Relevant and even prescient commentary on news, politics and the economy.

Two Stories on Cause and Effect

Cause and effect leaves little room for how people want the world to work.  Here are two stories illustrating that.

From Bloomberg:

A Swiss maker of hamburger buns for McDonald’s Corp. said it’s struggling to run a Chicago bakery after it lost a third of its workers in a clampdown on 800 immigrants without sufficient documentation.

About 35 percent of the workers at Cloverhill Bakery had to be replaced, according to Zurich-based Aryzta AG. The company, which makes baked goods for fast-food chains and supermarkets, said the employees were supplied by a job-placement agency that faced federal audits earlier this year.

The piece goes on:

The raid on workers at Cloverhill is one of the biggest U.S. employment headaches reported by a European company so far as President Donald Trump has made curbing undocumented immigration a centerpiece of his presidency. Aryzta said it faces challenges in retaining staff in the U.S. and pressure to raise wages.

Wait… removing workers who are here illegally increases demand for American workers and boosts wages? How can this possibly be? This must violate some law of economics.  Next someone will come up with the crazy idea that there are other effects, such as on housing costs, traffic and congestion, and government expenditures.

Here’s an unrelated story, out of Philadelphia:

A Philadelphia city councilwoman is defending her controversial bill that would force certain businesses to remove bulletproof barriers separating cashiers and customers.

Councilwoman Cindy Bass said in a statement her proposed legislation only affects stores applying for a “large establishment” license, or sit-down restaurants where food is served and there is seating and tables for 30 or more people.

The goal is to crack down on so-called “stop-and-go” shops, or convenience stores that sell hot food and alcohol, many of which have become nuisances to neighborhoods with intoxicated and unruly customers, according to Bass and other lawmakers.

Here’s more:

Her bill would also require large establishments to have a publicly accessible restroom and serve food regularly. Bass said in many instances, stop-and-go stores claim to sell hot food to obtain liquor licenses, selling liquor “by the shot” and operating “under fraudulent circumstances.”


Bass tried to clarify that her bill would only regulate large establishments, not corner stores, small pharmacies or similar businesses. She said her office has also proposed safety alternatives to barriers, such as lighting, cameras, security guards, security wands and police check-ins.

A Fox affiliate has a bit more information and more clarity:

The bill, put forward by Councilwoman Cindy Bass, focuses on “stop-and-go” convenience stores that act more like bars than the restaurants they are licensed to be, selling beer and shots of liquor over the counter and attracting crowds that end up becoming public nuisances, lawmakers say.

“If the glass comes down, the crime rate will rise and there will be lots of dead bodies,” Rich Kim, the owner of Broad Deli, which sells soda, meals and beer by the can, told FOX29. “The most important thing is safety and the public’s safety.”

Kim said the glass went up after a shooting and says it saved his mother-in-law from a knife attack.

Pennsylvania state law mandates businesses with restaurant licenses should regularly sell food and have tables and chairs to seat 30 people. But some, according to an investigation by local news station 6ABC, keep their seating locked up or out of reach and the grills shut down, selling little more than alcohol and forcing customers to wander outside.

Consumption of alcohol away from the confines of the store then leads to problems, State Rep. Jordan Harris, a Democrat who represents Philadelphia, told Fox News.

Someone should inform the good Councilwoman don’t get it that unnecessarily inconveniencing customers makes for a poor business model, particularly using expensive bulletproof barriers to do it. And yet, businesses in certain areas keep inconveniencing customers by using those barriers. Perhaps the Councilwoman and her fellow Councilmembers should ask themselves what is going on, or in a few years they’ll be asking why there are no businesses at all in those very same areas.

England, Employment, Wages and Brexit

The Guardian newspaper has a story about wages in England:

A shortage of factory workers is starting to push up pay rates but wage rises in the services sector remain rooted at around 2%, according to the latest feedback from the Bank of England’s regional agents.

The central bank said its agents, which are based in offices across the country, found that shortages this month across the manufacturing sector were leading to a “slight increase in pay growth” that would take average rate of pay rises up by half a percent, from 2-3% this year to 2.5%-3.5% in 2018.

The report appeared to justify Threadneedle Street’s move last week to increase interest rates, which officials at the bank said was needed to dampen the inflationary effects of wage rises.

A survey of employers in October by the Recruitment and Employment Confederation chimed with the BoE report after it found firms were having to raise their pay offers to hire new staff.

The REC said the increase, the second quickest rise in wages since November 2015, followed a fall in unemployment to the lowest level in 40 years that had restricted the number of workers available to take up new positions. It warned that higher pay offers were also needed to counter a growing shortage of EU workers ahead of Brexit.

“We already know that EU workers are leaving because of the uncertainties they are facing right now,” said Kevin Green, REC’s chief executive. “We therefore need clarity around what future immigration systems will look like. Otherwise, the situation will get worse and employers will face even more staff shortages.”

Official data shows that in August net migration fell to its lowest level in three years, with more than half the drop caused by EU citizens leaving and fewer arriving since the Brexit vote.

I find it truly shocking that employment and wages are determined by the market forces, or that the supply of labor is affected by whether foreigners can freely enter and exit a market. Who could have imagined such absurd chains of events? Fortunately, we can rest assured that this is an aberration and can’t possibly apply in the US.

Supply and Demand in California

I came across the following graph:

(Click to embiggen)

Both the supply curve for labor in the state of California and the demand curve for housing in California are made up of the states residents.

In general, if you increase the supply of something, all else being equal you bring down its price. On the other hand, if you increase the demand for something, all else being equal you increase its price. The graph above suggests that in California, two things have happened. One is that the supply of labor has increased more rapidly than its demand. Conversely, the demand for housing has increased more rapidly than its supply.

Immigration, Democrats, Republicans and the NY Times

Tom Cotton, the junior United States Senator from Arkansas had a piece in the NY Times:

President-elect Trump now has a clear mandate not only to stop illegal immigration, but also to finally cut the generation-long influx of low-skilled immigrants that undermines American workers.

Yet many powerful industries benefit from such immigration. They’re arguing that immigration controls are creating a low-skilled labor shortage.

“We’re pretty much begging for workers,” Tom Nassif, the chief executive of Western Growers, a trade organization that represents farmers, said on CNN. A fast-food chain founder warned, “Our industry can’t survive without Mexican workers.”

These same industries contend that stricter immigration enforcement will further shrink the pool of workers and raise their wages. They argue that closing our borders to inexpensive foreign labor will force employers to add benefits and improve workplace conditions to attract and keep workers already here.

I have an answer to these charges: Exactly.

Higher wages, better benefits and more security for American workers are features, not bugs, of sound immigration reform. For too long, our immigration policy has skewed toward the interests of the wealthy and powerful: Employers get cheaper labor, and professionals get cheaper personal services like housekeeping. We now need an immigration policy that focuses less on the most powerful and more on everyone else.

Wasn’t this the Democrat’s position not long ago? When and why did that change?



1.  If it isn’t clear, Cotton is a Republican

2. The bolded section was part of Cotton’s piece, but I chose to bold it as I felt it was worth a special highlight.

Wage stickiness ?

Sorry for the thin posting lately…I have had some SI joint problems which makes for difficulty sitting still to focus.

Via Keven Drum comes this research paper addressing the issue of sticky wages in the economics of today:

First off, a new paper by a trio of researchers confirms some old news: Adjusted for inflation, wages began stagnating for both men and women 10 years ago. Men’s wages have actually decreased slightly since 2000, while women’s wages, which had been rising steadily for decades, flattened out nearly to zero. But it could have been worse. Economists have long known that there’s a floor to wages because employers don’t like to reduce nominal wages. If you make $10 per hour, they won’t cut your wage to $9 per hour. They’ll just hold it at $10 and let inflation eat it away. This phenomenon is called wage stickiness.

But in “Wage Adjustment in the Great Recession,” these researchers have found that wage stickiness, which is driven mostly by social convention, not economic law, might be dying out. During the Great Recession, employers were increasingly willing to cut nominal wages. Among hourly workers, the usual number who experience wage cuts is around 15 percent. That had risen to 25 percent by 2011. Among nonhourly workers, the number rose from about 25 percent to nearly 35 percent. Increasingly, it seems, wage stickiness isn’t acting as a barrier against wage losses.

Trans Pacific Partnership Bad for the Middle Class, but How Bad? UPDATED

What you don’t know can hurt you. I think that’s a clear lesson of some so-called trade agreements the United States has signed over the last 20 years, and illustrated further by the few that have been defeated, most notably the Multilateral Agreement on Investment, negotiated by the Organization for Economic Cooperation and Development from1995 to 1998, but then abandoned in the face of ever growing protests.

Haven’t heard of the Trans Pacific Partnership? That’s no surprise: while the negotiations are not really being conducted in secret (the Office of the US Trade Representative provides periodic updates here), the level of disclosure from the USTR office rarely ventures beyond bland statements like this:

On November 12, 2011, the Leaders of the nine Trans-Pacific Partnership Countries – Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore, Vietnam, and the United States – announced the achievement of the broad outlines of an ambitious, 21st-century Trans-Pacific Partnership (TPP) agreement that will enhance trade and investment among the TPP partner countries, promote innovation, economic growth, and development, and support the creation and retention of jobs.

The USTR website continues by claiming that the agreement will be “increasing American exports, supporting American jobs.” This is all too similar to the Clinton administration’s reporting on NAFTA, which would point out all the gains from increased exports while omitting any mention of increased imports (Journal of Commerce, Nov. 18, 1994, via Nexis, subscription required) which quickly turned a small trade surplus with Mexico into a huge trade deficit. Recent evidence suggests this may already be happening with Korea (thanks to Daniel Becker in private correspondence).

How do we evaluate the TPP? We have to see it as having at least three major elements: a trade agreement, an investment agreement, and an intellectual property agreement.

From the trade agreement alone, we can conclude that it is a bad deal for the middle class. As I explained last year, the Stolper-Samuelson Theorem in economics tells us that more trade is actually bad for labor in this country, because by global standards, the U.S. is labor-scarce (low population density), meaning that we expect trade to lead to more intense competition in labor-intensive goods, putting downward pressure on wages. Alas, that isn’t the end of it.

There is a lot of controversy about the investment side of the agreement. As discussed here by Daniel Becker, the investment chapter was leaked and published by the Citizens Trade Campaign. Before I discuss the TPP investment provisions, a little context on investment agreements first.

According to the United Nations Conference on Trade and Development (UNCTAD),at the end of 2011 there were 3190 international investment agreements, of which 2860 were between two countries, usually known as bilateral investment treaties or BITs. Investment agreements can also be part of larger agreements, such as the investment chapter of NAFTA, the WTO’s Agreement on Trade-Related Investment Measures (TRIMS), and various regional trade agreements. Since the TRIMS agreement, in force since 1995, applies to all WTO members, it is a global benchmark; thus, people will refer to agreements with stronger provisions as “TRIMS+.”

The purpose of investment agreements is to protect foreign investors, which are by definition multinational corporations (MNCs). At the same time, they place no corresponding duties on investors, only on the host government. Most significantly, these agreements remove dispute settlement from the host country’s court system to binding arbitration in an outside body, most commonly the World Bank’s International Center for the Settlement of Investment Disputes (ICSID). As with domestic arbitration clauses, this removal from the courts favors the business interests involved. So the investment agreement element of the TPP will tend to be bad for host governments (the U.S. is host to more foreign investment than any other potential TPP country) and by extension the middle class.

But “how bad” is the question. This depends on what restrictions the agreement puts on governments. Originally, MNCs wanted to be protected against having their property nationalized (“expropriated”) by the host, but more recent agreements such as NAFTA’s investment chapter (Chapter 11; text here) have opened the way to defining “expropriation” in ways that include regulatory actions that may reduce the value of the investment, even if they are non-discriminatory among firms and taken in the public interest. This is why I say above that investment agreements are bad for the middle class, because it normally benefits from public interest regulation.

For these reasons, there is in fact significant pushback regarding the content of investment agreements. Three good sources for this are UNCTAD, the Vale Columbia Center on Sustainable International Investment, and the International Institute for Sustainable Development.

So what’s in the TPP investment chapter? As far as I can tell, nothing that isn’t already in NAFTA, other U.S. free trade agreements, or a U.S. bilateral investment treaty. The problem is, that’s bad enough. Under NAFTA, for example, Metalclad won a dispute against Mexico over a local government’s refusal to grant it a permit to open a hazardous waste facility, and was awarded $16.7 million. Ethyl Corporation successfully challenged a Canadian ban on the import of gasoline additive MMT, leading Canada to withdraw the ban and pay the company $13 million in compensation. To have unelected bodies that (in the words of Citizens Trade Campaign) “would not meet standards of transparency, consistency or due process common to TPP countries’ domestic legal systems” overturning democratically adopted laws or regulations is profoundly undemocratic.

At the same time, I think Becker reads a little too much into some of the language. He quotes section 12-6bis (Becker’s emphasis):

Notwithstanding Article 12.9.5(b) (Non-Conforming Measures, subsidies and grants carveout), each Party shall accord to investors of another Party, and to covered investments, non-discriminatory treatment with respect to measures it adopts or maintains relating to losses suffered by investments in its territory owing to armed conflict or civil strife.

 He goes on to speculate that this could give rise to compensation claims due to interpreting protests against the Keystone pipeline, or even strikes, as “civil strife.” However, the exact same language is in NAFTA’s investment chapter, and there have been no such claims in its entire history. Moreover, this is what we would expect since the language only pertains to government behavior (“it adopts”), not private behavior.

So, that’s two strikes against the agreement. The third strike is intellectual property, something Matt Yglesias caught over a year ago. As I analyzed then, the TPP “would ban government health services from negotiating prices with pharmaceutical companies.” Given that many countries already do this and the U.S. ought to do it to help rein in health costs, if these provisions stay in the final agreement it will be a very bad development.

Hooray for baseball season, but that’s three strikes against the TPP. This is a bad deal that will put further downward pressure on real wages which have gone 40 years since reaching their peak, that will undermine governments’ ability to regulate, and will strengthen a small group of pharmaceutical, software, entertainment, and publishing companies at the expense of the rest of us.

Update: Citizens Trade Campaign reports that  the U.S. has listed numerous target policies among its TPP negotiating partners, including everything from health care policies in New Zealand to Malaysia’s ban on imports of pork and alcohol, both of which are forbidden to the Muslims who make up the majority of the population.

Original article cross-posted at Middle Class Political Economist.

Real wages decline; literally no one notices

Cross-posted from Middle Class Political Economist.

Your read it here first: Real wages fell 0.2% in 2012, down from $295.49 (1982-84 dollars) to $294.83 per week, according to the 2013 Economic Report of the President. Thus, a 1.9% increase in nominal wages was  more than wiped out by inflation, marking the 40th consecutive year that real wages have remained below their 1972 peak.

Yet no one in the media noticed, or at least none thought it newsworthy. I searched the web and the subscription-only Nexis news database, and there are literally 0 stories on this. So I meant it when I said you read it here first. In fact, there was little press coverage of the report at all, in sharp contrast to last year.

Below are the gory details. The data source is Appendix Table B-47, “Hours and Earnings in Private Non-Agricultural Industries, 1966-2012.” The table has been completely revised since last year’s edition of the report. The data is for production and non-supervisory workers in the private sector, about 80% of the private workforce, so we are able to focus on what’s happening to average workers rather than those with high incomes.. I use weekly wages rather than hourly because there has been substantial variation (with a long-term decline) in the number of hours worked per week, from 38.5 in 1966 to 33.7 in 2012. The table below takes selected years to reduce its size.

Year     Weekly Earnings (1982-84 dollars)

1972     $341.73 (peak)
1975     $314.77
1980     $290.80
1985     $284.96
1990     $271.10
1992     $266.46 (lowest point; 22% below peak)
1995     $267.17
2000     $285.00
2005     $285.05
2010     $297.79
2011     $295.49
2012     $294.83 (still 14% below peak)

This decline is especially amazing when we consider that private non-farm productivity has doubled in this period:

But, if you’ve been paying attention, you know the drill: higher productivity plus lower wages = greater inequality. The question is, why aren’t our media paying attention when real wages fall, yet again?

Update: Jon Talton at the Seattle Times has now taken note of this.

If I were writing that piece

Here is an interesting way to deal numbers, with the complete post to be read from the link:

Obama taxes us into recession  (Mish’s musings)

Withheld income and employment taxes have been running about 8.3% higher year over year, comparing the same 33 business days between Tuesday, January 8 and Monday, February 25.

Regardless, there is no doubt that the Obama Administration has taxed us into a recession. Congratulations.

Lifted from several e-mails in response to the link being sent:

Ken Houghton:    If I were writing that piece, it would be about how the cuts in taxes last year are the only thing that allowed people to pretend we were in a recovery, which has otherwise been jobless. (Check out YoY for 2009 to 2010 or 2010 to 2011.) Krugman is probably right not to dismiss out of hand the idea that you can sustain economic growth with a plutocracy, but it’s not at all an even odds bet.

Personal income was just released; down 3%.

The game with numbers was to treat the employer side of SocSec tax as if it would otherwise be circulating. It’s more accurate to think of that as I than C. (I would argue all of SocSec payments are I–a “forced savings” program, as it were–but that’s a sidebar.)

And we know that those monies were not being reinvested last year. (See Steve Roth’s post a couple of days ago.). Will be interesting if we see Excess Reserves start to fall when those tax payments all come due.

And a sad thank you, Mike. You and I may have improved our lot last year, but that was the exception, not the rule, and not without painful transition.

How we call extended joblessness and growth based on consuming savings a “recovery” befuddles me.

Dale Coberly: As I may have tediously tried to point out elsewhere, rescinding the tax holiday is not a tax raise.. it is the end of a government “stimulus” funded by borrowing, unnecessarily attached to the payroll tax for devious political purposes. the SS “tax” is always circulating… it goes to benefits to the otherwise poor elderly who spend it right away. unless you are going to fund those benefits by borrowing or taxing the rich, reducing the payroll tax would reduce “circulating” by the extent to which people “saved” that money for their eventual retirement… assuming they could find a way to “save” it, given the fact that no one is “investing.” i guess we could go back to gold coins buried in jars in the backyard. that should be good for the economy.

Wages driven down, now relative to market you’re over paid!

Update: spelling corrected in title.

I heard and then went to look see that Caterpillar is working hard to control it’s costs.

“Despite earning a record $4.9 billion profit last year and projecting even better results for 2012, the company is insisting on a six-year wage freeze and a pension freeze for most of the 780 production workers at its factory here. Caterpillar says it needs to keep its labor costs down to ensure its future competitiveness.” 

It has purchased 17 other business since 2008, 9 were non US companies. Two companies were purchased in 2011. Here’s the thing, a 6 year freeze? I guess there will be no inflation? I mean like zero. Though economist are saying inflation is needed as part of the solution to our slow economy. Of course, Obama having frozen government wages, I guess Caterpillar is just being patriotic. Nothing like We the People blazing the trail for how we want the private sector to treat We the People.

Caterpillar made $4.9 billion profit. If they raised these people’s pay $10,000 each, your only talking $7.8 million. It is 0.159% (0.00159)of Caterpillar’s profit. Inflation has averaged since 2008 about 2.075%.  Giving the worker $10,000 more per year does not equal the inflation rate as a share of the profit. If the worker were getting their due based on inflation they would get a piece of $101,675,000. This would be $130,352.56 each for the 780 workers. Caterpillar would still have $4,798,325,000.00 profit. Imagine what that $130,352.56 would do for the economy in Joliet! I’ll bet Caterpillar equipment sales would rise do to demand for construction.

Double Double — The Absolute Simplest Look at Wages and Pensions

By Noni Mausa

Double Double —  The Absolute Simplest Look at Wages and Pensions  
One of the best loved Canadian drinks is the famed Double-Double, a
big coffee with two creams and two sugars from the Tim Horton’s coffee
shop chain.  Millions of double-doubles warm grateful workers hands
and wake up their brains on the way to work each morning.  Want to
raise a cheer from a Canadian crowd?  Just toast the double-double.
But Canadian workers need more than coffee to see them through.  They
need wages and pensions.  How big do they need to be?  In a time of
drooping wages and wavering pensions, we need to know.  Let’s approach
the wages, retirement and pension discussion by simplifying it as much
as possible.

Let’s assume that the work life extends from age 20 to 60.  The work
that people do before and after those ages is balanced by people who
are not able to work at all, for whatever reason.  We’re talking
averages here, spread across 33 million Canadians.
So for half your life you work, and for half (birth to 20, and 60 to
80) you don’t.

As you can see, on average every person working must earn double what
it costs him to live.  That extra money pays for the child the worker
is before he goes to work, and the senior he is afterwards.  For the
population of Canada to stay level, each Canadian must raise one
child, and he must support himself once he retires.  What it costs to
do that is the “lifetime wage.”

How can we calculate that?

Well, to start we can set a lower limit.  Each individual must earn or
somehow acquire no less than what he needs to stay alive.  A rough
guess for that number is around $800/month.  That’s in the range of
what single welfare recipients receive.  I have no idea how they live
on that, but thousands of them do.

Full time minimum wage is roughly double that, about $1600/month
before taxes, about $1350 after. (Manitoba minimum wage currently
$10/hour.)   This is still not enough to be a lifetime wage.  Also,
most minimum wage jobs are not full time or continuous employment, so
the effective income from minimum wage employment is closer to welfare

Canadians are being exhorted to live responsibly, only bearing
children if they can afford to raise them, saving for their education
and also for the their own retirement.  The smallest sufficient income
to accomplish this seems to be about double current minimum wages, or
about $20/hour in Manitoba, $35,000 to $45,000 per year averaged over
a working life.

Business won’t pay such wages if they aren’t forced to.  But somebody
must.  Why?  Not for moral reasons, we’re not dealing with morality
here, just practicality.  Whatever way you try to jig the numbers,
half the population depends on the other half just to live.  In a
nation, these life-stages overlap so the burden levels out over time,
but effectively one half is always supporting the other.
Paying out to each worker less than double the bare cost of living in
a closed system will result in collapse or shrinkage of the system.
But suppose you don’t treat your nation as a closed system?  Maybe you
can outsource some of the cost at the two “nonproductive” ends of the
lifespan.  If you want to cut your costs to the bone so your workers
can be paid only their immediate costs of living, you have to tackle
the problem at the child end and the senior end.

At the child end, you can outsource the production of new workers to
other, poorer countries – i.e. depend on immigration for population
growth.  That’s one thing Canada is doing.

StatsCan tells us “In 2006, international migration accounted for
two-thirds of Canadian population growth… in the mid-1990s, a reversal
occurred: the migratory component became the main engine of Canadian
growth, particularly because of low fertility and the aging of the
population… Around 2030, deaths are expected to start outnumbering
births. From that point forward, immigration would be the only growth
factor for the Canadian population…”

In Canada in 2010, of the 280,000 immigrants, 60% were “economic”
(adults ready to work.)  Another 28% were classed as “family.” The
hard lifting of childbirth and childrearing and child mortality was
done by other countries with no cost to Canada. In fact, immigrants
pay a small but significant landing fee, $500 to $1000 depending on
entry class.   We further maximized the value of the outsourced new
citizens by selecting capable applicants free of serious medical

At the senior end of the lifespan, you can cut elder supports as much
as possible.  This is harder to do because elders are aware of the
process and often have younger relatives to advocate for them, but
though it’s going slowly, it is a work in progress.
A maximally efficient economy in a non-closed system would be one
where you import all your workers, keep them as long as you need them,
and repatriate them afterwards.  But that is not a nation.  Nations
grow their own people, they don’t rent them.

Canada-the-nation may not need to support home-grown population
growth, because we are a nation that encourages many cultures.   The
fact that our immigration policy skims good citizens from poorer
nations doesn’t bother anyone except, I suppose, the poorer nations.
But Canada-the-nation must support seniors.  Business won’t pay enough
in wages for workers to save money for retirement, and for many people
saving or investing isn’t a reliable strategy.  Private business
pensions are becoming quaint luxuries (unless you’re in the government
or you’re a CEO.)

We pride ourselves on being a secure, stable nation.  The chaotic,
competitive and short term business community won’t and probably can’t
supply that stability; only a government has the ability over
generations to ensure stability.

A centralized, national fixed-benefit pension, solid and boring and
guaranteed by the government, is the only practical approach for most
Canadians.  Additional savings are fine, for people who can afford
them, but millions cannot.  Cutting and privatizing senior supports
(Canadian Pension Plan, Old Age Security, and for the very poorest,
the Guaranteed Income Supplement) is the opposite of what
Canada-the-nation needs to be doing.
(This was written in the Canadian context, where our right-wing prime
minister is in the fast lane to transform Canada to conform more
closely to US antisocial policy.)