Economix Blog: An Employment Number That Isn’t Budging

Economix Blog: Full Employment: The Big Missing Piece

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Employment Law: DOJ Settles Its First ADA Hepatitis B Bias Claim

On March 5, the U.S. Department of Justice reached a settlement with the University of Medicine and Dentistry of New Jersey under the Americans with Disabilities Act. The settlement agreement resolved allegations that UMDNJ rejected applicants to its medical school and school of osteopathic medicine because the applicants have hepatitis B.

Employment: Non-Compete Not Required in Offer Letter, Justices Rule

Finding a Pennsylvania man's offer letter of employment to be nonbinding, the state Supreme Court has validated a non-compete agreement he signed even though the non-compete was not expressly referenced in the offer letter.

Employment in U.S. Lags Where It Was in 2007

Indeed, contrary to the widespread view that the United States is an island of relative prosperity in a global sea of economic torpor, employment in several other nations has bounced back more quickly, according to a new analysis by the Bureau of Labor Statistics.

The government reported Friday that the nation added 175,000 jobs in May, continuing a 32-month run of job gains. The unemployment rate moved up slightly to 7.6 percent, from 7.5 percent in April.

But overall employment in the United States remained 2.1 percent below where it was at the end of 2007, according to the statistics bureau. By comparison, over the same period, between December 2007 and March 2013, the number of jobs was up 8.1 percent in Australia; Germany, the biggest economy in the troubled euro zone, has managed a 5.8 percent gain in employment.

“The United States is way below where it should be,” said Lawrence F. Katz, a professor of economics at Harvard. “We had a massive downturn and a tepid recovery.”

Still, Friday’s jobs report appeared to be just what Wall Street was hoping for. Major stock market indexes jumped by 1.3 percent as traders bet that the modest employment gains and the uptick in joblessness meant that the Federal Reserve would be forced to keep pumping money into the economy in a bid to stimulate greater growth.

The Fed’s push to keep short-term interest rates near zero and flood the economy with trillions of dollars since the onset of the recession has been credited with staving off a far deeper downturn. It also has helped stabilize the housing market and given Wall Street a major lift since the dark days of early 2009, when the Dow Jones industrial average was below 7,000. On Friday, the Dow closed at 15,248.12, more than double the recession low.

The United States economy is performing relatively well by some yardsticks — a steady increase in economic output, a surge in corporate profits and new stock market highs — but the robust job market that is a key focus now of Ben S. Bernanke, the chairman of the Federal Reserve, and other Fed policy makers remains out of reach.

While several European countries have fared worse, Canada, Sweden and even Britain, which is trapped in yet another recession, have enjoyed healthier job gains than the United States. In fact, of the nine countries surveyed by the Bureau of Labor Statistics, only perennially-troubled Italy and Japan performed worse.

A big part of the problem, economists say, is just how big a hole the American economy fell into in the first place. Not only did the global economic downturn begin here, it also enveloped the housing market and the banking system, sectors that were largely spared in many other countries.

“Canada didn’t really have much of a housing bust,” Mr. Katz said.

A new paper by two economists from the University of British Columbia, Florian Hoffmann and Thomas Lemieux, concludes that over half of the recent variation in employment trends between the United States on the one hand, and Canada and Germany on the other, can be attributed to the construction sector.

Although the construction field gained 69,000 jobs in the first five months of 2013, with 5.8 million jobs in May, that was still nearly two million fewer jobs than in 2007, according to the Labor Department.

Other countries have generated jobs on the basis of strong exports. Germany’s economy, for example, was powered until recently by shipments of machinery, cars and other products of its high-end manufacturing industries. Australia emerged largely unscathed from the downturn, thanks to booming Chinese demand for raw materials.

The German government also went to great lengths to discourage outright layoffs, instead encouraging employers to keep workers in a part-time capacity. At the same time, letting workers go in Europe is a much more costly proposition for big employers than it is in the United States.

Another challenge in the United States, Mr. Katz said, is the fiscal squeeze in the public sector, as the government continues to shed jobs at a rapid rate.

Reporting was contributed by Catherine Rampell, Annie Lowrey and Binyamin Appelbaum.

Economic View: The Minimum Wage, Employment and Income Distribution

I don’t believe that’s because economists care less about the plight of the poor — many economists are perfectly nice people who care deeply about poverty and income inequality. Rather, economic analysis raises questions about whether a higher minimum wage will achieve better outcomes for the economy and reduce poverty.

First, what’s the argument for having a minimum wage at all? Many of my students assume that government protection is the only thing ensuring decent wages for most American workers. But basic economics shows that competition between employers for workers can be very effective at preventing businesses from misbehaving. If every other store in town is paying workers $9 an hour, one offering $8 will find it hard to hire anyone — perhaps not when unemployment is high, but certainly in normal times. Robust competition is a powerful force helping to ensure that workers are paid what they contribute to their employers’ bottom lines.

One argument for a minimum wage is that there sometimes isn’t enough competition among employers. In our nation’s history, there have been company towns where one employer truly dominated the local economy. As a result, that employer could affect the going wage for the entire area. In such a situation, a minimum wage can not only make workers better off but can also lead to more efficient levels of production and employment.

But I suspect that few people, including economists, find this argument compelling today. Company towns are largely a thing of the past in this country; even Wal-Mart Stores, the nation’s largest employer, faces substantial competition for workers in most places. And many employers paying the minimum wage are small businesses that clearly face strong competition for workers.

Instead, most arguments for instituting or raising a minimum wage are based on fairness and redistribution. Even if workers are getting a competitive wage, many of us are deeply disturbed that some hard-working families still have very little. Though a desire to help the poor is largely a moral issue, economics can help us think about how successful a higher minimum wage would be at reducing poverty.

An important issue is who benefits. When the minimum wage rises, is income redistributed primarily to poor families, or do many families higher up the income ladder benefit as well?

It is true, as conservative commentators often point out, that some minimum-wage workers are middle-class teenagers or secondary earners in fairly well-off households. But the available data suggest that roughly half the workers likely to be affected by the $9-an-hour level proposed by the president are in families earning less than $40,000 a year. So while raising the minimum wage from the current $7.25 an hour may not be particularly well targeted as an anti-poverty proposal, it’s not badly targeted, either.

A related issue is whether some low-income workers will lose their jobs when businesses have to pay a higher minimum wage. There’s been a tremendous amount of research on this topic, and the bulk of the empirical analysis finds that the overall adverse employment effects are small.

Some evidence suggests that employment doesn’t fall much because the higher minimum wage lowers labor turnover, which raises productivity and labor demand. But it’s possible that productivity also rises because the higher minimum attracts more efficient workers to the labor pool. If these new workers are typically more affluent — perhaps middle-income spouses or retirees — and end up taking some jobs held by poorer workers, a higher minimum could harm the truly disadvantaged.

Another reason that employment may not fall is that businesses pass along some of the cost of a higher minimum wage to consumers through higher prices. Often, the customers paying those prices — including some of the diners at McDonald’s and the shoppers at Walmart — have very low family incomes. Thus this price effect may harm the very people whom a minimum wage is supposed to help.

It’s precisely because the redistributive effects of a minimum wage are complicated that most economists prefer other ways to help low-income families. For example, the current tax system already subsidizes work by the poor via an earned-income tax credit. A low-income family with earned income gets a payment from the government that supplements its wages. This approach is very well targeted — the subsidy goes only to poor families — and could easily be made more generous.

By raising the reward for working, this tax credit also tends to increase the supply of labor. And that puts downward pressure on wages. As a result, some of the benefits go to businesses, as would be the case with any wage subsidy. Though this mutes some of the direct redistributive value of the program — particularly if there’s no constraining minimum wage — it also tends to increase employment. And a job may ultimately be the most valuable thing for a family struggling to escape poverty.

What about the macroeconomic argument that is sometimes made for raising the minimum wage? Poorer people typically spend a larger fraction of their income than more affluent people. So if an increase in the minimum wage successfully redistributed some income to the poor, it could increase overall consumer spending — which could stimulate employment and output growth.

All of this is true, but the effects would probably be small. The president’s proposal would raise annual income by $3,500 for a full-time minimum-wage worker. A recent analysis found that 13 million workers earn less than $9 an hour. If they were all working full time at the current minimum — and a majority are not — the income increase from the higher minimum wage would be only about $50 billion. Even assuming that all of that higher income was redistributed from the wealthiest families, the difference in spending behavior between low-income and high-income consumers is likely to translate into only about an additional $10 billion to $20 billion in consumer purchases. That’s not much in a $15 trillion economy.

SO where does all of this leave us? The economics of the minimum wage are complicated, and it’s far from obvious what an increase would accomplish. If a higher minimum wage were the only anti-poverty initiative available, I would support it. It helps some low-income workers, and the costs in terms of employment and inefficiency are likely small.

But we could do so much better if we were willing to spend some money. A more generous earned-income tax credit would provide more support for the working poor and would be pro-business at the same time. And pre-kindergarten education, which the president proposes to make universal, has been shown in rigorous studies to strengthen families and reduce poverty and crime. Why settle for half-measures when such truly first-rate policies are well understood and ready to go?

Christina D. Romer is an economics professor at the University of California, Berkeley, and was the chairwoman of President Obama’s Council of Economic Advisers.

Brooklyn Dean Campaigns for Graduate Employment

Nicholas Allard
Rick Kopstein/NYLJ

For Nicholas Allard, his transition from Washington, D.C., attorney and lobbyist to Brooklyn Law School dean is not as abrupt as one might think.

"The number one thing I did was problem solving and that's what I have to do right here," Allard said in an interview at his office, which has a view overlooking Brooklyn's state and federal courts with Manhattan in the distance.

Allard, 60, took up his new position in July after seven years at Patton Boggs, where he co-chaired the firm's public policy department and co-chaired its government advocacy practice.

Allard lauds Brooklyn Law's faculty, alumni and student body and says the school is "financially sound." But he still must confront deeper problems faced by all law schools: What changes should be made to curriculum, where will graduates find employment and how to attract the best students from smaller applicant pools? For example, applications to Brooklyn Law plummeted to about 4,600 this year from more than 6,000 in 2011.

Board members and faculty say Allard -- who was in private practice for more than 20 years but also has taught and wrote on subjects such as lobbying, communications and Internet law -- is up for the challenge.

The new dean is "the right person at the right time," said faculty member Claire Kelly, a member of the search committee.

"I wanted somebody who was nimble enough to operate in both worlds and understand what strategies might succeed, and be open to new ideas, but also see value in tested methodologies and ways of doing things," she said.

Eastern District of New York Judge Edward Korman, a member of Brooklyn Law's board who also served on the search committee, noted that the school recognized the advantages of selecting a private attorney.

"The 'outside-the-box' appointment was good for the law school and what we needed now," he said, adding that those needs include fundraising and securing employment for students. "There was a feeling among trustees and faculty that someone from the 'employer segment' of the legal economy could be extremely helpful."

Stuart Subotnick, chairman of the school's board and its search committee, said students' future employment is the school's "most important responsibility."

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