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4 Ways Employers Respond to Minimum Wage Laws (Besides Laying Off Workers) – Article by John Phelan

4 Ways Employers Respond to Minimum Wage Laws (Besides Laying Off Workers) – Article by John Phelan

John Phelan
September 25, 2019
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Most of you will be familiar with a supply and demand graph. This shows a demand curve, which graphs the relationship between the price of something and the quantity demanded of that something, as well as a supply curve, which graphs the relationship between the price of something and the quantity supplied of that something. It is probably the most basic—and useful—model in economics.Whether the something in question is a good or a service, shoes or labor, the basic supply and demand model predicts that, ceteris paribus, an increase/fall in the price of something will lead to a fall/increase in the quantity demanded of that something—this is Econ 101.

In the context of minimum wage laws, this model predicts that setting a minimum wage above the equilibrium level or raising it will lead to a lower quantity of labor demanded. Often, people think this means fewer workers employed. So, when minimum wage hikes aren’t followed by increases in unemployment, people cite this as evidence that minimum wage hikes don’t reduce employment.

But a model is an abstraction from reality. In that messy reality, there are a number of things employers can do in response to a minimum wage hike that don’t involve laying off employees.

Remember, the simple supply and demand model says that increasing the price of labor leads to a lower quantity of labor demanded. But an employer doesn’t need to cut workers to achieve that. They can cut their hours instead.

Research from Seattle illustrates this. In 2014, the city council there passed an ordinance that raised the minimum wage in stages from $9.47 to $15.45 for large employers in 2018 and $16 in 2019. In 2017, research from the University of Washington examining the effects of the increases from $9.47 to as much as $11 in 2015 and to as much as $13 in 2016, found:

…the second wage increase to $13 reduced hours worked in low-wage jobs by around 9 percent, while hourly wages in such jobs increased by around 3 percent. Consequently, total payroll fell for such jobs, implying that the minimum wage ordinance lowered low-wage employees’ earnings by an average of $125 per month in 2016. [This was later revised to $74]

As the model predicts, the price of labor increased, and the quantity of labor demanded fell.

A follow-up paper looked at the impact on workers who were employed at the time of the wage hike, splitting them into experienced and inexperienced workers. It found that, on average, experienced workers earned $84 a month more, but about a quarter of their increase in pay came from taking additional work outside Seattle to make up for lost hours. Inexperienced workers, on the other hand, got no real earnings boost—they just worked fewer hours. Again, as the model predicts, the price of labor increased and the quantity of labor demanded fell. Instead of more money, they got more free time.

An employer could try to raise worker productivity to match the new minimum wage. One way to do this is simply to work their employees harder.

One paper by Hyejin Ku of University College London looks at the response of effort from piece-rate workers who hand-harvest tomatoes in the field to the increase in Florida’s minimum wage from $6.79 to $7.21 on January 1, 2009. It found that worker productivity (i.e., output per hour) in the bottom 40th percentile of the worker fixed effects distribution increases by about 3 percent relative to that in the higher percentiles. The author concludes:

These findings suggest that while an exogenously higher minimum wage implies a higher labor cost for the firm, the rising cost can be partly offset by the increased effort and productivity of below minimum wage workers.

Another recent study by economists Decio Coviello, Erika Deserranno, and Nicola Persico looks at the impact of a minimum wage hike on output per hour among salespeople from a large US retailer. “We find that a $1 increase in the minimum wage (1.5 standard deviations) causes individual productivity (sales per hour) to increase by 4.5%,” they note.

Importantly, tomato harvesting and sales are labor-intensive work. Any increase in output per hour can be assumed to come from increased physical effort.

Supporters of higher minimum wages talk almost exclusively about wages. But this is only one part of a worker’s total remuneration. The cost of an employee to the employer is not just the wage but total remuneration, including benefits such as health insurance. If legislation increases the wage, the employer can keep overall remuneration the same by reducing other elements.

A new paper from economists Jeffrey Clemens, Lisa B. Kahn, and Jonathan Meer finds that this is what happens in practice. The authors “explore the theoretical and empirical relationship between the minimum wage and fringe benefits, with a focus on employer-sponsored health insurance.” They find:

[There is] robust evidence that state-level minimum wage changes decreased the likelihood that individuals report having employer-sponsored health insurance. Effects are largest among workers in very low-paying occupations, for whom coverage declines offset 9 percent of the wage gains associated with minimum wage hikes. We find evidence that both insurance coverage and wage effects exhibit spillovers into occupations moderately higher up the wage distribution. For these groups, reductions in coverage offset a more substantial share of the wage gains we estimate.

Simply put, as the minimum wage rises, other elements of worker compensation fall.

If a business that plans to add 10 jobs over a year cancels these plans on the passage of a minimum wage hike, those 10 jobs have been destroyed without ever showing up in the data.

Economists from Washington University in St. Louis use wage data on one million hourly wage employees from over 300 firms spread across 23 two-digit NAICS industries to estimate the effect of six state minimum wage changes on employment. They find “…that firms are more likely to reduce hiring rather than increase turnover, reduce hours, or close locations in order to rebalance their workforce.”

As we look at responses over time, we also see the possibility that employers can substitute capital inputs for labor inputs.

Economists Grace Lordan and David Neumark analyze how changes to the minimum wage from 1980 to 2015 affected low-skill jobs in various sectors of the US economy, focusing particularly on “automatable jobs – jobs in which employers may find it easier to substitute machines for people,” such as packing boxes or operating a sewing machine. They find that across all industries they measured, raising the minimum wage by $1 equates to a decline in “automatable” jobs of 0.43 percent, with manufacturing even harder hit.

They conclude that

groups often ignored in the minimum wage literature are in fact quite vulnerable to employment changes and job loss because of automation following a minimum wage increase.

Minimum wage hikes are bad public policy. Economics, like all social sciences, has difficulty testing its models against data, but even where we can, the evidence bears this out.

John Phelan is an economist at the Center of the American Experiment and fellow of The Cobden Centre.

This article was originally published by the Foundation for Economic Education (FEE).

U.S. Transhumanist Party Discussion on Prosthetics, Neuroscience, and the Future of Human Potential

U.S. Transhumanist Party Discussion on Prosthetics, Neuroscience, and the Future of Human Potential

The New Renaissance Hat

G. Stolyarov II

Bobby Ridge

Scott Jurgens

September 18, 2017


References

– Hugh Herr – “The new bionics that let us run, climb, and dance” – TED – March 2014
– LimbForge – Enable Community Foundation
– Autodesk Fusion 360
– Thingiverse
– “Metal Gear Solid 5 Inspires an Amazing Prosthetic Arm” – Kendall Ashley – Nerdist – May 23, 2016

Learn more about the U.S. Transhumanist Party here.

Become a member of the U.S. Transhumanist Party for free, no matter where you reside. Fill out our Membership Application Form here.

Become a Foreign Ambassador for the U.S. Transhumanist Party. Apply here.

Panel – Artificial Intelligence & Robots: Economy of the Future or End of Free Markets? – Michael Shermer, Edward Hudgins, Zoltan Istvan, Gennady Stolyarov II, Eric Shuss

Panel – Artificial Intelligence & Robots: Economy of the Future or End of Free Markets? – Michael Shermer, Edward Hudgins, Zoltan Istvan, Gennady Stolyarov II, Eric Shuss

The New Renaissance Hat

G. Stolyarov II

Michael Shermer

Edward Hudgins

Zoltan Istvan

Eric Shuss

July 28, 2017


Gennady Stolyarov II, Chairman of the U.S. Transhumanist Party, participated in the panel discussion at FreedomFest in Las Vegas on July 21, 2017, entitled “AI & Robots: Economy of the Future or End of Free Markets?” The panelists presented a set of realistic, balanced analyses on the impact of artificial intelligence and automation.

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For this event there was an outstanding speaker lineup, with moderator Michael Shermer, followed by Edward Hudgins, Peter Voss, Zoltan Istvan, Gennady Stolyarov II, and Eric Shuss.

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The general focus of Mr. Stolyarov’s remarks was to dispel AI-oriented doomsaying and convey the likely survival of the capitalist economy for at least the forthcoming several decades – since narrow AI cannot automate away jobs requiring creative human judgment.

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The video was recorded by filmmaker Ford Fischer and is reproduced with his permission.

Visit Ford Fischer’s News2Share channel here.

Visit the U.S. Transhumanist Party website here.

Join the U.S. Transhumanist Party for free by filling out our membership application form here.

Visit the U.S. Transhumanist Party Facebook page here.

Visit the U.S. Transhumanist Party Twitter page here.

Gennady Stolyarov II Discusses Artificial Intelligence with Ford Fischer

Gennady Stolyarov II Discusses Artificial Intelligence with Ford Fischer

The New Renaissance Hat

G. Stolyarov II

July 28, 2017


U.S. Transhumanist Party Chairman Gennady Stolyarov II discusses why artificial intelligence is not a threat to humanity’s existence or to jobs in many professions in the proximate several decades.

This discussion was recorded as part of a larger interview with filmmaker Ford Fischer on July 21, 2017. It was intended to preview and elaborate upon some of Mr. Stolyarov’s remarks at the discussion panel later that same day, entitled “AI & Robots: Economy of the Future or End of Free Markets?”

The video is reproduced on Mr. Stolyarov’s YouTube channel with permission from Ford Fischer.

Visit Ford Fischer’s News2Share channel here.

Visit the U.S. Transhumanist Party website here.

Join the U.S. Transhumanist Party for free by filling out our membership application form here.

Visit the U.S. Transhumanist Party Facebook page here.

Visit the U.S. Transhumanist Party Twitter page here.

AI and the Future of Free Markets: A Nuanced View – Preview of FreedomFest 2017 Panel Comments by G. Stolyarov II

AI and the Future of Free Markets: A Nuanced View – Preview of FreedomFest 2017 Panel Comments by G. Stolyarov II

The New Renaissance Hat

G. Stolyarov II

July 18, 2017


Gennady Stolyarov II, Chairman of the United States Transhumanist Party, offers a preview of his forthcoming remarks at the July 21, 2017, FreedomFest panel in Las Vegas, entitled “Artificial Intelligence & Robots: Economy of the Future or End of Free Markets?”

Find more information regarding the FreedomFest panel here.

Visit the U.S. Transhumanist Party website here.

Become a member of the U.S. Transhumanist Party for free by filling out our concise application form.

The Good News They’re Not Telling You – Article by Thomas E. Woods, Jr.

The Good News They’re Not Telling You – Article by Thomas E. Woods, Jr.

The New Renaissance HatThomas E. Woods, Jr.
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As we look at things that impress us technologically we also have a certain trepidation, because we’re told that robots are going to take our jobs. “Yes, the internet is wonderful,” we may say, “but robots, I don’t want those.”

I don’t mean to make light of this because robots are going to take a lot of jobs. They’re going to take a lot of blue collar jobs, and they’re going to take a lot of white collar jobs you don’t think they can take. Already there are robots that can dispense pills at pharmacies. That’s being done in California. They have not made one mistake. You can’t say that about human pharmacists, who are now free to be up front talking to you while the robot fills the prescription.

Much of this is discussed by author Kevin Kelly in his new book The Inevitable, with the subtitle Understanding the 12 Technological Forces that Will Shape Our Future. It’s incredible what robots can do and what they will be able to do.

Automation Really Is Taking Our Jobs

To me, just the fact that one of Google’s newest computers can caption a photo perfectly — it can figure out what’s happening in the photo and give a perfect caption — is amazing. Just when you think “a machine can’t do my job,” maybe it can.

What kind of world is this we’re moving into? I understand the fear about that. But, at the same time, let’s think, first of all, about what happened in the past.

In the past, most people worked on farms, and automation took away 99 percent of those jobs. Literally 99 percent. They’re gone. People wound up with brand new jobs they could never have anticipated. And in pursuing those jobs we might even argue that we became more human. Because we diversified. Because we found a niche for ourselves that was unique to us. Automation is going to make it possible for human beings to do work that is more fulfilling.

How is that? Well, first let’s think about the kinds of jobs that automation and robots do that we couldn’t do even if we tried. Making computer chips, there’s no one in this room who could do that. We don’t have the precision and the control to do that. We can’t inspect every square millimeter of a CAT scan to look for cancer cells. These are all points Kevin Kelly is trying to make to us. We can’t inflate molten glass into the shape of a bottle.

So, there are many tasks that are done by robots, through automation that are tasks we physically could not do at all, and would not get done otherwise.

Automation Creates Luxuries We Didn’t Know Were Possible

But also automation creates jobs we didn’t even know we wanted done. Kelly gives this example:

Before we invented automobiles, air-conditioning, flat-screen video displays, and animated cartoons, no one living in ancient Rome wished they could watch pictures move while riding to Athens in climate-controlled comfort. … When robots and automation do our most basic work, making it relatively easy for us to be fed, clothed, and sheltered, then we are free to ask, “What are humans for?”

Kelly continues:

Industrialization did more than just extend the average human lifespan. It led a greater percentage of the population to decide that humans were meant to be ballerinas, full-time musicians, mathematicians, athletes, fashion designers, yoga masters, fan-fiction authors, and folks with one-of-a kind titles on their business cards.

The same is true of automation today. We will look back and be ashamed that human beings ever had to do some of the jobs they do today.

Turning Instead to Art, Science, and More

Now here’s something controversial. Kelly observes that there’s a sense in which we want jobs in which productivity is not the most important thing. When we think about productivity and efficiency, robots have that all over us. When it comes to “who can do this thing faster,” they can do it faster. So let them do jobs like that. It’s just a matter of — so to speak — robotically doing the same thing over and over again as fast as possible. We can’t compete there. Why bother?

Where can we compete? Well, we can compete in all the areas that are gloriously inefficient. Science is gloriously inefficient because of all the failures that are involved along the way. The same is true with innovation. The same is true of any kind of art. It is grotesquely inefficient from the point of view of the running of a pin factory. Being creative is inefficient because you go down a lot of dead ends. Healthcare and nursing: these things revolve around relationships and human experiences. They are not about efficiency.

So, let efficiency go to the robots. We’ll take the things that aren’t so focused on efficiency and productivity, where we excel, and we’ll focus on relationships, creativity, human contact, things that make us human. We focus on those things.

Automation Really Does Make Us Richer

Now, with extraordinary efficiency comes fantastic abundance. And with fantastic abundance comes greater purchasing power, because of the pushing down of prices through competition. So even if we earn less in nominal terms, our paychecks will stretch much further. That’s how people became wealthy during and after the Industrial Revolution. It was that we could suddenly produce so many more goods that competitive pressures put downward pressure on prices. That will continue to be the case. So, even if I have a job that pays me relatively little — in terms of how many of the incredibly abundant goods I’ll be able to acquire — it will be a salary the likes of which I can hardly imagine.

Now, I can anticipate an objection. This is an objection I’ll hear from leftists and also from some traditionalist conservatives. They’ll sniff that consumption and greater material abundance don’t improve us spiritually; they are actually impoverishing for us.

Well, for one thing, there’s actually much more materialism under socialism. When you’re barely scraping enough together to survive, you are obsessed with material things. But, second, let’s consider what we have been allowed to do by these forces. First, by industrialization alone. I’ve shared this before, but on my show I had Deirdre McCloskey once and she pointed out that in Burgundy, as recently as the 1840s, the men who worked the vineyards — after the crop was in, in the fall — they would go to bed and they would sleep huddled together, and they basically hibernated like that for months because they couldn’t afford the heat otherwise, or the food they would need to eat if they were expending energy by walking around. Now that is unhuman. And they don’t have to live that way anymore because they have these “terrible material things that are impoverishing them spiritually.”

The world average in terms of daily income has gone from $3 a day a couple hundred years ago to $33 a day. And, in the advanced countries, to $100 a day.
Yes, true, people can fritter that away on frivolous things, but there will always be frivolous people.

Meanwhile, we have the leisure to do things like participate in an American Kennel Club show, or go to an antiques show, or a square-dancing convention, or be a bird watcher, or host a book club in your home. These are things that would have been unthinkable to anyone just a few hundred years ago.

The material liberation has liberated our spirits and has allowed us to live more fulfilling lives than before. So, I don’t want to hear the “money can’t give you happiness” thing. If this doesn’t make you happy — that people are free to do these things and pursue things they love — then there ain’t no satisfying you.

Tom Woods, a senior fellow of the Mises Institute, is the author of a dozen books, most recently Real Dissent: A Libertarian Sets Fire to the Index Card of Allowable Opinion. Tom’s articles have appeared in dozens of popular and scholarly periodicals, and his books have been translated into a dozen languages. Tom hosts the Tom Woods Show, a libertarian podcast that releases a new episode every weekday. With Bob Murphy, he co-hosts Contra Krugman, a weekly podcast that refutes Paul Krugman’s New York Times column.

This article was published on Mises.org and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.

Our Economic Malaise Is Impacting Young Workers the Most – Article by Ryan McMaken

Our Economic Malaise Is Impacting Young Workers the Most – Article by Ryan McMaken

The New Renaissance Hat
Ryan McMaken
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In the wake of the 2007-2009 recession, 78 months passed before employment returned to where it had been before the crisis. This was, by far, the longest period needed to recover from job losses in decades. The second-longest period needed to recover jobs occurred after the 2002 recession when about 50 months were needed to recover lost jobs:

economic_malaise_young_people_1

Moreover, we see that in recent cycles, job growth during each recovery has been getting weaker and weaker over time:

economic_malaise_young_people_2

Some observers of the rose-colored-glasses-wearing variety have attempted to explain away the most recent malaise in job gains by claiming that fewer jobs are needed because so many Baby Boomers are aging out of the work force, and because people are so much wealthier, they argue, workers are leaving the labor force for non-economic reasons. That is, people are leaving the labor force for reasons other than being discouraged workers.

These claims are plausible, but the empirical data we have does not support them.

Keep in mind that ever since the 2007-2009 recession, the U-6 unemployment rate, which includes underemployed workers (i.e., involuntary part timers) and discourage workers, has reached multi-decade highs in recent years, and even now, is only at levels seen during the worst of the last recession:

economic_malaise_young_people_3

This is not simply a matter of fewer jobs being created because workers are going away.

To get a sense of the situation, we have to first look at the demographics of the working age population and the labor force.

(This demographic data on the working-age population is only currently available through the first quarter of 2015, so the time series ends in early 2015.)

economic_malaise_young_people_4

The top line is the total working age population (ages 15-65) published by the OECD and the World Bank. According to this measure, there is no decline in the working age population.

If people were aging out of the work force in droves to the point of driving a net exodus, we would see a downturn in the blue line. We don’t see that. In fact, from the beginning of the last recession at the end of 2007 to the first quarter of 2015, the working age population increased by 7.5 million people.

During that same period, the US economy added 801,000 jobs. That is, after the initial loss of 10 million jobs, the US economy began to add jobs again, but after more than seven full years, had only added a net of 801,000 jobs.

But maybe only 801,000 jobs were added because very few of those 7.5 million people wanted to be in the work force.

Well, it’s a safe bet that not all of them wanted to be in the work force, but we do know that using the standard BLS measure for the work force that 2.4 million people entered the work force during the period when only 801,000 jobs were added. (See the green line above.) That means over that time period, you had 1.6 million new people in the labor force while half that many jobs were added.

And this labor force measure only takes into account active job seekers and employed people. It ignores discouraged workers and involuntary part timers.

So we find that both the official labor force and the working age population were increasing at levels substantially above the employment levels.

Indeed, the only way we can find a number that suggests more jobs were added than workers is to look at the working-age population for ages between 25 and 54. That is, if we exclude all potential workers under 25 and all above 54, then yes, the working age population did decline by 1 million jobs. (See the red line above.)

In real life, though, the work force includes quite a few people who are, say, 22 years old, and quite a few who are 60 years old. If those people are included, the working age population is growing considerably.

Meanwhile, workforce participation has been falling for a number of years, and is now at some of the lowest levels that have been seen in more than 30 years. From 2014 to 2016, work force participation ranged from about 62 percent to 64 percent. That’s the lowest participation rate seen since the the early 1980s.

economic_malaise_young_people_5

Many have assumed this means that many older workers are leaving the work force. Unfortunately, it seems that it is young workers who are most likely to leave the labor force, which is problematic for future productivity. For young workers in the 20-24 age range, work force participation has been falling for more than a decade, and fell off significantly during the last recession:

economic_malaise_young_people_6

Meanwhile, labor force participation for 55-and-older individuals has held steady:

economic_malaise_young_people_7

It appears unlikely that it is now unnecessary to add jobs at a rate comparable to past recoveries because so many older workers are leaving the work force. Nor is it likely that young people are leaving the work force because they are so prosperous. It’s more likely that young people are leaving the work force as discouraged workers.

This supposition is further strengthened by the fact that the unemployment rate in the 16-24 age range has been above 10 percent for the past nine years. It was especially high even before the last recession.

But, unemployment among over-55 workers is among the lowest of all demographic groups, with a rate between 3 percent and 4 percent in recent years.

In other words, older workers are sticking around and doing relatively well. It appears that younger workers, meanwhile, are more likely to be unemployed, underemployed, or even totally out of the workforce as discouraged workers.

One phenomenon that gives us a reason to think this is the fact that the number of young people living with their parents has reached historic highs in the United States. As Pew recently reported:

In 2014, for the first time in more than 130 years, adults ages 18 to 34 were slightly more likely to be living in their parents’ home than they were to be living with a spouse or partner in their own household.

Living at home is more likely for men than for women, but in both cases, more young people are living with their parents than during any other period since World War II:

economic_malaise_young_people_8

Those who attempt to spin the current job numbers as simply the effects of people happily leaving the work force appear to be mistaken in assuming that older workers are leaving, and that younger workers need not work because they’re so unusually productive.

If young workers were so productive, is it too much to believe that they would choose to rent an apartment rather than live with their parents?

Once we look a the demographics behind the current job numbers, we actually find the situation is more alarming that we might have thought otherwise. We seem to be in a situation where younger workers are participating in the work force less, and putting off acquiring essential job skills that will lead to more productivity later.

Older workers are still sticking around in numbers large enough to keep the overall labor force number growing.

However, while both the working age population and the labor force are growing, overall job creation simply is not keeping up.

At some point, those 30-year olds living with their parents are doing to need full-time work, but will they have the job experience necessary (and thus the productivity) necessary to support the lifestyle to which they have become accustomed?

Or, will they simply enter the workforce with few job skills following a decade of part-time work or no work forced on them by our weak economy? When that happens, we’re likely to see a continued decline in the household and personal incomes.

Ryan W. McMaken is the editor of Mises Daily and The Free Market. He has degrees in economics and political science from the University of Colorado, and was the economist for the Colorado Division of Housing from 2009 to 2014. He is the author of Commie Cowboys: The Bourgeoisie and the Nation-State in the Western Genre. 

This article was published on Mises.org and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.

Yes, We Still Make Stuff, and It Wouldn’t Matter if We Didn’t – Article by Steven Horwitz

Yes, We Still Make Stuff, and It Wouldn’t Matter if We Didn’t – Article by Steven Horwitz

The New Renaissance HatSteven Horwitz
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One of the perennial complaints about the US economy is that we don’t “make stuff” anymore. You hear this from candidates from both major parties, but especially from Donald Trump and Bernie Sanders. The argument seems to be that our manufacturing sector has collapsed and that all US workers do is to provide services, rather than manufacturing tangible goods.

It turns out that this perception is wrong, as the US manufacturing sector continues to grow and in 2014 manufacturing output was higher than at any point in US history. But even if the perception were correct, it does not matter. The measure of an economy’s health isn’t the quantity of physical stuff it produces, but rather the value that it produces. And value comes in a variety of forms.

Manufacturing is Up

The path to economic growth is not to freeze into place the US economy of the 1950s. Let’s deal with the myth of manufacturing decline first. The one piece of evidence in favor of that perception is that there are fewer manufacturing jobs today than in the past. Total manufacturing employment peaked at around 19 million jobs in the late 1970s. Today, there are about 12.5 million manufacturing jobs in the US.

However, manufacturing output has never been higher. The real value of US manufacturing output in 2014 was over $2 trillion. The real story of the US manufacturing sector is that we have become so much more efficient, that we can produce more and more manufactured goods with less and less labor. These efficiency gains are largely the result of computer technology and automation, especially in the last fifteen years.

The labor that we no longer need in order to produce an ever-increasing amount of stuff is now available to produce a whole variety of other things we value, from phone apps to entertainment to the expanded number and variety of grocery stores and restaurants, to the data analyses that makes all of this growth possible.

Just as the workers in those factories we are so nostalgic for were labor freed from growing food thanks to the growth in agricultural productivity, so are today’s web designers, chefs at the newest hipster café, and digital editors in Hollywood the labor that has been freed from producing “stuff” thanks to greater technological productivity.

Or, put differently: those agricultural, industrial, and computer revolutions collectively have enabled us to have more food, more stuff, and more entertainment, apps, services, and cage-free chicken salads served with kale. The list of human wants is endless, and the less labor we use to satisfy some of them, the more we have to start working on other ones.

But notice something: all of the things that we produce have something in common. Whether it’s food or footwear, or automobiles or apps, or manicures or massages, the point of production is to rearrange capital and labor in ways that better satisfy wants. In the language of economics, the point of production (and exchange) is to increase utility.

When we produce more cars that people wish to buy, it increases utility. When we open a new Asian fusion street food taco stand, it increases utility. When Uber more effectively uses the existing stock of cars, it increases utility. When we exchange dollars for manicures, it increases utility.

Adam Smith helped us to understand that the wealth of nations is not measured by how much gold a country possesses. Modern economics helps us understand that such wealth is not measured by how much physical stuff we manufacture. Increases in wealth happen because we arrange the physical world in ways that people value more.

Neither producing cars nor providing manicures changes the number of atoms in the universe. Both activities just rearrange existing matter in ways that people value more. That is what economic growth is about.

Misplaced Nostalgia

We’re richer because we have allowed markets to produce with fewer workers. When we are fooled into believing that “growth” is synonymous with “stuff,” we are likely to make two serious errors. First, we ignore the fact that the production of services is value-creating and therefore adds to wealth.

Second, we can easily believe that we need to “protect” manufacturing jobs. We don’t. And if we try to do so, we will not only stifle economic growth and thereby impoverish the citizenry, we will be engaging in precisely the sort of special-interest politics that those who buy the myth of manufacturing often rightly complain about in other sectors.

The path to economic growth is not to freeze into place the US economy of the 1950s. We are far richer today than we were back then, and that’s due to the remaining dynamism of an economy that can still shed jobs it no longer needs and create new ones to meet the ever-changing wants of the consumer.

The US still makes plenty of stuff, but we’re richer precisely because we have allowed markets to do so with fewer workers, freeing those people to provide us a whole cornucopia of new things to improve our lives in endless ways. We can only hope that the forces of misplaced nostalgia do not win out over the forces of progress.

Steven_Horwitz

Steven Horwitz

Steven Horwitz is the Charles A. Dana Professor of Economics at St. Lawrence University and the author of Hayek’s Modern Family: Classical Liberalism and the Evolution of Social Institutions.

He is a member of the FEE Faculty Network.

This article was originally published on FEE.org. Read the original article.

Demagoguery vs. Data on Employment in America – Article by Tyler Watts

Demagoguery vs. Data on Employment in America – Article by Tyler Watts

The New Renaissance Hat
Tyler Watts
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Demagogue politicians love to play on popular fears that low-wage foreigners are “stealing” good-paying American jobs by way of outsourcing and globalization. The claim is made by nativists and protectionists of all political stripes, whether leftists complaining of a “rigged economy” or rightists speaking of other countries “beating us” economically.

A sound economic analysis of the claim about job losses due to international trade should address two questions: First, is it true that the US has lost jobs due to trade (or other factors)? Second, is this phenomenon good or bad overall for the US and world economies?

On the first point, it can appear as though the US has lost jobs. For example, as Figure 1 shows, manufacturing employment in the US has declined by about 2 million from pre-Great Recession levels, and is down by over 7 million, or 37 percent, from the all-time high reached in 1979.

Figure 1: Total Manufacturing Employment, 1940–2016

watts1

The problem, though, is that by looking at manufacturing in terms of jobs, we’re missing the full picture of industrial production.

Nevertheless, the demagogues still argue that, even though high-paying service sector jobs have more than replaced lost factory jobs, “we don’t make things here anymore” and we should lament this. This oft-heard refrain is patently false. We don’t make certain things, such as garments, toys or electronics, because global free trade and technological advances tend to shift America’s output into those industries in which our comparative advantage is greatest. But Americans do indeed make things — quite valuable things.

This can be seen in Figure 2, which shows the US Industrial Production Index for the “de-industrialization” period. After the expected steep decline following the Great Recession of 2008–2009, US manufacturing has slowly bounced back and is now producing more products, in value-added terms, than ever before. Indeed, this index, which consists mainly of manufacturing, has grown by over 100 percent since the 1979 peak in manufacturing employment.

Figure 2: Industrial Production Index for the United States, 1979–2016

watts2

In other words, thanks to productivity gains, we need fewer workers to make more stuff.

From an economic perspective, nothing could be better news. US manufacturing creates 100 percent more value with 37 percent fewer workers. Creating more value with fewer workers means we’re more efficient than ever, or put another way, more productive than ever. These awesome productivity gains have many sources, especially in the form of technological advances in areas like software, robotics, and communications. Globalization and outsourcing have also played a role, as they allow American workers a greater degree of specialization in those sectors where our productivity edge is largest.

The good news gets better, though: not only have we gained jobs on net, but jobs have grown faster than the population over time. Since the 1979 peak in manufacturing employment, the US adult population grew by 53 percent, whereas employment grew by 59 percent, as shown in Figure 3.

Figure 3: Population Growth vs. Employment Growth Since 1979

watts3Source: Federal Reserve Economic Data

Despite these generally positive facts, some still contend that we’ve replaced “good” manufacturing jobs with lousy service sector jobs. Well, of course it must be true that, if we’ve lost manufacturing jobs, but gained jobs overall, then all of the job gains must have come from non-manufacturing sectors. And indeed the service sector, broadly defined, has seen employment growth of 90 percent since our 1979 benchmark. But beware of making hasty earnings assumptions about a sector that employs nearly 124 million people. To see whether the newly-created “service sector” jobs really don’t pay as well as the vaunted manufacturing jobs, we need to drill down into the employment and earnings data. What we’ll find is that a large majority of the new service sector jobs pay just as well or much better than manufacturing jobs.

Table 1 presents Bureau of Labor Statistics data on the 15 largest sectors and sub-sectors of the US economy, which together represent over 96 percent of the total net increase in payroll employment for the post-peak manufacturing jobs era (1979 to 2016). This might come as a surprise to the anti-globalization crowd: despite the loss of 7 million manufacturing jobs (and some mining, logging, and utilities sector jobs), we’ve seen a net increase of nearly 53 million total jobs. Of these net new jobs, fully 62 percent of them feature, as of January 2016, average hourly earnings equal to or greater than current average hourly manufacturing earnings. In other words, most of the 53 million new jobs pay the same or better wages than the demagogues’ benchmark “good” manufacturing jobs. So we lost 7 million good jobs, only to gain about 32 million equal or better-paying jobs, along with about 19 million lower-paying jobs (about 38 percent of net new jobs pay less than manufacturing).

Table 1: Employment Changes and Current Earnings by Sector

watts4Source: Bureau of Labor Statistics

We’ve established that, despite a major decrease in employment in the manufacturing sector, we’ve gained many more jobs than we’ve lost in the past 35 years or so, and that most of these new jobs pay better to boot. Economic changes, while painful in the short run, have brought gains in output and employment not only for the US, but for the rest of the world as well. Overall, this is good news for the US and world economies.

So, as the campaign season heats up, let’s not be misled by baseless arguments about America “losing jobs” or other countries “beating us” at trade. Trade is a positive sum game, and the benefits for both the US and world economies are, shall we say, “yuge.”

Tyler Watts earned his PhD in economics at George Mason University in 2010. He currently teaches economics at East Texas Baptist University and runs the Institute for Economic Education (see YouTube channel here), a public outreach focused on integrating economics with a Biblical worldview and providing unique teaching tools for high school and college economics students.

This article was published on Mises.org and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.

Let’s Hope Machines Take Our Jobs: We Want Wealth, Not Jobs – Article by Peter St. Onge

Let’s Hope Machines Take Our Jobs: We Want Wealth, Not Jobs – Article by Peter St. Onge

The New Renaissance Hat
Peter St. Onge
June 11, 2015
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The job-threatening rise of the machines is an economically illiterate meme that refuses to die. We’re actually probably in the early stages of it, a bull-market in neo-luddism, if you will. Bastiat’s “Candlemakers’ Petititon” answered this one long ago, but today I’ll run a little thought experiment that owes it all to good old Bastiat.

Let’s say Weird Al Yankovic invents a machine capable of making everything with a single push of a button. The first thing he does is print up a bunch of machines and sell them for a ton. Weird Al is now a billionaire, and there are thousands of make-everything machines.

This diffusion of Weird Al’s new technology replicates the market process, where new tech spreads in proportion to its usefulness. If you doubt this, because of patents, for example, check out Brazil’s experience with AIDS drugs, where they tore up the patents on humanitarian grounds.

Weird Al’s machines will, at a minimum, be mass produced in Brazil. Or China. Or Mozambique.

So, one way or another, we get a bunch of make-everything machines.

What happens to the jobs? We’re getting everything for near-free now. So all the production jobs disappear. There are still lots of jobs, of course — child care, gardeners, musicians. But all the production jobs have vanished — something like 20 percent of jobs, maybe up to 50 percent when you include knock-on replacement of people by capital (truck drivers, robot bartenders). Heck, let’s go crazy and say 90 percent of the jobs vanished. Nobody’s got a job outside of preschool or performing on a stage. It’s the end of the world, right?

Well, the key is that, now that everything is made with the push of a button, everything’s extremely cheap. For example, a sixteen-bedroom house or a Lamborghini costs almost nothing. Let’s say they now cost ten cents.

The main expense in such a world is probably surface space. All those dime-a-dozen cars have to park somewhere. It’d take a while to “run out” of space, though — divide the world by the people and you get about twenty acres (eight hectares) for a family of four — about 100 large surburban yards. Add in the oceans — floating islands cost nothing, remember — and triple that. We end up with about 300 homes’ worth of space per family.

What about those unemployed people? Well, when a house or a year’s food costs a dime, they’ll be willing to work really cheap. We’ll work for a penny a day. After all, that’s a new house or a year’s food every two weeks.

Who would hire these workers for a penny? Plenty of people. Heck, if workers cost a penny a day I’d hire several for each of my children, just to keep the kids from getting bored. I’d hire another to cook, one to clean, one to run errands. One to keep track of my mail. One to check Facebook for me. At a penny a day I’d personally hire 100 people, easy. You would too — a buck a day’s nothing.

So the remaining 10 percent of workers who didn’t lose their jobs — babysitters, baristas, musicians — would want 100 workers each. Even at a penny, they’d take them all, and they’d be paying an outrageous rate — a tenth-house per day! That’s a daily rate of $15,000 in today’s terms.

Now, those who kept their jobs would, of course, see dropping wages. A barista who made $12 an hour in the old days would have to compete with the hordes of unemployed workers. Maybe her wage would drop to a penny, too. But, remember, a penny now buys $15,000 worth of stuff.

When the smoke clears, most people would make some extremely low wages — a penny a day. And that extremely low wage would be worth an awful lot — $15,000 a day, implying an annual income north of several million dollars in today’s values. Some lucky few would make a dollar a day — probably the people who are good at things machines cannot do: entertainment, child care, being a good listener, strumming the guitar at the retirement home, and laughing at jokes. At a dollar a day, this super-rich elite that excels at human skills — such as making us laugh — would be billionaires in today’s values.

Either way, there would be nothing we think of even remotely as “poverty.” Sure, there’ll be inequality, but it’ll be relative: “Sarah’s got 200 Lamborghinis and I’ve only got 40.”

The upshot is that wages plunge, but production costs plunge even more. Of course, this is based on the ridiculous Weird Al machine. Why do this? To illustrate the absolute worst-case scenario, when machines make everything for near-nothing.

What about going one step further: That the machine destroys all jobs in the whole world — it makes every single thing for us free, and it even keeps the folks entertained and the warm fuzzies flowing at the old folks’ home.

Well, we’ve already got a case study there — the sun. It gives us warmth and mangos for free. And how do we respond? We sit around and lazily enjoy it. So a machine that truly replaced all jobs would simply mean nobody works anymore — life’s somewhere between a non-stop party and a non-stop pleasant walk in the woods followed by a nice bonfire with friends and chardonnay.

We should all be so lucky that the machines do actually take every last job there is.

Peter St. Onge is an assistant professor at Taiwan’s Fengjia University College of Business. He blogs at Profits of Chaos.
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This article was published on Mises.org and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.