economic policy institute

Economix Blog: Nancy Folbre: Let Them Make Their Own Jobs

Nancy Folbre is an economics professor at the University of Massachusetts, Amherst.

Legend has it that Marie Antoinette, told of Parisians protesting the shortage of bread, impatiently exclaimed, “Let them eat cake.”

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American Express’s chief executive, Kenneth I. Chenault, adopted a kinder tone in his commencement speech this year at the University of Massachusetts, Amherst, but offered a similar message. Acknowledging that jobs are hard to find, he emphasized that new technology makes it easier to invent them.

Yes, and the price of cake may have fallen relative to bread, but that is slim consolation to college graduates who face weak demand for their hard-won skills either as workers or entrepreneurs. Their new diplomas may send them to the front of the employment line, but the jobs they find there don’t offer as much money or career potential as before.

A recent report from the Economic Policy Institute estimates that the inflation-adjusted wages of young college graduates declined 8.5 percent from 2000 to 2012. Graduating in a poor job market has long-lasting negative consequences.

Such lemony facts can be turned into lemonade and sold by the side of the road. The business news media brims with celebration of millennial entrepreneurship and the rise of freedom-seeking freelancers.

But entrepreneurship goes up with joblessness partly because it just sounds so much more hopeful. It also looks better on a résumé, since reported spells of unemployment reduce job chances.

Largely as a result of “jobless” or “unintended” entrepreneurship, the number of individuals starting businesses increased in recent years. But the number bailing out grew even faster. The Great Recession reduced self-employment over all because sole proprietorships and small businesses were so hard hit by the downturn.

Scott Shane, professor of management at Case Western Reserve University, points out that the median family incomes of the self-employed declined sharply relative to others from 2007 to 2009.

He also emphasizes that start-ups are not revitalizing the United States labor market. The number of people employed in one-year-old businesses declined by half from 1990 to 2010.

“Despite the claim that recessions are a time of opportunity for entrepreneurs,” he explains, “the Great Recession had a negative impact on U.S. entrepreneurship.” The same can be said of the Not-So-Great Recovery.

In 2012, the number of venture capital deals was substantially lower than in 2007. The total amount of venture capital investment declined as well, to about 75 percent (in inflation-adjusted terms) of that in the earlier year.

A recent Congressional Budget Office report shows that small and medium-size companies had disproportionately greater job losses than large companies in recent years. The latest Intuit Small Business Employment Index registers levels far below that of 2007.

These trends show that employment and entrepreneurship aren’t substitutes but complements.

The same factors that are hurting the job market are making it hard for start-ups and small businesses to succeed: consumers aren’t spending enough money to create an expansion on their own, and austerity-driven cuts in government spending are weakening economic growth.

As Heidi Shierholz of the Economic Policy Institute puts it, the declining prospects of young college graduates are clearly the result of “a demand problem, not a skills problem.”

Individual effort and ingenuity can’t guarantee success in either finding or inventing jobs.

Our national problem may be that we assume entrepreneurs are superheroes who can leap over macroeconomic constraints in a single bound, especially if liberated from the villainous clutches of government.

But entrepreneurs can be crippled by a shortfall of demand for the goods and services they offer. And like the rest of us, they need bread, or at least cake, to survive.

Article source: http://economix.blogs.nytimes.com/2013/05/27/let-them-make-their-own-jobs/?partner=rss&emc=rss

Economix: Inequality Is Most Extreme in Wealth, Not Income

Typically, comments about rising inequality refer to the stark disparities in incomes of the very highest-paid Americans and everyone. We have observed in several posts, for example, that most of the income gains over the last few decades have gone to the very richest Americans. That means the highest-paid Americans have been claiming a larger and larger share of earnings.

Here’s a chart I put together showing what percentage of all of America’s income (including capital gains) is going to each of several income classes, today versus previous years:

Source: Piketty, T. and Saez, E. 2007. Income and Wage Inequality in the United States 1913-2002. In Atkinson, A. B. and Piketty, T. Top Incomes Over the Twentieth Century: A Contrast Between Continental European and English-Speaking Countries, Oxford University Press, Chapter 5; series updated by the same authors.

Pretty striking, right? As of 2008, about 21 percent of income was received by just 1 percent of earners.

But economic inequality isn’t just about how much you make — it’s about how much you have.

To that end, the Economic Policy Institute, a liberal research organization, has published a new report looking at disparities in wealth in the United States.

It includes this chart, showing estimates of what share of wealth each class claims:

Sources: Sylvia A. Allegretto, Economic Policy Institute; Edward Wolff, unpublished 2010 analysis of the U.S. Federal Reserve Board, Survey of Consumer Finances and Federal Reserve Flow of Funds, prepared for the Economic Policy Institute.

As you can see, the nation’s income distribution may be quite lopsided, but its wealth distribution is even more so.

The top 1 percent of earners receive about a fifth of all American income; on the other hand, the top 1 percent of Americans by net worth hold about a third of American wealth. (Note that the top income earners are not necessarily the same people as the top net-worth Americans — after all, lots of high-net-worth people don’t work or have much else in the way of sources of new income.) Wealth-related inequality has also been relatively stable over the last few decades, whereas income-related inequality has been growing since the ’70s.

Why is there more inequality in wealth than in income, both today and yesterday?

Remember that wealth accumulates over time. The highest earners are able to save much of their incomes, whereas lower earners can’t. That means high earners can accumulate more and more wealth as time goes on (assuming they don’t blow it all, of course).

Higher-earning Americans also have the resources to pay for better tax preparation, which helps them reduce their taxes and save even more money. On the tax front, note also that people who have already accumulated wealth stand to earn a lot in capital gains, which are also taxed at a lower rate.

But as I noted above, most of the attention paid to economic inequality pertains to what people are making each hour or each year, not what they already have stored up or what kind of cushion they have to fall back on. Perhaps that’s because most people don’t have a firm grasp of how much they’re “worth,” but they can always look to their paychecks to see how much they have coming in, and can make easier comparisons to their neighbors.

Proposals for a wealth tax resurface periodically. The idea is always contentious since it basically requires double-taxation of earnings. There are lots of existing examples of double-taxation on the books, though.

Article source: http://feeds.nytimes.com/click.phdo?i=712fe7b696721c942e102a6cae9b5e6e

Economix Blog: Nancy Folbre: Let Them Make Their Own Jobs

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Economix: Inequality Is Most Extreme in Wealth, Not Income

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