- Published on Friday, March 06, 2015
by Rick McGahey, SCEPA Faculty Fellow
Read Rick's comments in today's International Business Times, "Unemployment Report: Six Years After The Great Recession, Are The Good Jobs Ever Coming Back?"
This morning's employment report for February continues the story of this recovery: job growth trending upward, but still lots of slack in the labor market, and no signs of inflationary pressure. Jobs are growing, but wages and hours are not, and many of the jobs are low-wage.
295,000 jobs were added in February, in line with the three-month average of 288,000. Over the past year, job growth has averaged 266,000 per month. The unemployment rate ticked down slightly to 5.5% from 5.7 in January; over the past year, the rate has fallen by 1.2%, so we are seeing an improving labor market. But the labor force participation rate remained essentially unchanged, and is stuck at its lowest level in 37 years.
Wages and hours also remain flat, tempering any interpretation that we have a booming labor market. Average hourly wages were up by three cents, and have only risen by 2% in the past year. And average hours worked also remained flat—in February 2015 hours were 34.6, only two-tenths more than one year ago.
So we are seeing some job growth. But it isn't very strong, and the jobs aren't very good. Labor force participation, wages, and hours all are signaling a labor market with a lot of slack, and no significant upward cost pressures. The Federal Reserve should not be considering raising interest rates when faced with these numbers.
- Published on Tuesday, March 03, 2015
This week's Worldly Philosopher, Anthony Bonen, discusses how even the best models for estimating the costs of adapting to climate change are still a guessing game.
Estimates of the social cost of carbon (SCC) focus almost exclusively on the net benefit/loss of mitigating climate change. The cost of adapting to the unmitigated impacts of climate change remains an even more elusive figure. Properly calculated, however, SCC should include both dimensions.
As discussed in an earlier SCEPA working paper, SCC model estimates of mitigation costs are notoriously difficult to pin down. But, after being asked to give a presentation on adaptation, I soon learned that there is far less certainty in these costs. For developing countries, estimating the cost of climate change adaptation is essential. Their success or failure in saving lives, reducing poverty and becoming resilient to climate change depends in large measure on how much support – financial, logistic and political – the industrialized world is willing to provide.
Systematic efforts to estimate the global cost of adapting to climate change began in earnest only in 2006 with a World Bank study of investment flows in the developing world .1 The second generation of adaptation estimates relies on impact-level assessments. The best example of these more detailed, but still top-down, studies is the World Bank's report . The IPCC's chapter on the Economics of Adaptation  calls it "[t]he most recent and most comprehensive to date global adaptation costs [in which] costs range from US$70 to more than US$100 billion annually by 2050." The conservative estimates for each of the 6 sectors are reproduced in Table 1.
- Published on Thursday, February 26, 2015
Brad DeLong, a widely-read economist and blogger, cites SCEPA economist David Howell's work investigating the causes of wage inequality and unshared productivity growth as today's "Morning Must-Read." Howell's research with the Washington Center for Equitable Growth asks, what happened to shared growth?
"Most economists continue to explain the explosion of earnings inequality with conventional supply-and-demand stories, in which worker compensation is believed to accurately reflect the contribution workers make to production. Thus, in this view, CEOs and financiers have received skyrocketing salaries, especially since the mid-1990s, because they are now contributing dramatically more to their firms and to the economy as a whole.
Similarly, the bottom 90 percent have seen stagnant and falling wages because they've fallen behind in the "race between education and technology." The computerization of the workplace requires greater cognitive skills, but workers have not kept up, as indicated by the slowdown in college graduation rates. Assuming (nearly) perfectly competitive markets, the explosion in wage inequality in this view must reflect a similarly explosive increase in skill mismatch (too many low skill workers, too few high skill ones).
Such arguments leave little or no room for labor market institutions and public policies in determining changes in the distribution of earnings up and down the income ladder. An alternative view is that institutionally-driven bargaining power is a critical piece of the story, whether it is the noncompetitive "rents" earned by top managers and financiers, or the collapsing power of hourly wage employees."
- Published on Wednesday, February 18, 2015
On April 21, 2015, William "Sandy" Darity will present "Does Racism Make You Sick?: Health, Race, and Wealth in America" at SCEPA's Annual Robert Heilbroner Memorial Lecture on the Future of Capitalism. Sandy Darity is the Samuel DuBois Cook Professor of Public Policy, African and African American Studies, and Economics and the Director of the Duke Consortium on Social Equity at Duke University. His research focuses on inequality by race, class and ethnicity.
6:00pm, Tuesday, April 21, 2015
The New School, Wollman Hall
65 West 11th Street, Room 500, New York
The Robert Heilbroner Memorial Lecture on the Future of Capitalism:
In 1963, Robert Heilbroner earned a Ph.D. in Economics from the New School for Social Research, where he was subsequently appointed Norman Thomas Professor of Economics in 1971. He taught at The New School for the next 20 years. Each year, SCEPA hosts a lecture by a distinguished scholar on long-term economic trends to honor Heilbroner's life work.
This annual lecture is used to gain a greater understanding of questions of economic justice and how the profit-seeking activities of private firms might also serve broader social goals. To use his words, "capitalism's uniqueness in history lies in its continuously self-generated change, but it is this very dynamism that is the system's chief enemy."
- Published on Tuesday, February 10, 2015
Cole Strangler of the International Business Times provides context for the Department of Labor's January employment report in his article, Job Growth Still Hasn't Translated Into Wage Gains. He describes real people's experiences with wage stagnation and illustrates the balance between business and labor.
"Standard economic theory holds that, at some point, sinking unemployment will translate into wage gains: When companies have a smaller pool of talent to choose from, they tend to offer more attractive salaries. By the same token, when workers have a sense of job security, they're more likely to ask for a raise.
This hasn't happened.
"I haven't run any empirical work on this, but I'd want to see the unemployment rate a lot closer to 5 percent, maybe even slightly below, before I would expect to see that we'd get significant wage pressure," said Richard McGahey, an economist at the New School and former economic policy adviser for Sen. Edward Kennedy.
Shrinking union density has boosted the share of profits going to bosses rather than workers, McGahey said."
- Published on Friday, February 06, 2015
by Rick McGahey, SCEPA Faculty Fellow
Employment for the first month of 2015 continued the steady growth from last year. 257,000 new jobs were added, and although the unemployment rate ticked up one-tenth of a percent to 5.7, that resulted from people entering the labor force to look for jobs—what economists call "labor force participation." Participation in December was at an historic low, so there's a long way to go to restore healthy levels there.
Average hourly wages in January rose to $24.75, up half a percent from December (December's average wage rate actually declined). But wages are only 2.2% higher than one year ago. Weekly hours worked, however, were flat, at an average of 34.6 hours per week, the same as December, and virtually unchanged from last January's level of 34.4.
So jobs are being added at a steady pace—260,000 per month in 2014, the highest average monthly level since 1999. But the wage and hour data are not signaling any huge economic rebound or inflationary pressures. Make no mistake, this is still a lukewarm economy and labor market, and we are now 67 months into the recovery, above the 58-month average for recoveries since 1945.
The weak wage and hour data are part of a longer running economic trend—declines in the "labor share" of GDP. The share of gross domestic income going to employee compensation peaked in 1970 at 58.4%, and has been on a steady decline since then. In recent years, that share rose to 55.3% in 2008, just before the Great Recession, falling to 52.1% in 2013. A weaker labor share means weaker overall consumption and consumer demand, and the economy will not grow strongly.
There are various theories about why the labor share has declined. Some blame technological substitution, especially the spread of information technology into all sectors of the economy. Other scholars emphasize the loss of good-paying jobs to trade and corporate outsourcing (NSSR Dean Will Milberg's recent book with Deborah Winkler makes a strong case for this). Labor share also is reduced by declining union power, and economic "financialization," as businesses retain profits, hoarding cash, buying back stock and paying dividends instead of making new productive investments.
But all these factors pull in the same direction - a continuing shift in power towards business and away from labor. These longer-term forces are undercutting workers' bargaining power, so the steady job growth we are now seeing is not translating into higher wages. We need greater government investment to compensate for weak overall demand, and the Federal Reserve should not raise interest rates, as annual wage growth is very modest and well within their already conservative inflation targets.
- Published on Monday, February 02, 2015
This week's Worldly Philosopher, Ozlem Omer, discusses the flaws in the latest IMF policy recommendations for Turkey.
The December 2014 IMF Report is no exception. In it, the IMF warns Turkey that its persistent and large external debts make the country vulnerable to foreigners' willingness to lend - even though the Turkish economy has been growing 6% per year since 2010. The report criticizes Turkey's high inflation and foreign exchange rates, low interest rates, low levels of domestic savings, high external deficit, and, of course, increasing levels of private external debt. It predicts Turkey will likely face a dangerous reversal of capital flow. If foreign pension funds, rich foreign investors, and other countries stop lending money in Turkey, the nation could experience economic and social shocks exceeding the fallout from the 2009 recession.
The IMF suggests Turkey "curb its current account deficit and reduce the external deficit by boosting savings without decreasing investment—and lowering inflation to preserve competitiveness." In short, it calls for Turkish austerity.
- Published on Monday, January 19, 2015
This week's Worldly Philosopher, Ismael Cid, discusses how the decline in employer-sponsored retirement plans has forced a growing number of Americans to postpone retirement.
In his 1930 essay, "Economics Possibilities for Our Grandchildren," economist John Maynard Keynes predicted a future of increased living standards and 15-hour workweeks. He envisioned a rise in living standards - equivalent to what we have experienced over the last 85 years – that would allow us to devote our energies to non-economic purposes. In his words, "the lilies of the field who toil not, neither do they spin."
A future of longer and healthier lives proved right. Unfortunately, however, reality does not bear out Keynes' vision of security and leisure. In fact, it is the opposite. Increased life expectancies and the challenges of a graying population have encouraged some economists to champion a retirement policy described as "work until you drop."
SCEPA Director and retirement expert Teresa Ghilarducci recently described the growing problem of retirement insecurity behind this new reality. Rather than a savings problem, SCEPA research documents the underlying structural problem: employer sponsorship of retirement plans for prime-aged (25-64) workers declined from 61% to 53% from 2002 to 2012.
- Published on Monday, January 05, 2015
This week's Worldly Philosopher, Raphaele Chappe, questions the inequality in investor returns.
As discussed at great length in prior posts, Piketty has argued that inequality is directly linked to the return on capital r exceeding the growth rate of the economy g. Yet a fascinating (perhaps controversial, and less discussed) claim is that the average rate of return on capital is not the same for all investors depending on the size of the portfolio – in short, contrary to the efficient market hypothesis, some investors do earn higher returns in the long run.
Piketty points to the fact that the wealthiest individuals in the world have earned annual returns of 6.8% per year since 1987, compared to the world average of 2.1%. Using university endowments as a case study, he also points to higher endowments earning higher returns in the long run (see Tables 12.1 and 12.2 in Piketty, 2013). Other research confirms that rich universities are getting better returns and do seem to benefit from better asset selection abilities.
Finance tells us that higher returns for wealthier investors could be achieved in two ways. First, by taking on more "risk" and investing in stocks with higher "beta," or products with embedded leverage (such as derivatives). Second, by getting a higher return per unit of risk than what should be expected given the beta. This second component is known as the "alpha," measuring the return above the risk-adjusted performance of a benchmark index and (supposedly) a measure of the skill of the active asset manager. We can imagine that factors such as better information (or even insider information), arbitrage opportunities, or advanced tax planning can generate considerable alpha. Piketty points to significant economies of scale associated with the size of the portfolio.
Do higher returns to high net-worth individuals or institutions come from an ability to take more risk or from higher alphas?
- Published on Friday, December 05, 2014
by Rick McGahey, SCEPA Faculty Fellow
This morning's release of the November employment report is one of the strongest we have seen for some time. But a closer look at the underlying numbers, especially in historic context, shows a continuing weak labor market, with the labor share still playing second fiddle to profits and corporate dominance.
Total payroll employment grew by a very robust 321,000 jobs, with gains in virtually every major sector of the economy. The "diffusion index" which measures how growth is spread across sectors was 69.7 percent (50 percent would show half of all industries gaining jobs, and half declining). And the September and October jobs numbers were revised upwards by a total of 44,000, so we now have a three-month average jobs increase of 278,000 per month.
Average hourly earnings also rose, by nine cents per hour, to $24.66, the biggest monthly increase since June 2013. In the past twelve months, hourly earnings have risen by 2.1 percent. The only lagging jobs indicator is average hours worked, which at 34.6 hours per week is essentially unchanged from a year ago.
The unemployment data, based on household surveys, is less exciting. The unemployment rate (5.8 percent), labor force participation (62.8), and employment-to-population ratio (59.2 percent) were all essentially flat. In the next few months, if job and wage growth continues, we should see improvements in all three of those ratios.
Is it time to declare victory?
- Published on Monday, December 08, 2014
This week's Worldly Philosopher, Kyle Moore, exposes the disproportionate burden raising the retirement age would put on Black Americans.
Recent years have seen a spike in both traditional and social media coverage of violence against black youths. The creation of the viral hashtag #BlackLivesMatter, most recently associated with the Ferguson, MO police killing of unarmed black teenager Michael Brown, captures this shift in public attention towards the long prevalent issue.
There is another segment of the black population whose lives are being undervalued in 2014. Elderly blacks' lives are not properly accounted for as changes to retirement policy are considered in Washington. Policymakers are using the fact that the "average" American's life span is increasing to justify raising the retirement age to 70, in spite of black Americans not sharing equally in this increase in life span. If black lives do indeed matter for the old as well as the young, then policymakers will have to grapple with the persistent and growing disparities in life span and sickness between the elderly black and white populations.
Black Americans Live Shorter Lives than White Americans—For Men, the Gap is Growing
Even though the "average" American is living longer at age 65, there are still significant gaps in life span between elderly black and white American men and women. In a policy note on racial disparities in longevity (life span) and mortality (risk of death), I look at the creation of a gap in expected years of life between black and white men at age 65. Starting in 1950, this gap in longevity has grown steadily to almost two years in 2010. For women the changes have been more mixed, with a gap in life span growing between 1950 and 1980, and shrinking between 1980 and 2010 to a one year difference.
Black Americans Don't Make it to Retirement Without Activity Limitations
In a follow-up note on racial disparities in morbidity (sickness), I look at black and white Americans' expected years free from activity limitations in relation to the current full retirement age. While Whites can expect to live 67 years without being somehow debilitated by sickness, just barely reaching the current full retirement age, Blacks can only expect about 61 years. This means elderly Blacks face the reality of having to either work while physically impaired, or applying for often stigmatized disability benefits.
If #BlackLivesMatter to Policymakers, Retirement Policy Should Account for Racial Disparities
Throughout the two policy briefs mentioned and a longer white paper on the subject, I discuss what researchers consider to be the major causes for these trends, and potential ways to reverse them. Differences in socioeconomic status account for over two-thirds of the gap in life span and for a significant portion of the differences in activity limitations as well. That being said, measures to address gaps in income and education level could go a long way towards increasing black American life spans and decreasing their rates of sickness.
The creation of the viral hashtag #BlackLivesMatter provides an opportunity to hold our government responsible for ensuring that black American life is adequately valued, no matter the age. Just as both traditional and social media have brought attention to young black life being cut short through direct violence, we should also direct our attention to the conditions leading to elderly black life being cut short indirectly. These conditions, as well as the realities faced by elderly black Americans, need to inform policymakers' decisions as they consider changes to retirement policy.
- Published on Tuesday, December 02, 2014
It is a fact that the "average" American is living longer. Unfortunately, it is also a fact that white women and men have longer life expectancies at birth than black women and men. However, in 1950, the United States could claim racial equity in one important respect – should they reach age 65, both black and white men could expect to live twelve additional years to age 77.
Sixty years later, this racial equity is now a racial gap. In 2010, white men at age 65 were projected to live almost 2 years longer than black men, while white women could expect to live one year longer than black women.
SCEPA's new Policy Note, "The Racial Longevity Gap Past Age 65: Implications for Raising the Retirement Age," documents this new racial gap in post-65 life expectancy. The research warns of the potential to disportionately burden black Americans under proposals to raise the retirement age and offers policy proposals to address the income gaps that decrease life expectancy.
- Published on Thursday, November 20, 2014
This week's Worldly Philosopher, Anthony Bonen, discusses the need for and possibilities of opening the field of economics to a diversity of approaches.
Last month, the University of Massachusetts Amherst hosted an eclectic group of New Schoolers at the 11th Annual Economics Graduate Student Workshop. As in past years, the discussions were engaging and, dare I say, inspiring. Representing as we do, marginal groups in the economics discipline, the engagement of UMass-Amherst and The New School's economics departments strengthens our ability to commit to economic pluralism. Although pluralistic and interdisciplinary approaches are desperately needed, their pursuit is not (*ahem*) optimal for the academic-career-minded graduate student. It is therefore essential that we be exposed to regular reminders that we – both our department and university – are not alone.
This year, the topics ranged from field studies of collective action in community-driven development in Brazil to critiques of Marxian models of technical change and an empirical analysis of how capital controls affect the real exchange rate.
Jessica Carrick-Hagenbarth's field study in Brazil evaluated eight cases of participatory development projects that supported income and infrastructure, such as fence building, irrigation and bee raising. Through a survey and interviews with project participants, she showed that strong links to extant social movements and community institutions helped avoid elite capture and free riding. Jangho Yang's Marxian critique argued that capital and labor are qualitatively different entities. Taking this incompatibility seriously shows that structural changes in the economy are not predetermined. Such changes are, instead, evolutionary. Finally, Juan Montecino's econometric analysis of exchange rate regimes posited that capital controls could be used to maintain under- or over-valuated currencies. He demonstrated that, by controlling (to some extent) the flow of capital into and out of an economy, policymakers could effect soft – if blunt – industrial policy.
The diversity of approaches represented in this sample is, unfortunately, rare in economics. When the conference comes back to New York City next year, we hope to bring together an even broader array of students from different departments in NSSR and from divisions across The New School. In so doing we would bring the university and the economics discipline closer to the ideals espoused by one of its founders.
- Published on Wednesday, October 15, 2014
On October 3, 2014, SCEPA hosted a discussion with Thomas Piketty, leading economist and best-selling author of "Capital in the Twenty-First Century." This is a brief interview prior to the discussion in which Piketty shares his unique view on economic science and what it means to be an economist.
- Published on Thursday, September 04, 2014
Rethinking Economics is a global movement to create fresh economic narratives that challenge and enrich the predominant narratives in economics. The movement unites all who support new ways of thinking. The Rethinking Economics conference asked students to consider economic schools of thought beyond the mainstream neo-classical approach. The conference focused on the concept of economic pluralism: the belief that economics should be a more interdisciplinary subject that embraces useful ideas from various schools of thought and subject fields. The New York conference brought together students and thinkers from North America in order to engage in student-led workshops and a series of interesting speakers including Deirdre McCloskey, Philip Mirowski, Michael Sandel, Dean Baker, Richard Wolff, Julie Nelson, Paul Krugman, Neva Goodwin, James Galbraith and many more.
- Published on Monday, August 25, 2014
by Rick McGahey, SCEPA Faculty Fellow
In today's New York Times, Paul Krugman confuses issues around internal population migration in the U.S. with issues of job creation and economic growth. He ends up in an unnecessary and defensive argument about whether low-wage and anti-regulation states like Texas are a superior economic model.
First, there just isn't that much net internal migration. The American Community Survey tells us that in 2012, net migration between New York State and Texas was 9,043 in favor of Texas (20,274 New Yorkers to Texas, but 11,231 Texans to New York State). That is less than one-half of one percent of the total population of New York State, hardly a big trend. In fact, researchers are trying to figure out why internal migration is declining, not rising—in 2011, Federal Reserve researchers noted that "by most measures, internal migration in the United States is at a thirty-year low."
Second, outmigration and relocation is driven by a lot of things beyond relative taxation or regulation, including baby boomer retirements (oddly not mentioned in Krugman's column). If you just want to hold down migration, make New York a more attractive retirement location. Texas has had relatively strong job growth since the Great Recession, but analysts attribute much of that to natural gas and oil production, including virtually unregulated fracking.
Krugman's column has produced a predictable set of online complaints about high taxes and repressive regulations in New York relative to the South. New York does need more housing density, although the region has many housing opportunities given our public transportation network. But Krugman's odd use of what in reality are vanishingly very small numbers on migration to Texas inadvertently contributes to a misguided narrative about how attractive Texas and other bottom-feeder states really are.
- Published on Monday, August 18, 2014
The Schwartz Center for Economic Policy Analysis (SCEPA) at the New School for Social Research is deeply saddened by the death of Irene Schwartz, best friend and wife of Bernard Schwartz. Bernard and Irene paid special attention to The New School Economics Department's commitment to economic policy and social justice. Together they named a professorship and provided scholarships and other material support to our economics students and faculty. Bernard and Irene, compassionate for the plight of vulnerable elderly and for the aspiration of all workers to retire in dignity, also support SCEPA's Retirement Equity Laboratory.
We are grateful for Irene's love for Bernard that helped he and she be expansive and proactive in solving problems of injustice facing humanity. We send our deepest sympathies to her family and friends, especially to her husband, our mentor and friend Bernard Schwartz.
The Members of the Schwartz Center for Economic Policy Analysis at The New School for Social Research
- Published on Friday, September 26, 2014
On October 3, 2014, SCEPA hosted a discussion with economist and author Thomas Piketty (included in economist Brad DeLong's blog as a "Must Watch"). Piketty's best-selling book, Capital in the Twenty-First Century, serves as a watershed example of the dual contradictions of capitalism and proves that the last century was characterized by a sharp divergence between social classes. He warns that the main driver of inequality—the tendency of returns on capital to exceed the rate of economic growth—threatens to generate extreme inequalities that stir discontent and undermine democratic values.
Much like Piketty's work, economists at The New School for Social Research strive to analyze the dynamics of capitalism using historical and empirical analysis and, through SCEPA, its policy implications. Following Piketty's remarks, New School Professor Anwar Shaikh and Executive Director and Chief Economist at the Washington Center for Equitable Growth Heather Boushey presented their own comments and joined in a panel discussion to answer the question, where do we go from here?
Thomas Piketty, Capital in the 21st Century
Anwar Shaikh, Inequality and Social Structure: Comments on Piketty
Heather Boushey, Comments on Piketty
- Published on Thursday, July 03, 2014
This week's Worldly Philosopher, Ismael Cid-Martinez, discusses the politics and economics of unemployment insurance.
The debate surrounding unemployment insurance (UI) returns to Capitol Hill. This is not entirely surprising. Amid the good news, today's report confirmed that a large shadow continues to loom over our labor market. Examining monthly changes in each category of unemployment by duration, we observe that long-term unemployment remains stubbornly high when compared to previous recoveries (see graph).