Recently, Eurostat published data on labour participation rates in North Africa and the eastern mediterranean. In many of these countries, female labour participation rates (paid labour, that is) are low (graph 1). And they are lower than they used to be (graph 2).
Graph 1. Labour market participation rates, Israel (IL), Morocco (MA), Egypt (EG), Lebanon (LB), Tunisia (TN), Palestine (PL) and Algeria (DZ).
More surprisingly than low female participation rates are, as the fertility rate has gone down and educational levels have improved, the increasing differences between male and female participation rates in many of these countries.
Graph 2. The difference between the labour market participation rate of women and men.
Is this caused by an ‘Islamic awakening’ which encourages women to leave earning money to men? Hmmm – it shouldn’t: ‘At age 25, Muhammad wed his wealthy employer, the 40-year-old merchant Khadija.’ Or is it caused by implicit and/or explicit ‘affirmative action’ for men by governments who can’t provide enough jobs (not just government jobs, also market sector jobs) for their citizens? Extreme political turmoil? I don’t really know.
There is a stark difference between developments in these countries and developments in nearby countries like Spain and Greece (graph 3), where differences between male and female employment rates have rapidly dwindled, partly because the female employment rate increased (up to 2008) and partly because men were hit harder and earlier by the crisis (post 2008) than women (especially in Spain, with its construction boom). And oh, the graph shows of course an already classic example of disintegrating societies. The traditionally very high employment rates for Greek men are hitting record low after record low while Spanish male employment rates have been rapidly declining for 6 years in a stretch. This is ‘Great Depression’ stuff, the USA ‘great reset‘ is a minor event compared with these developments. The good news: jobs data for the second quarter of 2014 finally indicate serious job growth.
Real ‘micro foundations’ of macro ideas are possible. Asger Lau Andersen, Charlotte Duus and Thais Lærkholm Jensen use data from 800.000 individual Danish households to show the micro-economic underpinnings of ‘balance sheet recessions’. When house prices decline, severely indebted households spend relatively less than less indebted households – even when debt service does not change and the incomes of the indebted households increases more than the income of less indebted households. Remarkably, they do not cite the author intellectualis of the idea of balance recessions, Richard Koo.
Elstat, the Greek statistical office, is still prosecuted for producing reliable statistics
British inflation is still at a historical low.
The increase in employment in the UK is mainly caused by an increase in self-employment. This increase in self-employmnent is mainly caused by fewer people leaving ‘self-employment’.
Despite declines of employment in Estonia and Latvia in the first quarter of 2014, unemployment in the Baltic states is declining (second quarter 2014). Second quarter employment data are not yet available.
In Italy, the business ‘birth rate’ increased in 2013. Turnover has however decreased for the fifth year in a row.
from David Ruccio
The Washington Post tries to put a positive spin on the recent pattern of job growth. However, the underlying study (from the National Employment Law Project [pdf]) offers quite a different view: even though jobs gains have recently accelerated in higher-wage industries, the imbalance of especially pronounced gains at the bottom and slow growth in mid-wage industries persists. Read more…
On Voxeu a book about secular stagnation has been published. Can I add something to this? Yes: information on the secular development of the rate of fixed investment (5 graphs).
The book contains a lot of interesting and important ideas about labour (ageing, declining male participation rates), technological possibilities (opinions differ about the magnitude of these possibilities but everybody sees possible improvements in life styles and health) and disequilibrium economics: tenacious interruptions of the flows of money which can not be cured or are even caused by changing relative prices (i.e. lowering then interest rate) are preponderant in the book. And only Smets (from the ECB…), Jimeno and Yiangou still believe in the confidence fairy. But even they advocate a smaller financial sector. ‘Fixed capital’ does however not get enough attention. According to me, progress will be increasingly dependent on household purchases of specialized consumer durables (in combination with cultural changes in life styles) instead of upon government and company ‘fixed investments’ which means that households will have to get the means (i.e. higher incomes) to finance these ‘household investments’. This will not only enable these purchases but it will also be necessary to fill the expenditure gap left by the decrease of government and business fixed investment. Read more…
from David Ruccio
And it’s an engineered slump. A striking fact of the graph above is the sudden stalling of the European recovery around 2011, Q1. This stalling was deliberately caused by Eurozone monetary policies. One can of course point to the ECB interest rate increases of April as well as July 2011. But these increases were, in the end, limited to ‘only’ 0,5%. Much more important, however, is what happened to ‘real economy interest rates’, like those paid by governments and, as governments nowadays are the financer of last resort for banks, therewith to rates paid by households and non-financial companies (graph 2).
Graph 2. Difference between interest rates paid by Italian, Spanish and French governments and the German government Read more…
The UK labour market does well. The number of jobs increased with 2,7%, year on year. The total number of hours worked increased with 3,4% which means, as earnings per hour show (low) growth of about +0,6% and consumer price inflation is about 2%, an increase of 2% in total spending power. As a lot of the increase in jobs as well the increase in wages is in low wage occupations (the high wage financial sector is still under siege), where people have a high marginal propensity to spend additional income, the fast increase of the number of jobs together with rather low pay increases boosts consumer spending. Also, according to Eurostat, UK GDP increased with 3,1% which indicates that average (!) productivity is still declining, albeit slightly. Caveat: all these data are based upon three month averages, the not-official single month data for June show somewhat less positive developments.
The ONS (the UK statistical Office) does not only measure the level of unemployment but also flows of people in and out of employment, unemployment and inactivity. According to these data, during Read more…
According to official data, by far the larger part of fixed assets in Germany consist of land and land related investments like houses and buildings. This pattern is typical for rich countries. Note that Germany was one of the few countries to escape the international house price boom of the 1990-2008 period. Note that the data do not even include agricultural land.’Machinery and equipment’, i.e. trucks, cars, planes and machinery and the like, are of relatively minor importance, to an extent because they depriciate faster than buildings.
Printing income. When I borrow money to buy an existing house this is not counted as ‘production’ in the national accounts (though it does increase the amount of money). When I borrow money to buy a house and to pay the fee of the real estate agent the fee is counted as an increase in income and production. Large scale constructions like this one (IPO’s…) drove profit growth in the banking sector, since 1990.
Leaving the train station. In 2013, use of public means of transport in Spain declined with about 6% – for the fifth year in a row.
Isaac Asimov and the representative consumer. <strong>Foundation and earth is an interesting science fiction novel by Asimov about the representative consumer (the hive-mind of the Gaia planet), agent based modelling (‘psycho history’), a world inhabited by 1200 homo economicus individuals (who, interestingly, changed themselves into ultra-intelligent hermaphrodites who never meet in the flesh and only trade with each other via video) Read more…
from Dean Baker and Jared Bernstein
As predictable as August vacations, numerous economists and Federal Reserve watchers are arguing that the nation’s central bank must raise interest rates or risk an outbreak of spiraling inflation. Their campaign has heated up a bit in recent months, as one can cherry pick an indicator or two showing slightly faster growth in prices or wages.
But an objective analysis of the recent data, along with longer-term wage trends, reveals that the stakes of premature tightening are unacceptably high. The vast majority of the population depends on their paychecks, not their stock portfolios. If the Fed were to slam on the breaks by raising interest rates as soon as workers started to see some long-awaited real wage gains, it would be acting to prevent most of the country from seeing improvements in living standards.
To understand why continued support from the Fed is unlikely to be inflationary, consider three factors: the current state of key variables, the mechanics of inflationary pressures and the sharp rise in profits as a share of national income in recent years, along with its corollary, the fall in the compensation share. (See figure.)
from Dean Baker
Discussions of inflation and Federal Reserve Board policy take place primarily in the business media. That’s unfortunate, because these discussions can have more impact on the jobs and wages of most workers than almost any other policy imaginable.
The context of these discussions is that many economists, including some in policy making positions at the Fed, claim that the labor market is getting too tight. They argue this is leading to more rapid wage growth, which will cause more inflation and that this would be really bad news for the economy. Therefore they want the Fed to raise interest rates.
The part of this story that few people seem to grasp is that point of raising interest is to kill jobs. If that sounds like a bizarre accusation to make against responsible people in public life then you need to pick up an introductory economics text.
The story line there is that we get inflation if too many people are employed. There are all sorts of ways of making the story more complicated, and many people get PhDs in economics doing just that, but the basic point is a simple one: at lower rates of unemployment workers have more bargaining power and are therefore able to push up their wages. Read more…
World student movement could become major player in the struggle to bring pluralism and freedom of inquiry to economics
from Edward Fullbrook
An emergent worldwide grassroots movement of economics students, the International Student Initiative, has the potential of becoming a major force that could work alongside the academics’ World Economics Association (now 13,000 strong) to break the neoclassical stranglehold on economics and to bring the real world back into the classroom. Launched in May, the ISI already boasts 65 associations of economics students from 30 countries, 5 continents and representing 13 languages groups. For the most part they are based in individual universities. Together they constitute a coordinated grassroots base that has the potential of serving as the launch pad for a massive worldwide student rebellion in the coming academic year, one that would see 100s more of these associations formed, each focused on reforming the economics curriculum of their university.
The formation of these student associations can be greatly facilitated by encouragement and moral support from faculty members. If you would like to help please go to http://www.isipe.net/supportus/
Below is the ISI‘s manifesto, a partial list of the student organizations, a partial linked list of their websites, and a linked list (67) of media coverage. Here to begin with is a world map showing ISI associations to date: Read more…
Not much blogging from my side as Edward tricked me into constructing ‘Piketty series’ for the Netherlands – but this is a game changer (via left foot forward): the Bundesbank finally understands. Economic policies aimed at financial deregulation, low wages and asset price increases instead of low unemployment, high employment and high income have failed.
* Spending in the Eurozone is too low, unemployment is disastrously high, people are getting evicted from their houses while the number of empty houses increases and in quite some countries poverty is rising.
* For obvious reasons, not every country can export itself out of unemployment at the same time (a classic example of a ‘zero sum game’).
* Present policies to engineer current account surpluses are anyway not based upon any kind of serious export strategy but upon restricting domestic demand, which leads to a ‘race to the bottom’
* Households and companies are heavily indebted while low spending and high unemployment causes increasing problems with non-performing loans
* Companies are not going to invest when demand stays low, even when interest rates are low
* Quite some people do not want the government to act as a ‘spender of last resort’
Which leaves wage increases as the only way to restore demand, increase prosperity and lower unemployment (getting unemployment down to 4% in five years, with 1% productivity growth and 1% inflation and a share of wages (including mixed income) of 70% means that wages can increase with 4 to 5% a year, a little bit less when investments increase). Economies are of course quite unpredictable, but we can start with ‘forward guided’ 4% wage increases for two or three years.
Germany’s Bundesbank, Europe’s largest central bank, has backed a call for higher wages to boost the flat-lining Eurozone economy.
Jens Ulbrich, the bank’s chief economist, has joined a growing list of key players calling for widespread pay rises to fend off the crippling effects of failed austerity and low inflation and to crawl back the falling wage share in national wealth. Read more…
from Dean Baker
In the crazy years of the housing boom the financial sector was a gigantic cesspool of excess and corruption. There was big money in pushing and packaging fraudulent mortgages. The country paid a huge price for the financial sector’s sleaze.
Unfortunately, because of the Obama administration’s soft on crime approach to the bankers who became rich in the process; the industry is still a cesspool of excess and greed. Just to be clear, knowingly issuing and packaging a fraudulent mortgage is a crime, the sort of thing for which people go to jail. But thanks to the political power of the Wall Street, none of them went to jail, and in fact they got to keep the money.
Since the penalties for ripping off people are trivial to non-existent, the financial sector finds this to be a much more profitable line of business than actually providing financial services. The New York Times recently reported on the boom in the subprime market for auto loans featuring many of the same abusive practices we saw in the subprime mortgage market during the bubble years. Lenders are slapping on extra fees, changing the terms after contracts are signed, and doing all the other fun things we have come to expect from leaders in finance. The used car industry was sufficiently powerful that it was able to gain an exemption from being covered by the Consumer Financial Protection Bureau. Read more…
from David Ruccio
One way of dealing with the problem of growing inequality is to establish a maximum wage. That’s what Franklin Delano Roosevelt proposed back in the early 1940s—a 100 percent marginal tax rate on incomes over$25,000 a year (roughly $350,000 in today’s dollars)—in order to “provide for greater equality in contributing to the war effort.”
Infuriated conservatives saw red, literally. The “only logical stopping place for this movement,” fumed Princeton economist Harley Lutz, would be “a completely communistic equalization of incomes.”
Simon Wren-Lewis reports his own recent suggestion for a maximum wage was greeted in much the same manner.
Well, if mainstream economists are going to howl about tinkering with tax rates, why not make them howl about a real change in the system whereby incomes are distributed? Like Filip Spagnoli’s suggestion to get rid of wage-labor entirely. Read more…
The more troubled the global economy becomes, the more insistent do neoclassical economists get with their arguments for still more free trade and globalization — and the more rose-coloured are the gains they predict from the next free trade deal. Never mind that existing trade liberalization (under neoliberal terms) has produced imbalance, a tendency to stagnation, and a socially destructive race to the bottom in the interests of competitiveness. The promised gains from trade are always just around the corner, to be unlocked by new twists in trade negotiations (and proselytized with the help of new twists in neoclassical economic modeling). Read more…
from Steve Keen
What are your preconceptions about the author of a book with the title The Next Economic Disaster: Why It’s Coming and How to Avoid It? Academic? Leftist? Anti-capitalist? Anti-banker certainly?
Prepare to drop them all, because the author is none of the above. Taking the last first, the majority of his career has been in banking — and as a founder and CEO.
To put it in his own words: Read more…
from Dean Baker
A NYT article reported on a study from Russell Sage reporting that median household wealth 36 percent lower in 2013 than 2003. While this is disturbing, an even more striking finding from the study is that median wealth is down by around 20 percent from 1984.
This is noteworthy because this cannot be explained as largely the result of the collapse of house prices that triggered the Great Recession. This indicates that we have gone thirty years, during which time output per worker has more than doubled, but real wealth has actually fallen for the typical family. It is also important to realize that the drop in wealth reported in the study understates the true drop since a typical household in 1984 would have been able to count on a defined benefit pension. This is not true at present, so the effective drop in wealth is even larger than reported by the study. (Defined benefit pensions are not included in its measure of wealth.)
In economics, there is an unfortunate rift between academics and the economists who actually measure the economy. Which means that academic economists give little attention to the extremely important question how economic concepts relate to actual measurements – one reason why so much of their work is naïve (the ‘Ricardian’ household, which cuts consumption when government spending increases and the like). Fortunately, economic historians, who often have to do the measurements themselves, often bridge part of the gap. Robert Gallman has some highly relevant remarks about different ways to measure (nineteenth century USA) capital – and how these relate to the future, the past, uncertainty, savings, consumption foregone and replacement costs. This still leaves out important parts of the concept of capital like liquidity, ownership and the ‘overlapping generations’ problem – which however does not make these remarks less valuable. Read more…