No Apparent Motive

After losing 1.4 million members between 2008 and 2010, the labor movement managed a small increase in membership in 2011. Data released by the Bureau of Labor Statistics this morning show union membership rose by about 49,000 last year. In the private sector, membership jumped 110,000, which was partially offset by a decline of 61,000 union members in the public sector.

Source: CEPR.

Janelle Jones and I analyze the numbers in a CEPR “Union Byte” released this morning. Our work is also cited in good stories in the Associated Press and the Wall Street Journal.

As I write in a new CEPR briefing paper (pdf) out today, the United States leads the wealthy world in the share of its workforce in low-wage jobs. According to the commonly used international definition of low-wage work –earning less than two-thirds of the median hourly wage– about one-fourth of US workers are low-wage.

Source: Schmitt (2012).

The report draws five lessons from the experience of the United States and other rich countries over the last several decades:

Lesson 1: Economic Growth is not a Solution to the Problem of Low-wage Work

Lesson 2: More “Inclusive” Labor-market Institutions Lead to Lower Levels of Low-wage Work

Lesson 3: The United States is a Poor Model for Combating Low-wage Work

Lesson 4: Low-wage Work is Not a Clear-cut Stepping Stone to Higher-wage Work

Lesson 5: In the United States, Low Wages are among the Least of the Problems Facing Low-wage Workers

The countries that have been most successful in reducing the share of their population in low-wage work have typically done so by having widespread collective bargaining or by funding a reasonable and reliable safety net (which, among other things, raises the bargaining power of low-wage workers). See, for example, Figures 4 and 5 from the paper:

The United States, meanwhile, has relied primarily on the minimum wage and the Earned Income Tax Credit (EITC). Both could dramatically reduce the share of the workforce on low pay (see, for example, this excellent paper by Jeannette Wicks-Lim and Jeffrey Thompson), but the US minimum wage and EITC have both been set too low to have a meaningful impact on low-wage work. This figure, for example, shows the gap between the low-wage threshold (what a worker would have to earn to rise above “low-pay”) and the federal minimum wage, in each year from 1979 through 2010.

Source: Schmitt (2012).

But as the paper also emphasizes, low-pay isn’t even the worst of it. Low-wage workers are also much less likely to have health insurance (of any kind, employer-provided or from other sources), paid sick days, paid parental leave, or paid vacation. Not to mention very little in the way of job security.

Source: Alan Krueger, Council of Economic Advisers.

Economist Miles Corak, one of the world’s leading experts on economic mobility, has written a devastating take-down of the core of two recent pieces by the Brookings Institution’s Scott Winship. Winship has been arguing that President Obama, his economics team, and many others on the political left are wrong to claim that economic mobility has been on the decline in recent decades. But, as Corak documents, it is Winship that is misreading the data.

Winship’s first piece was written in response to President Obama’s much-commented-on speech last December in Osawatomie, Kansas, where the president argued that a child born into poverty today has a lower chance of reaching the middle class –about 33 percent– than a child born into poverty just after World War II  –about a 50 percent chance.

Writing in the National Review Online, Winship said that the president’s “claim of falling upward mobility … rang false” and is “contradicted [by] most of the research that has been conducted to date.” Winship’s criticisms focused on some pretty technical issues in research conducted by Berkeley economist David Card, one of the country’s foremost labor economists and winner of the 1995 John Bates Clark medal. After reviewing Card’s numbers, Winship concludes that upward mobility today “is no worse than it has ever been and it does not translate into a general lack of opportunity for the middle class.”

Next, Winship took aim at the chair of President Obama’s Council of Economic Advisers, Alan Krueger, another prominent labor economist who was at Princeton before joining the Obama administration in 2009. In a speech last week at the Center for American Progress, Krueger presented what he called “The Great Gatsby Curve,” a graph (see above) that shows a strong relationship across rich countries between higher levels of economic inequality and lower levels of economic mobility.

Winship called out Krueger in a guest post at Reihan Salam’s blog at the National Review Online, calling Krueger’s speech “deceitful.” Again, Winship’s piece revolves around a number of technical points in Krueger’s analysis, and again, Winship concludes: “The data indicate that it is no less true today than it was in the past that poor children can make a better life for themselves.”

But, here is where Miles Corak steps in. At his personal site, Corak writes that Winship “does a disservice to a well-established literature on generational mobility.” After Corak’s own detailed review of the data, Corak arrives at a pretty damning series of conclusions: “All of Winship’s statistical concerns with estimates of the generational elasticity have been addressed since the beginning of this literature”; “Winship’s questioning of the robustness of the empirical literature on the intergenerational elasticity by citing one study is misleading”; “Making projections is tricky, but not because of anything Winship says”; and, finally, Alan Krueger “got his facts right.”

UPDATE: Winship has already posted a lengthy response to Corak, at Salam’s National Review Online blog. I’m guessing this isn’t the last of it.

UPDATE 2: And Corak.

UPDATE 3: Justin Wolfers, at the Freakonomics blog, scores the fight for Corak, saying it’s “not even close.”

The current issue of Dissent includes my review of Guy Standing’s latest book, The Precariat: The New Dangerous Class.  The “precariat” is Standing’s term for the precariously employed workforce that has emerged over the last three decades and that has increasingly replaced the traditional working class. The one sentence review: a great description and diagnosis, but weaker on the prescription and politics. You can read the whole thing (behind the paywall) at Dissent.

In a new CEPR report (pdf) out today, Janelle Jones and I argue for rethinking our understanding of “long-term unemployment.”

From the executive summary:

First, we encourage shifting from a narrow focus on long-term unemployment toward a broader concept of “long-term hardship” in the labor market. Many workers or potential workers who do not fit the official definition of long-term unemployment – including “discouraged” and “marginally attached” workers and those involuntarily working part-time jobs – face long-term hardship in the labor market, but are not captured in the standard measure of long-term unemployment.

Second, we suggest complementing the standard measure of long-term unemployment, which reports the share of the unemployed who have been out of work for 6 months or more, with an alternative measure, which reports the share of the total labor force that has been unemployed for 6 months or more. This alternative measure avoids some counter-intuitive properties of the standard statistic and is better for making comparisons across demographic groups.

The broader measure of long-term hardship that we propose, which adds “discouraged workers,” the “marginally attached,” and half of the workers who are “part-time for economic reasons” to the standard measure of long-term unemployment, is more than twice as large (7.0 percent of the working-age population) as the official long-term unemployment count (3.1 percent).

Dean Baker and I have a piece at Salon that takes another look at the increases in the minimum wage that went into effect last Sunday in eight states and the city of San Francisco.

My favorite end-of-the-year review so far: “Best of street art 2011.”

Source: www.tout-bon.com.

Source: Epachamo photograph of WPA mural in Coit Tower, San Francisco.

Tomorrow, the minimum wage in San Francisco will rise 32 cents an hour to $10.24.  The rate will be the highest in the country (and the first ever to cross $10.00). I have a piece up at Alternet that analyzes the likely impact. The shorter version: wages will rise, employment won’t be affected in any meaningful way.

Over the last decade, as economic inequality in the United States was growing, income inequality was on the decline in most of Latin America. In March, economists Darryl McLeod and Nora Lustig circulated a working paper (pdf) arguing that, in Latin America, the “social democratic regimes in Brazil and Chile were more successful at reducing inequality and poverty than the so-called populist regimes of Argentina, Bolivia, and Venezuela.”

Source: Montecino (2011) analysis of ECLAC data.

My colleague, Juan Montecino, has taken a careful look at McLeod and Lustig’s claim about relative performance by regime type and he has written up his findings in a new CEPR report (pdf). Juan’s paper concludes that McLeod and Lustig’s finding depends entirely on their choice of the dataset analyzed.

McLeod and Lustig use data for 18 countries in the region taken from the Socioeconomic Database for Latin America and the Caribbean (SEDLAC). When Juan reruns their same statistical tests on the same 18 countries, using instead data prepared by the Economic Commission for Latin America and the Caribbean (ECLAC), the findings are reversed: Argentina, Bolivia, and Venezuela do better than Brazil and Chile.

As Juan explains:

The key difference between the two datasets lies in the handling of the raw surveys. …ECLAC explicitly adjusts the surveys for income underreporting –when households in an income survey underreport their true amount of income, thus biasing the measurement of inequality– while SEDLAC does not. Because income underreporting is likely more pronounced in wealthier households, failing to adjust for underreporting is expected to lead to a lower and biased estimate of inequality.

(See the paper for a more detailed discussion of the pros and cons of adjusting for under-reporting and of other differences between the two surveys.)

So, using McLeod and Lustig’s methodology, if we don’t take under-reporting by high-income households into account, then the “social democratic” countries do better than the “left populist” countries. If we do try to take under-reporting by high-income households into account, however, then, using McLeod and Lustig’s same methodology, the “left populist” countries do better than the “social democratic” countries.

Juan also makes another critique worth highlighting. In the statistical analyses McLeod and Lustig construct to explain economic inequality, they control for total social spending as a share of GDP. Since one way that a “left populist” government might lower inequality relative to a “social democratic” government is precisely by spending more on social programs, it is just plain wrong to “control for” the level of social spending when comparing the two types of regimes.

In fact, including controls for social spending, essentially converts the entire McLeod and Lustig methodology into an exercise in measuring the “efficiency” of the two types of governments in translating a given level of social spending into reductions in inequality. This may be an interesting question, but it is not what McLeod and Lustig set out to do. Nor is it likely to be terribly interesting to someone near the bottom of the income distribution in any of these countries, who will likely care much more about the actual impact their government is having on inequality than an abstract measure of their elected government’s efficiency in achieving that result.

I spent some of the long Thanksgiving weekend reading Lane Kenworthy‘s short new book Progress for the Poor (Oxford University Press, 2011). In just over 100 pages of text and graphs (plus another 50 of notes, references, and technical details), Kenworthy gives a superb and accessible analysis of anti-poverty programs in the wealthiest OECD countries.

Each of the 11 tightly written chapters is built around a single argument about the fight against poverty. I find almost every one compelling: “Growth is Good for the Poor, If Social Policy Passes It On”; “Generous Social Policy Reduces Material Deprivation”; “Low Wages Need Not Mean Low Incomes”; “Public Services Are an Important Antipoverty Tool”; and “The Tax Mix Matters Less Than We Thought,” to list just a few. Each of these short essays is well-situated in ongoing economic, sociological, and policy debates on the welfare state. And all of the arguments draw heavily on Kenworthy’s deep knowledge of internationally comparable statistics and his impressive ability to present and discuss data.

Most of the book stakes out positions in the various welfare-state debates that are consistent with my own thinking. The only significant disagreement I have with the book is the chapter that argues “Targeting May Not Be So Bad,” where Kenworthy argues that targeted anti-poverty programs may be better for the poor than universal programs. My view has long been that, more often than not, “programs for the poor are poor programs.” Think of the difference in quality between Medicaid, the government’s chronically underfunded, means-tested health-care program for the poor, for example, and Medicare, the government’s universal, single-payer health-care plan for the elderly.

Kenworthy presents international evidence for the 1980s and part of the 1990s that countries with universal social welfare systems had more success fighting poverty than was the case for countries with more targeted programs. These same data suggest, however, that by the 2000s, universal systems had lost their edge and no longer offer any more redistribution than targeted systems.

But, Kenworthy’s data don’t make an open-and-shut case on this particular point. In 1980, for example, the United States was –sensibly– deemed to be among the most targeted countries in the OECD. By 2005, however, according to Kenworthy’s measure (which updates a measure first used by Walter Korpi and Joachim Palme), the United States had become the second most “universal” social welfare system in the sample. Meanwhile, Denmark, which provides, among other things, universal health care and statutory or socially funded paid vacation days, paid sick days, and paid parental leave, moved from the second-most universal country in 1985 (close to Sweden) to the second (or third, it is hard to be sure from the graph) most targeted country. Any measure that suggests that the United States –which has a stingy welfare state that makes extensive use of means-tested programs such as Medicaid, TANF, Food Stamps, and the EITC– is more “universalist” than Denmark is not going to move me very far from my priors. To be fair, Kenworthy finishes this chapter with a nuanced discussion of the theoretical and empirical challenges that make it hard to draw strong conclusions here, but my reading is that he leans further (here and in some of his earlier work) toward targeting than I do.

That said, you are very unlikely to find a better, briefer overview of contemporary analysis of what works and what doesn’t when it comes to anti-poverty policy in the high-income OECD countries.