Tuesday, September 25, 2012

once again on labors share


this from the cleveland FED no less

income inequality between households grows two ways :

"if the concentration index of labor and/or capital rises "

"if there is a shift from the less concentrated labor income
 to the more concentrated capital income"

enter the share calculation....

According to the FED elves  model
"  the labor share trend has declined since 1980, with an accelerated drop in the 2000s,"

"In the BEA data, the trend declined from
 as high as
 69 percent before 1980
 66.9 percent in 2000,
 64.9 percent today

". In the BLS data, the trend declined from
approximately 64.5 percent before 1980
 62.8 percent in 2000,
59.8 percent today.

" According to these measures, the trend in the labor share declined 1.5 to 2 percentage points between 1980 and 2000, and then dropped an additional 2 to 3 percentage points, for a total of 4 to 4.5 percentage points."

here's the code to the magic trend line build by these FED elves

" A Model of the Labor Share"

"  the labor share fluctuates cyclically around an underlying slow-moving trend"

"The labor share
 right after the beginning of a recession

during the rest of the recession and the initial phase of the recovery

 picks up and returns to trend
during the later phase of the recovery. "
"the labor share is related to the tightness of the labor market:

when unemployment is high

and increases
 when unemployment is low.

 a high level of unemployment
 tends to be followed by a decline in the labor share"

"The correlation between the unemployment gap
and the change in the labor share
 over the subsequent year is negative and large "

"in the long run
. The main factors:

"technology available to produce goods and services.

increased globalization and trade openness,

 changes in labor market institutions and policies."

------nice and laconic eh ?-----

the simple calculation:

". To compute the trend,
 begin with the labor share,
 the cyclical component "


" separate the long-run  trend
from  transitory components ."

sounds easy

how much income inequality is wage structure changes ?

not much eh ?

its that capital income thing isn't it
you know increases in capital income concentration

fed elves:
"has dominated the dynamics of income inequality during the past two business cycles"

Friday, September 7, 2012

The yoke of "uncertainty"

The Romney "plan" for the economy - I use quotes because it is a return to unalloyed laissez-faire economics, and therefore the antithesis of a plan - hinges on restoring "certainty" and "confidence" to the business class:
"Restoring clarity and predictability are essential for igniting hiring and investment. Yet in so many areas, from tax rates to energy policy to labor regulation to trade, the Obama administration has only added to the lack of clarity and the uncertainty. The most dramatic illustration came midsummer, when the absence of presidential leadership brought the country to the precipice of default. Uncertainty is the enemy of growth, investment, and hiring."
I think this calls for a revisiting of Kalecki's "Political Aspects of Full Employment." Every time I re-read this piece, I am re-inforced in my idea that it is a work of great profundity. What is more, it is written in an accessible, popular style, which even further increases its value.

In particular, I think this passage is of the utmost importance for interpreting the Romney "plan":
"Under a laissez-faire system the level of employment depends to a great extent on the so-called state of confidence.  If this deteriorates, private investment declines, which results in a fall of output and employment (both directly and through the secondary effect of the fall in incomes upon consumption and investment).  This gives the capitalists a powerful indirect control over government policy: everything which may shake the state of confidence must be carefully avoided because it would cause an economic crisis."
"[O]nce the government learns the trick of increasing employment by its own purchases, this powerful controlling device loses its effectiveness.  Hence budget deficits necessary to carry out government intervention must be regarded as perilous.  The social function of the doctrine of 'sound finance' is to make the level of employment dependent on the state of confidence."
That just about says it, don't it?

(This is only one of the brilliant passages in the piece. Really, I recommend reading it.)

Wednesday, September 5, 2012

Stiglitz on inequality and unemployment

From Stiglitz, The Price of Inequality (2012), pg. 85:
Moving money from the bottom to the top lowers consumption because higher-income individuals consume a smaller proportion of their income than do lower-income individuals (those at the top save 15 to 25 percent of their income, those at the bottom spend all their income). The result: until and unless something else happens, such as an increase in investment or exports, total demand in the economy will be less that what the economy is capable of supplying - and that means there will be unemployment. In the 1990s that "something else" was the tech bubble; in the first decade of the twentieth-first [sic] century, it was the housing bubble. Now the only recourse is government spending.

Unemployment can be blamed on a deficiency in aggregate demand (the total demand for goods and services in the economy, from consumers, from firms, by governemtn, and by exporters); in some sense, the entire shortfall in aggregate demand - and hence in the U.S. economy - today can be blamed on the extremes of inequality. As we've seen, the top 1 percent of the population earns some 20 percent of its income, a shift of just 5 percentage points to the poor or middle who do not save - so the top 1 percent would still get 15 percent of the nation's income - would increase aggregate demand directly by 1 percentage point. But as that money recirculates, output would actually increase by some 1 1/2 to 2 percentage points. In an economic downturn such as the current one, that would imply a decrease in the unemployment rate of a comparable amount. With unemployment in early 2012 standing at 8.3 percent [the same as today's figure! - Ed.], this kind of a shift in income could have brought the unemployment rate down close to 6.3 percent. A broader redistribution, say, from the top 20 percent to the rest, would have brought down the unemployment further [sic], to a more normal 5 to 6 percent.