The Big Picture |
- Monetary Policy and Financial Stability: What Role in Prevention and Recovery?
- Follow Up: Daily Show Blowback
- 10 Mid Week PM Reads
- Architecture Billing Index
- Cities and Minimum Wages
- 10 MidWeek AM Reads
- TDS: Wage Against the Machine
- Hubble Ultra Deep Field 3D
- Employee Compensation Costs During the Recovery
- Does Greater Inequality Lead to More Household Borrowing?
| Monetary Policy and Financial Stability: What Role in Prevention and Recovery? Posted: 30 Jan 2014 02:00 AM PST |
| Follow Up: Daily Show Blowback Posted: 29 Jan 2014 04:00 PM PST Last night’s Daily Show appearance (described here: How I Ended Up On The Daily Show) generated a surprising amount of interest. As much as I would like to claim responsibility for the buzz — my calm demeanor and rational approach as the cause — in reality, the person on the other side of the argument, Peter Schiff deserves the credit. His cost saving innovation of “paying the ‘Mentally Retarded’ $2 an hour”might have something to do with the interview going viral. It got picked up by lots of press; here is the short list (let me know if I missed anything)
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| Posted: 29 Jan 2014 01:15 PM PST My afternoon train reading:
Whats up with the damned railroad ?
Another Look at China’s GDP Numbers
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| Posted: 29 Jan 2014 11:30 AM PST
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| Posted: 29 Jan 2014 09:00 AM PST
Minimum wage policy was part of the SOTU address last night. As it turns out, 20 states plus DC have minimum wages higher than the federal level. CEPR notes that:
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| Posted: 29 Jan 2014 06:30 AM PST My midweek morning reading:
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| Posted: 29 Jan 2014 03:30 AM PST Below is my Daily Show debut. The segment was pretty good. As noted last night, we shot for 2 hours, and lots of great stuff was left on the cutting room floor. The discussion on higher paying retailers such as Costco and Trader Joes versus Walmart was actually interesting, and Samantha was really funny in that section. I guess if I wanted more screen time, I should have spoken about retarded people deserving to earn less than minimum wage (watch the video to understand). Samantha Bee explores the devastating economic effects of raising the minimum wage to the poverty level. The Daily Show (04:59) January 28, 2014 |
| Posted: 29 Jan 2014 03:00 AM PST
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| Employee Compensation Costs During the Recovery Posted: 29 Jan 2014 02:00 AM PST Employee Compensation Costs During the RecoveryJoel Elvery The Federal Reserve's two mandates—to keep inflation under control and to promote employment growth—overlap when it comes to employee compensation. Inflation typically leads to increases in nominal compensation, and firms increase prices in response, creating a feedback loop that pushes inflation higher. Compensation also rises when labor markets are strong and firms have to compete for workers, and it falls when labor markets are weak. So when compensation costs are rising, it can indicate greater risk of inflation and strengthening labor markets. When they're falling, it can indicate the reverse. Which has it been lately? The Bureau of Labor Statistics' quarterly Employer Costs for Employee Compensation provides detail on the components of average hourly compensation. As shown in the chart below, in the third quarter of 2013 wages and salaries were 69.1 percent of compensation costs. The other major parts of compensation are health insurance (8.5 percent), legally required benefits (which includes unemployment insurance and the employer's share of payroll taxes) (7.8 percent), and retirement and savings benefits (4.8 percent). Though we most often use salary earnings as a proxy for compensation, earnings and compensation can have different trends since earnings make up only about two-thirds of compensation. For example, from the first quarter of 2004 to the third quarter of 2007, average real hourly wages declined 0.8 percent, while average real hourly total compensation rose 0.9 percent.
All components of compensation costs dramatically shifted up during the most recent recession. This shift is most likely due to the fact that these measures are average hourly costs for employed workers. Less-skilled workers are more likely to lose their job in a recession than high-skilled workers, so the skill and compensation levels of the workers who remain employed during a recession are higher. While real average hourly wages and salaries fell 3 percent from the first quarter of 2004 to the third quarter of 2013, both health insurance and retirement and savings markedly increased (17 percent and 20 percent, respectively). As a result, total average hourly compensation was effectively the same in the two periods.
We divide the data into pre-recession (2004:Q1 to 2007:Q3) and recovery (2009:Q2 to 2013:Q3) subsets and omit the recession due to the sudden change in who is employed. When we do this, we see that while total compensation rose 0.2 percent per year before the recession, it has declined 0.5 percent per year since the recovery began. Meanwhile, wage and salary compensation fell 0.2 percent per year before the recession and 0.8 percent per year since the recovery began. Legally required benefits and wages and salaries follow similar trends during the two periods, which is unsurprising since most components of legally required benefits are based on wages and salaries. Health insurance and retirement and savings benefits grew in both periods, but the rate of growth was much higher before the recession (4.4 times as high for health insurance and 2.3 times for retirement and savings). Other compensation grew about 1 percent per year before the recession, and it has declined about 1 percent per year since the recovery began.
What explains the decline in average compensation during the recovery? As the economy recovers, less-skilled workers find work again and average hourly compensation falls. Also, the higher-than-normal unemployment rate means employers do not need to increase compensation to fill openings. The decline in average compensation may also reflect the shift to more part-time employment during the recession. Part-time workers are less likely to receive health insurance and retirement benefits than are full-time workers, so part-time workers have lower compensation costs. The share of workers who are part-time fell more quickly in the pre-recession period than it has during the recovery, which would suggest slower benefit growth in the recovery. Employers' average health insurance costs are growing more slowly both because a smaller fraction of workers have employer-provided health insurance and because health care costs are rising more slowly than they did in the past. Based on the microdata from the American Community Survey, the fraction of workers who have employer-provided health insurance declined 4.5 percentage points from 2008 to 2011, with part-time workers experiencing the largest decline. We also know that health care costs, which increased faster than the general rate of inflation for many years, have been growing more slowly. The Bureau of Economic Analysis's Personal Consumption Expenditure Health Care Price Index shows that during the recovery, health care prices grew about half as fast as before the recession. The decline in compensation costs during the recovery suggests that the two components of the Federal Reserve's dual mandate are not in conflict at this time. Inflation risk is low, and the labor market is soft enough that firms can hire without having to increase compensation. |
| Does Greater Inequality Lead to More Household Borrowing? Posted: 29 Jan 2014 02:00 AM PST |
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