Tag Archives: Unemployment

Wage Gap – Employment Gap

Increasing Bar GraphThe argument has long been, “The rich get richer while the poor get poorer.”

There are two problems with the statement:

  1. The people who make up the poor and who make up the rich change over time.  This is especially true when rich and poor are defined by wages only.
  2. This argument never takes into account “externalities”

For example, the argument never admits that we are looking at families and not individuals.  As such, it would be valuable to look at how families are changing over time.  But we never get that.

Additionally, it would be important to look at education and how it  has changed over time.  Again, nothing.

But today we have a new report that provides insight:

WASHINGTON — The gap in employment rates between America’s highest- and lowest-income families has stretched to its widest levels since officials began tracking the data a decade ago, according to an analysis of government data conducted for The Associated Press.

Rates of unemployment for the lowest-income families — those earning less than $20,000 — have topped 21 percent, nearly matching the rate for all workers during the 1930s Great Depression.

U.S. households with income of more than $150,000 a year have an unemployment rate of 3.2 percent, a level traditionally defined as full employment. At the same time, middle-income workers are increasingly pushed into lower-wage jobs. Many of them in turn are displacing lower-skilled, low-income workers, who become unemployed or are forced to work fewer hours, the analysis shows.

Amazing.  And truly heart breaking.  The very folks that need, and I mean NEED, a job are faced with unemployment levels that make it virtually impossible to find work.

A rational policy decision would be to make work as easy as possible to give away.  That is, let these people find and accept a job anywhere they can for whatever wage they can.  Ironically, the administration that most of these folks feel are helping them out are really hurting them the most.

One of the most devastating things that can happen to a worker out of work is to see the wage of the jobs he wants raised above his reasonable level of productivity.  This has the effect of discriminating against him for no reason other than he lacks the skills to obtain better work; skills that are often learned while working.

Don’t forget the history of the minimum wage:

Did you know that there was a time in our country, after the Civil War, when white unemployment was higher than black unemployment? It seems almost unfathomable now, but that was the case in the early decades of the 20th century. This was intentionally changed after Congress enacted the first federal minimum wage law: the Davis-Bacon Act of 1931.

As most of us remember from history class, the 1930s saw a plethora of public works projects introduced to combat the unemployment associated with the Great Depression. (Whether or not this worked is a topic for another day.) But during that time, many impoverished blacks left sharecropping to come north in search of such jobs. The Davis-Bacon Act was created specifically and explicitly to prevent blacks from “taking” these jobs from local white workers.

Congressman Robert Bacon of New York began crafting various pieces of legislation to discriminate against black workers when a black construction crew from Alabama was brought to his state to build a hospital for veterans in 1927. Because most blacks lived in the South, any laws restricting the use of migrant labor discriminated against them. Since blacks were not admitted to trade unions, any law that favored union labor automatically excluded blacks. Bacon submitted 13 such bills over the next four years, culminating in the Davis-Bacon Act.

The act mandated that federal contracts pay their workers the “prevailing wage.” As innocent as this might sound, records of the debate over the bill reveal that everyone understood the “prevailing wage” meant the union wage and that this meant there would be no blacks working on federal projects. In fact, when testifying before the Senate in favor of Davis-Bacon, American Federation of Labor union president William Green complained, “Colored labor is being brought in to demoralize wage rates.”

The federal minimum wage may no longer be racist in intent, but it is still racist in its effects. Labor is affected by supply and demand, just like anything else. If we pass a law that raises the cost of printer paper to $100 a ream, companies will find a way to use less printer paper. In the same way, when the law raises the cost of labor, companies purchase fewer hours of labor.

The history of the minimum wage was SPECIFICALLY meant to discriminate against black workers.  And the effects of that law have created the condition we see today.

Unemployment Benefits to End In North Carolina


The most recent recession has seen massive amounts of folks joining the ranks of the unemployed. Compounding that problem is that it is hard to obtain a new job in this economy.  In an effort to alleviate, or help alleviate, some of the pain, benefits have been extended.

But it doesn’t come cheap:

The new law is a response to the more than $2 billion the state owes the federal government, money that was borrowed to cover state-funded unemployment benefits after unemployment soared beginning in 2008.

While the state does get help from the federal government, they have to pay that money back.  And if that money isn’t paid back in time, there are penalties.

So what is North Carolina doing?

About 70,000 people will stop receiving federal extended unemployment benefits June 30 – the result of a state law that goes into effect July 1. (See the state and Triangle jobless rates, and the rates for all 100 counties, in the interactive graphics at the bottom of this story.)

The law, one of the first passed by the legislature this year, reduces the maximum state benefits a laid-off worker can receive by roughly one-third. It also reduces the maximum weeks of benefits funded by the state.

Those changes triggered the end of the federal extended benefits because federal law requires states to maintain current benefit levels. Extended benefits, which kicked in after the unemployed had exhausted their 26 weeks of state-funded benefits, have provided as many as 47 additional weeks of benefits for those unable to find a job.

We’re reducing the unemployment benefits.

This, of course, is one of the reasons for Moral Monday protests here in Raleigh.  It’s an example of an extremist legislature dominated by republicans to wage a war on the poor and middle class of North Carolina.

Never mind the fact that this money is going to have to be paid back.  Never mind the fact that, at some point, the benefits are going to end.  Never mind the fact that data suggests that people begin to look in earnest for their next job 2 weeks before their benefits end.

It’s time.  It’s long past time to return to a state of things where benefits are a simple and short bridge to the next job.  No one envisioned nearly two full years of unemployment benefits when the program was instituted.

North Carolina GOP – Unemployment Benefits

Another legislative agenda for the state’s republican dominated state government:

 Tens of thousands of unemployed workers receiving federal emergency unemployment will likely lose their benefits starting July 1 as legislators overhaul the program.

Legislative leaders said this week that they will push ahead with a July 1 start to cuts in weekly benefits for unemployed workers. The measure would put the state in violation of the recently passed federal relief package that would have provided benefits to laid-off workers through December 2013. The federal legislation specifically forbid the states from altering the weekly benefit amount, which the General Assembly is poised to do as it returns to session Wednesday.

The reason for the change?  Well, it turns out that the federal government funded the North Carolina’s unemployment payments.  Funded to the tune of nearly $2.5 billion.  And until that debt is paid, North Carolina businesses are required to higher federal unemployment taxes, or FUTA.  In fact, each year that there is an outstanding balance, businesses in NC have to shell out an additional $21 per employee per year, cumulative.

As a response to this ever growing tax burden faced by employers, the idea is to reduce the scope of the state’s UI payout to reduce the normal tax payed.

Is it popular?

Worker advocates called the measure unnecessary and shortsighted.

“This will push thousands and thousands of North Carolinians off an artificial cliff and deny hundreds of millions in dollars to businesses and communities. That money adds nothing to our debt and had already been appropriated,” said Harry Payne, former labor commissioner and worker advocate for the North Carolina Justice Center.

The extended benefits was being funded entirely by the federal government. Each week, that program funnels $25 million in benefits to about 85,000 laid-off workers.

“If anyone wants an example of thoughtlessness, I’ll hold this piece up high,” Payne said. “This is about not understanding what people are going through.”

Certainly not.

However, as the tax per job increases, more and more NC businesses will look to get out of the way of those taxes.  And the only way to do that is to constrain jobs.  Something we certainly don’t wanna do.  Further, by reducing the size of the UI check, the incentive to look for work increases, driving more and more people into the labor force.

Unemployment Benefits: A Rational Course

I’ve long been an opponent of the unemployment policy usually advocated by our government.  In my moments of most extreme Libertarian I can make the case for no unemployment benefit system at all.  People, understanding that they won’t have a program to fall back on will make efforts to protect against the downside.  This might take the form of more aggressive saving or, perhaps, not getting fired in the first place.

However, not all terminations are due to performance, many are due to economic conditions out of the control of the employee.  Further, it’s unlikely that I’d be able to prevail in my rather “draconian” response to unemployment.  So, knowing that benefits are going to be provided, how best to work within the system to create the best outcome?

Other than its existence, I have two problems with unemployment benefits:

  1. The benefit too closely approximates the typical wage.
  2. The duration of the program is too long.

The system creates the wrong incentives.  In the first place, it reduces the value of working.  For example, if I lose my $10 an hour job and can pull $325 in benefits, the marginal value of me returning to work is $75.  [Maybe $125 or so – I seem to remember the first fifty is “free.]  So the value of working 40 hours moves from $400 to $75.  An hourly rate of $1.88.  In the second place, the system is built with the incentive to delay returning to the workplace until the benefits expire.

So, what to do?

It seems to me that if I had bought into building a system that worked, that is I agreed to set aside the ideology and build a program I might not 100% agree with, I would first define the goals.  It might go like this:

  1. Provide folks assistance to get through the transition to the next job.
  2. Return folks to the workforce as soon as possible.

And the method I would use to build the program that solves both of these goals would be this:

  1. Determine the mean time to return to work without the debilitating incentive of making money while not working.
  2. Pay the unemployed a lump sum regardless of employment status.
    1. Either literally pay the individual a lump sum in the form of one check.
    2. Guarantee weekly benefits for the duration of the identified mean regardless of employment status.

This satisfies the [dubious] requirement of the government providing assistance in the face of adversity while also removing the perverse incentive not to return to the workforce.  In fact, it might actually provide the incentive to return more quickly; who can pass-up on “double dipping.”


Walmart Wants To Pay People More

So, I’ve already commented on the fact that a union decided that a 100% pay cut was better than an 8% pay cut.

I don’t get it, but hey, maybe the principle behind the whole thing mattered.

Then I hear of the story of Walmart workers who are mad at the prospect of making more money:

Along with Target and Sears, Wal-Mart has plans to open retail stores at 8 p.m. on Thanksgiving night. Employees said they weren’t given a choice as to whether they would work on Thanksgiving and were told to do so with little warning. “They don’t care about family,” said Charlene Fletcher, a Wal-Mart associate in Duarte, Calif. She said she is expected to report for work at 3 p.m. on Thanksgiving Day. The workers said that when they complain about scheduling and other problems, management cuts their hours or fires people.

I make a decent living.  In fact, I suspect I’m in the top 10% of Americans in terms of salary.  I enjoy the benefits of this condition.  However, there are sacrifices I have to make:

  1. When I got married, my wife and I stayed at a beach house.  I brought my laptop and was working everyday during my honeymoon.
  2. No matter where I go or what time it is,  I have my cell phone and am available night and day.  I often get called.
  3. Never, EVER, in my career have I let my management ever get the slightest inclination that I was a guy who would turn down work or responsibility.
  4. I remember a time when I worked 47 days straight, right through Thanksgiving, Christmas and New Years.  Every. Single. Day.
  5. If all goes well, I’m on a plane right now to Puerto Rico for a weeks vacation with family over the Thanksgiving holiday.  My laptop is in my luggage; I’ll work every day.

I don’t get it.  I don’t get the concept that says that hard work doesn’t pay off.  That sacrifice doesn’t lead to rewards.  I don’t understand how people who want money are resistant to working to earn more money.

Or at least I didn’t understand.

I saw a Facebook post recently regarding the strike at Hostess and the totally shocking result of the closing of the business.  One of the comments went something like this:

If they strike and  get released, at least they’ll get 100 weeks of unemployment.

I added that they would also now get free healthcare.

And that reminded me of this:

More and more these people don’t need jobs.  If they lose their job they’ll get unemployment for nearly 2 years.  Plenty of time to work something out.  Further, with the election of Obama, they are sure to get free healthcare as well.

Literally, what is it that would incent these people to work?  If they lose their jobs, what really is the downside?  How much would they net lose?

What kind of perverse incentives are we building into our society?



Employment: Socioeconomics vs IQ – The Bell Curve

The Impact Of IQ On Employment:

In previous posts I’ve explored the impact that socioeconomic status has on various measurements in society.  For example, we’ve seen that poverty, education and employment, among other measures, are influenced by the socioeconomic status of the family unit.  In fact, I’ve gone through the whole list of factors explored by the authors of the book, “The Bell Curve” and explored just that impact.

But is that the whole story?

The book presents a second half, another “look” if you will.  And that “other look” is the impact of IQ on these various outcomes.  This post will deal with the impact of IQ on employment.

Probability of Being Out of the Labor Force

One of the measures of the employment prospects of an individual is being active in the labor force; are you looking for a job.  I’ve already presented the data that explains an unexpected result.  Namely, that as the socioeconomic status of the family increases, so does the probability that a white male in the study will leave the labor force for at least a month in 1989.

However, the authors asked another question, “What if age, socioeconomic status and race are held constant, what happens then?  What role does IQ play in labor force participation?

It’s pretty straightforward.  Those of us scoring the lowest on IQ tests are predicted to leave the labor force at a 20% clip.  Those of us scoring in the 2nd standard deviation?  We’re leaving the labor force at only a 5% rate.

Whereas socioeconomic status seems to play a “reversed role” here, IQ is a dramatic predictor in labor force participation.

Probability of Being Unemployed

The second measurement of employment prospects is the rate at which folks find themselves unemployed.  Unemployed is different than being out of the labor force, of course, because being unemployed implicitly acknowledges that an individual is looking for work.

Again, I’ve peeked at the impact that the socioeconomic status of the family has on the unemployment prospects of an individual, and the results are in; almost none.  About 1% separates the poorest families from the wealthiest.

And the impact of IQ?

Again, powerful.

Those folks scoring lowest in IQ tests are predicted to have a 16% chance of being unemployed for a month or more in 1989.  Those scoring the highest?  4%.  In other words, those scoring low on IQ tests have a 400% better chance of being unemployed than those scoring on the high end on those same tests.

Being rich or poor has little impact.  Scoring well or not has a massive impact.


Employment: Socioeconomics vs IQ – The Bell Curve

This post continues the comparison of the impact of the socioeconomic status of individuals and the IQ of those same individuals.  I’m going off the book “The Bell Curve” written by Herrnstein and Murray.  So far I’ve covered the comparison with respect to poverty and education.  This post will deal with employment, keeping it and looking for it.

Back when I started this series, I demonstrated data that spoke to each topic using SES data only.  For example, looking at the probability of being out of the labor force for 1 month or more in 1989 bases on SES, the data showed this:

The data seems counter intuitive.  As the SES status of the family increased, the chance that a young man would drop out of the labor force increased as well.  This may be explained by the fact that wealthier families could afford to have their son’s not work for a time while those from poorer families felt a greater need to earn money.

Next we looked at unemployment.  That is, still in the labor force but not working for a month or more in 1989.  Here is the impact of SES:

There is no impact.  The SES of the individual’s family doesn’t impact the unemployment of the young man.

Let’s compare SES and IQ.

First, go back to labor force participation:

As man with very low IQ had a 4x percent chance of remaining out of the labor force compared to a man with very high IQ. Even moving in one standard deviation, the less intelligent man had more than twice the probability of staying out of the labor force than the more intelligent man.

Those men that are unemployed?


Again, not close.  While SES has non meaningful impact on the probability of unemployment, it’s clear that IQ does.  Mirroring labor force participation rate, the unemployment rate for the least intelligent is nearly 4x that of the most intelligent.

The idea that the SES of an individual or his family influences the fate of that person has significant influence in today’s debate.  And I’m sure that folks with money are more able to offset life’s unexpected challenges.  However, it may be that the intellectual ability of an individual has dramatically more impact on his or her success than the wealth, or lack thereof, of his or her family.

Economists Ignore Laws Of Economics

It would appear that a set of economists are willing to ignore reality:

As the three-year mark since the federal minimum wage was last raised approaches, we urge you to once again raise the federal minimum wage. A three-step raise of 85 cents a year for three years—which would mean a minimum wage of $9.80 by 2014—and then indexing to protect against inflation (corresponding to the legislation proposed by Senator Tom Harkin and Representative George Miller) would be a reasonable approach. The increase to $9.80 would mean that minimum wage workers who work full-time, full-year would see a raise from their current salary of roughly $15,000 to roughly $20,000. These proposals also usefully raise the tipped minimum wage to 70% of the regular minimum.

This policy would directly provide higher wages for close to 20 million workers by 2014. Furthermore, another nearly 9 million workers whose wages are just above the new minimum would likely see a wage increase through “spillover” effects, as employers adjust their internal wage ladders. The vast majority of employees who would benefit are adults in working families, disproportionately women, who work at least 20 hours a week and depend on these earnings to make ends meet. At a time when persistent high unemployment is putting enormous downward pressure on wages, such a minimum wage increase would provide a much-needed boost to the earnings of low-wage workers.

These esteemed economists must have forgotten the negative repercussions of raising the minimum wage:

  1. Reduced employment for marginal workers
  2. Reduced hours for minimum wage earners
  3. Restriction of new job market entrants reducing valuable work place skills

The laws of economics are incontrovertible.  You may no more pass legislation that says gravity is discretionary.

President Obama: How Effective Has He Been

As summer is in full swing, how do voters feel Obama has impacted the nation in his first 3.5 years in the Oval Office?

In some ways, I don’t like polls like this.  I mean, how do people gauge how a president has done, or should have done?  How do they know if he’s doing well or poorly?  In some cases, it may be some social cause that they champion; gay rights or women’s health.  Perhaps for others, it’s military accomplishments; ending Iraq or killing Bin Laden.  But in terms of the economy, I’m not sure how people reach their conclusion.

To be sure, this swings both ways.  Obama is hammering Romney for his time at Bain when jobs were lost and even outsourced to low wage nations.  The idea being that you don’t have to show that in some cases, this move actually CREATED jobs.  All you have to do is throw the stigma of the evil corporate master who only cares for his own bottom line; worker be damned.

So, it is what it is.  And for Obama, the news is bleak:

A new poll says President Obama has changed things for the worse in the United States.

A survey by The Hill, a Washington, D.C., newspaper, says that 56% of likely voters believe Obama has transformed the nation in a negative way, compared with 35% who believe the country has changed for the better on his watch.

“The results signal broad voter unease with the direction the nation has taken under Obama’s leadership and present a major challenge for the incumbent Democrat as he seeks re-election this fall,” reports The Hill.

I’m fairly certain I would have guessed an unease at the president’s job so far.  People are beginning to recognize that while we’ve added jobs, we haven’t added enough.  People are beginning to understand that each spring we seem to get better only to stall in the summer.  Unemployment remains uncomfortably high, people are fleeing the job market and Obama doesn’t have a plan.

There is significant reason to believe that, if elected, we would see another 4 years of stagnant growth, if that, with growing numbers of people taking advantage of an ever increasing federal entitlement system.

The question is, can Romney capitalize?

Employment: SES Impact – The Bell Curve

I’ve been posting data that comes from the book “The Bell Curve” in a rather chapter by chapter format.  I started with Poverty and then moved to Education.  This post deals with Employment.

I should mention that the data discussed comes from a study the authors use throughout their book.  They have decided to use this data because of the size, scope and amount of relevant data points gathered.  That study is The National Longitudinal Survey of Youth [NLSY].

From the book:

The NLSY is a very large [12,686 persons], nationally representative sample of American youths aged 14-22 in 1979, when the study began, and have been followed ever since.

In the beginning chapters of the book, the authors use the NLSY extensively.  However, the work that they have done and the results being shown in these early chapters are the result of including only non-Latino whites in the analysis.  I’ll explain the authors reasoning in following posts – or you can go ahead and read it for yourself 😉

The next sets of data will show the impact that the socioeconomic status of the individual’s background has on employment and unemployment.  First, let’s take a look at the probability that an individual has of being out of the labor force for at least 1 month in 1989:

Interesting curve.  In all the data we’ve seen so far, the curve is to the advantage of the more wealthy households.  In this case, the probability of leaving the labor force goes up as a kid’s parent’s wealth grows. *

Now, let’s look at the same group of folks in the same year but instead of being out of the labor force, let’s measure unemployment:

Virtually straight.  It really doesn’t matter how wealthy your background is when predicting unemployment.

The impact of SES on the employment and/or unemployment of individuals is hard to gauge.  I’m guessing that with further context it’ll make more sense.

* The authors felt this was strange; I don’t.  Rich kids can afford not to work.