Category Archives: Employment

Universal Basic Income

The left continues to be fascinated with the idea of re-distribution. It believes that the whole notion of some people being paid more than others is fundamentally unfair, that they must have had some advantage – skin color, parents, brains, whatever – which was just a matter of luck. “You didn’t build that,” as Obama famously said.

So the latest brainchild of this idea is the notion of a monthly check from the government that is sufficient to provide a comfortable lifestyle regardless of whether or not the recipient chooses to work.

A single program that replaced the myriad of transfer payment programs, from welfare through Social Security, would save an enormous amount of administration costs at all levels of government and help to pay for the program. The “poverty trap” would be eliminated as the payment could be “universal” that is, not means tested. Minimum wage laws would need to be abolished, of course, since the “living wage” would be redundant. Might not work, but there seems to be some potential anyway.

But that is not what is proposed. In general, it seems that this would be yet another program which would be funded by even more government borrowing. This, it is claimed, would “grow the economy by $2 trillion.” Please.

There are only two ways to grow the economy. One of these is to increase labor utilization, the number of hours worked in a given period. The other is to increase the productivity of that labor, that is the amount of output produced for each hour of labor. That’s it.

Existing programs already provide a major disincentive for work – the “poverty trap.” This would add another. Productivity is improved by investment – in technology, skills, infrastructure, etc. More spending on consumption would not help this, but would certainly provide more inflation, which would act to deter investment. If you want to see the outcome of this kinf of program, just check the news from Venezuela.

 

 

Unexpected Outcome

People seem to be surprised that the Fed’s rate hikes have resulted in rates declining. Really? It seems pretty clear that the Fed’s outlook is at odds with reality, and that rates are responding to the real outlook, which is that Fed rate hikes are a negative for an economy that is already tanking.

No Joy In Mudville

Well the employment report this morning was a big miss to expectations on all fronts. The household report showed a net loss of jobs, and overall the quality of jobs declined as part-time, minimum wage jobs replaced full-time. However, the VIX sellers strode in to pump up stocks, leaving Treasuries as the main beneficiary of the report, with the 30-year yielding 2.86% as I write. TRIN at 2.03 shows that while the VIX sellers hold up the mega-caps, there’s a lot of distribution going on.

Oil is trading weak, in the low 47s. Wages disappointed as the employment mix changed unfavorably, even though shortages of skilled workers are widespread.

 

Employment

President Trump has made a lot of headlines with promises to “bring jobs back” and get people “off welfare and into jobs.”

Are these promises realistic? What will it take to get people who have left the labor force, or never entered it, working?

The first problem is the so-called welfare cliff. Research from the Illinois Policy Institute details the welfare cliff experienced by single-parent, two-children households and two-parent, two-children households in Cook, Lake and St. Clair counties, and the city of Chicago. This is just an example, there are many other such charts which vary in minor ways depending on location, family circumstances, etc.

The second problem is skills, or rather the lack of them. Picking on Chicago for the simple reason of consistency with the welfare cliff study above, we find that 37% of adults have low or limited literacy skills (level 1 or below on the PIAAC scale). This means 5th. grade skills or less – almost all can read a little, but not well enough to fill out an application, read a food label, or read a simple story to a child. On a national basis, the most recent data I could find shows about 25% for unemployed or out of labor force adults, 18% overall at level 1 or below.

This, of course, says nothing about job-related skills or numeracy. Nothing good, anyway.

Just bringing back jobs is not going to fix either of these problems.

Pictures At An Exhibition

Sorry, Модест Петрович Мусоргский.

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Low Unemployment Good For The Market?

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Government Makes It Worse

After writing the piece on the social upheaval about to be wreaked by the self-driving car, I read that now both New York and California are raising the minimum wage to $15/hour. With benefit costs, also mandated, this means that a minimum wage employee will now cost about $25/hour, or $200 for an 8-hour day.

Now let’s turn that on its head. If we are going to replace that worker with automation (and we are), how much can we spend? Just to pick a number, let’s say $5/hr for power, maintenance and so forth. Obsolescence is fast these days, so let’s say a 10-year useful life to 20% of original cost. We’ll also add 10% to the cost for installation and de-installation. The machine will work from 6am to midnight, typical fast-food hours, so 18 hours a day, 7 days a week – 126 hours. Interest is 5%. Firing up the HP-12C, breakeven is at about $1 million. So the business operator can spend up to $1 million for automation that replaces 126 person-hours per week and be ahead of the game. You can get a lot for a million, software has essentially no manufacturing cost and computers are cheap.

Or to put it another way, that counter person facing you at your favorite burger joint needs to outperform a million dollar’s worth of automation. Even if I am off by an order of magnitude, the result won’t be any different. Not going to end well for the counter person.

It seems that government is working to accelerate the loss of jobs to automation.

April Fools

Another month begins, with an employment report to boot. The first day of the month is generally up, because Wall Street knows that most employer savings plans – 401Ks and so forth – credit people’s accounts at the beginning of the month which funds then get invested in mutual funds at the close. To Wall Street this only means one thing – put the prices up so the foolish saver who is not paying attention pays as high a price as possible.

The employment report is so far out of joint with reality that it has become a joke. The strong report is led by hiring by retailers. Despite a lackluster holiday sales season and massive big box store closures, despite major companies like Home Depot reporting flat hiring plans, the BLS model reports 181K payrolls added in 1Q 2016. This is the best first quarter ever, better than the entire annual retail employment growth for 2014; over 2/3s the growth for all of 2015. Weak sales and fewer stores, but best hiring ever? Really? One would think that they would choose something more plausible. Or just maybe, this is a message in a fortune cookie – we’re stuck in a BLS office, these numbers are fixed but we’ve been directed to do it and we need our jobs, so we’re sending out something ludicrous in the hope that the reader will figure it out. The administration does think we are fools.

Interesting to note that despite the excitement in stocks energy can’t catch a bid. Looks to me that the march down to the sub-20s is well underway and likely to accelerate at some point. Treasuries are strong and resilient, despite repeated attempts to push them down. I think there are very large Treasury short positions out there, and a defense is to be expected, but the ultimate capitulation will be fun to watch.

What’s Next

Expect another commodity price collapse as the weakness of the economy becomes more and more apparent. The recent rally in prices appears to have been entirely driven by short-covering as long positions have actually declined slightly. Record inventories and soft demand are likely to lead to a sharp drop in prices.

This will cut short any ideas of inflation.

Friday’s employment report? Yet another meaningless random number.

So Late We Get Smart

Alan Greenspan, interviewed by Bloomberg Radio, said he was not optimistic about the future: “No. I haven’t been for quite a while. And I won’t be until we can resolve the entitlement programs. Nobody wants to touch it. And that is gradually crowding out capital investment, and that’s crowding out productivity, and it’s crowding out the standards of living where do you want me to go from there.”