once again on labors share

http://www.clevelandfed.org/research/commentary/2012/2012-13.cfm

this from the cleveland FED no less

income inequality between households grows two ways :

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

or
"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
to
 66.9 percent in 2000,
to
 64.9 percent today

". In the BLS data, the trend declined from
approximately 64.5 percent before 1980
 to
 62.8 percent in 2000,
to
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
peaks
 right after the beginning of a recession

declines
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. "
                       ie
"the labor share is related to the tightness of the labor market:

 declines
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,
 subtract
 the cyclical component "

okay

" 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"

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."

However:

"[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.)

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.

The Wind-Down: Good jobs & bad jobs PT 2

In my previous post on "good" jobs and "bad" jobs, I reviewed the major strains of contemporary thinking seeking to explain why some jobs are pleasant and well-paid, while others are unpleasant and poorly paid. Worse than the glaring inequality of living conditions produced by this inequity, the dynamics of the labor market seem to exacerbate (rather than moderate) these tendencies.

This is directly counter to the predictions of mainstream economics. Most economists - who tend to fit observed realities to their models, rather than the other way around - simply explain away these trends, or devolve into thinly-veiled moralisms (along the lines I describe in the earlier post). Even the best of them do not seem to deal with the subject square-on, or come up with accessible explanations which can be politically deployed.

Thus, Joeseph Stiglitz, when describing the deplorable fate which has befallen the majority of wage-earners over the last 4 decades (!), resorts to either an overly general theory of "over-supply of unskilled labor" (as in his recent book), or the rarefied notion of "asymmetric information."

If we are to break out of the ideological shackles of "inequality of access" or the liberal/conservative debate around "equal opportunity" (see the previous post), we are going to need sturdier tools than this.

Simply put, the basic conclusion that we are led to by the real dynamics of work suggest that workers, rather than being denied access to the Elysian Fields that are made available to those with superior social value, are, in fact, imprisoned within their workplaces, locked-in to bad and worsening conditions. Or, to say it another way - they are trapped in work relations of increasing exploitation.

Does that put it bluntly enough? Read on, and I think I can sharpen this analysis...

Great opening to sweat head prosperity Rx

In a recent post here Venerable sage Neil talbot Hits a four bagger Trust wage earners to spend their wages themselves And raise the share of wages in national income How? Heat up job markets with Vickrey macro And lower the imperial dollar to half mast

Dani shows a nice comparison

Go here http://rodrik.typepad.com/dani_rodriks_weblog/2012/08/are-americans-better-off-than-the-dutch.html

Dagree premia

"Back in the 1970s, Americans who’d attended college but didn’t receive a degree earned about 15% more than those with just a high school diploma. For college graduates, the wage premium was about 40%. Three decades later, the premium for college graduates has shot up to more than 80%. For those with just “some college” (but no degree), the premium has stayed relatively stagnant, rising to just about 20%. That “college graduates” category is still pretty broad, though, so Mr. James takes the next step, splitting out those with advanced degrees. For workers with just a bachelor’s degree, the wage premium over high-school graduates has risen from a bit over 30% in 1977 to more than 60% in 2010. But interestingly, the premium hasn’t grown significantly over the past decade. These days, really getting ahead requires an advanced degree, which boosts earnings some 30% versus having a bachelor’s degree (and by a whopping 120% versus having just a high school diploma)."