Reports from the Economic Front

a blog by Marty Hart-Landsberg

Monthly Archives: December 2014

Minimum Wages and Unemployment

One of the arguments against an increase in the minimum wage is that it will lead to higher unemployment.  One can make theoretical arguments for and against this proposition.  And, of course, the income gains from an increase in the minimum wage are likely to produce overall benefits for both low wage workers and the economy as a whole even if there is a rise in unemployment.

Economists have tried to estimate the employment effects of a rise in the minimum wage.  As a Vox article describes, two of them, Hristos Doucouliagos and T.D Stanley, looked at almost 1500 estimates of the effects of minimum wage increases on employment and found that the estimates “clustered right around zero effect, but with more of those estimates showing a slight downward pressure on employment.”

employment and minimum wages

They concluded, “with sixty-four studies containing approximately fifteen hundred estimates, we have reason to believe that if there is some adverse employment effect from minimum wage rises, it must be of a small and policy-irrelevant magnitude.”

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Bad News For Global Wage Trends

The International Labor Organization recently published its Global Wage Report 2014/15.  The report looks at global trends in wages and income inequality and its findings are far from positive for working people in the developed world.

The ILO summarizes its findings as follows:

Wage growth around the world slowed in 2013 to 2.0 per cent, compared to 2.2 per cent in 2012, and has yet to catch up to the pre-crisis rates of about 3.0 per cent . . . .

Even this modest growth in global wages was driven almost entirely by emerging G20 economies, where wages increased by 6.7 per cent in 2012 and 5.9 per cent in 2013.

By contrast, average wage growth in developed economies had fluctuated around 1 per cent per year since 2006 and then slowed further in 2012 and 2013 to only 0.1 per cent and 0.2 per cent respectively.

“Wage growth has slowed to almost zero for the developed economies as a group in the last two years, with actual declines in wages in some,” said Sandra Polaski, the ILO’s Deputy Director-General for Policy. “This has weighed on overall economic performance, leading to sluggish household demand in most of these economies and the increasing risk of deflation in the Eurozone,” she added.

As Figure 7 from the report makes clear, the wage slowdown in the developed world is not due to a slowdown in productivity, or output per worker.  The fact is that workers contribute far more in production than they receive in compensation.  The growing gap between the two helps to explain the recent explosion in corporate profits.

Productivity and Wages

Figure 9 lets us look at productivity-compensation trends in several different individual developed countries.  The figure includes two different ways of measuring compensation.  The blue dots measure worker compensation adjusted for changes in consumer prices.  The red dots measure worker compensation adjusted for changes in the prices of both consumer and non-consumer goods and services.  In general, the blue dots provide a more accurate picture of worker purchasing power and well-being.

If earnings and productivity grew at the same rate, the different national blue dots would all be on the 45 degree line.  If a nation’s productivity grew faster then its compensation over the period then its blue dot would fall below the 45 degree line.  If its compensation grew faster than its productivity, then its blue dot would be above the line.

Looking just at the big-3–the U.S., Japan, and Germany–we see that the U.S. recorded the highest rate of productivity growth over the period, followed by Japan, with Germany last. But the rise in worker compensation fell short of the growth in productivity in all three countries, with the largest gap in Japan.

National productivity and wages

The gap between productivity and compensation in most of the developed world also helps to explain the decline in labor’s share of national income.  As illustrated in Figure 10 below, the share of GDP going to workers in the form of wages and benefits, despite some fluctuations, declined in all the selected countries over the period 1991 to 2013. In the U.S., the adjusted labor income share fell from approximately 61% to 56% over the period.

Adjusted labor income shares

The ILO report does offer suggestions for improving worker well-being, including higher minimum wage and stronger union protection laws, as well as better funded social programs.  These all deserve our support.  However, there are real forces opposing these reforms and ongoing initiatives to promote greater freedom of movement for large corporations, such as the Transpacific Partnership free trade agreement, only strengthen these forces.  Said differently we need a broader agenda for change if we are to defend majority living and working conditions, one that directly challenges contemporary globalization dynamics.

A Retail Worker Bill of Rights

An important victory, as reported by Fortune magazine, a business-oriented publication.

 


San Francisco Passes First-Ever Retail Worker ‘Bill of Rights’ 
 

Claire Zillman
November 25, 2014
Fortune

 

Just in time for Black Friday and the holiday shopping season, the measure —aimed at giving retail staffers more predictable schedules and access to extra hours —will make the worker-friendly city even friendlier.

Hours before retail employees punch in for their stores’ hectic Thanksgiving and Black Friday shifts, the San Francisco Board of Supervisors approved new protections for the city’s retail workers. 

The supervisors voted unanimously on Tuesday afternoon in favor of measures aimed at giving retail staffers more predictable schedules and access to extra hours. The ordinances will require businesses to post workers’ schedules at least two weeks in advance. Workers will receive compensation for last-minute schedule changes, “on-call” hours, and instances in which they’re sent home before completing their assigned shifts.

 

Businesses must also offer existing part-time workers additional hours before hiring new employees, and they are required to give part-timers and full-timers equal access to scheduling and time-off requests. The legislation will apply to retail chains with 20 or more locations nationally or worldwide and that have at least 20 employees in San Francisco under one management system. David Chiu, president of the Board of Supervisors, told Fortune on Tuesday that the proposal will affect approximately 5% of the city’s workforce.

 

The San Francisco Chamber of Commerce has opposed the bill, arguing that it is too onerous for business owners. In particular, the Chamber has taken issue with the limits the new requirements will impose on employers’ staffing decisions.

 

Now that it has board approval, the proposal just needs the signature of Mayor Ed Lee, a Democrat, to become law. Even if the mayor rejects the legislation, which is unlikely, the measure has enough support among the city’s supervisors to override a veto.

 

While the action San Francisco is set to take on workers’ behalf is the first of its kind, one aspect of the legislation has precedent. Last year, voters in SeaTac, Wash. approved a measure that requires companies to offer more hours to part-time workers before they hire new employees. They voted for it as part of a ballot initiative to increase the minimum wage to $15 per hour, one of the nation’s highest rates.

 

If San Francisco’s retail worker bill becomes law, it will make a city already known as worker-friendly even more so. Earlier this month, 59% of voters cast ballots in favor of increasing San Francisco’s current minimum wage of $10.74 to $15 by 2017.

 

San Francisco’s proposal takes sharp aim at employers’ tendency to schedule workers’ hours with little notice—a practice especially prevalent in retail. Earlier this year, University of Chicago professors found that employers determined the work schedules of about half of young adults without employee input, which resulted in part-time schedules that fluctuated between 17 and 28 hours per week. Forty-seven percent of employees ages 26 to 32 who work part time receive one week or less in advance notice of the hours they’re expected to work, according to the Bureau of Labor Statistics.

 

Congress attempted to tackle this issue at the federal level in July when they proposed legislation that would give retail workers more predictable hours. “Workers need scheduling predictability so they can arrange for child care, pick up kids from school, or take an elderly parent to the doctor,” co-sponsor Representative George Miller, a Democrat from California, said at the time. But the “Schedules that Work” bill has gone nowhere since it was introduced.