Category: Equitablog

A look at the near-term future of unionization rates

Posted on by Nick Bunker

The U.S. Bureau of Labor Statistics later this morning will release new data on union membership and coverage for 2014 in the United States. Over the past several decades, these releases have shown a declining unionization rate as membership decreased as a share of the workforce. In 1983, the unionization rate was 20.1 percent but by 2013 it stood at 11.3 percent. What’s the implication of this trend and did it continue in 2014?

Before attempting to answer those questions let’s first look at the reasons for the decline of unionization. Globalization, changes in labor laws, and the shift of employment from highly unionized industries (manufacturing) to less-unionized industries (personal services) are the most likely factors. Regardless of the relative importance of each cause, the trend in unionization across the developed world has been about the same, down, which is indicative of this confluence of causes.

What’s more, there is no coincidence that the period of deunionization coincides with an era of rising income inequality. A wide range of research finds that declining union membership is associated with increases in income inequality. According to one study by University of California-Berkeley economist David Card, the decline in male unionization between 1973 and 1993 was responsible for between 12 to 20 percent of the increase in wage inequality. Looking at data from 1973 to 2007, sociologists Bruce Western at Harvard University and Jake Rosenfeld at the University of Washington find that deunionization explains between 20 to 33 percent of the increase in inequality.

So, what should we expect when BLS releases the numbers this morning?

Year-to-year movements are hard to guess, but it’s a good bet that the unionization rate won’t increase by any significant amount. There’s been a well-publicized return of manufacturing jobs over the past several years, but for the most part they’ve been returning to non-unionized firms. The National Labor Relations Board, the country’s semi-judicial agency overseeing labor law, has made several changes in recent years to help boost unionization. But these changes are at the edges, and while helpful, seem unlikely to reverse or even halt the trend.

So when looking at unionization rates in the private sector, trends in specific industries may be more interesting. Manufacturing jobs are returning, but whether this will boost the unionization rate in these industries has yet to be seen. In particular, look at the unionization rate for durable goods manufacturing, which includes the auto industry—the heart of many of the high-paid union jobs of the past.

In contrast, the unionization rate for public-sector employees has been relatively constant over the past several decades, hovering in the mid-to-upper 30 percent range. But over the past 5 years, politicians in several states successfully made a concerted effort to reduce union bargaining power and membership among state-and-local employees. The public unionization rate dropped 0.6 percentage points from 2012 to 2013. This downward trend may well have continued in 2014.

So given current trends, the future for the unionization rate looks negative. The rate in the United States is already quite low, below seven percent in the private sector. Can the trend be reversed? If not can the positive aspects of unions be brought back in a different form? And what would that mean for the future of income inequality? These are all difficult questions, with no easy answers.

Morning Must-Read: Mark Wilson: The Upshot

Posted on by Brad DeLong

For an organization that is working as hard as it possibly can to become a trusted information intermediary–and, overwhelmingly, a *useful* trusted information intermediary–look at David Leonhardt’s The Upshot:

Mark Wilson: The Upshot: “That’s the power of The Upshot…

…an online news and data visualization portal on the New York Times’ website… entrust[ed]… to the paper’s former Washington bureau chief and economics columnist David Leonhardt…. To Leonhardt, The Upshot is more of a laboratory where he can lead a team of 17 cross-disciplinary journalists to rethink news as something approachable and even conversational. The goal: to enable readers to understand the news and by extension, the world, better. publisher. But we live in the puppy-GIF era…

Things to Read on the Evening of January 22, 2015

Posted on by Brad DeLong

Must- and Shall-Reads:

 

  1. Stuart Kemp: Economist Appoints Its First Female Editor: “Zanny Minton Beddoes has been appointed editor of the Economist, the first female to land the role in the publication’s 170-year history…”

  2. Robert Skidelsky: The Fall of the House of Samuelson: “[Paul] Samuelson was a convinced Keynesian… in a limited sense. He dismissed most of Keynes’s attack on the orthodox economics of his day as unnecessary, writing ‘had Keynes [started] with the simple statement that he found it realistic to assume that money wages…were sticky and resistant to downward movements… most of his insights would have remained just as valid.’ For Samuelson, Keynes’s real contribution was the tools he gave governments to prevent depressions. Reading The Samuelson Sampler, it is extraordinary to realize just how confident economists of his generation were that the New Economics… had solved the problem of depression and mass unemployment. As Samuelson put it in his 1973 introduction, ‘the specter of a repetition of the depression of the 1930s has been reduced to a negligible probability.’… Because governments knew how to stop depressions, voters would insist that they use this knowledge. ‘If printing bits of green can save banks and business from ruin,’ he argued in 1966, ‘today’s electorate will ensure that either party in power will [so] act.’ This was irrespective, Samuelson thought, of the ideological preferences of those in power…”

  3. Joseph Heath: Why People Hate Economics, in One Lesson: “What is wrong with this?… Tabarrok and Cowen are trying to communicate… ‘incentives matter’… a methodological point… [that] should be presented in… as platitudinous [a way] as possible…. There are many ways of doing that, since the problem with the public… is not that they think incentives don’t matter… it’s just that they underestimate the[ir] power of incentives, or they don’t see some of the unexpected ways…. The right way… is to say ‘here’s something that we can all agree upon–but have you thought through the consequences of it? Perhaps not. That’s what economists do.’ But Tabarrok and Cowen are unable to restrain themselves…”

  4. Dean Baker: Betting Against Subprime Mortgages Was a Good Thing): “Billionaire Robert Burns… richly deserves to be ridiculed… [for] want[ing] people to get used to lower living standards…. People are wrongly attacking Burns when they complain about his betting against subprime mortgage backed securities…. The securities were in fact bad. Burns betting against them made that clear in the markets somewhat sooner than would have otherwise been the case, bringing down the bubble earlier and more rapidly. This is good… fewer people were caught up in it than if the bubble had continued…. It would have saved people an enormous amount of pain if there had been lots of Robert Burns betting against subprime mortgage backed securities in 2003-2004…. Burns was acting out of greed, not a desire to help the economy and society. But this is a case where greed was good…”

  5. Tony Yates: ECB QE. Much too Late and Not to Be Counted on: “The slow, drawn out, reluctant, piecemeal way that the ECB has handled the crisis… and the disputes that have raged about whether and how to do QE… minimise the bang per buck…. Second, in so far as QE works by signalling intentions about future central bank rates, there is now little to be got…. Third, in so far as QE acts through lowering term, liquidity or other premia, it’s too late for that too. Something has squeezed those premia out in Northern countries. And the risk that the remaining premia in the South reflect is not going to be taken off the local sovereign balance sheet…”

Should Be Aware of:

 

  1. Scott Lemieux: High Broderism, Once Influential Conservative Democrat Edition: “Bill Galston, the prescient analyst cryogenically frozen at a 1991 DLC meeting, has some Deep Thoughts about the SOTU: ‘Still, as Mr. Obama began speaking, a key uncertainty remained:  What balance would he strike between the desire to shape the political terrain for 2016 and the imperatives of governing in 2015?  The former required bold initiatives, of a kind likely to evoke sharply negative reactions from Republicans who command majorities in both the House and the Senate.  But successful legislating this year will require compromise with those very majorities.  Could he thread the needle, making the Democratic political case for next year without undermining the possibility of legislative progress this year?’ Yes, in 2015 it’s very, very hard to tell if congressional Republicans would be willing to pass sensible middle-of-the-road compromises. But either way, I think that we can agree that whether it will happen will depend on the precise wording of the State of the Union address…”

  2. @lorcanrk: On ECB QE: “€60 billion a month including: Sovereign Debt; Super-national (read EIB/ESM) debt; Asset-Back Securities; Covered Bonds. It does NOT include Corporate Bonds. (or equities..) It will buy bonds with remaining maturity between 2 and 30 years. It will buy inflation linked bonds. Purchases will start in March (in six weeks, when that month’s reserve maintenance period starts) and will continue until at least September 2016. The breakdown of purchases will be by Central Bank capital key, with the ECB itself accounting for 8% of purchases. So, if you want to work out how much each national central bank will buy, get the banks capital share here (be sure to adjust to 100% total), multiply that by €60bn, then multiply that by 0.92. Interestingly, there is nothing in the guidelines stopping an NCB buying the sovereign debt of another euro-area country, although it would be doing so at its own risk. I’ve written here about why the non-risk sharing is probably a good thing. But, also, I think ECB QE buying at this level is most likely to work more to weaken the € currency than necessarily have a positive portfolio effect. Overall, this is good news. It would be churlish to ask for more, at the moment.”

  3. Henry Farrell: The Peripheral: “A blogpost on the William Gibson book of the same name, with copious spoilers… his best for some time; maybe, depending on your druthers, the best novel that he’s ever written…. Gibson… wants, I think, to talk about the relationship between the 99% and the 1%, using science fiction to turn the social relationships that Piketty and Saez talk about into a kind of ontology. The farther future is one in which the 1% has won and become a global ruling class…. The nearer future timeline is set in a rural America where the real economy has collapsed, leaving illicit drugs and dead end jobs working for the homeland security…. In this timeline, we don’t see the 1%, although they’re there in the background. Instead we see the kind of people who are about to be left behind and perish in the Jackpot…”

An Inadequate Note on Nick Bunker on Bank Leverage…

Posted on by Brad DeLong

I’ve been trying to think of an intelligent comment to make on the extremely-fast-at-the-keyboard Nick Bunker’s Taxation in the name of equity on the desirability of taxing borrowing by big banks. I strongly approve: too-big-to-fail banks are extremely bad news, I have come to believe, for three reasons:

  1. They create systemic risk.
  2. They are extremely powerful lobbyists–much more powerful than ten banks each one-tenth their size would be.
  3. Regulation of too-big-to-fail banks too-easily steps over the line into social-network revolving-door corruption.

For all these reasons, we want to make it hard to be a too-big-to-fail bank and profitable for managers and shareholders to split such things up–internalize these externalities!

But I find myself of divided mind on the more general Admati-Heilwig-Bunker point that banking should run with a lower debt-to-equity ratio. Equity capital is scarce in this world, and it is far from clear to me that it is best-deployed backstopping banks…

A Note on Carter Price’s: What Have We Learned About the ACA Over the Past Year?

Posted on by Brad DeLong

The estimable Carter Price in his What have we learned about the ACA over the last year? has a nice set of links (http://www.rand.org/blog/2014/04/survey-estimates-net-gain-of-9-3-million-american-adults.html https://www.cbo.gov/publication/45231 http://kff.org/health-reform/issue-brief/analysis-of-2015-premium-changes-in-the-affordable-care-acts-health-insurance-marketplaces/ http://kff.org/uninsured/fact-sheet/key-facts-about-the-uninsured-population/ http://www.advisory.com/daily-briefing/resources/primers/medicaidmap http://www.cepr.net/index.php/blogs/cepr-blog/today-aca-boosts-voluntary-part-time-employement http://www.nber.org/papers/w19220 http://content.healthaffairs.org/content/34/1/104.abstract http://www.arktimes.com/ArkansasBlog/archives/2013/10/24/more-than-60000-arkansans-have-enrolled-in-the-private-option-for-medicaid-expansion) with commentary to assess how ObamaCare has done over its first implementation year.

I find myself, over and over again, how well ACA implementation is doing in the Blue States that have implemented it enthusiastically–I would have expected at least one more-serious state exchange blowup and something going wrong with costs and competition somewhere. But, instead, the only downward surprise has been the extent to which Red States have been able to nullify implementation–at, I must say, a remarkably large cost to their state economies and to the ability of their governors and legislatures to promote the general welfare…

Morning Must-Read: Joseph Heath: Why People Hate Economics, in One Lesson

Posted on by Brad DeLong

We see this strikingly in the many, many right-wing economists who assign moral fault to liberals who don’t free ride, don’t pollute, don’t work hard to externalize as many costs as they can and make others bear them. A doctrine that gleefully assigns positive moral value to being a schmuck is a very odd doctrine to advocate indeed…

Joseph Heath: Why People Hate Economics, in One Lesson: “What is wrong with this?…

…Tabarrok and Cowen are trying to communicate… ‘incentives matter’… a methodological point… [that] should be presented in… as platitudinous [a way] as possible…. There are many ways of doing that, since the problem with the public… is not that they think incentives don’t matter… it’s just that they underestimate the[ir] power of incentives, or they don’t see some of the unexpected ways…. The right way… is to say ‘here’s something that we can all agree upon–but have you thought through the consequences of it? Perhaps not. That’s what economists do.’ But Tabarrok and Cowen are unable to restrain themselves….

[They] present it in a way that makes it seem both morally suspect and politically conservative… set up a contrast between ‘economy’ and morality, with the latter being dismissed somewhat contemptuously as mere ‘sentiment’ (as though people were being tender-minded fools for thinking that there should be moral rules that prohibit killing people…. By buying into Chadwick’s contrast between ‘economy’ and ‘benevolence,’ Tabarrok and Cowen are accepting the narrowest reading of the ‘incentive’ concept, that which identifies it, not just with people’s self-interest, but with their pecuniary interests.

Second, there is the (again somewhat contemptuous) reference to the British parliament passing ineffective ‘regulations.’ The fact that Tabarrok and Cowen use this term, which is anachronistic in the context, shows that they can’t resist getting a little dig in against the left, with its tender-hearted conviction that government can be an effective force for good in the world. But this is not the right place to be doing it… present the foundational ideas of economics in a way that makes them neutral with respect to political ideology…”

Morning Must-Read: Dean Baker: Betting Against Subprime Mortgages Was a Good Thing

Posted on by Brad DeLong

As Dean Baker points out, stabilizing financial speculators are an enormous asset to an economy:

Dean Baker: Betting Against Subprime Mortgages Was a Good Thing: “Billionaire Robert Burns Jeff Greene…

…richly deserves to be ridiculed… [for] want[ing] people to get used to lower living standards…. People are wrongly attacking Greene when they complain about his betting against subprime mortgage backed securities…. The securities were in fact bad. Greene betting against them made that clear in the markets somewhat sooner than would have otherwise been the case, bringing down the bubble earlier and more rapidly. This is good… fewer people were caught up in it than if the bubble had continued….

It would have saved people an enormous amount of pain if there had been lots of Jeff Greenes betting against subprime mortgage backed securities in 2003-2004…. Greene was acting out of greed, not a desire to help the economy and society. But this is a case where greed was good…”

Morning Must-Read: Tony Yates: ECB QE. Much too Late and Not to Be Counted on

Posted on by Brad DeLong

Tony Yates gives an even more pessimistic assessment of Eurozone QE than I gave yesterday.

But it is hard to disagree with him, and to be even as less-pessimistic as I was yesterday.

And that even this small, tentative step which carries no risks whatsoever that I can see excites such extraordinary opposition is a very bad sign for the Eurozone as a whole.

The German establishment appears to have decided that forcing “reform” in southern Europe is its only policy goal. I do not know whether they think it is worth risking the break up of the European project or are just ostriches. I don’t know whether they think it is worth risking recession in Germany, believe that a deeper crisis in the south will lower the value of the euro and produce a German boom and thus that recession in Germany is not a risk, or are just ostriches:

Tony Yates: ECB QE. Much too Late and Not to Be Counted on: “The slow, drawn out, reluctant, piecemeal way…

…that the ECB has handled the crisis… and the disputes that have raged about whether and how to do QE… minimise the bang per buck…. Second, in so far as QE works by signalling intentions about future central bank rates, there is now little to be got…. Third, in so far as QE acts through lowering term, liquidity or other premia, it’s too late for that too. Something has squeezed those premia out in Northern countries. And the risk that the remaining premia in the South reflect is not going to be taken off the local sovereign balance sheet…

What have we learned about the ACA over the last year?

Posted on by Nick Bunker

In his State of the Union address, President Obama stated “in the past year alone, about ten million uninsured Americans finally gained the security of health coverage.” The Affordable Care Act’s key coverage provisions (Medicaid expansion and the insurance exchanges) have been in effect for more than a year and are responsible for the increased coverage Obama highlighted. But what else can be said about health insurance reform?

The big ACA news from last year is the lack of bad news, but avoiding a disaster is a low bar. While they might not have gotten the most headlines there were some notable successes, too. More than 9 million people are estimated to be net newly insured and millions more have new insurance options. The Congressional Budget Office’s estimates for coverage were shockingly close to the actual enrollment despite the flawed roll-out. Premiums have remained stable or even declined in most places. In a big departure from the trend of the 2000s, medical inflation has been roughly the same as overall inflation. A recent study by researchers at the Urban Institute found no change in the number of people receiving insurance from their employers since the implementation of the new health law.

That said, the Affordable Care Act has not solved all of the nation’s health insurance problems. There are still tens of millions of uninsured people. The goals of the law, to increase insurance affordability and coverage, still have some way to go. Several states have elected not to expand Medicaid, which means many people will remain uninsured. Likewise, affordability will remain an issue. A new study from RAND researchers finds, somewhat counter-intuitively, that increased insurance competition may actually result in higher consumer costs by increasing the number of high deductible plans.

In addition to this mix of good and the bad news, there are some things that are not yet known. With only one year of full implementation of the coverage provisions, more issues may arise. For instance, the Affordable Care Act was assumed to reduce “job lock,” when people stay in a job they would quit if they did not need health insurance. A study by economists Craig Garthwaite and Matthew Notowidigdo of Northwestern University, and Tal Gross of Columbia University looked at the employment effects when people in Tennessee lost public insurance. Their analysis implies that we should expect the ACA to allow a lot of people to retire early or work part-time. The employment data may or may not  show this happening.

While economists are measuring the impact on job lock, there are other questions that health care researchers will be tackling over the next few years. How do Medicaid costs compare in states such as Arkansas that expanded Medicaid through a private option? Will the insurance markets remain stable as some of the ACA’s components such as reinsurance and risk corridors phase out? What additional reforms are needed to improve access to care, increase affordability, and raise quality? All of these issues will be important for researchers and policymakers to grapple with as they calculate the promise of the Affordable Care Act to reduce health insurance inequality in the United States.

Things to Read on the Morning of January 22, 2015

Posted on by Brad DeLong

Must- and Shall-Reads:

 

  1. Robert Waldmann: Debates: “I typed something…. ‘Name a Friedman Solow debate which, with the benefit of hindsight, we agree was won by Friedman. I do not think this is easy to do.’… My challenge was to name a Friedman-Solow debate and convince me (Robert Waldmann) that Friedman was right. Rowe interpreted ‘we’ to refer to… mainstream… macroeconomics…. For that set of people I use the pronoun ‘they’…. Take it as agreed that new Keynesian macroeconomics is basically Friedmanite macroeconomics… are very different from old Keynesian macroeconomics and [from] real business cycle theory…. This victory came in one of two ways… the victory over the straw man of the expectations-unaugmented Phillips curve…. The conventional recollection of that alleged debate is almost entirely fictional…. Samuelson and Solow 1960. Yes the profession (also over here with huge persistent unemployment) believes in the natural rate hypothesis. The profession is crazy. The permanent income hypothesis is… rejected… now the permanent income model and it is assserted that although it isn’t true it may be useful (the logic is almost that since it isn’t exactly true it must be useful)…. There is the idea that AD should be managed with monetary policy…. Recent experience doesn’t show that good monetary policy solves AD problems…”

  2. Paul de Grauwe: Quantitative Easing and the Euro Zone: The Sad Consequences of the Fear of QE: “I see two reasons why the case for [Eurozone] QE is overwhelming. First, QE is merely a correction for… the last two years… [when] the ECB withdrew about €1 trillion out of the euro-zone economy…. Second, the euro-zone economy is not getting off the ground…. Since Milton Friedman we have all become monetarists. In order to raise inflation it will be necessary to increase the growth rate of the money stock. This requires that the ECB increase the money base. And to achieve the latter there is only one practical instrument, ie, an open-market purchase of government bonds…. But… QE… is necessary but not sufficient. The fact that it is not sufficient, however, should not lead to the conclusion that it can be dispensed with…. There is much misunderstanding and fear regarding QE, especially in Germany. There is the fear that… German taxpayers risk having to foot the bill…. [But] if… say the Italian government were to default… [it] would stop paying interest but at the same time (applying the ‘juste retour’) it would not get any interest refund… no fiscal transfers…. [Any] write down ]of] the Italian bonds… [would be] purely an accounting operation…. A central bank… does not need equity…. This confusion between accounting losses and real losses… has led to long hesitation to act… leads to bad ideas and wrong proposals…”

  3. Paul Krugman: A Tale of Two Pegs: “By the numbers Switzerland’s monetary situation pre-collapse and Hong Kong’s now look remarkably similar…. So is the Hong Kong dollar at risk of a franc-like event? No, it isn’t. There’s not a hint of pressure to drop the currency board. Why is Hong Kong different The answer…is that the institutional setup and history… plays very differently with hard-money ideologues… even though the facts… weren’t very different…. Swiss currency intervention looked to the usual suspects like activist monetary policy, runaway expansion of the central bank’s balance sheet, ‘printing money’ to debase the currency even if the goal was to keep it from getting stronger. Meanwhile, Hong Kong has a currency board, which is the next best thing to the gold standard, so maintaining the peg… became a demonstration of stern Victorian monetary virtue…. It was the nagging from hard-money types that led to the debacle. Meanwhile, Hong Kong has managed to wrap the very same policy in libertarian clothes, and there’s no problem.”

  4. Lawrence Delevingne: Manager ‘truly sorry’ for blowing up hedge fund: “A hedge fund manager told clients he is ‘truly sorry’…. Owen Li, the founder of Canarsie Capital in New York, said Tuesday he had lost all but $200,000 of the firm’s capital–down from the roughly $100 million it ran as of late March…. ‘My only hope is that you understand that I acted in an attempt—however misguided—to generate higher returns for the fund and its investors. But even so, I acted overzealously, causing you devastating losses for which there is no excuse,’ he added. Li is a former trader at Raj Rajaratnam’s Galleon Group, which collapsed amid insider trading charges…. Li’s lieutenant at Canarsie is Ken deRegt, who joined in 2013 after retiring as the global head of fixed income sales and trading at Morgan Stanley…. Li and the deRegts did not immediately respond to emails seeking comment. No one picked up a phone call at Canarsie’s offices and no valid voicemail was available…. Li said in the letter that he made a series of ‘aggressive transactions’ over the last three weeks to make up for poor returns in December…”

  5. David Keohane: ECB QE guesswork, cut out and keep edition: Deutsche Bank: Screen Shot 2015 01 22 at 13 01 29 png 700×390 pixelsECB QE guesswork cut out and keep edition FT Alphaville

Should Be Aware of:

 

  1. Simon Wren-Lewis: Encouraging Dialogue: “Economists want (or need) to know why their approach is missing key issues or linkages which compromise their analysis, just as the doctor needs to know why they might be recommending the wrong treatment. You would not insist that your doctor needed to have studied economics before they can be a good doctor…. Let me take a real world economic problem: the response to the financial crisis…. Your economic analysis tells you that networks of many small entities can be as subject to crises as networks involving a few large banks. You are also able to devise a system of Chinese walls…. [But eventually] you realise that right from the start you made the wrong choice. You decided to focus on what you knew, which was how to design systems that worked well as long as those systems remained unchanged, but which were not robust to intervention by self-interested parties. In short, they were too open to rent-seeking. You realise that actually the best thing to have done was to break up the banks so that their political power was forever diminished. And you recall a conversation with your social science colleague when this all started, who might have been trying to tell you this if only you had understood the words he was using.”