Predistribution: Changing the marketplace to support economic justice

Predistribution

One of the most interesting topics in progressive circles is the concept of restructuring the marketplace to reduce inequality. The idea is called predistribution and comes from Dr. Jacob Hacker at Yale University and others. The idea is a major policy proposal of the UK labor party. Hacker previously co-authored "Winner take all Politics"  in 2010.

Predistribution is the idea of changing the political economy to benefit the poor and middle class before wages and economic rents are earned rather than after they are paid when the government must redistribute income though taxes and subsidies. The idea is to "change the rules of the game" before the game is played.

In our current political economy, nether the Democrats or the Republicans know how to grow stagnating wages (vs. productivity), increase opportunity for the middle class (and the poor ?) and decrease inequality.

The political parties instead fall back of past policies such as: using increased taxes and transfers to reduce inequality (known to work), or reducing government spending and debt to create jobs (policy may work under certain circumstances but does not reduce inequality).  And any proposal to increase taxes does not have wide political support as a large number of people believe they should keep what they earn and do not trust the government to use the money wisely.

Hacker asked why other market democracies have had a small increase in inequality and the US a very large jump in income inequality.  He also researched why the US now ranks near the bottom in economic opportunity for western market democracies. He argues that in the US more than any other country, the rich have captured the rule making process and excluded the middle class and poor.  They have manipulated the rules in the last 30 years to tilt the balance in their favor. Predistribution suggests that a different set of rules should be used.

Here are some examples of predistirbution proposals:

1) Increasing the bargaining power of labor(and perhaps labor unions).
2) Reducing corporate subsidies.
3) Eliminating fees and paperwork on small businesses.
4) Limiting corporate executive pay.
5) Increasing the minimum wage. Access to paid sick leave.
6) Quality public services: childcare, healthcare and pensions.
7) A guarenteed job with a promotion path.
8) Lifetime learning, development or education.

Many of them exist in other political economies like western Europe which have much less inequality.

Hacker wrote about the concept of predistribution in his important May 2011 paper called: The Institutional Foundations of Middle Class Democracy. In the paper, he analysis the current political economy in the US.

The paper was presented as part of publication called: "Priorities for a new political economy:Memos to the left." which collected papers for a conference on progressive governance.

Any here are some background article on predistribution. Tell us what you think.

Institutional Foundations of Middle Class Democracy by Jacob Hacker

How to reinvigorate the Center-Left. Predistribution. in the UK Guardian.

Predistribution and the living standards crisis at the Institute for Government Website.

Finally, BBC analysis radio program has a segment called "Predistribution"

v7

Senators propose amendment to give Americans a chance at H1-B Visa jobs.

Here is an immigration story that got no coverage.  Senators Sherrod Brown of D-Ohio and Chuck Grassley (R-Iowa) proposed an amendment to the immigration bill that would create a legal requirement that US companies hire American citizens before hiring foreign visa workers of equal qualification.  The amendment would also require companies to pay prevailing wages.

The H1-B Visa program has come under a lot of scrutiny lately because of high unemployment rates during the recession. The top 10 companies using H1-B visas are all outsourcing companies and they take more than 50 percent of the H1-B visa quota.

The H1-B visa program was supposed to be a short term fix for shortages in certain labor categories like software engineering and chemical engineering.  The idea was that these companies face a critical technical bottleneck that was stopping growth and job creation elsewhere.  Instead it has been taken over by the outsourcing industry.  Much the way companies shed cafeteria and maintenance staff during the 1990s as "non-core", they also shed IT staff during 2000s. The outsourcing industry is led by large consulting companies like IBM, Accenture, Infosys and EDS.

The amendment had the opposition from the business community for several reasons: it would raise labor costs of H1-B visa workers, it had enforcement provisions which would create a risk of non-compliance, and it would increase administrative cost.

Senator Sherrod Brown Press Release: Give American Workers a Fair Shot at High Skilled Jobs.

Senator Grassely works to eliminate fraud and abuse in H1-B visa program.

Cleveland Plain Dealer / Cleveland.Com: Sherrod votes Yes. 

The proposal is very much in line with the proposed immigration policy of the Evil Black Economist blog.  The policy is that immigrant must be tied to the general unemployment rate and specific industry need.  Guest worker programs like the H1-B visa program is needed but many companies are abusing the program to lower labor costs.

Second, the H1-B visa program ultimately stunts US long term competitiveness in an important and high paying sector of the economy. The consulting and outsourcing industry had deterred the entry of US workers into tech industry by reducing wages, requiring more experience and specialization and reducing R&D and training.

Thirdly, the reality of improved IT productivity for business is much more complicated. Business has saved much less money than they initially though while IT quality has slipped. Most of the excess profit for IT has instead gone to the large consulting companies and outsourcing firms and their owners and partners. Very little has gone to IT innovation, new IT products or new IT supported processes.

The amendment from senators Grassley and Sherrod is good balance between labor and business interests.  The amendment may appear again when the house of representatives debates immigration reform.

v5

Alan Kruger speech on economic changes

Alan, Kruger, who is chairmen of the Council of Economic Advisors, gave a long speech in Clevland, OH on the causes of inequlaity.  You can read the speech here.

The speech uses the metaphor of rock n' roll to explain what has happened to the economy.

Construction and Manufacturing Ratio of Unemployed to Open Positions

In the previous post we looked at just construction unemployment to job openings.  Now we are going to add a series for manufacturing.  The ratio of manufacturing industry unemployment to job openings topped out at around 20 to 1.  That's 20 unemployed manufacturing worker for every one open position.

The analysis come from Hiedi Sheirholz at the Economic Policy Insititute here. The article called, "Unemployed workers still far outnumber the job openings in every major sector," discusses the limited number of job openings in many fields.

The chart below compares the ratio of unemployed workers to the number of open jobs in two industries: Construction and Manufacturing.

Manufacturing's ratio peak was in May 2009.

April BLS Unemployment Review: Solid Report with great revisions

165,000 new jobs added in April

The April unemployment report was another average growth report recording a net 165,000 new jobs (176,000 private job gains and a loss of -11,000 government job) added to the economy. The report, which was released on  May 3rd, 2013, recorded a 0.1% drop in the national unemployment rate from 7.6% to 7.5%.  The number of total unemployed persons was around 11.7 million of which 4.4 million were long-term unemployed.  An additional 7.9 million people were underemployed (working part time but wanted full time work) so a total of 19.5 million are unemployed or underemployed. That is about 13% of the workforce.

The unemployment rate for women declined to 6.7% while the rates for other groups remained unchanged: men (7.1%), teenagers (24%), whites (6.7%), blacks (13.2%) and Hispanics (9.0%) were unchanged.

The labor force participation rate was 63.6% which is low by historical standards.  The employment to population ration stayed at 58.6%.  The rate reached a peak in 2000 at nearly 65% and as late as 2007 the rate stood at 63%.  If the rate were 63% right now, approximately 10 million more people would be employed !!!  The economy is short 10 million jobs !!!

The Big Story

On the day the report was released, the Dow Jones Industrial Average broke 15,000 for the first time. It later retreated, but based on the employment report, the index made a strong move over 15,000 later in the week. In political news, Alan Kruger, Chairman of the Presidents Council of Economic Advisers issued a standard statement welcoming the news while criticizing the government cuts led by Congress known as the sequester.

The second big story was the positive revisions of NFP payroll data for February 2013 from 268,000 to 332, 000 which is an increase of +64,000 positions and a positive March revision from 88,000 to 138, 000, an increase of 50,000.  The total revision was +114K for the two months.

Unemployment report summary

Non Farm Payroll increased by 165,000 which is just below the 12 month average of 169K jobs created.   There was strong growth in all employment categories except construction, information and federal government. The unemployment rate dropped 0.1% to a calculated 7.5%.

The black unemployment rate was set at 13.2%. The number of black people who held jobs grew by 99,000 while the labor force grew by 93,000 causing a 0.1% drop in the unemployment rate. The 12 month average has be 13.75%

The chart below shows the slow decline in the national unemployment rate and the recent plateau of the black unemployment rate.

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Household Survey Results for February

The household data survey reported that the total labor force expanded by 210,000 while the number of people working expanded by 293,000. When the change in workers is greater than the change in the labor force (293K / 210K > 1) the unemployment rate goes down. The household survey is a sample of individual workers and considered less accurate than the establishment survey(business). 

The chart below shows the real black unemployment rate (Black U-6) is stuck around 20% even as US national rate slowly declines.

The long-term unemployed (27 weeks or more) was 4.4 million people which represents 37% of the unemployed.  The median duration of unemployment was 17.8  weeks  while the average duration was 36.9 weeks.  People are finding jobs slightly faster.

The “work part-time, wants full-time,” number was 7.9 million.  These people are considered under employed and would like additional work.  About 2.3 million workers were marginally attached to the labor pool.  They have looked for work in the last 12 months but not in the last four weeks.   And there were 835K discouraged workers (part of marginally attached) who are not looking because they believe there are no jobs for them.

There are some small but good signs in the report: the numbers of both marginally attached and discouraged workers have been dropping for several months.

Establishment Survey Results for February

Non-Farm Payrolls rose by 165,000 positions in April with growth coming in business services, education, health care and leisure. Construction was a very strong area of the job growth.  Construction added 48,000 jobs while retail trade added +24,000. Government lost -10,000 jobs. 

The following chart show the huge jump in private jobs which added 165,000 jobs in April. You can see the wide spread growth across all job categories except for construction, information and the federal government.

Non-Farm Payroll Revision

As stated earlier February and March NFP figures were revised upward by +114,000 jobs.

The average work week decreased to 34.4 hours and wages added 4 cent in April 2013.

ADP

ADP reported an increase in private payrolls of 119,000 positions for February.  Small business (1-49 headcount) added 50,000 jobs; medium size (50-499) added 26,000 and large companies (500+) increased workers by 43,000. The breakdown is important because large businesses tend to pay employee more and offer better benefits. 

Construction Unemployment vs. Job Openings peaked at 70-to-1 during recession winter in 2008

The recession was incredibly tough on construction workers.  At one point during the recession the number of unemployed construction workers was 70 times greater than the number of openings.  It was impossible to find a construction job.

I was looking at another great report from Hiedi Sheirholz at the Economic Policy Insititute here. The article called, "Unemployed workers still far outnumber the job openings in every major sector," discusses the limited number of job openings in many fields.

While the economic environment has improved, we can look back at how tough it was during the recession. And how tough it still is.  The nation has a huge job shortage.

The chart below is the ratio of unemployed construction workers to the number of open construction jobs.