A new word for an old problem

Wages in the US for the common worker have been stagnant for going on forty years. This disenfranchisement did not happen over just the last ten years. It is the culmination of various events and actions and not due solely to one or two causes or solvable by bumper sticker solutions. Yet, we have a new word for a major cause courtesy of the Economic Policy Institute – monopsony.

In essence, monopsony is the sister of monopoly. It is an employer who has so much clout in a region or area, it can suppress wages to its workforce. It can also move jobs away more readily be it through off-shoring, outsourcing, downsizing or relocation. This movement of jobs adds to an employer’s ability to manage wage increases. In essence, the word monopsony highlights the goal and ability of employers to chase cheap labor.

Per the EPI, much of the wage stagnation after 1970 has occurred at the low-end of the wage spectrum. An economist noted on a talk show to get an idea of what has happened, stand up and put both arms out in front of you parallel to the ground. The left one represents the bottom 90% and the right one the top 10%. Move the left one up at an angle by one inch, then move the right one up by twenty inches. That disparity illustrates what has transpired over these forty years in wage differential.

I have written before the efforts by the current President to create fear of immigration and trade deficits as the reasons for disenfranchisement in various areas over look the main two drivers – chasing cheap labor and technology improvements. Immigration is actually accretive to the economy, even illegal immigration as there are many jobs that Americans have said they don’t want.

But, if the President wants to solve an illegal immigration problem, he should begin with punishing employers who hire these workers. I have noted before about a textile company who went bankrupt and closed its doors. When career counseling people said in an auditorium full of workers that you had to have a Social Security Number to get access to benefits, 1/3 of the audience got up and left. The construction, agricultural and restaurant industries would have severe issues if these immigration wells dried up.

Yet, the two main drivers of wage stagnation and good paying jobs do not get talked about – chasing cheap labor and technology gains. An unnamed CFO said in the book “The Rich and the Rest of Us,” an employer would get by with no employees if it could. So, robotic machinery has been displacing workers for many years. And, now it is becoming even more efficient and affordable. We do much more manufacturing in the US today than in 1980, but with much fewer workers.

Yet, with these tools and possible actions available to an employer who has a monopsony in an area, good paying jobs are fewer in number. Mind you, high-tech manufacturing and similar jobs exist, but they are not in the same number with so much competition for wages. I make this last point as the disenfranchisement is real and not made up. To his credit, Trump went out and visited these areas. But, what they did not realize, he was selling on fear, over-simplifying the causes and highlighting the wrong major ones.

The disenfranchisement in the western world has a visual called the “elephant curve,” with a side view of an elephant with his trunk raised. The body of elephant is wage growth for the emerging and burgeoning international markets. The raised trunk reveals the rapid wage growth for the top 10% in the western world. The trough between the raised trunk and body, reveals the stagnation in wages in the western world.

So, immigration and global trade have an impact, but the key drivers are chasing cheap labor and technology. And, the last one will grow even faster than before. Yet, chasing cheap labor will continue to be a driver as well. It is the culmination of pounding on unions to weaken their voice. It is the active fight to keep minimum wages down over time. It is making tax changes dating back to the 1980s (and last December) that are more advantageous to the top 10%, giving them a chance to invest in technology and places to house cheaper labor. It is threatening to move jobs to gain wage limits.

Since the housing recession in 2008 and early 2009, we have seen unemployment decline and stay down. Wages have gone up some, but not near enough to track other increases in costs. We need to be discussing retraining impacted workers building off some success stories around the country. We need to renovate and repurpose deteriorated assets to create new jobs. We need to invest more in our infrastructure and jobs of the future. We need to stabilize the ability for employees, whose hours are limited, to get affordable healthcare, since employers hire more part-time and contractual employees to restrict them from joining their healthcare plans.

The disenfranchised employees and areas need a real voice who will speak to real causes, not over-stated ones. Monopsony is a hard word to say and is a hard word on these people. They deserve better than what they have been hearing.

 

 

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A simple economic question

As the US President seeks to close our borders and retrench from global markets, there is a simple question to ask. Let’s set aside what’s right or wrong from a humanity and safety standpoint. Let’s focus on a simple economic one.

Do we grow our economy more by letting people bring their ideas, work ethic and entrepreneurial spirit to our country and making it easier to do business with us, or do we accomplish more economic growth by closing our borders and forcing other countries and businesses therein to look to other markets for sales and supplies?

This thought struck me Sunday morning as I caught the Women’s Open Championship in the UK. What struck me is there were not any American golfers among the top two pages of the leader board. Thinking back to the World Cup in Russia last month, the American team was not present for this global event.

I recognize these are sporting events, but they are metaphors. If you don’t keep up, the world will move on. But, not keeping up does hit our economy, as well. In the US, unemployment is low, but we are having a hard time filling higher tech manufacturing jobs. US customer service jobs abound in Asia and the Philippines. And, many of our IT jobs are being done by people in India or who have moved here from such locations.

The first book which spoke to this is The World is Flat,” by Thomas Friedman. We live in a global economy with a global workforce. Employers need the best, cheapest talent they can find. The more commoditized the job, the pendulum swings to cheapest. The less commoditized, the pendulum swings to best. If we cannot fill the jobs here, they will be filled elsewhere. And, it should be noted that companies are leasing robots for $18 an hour, if they cannot fill the job.

We must be mindful of a key data point, immigration is accretive to our economy. Since Innovation is portable, new talent coming here brings more innovation. And, jobs are created around the Innovation. So, we need to be welcoming with better governance over immigration.

We also need to be easier to work with than we have become. When an entity makes it more difficult and less profitable to partner with, its trading partners look to other sources of sales and supplies. This has been happening for the last several months. And, as one farmer said, a subsidy won’t help if the customers go away.

Sadly, this issue has now been politicized, with fear and over-emphasis of causes. As I briefly noted above, the key reasons some areas are suffering are due to chasing cheaper labor and technology. The last issue is the larger concern as a CFO noted  in the book “The Rich and the Rest of Us,” by Cornel West and Tavis Smiley, “employers would do without employees if they could.”

So, look back at the simple economic question. What kind of country do we want to be? Then, add in the seasonings of doing the right thing and being safer. Global commerce actually makes the world safer, as you are less likely to go to war with your trading partners.

 

Two misconceptions need to be challenged

“Innovation is portable,” said David Smick, an economic advisor to Congressman Jack Kemp and Presidents Ronald Reagan and Bill Clinton, in his book “The World is Curved.” In essence, innovation will occur where it is welcome and the initial jobs will be created around it. We should not lose sight of this observation as we discuss our economic future.

Smick surprised many when he noted in his book the similarities in Bill Clinton and Ronald Reagan, who were the number one and three best job creating Presidents, in that order. They both loved global trade and hated deficits. And, they were known for their collaboration with Congress, even with an opposite majority in power. Collaboration is essential to getting buy-in and understanding of the problem and possible solutions.

With this context, we need to challenge some notions that do not tell the whole story and, as a result, could lead us down the wrong path. We need to look at holistic causes to problems, so that we can address them effectively. Our problems are not solvable by bumper sticker solutions, no matter how loudly and forcefully they are espoused.

Here are two of those simplistic notions and challenges to think about:

Immigration is taking jobs away. This is far too simple a statement. Our history has been built on immigration, who have tended to be hard workers and spawned a higher relative percentage of entrepreneurs. As noted in the famous play “Hamilton,” by Lin-Manuel Miranda based on the book by Ron Chernow, immigrants tend to work hard to make it in our country, as they did not have such opportunity from whence they came. Our economy actually flourishes more with immigration. But, as we look to better govern immigration, we should look at the whole picture. And, on the subject of illegal immigration, a concerted study of the impact of curtailing such on certain industries – housing construction, landscaping, agriculture harvesting, etc. – is critical as we move forward with better governance.

Global Trade is bad for domestic jobs. Global trade is actual good for a domestic economy creating more jobs around the world and here. The downside is companies tend to chase cheaper labor and always have, but an even greater threat to jobs is technology advances. A CFO said in the book “The Rich and the Rest of Us,” an employer will hire no one if he could make it work. Yet, what creates jobs more than anything else is “customers,” per Nick Hanauer, a venture capitalist. And, more trade means more customers. When we look to better govern trade, we need to look holistically at the jobs created domestically versus the ones lost. The ill-fated Brexit decision failed to consider all of the foreign companies who have European Headquarters, distribution and manufacturing sites in the UK. These companies are now reconsidering locations should Brexit move forward.

Of course, we need to better govern immigration and global trade, but we must guard against throwing the babies out with the bath water. Let me close with three thoughts.

First, we cannot shrink to greatness. Retrenching from your global market share makes little sense.  Second, think of all of the foreign companies who employ people in the US like Michelin, BMW, Mercedes, Husqvarna, Doosan, Volvo, Nissan, etc. who do so to keep manufacturing near distribution of its goods to their customers. Third, as an example, Steve Jobs is the biological son of Syrian immigrants. Had he not been in America, would Apple exist today at all or as an American company?

We cannot govern off bumper stickers. Our issues are complex. People who tout such ideas are doing a disservice to the problem and citizens through false promises.

 

 

Retrenching into silos is the exact opposite of what is needed

With the advent of more terrorists’ activities around the globe and the significant refugee crisis, nationalistic and jingoistic behaviors have taken more solid footing. With the backlash in some European countries, the Brexit vote and the rise of Donald Trump as an unlikely candidate for US President, show that protectionism is selling these days as a concept. These folks want to build actual and proverbial walls, rather than bridges.

Yet, that is precisely the wrong behavior needed. These so-called leaders feel if we segregate and retrench into our own little worlds, this cocooning will make everything better. What these so-called leaders fail to tell you is the significant benefits with being aligned, working together and doing commerce with each other. Economic trade breaks down barriers, as countries do not want to upset the financing of their economy and will work past governing differences.

President Abraham Lincoln did not coin this phrase, but he capitalized on it – keep your friends close, but keep your enemies closer.  Lincoln added several adversaries to his cabinet when elected. His view was if he could keep tabs on his opposition and argue with them, he could keep a lid on dissent at a time when dissent was in vogue. President Teddy Roosevelt was very open with reporters, in part because of his ego, but in large part to have the reporters be his eyes and ears. He would have them go speak with his department heads to learn what was going on.

Commerce breaks down barriers. Not only will we make more money by co-existing, we will be safer in turn. That is a concern of the Brexit vote, as the UK being a part of the EU makes the world safer and aids the economy of both entities. Like the UK, there is much to be gained in the US with the global economy, especially with companies who employ people here. Just here in Carolinas, there are multiple hundreds, if not thousands, of foreign companies who have US presences here, be it a North American headquarters or a major plant. BMW, Mitsubishi, Michelin, Doosan and Husqvarna come to mind.

We should not lose sight of breaking down barriers abroad. I have been a staunch supporter of doing trade with Cuba and Iran. The countries want to do business with us and we are well positioned to leverage that travel and trade. Just with Cuba and its 11 million people, it will be like adding a 51st state to our US economy. With Iran, of course, we need to keep our eyes open, but the median age of Iranis is age 35. We have a chance to create new economic paradigm with Iran which will live beyond the older regime. Plus, being closer to Iran will allow us to keep more tabs. This is the  best example of what Lincoln did.

The candidates who have touted building walls and retrenching are not being very open with the whole picture. They are using fear and an incomplete picture of reality. Companies have always chased cheap labor and as one CFO said in the book “The Rich and the Rest of Us,” if companies could get by with hiring no employees, they would. The greater threat is technology improvements as a new plant is not going to have 3,000 employees, it will have 300. On the flip side, Nissan in Tennessee and Mercedes in Alabama employ a great many American workers, which is not talked about enough as a benefit of globalization.

If we retrench, we will be reducing markets for goods and services. A venture capitalist once said what creates jobs is not owners, but customers. The fewer the customers, the fewer the jobs. But, with that said, there are elements of truth that workers need to ask more of the employers who have suppressed wages and let people go, to hire younger and cheaper workers. Companies are quick to hire cheaper, but need to be reminded that we employees are important and customers, as well.

I am reminded that two of the top three jobs creation Presidents had two things in common. Bill Clinton, the number one job creator at 22.8 million jobs, and Ronald Reagan, the number three job creator at 16.1 million, were both collaborators and advocated global trade, as reported in “The World is Curved” by David Smick, who was an economic advisor to both. Creating markets for trade and opening up our markets to others, in my view, is one of the best things a President can do.

Globalization is extremely important, but we need to manage it better. Throwing the baby out with the bathwater is something we must guard against. So-called leaders who are advocating this very thing need to be asked more questions. As they are not telling you the whole story.

 

Significant support passed laws for minimum wage increases in four states

On Tuesday, a few successful ballot initiatives were drowned out by the reporting of the Republican victories. Yet, some of the initiatives that passed are noteworthy due to their bipartisan support and magnitude of victory. In particular, four more states and one major municipality passed significant minimum wage increases beyond the federal requirement of $7.25 per hour.

– In Alaska, voters approved an increase in the minimum wage to $8.75 in 2015 with over 68% of voters favoring the increase.

– In Arkansas, 65% of voters passed an increase which will phase up to $8.50 in 2017.

– In Nebraska, 59% of voters passed an increase that will phase up to $9.00 in 2017.

– In South Dakota, 55% of voters passed an increase which will increase the minimum wage to $8.50 in January and index it with inflation.

– In San Francisco, the minimum wage will phase up to $15.00 per hour in 2018, becoming the second US city to pass a phased-in increase of that magnitude.

There are now fourteen states with increases decided in 2014 that will take the minimum wage beyond the federal minimum. I should add that Illinois received approval from voters to come back with a ballot initiative on a minimum wage increase. According to the Business Journal, 29 states have minimum wage rates higher than the federal level. These majority of states have done this due to the gridlock in Congress that has prevented them from acting on a recommendation by the President. There are two links to articles below, the first on the votes noted above, and the second which summarizes the fourteen states who passed such laws in 2014.

I have been personally advocating for an increase in the minimum wage for several years. The national living wage for one adult varies by location per an ongoing study by the Massachusetts Institute of Technology (MIT), but nationally is just over $10 per hour. This is the reason for the use of the number $10.10 per hour in several states and is consistent with what the President proposed for the new federal requirement and what he put in place for federal employees.

In my work with working homeless families, we observed that the median salary for our families was $9.00 per hour. We had several with an hourly wage over $11.00, but with a family, that cannot cover what is needed. For an adult with one child, the living wage is in the $19.00 per hour range. It should be noted that a single working mother family is the fastest growing homeless group. Many of our homeless working mothers are victims of domestic violence, divorce or having children out-of-wedlock.

The current minimum wage cannot support an adult, much less a parent. This issue has bipartisan support and several retailers have grasped the need to increase wages. I applaud these states and their voters. Now, we need Congress to take up this issue. It is not just a Democrat issue; it is an American issue.

http://www.commondreams.org/news/2014/11/05/minimum-wage-measures-pass-overwhelmingly-even-red-states

http://www.economicpolicyjournal.com/2014/11/minimum-wage-law-hikes-passed-across.html