SOURCE ITEMS

“We think of the ‘new neutral’ as a natural evolution from the ‘new normal’,” Executive Vice President Richard Clarida said in a telephone interview, likening the firm’s new outlook to a car stuck in neutral gear. “The ‘new neutral’ looking forward is a story about a global economy that isn’t recovering, it’s a global economy that’s converging to trend rates of growth that will be sluggish.”

Mary Childs, Pimco’s ‘New Normal’ Thesis Morphs Into ‘New Neutral’, Bloomberg, May 13, 2014.

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What is new – and distressing – is that developing economies’ low-productivity segments are not shrinking; on the contrary, in many cases, they are expanding.

Dani Rodrik, The Growing Divide Within Developing Economies, Project Syndicate, APR 11, 2014.

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Formal employment creation in Colombia is taxed with social security contributions and payroll taxes that equal roughly 60% of the base salary for each worker.

Domingo Cavallo and Rodrigo Botero, Proposal – Incentives to Formal Employment: A Proposal for Colombia, Global Economic Symposium 2014.

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But if you’re not self-motivated, this world will be a challenge because the walls, ceilings and floors that protected people are also disappearing.

Thomas Friedman, It’s a 401(k) World, New York Times, April 30, 2013.

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America’s shadow economy includes activities that are actually illicit — prostitution and drug dealing — and more benign jobs like working construction for a day for cash, or even the $2 a kid that Kalmes gets for walking neighborhood children to the bus. Added together, economists estimate $2 trillion could be involved.

Joshua Zumbrun, Shadow Economy Shows Joblessness Less Than Meets U.S. Eye, Bloomberg, March 20, 2013.

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A study for the Small Business Administration, a government body, found that regulations in general add $10,585 in costs per employee.

Over-regulated America, The Economist, Feb 18th 2012.

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Informal employment in Californian construction has increased by 400 percent since 1972. The ranks of the informal swell with each economic recession, but most recently a larger share of workers have stayed in the informal sector because formal sector jobs have not been recovered. Four years after the end of the Great Recession, the industry has recovered only 66 percent of the jobs lost in the formal sector. –

Yvonne Yen Liu, Daniel Flaming, Patrick Burns, Sinking Underground: The Growing Informal Economy in California Construction, Economic Roundtable, September 2014.

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The result has been a downsizing of expectations. By almost two to one — 64 percent to 33 percent — Americans say the U.S. no longer offers everyone an equal chance to get ahead, according to the latest Bloomberg National Poll. The lack of faith is especially pronounced among those making less than $50,000 a year, with close to three-quarters in the Dec. 6-9 survey saying the economy is unfair.

Rich Miller and Michelle Jamrisko, Americans on Wrong Side of Pay Gap Run Out of Means to Cope, Bloomberg.com, By December 30, 2013.

COMMENTS

The legitimacy of a formal wage employment system for working people comes from an implicit guarantee that workers get a fair share of national income. This guarantee is necessarily implicit because to make it explicit would require imposing substantial constraints and costs on the owners and managers of business enterprises. Public policy would have to define the primary and overriding obligation of the private sector to be providing employment or income to all working people in place of the existing mandate to provide maximum income to investors.

In most of the world’s low wealth political jurisdictions, opposition to creating and strengthening formal wage employment systems is generally very strong, especially among the rich and powerful of those jurisdictions.   Both the rich and a majority of workers in those jurisdictions understand that their profits and jobs can be quickly eliminated in a world economy in which businesses and workers in other jurisdictions will underbid them if given the opportunity.

In the post World War II decades, the rich and powerful in the world’s affluent nations were less often actively opposed to high cost formal wage employment systems, preferring the cost of accommodation to the cost of ruthless government suppression of conflict.

This accommodative stance has been disappearing as economic globalization has dramatically increased the competition for resources and markets faced by owners and investors in wealthier jurisdictions like the U.S. In recent decades, the accommodative stances common to business communities across the affluent nations of the world have been replaced with aggressive political campaigns to substantially reduce the high costs of the formal wage employment systems. Working people in the world’s affluent nations have lost benefits, suffered wage reductions, lost union organization protections, lost funding for government agencies charged with monitoring workplace conditions and labor market practices, and become more exposed to exploitative and unsafe working conditions.

Working people have been nudged into and forced into less desirable forms of employment (including informal sector employment, family employment, self-employment in petty trades, coerced employment, and employment in illegal activities). In a reversal of trends a few decades ago, formal wage employment now accounts for a declining share of total employment.

This trend is likely to continue because global ecological and institutional conditions impose a structural ceiling on the global rate of growth. As a result, global competition will intensify and national economic policy efforts to restore high rates of economic growth will fail much more often than they succeed. Adopting accommodative relationships with working people will not reemerge as an option for even the most successful of the world’s businesses.

Formal wage employment standards will continue to deteriorate because the world’s business owners and investors will put more pressure on governments to cut tax revenues and weaken labor market and workplace regulations as they fight for global market shares. Working people in various places will attempt to resist but will mostly lose these battles because they are, at heart, global political battles in which owners and investors have a massive advantage.

At the moment, the world’s working people are fragmented and disorganized, both across and within nations. Despite global business competition, the world’s owners and investors are much better organized into a global political force. They fund large transnational organizations to develop and pursue shared goals (e.g., more trade, easier money, lower costs) to a far greater extent than do the world’s working communities.

In the long run, this could change, but not unless the world’s working people find ways to politically checkmate the world’s owners and investors. That may or may not happen. What is certain is that the future of work is up for grabs.

(For a perspective on the slowdown in global economic growth see my article, Replacing the Concept of Externalities to Analyze Constraints on Global Economic Growth and Move Toward a New Economic Paradigm.)