country’s largest banks, a subsidy that gives tens of billions of dollars a year to the country’s biggest banks. When these ideas appear at all in the Post they are completely misrepresented, with the paper bizarrely insisting that financial reform is about preventing the 2008 crisis instead of restructuring the financial sector to better serve the productive economy.

Beyond finance, many progressives are strongly opposed to the center’s protectionist agenda on trade, which would involves continually making patent and copyright protection stronger and longer. These forms of protection are equivalent to imposing tariffs of several thousand percent on the protected items. However since the beneficiaries in the pharmaceutical, software, and entertainment industry tend to be rich and powerful, papers like the Washington Post pretend they are the “free market.”

Dean Baker / February 26, 2016

Article Artículo

France’s Good Housekeeping Seal of Approval: Productivity Champions

Claire Cain Miller had an interesting Upshot piece about differences in the way men and women divide child care and other unpaid household labor across countries. Some countries, notably the Nordic countries and the United States have made substantial progress in lessening the gap between women and men’s hours, although women still do substantially more unpaid work even in these countries (over 50 percent more in the United States). Other countries on the list, mostly those in Asia and southern Europe have done much worse by this measure, still having ratios of more than two to one.

While this is a very important issue which I would not want to trivialize, I couldn’t help but notice the substantial differences in total hours per day of unpaid labor reported across countries. The figure below sum the hours reported in each country for men and women.

Book8 660 image001

Source: New York Times.

At low end is South Korea, where the total reported hours of unpaid work are just 4.5 per day. Next in line is China at 5.4 hours, and then Japan at 6.0 hours. The big outlier at the other extreme is Australia at 8.1 hours per day, a full hour below Denmark, where total hours are 7.1 per day. The United States comes in close to the average at 6.8 hours per day.

Dean Baker / February 23, 2016

Article Artículo

President Obama’s Council of Economic Advisers Confirms Sanders’ Growth Projections

Okay, that’s not exactly true, but the new Economic Report of the President (ERP) has an interesting section that provides insight into the question of how fast the economy can grow, and more importantly how low the unemployment rate can go. The ERP re-examined the evidence on the relationship between inflation and unemployment.

Economists have long held the view that lower rates of unemployment would be associated with rising rates of inflation and vice versa. When the Federal Reserve Board decides to raise interest rates to slow the economy it is based on the belief that unemployment is falling to a level that would be associated with a rising rate of inflation.

Most economists now put the unemployment rate at which inflation starts to rise somewhere near the current 4.9 percent rate. (This is called the non-accelerating inflation rate of unemployment or NAIRU.) So does the ERP. But its analysis suggests a somewhat different story.

Figure 2-xiv shows the estimate of the NAIRU based on a simple regression measuring the change in the inflation rate against the level of unemployment using data from the last twenty years. The graph shows that the estimate has been falling consistently over the last two decades and is now near 4.0 percent. Furthermore, because the relationship is so weak, there is a huge range of uncertainty around this estimate. In fact, the figure shows that a zero percent unemployment rate is within the 95 percent confidence interval. (Don’t try that at home folks.)

Dean Baker / February 22, 2016

Article Artículo

Is China at Risk of Running Out of Foreign Reserves?

That is the theme of an article in the NYT yesterday with the headline, “China’s foreign exchange reserves dwindling rapidly.” The gist of the piece is that there has been a large outflow of capital from China in the last year, which has caused them to lose as much as $800 billion from their foreign reserves. According to the piece, China is down to its last $3.2 trillion.

If the idea of a country with $3.2 trillion in foreign reserves worrying about empty coffers sounds silly, it should. China has many economic problems (who doesn’t), but a shortage of foreign reserves is not among them.

First, just to get oriented, let’s keep in mind why China has been losing its reserves. As the piece notes, it has been trying to keep its currency from falling. Note that for years, the United States and other countries have wanted China to raise the value of its currency. The argument was that it had accumulated vast amounts of reserves to keep the value of its currency low in order to maintain large trade surpluses.

Now the story is that if China decided not act — it did not use its reserves to buy up the currency being sold by people trying to get some of their money out of the country — the Chinese currency would fall against the dollar and other currencies. Would this be a problem for China?

A lower valued yuan would mean higher prices for the goods China imports and lower priced Chinese goods everywhere else in the world. While China recently saw a modest uptick in prices in January, the conventional wisdom is that the country is far more concerned about deflation than inflation. From this perspective, it’s hard to see how a rise in import prices is a problem.

The other side of the equation is that China’s goods and services would suddenly be much cheaper for people in other countries. This would lead to more exports. Since the rise in import prices will reduce imports, the net effect of a decline in the yuan would be a rise in China’s trade surplus. That would be bad news for the United States and other countries, but it is certainly not a problem for China.

In other words, there is no obvious economic reason that China could not just let its currency fall in value. It would make other countries unhappy, but China’s government presumably cares more about its own economy than the economies of its trading partners.

Dean Baker / February 19, 2016

Article Artículo

Economic Growth

Workers

CBO Projects Rising Wage Inequality

Last month the Congressional Budget Office (CBO) released its Budget and Economic Outlook report for 2016 to 2026. While various aspects of the report have gotten major play in the media, one important yet overlooked detail is what CBO says about wage inequality. Specifically, CBO expects to see a “continued increase in the share of wages earned by higher-income taxpayers” (pg. 88). It indicates that another 4 percentage points of wage income will be redistributed from the bulk of the workforce to the roughly 7 percent of workers who earn more than the cap on wages subject to the Social Security tax (currently $118,500):

“The share of covered earnings above the taxable maximum amount is projected to rise to more than 20 percent in 2026, 4 percentage points more than the share in 2015...” (pg. 94)

This ceiling on the amount of wages subject to taxation rises in line with average wage growth every year. If inequality goes up and high-wage workers’ earnings rise faster than average, a greater share of overall wages are exempt from taxation. Due to rising inequality, the share of wages going untaxed has nearly doubled from one-tenth to nearly one-fifth over the past thirty years.

CEPR and Nicolas Buffie / February 19, 2016

Article Artículo

Economic Growth

Bernie Sanders' Non-Growth Dividend

Catherine Rampell joined the chorus of critics of the Gerald Friedman analysis of the economic impact of Bernie Sanders’ platform. For folks who missed it, Friedman is an economics professor at the University of Massachusetts who produced a 53 page paper that projects the budgetary and economic impact of Sanders’ proposals. (Friedman’s relation to the Sanders campaign is not clear.)

Many economists do not find the projections credible. Among other things, Friedman projects average annual productivity growth of 3.6 percent. This compares to a Golden Age average of 3.0 percent and a post-crash average of just over 1.0 percent. It also projects that the share of the population that is employed will reach new highs. This is in spite of the fact that the population will be considerably older at the end of Friedman’s projection period than at its previous peak and that Sanders also has a number of proposals that will make it easier for people not to work.

Rampell and other Friedman critics have rightly noted these elements of his program. Sanders proposes to increase Social Security benefits and have universal Medicare. This will make it easier for many people to retire earlier than might currently be the case. Sanders also proposes to make college free. This would likely reduce the percentage of college students who work, as well as increase the number of people who go to college.

These policies are both likely to lead to sharp reductions in labor force participation at both the older and younger ends of the age distribution. This highlights a point that many of us have made in comparisons of employment rates in European welfare states and the United States. The United States does better than countries like France (although worse than Germany and Denmark) when we look at employment rates for the population as a whole, but it looks pretty much the same if we focus on prime age workers (ages 25-54).

The difference is that France and other European countries have more generous pensions and universal health care coverage, which make it easier for older workers to retire. And college is either free or low cost (often with subsidies for students) so that it is not necessary for college students to work. As Rampell and others have acknowledged, these are not necessarily bad policies, but they do mean less work and less growth.

Dean Baker / February 19, 2016

Article Artículo

Economic Growth

Workers

Declining Civilian Labor Force Participation: An Aging Population or a Weak Economy?

Between 2007 and 2015, there was a substantial decrease in the civilian labor force participation rate from 66 percent to 62.7 percent. Journalists and economists have debated how much of this decline can be attributed to a weak economy as opposed to an aging population.

The civilian labor force participation rate (LFPR) measures the percentage of the civilian non-institutional population (those who are 16 and above and not part of an institution, e.g. a mental institution, prison, etc.) who are in the labor force. The labor force consists of everyone who is either employed or unemployed (meaning they have searched for work sometime over the past four weeks). The LFPR may fall as a result of bad economy, as people give up looking for work due to a weak labor market, but it also changes due to demographics. If the population is aging, a greater percentage of the population may hit retirement age and willingly retire. Conversely, if the population is becoming younger, a greater percentage of the population may enroll in high school or college.

CEPR, Rynn Reed and Nicolas Buffie / February 18, 2016