Wednesday, July 5, 2017

Twentieth Century Nostalgia: On Louis Uchitelle's "Making It: Why Manufacturing Still Matters"

I wanted to like this book more than I did. Uchitelle has a long history on writing about this subject, and I think in some way that history makes him nostalgic in a looking backward sort of way and not in proposing new solutions.

In the book, he looks at the relative decline of manufacturing as an urbanized phenomenon and wants to get back to that. He hates the factories that do exist in smaller communities near the interstate using more robotics. What he really doesn’t like is the race to the bottom in terms of state giveaways to corporations for locating their factories in one place and not the other. He is right to emphasize that these are zero-sum giveaways.

But he also misses some things and under-emphasizes others. Reading this I wanted him to talk not just about the tax incentives to bring factories but also right to work laws that allow manufacturers to pay less. Deunionizaion is only mentioned in passing when for me it is a huge part of the story. The other miss is that the decline in manufacturing is only on some metrics. Manufacturing output has grown almost every year as productivity grows. Gone is the need for armies of men stamping metal and instead you have much fewer manual jobs but the jobs that do exist are skilled up – this plus the deunionizaion mean that we make more with fewer people. The other side of the coin is that manufacturing has not been shrinking, but growing at a slower rate. More services are in the marketplace so these have overtaken manufacturing. I’d also map to that the entrance of more women in the workplace over the last generation. Things that were internal to the family now hit the national accounts.

But how to fix it? He really wants manufacturing to make up a larger percentage of the GDP. Which means either more done here or less in services (got to hit the top or bottom of the fraction there). He wants to bring back a national industrial policy akin to one proposed by Reagan so that the central government would dictate to private companies where to build and where to source from while nationalizing those zero-sum state subsidies and an incentive for reshoring. But this industrial policy as described in the book feels so Pollyannaish that reading it made me mad. He wants to reverse globalization and have the state (with cooperation between the parties, no less) dictate to corporations, but even he admits that that horse left the barn. For me the whole think is looking too far backwards to want to try to regain the glories of the 50s and 60s when the economy was growing and the gains were more equally spread. But that is not here or maybe possible at all. What we need is economic policy that is forward looking to face the challenges of the 21st century and not try to return to the 20th.

Tuesday, June 27, 2017

Kicking the Can Down the Road: On Not Raising the Minimum Wage

The county passed a minimum wage increase.

All the board of trustees in Brookfield and other communities had to do was nothing. Leave the issue alone and the ordinance passed – Brookfield workers would get a raise. Brookfield workers would get a much-needed raise. The state minimum has languished, and the increases are always reactive. They bring the standard of living up and then are eroded by inflation.

Can Kicked

Two trustees stood up for those on the bottom of the pay ladder: Ryan Evans and Nicole Gilhooley voted against opting out.

Trustees Edward Cote, Michael Garvey, David LeClere and Michelle Ryan voted to opt out.
Of these, Garvey lost my respect the most. He said that the moral or ethical argument was the least compelling – the fact that people who work full time should be able to live and survive. He has no heart. In addition, while he was giving his opinion, some in the crowd were reacting. He stopped his remarks and lectured from the stand like a father chiding his children. He forgot that he serves up there for and because of the voters. What power he does have is derived from our consent. But he openly mocked the will of the electorate when he further dismissed prior referenda that called for raising state minimums in a landslide. This is what you get when you have elections where you can win a seat with 2,000 votes in a town of 20,000.

I understand that this was a hard decision to make and to all the Trustee’s credit they took a stand. No one who was in support of opting out in two public sessions stood up and said that workers of Brookfield should continue in poverty. All that was done behind the scenes with member of the Chamber of Commerce doing their leaning on the member of the board (some even members of both organizations who did not recuse themselves from the vote as some others in other municipalities in similar situations did).

Ultimately, this was not the best situation – laws like this should be decided at a higher governmental level and it was a cop out for the county to devolve this to the individual boards so that at the county level they could put this on their campaign materials but be shielded from the real decision. That said, the decision by the board was the wrong one. I hope the citizens of Brookfield remember it the next spring when the signs are again growing in the yards.

Tuesday, June 20, 2017

Raise the Minimum Wage

For context - Cook County passed an ordinance raising the minimum in steps to $13 an hour and then indexing it to CPI afterwards, with a sick day policy attached. The caveat was that individual municipalities can opt out of it. Brookfield Trustees are voting on this June 26th, the very last meeting before the new wage rates are to go into effect unless they opt out. Below is a text of the letter I sent to the Trustees as well as submitted to the local paper as a guest op-ed.

Another Day, Another Dollar

Raise the Minimum Wage

I think there is a lot of confusion over the minimum wage and sick day laws. The ordinance passed by the county doesn’t help clear things up much. I’ve done a lot of thinking on this subject in the big picture and more recently and specifically on the county’s laws as it effects Brookfield in particular. I don’t want to rely on any credentials I have, but instead I write this as a concerned citizen.

The Economics:
I want to speak briefly about economics. There’s argument against raising the minimum wage that goes back to the familiar supply and demand graph that shows a market at work. If you can picture in your mind the two curves crossing at some equilibrium point that shows where the market clears. This labor market has a specific amount of jobs at a specific amount of pay where anyone is happy. The Econ 101 view is that if you introduce a wage floor like the minimum wage, then two things could happen. Either the wage floor is below the equilibrium wage, so the introduction has no effect. Alternately, a wage floor above the equilibrium price means that there will be disemploymet – people who were willing to work and employers that were prepared to offer the equilibrium wage no longer have jobs. At a higher rate, more people will want to work but there will be fewer jobs on offer.
There’s a couple problems with this view. First of all, it is an oversimplification. There is no one unique “Job Market” that we can really talk about at a national level. There are a lot of different places with different needs and a lot of different workers with different levels of education and experience. Even in one place we can talk about multiple job markets. This is not to say that they operate independently of each other, but there is less homogeneity than the simple model shows.
The second problem with this view is that it just ain’t true. To look at the real world effects of economic policy, you don’t want an economist who stopped their economic education at 101 any more than you want a doctor who stopped their medical training at Biology 101. What economists do is look for “Natural experiments” where policy was put into place in one area but a close or adjoining area. Research by the economists David Card, and Alan B. Krueger in 1993 looking at an increase in New Jersey and just across the border in Pennsylvania where there was no increase. The study showed that contra-econ 101, the employment in New Jersey rose! ( Now, this is a politically contentious area of research and the Card /Krueger study was just the first of many, but subsequent research shows that there is little to no negative effect on employment in raising the minimum wage (  The ultimate problem is that like the labor market, these look at specific markets in place and time and may not be generalizable to all places in time.

The workers:
Aside from economics, there is the real effect of the minimum wage on the people working. I worked in minimum wage employment for over ten years – first as a part time job then later in life to support myself. There are a lot of challenges to working a minimum wage job. Not only do you not get paid very much, you also have little say in the conditions of you work. The hours can be long but they can be uncertain. You may be scheduled for the 40 hours you need to make your bills at the end of the week, but there may not be enough business to justify everyone scheduled. I had a full time schedule turn into 25 hours a week more than I want to admit. The schedule at my restaurant was cut to one day a week over Christmas break because the students were out of town. There were no Christmas presents that year. I was making the minimum wage of $5.15 an hour and my rent was $400 a month. I needed to get a full time schedule to just make my rent half of my gross wages for the month. It was hard, and I didn’t have much bargaining power with my bosses. A minimum wage increase would have immediately increased my living conditions and made my life easier – and there’s the opportunity now to do that multiplied across everyone who is working near the wage floor!

The people running businesses:
I have since moved from a place where I’m working minimum wage to a place where I’m helping to run a business. From this side, the view is more complicated. If you are a business where a lot of your workers are making close to the minimum wage, a raise in the minimum can be scary and force you hand on a lot of decisions. Because not only does an increase in the minimum mean by law you have to increase the people that were making below the minimum, it raises the wage floor. The front line supervisors are now at parity with their direct reports, and that’s not going to be good for morale so their wages have to go up and so on. If you’re running a narrow-margin business, you now have to then look at what sort of efficiencies you have to make and the possibility of rising your menu prices.  I understand the push-back from the chamber of commerce – they want their costs to be a low as possible. The only problem here is that looking at labor costs as pure costs blinds you to the fact labor isn't just a cost, but people.

The village itself:
The final piece is looking at the effect of raising or not raising the minimum wage on the village itself. In one way, not raising the minimum wage can be a point of differentiation for the Village compared to the neighboring municipalities that do raise it. Our prices can be a bit lower than La Grange, but not the full difference because there are very few businesses where labor is 100% of your costs. Ultimately, I think the wage difference will result in it being harder to attract quality workers because why would a worker give a Brookfield business a 10% on their labor when they can literally cross the street and make more money?

I’m of the opinion that minimum wage laws are important and ultimately they should be legislated at higher levels, but the opportunity now exists for the Village Board to show that they are concerned about all the citizens of the Village. Please, do the right thing.

Friday, June 2, 2017

Please Don't Share Stupid Memes: Raising the Minimum Wage

I try to avoid the local Facebook group, but there is county legislation were a minimum wage increase will go in unless municipalities opt out of it. So far about 40 in the county have. So I posted about it and wanted to share some thoughts on FB.

I haven't seen this posted, so sorry if I missed it. 

The County passed a minimum wage increase last year to go into effect July 1, but many of our neighboring communities are opting out. Is Brookfield doing the same?

And it pretty quickly got into this stuff:

“you obviously are unable of comprehending my statement. perhaps you should try again. Life is a series of choices by which you either learn from your choices and better yourself by gaining knowledge and skills making yourself more marketable thus commanding a better wage or you make poor decisions, lack work ethic and cry about how life is not fair. If you have put yourself in the position of trying to raise a family on a minimum wage you have obviously made the wrong life decisions or are lacking the ability to learn, maintain a good work ethic and obtain knowledge and skills to better your financial situation.

Which to me is a horrific stance, so I replied – 

“Just a weird disconnect to me that at some level 1) these jobs are worth doing but 2) we shouldn't pay the people more because they are trash and don't deserve the very basics society has to offer.

“From a business perspective, it is hard, since a wage increase goes right to your bottom line and it's hard to increase revenue on a one on one basis.

“But ultimately, a lot of people with minimum wage jobs aren't just some teenager, but people trying to support themselves. And what that means is that we as a society subsidize the employer when pay for SNAP benefits and the EITC and section 8. Why not just agree that there is a minimum level of need for all people and help them get there through a smart mix of policy decisions.

“Now, I'd prefer these decisions happened at a larger level, since what happens is what we're seeing - a race to the bottom framed as being business friendly.

Unfortunately, no real engagement, until I got this post: 

Because no one seems to get the economic implications....
With the Meme below:

It really blows my mind that someone thinks this is some clever checkmate. It feels like one of those fake memes made up to show how stupid the other side is but then it used by the other side unironically. For one, the model economy is weird, with one wage rate and one commodity, but we can work with their assumptions. There’s also the fact that $1.00 take home on $1.23 gross isn’t a 23% tax rate, but we’ll let that slide.

But this made me have some thoughts on the meme:

“That meme is so disingenuous that its doesn't even deserve rebuttal.

1)No one is calling for over increasing the minimum wage by more than a factor of 10.

2) Though maybe we should, if all you can afford after a day's work is a gallon of milk

3) Labor is not the only component to the price of a gallon of milk. I would suppose that it is probably a small part, unless we're paying the cows.

4) Tax rates are marginal rates, so you don't pay the top rate on all your income, only after a certain point, thought this weird world we don't know the cutoff

“So posting this shows your economic illiteracy. Minimum wage increases are much studied and still a contentious issue. The literature I'm familiar with shows little to no actual job loss and the people who maintain employment have a higher living standard. Though it is often ambiguous and based on so called "natural experiments" starting with the famous Kreuger / Card paper and building on that. (Link to paper

“There is a positive business case for raising wages. Your turnover drops so you have less training costs, and productivity goes up. Even WalMart has acknowledged this. There is a real cost to you, as identified by researchers like Sendhil Mullainathan in that someone worried about their poverty have less attention space to worry about other things - this is a problem if they're your employees and you want them to pay attention to their work.

“It's also the right thing to do.

“This is not to say that on the line between 8.25/hr and 1000/hr there is not some point that would start the acceleration of job losses and another that would start the acceleration of inflation, but it doesn't seem these small incremental changes trigger that.

“It isn't necessarily all roses though - raising the minimum means that you start knocking at the wages of the first levels of supervisory employees. They'll want wage increases too.

These things are complex. So the moral of the story is “Please Don’t Share Stupid Memes”.