Category Archives: Economy

When Wall Street Showed Up, Fortunes Sank in This Small American Town

Source: Thomas Black and Christopher Cannon, Bloomberg, July 24, 2018

….True enough, the mill in Wickliffe, the county seat, would have been staring down the barrel with or without the involvement of first Cerberus Capital Management and then Apollo Global Management. They came in, as private-equity firms often do, as business was on the skids, aiming for a turnaround.

Opened in 1970 by Westvaco Corp., the mill produced coated paper for magazines and glossy marketing inserts—a profitable enterprise in the pre-internet age. Times changed. Former employees said worries about the future began when Westvaco merged with Mead Corp. in 2001 and ratcheted up when Cerberus acquired the coated-paper unit in a $2.3 billion leveraged buyout in 2005…..

….To be sure, the mill’s idling can’t be held solely responsible for the county’s credit and debt woes. Other employers have disappeared in recent years. Within a 50-mile radius of Wickliffe, two tire plants and a Honeywell International Inc. factory that converted uranium ore into fuel for nuclear plants shuttered, and a government-run uranium enrichment facility is winding down.

The death of the paper mill hurt the most, with about 350 jobs with generous benefits lost. Locals blame Wall Street investors for accelerating what might haven been the inevitable (there’s still debate about that in Wickliffe), echoing detractors of the private-equity model that has a bumpy turnaround track record but that has been attracting record amounts from investors because they promise juicy returns in a world of ultra-low interest rates. The $3 trillion industry pulled in a record $453 billion last year.

Officials at Apollo and Cerberus declined to comment for this story….

New Study Confirms That American Workers Are Getting Ripped Off

Source: Eric Levitz, New York Magazine, July 6, 2018

…. Economists have put forward a variety of explanations for the aberrant absence of wage growth in the middle of a recovery: Automation is slowly (but irrevocably) reducing the market-value of most workers’ skills; a lack of innovation has slowed productivity growth to a crawl; well-paid baby-boomers are retiring, and being replaced with millennials who have enough experience to do the boomers’ jobs — but not enough to demand their salaries.

There’s likely some truth to these narratives.

But a new report from the Organization for Economic Cooperation and Development (OECD) offers a more straightforward — and political — explanation: American policymakers have chosen to design an economic system that leaves workers desperate and disempowered, for the sake of directing a higher share of economic growth to bosses and shareholders.

The OECD doesn’t make this argument explicitly. But its report lays waste to the idea that the plight of the American worker can be chalked up to impersonal economic forces, instead of concrete political decisions. If the former were the case, then American laborers wouldn’t be getting a drastically worse deal than their peers in other developed nations. But we are. Here’s a quick rundown of the various ways that American workers are getting ripped off:

American workers are more likely to be poor (by the standards of their nation). ….
We also get fired more often — and with far less notice. ….
Our government does less for us when we’re out of work than just about anyone else’s. ….
Labor’s share of income has been falling faster in the U.S. than almost anywhere else. ….

OECD Employment Outlook 2018

Source: Organisation for Economic Co-operation and Development, July 4, 2018

The 2018 edition of the OECD Employment Outlook reviews labour market trends and prospects in OECD countries. Chapter 1 presents recent labour market developments. Wage growth remains sluggish due to low inflation expectations, weak productivity growth and adverse trends in low-pay jobs. Chapter 2 looks at the decline of the labour share and shows that this is partially related to the emergence of “superstar” firms, which invest massively in capital-intensive technologies. Chapter 3 investigates the role of collective bargaining institutions for labour market performance. Systems that co-ordinate wages across sectors are associated with better employment outcomes, but firm-level adjustments of sector-level agreements are sometimes required to avoid adverse effects on productivity. Chapter 4 examines the role of policy to facilitate the transition towards new jobs of workers who were dismissed for economic reasons, underlying the need of early interventions in the unemployment spell. Chapter 5 analyses jobseekers’ access to unemployment benefits and shows that most jobseekers do not receive unemployment benefits and coverage has often been falling since the Great Recession. Chapter 6 investigates the reason why the gender gap in labour income increases over the working life, stressing the role of the lower professional mobility of women around childbirth.

Related:
Press release

WEBINARS

Collective bargaining
Collective bargaining systems are at a crossroads in many OECD countries. In this webinar, we will assess the role that collective bargaining systems play for employment, wages, working conditions, wage inequality and productivity (chapter 3 of the publication). We will also discuss what policy-makers, unions and employers’ organisations can do to adapt their national bargaining systems to the challenges of a changing world of work.

The decline in wage growth
10 years after the beginning of the crisis, there are finally more people with a job than before. Yet, wage growth remains considerably below pre-crisis trends. In this webinar, we will address factors behind the persistent wage growth slowdown (chapter 1 of the publication). While low inflation and productivity growth explain much of these patterns, the dynamics of low-pay jobs and the wages associated to them also play a significant, but understudied, role.

KEY COUNTRY FINDINGS
United States

The Case For More Labor Unions Is The Most Obvious Case You Can Possibly Imagine
Source: Hamilton Nolan, splinter, July 5, 2018

….The Organization for Economic Cooperation and Development’s new annual Employment Outlook report is a particularly useful tool for gauging how the United States measures up to the rest of the developed world in terms of economic policies and outcomes. In this context, we have a lot of work to do: “The low-income rate in the U.S. [defined as the share of the working-age population living with less than 50% of median household disposable income] is one of the highest in the OECD,” the report says. “The rate in the U.S. is 14.8% compared to an OECD average of 10.6%. The lowest rate is found in the Czech Republic at just 5.8%.”….

Is it great to be a worker in the U.S.? Not compared with the rest of the developed world.
Source: Andrew Van Dam, Washington Post, Wonkblog, July 4, 2018

The U.S. labor market is hot. Unemployment is at 3.8 percent, a level it’s hit only once since the 1960s, and many industries report deep labor shortages. Old theories of what’s wrong with the labor market — such as a lack of people with necessary skills — are dying fast. Earnings are beginning to pick up, and the Federal Reserve envisions a steady regimen of rate hikes.

So why does a large subset of workers continue to feel left behind? We can find some clues in a new 296-page report from the Organization for Economic Cooperation and Development (OECD), a club of advanced and advancing nations that has long been a top source for international economic data and research. Most of the figures are from 2016 or before, but they reflect underlying features of the economies analyzed that continue today.

In particular, the report shows the United States’s unemployed and at-risk workers are getting very little support from the government, and their employed peers are set back by a particularly weak collective-bargaining system…..

Is immigration bad for the economy? 4 essential reads

Source: Bryan Keogh, Nicole Zelniker, The Conversation, July 3, 2018

….Economists and other scholars have been tackling this topic for years, resulting in many studies that explore the effect immigrants of different stripes have on the economy.

All in all, scholars who have written for The Conversation have concluded immigration’s impact is actually quite positive….

Less Bang for Your Buck? How Social Capital Constrains the Effectiveness of Social Welfare Spending

Source: Mallory E. Compton, State Politics & Policy Quarterly, Online First, First Published June 21, 2018
(subscription required)

From the abstract:
Rising economic insecurity in recent decades has focused attention on the importance of social welfare programs in managing household financial stability. Some governments are more effective than others in managing this outcome, and informal social institutions help explain why. Social capital is expected to shape economic security through multiple mechanisms, but whether the effect is to magnify or mitigate volatility is an open question. Part of the answer has to do with how social capital interacts with policy implementation, and whether it conditions the effectiveness of government spending. Evidence from the U.S. states from 1986 to 2010 fails to support a benevolent social capital thesis—not only is social capital associated with greater economic insecurity, there is no evidence that it improves social welfare effectiveness. However, greater spending on some social programs can mitigate the adverse impact of social capital on economic security.

Next Recession Will Not Be Consumers’ Fault

Source: Scott Hoyt and Deniz Tudor, Regional Financial Review, April 2018
(subscription required)

The U.S. economy appears set for a boom-bust cycle. The economy is already growing strongly and seems to have little excess capacity, at least in labor markets. A massive dose of fiscal stimulus, including deficit-financed tax cuts and federal government spending increases, has just begun to hit the economy.

Resources for Key Economic Indicators

Source: Jennifer Teefy, Julie Jennings, Congressional Research Service, CRS Report, R43295, May 30, 2018

An understanding of economic indicators and their significance is seen as essential to the formulation of economic policies. These indicators, or statistics, provide snapshots of an economy’s health as well as starting points for economic analysis. This report contains a list of selected authoritative U.S. government sources of economic indicators, such as gross domestic product (GDP), income, inflation, and labor force (including employment and unemployment) statistics.

Additional content includes related resources, frequently asked questions (FAQs), and links to external glossaries.

Exploring the Influence of Federal Welfare Expenditures on State-Level New Economy Development Performance: Drawing From the Diffusion of Innovation Theory

Source: Geiguen Shin, Jeremy L. Hall, Economic Development Quarterly, First Published June 6, 2018
(subscription required)

From the abstract:
Functional theory suggests that each level of government expands in the arena in which it can best perform, reducing the price of federalism. Focusing on the functional pattern of American federalism, we suggest that increased federal welfare spending increases state government performance in the “new economy” development policy areas by helping states minimize welfare costs and divert more own-source resources into economic development. The central focus is on the direct and indirect empirical relationships between federal welfare spending and state new economy performance. The authors use an index of innovation capacity that reflects the cumulative performance of a myriad of overlapping and mutually dependent state policies intended to bring about new economy development; this index measures state new economy development performance by focusing on the observable outputs of such polices rather than the adoption, implementation, or substance of individual policy choices. Mediating variables, such as state fiscal comfort and administrative capacity, measure the indirect impact of federal welfare spending on state new economy performance. The authors find that federal welfare spending stimulates state new economy development directly, but also indirectly through its positive impact on both state fiscal comfort and administrative capacity. The findings suggest that federal intergovernmental transfers continue to be an important policy mechanism with spillover effects for state economies.

The New Urban Success: How Culture Pays

Source: Desislava Hristova, Luca M. Aiello and Daniele Quercia, Frontiers in Physics, Vol. 6, 2018

Urban economists have put forward the idea that cities that are culturally interesting tend to attract “the creative class” and, as a result, end up being economically successful. Yet it is still unclear how economic and cultural dynamics mutually influence each other. By contrast, that has been extensively studied in the case of individuals. Over decades, the French sociologist Pierre Bourdieu showed that people’s success and their positions in society mainly depend on how much they can spend (their economic capital) and what their interests are (their cultural capital). For the first time, we adapt Bourdieu’s framework to the city context. We operationalize a neighborhood’s cultural capital in terms of the cultural interests that pictures geo-referenced in the neighborhood tend to express. This is made possible by the mining of what users of the photo-sharing site of Flickr have posted in the cities of London and New York over 5 years. In so doing, we are able to show that economic capital alone does not explain urban development. The combination of cultural capital and economic capital, instead, is more indicative of neighborhood growth in terms of house prices and improvements of socio-economic conditions. Culture pays, but only up to a point as it comes with one of the most vexing urban challenges: that of gentrification.

Why Retaining Older Women in the Workforce Will Help the U.S. Economy

Source: Amy Lui Abel and Diane Lim, University of Pennsylvania, Wharton School, Knowledge@Wharton, June 6, 2018

In this opinion piece, researchers Amy Lui Abel and Diane Lim of The Conference Board explain why demographic and economic trends provide an opportunity for older women to expand their role in the labor market. Several female-dominated occupations — especially in health care services — face shortages that will only grow. But given the unique needs and circumstances of older women, realizing their full economic contribution will hinge on employers providing them with more flexible work environments. If companies do this, the greying of America could become an opportunity rather than a threat.