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07/24/2011

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bytehead

"The simplest short-term (but also long-term) stimulant to employment would be to reduce the minimum wage"

The first problem is that a lot of states have their own minimum wage laws, at least 16 (18?) of which are higher than the federal rate, and another 23 that match the current federal rate. I count 9 states that have lower or no minimum wage laws.

http://www.dol.gov/whd/minwage/america.htm

Good luck on coordinating with the rest of the states.

Second, the real problem with trying to do so, have you actually looked at entry level jobs lately? As a parent who's had both of his youngest get entry level jobs recently, entry level jobs are already paying more than (state) minimum wage to start with. And this is in a state where the minimum wage is higher than the federal one. (Florida)

Why? Because nobody REALLY wants those jobs. To fill the need, employers have HAD to pay more than minimum.

It might sound like sound conservative thinking, but the reality is that lowering the minimum wage isn't about to affect any kind of decline of unemployment.

I also don't understand the thinking that shoving a bunch of people into even lower paying jobs just to make the figures look better. And when I say figures, I'm talking about the U3 figures. Such a position doesn't even begin to budge the U6 figures. Lowering the U3 figures this way may make it look better in a cosmetic way for the politicians in DC, but it does exactly nothing for the country as a whole. Add in the negative factors that you talk about, and I can't see the positive factors becoming reality.

Yes employment for teenagers and blacks is problematic. I don't understand the black problem (or maybe I just don't want to), but the problem with teenagers is pretty simple. Why hire possibly troublesome teenagers when you've got a ready supply of adults that have already been in the market and can do the same job for the same price with much less supervision? Get the adults out of the typical jobs that teenagers used to do, by getting them higher paying jobs, and the teenage unemployment numbers will drop.

"But if government expenditures were reduced in ways that did not significantly increase unemployment"

That, indeed, will be pulling a rabbit out of the hat. By an untrained and unprepared bystander, I might add. In fact, just finding the hat might be the problem now.

El-Greco

“All these measures [reduction of minimum wage and unemployment benefits] would be costless to the government.”

Costless? Perhaps in monetary but not political terms.
The government has to be elected by voters first, and voters would most likely throw such a government out. That is why America’s decline is deeply rooted, because it represents a deep ideological change that starts with voters themselves. It starts with the fundamental change in voter mentality, which gave rise to an overall turn towards uniformity, homogenization and mandatory collectivism, and gave rise to such political movements as “compassionate republicanism”.

But, alas, in a comical and tragical at the same time irony, mandatory compassion (where the top 1% wealthiest in the world, i.e the most productive and most innovative Americans, are forced to support the 10% wealthiest, i.e. the American middle class) leads to the inevitable cruel outcome of economic decline for all.

Politicians simply exploit the natural suicidal tendency of the electorate and, admittedly, augment it. Bamboozled by the promises of redistribution and central planning, Americans look more and more like citizens of the rest of the world -- and vote accordingly. They will meet their fellow average world citizen down into the elephant pit of worldwide averagedom.

I fear that the general long term trend is already showing its ugly head through the noise and cacophony of daily politics. The American economy is slowing down into a permanent and irreversible European style slow growth long term decline. I do not expect enough of the American electorate to realize what is happening in time. They are probably already past the tipping point into the familiar vicious cycle that brought down one too many past prosperous countries. Redistribution and Central planning --> Lower production, lower prosperity --> Voter stress and desperation --> More desperate attempts to Redistribution and Central planning.

A few iterations and you’ve met your fate.

Cameron

Hi Professor Posner,

You write that:

"Cuts in the size of unemployment benefits, and of other subsidy programs attractive to the unemployed, such as food stamps and Medicaid, would similarly encourage greater job search by unemployed persons.

A recent study by the economist Steve Davis, and his colleagues, finds that the vigor of job search by the unemployed is currently much lower than in previous economic downturns, though this may be due in part to realistic pessimism about the posibility of finding work. "

Encouraging greater job search by unemployed persons would only help the unemployment problem if employers had unfilled positions that remained unfilled because potential hires were not trying hard enough to seek employment.

Is there any evidence that employers are having trouble finding suitable employees? Or are they not hiring because they simply don't want/need more employees?


Cheers,

Cameron

El-Greco

They don’t need employees at the productivity/cost ratio expected by employees. They face stiff competition from overseas employers who have billions of ascending people just as capable or nearly as capable as the minimum wage American but willing to work for less. By having fallen for class warfare, central planning and regulation, the American majority has entered a vicious cycle of compromising an already threatened American competitiveness. So it is now time to adjust downwards, and this is only the beginning. The vicious cycle has just started.

Invent the next iPhone and I can guarantee you there’s plenty of demand and hefty pay. As a matter of fact you only need to invent a very small part of it to be handsomely rewarded, in a way commensurate to the benefit you will be bringing to many million people worldwide. Sign up for ObamaCare, become a surfer, flip burgers and expert to have a standard of living multiple times the world average and you bring the aberrant American prosperity to an end – and yours too.

Jack

Whew! Posner blew it big time this week! Gawd! One thing to be a hands off Chicago dude in Milton's shadow but to sign on to the WHOLE "if we could ONLY beat down wages even further -- all will be fine" theory?

Pound down the min wage that has not even the purchasing power it had in 1980? What? if a job doesn't produce $56 worth of production in 8 hours, mebbe if we pay even less than two lawn mowings a day, say $40??? there will be $16 more for CEO's and management to carve up?

"Vigor of the job search?" And a "study?" Indeed, Posner makes one right guess.......... even "dumb" construction guys learn in less than a year that it's pretty hopeless for them.

Nearly the only thing he got right is " Because of the collapse of the housing market, unemployment was (and remains) very high among construction workers. If the government hires construction companies for new projects, the effect on the employment of construction workers should be positive and immediate."

.......... Indeed. And what went wrong with the stimulus? First it was capped on the front end for "shovel ready" which seemed to make sense with the urgency of the time, but it was also capped with "completed in 18 months" making the eye of the needle very small considering all construction trades are not the same, so it will take some time for retraining out of work sheet rockers to work on bridges. Consider....... they're used to a phone call for the crew to go to work in the same field day after day -- kinda like college profs.

As for the "slowness" of implementation? Should anyone have to teach an economist/judge about time necessary for permitting? necessity of posting notice on many projects to affected home and biz owners? Weather that can stall a beginning date or delay mid-contract progress? Say......... like the midwest being flooded for months?

And! one third of $800 million? $266 million? About the amount of work on 2,000 homes in a market having dropped from 2.5 million starts to 300,000? This should grease the wheels for two years???

And then came oil price gouging! Bingo! No more "going shopping".

Look we've FIFTEEN MILLION unemployed with another TEN million "underemployed" in jobs that don't pay the bills. "Growth projections" agreed to by this pair point to few or NO more jobs for several more years. A $250 billion stimulus each year would only sop up 5 million at a total job cost of $50,000 each.

In fact with a 2% GDP growth in a nation making 2% productivity gains we could go on for a long time without increasing employment.

The President is more right than Posner. We keep talking about "falling down bridges" worn out roads and weary public buildings that need $2 trillion to be brought up to par.

With such a grim outlook, why not make a decade long commitment of the $2 trillion so it becomes part of the employment fabric that guys requiring retraining can count on?

$200 billion/year and "we're broke?"

Not hardly......... look at the income strata since those "good years of the Clinton era". There's a ton more money in the top few percent that could easily stand $200 million or more of rolling back the UNaffordable Bush tax cuts. They'll hardly starve, and as for "creating jobs?" we've already agreed that IS unlikely and is certainly unlikely until their is a substantial increase in demand.

They have to prime the pump.......... then! haha! after we all go back to work...... they can, again, fleece us!

Jack

El Greco? Want to be Iphone subscribers are FAR lower than predicted due to the $30 - $50 monthly payment being a biggie for many in this mess?

Terry Bennett

Speaking as someone who is currently highly averse to hiring any employees, the minimum wage is not the key control on how much it costs to hire an employee. The difference between paying somebody $7 and paying somebody $8 to take out your garbage is negligible to all but the tiniest employers. It's not just a matter of removing one restraint on freedom of contract, because there are a horde of such restraints. When you hire an employee, you take on burdensome and seemingly endless parenting responsibilities. You open yourself up to lots of new avenues for lawsuits. You have new obligations to the government, at the federal, state, and local levels. You pay various taxes. You pay benefits on top of wages. And all this is if things go well. What if things go badly, and your new employee wants to make it difficult and exercise all the rights the government has bestowed upon him by statute, apart from the rights for which he bargained in your contract? It is these often enormous costs and risks that are dissuading employers. I'll take out my own garbage, thank you.

Frederic F

In short terms unemployment should be handled by social funds and organizations. But in the long run Obama must say 4 magical words and everything is ok "There is no unemployment". Obama rules the game, Obama decides.

Jack

Terry! Exactly! Well said! Yep! humankind can be frustrating and NO one in their right mind would hire an extra employee for ANY reason, except when they are necessary for one's company to meet D E M A N D!

And, yes, with DEMAND SO soft it's surely difficult to grow most businesses or "take market share" in this mess. I kinda think that's among the reasons 15 million don't have jobs at all, while 10 million others are grateful for under-employment at poor wages, few hours and no benefits.

Anyway, as an employer as well, I wish you the best of hopes for the return of DEMAND for your products and services being SO strong that you'll forget the many petty and indeed, sometimes larger, foibles of your fellow man and be thankful for being able to hire folks to spend their time growing your company and helping you achieve your dreams.

You do seem to have it exactly right in pointing out that when "taking out the garbage" costs more than $56/day, PLUS the extra overhead costs you bemoan, taking it out yourself is precisely the right business decision. In some firms, however, say those with $15 million in CEO "compensation" or $7,000/hour, of course a fully unionized janitorial service "knocking down" Davis-Bacon wages of $30/hr plus medical benefits........ and perhaps even a retirement program? would be a REAL bargain. If you added in the costs of returning early from a "Bowl" event in the company jet for the trash p/u deadline it'd be an even greater bargain.

Anyway, large or small, wouldn't it be great if we could hire the guy for the few needed hours, sans benefits or "obligations" and cast him/her in with the rubbish as he ages or even when those few hours of service are no longer needed? In a "globalized" era of declining wages and cutthroat competition we've all got to "do what we have to" to survive.

Yes, we've all been dealt a (predictably) nasty hand, both prospective employer and job seekers and are stuck with taking out individual licks. Whether owner of a small firm or middle manager? tightening the old belt and being stuck taking out the trash is the least we can do to provide a bit more income for the top 2% of gleaners, eh?

BTW any thoughts on how much income disparity our nation can stand before re-living the history of that decade after the last aggregation of income and wealth in the hands of the very few?

Jack

"A more intelligent part of the stimulus was the transfers to state governments. They enabled the states that were on the brink of insolvency and may therefore have had difficulty borrowing to retain a number of teachers and other public employees whom they would otherwise have had to lay off. The transfers thus forestalled an increase in unemployment."

.............. Let's hope some 40 "Reps" stuck in deficit cutting frenzy can apply a bit of this wisdom to our Federal budget. I do know that they've been well trained by talk radio wanks that those, close to 20% working for the Fed gov do nothing but warm a well-padded chair all day, so there'd be no loss at all from giving 'em the boot.

In keeping with Posner's comment above, I keep hoping that they, or someone, soon realizes that tossing these gov employees, many of long and deep experience in their field, onto the unemployment rolls is likely not to "save" as much as the casual nimcompoop might hope.

I guess......... that as Boehner, Little Grover and the Forty would be budget slashers, having held the military "harmless" despite some fairly identifiable bloat and recently ladled pork, they've made some connection between providing adequate staffing, first rate equipment and the success of the mission, and even a few have wondered aloud as to what they'd do with once they "brought the boys (and girls) home to a jobless non-recovery.

Somehow.............. it seems they've not given similar consideration to the civilian government missions, many of which are clearly stretched as thin, or thinner than much of our military. Nor, it seems, have they thought even a week ahead in regard to what they gain by adding millions more to the unemployment line.

Well, they ARE new, green, naive, more than fully imbued with "untested?" ideology and odds are that less than one, of the forty has had a 2nd semester of Econ, with the one getting less than a C+ on his first semester. but is it too much to ask for them to get some control over their out-size egos, and turn to those older and/or better educated and experience given the gravity of, again, getting it wrong?

Jim

For better or worse, the world has changed to a global economy and as the emerging countries provide more products and employ more people, it only makes good sense that the USA will provide less and employ fewer in the tradable sectors. To succeed in the non-tradable sector at home the work force will need to be much better educated which it is not at present. Given the structural economic changes, we are probably in for an extended period of high unemployment and diverging class wealth. The only way to reverse that is coercive redistribution and that will only further aggravate the problem.

Aleister van den Finderhoven

Government disincentives for hiring affect employment at all levels of enterprise, from 1 employee companies to 50,000 employee companies. Labor costs are hugely inflated in the US, and everything Mr. Obama has done just made them more bloated.

There must be a lot of breakage and rubble created at high levels before things can be cleaned up and rebuilt in a sustainable way. Shared suffering, Mr. Obama? You and your cronies show us the way.

Jack

Alester? Some posts here seem unoriginal. Was your's prompted by lines reiterated on whackright talk radio? Perchance?

Jack

Jim......... apparently exportable mfg is up slightly. Also! someone at Ford recently woke up, I guess, and they are spending "research" dollars aimed at delving deeper into the Asian market. Seemingly, a similar wake-up took place at GM as they're working on a small peppy diesel for the Cruze.

'bout time too! For much of America's long highway speed commutes diesel is likely a better choice than a hybrid -- which shines in stop/go town traffic. After a less than lackluster attempt to "dieselize" Oldsmobile gas engines 25 years ago this is their first passenger car attempt to do battle with VW's quiet little TDI. Reports are low, mid 40mpg for a diesel Cruze with automatic.

As you likely know.... when Fiat bought Chrysler the match gives C some good Fiat diesel tech. And who knows? Building things other than gashogs for the less than prescient American market they just could find themselves supplying millions of cars and trucks to an emerging world -- they already sell more Buicks in China than in the US. Though Buick has been out of favor here it seems they too are building good cars that are also being well received here.

"Given the structural economic changes, we are probably in for an extended period of high unemployment and diverging class wealth. The only way to reverse that is coercive redistribution and that will only further aggravate the problem."

............ Yup, a recent article spoke of the "downturn" (haha!) amplifying the already enormous wage/wealth gap. But! It WILL have to be lessened and soon. Progressive tax rates would seem the best method. BTW -- why did you and they not call it "redistribution" as all of this took place?

http://lanekenworthy.net/2008/03/09/the-best-inequality-graph/


Aleister? What "government DISincentives" have you noted that did not exist during those summer days of the Clinton era of unusually low unemployment rates?


Jim

Jack,

Some very high percentage of all wealth in the USA is in the hands of folks who no longer work. To a large extent, they are mobile and can move to locales where the cost of living is quite reasonable including property taxes. That means that they can keep their incomes down as they don't need as much to live well. At that point there is less income to "redistribute" and that solution becomes moot.

NEH

The solution to unemployment in the short term is to get out of Afghanistan and Iraq. This would save us approximately 12 billion dollars a month and 144 billion dollars a year. Now what kind of employment projects could be put together to employ the tens of millions now unemployed in this country and at the same time benefit the Nation with a 144 billion dollar a year budget?

damer

I agree with the comment Cameron. Encouraging greater job search by unemployed persons would only help the unemployment problem if employers had unfilled positions that remained unfilled because potential hires were not trying hard enough to seek employment.

Jim

Take a 43 year old worker who is a high school dropout or with one year of college making $35 per hour and benefits supporting a family of 4 suddenly laid off. Who will retrain him and for how long. Then who will hire him. Please describe the pathway to economic redemption for such a person.

Jack

Jim: You touch on a VERY interesting point! For the vast majority of us, we fight our way up to amassing some bit of capital and assets against a stiff wind of INCOME taxation that's seemingly most onerous for those hovering around $80 -- $150k where ducking the headwind is usually difficult and they're still heavily impacted by the 15% take for SS (half "paid by the employer")

Then consider one who inherits even a fairly modest estate of a comfortable home/estate and some income generating business. As they've no big mortgage to service, and little need to amass more wealth they can rig things so that they only take as income $50 - $100,000 as walking around money.

Every once in a blue moon or so, say that of building or buying a new mansion they've the handy option of selling off some asset that has appreciated and paying the very low capital gains. As you likely know, when estates small enough to avoid the inheritance tax ($5 mill or so) are passed on the inheritor is not liable for the gains accrued by the deceased, and has current market value as his basis...... ie could sell an asset having tripled in parental years and pay no gains.

As you point out when the whole kit is paid off......... one doesn't require much income. The laws written by the rich are very handy for them!

I thought Arianna Huffington worked the system especially well. With a comfy divorce settlement abode, and considerable (tax free??) child support, she as many wealthy could run around the nation gathering up material for a book with all the travel etc being deductible to book profits, start up an internet paper w/o paying much of any salaries, and then sell the whole thing to AOL......... at, of course, cap gains rates. Great....... but how about the guy paying full pop after working overtime on heavy equipment?

But to your concerns of "mobile rich" we know that many can get away. But! that's hardly reason to forget about high earners and especially "hedge fund mgrs" and other WS thieves who add FAR less value to our nation than what they glean from it.

I post this graph again....... note that a SUBSTANTIAL tax could be levied on the top 5% and they'd still have FAR more than did the top 5% during the Clinton era -- in inflation adjusted dollars.

http://lanekenworthy.net/2008/03/09/the-best-inequality-graph/

On the other hand......... I suppose it's a lot easier to take something away from some poor Medicaid recipient --- which BTW pays a HIGH percentage of the care for Alzheimer's patients and other oldsters who suffer from dementia and have "spent down" all of their assets.

Jack

Jim: You've another good point. While Congress and all the propagandists wank about some vague "job creators" they aren't looking very closely. Your 43 year old was likely tossed out of the collapse of the housing biz, including a fair number who were doing very well as "builders" subdividers etc. Odds favor half of them never gaining income in housing again. As for the corpies? Well, 43 mebbe.... but 50? and risk polluting their H/C insurance pool with a "pre-existing?" or a weary back soon to develop costly trouble? Nah, in THIS market they've the pick of the newest and most suitable.

A PART of the solution for the construction sector IS as the President would like to do, make a decade long commitment to dealing with the $2 trillion in delayed infrastructure maintenance. With a ten year "shot" guys could and would retrain for the somewhat different tasks of fixing bridges and worn out buildings.

NEH........ a LOT more crucial to get out of "went it alone" Iraq than NATO/UN shared Afghanistan. We, and they, will HAVE to stay their for some considerable time or lose the entire region to Talis, Drug Lords and whatever else grows out of failed and fermenting states..... including Pakistan. (THE mistake WE made after the Russians left Afghanistan)

As we likely can not get out....... the rational course would seem to be to make fairly token "cuts" with very little now in the depths of the worst recession in 80 years, and promise of more later, and make the wisest possible use of Federal dollars of stimulus including making a major transition from oil to NG, and whatever it takes to constrain soaring H/C costs.

Ha! while all the focus is on "how to fix the Treasury" it should be the slightly different mission of how do we ALL make it through this mess? Surely not by standing still for continued oil price gouging and opening our checkbooks to international insurance parasites.

There being NO "road back" we'd better get hopping on designing a much wiser path forward.

jure gubanc

It is strange how posner is jumping his views from free market to keynes, he is not either keynesian nor austrian. One painful fact of keynesianism is that there are thousands of keynesian economists and as much different plans of recovery and as much different plans of planning the economy. Unfortunately i live in a postsocialist country(now dominated with keynesianism, corporatism and ''national'' interests)- Slovenia ,where all my relatives worked in workers'' self managing'' companies and faiths of milions of people in yugoslavia depended heavily on the special wisdom of socialist geniuses(kardelj invented workers self managing much before american socialists like m.moore- and it was failure , exploitation of hard working people). USA never had such a hard experience with totalitarianism that is what makes it more vulnerable to liberals ideas(camouflaged totalitarians). We are ''rescuing''our national goverment bank for fourth time now with a huge proportions of taxpayers money. We have nationalized goverment runed health care system- with no inovations in medical technology, with one of the longest waiting lists in cancer treatment, with huge lack of special medical appliances, with painfully strong doctors union... We have goverment run pension system with never ending strikes and generation plundering, we have national colossus companies with thousands of workers operating solely with never ending goverment subsidies-always on strikes and misery, and we have many o too many keynesian economists who are educating public all the time- and you know what every keynesian does? Every keynesian has different vision of planing the economy. Everything we do and at any time we ''rescue'' our economy there is never enough- never enough subsidies to our airlines, breweries,news, public tvs, telecom. companies... How can you ever try to talk with keynesians, they act like never grown up kids who think they are smart enough to control markets better than millions of people combined do. Keynesianism is a field for ingnorant and very arogant people- which we have in myriads. They ignore their previous mistakes and arogantly think that they are called upon to save my peoples lives from our lack of capabilities. There is no plan good enough for them- someone wants to subsidise airline ind., other housing market, still other poor families, foreign workers, environment, earth, bees... the list has end in total submission of liberty to those gods on earth. Remember they act like little kids- with no responsibility, when they fail they just need better plan and more - money and trials. Every krugman is for goverment plans and actions- and every krugman is recsuing himself all the time with excuses- that plans are not good- they will never get that they are not good-not good enough , but temptation of being smart with other peoples money is just too strong and like posner said- they simply have to do something, just to satisfy their needs. Oh posner and americans you should now the history of keynesianism in eu and yugoslavia better, and you would only laugh to krugmans. best regards jure from slovenia

JNealNC

@Jack.

I love you man. You're a rational ideologue who is wired into the real world existence of the unemployed and the underemployed; and the working poor, and the poor (including moms and dads- fully 1 out of every 5 children in America) .

One can stay in the tower or get down in the weeds but as someone who has some smarts both learned and street, the action is on the streets. I have the benefit of hindsight in posting this comment tonight- weeks after you. Tonight I'm watching social unrest unfold not in Tunisia, Bahrain, Yemen, Egypt, Libya or Syria....but England for God Save the Queen's sake. For a fifth surreal night.

Societal rebellion is a non-quantified externality of inequality, and one that increases exponentially as does the inequality gap. In the global Twitter generation in which we live, America and England are separated by no more than one degrees of tweetaration. Social conditions in the US are such that I fear we're floating into the perfect storm. Unchecked and unabated, how long might you expect the disenfranchised to behave like sheep?

Those costs will not be insignificant. Think.

Denver

Pournelle has some good suggestions.

http://jerrypournelle.com/chaosmanor/?p=1837

"On the other hand, I doubt that Obama will or even can allow any of these proposals to happen.

My general principle is that economic growth happens when energy is cheap and there is a maximum of economic freedom, and of those two, economic freedom is probably the more important.

First, change all the rules for small business exemptions from regulations by doubling the maximum number of employees you can have for the exemption. There are a number of regulations that apply only to businesses with fewer than 10 employees; make that number 20. There are other regulations that apply only to this with more than 50 employees. Make that 100. Etc. The first time I proposed this I got mail saying it was useless because there aren’t any successful small businesses willing to expand but prevented by the threat of regulation. I have considerable evidence to the contrary; and besides, if there are no such businesses, then there won’t be any consequences of adopting this. In fact, though, I am quite sure there are many businesses successful enough to expand that would do so if the regulations weren’t so onerous.

Second, repeal Dodd Frank. It is estimated that Dodd Frank costs a hundred billion dollars a year. We have already seen that many banks find they have more people working in regulation compliance than in banking. Dodd Frank doesn’t do what it was supposed to do, and we got along without it before we enacted it. It hasn’t worked, and it ought to go.

Third, repeal Sarbanes Oxley. That’s another that costs too much and doesn’t accomplish what it set out to do."

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