Help ! Looking for conservative solutions to unemployment

I am a pretty progressive person with regard to economic philosophy: I define my philosophy has pragmatic progressive. But I do like to balance it out and listen to conservative points of view. Some of their ideas have merit.

So I went looking for conservative solutions to the unemployment crisis. And I kept looking and looking and looking and looking. (We all saw the joke coming). The closest they come to any kind of plan or idea is to propose lowering taxes or cutting government regulations. There is no specific conservative plan to combat high unemployment. Reducing black unemployment is completely beyond their comprehension.

So, if any has any conservative tips, ideas or web links, please pass them along.

French minimum wage: SMIC

France has an interesting minimum wage policy which is set by employers, worker institutions and the government. It is indexed to inflation and worker productivity. It is currently about $12 dollars US. The minimum wage is not paid to everyone with students and starting employee making less.




Many credit the high minimum wage to France's lower income inequality compared to the United States.

UK Corporate Profits vs Employee Compensation

Last month we examined corporate profits and employee compensation in the United States. This month we will look at corporate profits (Gross Operating Surplus) and employee compensation (COE) in the United Kingdom: Britain, Scotland, Wales and Northern Ireland.

All of the figures are from the income side of the gross domestic product of the United Kingdom.

The following chart shows the average ratio of employee compensation to corporate profits. The ratio has stayed around 2:1 meaning two thirds of GDP goes to pay salaries and employee benefits and one third goes to corporate profits.

It is interesting to note the ratio for the UK has been relatively stable for the period of the chart. The US chart show a decline in the ratio.

Do not try this at home! UK GDP growth slow to recover

United Kingdom GDP has been shrinking or flat since Q1 2008.

We like to complain here in the US about the economy. But the recession could have been a lot worse. Take the example of Britain, Wales, Scotland and Northern Ireland: collectively the United Kingdom. Rather than apply some stimulus during the recession, they decided to cut back. The Conservative led government believed cutting the debt would lead to a boost in business confidence and a confidence led recovery. Boy where they wrong.

The British economy has been shrinking or flat since the first quarter of 2008. In one 12 month period their economy shrink by more than -7%. They also had a double dip of negative growth. Currently growth is flat.. That is four straight years of recessionary impact.

This chart shows the current UK recession against the longer term GDP trend from 1955. You can see a severe drop since 2007.



A better example is the quarter to quarter growth since 1997. You can see five quarters of negative growth followed by eight quarters of growth below 0.5%. The most recent quarter estimate was a negative -0.2% in the 3rd quarter of 2011.



Luckily, here in the US we spent $787 on stimulus. China, France, Japan and Germany also had spending increases. It looks like we all made a great policy choice that saved millions of jobs.

Transaction taxes are good

The idea of a financial transaction tax has been around for about 40 years. It is a good idea right now because financial excess caused the recent recession and governments need the money.

A financial transaction tax is a good idea for a lot of reasons. It will raise revenue, it discourages speculation and short term trading, and it promote invest in non-financial assets like factories. Existing global businesses rarely make a wholesale move like people believe, instead they internally invest based on resources(people), facilities and infrastructure, location, executive accommodation and total taxes. When they want a taxes break they set-up a shell company in Switzerland, Jersey or the Cayman Islands. Innovative businesses ignore taxes all together. They follow universities and innovation clusters. California has some of the highest living costs in the world.

So Tobin taxes are one tool of society's effort to regulate financial corporations.

Jobs as an output. The Arts !!!

Jobs are an overlooked output in many economic models

Traditional economic models of production may be need to be re-written in a job scarce economy. Most models take the input of labor, capital, land, and technology and produce a unit of goods or service as output. Little or nothing is said about how the goods are produced. Or the mix of inputs to produce items. All input are assumed fungableable and can be traded off.

But it turns out the volume and quality of inputs has a greater impact on the structure of society.

We may want to adapt policies that encourage the use of higer priced labor while reducing inputs such as kapital, land and technology. What would these industries and business look like. They look like museums, universities and arts institutions.

Profit for whom ?

I just heard someone make a distinction between corporate profits and who benefits from the profits. What if the profits accrued to labor or labor owned the capital, would that increase equity in society. Would such a company be less efficient in the market place.

Corporate profits are high by historical standards

We are going to look at corporate profits. We want to check the claims made by Occupy Wall Street and others that: 1) corporate profits are at record levels; 2) labor's share of GDP is shrinking and 3) the US is overly dependent on financial profits. The data comes from the US Commerce department's National Income and Product Accounts.

The chart directly below shows corporate profits (CP) as a percent of gross domestic product since 1947. You can clearly see corporate profits are are at a historic high. They have never been higher except once during the 1950s. The trends has been upward since 1980. Corporate profits are at record levels.



Employee compensation as a percent of GDP has fallen since April 1980 from a high of 68% to the current 61%. That's an 11% share drop. Labors share of GDP is dropping.





The third chart displays the ratio of corporate profits to employee compensation. In the 1980s corporate income was about 11% of the size of employee income. In other words, income earned by employees was 9 times larger than corporate profits. Now, in 2011, the ratio of profits to wages is 24%, meaning the amount of income for wages is only 4 times larger. The growth in corporate profits has come largely at the expense of employee compensation.




The next chart graphs the profit / wage ratio during recessions. It is a good check on our logic of declining employee compensation. It shows the profit to wage ratio shrinks during a recession and recovers during growth periods. One must think about short term wages and employment being relatively fixed compared to corporate profits.




Finally, we break corporate profits into non-financial and financial components. You can see profits from financial transactions constitute about 42% of total profits since the 1950s. This trend has been consistent for the past 60 years. They did top 50% during the late 70s and 80s. They also topped 50% in July 2008.

However, "overly" dependent is relative. There is a market for many of these financial products and services. There has been tremendous innovation, job creation and wealth creation in the financial services sector. We cannot yet judge whether this is a net plus or minus for the economy.





Conclusion:

1) We seen evidence of employee compensation and increased profits. Steps must be taken to stabilize the wage part of GDP. We can raise the minimum wage, lowering the cost of education, and establishing a basic right to unemployment compensation and training.

2) Unfortunately, we you add 1.5 billion low wage workers to the global system they are going to depress wages. Until they become net consumers they will continue to drag down wages. We are seeing the effects. Corporate profits are simply a by product of the lower wages.





Note: Additional data come for the St. Louis "FRED" database.

How do governments make better choices ?

Policy makers need to consider the economic impact of decisions

Many government decisions are made with a complete lack of basic economic understanding. Whether at the local, state and federal government level. Government decisions are hard to make. The special interests are powerful and few people care about the details. We all can see examples for poor decisions everywhere: such as the bridge to no where in Alaska, over spending on the military, under spending on education, our in ability to save at any level (no rainy day funds) and the lack of a jobs problems during the recent recession. I am now almost a complete skeptic on our legislators making the right decisions.

What I would like to see is some basic cost benefit analysis done on our basic legislative investments. Legislators should have the tools

So what are those tools. They are a common set of data and a basic cost benefit tools for analysis(excel) and training on basic economic decision making. The conservative has some things right: the basic principles of business investment should apply to public investment as well. If an expenditure does not generate future benefits, for the public, not the legislator, in increased general happiness and well being greater than the money spent, they should think twice about spending the money.

Time to raise the minumum wage to $11.50

It is time to raise the minumum wage to at least $11.50. The wage has steadily declined due to inflation since 2004 when it was set at $7.25. The minimum wage is an arbitrary wage which has no relations to any standard. It is below a basic survival wage. No one who makes minimum wage could actually live off that wage alone. Instead, thanks to food stamps(SNAP) and medicaid, many can have a basic life.




It is time give the people a little more. It is time for a general increase in the minimum wage.

The minimum wage is a floor for all labor activities in the US. It sets the standard for the baseline wage for which all ultimately almost all Americans work. The wage portion of GDP is at it's lowest ever, while corporate profits have never been higher.

Raising the minumum wage is an effective way to get money into the pockets of those who need it most. It also rewards work. It also get a little inflation going to help the economy grow.

Many worry that raising the minimum wage will increase unemployment. The minimum wage has been proven to have little effect on employment levels, while greatly increasing the money in the pockets of the poor. Most studies show some small, direct impact on teenage, immigrant and marginal worker employment. Yet the same studies fail to account for the additional jobs from the increased spending of minimum wage earners.

Another reason the minimum wage has little effect on the number of jobs is that most employers pay above the minimum wage. Second, is that employers consider much than the wage rate when hiring. They consider whether they can do the job, how reliable they are, and do we have the demand to support a new position.

Several cities have raised the wage to $10 bucks, the largest being San Francisco, with little effect on the local employment. Now is the time to raise the wage to a decent level, get a little inflation going, and help out the poor.

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