Personal reaction to President Obama's speech on the Middle Class Economy

On a personal note,  We find the President's speeches very good but crafted from the same, simple formula. And we are getting a little tired of it. So much of the great rhetoric is gone. It now feels like a market tested, grade school level  campaign speech not a major adress on the economy.  Either he is tired or too much of a politician.

At some point during his speechs, Obama does dip into great speech making. Here is my favorite quote (context: Obama is discussing do nothing to improve the economy as some Republicans propose):

"Social tensions will rise, as various groups fight to hold on to what they have, or start blaming somebody else for why their position isn’t improving.  And the fundamental optimism that’s always propelled us forward will give way to cynicism or nostalgia. And that’s not the vision I have for this country.  It’s not the vision you have for this country.  That’s not the America we know.  That’s not the vision we should be settling for.  That’s not a vision we should be passing on to our children. "

Of course he has said this many times before.

Anyway most of Obama's speechs are very similar to the following:

1) (5 Minutes). Go local: thank those who have invited you. Tell one local joke. Recognize several local people in the crowd who are popular.
2) Start upbeat by discussing great things the US or locals have done in the past.
3) (5 Minutes). Create general unease. Begin to paint the picture of what is wrong and what needs to change in general.
4) (2 Minutes). Let them of the hook: Tell people it's not your fault or their fault. Blame current problems on past decisions: wall street, big banks, prior presidents, congress or foreign competition. Discuss something good done recently.
5) (2-5 Minutes). Change the tone to serious with a "But..." or a "We have more work to do..." or "We can do better.."
6) (10-15 Minutes). Create specific unease: Introduce main theme and specific examples the audience can relate to
8) (10 Minutes). Introduce proposal to fix the problems. Include one specific proposal in each area.
9) (10 Minutes). Circle back with specific benefits if programs go forward and specific evils if they don't.
8) (5 Minutes). The close: Call for support and consensus. Paint larger picture of good vs. evil.
9) (5 Minutes). Close with a historic reference (preferably local) renforcing the correctness of the idea and the need for consensus.
10) Thank you, and God bless the United States of America

Send speech to Valerie Jarett and Michelle Obama for vetting.

Hard work: President Obama's Speech on "A Better Bargin for the Middle Class" at Knox College in Galesburg, Illinois

On July 24, 2013, President Obama gave a major economic speech at Knox College in Galesburg, Illinois.

Here is the text of the President's speech.

What can you say ?  As good journalist you need to first layout the facts and as a blogger you must give your opinion.

Facts

Obama discussed the changing economy and the effect of the changes on the middle class in the United States. He discussed the economic environment that everyone is now aware of.  He reviewed the decline in manufacturing, the growth of the service economy, and flat wage growth.

He talked about the main policies that would help the middle class such as healthcare, expanded education opportunities and support for a secure retirement.

Opinion

The presidents team has realized that the US economy is fundementally a middle class economy. However the middle class has long been disinterested in the US political economy. For the last 30 years, the US middle class had enough material comforts and distractions to not worry about larger issues.    Now, people are faced with a declining living standard not just for their children but themselves.  They are ready to listen.

Obama, is trying to use the opportunity to discuss sound economic and political values that will steer the country for the next 30 years. Some of the principles such as caring for the unemployed, poor, sick or elderly did not connect with an selfish public until enough of them faced a similar situation. Not they are ready to listen.

It's just hard work discussing a compliated, long-term topic with the American People.

New Jersey tries to raise minimum wage with November ballot initiative

In my state, New Jersey, the minimum wage is only $7.25. In June of 2012, the NJ senate and house voted to increase the NJ minimum wage to $8.50. However, Gov. Christie vetoed the bill in January of 2013. Now the legislature is proposing a constitutional amendment to raise the wage to $8.25 and index it to inflation. The amendment will appear on the November ballot.

A survey show that about 3/4 of the registered voters favored the initiative. NJ.COM has the story here.

Many states are planning initiaitve to raise the minimum wage. The department of labor has a map of the current minimum wage pay rates in the US. The DOL map is here. Some big Northeastern states like NY, NJ, PA and MD pay only the federal minimum wage rate.

Recent research has shown that minimum wage increases are employment neutral to employment positive because the people who receive the minimum wage spend almost 100% of their money. It also has less of an impact on small business since the majority of minimum wage employers are large companies.

Politically, the issue has gotten little attention and is expected to pass easily.  Christine, who has presidential ambitions, will mostly likely ignore the issue or make half-hearted arguments against it, to provide cover against the national Republicans.

The reason we noticed the issue was because of a group called  EPI -- The Employment Policies Institute has been running ads in New Jersey against the increase. NJ.COM has the ad for the group here. The Employment Policies Institue is a front for a convervative public relations company called Berman and Co. who's clients include companies in the low wage food and beverage industry.  You can read about Berman & Co. here and here.

EPI has two web sites opposed to raising the minimum wage.  One called EPI-Online is against raising the minimum wage and health insurance. The second called Minimumwage.com is purely against raising the minimum wage. Both sites have few facts or research based ideas and instead offer the standard convervative ideas on raising the minimum wage.

Gov. Christie refused to sign a bill during the summer of 2012 that would have raised the wage to $8.50. That led to the current ballot measure. It will interesting to see if he takes a stand on the popular issue. Opposing any minimum wage increase has become a test for republicans.

The ballot measure reads:

"Do you approve amending the State Constitution to set a State minimum wage rate of at least $8.25 per hour? The amendment also requires annual increases in that rate if there are annual increases in the cost of living. 
YES 
NO"

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.

March Monthly Unemployment Review: A disappointing 88,000 new jobs in March

BLS Unemployment Report Review for March

The BLS reported that only 88,000 net new jobs were created in March. which is well below the expected 150,000 average.  The national unemployment rate did not move from 7.6%. The black rate was 13.3%.  Most of the job growth was in temporary help, healthcare and leisure and hospitality. Retail sales employment was down by 25K jobs.

Overall unemployment report summary and reaction

The big story is the 663,000 people who dropped out of the labor force as reported in the household survey.   The drop outs were spread across all demographics categories. The stock market shrugged of the small job increase number and rose slightly.  The chart below shows the slow decline in the national unemployment rate.

Almost every other unemployment statistics were unchanged.

The national unemployment rate dropped 0.1% to 7.6% consistent with the slow growing economy. The Employment to Population ratio dropped to 58.5% and the participation rate was rate 63.3%. Both dropped during the month to record lows.  The low values point to a huge number of people who have dropped out of the labor force.

Household Survey Results for February

The household data survey reported that the total labor force decreased by -496,000 and the number employed dropped by -206,000.  All demographic categories, white, blacks and Hispanic, saw large number of people who self-classified as not in the labor force. 

The black unemployment rate moved down to 13.3%.  The reported black labor force decreased by -115,000 people however 9,000 more black people said they were working.  About 148,000 additional black people said they were not in the labor force. Changes in labor force statistics do not always match.

Total black employment was estimated at 16,068,000 workers.  Black teenage unemployment was 34% versus 23% for whites and 28% for Hispanics. Unemployment rate for Hispanics/Latinos was 9.2% while the rate for whites was 6.7%.

The black unemployment rate has reached a plateau while the national rate continues to decline.

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 4.6 million people which represents 40% of the unemployed.  The median duration of unemployment was 18.1  weeks  while the average duration was 37.1 weeks.  People are taking longer to find jobs.

The “work part-time, wants full-time,” number decrease by about 350,000 people to 7.6 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 803K discouraged workers (part of marginally attached) who are not looking because they believe there are no jobs for them.

Establishment Survey Results for March

Non-Farm Payrolls rose by only 88,000 jobs in March. The growth came in construction, healthcare, hospitality and temporary help. Retail trade lost 25,000 spots.  Construction was a strong area of the job growth adding 18,000 people to the workforce. The number would have been higher except for a 9000 job reduction in civil engineering category.  Government shrank again losing -7,000 jobs. 

Here is a chart of the changes in Non Farm Payrolls since the start of the recession in 2007.

The following charts show the small change in Non Farm Payrolls in March.

The following chart show tepid growth in all categories. Business Services was pumped up by temporary help increases of 20,000 jobs. One would suspect the some of those works are not real temps but permatemps who have been outsourced.

Non-Farm Payroll Revision

Non-farm payrolls were revised in January upward to +148K from +119K and for February 2013 from +236K to +268K.  The average work week was at 34.6 hours and wages added 1 cent in March.

ADP national employment report

ADP reported an increase in private payrolls of 158,000 positions for March.  Small business (1-49 headcount) added 74,000 jobs; medium size (50-499) added 37,000 and large companies (500+) increased workers by 47,000. The breakdown is important because large businesses tend to pay employee more.