Normative Narratives


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Economic Outlook: Guaranteed Income vs. Guaranteed Employment

Dr. Martin Luther King Jr., a man whose understanding of social justice was unrivaled, knew the importance of gainful employment in achieving his goals. In his day, Dr. King advocated for (among other things) good jobs for African Americans who had been systematically discriminated against for centuries. This was largely something the private sector could provide, if racial discrimination was sufficiently deterred.

Today, it is not an individual race that faces barriers to gainful employment, but a whole socioeconomic lower class. With corporate profits at an all time high, and interest rates at historic lows, the past few years would have been the perfect time for corporations to ramp up hiring. However, due to forces such as globalization and automation, it appears the private sector alone will not provide the number of well-paying jobs American’s need–it simply does not have to in order to maximize profits (at least in the short-run).

A recent Brookings blog advocated for guaranteed income (i.e. welfare) in the face this reality:

The labor market continues to work pretty well as an economic institution, matching labor to capital, for production. But it is no longer working so well as a social institution for distribution. Structural changes in the economy, in particular skills-based technological change, mean that the wages of less-productive workers are dropping. At the same time, the share of national income going to labor rather than capital is dropping.

This decoupling of the economic and social functions of the labor market poses a stark policy challenge. Well-intentioned attempts to improve the social performance of the labor market – through higher minimum wages, profit-sharing schemes, training and education – may not be enough; a series of sticking leaky band-aids over a growing gaping wound.

As Michael Howard, coordinator of the U.S. Basic Income Guarantee Network, told Newsweek magazine: “We may find ourselves going into the future with fewer jobs for everybody. So as a society, we need to think about partially decoupling income from employment.

…the answer for American families is an old idea whose time has come—a universal basic income.

While an interesting idea, I think having the government act as an “employer of last resort” is a better way of achieving the goals of “universal basic income”, in a way that would be more politically viable. Aside from the economic benefits of employment, there are numerous social benefits as well, including: less crime, improved self-esteem / mental health, and experience / skill building (making people more desirable to private sector employers).

Government jobs could work in many sectors, at lower average wages (so people look for private sector work first), but with more of a training component to promote eventual private sector employment.

Below are a few potential areas for government jobs–areas that are severely under-invested in, and have strong positive “externalities“:

Infrastructure:

The most often cited example when discussing greater government employment is infrastructure. America’s roads and bridges are largely neglected, costing billions a year in lost economic output and putting people’s safety at risk.

Community Development: 

New evidence suggests that where a person grows up has a significant impact on their chances of being successful later in life. Those who grow up in poorer areas find it much harder to “get out” and live productive lives. This is, of course, a huge hindrance to social mobility.

Community development initiatives include mentoring programs (which can mitigate the effects of bad parenting), and “after-school activity” type programs (which can steer young people towards constructive hobbies which often become the basis of employable skills, and away from destructive behavior). Community centers could also offer affordable / free daycare services for younger children.

Parent(s) determine both “who” raises a child, and “where” (since adults make the choice of where they raise their kids)–winning or losing the “parenting lottery” should not be such a strong determinant of future success. While it is impossible to separate the genetic link between parents and their child (the “nature” side of human development), the “who” and “where” (“nurture” side of human development) can be impacted by investing in community development.

Mental Healthcare:

The ACA ensures mental health parity, but not everyone gets the help they need.  To close this gap, government work could increase the “supply” of mental healthcare workers. What I propose is a Mental Health Corp, featuring a new job type–something akin to nurse practitioners taking on more of a doctor’s duties to reduce healthcare costs–in the mental healthcare field.

One does not need a PhD or MD to provide meaningful help to someone struggling with mental illness. There will always be demand for the best trained mental health professionals from people with the means to afford their services, but for those who cannot, surely some care–even if it is not “the best”–would be greatly beneficial. Such care could help people overcome issues that make them unable to find/hold a job and/or lead to criminal activity. 

Feel free to disagree with me on any of the fields mentioned above. The point I am trying to make is that government employment need not be “digging holes to fill them back up again”.

Robust analyses are needed to compare the costs of our current welfare and criminal justice systems versus the cost of a guaranteed employment program. Not all criminal justice or welfare costs would be eliminated with guaranteed employment (criminal justice reform and a livable minimum wage are also needed) but a significant portion would. It is possible a guaranteed jobs program would not cost much more than what we currently pay to combat the symptoms of unemployment, with much greater benefits. 

While on the topic of welfare, guaranteed employment would remedy one of the major holes in the otherwise sound work-for-welfare requirement of the 1996 welfare reform act. After this reform, those unable to find a job also found themselves without a safety-net, falling into “extreme poverty” (which has more than doubled since the reforms were passed)There is a common saying that a nation should be judged not by how well off its wealthiest are, but by how well off its poorest are–with guaranteed employment for those who want it, America would be doing much better on this count. It is past time to plug this obvious hole in welfare reform.

While no one would get rich from government employment, they would be able to live a comfortable life and provide the resources needed for their children to realize their full potential, fulfilling the promises of equality of opportunity and social mobility that America is built upon.


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Economic Outlook: “NanoDegrees”

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This past week there has been much media coverage of a new program, launched by Starbucks and Arizona State University, aimed at offering Starbuck’s employees a free online college education. While this attention is well deserved, I believe another emerging trend pioneered by AT&T and Udacity–“NanoDegrees”–may have an even greater transformative effect on U.S. labor markets (original article):

Could an online degree earned in six to 12 months bring a revolution to higher education?

This week, AT&T and Udacity, the online education company founded by the Stanford professor and former Google engineering whiz Sebastian Thrun, announced something meant to be very small: the “NanoDegree.”

At first blush, it doesn’t appear like much. For $200 a month, it is intended to teach anyone with a mastery of high school math the kind of basic programming skills needed to qualify for an entry-level position at AT&T as a data analyst, iOS applications designer or the like.

Yet this most basic of efforts may offer more than simply adding an online twist to vocational training. It may finally offer a reasonable shot at harnessing the web to provide effective schooling to the many young Americans for whom college has become a distant, unaffordable dream.

Intriguingly, it suggests that the best route to democratizing higher education may require taking it out of college.

“We are trying to widen the pipeline,” said Charlene Lake, an AT&T spokeswoman. “This is designed by business for the specific skills that are needed in business.”

Employers have been complaining for years about a lack of skilled workers to fill available jobs. According to the Organization for Economic Cooperation and Development, the skill level of the American work force is slipping dangerously behind other nations.

The evidence so far suggests that online education may do better in giving low-income students a leg up if it is directly tied to work. And companies, rather than colleges, may be best suited to shape the curriculum.

The “NanoDegree” is a step in a similar direction: offering a narrow set of skills that can be clearly applied to a job, providing learners with a bite-size chunk of knowledge and an immediate motivation to acquire it.

It may not offer all the advantages of a liberal arts education, but it could offer a plausible path to young men and women who may not have the time, money or skill to make it through a four-year or even a two-year degree.

AT&T will accept the NanoDegree as a credential for entry-level jobs (and is hoping to persuade other companies to accept it, too) and has reserved 100 internship slots for its graduates. Udacity is also creating NanoDegrees with other companies.

If all goes according to plan, Mr. Thrun says, Udacity will ultimately create an alternative approach to the “four years and done” model of higher education, splitting it into chunks that students can take throughout their lives.

“It’s a more focused education with less time wasted,” Mr. Thrun told me. “They can get a degree quickly, get a job and then maybe do it again.”

This isn’t the kind of educational pathway that encourages much smelling of the roses. The live college experience is probably better at providing noncognitive skills.

For many young Americans, though, the alternative to the traditional path may well be no useful degree at all.

“We still need rounded people, which you can’t get through mini-certificate courses,” Professor Hollands said. “But we also have an economy to run here.”

It seems to me that this “NanoDegree” model is a response to a problem that does not exist– an under-skilled American workforce. Large corporations, which have thrived on a shift from labor to capital / technology, are able to be more selective in their employment choices. Furthermore, more specialized capital requires more specialized laborers to utilize said capital. Further reinforcing this trend is downward pressure on labor markets due to the recession; people with years of experience are willing to take essentially entry level positions.

Due to these factors, companies are basically unwilling to hire people who need on the job training. A 4 or 2 year degree may help develop social and cognitive skills, but is unlikely to result in experience with specific software / technology / capital used by specific companies (a problem I believe must be addressed by greater coordination between businesses and traditional education institutions).

This has been particularly concerning to young adults trying to start their careers, who all to often lack both the experience and specific skills required for many “entry level” jobs, resulting in high levels of youth unemployment and related socioeconomic issue. NanoDegree’s offer an opportunity for people to gain the training they needed for a specific job, at virtually no cost to the company. In addition to their stated purpose of offering an avenue to employment for less skilled / affluent job seekers, I can easily see “NanoDegrees” becoming complimentary to traditional college (either directly implemented in curricula, or pursued post graduation like a Masters degree) for those who can afford such luxuries.

I can see both potential benefits and drawbacks to NanoDegrees, which I will summarize as follows:

Potential Adverse Effect: greater job specialization –> less labor mobility –> power imbalance shifts further in favor of management and away from labor.

Potential Benefits**: greater investment by company in workers* –> more value from labor  / employees more valuable to company’s competitors–> greater bargaining power for labor.

* this would require the company footing the bill for a “NanoDegree”, which is not how the programs are currently modeled

** longer-term trends, the immediate benefit would be employment

There is simply no way to “force” businesses to hire more workers, especially when they have been able to maximize profits with less employees. Short of drastic redistribution through corporate taxation (which aside from being politically difficult would require tackling global tax avoidance issues) and social spending, there are few ways to ensure economic gains are somewhat evenly distributed.

While the “under-skilled workers” argument may be an artificial problem created by an unwillingness of companies to offer on-the-job training (due to a confluence of factors: a partial switch from labor to capital production, globalization, mechanization, the decline of unions, downward pressure on the job market, etc.) the “NanoDegree” model could prove to be an attainable avenue to gainful employment, particularly for young people / long-term unemployed.

Any program benefiting these groups (young people and the long-term unemployed) should have particularly stimulative effects on overall economic growth. Furthermore, if this program is proven effective, there will be a strong argument for expanded access through needs and merit based subsidies. Investing in “quality” jobs yields strong returns; “NanoDegrees”, in combination with other policies such as the EITC, minimum wage increases, etc., could become an essential component of poverty / inequality reduction initiatives.

 


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Economic Outlook: Of Minimum Wages and Employment

The CBO released its analysis of the employment and budgetary effects of minimum wage increase yesterday. Advocates from both sides of the isle will seize on the reports findings to “prove their point” about the (de)merits of increasing the minimum wage. I found Jared Bernstein’s Economix blog on the subject pretty even-handed:

It is important to recognize that there is a very wide range of estimates from which the budget agency can choose, as shown in the chart below, which plots results of the employment effect from dozens of studies (from a recent set of slides from the White House Council of Economic Advisers).  This wide range does not imply that the budget office made a mistake, though it looks to me as if it applied a higher job-loss estimate than is the current consensus among economists who’ve closely studied the issue.

Note:

As the chart shows, the employment impact from this “meta-analysis” clumps around zero, which is why the report finds that the policy is a significant net plus from the perspective of low-wage workers: Many more workers get a raise from the policy than are displaced from their jobs.

In fact, the study points out that the range, or confidence interval, around their central estimate ranges from a “very slight decrease” to one million.  The authors guess that there’s a two-thirds chance that the true estimate is in that range.

There is no policy I can think of that generates only benefits without any costs, and policy makers always have to weigh the two sides. In the case of the minimum wage, on the benefits side of ledger, the budget office shows that 16.5 million low-wage workers would directly get a much-needed pay increase at no cost to the federal budget.

There is one paragraph of the report Bernstein does not seize on, which I believe merits greater consideration:

An increase in the minimum wage also affects the
employment of low-wage workers in the short term
through changes in the economy-wide demand for goods
and services. A higher minimum wage shifts income from
higher-wage consumers and business owners to low-wage
workers. Because those low-wage workers tend to spend a
larger fraction of their earnings, some firms see increased
demand for their goods and services, boosting the
employment of low-wage workers and higher-wage
workers alike. That effect is larger when the economy is
weaker, and it is larger in regions of the country where
the economy is weaker. (p. 7)

The positive employment effect of increasing the minimum wage (redistributing money to lower income individuals who, by definition, spend a greater share of every dollar earned; i.e. people who have a higher “marginal propensity to consume”) is “larger when the economy is weaker“.

Can there be any question that the economy is currently very weak? Specifically, aggregate demand is most depressed for the poorest, who have seen decreases in real household income over the past decade(s) (as opposed to the wealthiest 1%, who have captured 95% of income gains since 2009).

It is, therefore, quite reasonable to assume that job losses will be closer to the “very slight decrease” end of the CBO range, if indeed they are negative at all (an assumption that is directly in line with “the current consensus of economists who have studied the issue closely”).

The other findings of the report are fairly straightforward: 16.5 million workers will benefit from a $10.10 minimum wage by 2016, 900,000 will be raised out of poverty, with negligible effects on the federal budget:

“CBO concludes that the net effect on the federal
budget of raising the minimum wage would probably be
a small decrease in budget deficits for several years but a
small increase in budget deficits thereafter.” (p. 14)

Given that any budget forecast after “several years from now” borders on divination, one can even conclude that raising the minimum wage would actually result in a net gain for the federal budget. Spending on automatic stabilizers will fall (automatically) as poorer families / individuals rise above certain income thresholds. On the other hand, lower tax revenues are estimated to come from wealthier individuals, whom tend to find ways to have an effective tax rates below what their income bracket would suggest. In other words, spending cuts will occur automatically, while drops in tax revenue are considering tax revenues that may never have been realized in the first place.

As Mr. Bernstein concluded, no policy change is without trade-offs. However, it seems pretty clear that, in the current context, the benefits of increasing the minimum wage far outweigh the losses. So when you hear conservative politicians beating the “1,000,000 jobs lost drum” and/or the “increasing the deficit drum” over the next few  months, question whether that estimate is reasonable or simply an attempt to turn public support against a common sense policy reform.