Sunday, February 16, 2014
Income Distribution in one chart.
Note that this illustration is an effort to make income distribution more meaningful and easier to understand. It reduces the total population to 10,000 which means that 90% is equal to 9000. Again in the same token the top 1% is only 100 but even that is divided into 1of the 100 i.e 0.01%... Note that the actual income of the 90% is just over 52% which means that the other 10% gets almost as much as the 90%...
Saturday, February 8, 2014
Both Wages and Employment are lagging.
For
the more than 10 million Americans who are out of work, finding a job
is hard. For the 145 million or so who are employed, getting a raise is
even harder.
The
government said on Friday that employers added 113,000 jobs in January,
the second straight month of anemic growth, despite some signs of
strength in the broader economy. The unemployment rate inched down in
January to 6.6 percent, the lowest level since October 2008, from 6.7
percent in December.
But
the report also made plain what many Americans feel in their bones:
Wages are stuck, and barely rose at all in 2013. They were up 1.9
percent last year, or a mere 0.4 percent after accounting for inflation.
Not only was that increase even smaller than the one recorded in 2012,
it was half the normal rate of wage gains in the two decades before the
last recession.
The
stagnation helps explain why many people feel apprehensive even though
the economy grew at a robust pace in the second half of 2013, corporate
profits rose, the stock market boomed and the housing market continued
to gain ground. The issue cuts across the American work force. In fact,
white-collar workers did a bit worse than blue-collar workers last year
in terms of wage growth.

“People
are running in place in terms of their living standards,” said Ethan
Harris, co-head of global economics at Bank of America Merrill Lynch.
“There’s almost no growth in spending power.” As recently as 2008, when
the economy sank deeper into recession and Lehman Brothers collapsed,
wages still managed to rise by 3.5 percent, before inflation. But the
combination of a backlog of workers left behind in the recession’s wake,
as well as productivity gains resulting from new technologies, means
salaries may not rebound anytime soon.
“We
won’t see stronger wage growth until unemployment gets below 6 percent
and we begin adding 200,000 jobs a month,” Mr. Harris predicted.
Friday’s data from the Labor Department shows an economy performing well
below that level, however. The 113,000 jobs that were added in January
fell far short of the 180,000 economists had anticipated, and came after
a particularly weak December. Despite the decline in the jobless rate,
some economists said on Friday that job creation had indeed slowed, in
what might be called a winter wobble for the economy — the cold weather
equivalent of last year’s summer swoon.
Dean
Maki, chief United States economist at Barclays, noted that over the
course of November, December and January, the more reliable three-month
pace of job creation stood at 154,000, roughly 75,000 positions fewer
than employers added in September, October and November. Initially, the
weak report for December was blamed on wintry conditions that inhibited
hiring, but Mr. Maki said a second straight month of disappointing job
gains led him to conclude that the cold and snow could not be blamed
this time.
“I
don’t think we can say weather affected January payrolls,” Mr. Maki
said, noting that the construction sector, for example, bounced back in
January after a weak showing in December. Nevertheless, Mr. Maki and
most other economists said they did not believe the weak numbers for job
creation in December and January would prompt the Federal Reserve to
reverse course on its decision late last year to steadily reduce its
stimulus efforts in 2014.
“This
will get the Fed’s attention, but it won’t affect their trajectory,”
Mr. Maki said. Still, another poor showing for hiring when the next
employment report comes out in early March might prompt a pause among
Fed policy makers at their meeting later that month, especially if other
indicators show a parallel cooling.
Wall
Street shrugged off the unemployment report on Friday, as bullish
investors sent stocks higher, with market indexes finishing higher for
the week after three straight weeks of losses. The Dow Jones industrial
average jumped 165.55 points, or 1.1 percent, to close at 15,794.08. The
Standard & Poor’s 500-stock index gained 23.59 points, or 1.3
percent, finishing at 1,797.02. The Nasdaq surged by 68.74 points, or
1.7 percent, to 4,125.86.
In
bond trading, the price of the benchmark 10-year Treasury note rose
5/32 to 100 18/32, while its yield dropped to 2.69 percent from 2.7
percent late Thursday.
One
reason Wall Street may have looked on the bright side Friday is that
the separate survey of households the Labor Department uses to calculate
the unemployment rate told a different story from the payroll data
survey. It showed a gain of more than 600,000 workers, helping bring
down the unemployment rate.
In
the payroll data survey for January, the public sector held back
overall payrolls, as government employment shrank by 29,000 jobs in
January. Excluding that loss, private employers added 142,000 positions,
a slightly better showing. Several other sectors which had been strong
in recent months — education and health care, as well as retail — also
lost positions, contributing to the overall weakness.
The
falloff in hiring in the health care sector was especially noteworthy.
In December and January together, just 2,600 health care positions were
filled. By contrast, as recently as November, nearly 25,000 health care
workers were added to payrolls.
Although
this area of the economy is undergoing a transformation as President
Obama’s new health care plan is slowly introduced, that is unlikely to
have caused the abrupt slowdown in hiring, said Mr. Harris, the Bank of
America Merrill Lynch economist. If anything, he said, the law should
create new jobs in the sector as health care coverage is expanded, even
if higher costs for some employers result in job cuts elsewhere in the
economy.
As
for retail, which lost nearly 13,000 jobs in January, Mr. Harris said
that some of the reduction could have been because of excess hiring in
December, when stores added nearly 63,000 positions as the holiday
shopping season peaked. The cuts may also have been spurred by weak
results at some retailers, with chains like J. C. Penney announcing
major job cuts last month, and Loehmann’s, the venerable discounter, now
in liquidation.
The
employment-population ratio, which has been falling as more workers
drop out of the job market, edged up 0.2 percentage points, to 58.8
percent in January.
While
salary gains have been muted across the work force, more educated
workers continue to enjoy much better employment options than those with
a high school degree or less. The unemployment rate for college
graduates in January stood at just over 3 percent, compared to 6.5
percent for high school graduates and 9.6 percent for people who lack a
high school diploma.
The
problem for economic growth in general, and wage growth in particular,
is that only one-third of the American work force — 50.4 million out of
155 million — have a college degree or more. By contrast, there are
approximately 73 million workers who have a high school diploma or some
college, and 11 million workers who did not finish high school.
With
many less educated workers chasing a limited number of new jobs,
employers have little reason to increase wages. “It’s just an extremely
competitive environment for workers, where people have little
negotiating power,” Mr. Harris said.
(NYT Feb. 7, 2014)
Sunday, February 2, 2014
Can Apple still Grow or Is It Already Too Big?
The stock market doesn’t know quite what to make of Apple.
The
company started out in the 1970s as a risk-taker and a rule-breaker,
and for many members of Steve Jobs’s generation, Apple will always carry
a whiff of sex, drugs and rock ’n’ roll. It retained some of that
renegade aura even as it set off on a wild growth spree in the first
decade of the new millennium.
By
last September in the annual Interbrand survey, Apple had managed to
depose Coca-Cola as the most valuable brand on the planet, using
criteria like popular perception and financial performance. And based on
the value of its shares in the marketplace, Apple has become the
biggest company in the world, worth roughly 10 percent more, in the eyes
of investors, than its nearest rival, the venerable oil giant Exxon
Mobil.
Yet
now that Apple is so big and so successful, it poses something of a
puzzle for investors. Is it a gigantic tech growth stock that will
expand even more rapidly in the years ahead? Or has it turned into a
high-end consumer products company, one that is, at the moment, the
biggest cash cow in the world?
These questions intensified last Monday, after Apple issued its latest earnings report.
The numbers seemed to describe a mature company with enormous profits, a
nearly $159 billion cash hoard and copious cash flow but modest overall
growth — a stunning change from the Apple of only a few years ago.
“Basically,
the market is beginning to value Apple as a consumer goods company
today,” said Doug Kass, president of Seabreeze Partners Management.
“It’s being valued like General Mills — a great company with great cash
flow.” And with Apple, he said, you get a share of all of its idle cash
plus a kind of bonus: the possibility that the company will somehow
manage to come out with another world-beating innovation.
As
recently as fiscal 2012, Apple was on a tear, with revenue that grew at
an annual rate of 45 percent; that rate was 66 percent in 2011 and 52
percent in 2010. The latest earnings report portrays a much more sedate
company.
In fact, a close look reveals evidence of slowing momentum in what is Apple’s most important profit center by far: the iPhone.
While worldwide iPhone sales expanded — thanks in part to a new
carrier, China Mobile, the country’s largest — sales in existing markets
actually fell by 2 percent in the first quarter of fiscal 2014,
according to a dissection of Apple’s earnings by Toni Sacconaghi, a
technology analyst at Sanford C. Bernstein in New York. (For accounting
purposes, Apple’s fiscal year ends in September, so it ended its first
quarter in December.)
While
Carl C. Icahn, the activist investor, announced on Twitter that he had
been buying Apple shares, the overall market was clearly rattled by what
many investors perceived as a lackluster performance. Apple shares
dropped more than 8 percent on Tuesday alone, the largest one-day
decline in a year. For the month, Apple fell by more than 10 percent.
Mr.
Sacconaghi said: “This is a company where two-thirds of the total
profits come from the iPhone, and the key take-away from the earnings
report for me is that the iPhone’s addressable market — that is, the
high end of the smartphone market — is increasingly experiencing
saturation. When the biggest part of your business doesn’t have a lot of
growth in it, that’s really worrisome.”
Apple
acknowledged that its introduction of the iPhone 5C, a colorful model
with last year’s technology, has been bumpy. The phone went on sale in
September for $100 less than its top-of-the line model, the 5S, but the
5C has underwhelmed buyers in the United States and China.
“Investors reacted to that,” said Mark Moskowitz, an analyst at JPMorgan in San Francisco. “It was an unfortunate misstep".
While
the problem of one specific phone model may seem trivial, he said, the
5C represented the first time that Apple had expanded the iPhone line
under Timothy D. Cook, the chief executive who succeeded Mr. Jobs. “They just didn’t do a good job,” Mr. Moskowitz said.
There
were some separate, technical reasons for slowing sales of iPhones in
the United States. In a conference call, Mr. Cook said part of the
problem “in North America specifically was that some carriers changed
their upgrade policies” for new smartphones. “This restricted customers
who were used to upgrading earlier than the 24 months that they’re
allowed and stretched the time out to be a hard-and-fast 24 months,” he
said.
In
another quarter or two, he suggested, the effects of the new upgrade
rules will have ebbed. And he said Apple’s sales in China would grow as
China Mobile sells the phone in 300 cities; China Mobile supports it in
16 cities now. On the other hand, Lenovo’s acquisition of Google’s
Motorola Mobility unit, announced last week, could add to pressure on smartphone profit margins globally. That could be more bad news for Apple.
For
the company as a whole, Mr. Moskowitz projects sales growth of 8.5
percent in the 2014 fiscal year, while Mr. Sacconaghi puts it at 4
percent. In either case, that’s nothing to celebrate for a company that
once expanded at a jaw-dropping rate.
In
a sense, Apple’s size is its biggest problem. The company is so large
that even if it comes up with a major new product or service — say, a
full-fledged Apple TV or a beautifully designed, multifunctional
wristwatch or a mobile payment service — it may not propel overall
growth all that much.
The
problem, Mr. Moskowitz says, is one that many companies would envy:
“It’s so big that its success has put them under an ultramicroscope.”
For
his part, Mr. Kass says he isn’t counting on growth. Apple is a good
value now, he said. He likes it as it is — as a cash-generating consumer
goods company.
Sunday, January 26, 2014
Minimum Wage.
(the following article appeared in Chron)
A minimum wage is a prescribed wage level that must be met or exceeded by employers in all employment contracts, as set forth in the Fair Labor Standards Act. The minimum wage is revised from time to time to adjust for inflating prices. Microeconomics is the study of financial issues from the perspective of individual economic units, such as a single household, small business or individual. The minimum wage has a number of positive and negative effects on businesses, families and individual workers, from a microeconomics perspective.
Effects on Business
Businesses that rely to a large extent on unskilled labor
generally experience dramatic increases in wage expenses as a result of a
minimum wage, since a minimum wage virtually eliminates companies'
ability to negotiate wages for their lowest-level employees. According
to the U.S. Department of Labor, the minimum wage increased about twenty
four percent between 2007 and 2009, going from $5.85 to $7.25 per hour.
Businesses that employ unskilled labor see their profit margins
diminish and their expenses increase, presenting a challenge to their
economic growth and introducing a new variable to economic
decision-making.
Local Employment
Many companies see the minimum wage as a large expense for an
unskilled worker, which can cause them to impose stricter decision
criteria for hiring or cut back on hiring altogether. Minimum wage jobs
are often suited for young people entering the workforce for the first
time, but, according to the Employment Policy Institute, every 10
percent increase in the minimum wage causes a five to nine percent
decrease in youth employment. This can cause a situation where
individuals with little experience who might happily accept a lower wage
find themselves unable to find a job. If this trend continues in
specific regions, local unemployment could rise, possibly raising
homelessness and crime rates as well.
Effects on Individuals
Employees experience direct benefits from a minimum wage, but
there are a number of drawbacks to consider as well. The obvious benefit
to unskilled workers is the guaranteed boost in discretionary income
provided by a guaranteed wage. Highly skilled and experienced workers
experience a boost in income as well, since a raise in the lowest wage
pushes all other wages upward as well. It can be argued that the minimum
wage has never been high enough to fully support a family. According to
the U.S. Census, only around seventeen percent of minimum wage earners
are supporting families on their own. The effects of business's
reactions to the minimum wage can be detrimental to employees in the
long run as well. Companies may turn to automation or outsourcing to
control the increase in wage expenses. This could reduce the number of
jobs available in the marketplace for unskilled workers, again resulting
in higher unemployment. Younger employees can benefit greatly from the
minimum wage. Employees entering the workforce for the first time, with
no experience, can count on the minimum wage to provide them the income
they need to handle their first expenses. This, in turn, allows
heads-of-household more discretionary income to spend on family needs.
Sunday, November 17, 2013
Boeing 77X
The Boeing Airbus rivalry is as close to a modern day large duopoly as you are likely to get.
$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$
By: Michel Merluzeau, Managing Partner, G2 Solutions
CNBC.com | Sunday, 17 Nov 2013 | 4:53 AM ET
The accelerating global commercial
aerospace market can find no better spokesperson than Dubai, Qatar and
Abu Dhabi. Over the past twenty years, a visionary public policy has
transformed the United Arab Emirates (UAE) into a distantly comparable
twenty-first century Florence when it comes to investment in
opportunities and talent.
This year will perhaps witness the apotheosis of the dominant role played by the gulf airlines with the much anticipated launch of the Boeing 777X aircraft. While there is little doubt that both versions of the aircraft will be launched at the show, some uncertainty remains as to the identity of the launch customers. While Lufthansa has announced its intention to move forward with the acquisition of 777-9s, it's all eyes on four airlines at the show: Emirates, Etihad, Qatar and perhaps also Turkish.
(Read more: Boeing in advanced talks to build 777X in Seattle area: Source)
Emirates President Tim Clark has made it very clear that if Boeing builds the aircraft he needs he would buy significant numbers. The question is, will Emirates actually buy, and what happens if they don't?
There is no doubt that 777X looks like a winner on paper: it builds on lessons learned from the 787 program and offers superb economic performance, generally estimated at 20 percent savings over the current 777 family.
The decision Boeing faces is not so directly connected to the aircraft itself as to whom you build it for? In short, hedge your bets. How the aircraft shapes up will tell us a lot about where Boeing believes growth will come from and who it believes will drive its production over the next twenty years.
(Read more: 'No comment' from Emirates on $30 billion Boeing deal)
If Emirates, Qatar, and Etihad all jump on the bandwagon, then the launch, albeit a little later than expected, should be a resounding success for Boeing and cap a year of challenges and successes for the enterprise. If Emirates does not order in substantial numbers it will be a disappointment, and clearly a sign that Boeing was unable to convince a critically important long-haul airline to sign on the dotted line.
What of the market potential for 777X? Our forecast suggests around 1,000 units as a realistic target. However, will air traffic growth and capacity constraints drive the market towards the A380, or will the 777X size and scalability win the day? A bit of both. After all, this is not a monolithic market in terms of infrastructure, routes and demographics, but we believe that the A380 will do much better than the doomsayers suggest and that the 777X strength will reside in its operational flexibility.
Airbus will be watching and argue, correctly, that its A350 is on target and that there are too many questions as to whether the 777X will be ready by 2020. Thus, Toulouse might have a strong argument that an A350 will come a few years ahead and make an impact in time for airline 777 replacement schedules. Hard to disagree with them on this one.
This year will perhaps witness the apotheosis of the dominant role played by the gulf airlines with the much anticipated launch of the Boeing 777X aircraft. While there is little doubt that both versions of the aircraft will be launched at the show, some uncertainty remains as to the identity of the launch customers. While Lufthansa has announced its intention to move forward with the acquisition of 777-9s, it's all eyes on four airlines at the show: Emirates, Etihad, Qatar and perhaps also Turkish.
(Read more: Boeing in advanced talks to build 777X in Seattle area: Source)
Emirates President Tim Clark has made it very clear that if Boeing builds the aircraft he needs he would buy significant numbers. The question is, will Emirates actually buy, and what happens if they don't?
There is no doubt that 777X looks like a winner on paper: it builds on lessons learned from the 787 program and offers superb economic performance, generally estimated at 20 percent savings over the current 777 family.
The decision Boeing faces is not so directly connected to the aircraft itself as to whom you build it for? In short, hedge your bets. How the aircraft shapes up will tell us a lot about where Boeing believes growth will come from and who it believes will drive its production over the next twenty years.
(Read more: 'No comment' from Emirates on $30 billion Boeing deal)
If Emirates, Qatar, and Etihad all jump on the bandwagon, then the launch, albeit a little later than expected, should be a resounding success for Boeing and cap a year of challenges and successes for the enterprise. If Emirates does not order in substantial numbers it will be a disappointment, and clearly a sign that Boeing was unable to convince a critically important long-haul airline to sign on the dotted line.
What of the market potential for 777X? Our forecast suggests around 1,000 units as a realistic target. However, will air traffic growth and capacity constraints drive the market towards the A380, or will the 777X size and scalability win the day? A bit of both. After all, this is not a monolithic market in terms of infrastructure, routes and demographics, but we believe that the A380 will do much better than the doomsayers suggest and that the 777X strength will reside in its operational flexibility.
Airbus will be watching and argue, correctly, that its A350 is on target and that there are too many questions as to whether the 777X will be ready by 2020. Thus, Toulouse might have a strong argument that an A350 will come a few years ahead and make an impact in time for airline 777 replacement schedules. Hard to disagree with them on this one.
© 2013 CNBC.com
Sunday, November 10, 2013
Are Consumers all tapped out?
American shoppers have a way of rallying when the holidays roll around. But years after the Great Recession, consumers' budgets remain badly squeezed by flat wages, higher payroll taxes and a weak job market.
"It's been a tough year for consumers overall," said Target Chief Financial Officer John Mulligan. "They started the year with the payroll tax increase, and lower and middle-income consumers bore the brunt of that. They were already stressed. The economy has improved slowly over time, but it's been a choppy recovery for sure."
Choppy indeed. With the economy growing at just 2.2 percent since the recession ended in June 2009, there aren't enough good-paying jobs for the millions of Americans out of work or looking for more hours.
Much of the growth in new jobs is in relatively low-wage, low-skilled industries such as retailing and restaurants. Even with the growth in those sectors, there aren't enough jobs to go around—and won't be until overall growth picks up.
"The improvement in the employment and improvement in labor markets has been slower than I'd like to see," said Boston Fed President Eric Rosengren. "We need to see growth much closer to 3 percent than 2 percent if we want to get to full employment in a reasonable time period."
(Read more: US consumer sentiment unexpectedly falls in November)
Though the latest read on GDP showed the economy expanding by 2.8 percent in the third quarter, that isn't likely to cheer up Fed officials much. Too much of the growth came from a build-up in inventories—goods sitting in warehouses and on store shelves that consumers aren't buying.
Final sales rose just 2.0 percent, and overall spending inched up just 1.5 percent, the smallest gain in two years, according to Band of America Merrill Lynch economists Ethan Harris and Joshua Dennerlein.
"In other words, the economy remains stuck in the mud," they wrote in a research note Thursday.
(Read more: Consumers trim spending as DC mess drags on)
American households apparently caught a break in September,based on the latest reports on jobs and income. The government reported that 204,000 new jobs were created in September—and personal income rose by 0.5 percent, after similar gains in August.
But the extra income didn't free up consumers wallets.The data also showed that—adjusted for inflation—consumer spending inched up just 0.1 percent in September after rising 0.2 percent in August.
While housing prices have slowly recovered in many parts of the country, mortgage applications remain sluggish, especially for younger first-time home buyers. That weakness spills over into sales of a number of related categories of goods and services—from new appliances to homeowners insurance.
Other industries feeling profit pressure are tightening payrolls. That includes the health-care sector, which produced a steady stream of new jobs even through the depths of the Great Recession.
The widespread efforts to control
health-care spending are beginning to show up in the jobs data,
according to employment consultant John Challenger.
"The one thing that both parties agree on is that we have to cut costs out of the health-care system," he said. "That usually means when companies do that, there are going to be job cuts. Inevitably were going to be seeing job cuts coming out of that sector for months or maybe years to come."
Consumer spending will remain sluggish as long as job and wage growth does. In the meantime, lower gasoline prices may help, say some analysts.
"It's pretty tough out there," said Jan Kniffen, a retail industry analyst at Worldwide Enterprises. Paying less for gas "puts a lot of money back into discretionary income."
Despite the widespread obsession with oversized numerals posted on top of the pump, those prices make up a relatively small portion of the average household budget: about $3,100 a year for a median
household, with income of roughly $50,000.
Since this year's peak in February, gasoline prices have fallen by about 15 percent, saving that family about $465. That may be enough for a nice TV for Christmas, but it's less than 1 percent of their total household income.
Not everyone is stretched. Luxury retailers are expecting another relatively good holiday shopping season. Brisk sales of high heels and handbags boosted profits for high-end designer Michael Kors by 45 percent in the past year, the company reported Tuesday.
"The one thing that both parties agree on is that we have to cut costs out of the health-care system," he said. "That usually means when companies do that, there are going to be job cuts. Inevitably were going to be seeing job cuts coming out of that sector for months or maybe years to come."
Consumer spending will remain sluggish as long as job and wage growth does. In the meantime, lower gasoline prices may help, say some analysts.
"It's pretty tough out there," said Jan Kniffen, a retail industry analyst at Worldwide Enterprises. Paying less for gas "puts a lot of money back into discretionary income."
Despite the widespread obsession with oversized numerals posted on top of the pump, those prices make up a relatively small portion of the average household budget: about $3,100 a year for a median
household, with income of roughly $50,000.
Since this year's peak in February, gasoline prices have fallen by about 15 percent, saving that family about $465. That may be enough for a nice TV for Christmas, but it's less than 1 percent of their total household income.
Not everyone is stretched. Luxury retailers are expecting another relatively good holiday shopping season. Brisk sales of high heels and handbags boosted profits for high-end designer Michael Kors by 45 percent in the past year, the company reported Tuesday.
It remains to be seen whether the shutdown—and a pair of looming deadlines for a repeat budget battle—gives consumers pause. Some economists believe people's loss of faith in Washington may cripple confidence and prompt shoppers to hunker down for the holidays.
But others argue that the impact of this summer's political spectacle was transitory.
"We're a happy nation, even with Washington doing everything it can to depress us," said Barry Sternlicht, chairman and CEO of Starwood Capital Group. "We have a very short memory. We like the fact our football teams are on the field and Congress hasn't screwed that up. So we're shopping."
UPDATED: This story was updated with Friday's jobs report numbers.
—By CNBC's John Schoen. Follow him on Twitter @johnwschoen.
Saturday, November 2, 2013
More Fat Cats?
Workers’ share of national income
Labour pains
All around the world, labour is losing out to capital
The “labour share” of national income has been falling across much of the world since the 1980s (see chart). The Organisation for Economic Co-operation and Development (OECD), a club of mostly rich countries, reckons that labour captured just 62% of all income in the 2000s, down from over 66% in the early 1990s. That sort of decline is not supposed to happen. For decades economists treated the shares of income flowing to labour and capital as fixed (apart from short-run wiggles due to business cycles). When Nicholas Kaldor set out six “stylised facts” about economic growth in 1957, the roughly constant share of income flowing to labour made the list. Many in the profession now wonder whether it still belongs there.
Workers in America tend to blame cheap labour in poorer places for this trend. They are broadly right to do so, according to new research by Michael Elsby of the University of Edinburgh, Bart Hobijn of the Federal Reserve Bank of San Francisco and Aysegul Sahin of the Federal Reserve Bank of New York. They calculated how much different industries in America are exposed to competition from imports, and compared the results with the decline in the labour share in each industry. A greater reliance on imports, they found, is associated with a bigger decline in labour’s take. Of the 3.9 percentage-point fall in the labour share in America over the past 25 years, 3.3 percentage points can be pinned on the likes of Foxconn.
Yet trade cannot account for all labour’s woes in America or elsewhere. Workers in many developing countries, from China to Mexico, have also struggled to seize the benefits of growth over the past two decades. The likeliest culprit is technology, which, the OECD estimates, accounts for roughly 80% of the drop in the labour share among its members. Foxconn, for example, is looking for something different in its new employees: circuitry. The firm says it will add 1m robots to its factories next year.
Cheaper and more powerful equipment, in robotics and computing, has allowed firms to automate an ever larger array of tasks. New research by Loukas Karabarbounis and Brent Neiman of the University of Chicago illustrates the point. They reckon that the cost of investment goods, relative to consumption goods, has dropped 25% over the past 35 years. That made it attractive for firms to swap labour for software whenever possible, which has contributed to a decline in the labour share of five percentage points. In places and industries where the cost of investment goods fell by more, the drop in the labour share was correspondingly larger.
Other work reinforces their conclusion. Despite their emphasis on trade, Messrs Elsby and Hobijn and Ms Sahin note that American labour productivity grew faster than worker compensation in the 1980s and 1990s, before the period of the most rapid growth in imports. Studies looking at the increasing inequality among workers tell a similar story. In recent decades jobs requiring middling skills have declined sharply as a share of total employment, while employment in high- and low-skill occupations has increased. Work by David Autor of MIT, David Dorn of the Centre for Monetary and Financial Studies and Gordon Hanson of the University of California, San Diego, shows that computerisation and automation laid waste mid-level jobs in the 1990s. Trade, by contrast, only became an important cause of the growing disparity in wages in the 2000s.
Trade and technology’s toll on wages has in some cases been abetted by changes in employment laws. In the late 1970s European workers enjoyed high labour shares thanks to stiff labour-market regulation. The labour share topped 75% in Spain and 80% in France. When labour- and product-market liberalisation swept Europe in the early 1980s—motivated in part by stubbornly high unemployment—labour shares tumbled. Privatisation has further weakened labour’s hold.
Such trends may tempt governments to adopt new protections for workers as a means to support the labour share. Yet regulation might instead lead to more unemployment, or to an even faster shift to automation. Trade’s impact could become more benign in future as emerging-market wages rise, but that too could simply hasten automation, as at Foxconn.
Accelerating technological change and rising productivity create the potential for rapid improvements in living standards. Yet if the resulting income gains prove elusive to wage and salary workers, that promise may not be realised.
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