A billionaire explains the middle class

Nick Hanauer, a multi-billionaire who made his money in the new economy, explains the financial situation we middle-class folks are in, and why our real incomes are falling; who the real job-creators are; and why the stock market is going through the roof.

This will either make your head spin or make you punch a hole in your drywall. Unka' George, this is for you:

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Reply to
Ed Huntress
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I find that reasoning to be ridiculous. According to its proponent, the reason for disappearance of middle class, is that a certain arcane "federal overtime rule" was not adjusted for inflation.

This makes no sense. We live in a capitalist society where wages, for the most part, are formed in a labor marketplace.

If workers bring a certain incremental additional value to employers, then their wage would reflect that additional value (the extra amount that the employer would earn from hiring an additional worker).

Workers with scarce skills or who are highly profitable, would command appropriate wages, that would rise as the marginal effect of workers on profits increases. That happens with or without overtime rules.

Overtime rules were not designed to distort hourly wages. They were designed to push working hours closer to 8 hours per day and to increase employment. It is more profitable for almost all employers to have 4 workers work 10 hours per day, than to have 5 workers work 8 hours per day, with the fifth worker bring unemployed. The overtime rules push employers more towards employing five workers at 8 hours a day.

All kinds of regulations, of labor, salaries, wages etc, brings about distortions in the marketplace that cost the economy money. It is possible that the value of good social changes offset that cost, but we should be clear on the existence of that cost.

In addition, when costs of transportation of goods or services are low, jobs can move to countries with less regulations or lower costs.

I can emotionally understand why that billionaire campaigns for $15 minimum wage, but his reasoning does not stand up to scrutiny.

i
Reply to
Ignoramus11791

I'm going to guess you didn't read the whole article, nor the other articles and the TED talk that Nick Haneur has given.

The overtime thing was just a response to what PBS was interviewing about. Read the rest of the article and you'll have a better picture.

The "labor marketplace" is hugely biased against labor, and has been throughout history, with a couple of exceptions: the World Wars and a couple of bubbles, in which labor gained an advantage.

The study of Labor Economics is worth a Master's degree of study -- and often is.

Not if the workers are bidding each other down. That's the most usual state in any industrial economy.

BTW, this is not something that's worth debating. Any study of the history of the Industrial Revolution makes it clear what happens in reality.

"Appropriate wages" are competitively determined. In general, workers will work for whatever they can earn; if someone else will work for less, they have to take less.

There is no "natural ratio" or natural wage. Labor is almost never in a position to bargain much.

Think about it: How do employers decide what to pay a given worker? It's competition between workers, with the marginal rate of return set by competition with other companies who are in the same market. If everyone pays $20/hour, then the worker is worth $20. But if the competitors are paying $10/hour, then the worker is worth $10, on a rate-or-return basis.

Management is almost always in the stronger position.

Right.

One thing that must be agreed at this point or the discussion will go off the track: The market for labor is, and has been since the beginning of the Industrial Revolution, heavily biased, disadvantaging labor. The "distortion" is a function of labor's relative weakness. There is no -- absolutely no -- evidence to contradict this.

The growth of the American middle class, and our great economic success, is the result of legislation in favor of labor that attempted to establish a more realistic balance. Our economic growth over the past 70 years is largely the result of re-balancing that drove up consumption. Our economy is 70% domestic consumption.

That's true. Once a country goes all-in for globalization and offshoring, they've lost control of the balancing controls on their labor market. And the result, for the US, is a 30-year decline in the real wages of the middle class and a struggle to keep unemployment down to a balancing level.

The alternative is a race to the bottom.

Reply to
Ed Huntress

Many businesses have multiple "managers" on salary making this little. Food service and chain retail stores are prone to having a day manager, an evening manager, a night manager, etc. with no authority to decide anything, and no employees they supervise. Two prong approach: (1) The employee gets a title instead of a raise; and (2) the employee is overtime exempt. What's not to like?

Reply to
F. George McDuffee

============== And many don't, even though they are required to do so.

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To even the playing field between the honest employers, and those who cut their labor costs by not paying overtime, it should be mandatory that every employee punches in and out, and working time off site is recorded. [random spot checks and significant fines (treble FICA and back pay to the employees?) should help implementation] The spot checks should concentrate on just before starting time, just after quitting time, and lunch/break time. Most likely this should be augmented by random surveys of the employees to determine how many hours of "voluntary" and required overtime was worked, and with or without time-and-a-half pay to identify the "bad apples" for on-site spot checks. This was too much record keeping before computers and the smart phone, but is entirely possible now.

While it is not reflected in the compensation data, the average American is now working at least 181 hours per year

*MORE* than they were a generation ago. This is 4_1/2 weeks, or more than a month.
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some time and attendance software and terminals, some with cloud storage, and some using cell phones

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We have to tools to correct this abuse, what we lack is the will to use these tools to do so...

Reply to
F. George McDuffee

Thank god we do not have the will to impose more regulations on businesses. Under your plan every employee would have to punch a time clock. In my entire working life , I never had to punch a time clock. And yet I did work a reasonable amount of overtime.

Dan

Reply to
dcaster

+1

Dan

Reply to
dcaster

Would George also support monitoring and restrictions on excessive domestic energy consumption to reduce CO2 emissions? There is already the legal precedent of municipal water use restrictions.

Reply to
Jim Wilkins

==================== I also fell for this scam.

It is a carefully nurtured myth that people who do not punch a time clock are some how superior to those that do. In too many cases it simply means that instead of real cash money, the employee got a title or classification change (possibly with a token raise), e. g. from salary to salary exempt, and more work for no (or very little) more pay.

I see no reason why everyone from the CEO down to the sweeper should not punch in and out when they are working. We see there is an apparent problem but there is no "hard" data, and the only way to acquire it is to require all employees to "punch the clock."

I am sure many of us will be shocked, both by how much we are working, and the extent un-paid (or straight time) over-time is required, and how much money is being diverted by unethical or ignorant employers.

Reply to
F. George McDuffee

============== Several questions wrapped up in this strawman, such as "are CO2 emissions a problem," and "how do you define excessive?" Use restrictions may be well required where there is a limited supply such as not watering the lawn during a drought, or when electricity demand exceeds supply.

Reply to
F. George McDuffee

I did not fall for this scam. I just never worked at a place that required me to punch a time clock.

I do not think there is any constitutional argument for requiring all employees to punch a time clock. You can't justify making requirements on just wanting more data for the government.

Dan

Reply to
dcaster

It's still cheaper for an employer to pay overtime than it is to hire another body to do the extra work.

Reply to
clare

I read the article, and that was what I was responding to, but did not listed to the TED talk and I am not planning to listen.

I have not immersed myself into the arcana of it, however all studies about various "biases", "flaws", and other real shortcomings of human decision making, only look at short term effects. In the long run, prices take care of those biases nicely. Same likely applies to those "biases against labor".

For example, take China, with labor protection nonexistent. Simply due to economic development, their wages increased severalfold, simply because labor became more marginally profitable to employ, and scarcer.

There is always two sides to price discovery, labor bidding itself down, and employers bidding themselves up.

However much you legislate, if computers and robots and websites replace that middle class, it will not be employed at previously customary wages.

To believe that the market prices for, say, car oil changes is self regulating, but that market prices for employees doing oil changing is not, is kind of crazy and inconsistent.

Employees seek higher wages, employment contracts can be terminated at any time, and employers seek profitable employees. That causes wage prices to clear.

If computers and robots can replace employees, they should not hope for higher wages.

I do not have anything to add to what I said.

i
Reply to
Ignoramus22953

No, they don't. It's an unequal "market," and wages reach an equilibrium based on that labor/management inequality. The equilibrium has no necessary or "natural" level; there is a wide range for the equilibrium to establish, except when it prevents the economy from growing. I don't remember the details, but IIRC, that has never happened on the wage upside, but it arguably can happen on the downside, and has been identified as a source of declining consumption and resulting recessions in the latter part of the 19th century in the US and the UK.

You don't need the arcana to see the research that has been done on this. It's Labor Economics 101.

China is approaching the Lewis Turning Point (look it up -- it's basic labor economics for rapidly-developing economies). Economists predict it's about six or eight years away. Some say it's already been reached. Whether it's been reached or not, China is at a stage where extremely rapid growth has put great pressure on the supply of qualified labor, and driven up wages (BTW, they have fairly strong minimum wages in China, which are enforced in the major cities but not in the rural areas.)

Labor is LESS marginally profitable to employ in China than at any time in the past. It's more a matter of employers having to be satisfied with smaller margins. This is part of the complex of things that is causing China's growth to slow down.

So your point is generally right, with one exception and one caveat. The exception is the marginal profitability of labor. It's declining sharply. The caveat is that it only applies to underdeveloped countries as they go through a subsistence/capitalist transition and then reach a labor shortage that drives wages up sharply and hampers growth because of the labor shortage -- not because of the higher wages.

Specifically, it applies to countries that fit the Lewis Model, which traces the transition from a "subsistence" (agricultural) economy to a "capitalist" economy, in which investment returns flatten out as the labor supply falls behind the demand.

This is what China is going through now. We reached that point in the first half of the 20th century. The UK reached it in the mid-19th century.

BTW, Arthur Lewis's models, for which he won the Nobel Prize, are not theoretical. They're based on a lengthy analysis of actual economies throughout modern history, organized with classical economics values and variables.

And, as in all price determinations, the equilibrium depends on the relative negotiating strength of the two sides.

When you're negotiating the price of potatoes, you can walk away and go looking for turnips instead. For most labor, at most times, choices are more limited. At a high stage of industrialization, where companies are much larger than they were in the first few decades of the Industrial Revolution, choices become constrained by limitations on labor mobility. That's when wages sink to a low equilibrium. That's what happened several times before labor unions gained strength early in the last century. That's the bias that balances wages below what they would be in a classical market, with both sides having equal negotiating strength.

Well, that's worth a discussion in itself. And that's a crisis in the making. I wrote a brief editorial about part of the situation last month, with a graph that is a little alarming:

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No, it's observation of the real history of labor markets.

You have a good understanding of this, so you know that well-functioning financial markets depend on perfect information, but there is nothing like perfect information on the part of buyers. So that market is seriously biased against buyers.

Labor markets depend on perfect worker mobility. But there's isn't very much of that. You missed the perfect example of that in the

1970s, when the steel industry collapsed and workers couldn't move because entire towns were suddenly out of work and they couldn't move, because they couldn't sell their houses, because they were suddenly in a depressed housing market and they were upside-down on their mortgages.

Markets for goods and consumer services generally work well. Other markets sometimes don't work well. Markets "clear" at a levels that often cause some group to be seriously screwed. Sometimes it's their lives that wind up being screwed.

If you depend on market forces to regulate labor, you wind up with a system so fraught with risk that, at the very least, you wind up with workers who are underemployed because they won't take the excessive risk to change or move. The upshot is risk-induced abor inefficiency and suppression of economic vitality and growth. This isn't theory. It's well-researched fact.

We'll see what happens. My guess is, like what happened in the 1930s, the people of the United States are not going to let their lives be ruined because free-market theorists think they're economic market objects to be "cleared." It's not a settling thought.

You will. You're young enough that you'll see what unfolds. I may not.

Reply to
Ed Huntress

Seems there is already a big push in many states to implement right to work legislation, now that repbulicans have control in washington i believe they will try to revise federal labor laws to benifit the job creators. Depending on who becomes president in 2016 things could get much worse for labor. Iggy is correct technology will replace much of the unskilled labor we use today. For example in near future people that depend on driving for thier income will become obsolete, same thing will happen with the airline industry, pilotless planes are in our future. If AI ever becomes a reality the entire global ecconomy will change, even ecconomists will be unemployed.

Best Regards Tom.

Reply to
Howard Beal

Nestle, Japan, have announced that they will install 1,000 robot sales "clerks" starting this year.

To quote from the news article:

"The first batch of the robots -- a chatty humanoid called Pepper -- will report to work by the end of this year at outlets that sell coffee capsules and home espresso machines.

"From December, they will start selling coffee machines for us at big retail stores," said Nestle Japan spokeswoman Miki Kano.

"We are sure that our customers will enjoy shopping and being entertained by robots."

If robots can sell coffee machines I think that they can probably say, "With Fries?" and it is very likely that if the Nestle experiment works, and there at present at least one Japanese company that is currently using robots in their outlets, that companies like Macdonald's will be looking at the same solution.

Reply to
John B. Slocomb

For the employee, what's to like?

This means there are lots of people who have risen to their level of incompetence with a meaningless title and poverty level salaries. Not really middle class.

Which explains the service we get in the food and retail industries, but is only a small part at the low end of the middle class. Anyone with anything on the ball can do better when they see a title and no overtime is a dead end.

David

Reply to
David R. Birch

I punched a clock at both the best and worst jobs I've had, with lots of overtime at both. Both were 40 hours straight time and 10 OT every week, often 20 hours OT. Neither were union jobs, BTW.

And never any talk of working when NOT punched in.

Time clocks are NBD, at least I knew what to expect on payday.

David

Reply to
David R. Birch

I would support monitoring and restrictions when we can do it in China and India as well as the US.

David

Reply to
David R. Birch

No need for a constitutional argument, it's just a condition for employment. No salaried positions, all on the clock. It would give a new perspective on how much actual value is in many management jobs(as in, not much).

David

Reply to
David R. Birch

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