SCEPA Economist Rick McGahey today published an opinion piece on CNN.com, "Where are the Good Jobs?" McGahey explains why the recent job growth has not led to wage growth.

 by Rick McGahey, SCEPA Faculty Fellow

 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.

David Kotz, professor of economics at University of Massachusetts Amherst and distinguished professor of economics at Shanghai University of Finance and Economics, presented a seminar on his new book, "The Rise and Fall of Neoliberal Capitalism." 

Kotz began studying neoliberal capitalism in the 1990s and was one of the few academic economists to predict the economic collapse of 2008. His presentation provided a historical trajectory of neoliberal capitalism from the Carter administration through the aftermath of the Great Recession.  

Wage Stagnation: The Unsustainable Outcome of Neoliberalism
Kotz's analysis reveals that neoliberalism provided a long period of economic growth with low inflation, but that the corresponding decrease in wages had three significant side effects, including increasing inequality, asset bubbles, and financial institutions' increasingly risky behavior.

This precarious situation was initially supported by the growth in housing values. However, once the bubble burst, the unsustainability of neoliberal capitalism became clear in the rising household and financial debt, the spread of toxic financial assests and capacity in excess of demand. The recession and financial crisis that followed resulted in the structural crisis we experience today - stagnation.

Austerity: A Doomed Answer to the Structural Crisis
According to Kotz, labor force participation has been dropping since 2007. And while the profit rate bounced back immediately after the recession due to the federal rescue of financial institutions, capital accumulation did not. Kotz points to austerity policies, or curtailing public spending, as a doomed attempt to" double-down" on neoliberalism, but the conditions necessary to promote consumer spending are no longer present. According to Kotz's reading of history, "stagnation will continue unless and until there is a major institutional restructuring." 

The Real Answer: Restructuring 
Kotz gives us three potential scenerios for the future. First is a nationalist form of capitalism that relies on military growth to prop up spending and demand. Second is a return to neoliberalism's predecessor, regulated capitalism, which was built on a coalition between labor and capitol. Third is a transition to an alternative socialist system. 

Of the many possible critiques of the first two options, Kotz highlights that any system that rapidly accelerates economic growth will also accelerate climate change. However, the third option holds open the door to a transition beyond capitalism that increases social welfare while decreasing the production of goods. 

The event was part of the Spring 2015 Seminar Series hosted by The New School Economics Department. 

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." 

SCEPA was proud to support the "Debating Development" conference on April 22, 2016, on the regional challenges and competing theories behind development economics. The event is co-hosted by The New School's Economic Student Union (ESU) and the Institute for New Economic Thinking's (INET) Young Scholars Initiative (YSI).

Conference Program
1:00pm Introductory remarks by Sanjay Reddy, The New School

1:30pm Regional Developmental Challenges

Sub-Saharan Africa by Rex McKenzie, Kingston University
Middle East and North Africa by Jennifer Olmstead, Drew University
India and China by Sanjay Ruparelia, The New School
Latin-America by Marcos Vinicius Chiliatto Leite, Inter-American Development Bank

4:00pm Competing Theories of Development

Dependency Theory by Ian Taylor, University of St. Andrews
Classical Political Economy by Anwar Shaikh, The New School
Post-Colonial Theory by LHM Ling, The New School
Law and Development by Jamee Moudud, Sarah Lawrence College

6:00pm Reception

The conference is also supported by The New School Student Senate, The Graduate Faculty Student Senate, ESU, and YSI.

Aleksandr Gevorkyan, assistant professor of economics at St. John’s University, and Ingrid Harvold Kvangraven, New School economics student, published an article in the Review of Development Economics.

Who is more vulnerable to natural disasters?

Economics Professors Mark Setterfield of The New School and Eduardo Bastian of the Federal University of Rio de Janeiro have a message for post-Keynesian economists: take inflation seriously.

In their book on Atlantic City’s casino industry, economists Ellen Mutari and Deborah Figart tell a familiar story: financialization and the push for profits have left workers with less pay and more stress.