Re: Economic reform policy: Some views and proposals

["Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>]

Paul is absolutely correct.  Further more, the Mosler/Mitchel/Wray
proposal does not deal with the froeign exchange problem.

Unemployment now is a profit center.  See:

As Companies Reduce Costs, Pay Is Falling Top to Bottom
By DAVID LEONHARDT

For the first time since the 1980's, the average pay of workers at all
income levels is falling.

The pay of the nation's top earners has become the most recent to fall
behind inflation. The weekly salary of workers at the 90th percentile of
earners — who earn more than nine-tenths of all workers — fell 1.4
percent over the last year, to $1,439, according to an analysis of
government data by the Economic Policy Institute, a research group in
Washington.

The inflation-adjusted weekly pay of the median worker — half made more,
half made less — fell 1.5 percent from early last year to early this
year, according to the Labor Department. It was the biggest drop since
the mid-1990's.

After more than two years of canceling investments in new equipment and
laying off workers, many companies are turning to the pay of remaining
employees as they try to stay profitable during an economic slowdown.
The weak labor market, which has lost more than two million jobs in the
last two years, is allowing them to restrain pay without fear of losing
workers, executives say.

The pay stagnation has ended the strongest period of salary growth in 30
years.

AT&T and Starwood Hotels, which owns the Sheraton chain, have recently
frozen salaries for many workers. So have Leo Burnett, the advertising
agency, and Boise Cascade, the paper maker.

Eastman Chemical made a 3 percent cut in the pay of most of its 15,000
employees. At American Airlines, Boeing and Weirton Steel, unionized
workers have recently voted to reduce their own wages in an effort to
save their jobs.

"Some of the salaries had gone sky-high," said Vinod Gupta, the chief
executive of infoUSA, a company based in Omaha that sells consumer
databases to marketers and recently cut all annual pay above $30,000 by
one-tenth. "We had people in $40,000 jobs, and we had no choice but to
pay them $80,000 because there was a shortage of people."

Now, Mr. Gupta said, "we're not having any trouble finding new people."

The stagnation of wages has helped many companies report surprisingly
good profits in recent weeks, even as demand for their products remains
weak and health care costs have soared. An increase in profits is the
first step toward a rebound in business spending on factories, equipment
and technology, which would then create jobs, economists say.

But the wage slowdown is also leaving many American households with less
money to spend, helping to make the current economic recovery the
weakest in decades. During the first three months of the year, consumer
spending increased at an annual rate of 1.4 percent, which matched the
slowest pace in 10 years, the Commerce Department reported yesterday.

"You can find jobs that run from minimum wage into $8 or $9 an hour.
Most of them don't have benefits of any type, and a lot of it is just
part-time work," said Bob McCullough, a 49-year-old carpenter,
explaining why he and his colleagues at Weirton Steel in West Virginia
voted this year to cancel a $1-an-hour raise and replace it with a 5
percent pay cut.

"As far as the kinds of jobs that pay the wages we earn, they're just
not here anymore," said Mr. McCullough, who makes a little over $50,000.
"A lot of people have bought homes and put kids through college and led
good lives here. That's what we're trying to preserve."

By contrast, from 1997 to 2002, the weekly pay of the median worker rose
almost 9 percent, to $656, after adjusting for inflation. The gains
effectively erased almost two decades of declining pay.

High earners did even better, with those at the 90th percentile
receiving a 14.2 percent raise from 1997 to 2002. Over the last year,
however, many affluent workers have had to accept an effective pay cut
as their employers have realized that the weak job market has left them
with few other options.

In August, Microsoft reduced the pay of its employees in and around San
Francisco because it was no longer worried about losing them to other
companies. The cut undid a pay increase that Microsoft had given the
workers in late 2000, the second such raise that year.

Many companies in service industries, without large investment budgets
to cut but with large numbers of well-paid employees, have come to see
salaries as an expense they need to lower during a period of slow growth.

"Fifty percent of our revenue is taken up by compensation costs," said
Robert C. Brennan, president of Leo Burnett Worldwide, part of the
Publicis Groupe. "It tends to be the area you need to be focused on when
the economy is in the state it is in."

http://www.nytimes.com/2003/04/26/business/26PAY.html

pdavidso wrote:
> > Trond Andresen wrote:
> >
> >
> > > Another positive example is the "employer of last resort"/job guarantee
> > > proposal, that has been argued for by Randy Wray, Bill Mitchell and
> > > Warren Mosler.
> >
> > > IMO, this should also be part of an economics reform package that
> > > progressive economists ought to be able to agree on.
>
> We can all agree on the neeed for full employment-- for it is like motherhood
> a wonderful social value --. The problem is how to get to full employment and
> who should be the employer, and when do we need an employer of last resort.
> In the case of some (the above?) full employment POLICY PROPOSALS the
> GOVERNMENT EMPLOYED LABOR FORCE IS A BUFFER STOCK.  But what is it supposed to
> buffer?
>
> It is my understandng that the Mosler-Mitchell-Wray government wage is to set
> a floor on wages -- and to hire all those who can not get a job given the
> existing level of aggregate effective demand and wage structure.  All that is
> to the good!
>
> But isthe size of the pool of government employees hired to be in the last
> resort workplace to be buffer to prevent wage inflation? If the pool of
> workers employed in this last resort sector falls too low, i.e., private
> aggregate demand is too high, then wage inflation is likely to occur. Thus, in
> my understanding of this proposal, the employer of last resort workforce is a
> buffer to prevent wage inflation. Is that a desireable goal? [ Is this a form
> of the natural rate of unemployment with a humane face?]
>
> The question is why not increase aggregate demand for private sector
> employment so as to reduce the government employee labor force only to the
> necessary volume to carry out the norm al functions of government, e.g.,
> national defense, the national park service, congressional personnel, normal
> civil servants in the Dept. of State, Treasury, etc.
>
> I think these questions have to be sorted out! Especially in these days when,
> according to today's New York Times, 4 million discouraged adults have left
> the labor force since January 2001 -- including skilled engineers, etc -- and
> 2 million jobs have been lost since January 2000.  While the unemployment rate
> still hovers around the 5.6 to 5.8 per cent range -- and outsourcing -- not
> only of simple goods like cut and sew clothing but also computer programming,
> etc -- to foreign workers in low cost countries like China and India and even
> Russia, are the buffer stock holding down wages in the US.
>
> Paul
>
> Paul Davidson
> Editor, Journal of Post Keynesian Economics
> University of Tennessee
> SMC 503
> Knoxville, Tennessee 37996-0550
> office phone #;(865)974-4221; office fax# (865)974-1686 or (865)974-4601
> home phone and fax # (865)692-0802
> email pdavidson@xxxxxxx
> http://econ.bus.utk.edu/davidsonextra/Davidson.html