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Economic View: A Dearth of Investment in Young Workers

September 7, 2013 by

For Americans aged 16 to 24 who aren’t enrolled in school, the employment picture is grim. Only 36 percent are working full time, down 10 percentage points from 2007. Longer term, the overall labor-force participation rate for that age group has dropped 20 percentage points for men and 14 points for women since 1989.

This lack of jobs will damage the long-term careers of a big chunk of the next working generation. Not working after you finish school very often means missing out on developing the skills and habits that will serve you well later on. The current employment numbers are therefore like a telescope into the future labor market: a 23-year-old who is working part time as a dog walker, yoga instructor or retail clerk may be having fun, but perhaps will receive fewer promotions as a 47-year-old.

One culprit in this situation may be the higher minimum wage enacted in 2009, but the root causes run much deeper.

Employers appear to be more risk-averse, more concerned about overhead costs and less willing to invest in developing young workers’ skills. And that seems true across a wide variety of sectors.

In the legal profession, for instance, there is less interest in hiring junior associates and grooming them for partner status. Colleges and universities are often more interested in hiring adjuncts than tenure-track young faculty members. And publishing houses, instead of providing a big advance upfront and investing in young authors over a series of books, now expect many writers to earn their share of a book’s revenue through royalties.

If we consider how many jobs are being advertised, without asking whether they are being filled, the labor market seems to be booming. If we measure labor market progress in terms of actual hiring, however, it’s clear that the economy is recovering slowly. Employers appear to be looking around for workers but then holding out for the very best candidates, and, if need be, making do with few new hires or none at all.

These are signs of a world where next year’s business income is less certain, and many employers take greater care to keep weaker workers off the corporate team. Some employers would rather spend on information technology than hire the wrong workers. Some prefer to invest in the developing world with its longer work hours and lower wages. I outline these processes in my forthcoming book, “Average Is Over: Powering America Beyond the Age of the Great Stagnation” (Dutton Adult).

Young people who are hired often fail to find desirable, high-paying jobs. If we consider four-year college graduates only, average starting salaries, inflation-adjusted, were higher in 2000 than they are today, a decline that started well before the financial crisis. On balance, though, college remains “a good deal,” in part because wages for nongraduates have fallen even more than those for graduates. That is hardly a reassuring sign for the broader economy.

THESE developments put economic pressure on higher education. If it’s harder to get a good and lucrative job after college, why should students pay ever-rising tuition rates? College doesn’t always prepare students very well for the work force, and most graduates don’t enjoy the relatively rosy job prospects of computer science and engineering majors.

As tuition increases slow because of a sluggish labor market, colleges will have to change, making their offerings more relevant. But significant improvements may be hard to come by. Slow-growing or even shrinking revenue will strip colleges of financial resources, and they may suddenly have to focus on managing a decline rather than building for a more innovative future.

Policy changes to bolster economic growth and employment, whether by simplifying the tax code, repealing some occupational licensing, bringing more rigor to K-12 schooling or accrediting cheaper online education, may help reverse or curb these trends. But to focus on policy alone is to miss the gravity of the situation.

Falling wages for new entrants to the job market suggest that a sizable chunk of the American labor force may never achieve middle-class wages in a relatively secure full-time job. And many young people don’t want to take physically demanding jobs, which are often filled by immigrants. Some young people are breaking out of these traps by starting new Internet or service-based businesses, in lieu of looking for traditional employment. But others end up in part-time, temporary or low-quality jobs, biding their time and hoping that something changes.

We may not like what the market is indicating here, but it would be a mistake to shoot the messenger — namely, the market itself. Businesses are measuring value more accurately and choosing more cautiously, and though that raises overall productivity, it isn’t good for all workers. Many face the burden of meeting the standards of a more demanding world, and not all are succeeding at that task. It’s a problem that won’t be solved by any kind of quick fix.

Tyler Cowen is a professor of economics at George Mason University.

Article source: http://www.nytimes.com/2013/09/08/business/a-dearth-of-investment-in-young-workers.html?partner=rss&emc=rss

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Preoccupations: Unpaid Interns: Silent No More

July 20, 2013 by Leave a Comment

Last month, a federal judge in New York ruled that unpaid interns on the movie “Black Swan” should have received at least the minimum wage. The judge also allowed a class-action suit to go forward against the Fox Entertainment Group, the parent company of the film’s production division.

Gutsy and improbable when it was first filed two years ago, the “Black Swan” case was a pioneering direct challenge to the internship system. Now more than 15 other lawsuits have followed in its wake, according to an online database maintained by ProPublica, the investigative journalism Web site.

The companies being sued operate in a wide range of intern-heavy industries. Global brands, famous television and fashion personalities, multinational subsidiaries flush with profits — these are some of the employers that have refused to pay young workers at least $7.25 an hour. How have they done this for so long?

The federal law is clear: if internships at profit-making companies are to be unpaid, they must foster an educational environment. (The rules are different for nonprofit and governmental agencies.)

Good internships are out there — ones that pay, ones that train and ones that lead to real jobs at the end. But many others fall far short — and more people are taking action. “I think enough people have finally seen what a trap this has become,” said Eric Glatt, one of the victorious interns in the “Black Swan” case.

In addition to filing lawsuits, interns are organizing beyond the courtroom, using some of the same strategies as fast-food workers, freelancers and various groups of part-time, temporary or guest workers.

For example, two students at New York University recently created a petition demanding that the university stop advertising unpaid internships on campus; more than a thousand people signed in a matter of days.

With the Obama administration now pushing to increase the minimum wage, some activists are focusing on what they see as government hypocrisy. Washington is a hub for overworked, unpaid interns, the White House and Congress included. What good is a minimum-wage increase when so many people work and make no wages at all?

“There are lots of people who care about this issue; there’s a lot of anger about this issue. We want to build a movement,” said Mikey Franklin, co-founder of the new Fair Pay Campaign, who plans to hire professional organizers to galvanize interns in hubs like New York and Los Angeles. He hopes for support from organized labor, whose leaders, he said, are waking up to the issue’s mobilizing potential.

And Intern Labor Rights, a New York-based group formed out of the Occupy Wall Street movement, is forming a coalition with like-minded groups in Canada, Britain, France, Switzerland, the Netherlands and Austria. In all of those countries, campaigns to make internships fairer are also under way.

What interns are demanding is hardly a mystery: respect for their work. In short, it’s time to start envisioning and putting into practice a healthy, effective internship culture. For better or worse, pay is the fundamental currency of respect in every modern economy. Unless it’s a bona fide training or volunteer position, an internship should be paid, open to all and transparently advertised — and should never result in the displacement of other employees.

TRAINING, mentoring, experience and opportunity are particularly vital for interns, which is precisely why many of them are willing to work longer, harder and for lower wages, running errands and doing other menial tasks. Interns know that they’re starting at the bottom, but they need employers to meet them halfway.

Those who can’t afford to work without pay are eager for the chance to break into the intern-heavy fields that are now all but closed to them. The demand for meaningful career options — coupled with a willingness to work hard for them — has never been stronger.

And yet, for too many people, internships have become slightly shameful, with overtones of menial work, immaturity, parental dependence and being stuck.

As long as the current system remains stubbornly in place, expect the intern revolt to continue.

Ross Perlin is the author of “Intern Nation: How to Earn Nothing and Learn Little in the Brave New Economy.”

Article source: http://www.nytimes.com/2013/07/21/jobs/unpaid-interns-silent-no-more.html?partner=rss&emc=rss

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Parliament Passes Plan for Layoffs in Greece

April 29, 2013 by Leave a Comment

Euro zone officials meeting in Brussels on Monday are expected to approve the release of about 2.8 billion euros, or about $3.65 billion, in loans. The money had been due in March but was delayed after negotiations between Greece and the so-called troika of its foreign lenders stalled over the lenders’ demands for civil service cuts.

The troika, which comprises the European Commission, the European Central Bank and the International Monetary Fund, has been meting out aid in exchange for belt-tightening measures. They are to decide on another six-billion-euro installment in May, assuming Greece adopts further reforms, including an overhaul of a tax collection system.

The latest measures passed into law in a vote held shortly before midnight on Sunday with 168 votes in the 300-seat House.

A last-minute amendment allowing local authorities to hire young Greeks for less than the minimum wage of 586 euros per month fueled protests during the debate. But the inclusion of measures aimed at easing the burden on Greeks, including a 15 percent reduction to a contentious property tax, clinched the support of lawmakers in the three-party ruling coalition.

Defending the bill during a heated debate, Finance Minister Yannis Stournaras insisted that Greece had no choice but to implement the economic reforms. “Greece is still cut off from the markets,” he said, noting that the government’s chief aim was to achieve a primary surplus before seeking a further “drastic haircut” to its debt, which stood at 160 percent of gross domestic product at the end of last year.

His claims were derided by political rivals who denounced the lawmakers as beholden to the nation’s lenders. “With blood, tears and looting, they will achieve surpluses like those achieved by Ceausescu in Romania and Pinochet in Chile,” said Alexis Tsipras, the leader of the main leftist opposition party Syriza. “Claim back your lives and your country that they are stealing,” he said as a few hundred Greeks, mostly civil servants, staged a rather low-key protest outside Parliament.

Mr. Tsipras, whose party wants to revoke Greece’s loan agreement, has insisted that Greeks have an alternative to constant belt-tightening, pointing to a strong reaction against austerity across Europe.

The ruling coalition, led by Prime Minister Antonis Samaras, faces a difficult balancing act to reassure its foreign creditors and its long-suffering citizens, who have seen their incomes dwindle by a third and Greek unemployment skyrocket to 27 percent in the past three years.

Eager to bolster the prospects for investment, the prime minister is also said to be planning a series of international trips, starting with a visit to China next month.

He is expected to meet with entrepreneurs and promote Greece as a destination for tourism, virtually the only robust pillar of Greece’s shaky economy.

Article source: http://www.nytimes.com/2013/04/29/world/europe/parliament-passes-plan-for-layoffs-in-greece.html?partner=rss&emc=rss

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Economic View: The Minimum Wage, Employment and Income Distribution

March 2, 2013 by Leave a Comment

I don’t believe that’s because economists care less about the plight of the poor — many economists are perfectly nice people who care deeply about poverty and income inequality. Rather, economic analysis raises questions about whether a higher minimum wage will achieve better outcomes for the economy and reduce poverty.

First, what’s the argument for having a minimum wage at all? Many of my students assume that government protection is the only thing ensuring decent wages for most American workers. But basic economics shows that competition between employers for workers can be very effective at preventing businesses from misbehaving. If every other store in town is paying workers $9 an hour, one offering $8 will find it hard to hire anyone — perhaps not when unemployment is high, but certainly in normal times. Robust competition is a powerful force helping to ensure that workers are paid what they contribute to their employers’ bottom lines.

One argument for a minimum wage is that there sometimes isn’t enough competition among employers. In our nation’s history, there have been company towns where one employer truly dominated the local economy. As a result, that employer could affect the going wage for the entire area. In such a situation, a minimum wage can not only make workers better off but can also lead to more efficient levels of production and employment.

But I suspect that few people, including economists, find this argument compelling today. Company towns are largely a thing of the past in this country; even Wal-Mart Stores, the nation’s largest employer, faces substantial competition for workers in most places. And many employers paying the minimum wage are small businesses that clearly face strong competition for workers.

Instead, most arguments for instituting or raising a minimum wage are based on fairness and redistribution. Even if workers are getting a competitive wage, many of us are deeply disturbed that some hard-working families still have very little. Though a desire to help the poor is largely a moral issue, economics can help us think about how successful a higher minimum wage would be at reducing poverty.

An important issue is who benefits. When the minimum wage rises, is income redistributed primarily to poor families, or do many families higher up the income ladder benefit as well?

It is true, as conservative commentators often point out, that some minimum-wage workers are middle-class teenagers or secondary earners in fairly well-off households. But the available data suggest that roughly half the workers likely to be affected by the $9-an-hour level proposed by the president are in families earning less than $40,000 a year. So while raising the minimum wage from the current $7.25 an hour may not be particularly well targeted as an anti-poverty proposal, it’s not badly targeted, either.

A related issue is whether some low-income workers will lose their jobs when businesses have to pay a higher minimum wage. There’s been a tremendous amount of research on this topic, and the bulk of the empirical analysis finds that the overall adverse employment effects are small.

Some evidence suggests that employment doesn’t fall much because the higher minimum wage lowers labor turnover, which raises productivity and labor demand. But it’s possible that productivity also rises because the higher minimum attracts more efficient workers to the labor pool. If these new workers are typically more affluent — perhaps middle-income spouses or retirees — and end up taking some jobs held by poorer workers, a higher minimum could harm the truly disadvantaged.

Another reason that employment may not fall is that businesses pass along some of the cost of a higher minimum wage to consumers through higher prices. Often, the customers paying those prices — including some of the diners at McDonald’s and the shoppers at Walmart — have very low family incomes. Thus this price effect may harm the very people whom a minimum wage is supposed to help.

It’s precisely because the redistributive effects of a minimum wage are complicated that most economists prefer other ways to help low-income families. For example, the current tax system already subsidizes work by the poor via an earned-income tax credit. A low-income family with earned income gets a payment from the government that supplements its wages. This approach is very well targeted — the subsidy goes only to poor families — and could easily be made more generous.

By raising the reward for working, this tax credit also tends to increase the supply of labor. And that puts downward pressure on wages. As a result, some of the benefits go to businesses, as would be the case with any wage subsidy. Though this mutes some of the direct redistributive value of the program — particularly if there’s no constraining minimum wage — it also tends to increase employment. And a job may ultimately be the most valuable thing for a family struggling to escape poverty.

What about the macroeconomic argument that is sometimes made for raising the minimum wage? Poorer people typically spend a larger fraction of their income than more affluent people. So if an increase in the minimum wage successfully redistributed some income to the poor, it could increase overall consumer spending — which could stimulate employment and output growth.

All of this is true, but the effects would probably be small. The president’s proposal would raise annual income by $3,500 for a full-time minimum-wage worker. A recent analysis found that 13 million workers earn less than $9 an hour. If they were all working full time at the current minimum — and a majority are not — the income increase from the higher minimum wage would be only about $50 billion. Even assuming that all of that higher income was redistributed from the wealthiest families, the difference in spending behavior between low-income and high-income consumers is likely to translate into only about an additional $10 billion to $20 billion in consumer purchases. That’s not much in a $15 trillion economy.

SO where does all of this leave us? The economics of the minimum wage are complicated, and it’s far from obvious what an increase would accomplish. If a higher minimum wage were the only anti-poverty initiative available, I would support it. It helps some low-income workers, and the costs in terms of employment and inefficiency are likely small.

But we could do so much better if we were willing to spend some money. A more generous earned-income tax credit would provide more support for the working poor and would be pro-business at the same time. And pre-kindergarten education, which the president proposes to make universal, has been shown in rigorous studies to strengthen families and reduce poverty and crime. Why settle for half-measures when such truly first-rate policies are well understood and ready to go?

Christina D. Romer is an economics professor at the University of California, Berkeley, and was the chairwoman of President Obama’s Council of Economic Advisers.

Article source: http://www.nytimes.com/2013/03/03/business/the-minimum-wage-employment-and-income-distribution.html?partner=rss&emc=rss

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Economix Blog: 99 Percenters and 53 Percenters Face Off

October 12, 2011 by Leave a Comment

Welfare. Food stamps. Bankruptcy and minimum wage. Those are a few of the complaints of those in We Are the 99 Percent, a Tumblr blog recording the stories of those who sympathize with the Occupy Wall Street protests.

But wait. Those are also the complaints in We Are the 53%, a counterblog that is meant as a conservative retort to the protestors. The site, which mimics the 99 Percenters by having people write out their stories and hold them up to be photographed, says it is by “Those of us who pay for those of you who whine about all of that.”

What’s with all the percentages? The 99 Percenters are objecting to the fact that 1 percent of Americans control about a third of the country’s wealth. The 53 Percenters are portraying themselves as the responsible citizens who pay federal income tax, as opposed to the 47 percent of Americans who don’t. (Most who don’t are exempt because their incomes are too low or they get tax breaks aimed at low-income working families and other groups.) At The Washington Post Wonkblog, Ezra Klein pointed out that that many people paid no taxes because of conservative pressure to lower them.

The 99 Percenters, who have given a voice to the decentralized protests, tell of accumulated student debt, unaffordable health insurance and a sense of despair. “I followed the rules … now here I am,” wrote a 30-year-old unemployed woman who said she could not afford marriage or children.

The 53 Percenters, on the other hand, say things like, “My faith in God has always helped me weather the storms of life, not a government hand out.”

But the 53 Percent do not seem, by and large, to be doing much better than the 99 Percent. “I work 60+ hours a week with no guarantee of a paycheck,” wrote one contributor. “I didn’t blame Wall Street when I couldn’t find a living wage job or make it as a musician.”

Another self-employed man wrote, “I don’t get vacations, sick leave or comp time.”

The 53 Percent site was the brainchild of Erick Erickson, a CNN commentator and editor of RedState, Josh Treviño, a co-founder of RedState who is now at the Texas Public Policy Foundation, and Mike Wilson, the filmmaker behind “Michael Moore Hates America,” who started the Tumblr site after #iamthe53 became a popular Twitter hash tag for critics of the Wall Street protests.

“The distinction is that the people on the 99 side are saying, ‘We need to change it so that my life is easier,’ and the people on the 53 side say, ‘My life may not be easy, but it’s mine,’” Mr. Wilson said

Do the 53 percent find no fault with the banks? “A friend of mine said is best — he’s a conservative,” Mr. Wilson said. “He said, ‘They’re mad because these corporations got bailed out. We’re mad because our government bailed out the corporations.’”

Article source: http://feeds.nytimes.com/click.phdo?i=248bdcc54f476306da76cf3944f9e58f

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Alan Krueger, Obama’s Adviser Pick, Is Jobs Expert

August 30, 2011 by Leave a Comment

Among the stimulus policies Mr. Obama is considering is a temporary tax credit for employers adding to their work force, an idea that Mr. Krueger championed in his earlier stint in the administration. Mr. Krueger was an assistant secretary and chief economist at the Treasury Department for 17 months, before he returned to teaching at Princeton in 2010.

A more modest version of the hiring credit became law, but Congressional Republicans blocked its extension last year.

Mr. Krueger, if confirmed by the Senate, will find Republicans a force to be reckoned with against the sorts of ideas he is associated with, including a higher minimum wage. Republicans have taken control of the House since he left Washington, and party leaders say they will oppose further stimulus measures. Their focus is on spending cuts, despite widespread calls from economists, including the chairman of Federal Reserve, Ben S. Bernanke, for a more expansive fiscal policy in a period of weak economic growth and stubbornly high unemployment.

Mr. Obama, in a speech planned for next week, will call for both temporary tax cuts and spending measures to spur hiring in the short term, and also long-term steps to reduce spending and raise revenue once the economy fully recovers. But in nominating Mr. Krueger, with his expertise in policies that affect job creation, Mr. Obama passed over some economists better known for deficit reduction policies, including Alan J. Auerbach of the University of California, Berkeley.

The choice of Mr. Krueger more broadly reflects Mr. Obama’s desire to strike a balance between job creation and deficit reduction after months in which Congressional Republicans successfully forced action only on spending cuts. Mr. Krueger, who first joined the administration amid the recession, helped design other early stimulus proposals, including the “cash for clunkers” rebate for new-car purchasers, the Build America Bonds program to finance infrastructure projects and a credit fund for small businesses.

“As one of this country’s leading economists, Alan has been a key voice on a vast array of economic issues for more than two decades,” Mr. Obama said. “Alan understands the difficult challenges our country faces, and I have confidence that he will help us meet those challenges as one of the leaders on my economic team.”

The ability to win confirmation in the Senate was a consideration; Mr. Krueger was confirmed for his prior post with the Treasury. But the chairmanship of the Council of Economic Advisers is a higher position, and Republicans have become more aggressive about blocking nominees to demonstrate their opposition to White House policies generally. Mr. Obama’s pick for the commerce secretary, John E. Bryson, remains in limbo three months after his nomination.

If confirmed, Mr. Krueger, who turns 51 next month, would replace a longtime Obama adviser, Austan Goolsbee, who returned to the University of Chicago for the academic year. Mr. Krueger “is going to be able to hit the ground running immediately,” Mr. Goolsbee said. “And B, he’s a world-class, respected researcher on job market policies, job creation and things of that nature. So in that sense he’s a perfect match to the moment,” Mr. Goolsbee said.

Mr. Krueger would be the second former adviser to the Treasury secretary, Timothy F. Geithner, to take one of the four positions at the core of Mr. Obama’s economic circle; the other is Gene B. Sperling, a former Treasury counselor who replaced Lawrence H. Summers as director of the National Economic Council at the White House. That Mr. Geithner has two former underlings on Mr. Obama’s economic team is further evidence of his influence as the sole remaining member of the president’s original economic team.

It also reflects Mr. Obama wish for a collegial economic team after the fractiousness in his first two years, which were marked by tension especially between Mr. Summers and the former White House budget director, Peter R. Orszag. Then, Mr. Summers questioned the likely effectiveness and cost of the job credit proposal associated with Mr. Krueger, administration officials say.

Mr. Orszag was a student of Mr. Krueger’s at Princeton, where Mr. Krueger began teaching in 1987.

Article source: http://www.nytimes.com/2011/08/30/business/krueger-chosen-to-lead-economic-council.html?partner=rss&emc=rss

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