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Ways of the World

Carol Stone, business economist & active Episcopalian, brings you "Ways of the World". Exploring business & consumers & stewardship, we'll discuss everyday issues: kids & finances, gas prices, & some larger issues: what if foreigners start dumping our debt? And so on. We can provide answers & seek out sources for others. We'll talk about current events & perhaps get different perspectives from what the media says. Write to Carol. Let her know what's important to you:

Monday, October 24, 2011

The Complex Jobs Puzzle

Do you know that, across the United States, 4,014,000 people got new jobs in August? and at the end of that month, companies and governments reported openings for more of 3,056,000?

That's pretty startling, isn't it? From the news coverage, it looks more that hardly anyone is getting any job these days.

There is a catch, of course, that in this big, fluid U.S. economy, a lot of people also got laid off, fired or quit. These separations totaled 3,968,000. Thus, there was a net increase of about 46,000 net new jobs in August: 4.01 million hires less 3.97 million separations. These numbers come from the Labor Department's monthly survey of hires, layoffs and openings; it is appropriately dubbed the JOLTS data.[1] Indeed. The numbers of hires and openings show obvious steep drops during the recession, and they have come back somewhat, as we see here for hires.
In the graph, we call your attention also to the aftermath of the 2001 recession. By 2003, some 18 months after the subsequent recovery had evidently started, we were all concerned at what we were calling the "jobless recovery". It is visible here in the lack of improvement in hiring until the second half of that year. So the malaise we are currently feeling about jobs and employment following the 2008-2009 contraction is hardly a new phenomenon.

Separations from employment include both layoffs and voluntary quits. The situation with layoffs has improved dramatically from the worse months of the recession, as seen here, with just 1.66 million in August, compared to the 2.34 million monthly average during the winter and spring of 2009. However, the very recent pattern shows some indication of renewed increases, with a three-month average at 1.71 million through August, up from 1.60 million back in the early spring of this year. Voluntary quits have increased a bit too lately. But that is usually interpreted as a good sign, that people are finding new work or other activity to give them the confidence to quit a job they currently hold.

Overall Jobs Improvement, But It's Modest
As we've thought about the seeming lack of jobs in the U.S. recently and the stubbornly high unemployment rate since the recession, job dynamics such as these are one of the facts that keep coming up. The U.S. economy is huge, dynamic and varied. Patterns of layoffs and hires differ from region to region and industry to industry. Employees work for more than 6 million companies that do business in some 9 million different jobsites.

All together, these data show some improvement in labor market conditions, and to our way of thinking, a surprising dynamism that often gets lost in the quick looks we take at unemployment rates and employment totals. Clearly, though, the clawback from the severity of the recession is still much less than it takes to generate sustainable gains in that aggregate employment measure and a meaningful fall in unemployment.

Why Would Employers Add New Workers?
To prompt an employer to add an employee, there generally needs to be some sense of growth in demand for the business's products that exceeds the load on the existing workforce. Sometimes you can fulfill extra demand by using overtime or restructuring production to raise productivity. But if it looks like the demand will be sustained at a higher pace, then you would consider adding workers. You might also consider doing so if your cost structure can be reduced and you have some confidence that costs won't suddenly turn higher. However, in this post-recession period, it's been hard to see consistent demand gains, and uncertainty about costs and taxes has, if anything, only increased.

Much of the legislation meant to correct these conditions and promote new jobs is only temporary, so if there's a cost restraint or tax relief this year, in most proposals, that would reverse right after the General Election next November. It doesn't really pay, then for employers to invest in expanding their hiring much in response, only to have the assistance fade after the new workers have on the payroll just a few months. Then the employment equation changes again.

Industries Vary Greatly: One-Size-Fits-All Policy Doesn't Fit
The complexity of this is seen in other compilations of the value of production, labor costs and profits, which portray widely differing cost relationships among industries. For instance, in the manufacturing sector, which has seen its role in the U.S. economy decline significantly, Commerce Department figures show that pension and insurance costs per employee amounted to $12,300 in 2010, twice as much as in all of private industry, which had an average of $6,200. Such costs in the finance industry, $10,100, are not even as high as in manufacturing. In retailing and food services, which are known for their skimpy benefit systems, the comparable calculation shows retail at $3,250 and food services (reported as a combination with entertainment and other recreation) at a mere $1,625.[2] Turnover, both hiring and separations, in those industries is much more frequent. Often, of course, these industries consist of small businesses that have flexibility in hiring – and in letting go. Many observers cite small businesses as key to overall job growth.

Such considerations are significant in trying to design government policies intended to help job creation. Kelly Edmiston, an economist at the Kansas City Federal Reserve Bank, has explained that jobs policies that target small business might well generate job growth, but the jobs themselves might not be very productive or very long-lasting. In promoting economic development in local communities, he advocates a balanced approach that is supportive of "organic growth" for businesses of all kinds. He recommends that governments "focus on developing an attractive and supportive environment that might enable any business, whether small or large, to flourish, and to allow the market to sort out which businesses succeed. Many communities have had success in creating this environment. They have developed and fostered a high quality workforce through great schools, community colleges, and universities. They have . . . built and maintained high-quality public infrastructure [and] created a business climate with reasonable levels of taxation and regulation . . . ."[3]

Our look at these jobs data and varying employment costs – and note that we didn't even mention wages – suggests that broad solutions to the overall scarcity of employment opportunities won't fit simple formulas. As we saw, however, even as there is shrinkage in some areas, there is job growth in others, some of which looks pretty sizable. The diversity of the U.S. economy is a real plus.
[1]Bureau of Labor Statistics, U.S. Department of Labor. Job Openings and Labor Turnover. Latest release here: . Graph via Haver Analytics, Inc.

[2]Bureau of Economic Analysis, U.S. Department of Commerce. National Income Accounts, Section 6 "Income and Employment by Industry" , accessed October 23, 2011.

[3] Kelly Edmiston. "The Role of Small and Large Businesses in Economic Development", Economic Review, Federal Reserve Bank of Kansas City, Second Quarter 2007, pp. 73-97.

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Monday, October 10, 2011

Occupy Wall Street: Responses to Commenters

Many thanks to all of you who commented last week on the Occupy Wall Street issue. You made strong points, and I promised a couple of you that I would respond in some form or another to your arguments or questions. As you might imagine, almost every idea could generate books or at least entire essays. I did a bit of quick research among government publications and databases, so we can at least get a start. Here are three topics.

Could Jesus Be with the Wealthy Too?
First – and foremost – one of you wrote that asking for Jesus to be among the Occupiers was a good thing, that Jesus surely belonged with them and "not with the smug wealthy". We want to offer a different take on that. We want Jesus to hang out with the wealthy, if they are thoughtful people, but especially if they are smug. They obviously need Him. One of our hopes for Ways of the World is to help raise the consciousness of our readers to realize that Jesus is in fact right there next to them as they conduct their daily business and to help raise the consciousness of those in the Church about ministering in the business world. Yes, Jesus belongs with the poor, but He's got big arms – He can enfold them around everyone; it doesn't have to be an either-one-or-the-other situation.

To the more mundane matters, several of you expressed distress and disgust over the widening breach between rich and poor, and our other two responses today address this concern. One of you offered some source material that seems to show that a very large part of wealth increases in this country goes to the people who are already among the very highest ranking. Others, you indicate, are not just lagging, but have experienced reversals in recent decades.

The Gaping Wealth Gap – and Debt
We consulted the Federal Reserve's "Survey of Consumer Finances", an extensive and detailed study conducted every three years for the Fed by NORC, the National Opinion Research Center at the University of Chicago. Using tables from the Fed that cover the surveys from 1989 through 2007, we were in fact able to approximate Commenter CJGolfs' assertion that in recent years 80% to as much as 90% of the gains in net worth have gone to the top households.

When we talk about wealth, we usually think of assets, and it's the concentration of assets that is seen to give the upper brackets the "power" we associate with wealth. But wealth and power are also subject to society's debt position. Another of our Commenters last week called our attention to some recent work by Edward Wolff, a professor at NYU and specialist in consumer wealth analysis, who highlights this aspect in a 2010 report based on the Fed's Survey. Its subtitle is "Rising Debt and the Middle-Class Squeeze". As we also found from a cursory analysis of the data, the financial position of the middle classes of the wealth distribution has been squeezed by relatively less growth in assets than for those at the top, and it has also been squeezed by considerably greater debt from 1989 to 2007. For the middle 50%, debt in 1989 was 63% of their net worth; in 2001 it had risen to 68%, but in 2007, it equaled 91% of net worth. Wolff's numbers are not so dramatic, but they give the same impression.

Wolff argues that people took on this added debt in order to maintain their consumption, because their incomes were restrained, not to go on some lavish spending binge. As we noted at the beginning, each of these issues can generate quite lengthy responses and we don't want to go into detail right here and right now. Suffice for the present that nominal incomes climbed throughout this period, but in recent years, purchasing power has been harmed by rising food and gasoline prices. For middle America, this is a real burden on daily expenses. We also borrowed to buy big houses and we're heavily weighted down by student loans. We'll come back to this, as we note below.

Impact of the Great Recession
All this said, these data end in 2007, just before the Great Recession. The Fed did a partial update of its survey in 2009, and a much different picture is evolving. The values of household net worth appear to have dropped on the order of 20%, according to the summary information in one Fed report, and 62.5% of households experienced a decline, notably and most especially those at the top. The next regular survey covers 2010, and it should be published early in 2012. So we will obviously revisit this whole issue then for a more complete view.

What If We Look at the Same People Through Time
In our third response, we want to highlight the dynamism and the rapid change that always characterizes our economy. One aspect of people's complaints over equality and inequality which concerns us is that much of the information represents independent snapshots at different points in time. Only a few surveys follow the same people through time, so we can see what happens to specific individuals.

One program that does do this is the Census Bureau's Survey of Income and Program Participation, or SIPP. It is taken to collect information about the evolution of people's incomes, where they come from and how they develop over time; it forms the basis for assessing the effectiveness of welfare programs and other means-tested benefits. The survey follows groups of the same people in cycles of roughly four years.

So it can tell you, for instance, that for people in the bottom one-fifth of the income distribution in 2004, 30% had moved up to a higher one-fifth bracket by 2007, that is, in just three years, and 11.6% of them moved up two brackets or more. At the other end, of the people in the top 20% in 2004, 32% had moved down by 2007, 10.7% of them by two or more brackets. In the middle, just 44.4% remained in the middle one-fifth bracket after three years, with almost equal shares moving up or down. This, of course, was when the economy in general was moving along pretty well. These comparisons won't matter as much probably for the recessionary period. But the point this does make is that significant numbers of people move up and down in the pecking order all the time. So it's not as if a specific cell or cadre of folk have a permanent monopoly on the top spots and keep pushing the other folks down. The U.S. economy doesn't work like that; as we see it's much more fluid, even in very short periods of time.

We still owe you all some discussion on corporations and the role of profits and banking regulation; we could probably talk about taxes and tax shares once a month every month for several years and not get that sufficiently covered. And we still want to get back to job creation. That's a really fluid topic too, as something called JOLTS data can tell us. Stay tuned.

Sources consulted:
Federal Reserve Board. "2007 Survey of Consumer Finances":
and the 2009 update:

Edward N. Wolff. "Recent Trends in Household Wealth in the United States: Rising Debt and the Middle-Class Squeeze – an Update to 2007." Annandale-on-Hudson, NY: Levy Economics Institute of Bard College. Working Paper No. 589, March 2010. Available here: .

U.S. Census Bureau. "Survey of Income and Program Participation":

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Wednesday, October 05, 2011

Steve Jobs . . . .

. . . . the Chairman of Apple, passed away today, October 5, at age 56.

In our household, we were watching a game show on network television at about 7:45 tonight, when the network's news department interrupted it to present the bulletin reporting Jobs' death. I can't recall such an interruption for a business leader ever before.

Many of us use Apple's products and they have provided the technological infrastructure for increasingly popular social networking, up to and including the political revolutions this past spring in Egypt, Algeria and Libya.

The music industry has been changed forever by the iPod, which will celebrate its 10th Anniversary on October 23rd.

Henry Ford enabled us all to drive and Steve Jobs has helped us all communicate better with each other, as we carry our worlds around in our pockets.

Thank you, Mr. Jobs. Thank you, too, for your bravery and fortitude in the face of serious illness and the grace with which you facilitated a professional transition as your illness overtook you. May you rest in peace and may your family find comfort in your legacy.

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Tuesday, October 04, 2011

"Occupy Wall Street"

I live right at the Brooklyn end of the Brooklyn Bridge. This past Saturday, October 1, at about 5:30 in the afternoon, I was starting out on a simple errand in the neighborhood. I got to the corner to cross the approach to the Bridge and found lots of police and considerable consternation. A police department communications van was parked in the bike lane, and city buses were backing into the Brooklyn-bound lanes and then across the Bridge itself. Traffic at the busy intersection was stopped in all directions and horns were honking.

It was reaction to the "Occupy Wall Street" protesters, who were at the other end of the Bridge in Manhattan trying to swarm across the Bridge in the car lanes. Some of the protesters report that police on the Manhattan side at first seemed to be willing to have the hundreds of people do that, but then changed their minds and tried to stop them. I don't know anything about the police policy here, only that these marchers had no permit and had made no advance plan; traffic was snarled all over lower Manhattan as a consequence. You have probably read that as many as 700 protesters were then arrested. The city buses I had seen were loaded up and then traveled to police stations in Brooklyn and Manhattan.

This defiant action stood in sharp contrast to two other events that took place on the Bridge during the weekend. United Way New York sponsored a march on Saturday morning to call attention to the high poverty rate newly reported for New York City. Those people moved in a tightly knit group over the Bridge's pedestrian walkway and on up to a nearby park where there were refreshments and rest facilities. They made their point in an orderly manner. The next morning, a more casual bunch of people came together across the pedestrian part of the Bridge and made their way to another local park with a similar rest arrangement along with a mariachi band. Those people were supporting diabetes research, some of them told me.

At first, I wasn't going to write here about the Occupy Wall Street people; even some news organizations have pointedly ignored them. But the publicity is growing and the "movement" is spreading. Perhaps this is a liberal response to the Tea Party. Their complaints are garnering support on a number of fronts. They are concerned about corporate greed, Wall Street greed, dishonesty and corruption, the growing gap between rich and poor and other perceived maladies of society.

One of the missions of Ways of the World is to answer, explain or give background about some of these issues. Perhaps the simple picture the Occupiers describe is incomplete. Two current examples. First, it is said that the rich don't pay a fair share of taxes. We've touched on this before, but it bears repeating. As of 2008, the latest published IRS tabulation, the top 5% of taxpayers paid 59% of total income taxes*. A more comprehensive view compiled by the Congressional Budget Office shows that in 2007, the top 20% of individual taxpayers covered almost 70% of all federal taxes. So "the rich" provide a lot of support to the government. Perhaps more is desired, but it's hardly that they get off cheaply.

Second, the Wall Street demonstrators are mad because banks got bailed out during the crisis in 2008 and 2009. Long-time readers of Ways of the World were with us during that time. You might recall that while we didn't really favor those rescue operations, we didn't even want to consider the alternative, which would have been an even more massive breakdown of the financial system. Now, we can check into U.S. Treasury press releases and reports to see how these bailouts have turned out. The public monies invested by the Treasury in these banks through the "TARP" program are being returned, and back in March, the program turned a profit: more has been returned than was originally doled out. Through July, that profit had run to $10 billion and the Treasury estimates that the government will get back about $20 billion more than was invested by the time the program is concluded.

Surely society is plagued by various ills and certainly those inequities and problems should be brought to our attention. That very questioning prompts us to look for answers in any number of ways, two of which we have just illustrated. We'd still rather have the demonstrators conduct themselves in the respectful manner that they are arguing they want private and public officials to practice with them. We aren't ignoring the other, more civil demonstrators: we will indeed address here the question about poverty which they raised. Meantime, we find it ironic that the Occupy Wall Street project, now midway through its third week, is being supported by funders whose funds were originally generated through the very capitalist system the demonstrators are quarrelling against.


*This figure is corrected from 43% in the original version of this article. I read the wrong line off the IRS table where these figures are presented.

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