Wishful Thinking about Jobs, Wages and Consumer Spending: Ability to Spend More is Not Rising in the U.S.

SOURCE ITEMS

The dour tone of the report was reinforced by declines among discretionary items such as automobiles, furniture and electronics. Demand at grocery stores, service stations and general merchandise retailers also declined.

The labor market continues to provide the wherewithal for Americans to spend. Payrolls bounced back in April with a 223,000 increase following a 85,000 gain the prior month, and the jobless rate fell to 5.4 percent, the lowest since May 2008, according to Labor Department data.

 U.S. Retail Sales Disappoint Again, BloombergBusiness, May 13, 2015. Accessed May 13, 2015.

—————

Chart-Housold Income Trend

Published by the Federal Reserve Bank of St. Louis. Accessed May 13, 2015.

—————

The Sentier Research monthly median household income data series is now available for March. The nominal median household income was down $307 month-over-month but up $1,104 year-over-year. That’s a -0.6% MoM decline and a 2.1% YoY increase.

Doug Short, Median Household Income Declined in March, Advisor Perspectives, April 23, 2015. Accessed May 13, 2015.

COMMENTS

Economists and journalists seem to have lost the ability to connect the dots. Repeatedly, they report the numbers but fail to talk about how they are connected in the real world.

Very few of us are isolated consumers. We are members of families and households, so household income is a much more meaningful indicator of ability to increase spending. In families and households we talk about what to buy and often share incomes, even if only through informal borrowing from each other.

Household income is a function of total hours worked by members of the household and wage levels. Thus, even if the take home pay of a member of a household is rising, if other members are working fewer hours or not at all, then household income can actually decline.

Unemployment is not the only source of declining work hours for a household. Withdrawing from the labor force is another way that household income can decline substantially, even while the wages of those who are formally counted in the labor force continue to rise. For a very long time, the labor force participation rate in the U.S. has been falling. With every tick downward, the number of earning hours for households ticks downward.  This takes its toll on household income and ability to spend.

When we think about the people who withdraw from the labor force, the retirement of baby boomers readily comes to mind. What tends not to come to mind is the number of middle and lower income households in which young people are neither working nor looking for work and the number of two-earner households in which one of the earners is working part-time or sporadically or taking a personal sabbatical until the chances of landing a job get better.

Slowly rising wages can do very little to lift consumer spending while labor force participation continues to decline.

Uber, Coops, Falling Standards of Living, and the Future of Work in the World Economy

SOURCE ITEMS

In addition, because Uber drivers are considered independent contractors, they are not entitled to benefits; their relationship with Uber is merely about their use of the company’s app that connects them to riders. As contractors, they have the flexibility to work when they want and as many hours as they choose, but they also have to cover any costs they incur. After adding up those costs, some drivers say, making a profit is nearly impossible.

Luz Lazo, Some Uber drivers say company’s promise of big pay day doesn’t match reality, Washington Post, September 6.

—————

Some 130 million Americans, for example, now participate in the ownership of co-op businesses and credit unions. More than 13 million Americans have become worker-owners of more than 11,000 employee-owned companies, six million more than belong to private-sector unions.

Gar Alperovitz, Worker-Owners of America, Unite! New York Times, December 14, 201.

—————

With nearly half of all services jobs in the OECD at risk of automation, the sharing economy can smooth the disruption caused to displaced workers as they upgrade their skills. Indeed, sharing-economy data can help governments identify those workers at greatest risk and support their retraining. … Those who are displaced will have far better prospects in the more prosperous and inclusive environment that the sharing economy promises to create.

Ayesha Khanna and Parag Khanna, Disciplining the Sharing Economy, Project Syndicate, September 25, 2014.

—————

Was my house cleaner — the one I’d hired through a company that has raised $40 million in venture-capital funding from well-respected firms like Google Ventures, the one who was about to perform arduous manual labor in my house using potentially hazardous cleaning chemicals — homeless?

He was, as it turned out. And as I told this story to friends in the Bay Area, I heard something even more surprising: Several of their Homejoy cleaners had been homeless, too. … Homejoy doesn’t employ any cleaners — like many of its peer start-ups, it uses an army of contract workers to do its customers’ bidding.

Kevin Roose, Does Silicon Valley Have a Contract-Worker Problem? New York Magazine, September 18, 2014.

—————

According to a Wells Fargo/Gallup survey of small-business owners conducted earlier this year, 56% of small-business owners, up from 45% in 2010, are either extremely or very satisfied with being a small-business owner. But fewer owners, 37%, say they feel extremely or very successful as a small-business owner — the lowest figure in a decade.

Coleen McMurray and Frank Newport, Small-Business Owners Satisfied, but Fewer Feel Successful, Gallup, September 30, 2014.

—————

Eighteen percent of all adults worldwide — or 29% of the global workforce — reported being self-employed in 2013. But rather than a positive sign of proactive entrepreneurial energy, high rates of self-employment can often signal poor economic performance. The self-employed are three times as likely as those who are employed full time for an employer to be living on less than $2 per day.

Ben Ryan, Nearly Three in 10 Workers Worldwide Are Self-Employed, Gallup, August 22, 2014.

—————

Self-employment higher than at any point over past 40 years … Average income from self-employment fallen by 22% since 2008/09

Self-employed workers in the UK – 2014, UK Office for National Statistics, August 20, 2014.

—————

Nearly one in three working Americans is an independent worker. That’s 53 million people – and growing. We’re lawyers and nannies. We’re graphic designers and temps. We’re the future of the economy.

About Us, Freelancers Union. Accessed October 4, 2014.

—————

The puzzle goes beyond earnings. Not only are the median earnings of the self-employed comparatively low, they have similar traits to those of salaried workers. … If the self-employed are a good proxy for “growth-creating innovators,” it is both puzzling that their cognitive abilities and noncognitive traits are similar to those of their salaried counterparts and that they earn less.

Ross Levine and Yona Rubinstein, Does Entrepreneurship Pay? The Michael Bloombergs, the Hot Dog Vendors, and the Returns to Self-Employment, Haas School of Business, University of California, Berkeley, July 2013.

—————

There, and in other countries with less well-developed social security systems and which suffered from large losses in (formal) employment, many previously economically inactive people returned to the labour market, often to take up informal employment in order to make up for the loss of household income.

Global Employment Trends 2014, International Labour Organization.

—————

Already we can see the contours of another economy in the shape of new communitarian movements through which local communities resist and respond to the multiple crises of global capitalism and innovate alternatives to meet economic needs…

Anup Dash, Toward an Epistemological Foundation for Social and Solidarity Economy, Occasional Paper 3, Potential and Limits of Social and Solidarity Economy, United Nations Research Institute for Social Development (UNRISD), March 2014.

COMMENTS

From time to time in the history of the capitalist world economy, its magic has faltered and then been restored. This time the magic will sporadically flicker on for a while here and there in the world economy, but it will not be restored. Conditions for a restoration are disappearing and will not come back.

The undoing of key elements of formal wage employment systems has been increasing the financial and emotional burdens on the world’s working people. The growth of these burdens is pushing the world’s communities of working people into a long-term period of economic uncertainties and crisis.

Around the world, formal (government regulated) wage employment systems are faltering. By necessity, the world’s workers are examining a wide range of possibilities for saving, improving, or changing their work life situations. At the same time, large numbers of organizing entrepreneurs are offering up a large variety of strategies, from coops to unions, to entrepreneurial self-employment, to political activism, to disengagement and resistance.

It is probably true to say that most of the world’s working people do not think of themselves as economic experimenters and do not want to be economic experimenters. In lower income parts of the world where formal wage employment systems have always been more promise than reality, most people probably want a formal wage employment system to become a reality where they are and in their lifetimes.

In the higher income parts of the world, most working people who have lost wages and benefits and job security still believe a return to “normal” scenarios of employment is possible and still look to mainstream economists and policy experts to make that return happen.

The world’s working families may not wish to be the inventors of a new world of work, but they face very limited options: nostalgically clinging to the past as the hope for the future; learning to live with less while psychologically acquiescing to the losses; or, struggling to secure employment and income security through means other than standard wage employment.

The possibility of nostalgically clinging to hope for a return to the past is fast disappearing. Acquiescence and inventiveness are really the only two options available. And in the realm of inventiveness, the paths taken include not only coops and various forms of independent self-employment and franchised self-employment, but also a wide range of criminal activities, including violent grabs for economic resources.

The future of work is not predictable in any specific sense, but we can be fairly certain that the spread of systems of formal wage employment that were created in the U.S. and Europe during the 20th century has come to an end. The belief that the global nation state system will soon produce safe, secure, and well paid (by western standards) jobs for the majority of the world’s workers is no longer plausible.

Other ways for the world’s working people to have safe, secure work at living wages must and are being created.

U.S. Workers Are Settling Into a Global Era of Fewer Good Jobs and Declining Incomes

ITEMS FOR YOUR CONSIDERATION

Chart-Missing Civilian Labor Force
Source: Andrew Sum, et al (see citation below quote)

“Following 2007, the pool of hidden unemployed has risen steadily and strongly from 4.7 million in 2007 to close to 6.5 million in 2011; a rise close to 1.8 million or 40%. This was the third largest annual average number of hidden unemployed in the 45 year history for which such data exist dating back to 1967.”

Andrew Sum, Mykhaylo Trubskyy, with  Sheila Palma, The Great Recession of 2007-2009, the Lagging Jobs Recovery, and the Missing 5-6 Million National Labor Force Participants in 2011: Why We Should Care, Northeastern University Center for Labor Market Studies, January 2012

—————

Change in Average Hourly Earnings of U.S. Employees, 2006 – 2011

Chart-Average Hourly EarningsSource: Historical Data, Current Employment Statistics, Bureau of Labor Statistics.

—————

“Spain’s jobless rate for people ages 16 to 24 is approaching 50 percent. Greece’s is 48 percent, and Portugal’s and Italy’s, 30 percent. Here in Britain, the rate is 22.3 percent, the highest since such data began being collected in 1992. (The comparable rate for Americans is 18 percent.)

Thomas Landon, For London Youth, Down and Out Is Way of Life, New York Times, February 15, 2012

—————

Looking at the changes within countries over time, the overall long-term trend is obvious: the majority of countries have witnessed increases in low-wage employment over the past 15 years. Overall, figure 20 shows that, since the second half of the 1990s, low pay has increased in about two-thirds of countries for which data are available (25 out of 37 countries). … While it is too soon for an assessment of the short-term effect of the crisis on low pay (since few countries have published their data on low pay in 2009), there is little reason to believe that a global recession will have brought about any improvement in the overall situation of low-paid workers.

Global Wage Report 2010/11: Wage policies in times of crisis, International Labour Organization, December, 2010

COMMENTS

In a free market economy, buyers and sellers negotiate prices.  When buyers have lots of choices and sellers don’t, buyers have the leverage to push prices downward.

We have seen this in the U.S. housing market: huge numbers of houses are on the market and an army of builders are waiting in the wings to put even more houses on the market – the ratio of sellers to buyers is very high.  Thus, even though houses are beginning to sell a little better, prices are still falling.

The same thing has happened in the global labor market: the ratio of available workers (sellers) to employers with jobs to fill (buyers) is very high, and it will stay high.  There are several structural reasons:

  • the integration of national economies into a single world economy based on free market principles has made huge numbers of unemployed and underemployed workers newly available to the world’s major employers and many intermediate size employers
  • expanding national education systems are producing a growing supply of skilled workers for the global labor market
  • the global economic crisis of 2008-2009 produced large numbers of business failures and consolidations, reducing the number of employers competing for the growing global supply of workers
  • the production of a given volume of goods and services continues to require fewer and fewer workers as machines and computers do more of the brute work and more of the routine thinking
  • global consumption of goods and services is not growing fast enough to reduce the ratio of available workers to available jobs.

Thus, even though hiring in the U.S. is beginning to get a little better, the bargaining position of U.S. workers, even those who are unionized, continues to deteriorate.  Given this trend, either real U.S. wages and incomes will decline much further, or rates of unemployment, underemployment, and non-participation of working age people in the workforce will remain high.