issue: Labor

How Bad is the Job Situation, Really?

Posted on by The Progressive Policy Institute

When it comes to economic conditions, I’m generally a glass-three-quarters-full kind of guy. Take unemployment. Quick—what was the risk in 2008 that an American worker would experience at least one bout of unemployment? Chances are you thought that that risk was higher than one in eight.* But figures from government surveys indeed suggest that thirteen out of fifteen workers (or would-be workers) had not a single day unemployed during the first year of the “Great Recession”.** (Incidentally, the recessions of the mid-1970s and the early 1980s were also called the “Great Recession” by some commentators.)

The 2009 data won’t be out until later in the year, but if last year ends up comparable to the depths of the early 1980s recession, then the average worker will “only” have had a seven in nine chance of avoiding unemployment.*** But these figures overstate economic risk because some unemployment is voluntary and much of it is brief. According to the Congressional Budget Office, the chance that a worker experienced an unemployment spell lasting more than two weeks during the three years from 2001 to 2003 was just one in thirteen—a period covering the last recession.

So as I’ve been following the debate about unemployment insurance and whether it actually worsens the unemployment rate, I’ve actually been open to the idea that being able to receive benefits for up to two years might create perverse incentives. The research is not as uniformly dismissive of the idea as some liberal assessments have implied (go to NBER’s website and search the working papers for “unemployment” if you want to check this out yourself).

In particular, the idea that there were 5 people looking for work for every job opening struck me as sounding overly alarmist. So I started looking into the numbers to determine whether I thought they were reliable. The figures folks are using rely on a survey from the Bureau of Labor Statistics called the Job Openings and Labor Turnover Survey, which unfortunately only goes back to December of 2000. But the Conference Board has put out estimates of the number of help wanted ads since the 1950s. Through mid-2005, the estimates were based on print ads, as far as I can tell, but the Conference Board then switched to monitoring online ads. You can find the monthly figures for print ads here and the ones for online ads here. The JOLT and unemployment figures are relatively easy to find at BLS’s website.

When I graphed the two Conference Board series (which requires some indexing to make them consistent–the print ad series being an index pegged to 1987 while the online series gives the actual number of ads) against the number of unemployed, and then the JOLT series against the unemployed, here’s what I found:

I’ll just say I was shocked and that I am much more sympathetic to extension of unemployment insurance than I was yesterday.

*The post originally said one in ten, which was wrong (the result of mistakenly using a figure I had computed for an older age range). Technically, the the figure was 13.2%, or 1 in 7.6.
** The original post said nine out of ten.
*** The original post said that if it reaches the depths of the 1990s recession, then the average worker will have had a five in six chance of unemployment. I located data for the early 1980s recession, which is a better comparison to the current one.

This item is cross-posted at https://www.scottwinship.com/1/post/2010/07/how-bad-is-the-job-situation-really.html.

Andy Grove and a Needed Conversation

Posted on by The Progressive Policy Institute

The recent Bloomberg BusinessWeek cover story by former Intel CEO Andy Grove, “How to Make an American Job,” has stimulated no shortage of reaction in the blogosphere. From the even-handed and the thoughtful, to the politely skeptical and the sharply critical, bloggers and commentators have weighed in on Grove’s essay.

What precipitated this running debate is Grove’s apparent suggestion that, to spur job creation and innovation, the United States should instigate a national-level industrial policy which favors some companies over others. He points to successful Asian economies as potential models. The distinguishing characteristic of the favored companies would be, what Grove asserts is the real engine of job creation, the scaling process:

Equally important is what comes after that mythical moment of creation in the garage, as technology goes from prototype to mass production. This is the phase where companies scale up. They work out design details, figure out how to make things affordably, build factories, and hire people by the thousands. Scaling is hard work but necessary to make innovation matter.

Other commentators have already pointed out that Grove perhaps focuses too much on manufacturing (and specifically technology manufacturing such as semiconductors), and that he misses the critical importance of startup firms to job creation and innovation.

I agree that the long-running lament over the loss of manufacturing jobs in the United States is overdone—much of that employment reduction has come about through productivity gains rather than offshoring. The scaling process Grove celebrates is in fact partly responsible for the loss of technology manufacturing jobs. Since 2000, industry concentration in Silicon Valley has increased dramatically in sectors such as computer equipment manufacturing and semiconductor manufacturing while employment has fallen. Just last week, my colleague Tim Kane published a report on just how much startups matter to net job creation in the United States. As Tim puts it, startups aren’t everything, they’re the only thing.

Finally, Vivek Wadhwa offers what is probably the best take on Grove’s article—Vivek is hugely knowledgeable about innovation in China and India, and offers, as others have not, actual concrete suggestions for how we can reignite economic growth in the United States.

Despite the flaws in Grove’s essay,  it should not be dismissed. For one thing, he is a highly intelligent and highly successful entrepreneur who has lived through—indeed, helped shape—dramatic transformations of the U.S. economy.

Furthermore, scale companies are important to economic growth. No one can talk about the economic history of the United States without mentioning the scale companies that, at each stage of development, pioneered innovations, reduced costs and generally helped spread prosperity: Union Pacific, Standard Oil, Ford Motor, Wal-Mart, Intel, Microsoft, Google. Obviously, economic growth cannot solely be ascribed to such firms—they are only one piece of the economic ecosystem and while Grove may have overemphasized scale, he certainly was not wrong to discuss it. But the process of scaling must be contextualized: startups are essential in part because, without them, we do not even get to the scaling process. Competition helps ensure that scaling is accompanied by innovation and efficiency. Once they reach a certain level of scale, large firms depend on the acquisition of startups as a source of innovations and new jobs.

Scale firms can also be merely seen as incidents of deeper factors driving growth. After I gave a presentation on the economic contribution of high-growth firms a few months ago, an eminent economist dismissed everything by saying, “well, yes, but this is all simply explained by information technology; that’s the real story of growth.” The IT-as-the-root-of-all-prosperity argument has been popular in recent years but, as Paul Kedrosky later pointed out to me, this is a “turtles all the way down” type of argument. Behind IT is cheap energy, behind cheap energy is access to natural resources, behind natural resources … and so on. (Scale companies, in fact, could even be seen as a fertile source of knowledge for economists themselves: Thomas McCraw, inter alios, has argued that the rise of scale firms in the second half of the 1800s helped prompt the marginal revolution in economic thought.)

All of this still overlooks the most important part of Grove’s article, a point that escaped me upon first reading: “A new industry needs an effective ecosystem in which technology knowhow accumulates, experience builds on experience, and close relationships develop between supplier and customer.” The reason that the scaling process—rather than simply scale itself—is economically important is the learning-by-doing path by which it proceeds. Knowledge accumulates, innovations come and go, companies iterate back and forth—this is the messy process by which economic growth happens. If this reading is correct, Grove is claiming that the offshoring of technology manufacturing jobs threatens such learning-by-doing. In this formulation, productivity gains in manufacturing can actually undermine future cycles of learning and iterating.

The conversation Grove is trying to stimulate is worth having. It is probably too much to extrapolate technology manufacturing to the entire U.S. economy. There are certainly sectors, aside from manufacturing, in which learning-by-doing drives growth and it is not clear that those sectors have lost such capacity. Software development and certain institutions in the world of health care rely on this process. Yochai Benkler’s work can be seen as emphasizing the extent to which learning and iteration underwrites a great deal of innovation across the economy today.

But Grove’s point should be taken seriously in the sense that real barriers exist to innovation and the scaling process in many areas of the economy. Rather than seeing his article as a call for a government-driven competitiveness agenda or industrial policy, we should read it as a starting point for seeking out release valves at which small changes can be made that would release huge amounts of pent-up entrepreneurial energy. The stunted process of commercializing innovations out of universities leaps to mind as an area ripe for such analysis, as does current immigration policy. The national conversation about innovation and economic growth should be engaged in exactly this type of search.

Photo credit: jurvetson

Good Ol’ Days

Posted on by The Progressive Policy Institute

When House Republican leader (and would-be Speaker) John Boehner claimed the other day that Democrats were “snuffing out the America I grew up in,” it didn’t cause much reaction (or at least far less than his remarks on Social Security and on financial regulation), since it’s the kind of thing conservatives say all the time. But as Mike Tomasky quickly noted, it was a very strange statement if you actually think the problem with Democrats is their addiction to big government and their subservience to unions:

Boehner was born in November 1949. Let’s take a look at the America he grew up in.In the America John Boehner grew up in, the top marginal tax rate on wealthy earners was 90%. It had gone up there during the war, and five, 10, 15 years after armistice, no sizable group, Democrat or Republican, felt any strong urge to lower it.

In the America John Boehner grew up in, private-sector union membership was around or above 30%. Today’s figure is 7%. The right to form a union was broadly accepted. Outside of a few small turbulent pockets, there was no such thing as today’s union-busting law firms hired by management to go into workplaces and intimidate workers.

That’s all very true. But as Matt Yglesias observes, the country was in fact a lot more conservative back then on the cultural front:

[In] many other respects the America of John Boehner’s youth was a much more right-wing country. Gays and lesbians were stuffed deep into the closet, and there was no suggestion that they should be allowed to serve openly in the military or in any other role. African-Americans were subjected to pervasive discrimination in housing and employment, and in the southern states they couldn’t vote or exercise any basic rights–all this backed by the state, and also by collusion between state authorities and ad hoc terrorist groups. It was a whiter country with dramatically fewer residents of Asian or Latin American descent. It was a more religiously observant country, and it was a country in which Jews were far from fully accepted into American life.I’m not nostalgic for that era at all. There are a few areas of policy in which I think we’ve moved backwards since the mid-sixties, but I wouldn’t want to return to an America with almost no immigrants or to an America with a single monopoly provider of telecom services. I’m glad airlines can set their own ticket prices and I’m glad black people can sit in the front of the bus. What is it that Boehner misses?

What indeed? Let’s all remember Boehner’s regret for the passing of the good ol’ days of high taxes, strong unions, Jim Crow and homophobia next time we are told that the GOP wants to declare a truce in the culture wars, or only cares about economic or fiscal issues.

This item is cross-posted at The Democratic Strategist.

On Fiscal Reform, Can Pragmatists Trump Ideologues?

Posted on by The Progressive Policy Institute

In a piece published this Sunday, Edmund L. Andrews and Eric Pianin serve up a profile in Fiscal Times of an odd couple who will be crucial to the effort to restore fiscal sanity to the country.

On one side is Andy Stern, labor firebrand and former head of the Service Employees International Union, the nation’s fastest-growing union. On the other is David Cote, chairman and CEO of Honeywell, a global technology firm. Both are members of President Obama’s deficit commission tasked with issuing recommendations to address the nation’s fiscal crisis. Both consider themselves pragmatists who believe they can bridge the partisan gap and help engineer lasting solutions to our budget problems.

But even the appearance of comity can’t hide the basic ideological differences between the two sides:

Cote emphasizes that economic growth is the key to fiscal stability, and Stern politely contends that it’s unrealistic to bank on economic growth alone as the solution. “There are some people who say, ‘Let’s grow our way out of it,’ ” Stern said. “Okay. Tell me how much growth we’re going to need? Has it ever happened before?”

The subtext of their exchange is clearly about the broader clash. Republicans warn that higher taxes will imperil economic growth and focus on the need for spending cuts. Democrats argue that some of the biggest GOP targets — safety-net programs — need to be protected and that deficits are too big to be closed without at least some tax increases.

That elemental difference looms in the background of any feel-good story of bipartisan agreement on fiscal reform. It would be tragic if the commission’s work and the administration’s efforts to forge a consensus on budget reform crash on the shoals of ideology. Everyone can agree that the country is on an unsustainable path. What everyone should also be able to agree on is the need for reform on both sides of the ledger. New streams of revenue need to be found. Entitlement reforms need to be made. And yet denial prevails over too many folks on both sides of the ideological divide.

Stern has a good record of reaching out to unlikely allies — see his work with Wal-Mart and the Business Roundtable on passing health care reform. But even his efforts might fail in the face of calcified dogmas and a lack of urgency among political and policy elites. How the commission’s efforts play out — it’s aiming to release its findings in December — will be one of the most compelling policy dramas in the coming months. Stay tuned.

Photo credit: Center for American Progress Action Fund

Labor’s Love Lost

Posted on by The Progressive Policy Institute

Organized labor may be struggling to attract members, but it apparently has abundant cash to spend on a counterproductive campaign to impose ideological conformity on the Democratic Party.

A coalition of unions has targeted Sen. Blanche Lincoln, who stands accused of excessive moderation. Lincoln’s campaign says the unions have spent $10 million to defeat her in tomorrow’s Democratic primary in Arkansas. As Chris Cillizza reports in today’s Washington Post:

Ostensibly, Lincoln’s opponent is Lt. Gov. Bill Halter. But the practical reality is that she is running against a handful of major labor unions — the Service Employees International Union and the American Federation of State, County and Municipal Employees, to name two.

Labor accuses Lincoln of deviating from the party line on two key issues. She opposed the “public option” in health care and doesn’t support the Employee Free Choice Act (EFCA), labor’s top legislative priority. EFCA, aka “card check,” would make it easier for unions to organize.

It seems odd to make the public option a retroactive litmus test, especially since Lincoln joined with all the Senate Democrats to vote for the landmark health care reform bill. (She was a “no” on the “fixes” to the bill passed via reconciliation, but health reform was by then already law of the land.) And President Obama himself was less than passionate about the public option, making it clear that he wouldn’t let it get in the way of passing the bill.

As for EFCA, unions are incensed that the bill won’t move, despite endorsements from the president and Democratic congressional leaders. But Lincoln is hardly the only moderate Senate Democrat who has qualms about the bill, which is why it remains snagged. If progressives are honest with themselves, they will admit that EFCA’s provisions for card check elections and for binding arbitration will need tweaking to get through the Senate.

The unimpeachably liberal Sen. Tom Harkin (D-IA) has signaled his willingness to negotiate changes aimed at winning moderates’ support. But so far, labor seems more interested in having an issue than in having a bill.

Fine, but is labor’s pique with Lincoln over the public option and card check really worth the risk of whittling down the Democrats’ majority in the Senate, one likely to become even more precarious after the midterm elections?

According to the Post, some labor officials don’t really care if Lincoln loses – the very threat that she and other moderates can be “primaried” for ideological offenses is sufficient to keep them in line. This flexing of labor’s political muscles to intimidate friends may be gratifying, but it’s politically dumb. It ignores the reality that the progressive coalition needs both liberals and moderates to sustain a governing majority, and that if you target moderate Democrats running in moderate-to-conservative states, you’ll enhance the odds of getting a Republican.

Former President Bill Clinton gets it. He’s made several appearances for Lincoln, urging Arkansas Democrats not to get swept up in crusades by outside pressure groups to purge moderates. The curious role played by Halter in this Razorback saga also deserves attention. A card-carrying centrist who worked in the Clinton administration, Halter is no Joe Hill. In allowing himself to be labor’s instrument for punishing a fellow pragmatist, he’s raised questions about his own authenticity, even as he attacks Lincoln for being a captive of Washington.

Even if Halter wins and goes to the Senate, the public option will still be history, EFCA will still be stalled and Democrats will still need moderates from red states to hold onto a majority. Labor also has to operate within the broader progressive coalition, and it can surely find better ways to invest its money than in fomenting dissension within the ranks.

Photo credit: USDAgov’s Photostream

The Bipartisan Jobs Bill

Posted on by The Progressive Policy Institute

The big political news of the day was the Senate’s passage of a $15 billion jobs bill with not one, not two, but five Republicans on board. The five Republicans who voted for it were the three Northeasterners (Sens. Susan Collins and Olympia Snowe, both of Maine, and Massachusetts’ Scott Brown) and two retiring members (Sens. Kit Bond of Missouri and George Voinovich of Ohio). In other words, considering the bill was largely made up of tax cuts that the GOP would normally vote for, it was still an astoundingly weak show of Republican support.

But it’s undeniable that the appearance of Republican Senate votes is a change from the dismal pattern of recent months. Does the vote herald a new day for the Senate? Too early to tell, of course — but it does give a hint of how Senate Democrats’ plan to break up their job-creation initiatives into smaller pieces and forcing Republicans to vote against them could work.

Brown, in a statement following his vote, said, “I came to Washington to be an independent voice, to put politics aside and to do everything in my power to help create jobs for Massachusetts families.” How did Brown’s vote go over with conservatives? Take a guess. In the months to come, the breakup between Brown and the Tea Partiers — because, let’s face it, Brown is a moderate Republican — will make for compelling political theater.

More important than Brown’s vote is what effect it might have on the Maine senators. You may recall that Collins and Snowe were two of three GOP votes for the stimulus bill. Snowe also gave a vote to the Senate Finance Committee’s health bill. Will the appearance of another Northeastern moderate Republican embolden them to break off more often from their party’s obstructionist game plan? If so, then bipartisanship actually comes back into play for Democrats in the Senate.

While the jobs bill is too small to have much of an effect, it is, in the words of economist Mark Zandi, a “good first step.” Reid’s idea was to have votes on a succession of job-creation measures that would force Republicans to either keep saying “no” on bills that should be popular with the public or join Democrats in getting something done. The question now is whether the Democrats can follow through. To be continued.

Creating American Jobs, Generating American Energy

Posted on by The Progressive Policy Institute

A new policy memo from Third Way offers 23 ways to create clean energy jobs and lay down the foundation for a green economy. The memo breaks down its proposals into short-, medium-, and long-term ideas for generating new jobs. Among the proposals include a small-business energy efficiency loan program; advanced energy manufacturing tax credits; transitioning diesel heavy vehicles to natural gas; nuclear workforce training; and the creation of a National Infrastructure Bank.

Labor and the Excise Tax on Insurers

Posted on by The Progressive Policy Institute

From today’s The Hill comes word that the AFL-CIO has fired another volley across the bow of Senate Democrats on the issue of the excise tax for high-cost health plans:

AFL-CIO President Richard Trumka warned Senate Democratic leaders not to include a tax on high-cost healthcare plans in a bill that is expected to reach the floor in coming days.

Trumka dismissed the notion that Democratic leaders could placate the powerful union by raising the threshold on plans that would be subject to the tax. Under the Senate Finance Committee’s bill, plans costing more than $8,000 for individuals and $21,000 for families would be hit with a 40 percent excise tax.

As others have pointed out, the tax-free status of employer-provided health benefits is a regressive relic that, in an ideal world, we would be jettisoning. Hardly an assault on that system, the Senate Finance Committee’s bill takes modest steps to chip away at it by levying an excise tax on insurers for so-called “Cadillac” plans. The tax would bring in about $200 billion through 2019, making it a vital source of funding for health care.

But labor remains unmoved. Trumka’s statement is only the latest salvo from the unions. In September, AFSCME President Gerald McEntee took to the pages of USA Today to argue against taxing high-cost insurance plans. The unions claim that any tax on such plans would harm middle-class families. Their concerns aren’t entirely unfounded. Middle-class workers in high-risk jobs or high-cost areas might meet the Finance Committee’s $21,000 threshold, making them subject to the tax. (The tax would be levied on insurers, but everyone acknowledges that it would get passed on to employees.) In addition, older workers are likelier to have high-cost plans, making them prone as well.

But a closer look at the Finance Committee’s bill shows that labor’s concerns are overblown. The legislation is studded with exceptions that aim to soften the blow to middle-class workers. For one thing, it sets the thresholds 20 percent higher in the most expensive third of states. In addition, workers in high-risk jobs or 55 and older have a higher cap.

Despite these exemptions, labor isn’t budging — and they have made their influence felt. Earlier this month, 154 House Democrats sent a letter to House Speaker Nancy Pelosi (CA) urging her “to reject proposals to enact an excise tax on high-cost insurance plans that could be potentially passed on to middle-class families.”

One of the striking things about the administration’s approach to policy has been its effort to include all the stakeholders on a given issue, and to urge them to make concessions for the sake of national interest. By making a stand on the excise tax, labor has shown a disappointing unwillingness to make sacrifices for the greater good. It would be a tragedy if reform floundered now because of the unions’ insistence on defending a regressive and unfair feature of our health care system.