Unions in the 21st Century: A Potent Weapon Against Inequality [feedly]

Unions in the 21st Century: A Potent Weapon Against Inequality
http://cepr.net/publications/op-eds-columns/unions-in-the-21st-century-a-potent-weapon-against-inequality

Dean Baker and Jared Bernstein
The Washington Post, September 3, 2018

See article on original site

The topic of economic inequality can appear complex, with many nuanced causes and outcomes. But while the two of us actively engage in that debate, we also strongly believe that there is one overarching factor that must not be, but often is, overlooked: worker bargaining power. On Labor Day, this problem of the long-term decline in workers' ability to bargain for a fair share of the growth they have helped generate deserves a closer look.

There is, of course, a direct link between less worker clout and the decline in union coverage. In addition to directly empowering workers at the workplace, unions have played a central role in the drive for a wide variety of policy measures to ensure that everyone benefits from prosperity, which is the opposite outcome of rising inequality. This list includes Social Security, Medicare, paid family leave, civil rights legislation, fairer tax policy and higher minimum wages.

This view has been further buttressed by recent research using new data showing a strong connection between union strength and a more equal distribution of income (see figure), a link that makes the sharp decline in union membership over the past four decades particularly disturbing.

Source: Piketty et al., UnionStats

This decline has not been an accident. The right has quite explicitly targeted unions with an array of anti-union policies, the most recent of which have been "right-to-work" laws. These prohibit contracts that require all the workers at a unionized workplace to share in the cost of representation.

The impact of anti-union policy can be seen by the differing experiences of Canada and the United States over this period. While the unionization rate in the United States dropped from roughly 20 percent in the late 1970s to just over 10 percent most recently, unionization rates in Canada have edged down only slightly over this period and still exceed 31 percent.

The fact that unions continue to thrive in a country with a very similar culture and economy indicates that there is nothing inevitable about the decline in unions in the United States. It was deliberate policy.

Given that powerful, vested interests are behind the decline in unions, reversing this decline will be a serious challenge, one that requires worker-friendly policies and new forms of worker representation, such as centralized bargaining. For example, instead of organizing one restaurant at a time, unions must push for collective bargaining rights for restaurant workers across their industry. It also will require reaching out to all types of workers, not just those in construction, factories or lower-paid services.

Two decades ago, we worked together at the Economic Policy Institute (EPI). EPI was and is a great place to work, but we felt it was important for the staff to gain an institutionalized voice. We helped organize a union that affiliated with the International Federation of Professional and Technical Engineers (IFPTE, Local 70).

The process of organizing was interesting, because many of our co-workers at EPI thought of themselves as professionals for whom unions really didn't make much sense. After much discussion, everyone came to agree that a union was a good idea. The vote for the union was unanimous. (We are also pleased to report that management was fully cooperative and happy to respect our decision.)

Since then, Local 70 has organized a number of Washington-based nonprofits. It now has well over 300 members. If some current organizing drives succeed, Local 70, which has since been restructured as the Nonprofit Professional Employees Union (NPEU), will have more than 500 members.

We are well aware that in a labor force of more than 150 million, 500 workers isn't exactly a game-changer. But the journey of 1,000 miles starts with one step. It is essential that unions make inroads into the types of workers organized by NPEU if they are to regain the sort of influence and power they had in prior decades.

Unions will continue to be important in traditional strongholds such as manufacturing and construction. But as the workforce becomes more educated, a powerful union movement will need to include many workers with college and advanced degrees.

If that sounds peculiar, in countries such as Denmark and Sweden, which have a far more equal distribution of income than the United States, more than 70 percent of the workforces are represented by unions. In these countries, it is the norm for people working in white-collar jobs, including many with college degrees, to be represented by unions.

The United States may never approach Scandinavian rates of unionization, but if we are even going to get back to 1970 rates, unions will have to make inroads into new areas. Part of that story has to mean organizing professional workers. On this day in particular, we proudly recall our small contribution to this effort.

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Jared Bernstein, a former chief economist to Vice President Joe Biden, is a senior fellow at the Center on Budget and Policy Priorities and author of 'The Reconnection Agenda: Reuniting Growth and Prosperity.'

Dean Baker is senior economist at the Center for Economic and Policy Research.

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Some thoughts on that new Fed paper everybody’s talking about. [feedly]

Some thoughts on that new Fed paper everybody's talking about.
http://jaredbernsteinblog.com/some-thoughts-on-that-new-fed-paper-everybodys-talking-about/

It's a lovely morning on the back porch, and the mind turns to that new Fed studyeverybody's talking about. It's the one by Erceg et al about monetary policy at moments like this one, with a flat Phillips Curve (PC), u<u*, along with much uncertainty about u* (importantly, I'd argue that uncertainty is asymmetric; the Fed's estimate of u* looks too high). BTW, 'u' is the unemployment rate; 'u*' is the estimate of the "natural rate," the lowest rate associated with stable prices.

I've got a longer, less cryptic piece on this study coming out later this week in WaPo (tomorrow, it's Dean Baker and I celebrating Labor Day with a piece on unions as a potent weapon against inequality). But I wanted to set the table for that piece with a bit of analysis here. The WaPo piece explains any oblique terminology; apologies in advance for any obscurities in what follows.

One reason this piece, which I found to be a thoughtful/useful bit of work, is getting a lot of attention is because its key finding is counterintuitive. Given that unemployment has been well below the Fed's estimate of u* of 4.5% and inflation's (PCE core) just now hitting their 2% target, many of us have argued that the optimal monetary policy is to downweight the unemployment gap and focus on the lack of wage or price inflation.

Consider, e.g., the strong version of this view from EPI's Josh Bivens: "…the definition of labor market slack is wage growth too weak to put upward pressure on the Fed's price inflation target. If this wage growth is not happening, there is labor market slack. So, simply looking at some quantity-side measure of the labor market (say the unemployment rate) and thinking 'hmm, that's low, we must be at full employment" is substituting gut feeling for economic reasoning.'"

In a similar vein, Baker and I have argued that you know you're at full employment when extra demand generates not jobs and real wages, but inflation.

But the Fed study comes to a different conclusion, arguing that even if u* is uncertain, it's "better" to target the employment than the inflation gap. The definition of "better" is key, of course, and the authors are explicit that their definition bakes in their result in ways with which reasonable critics may disagree (more on that in a moment).

The paper does a bunch of macrosimulations of unemployment and inflation outcomes using a set of monetary rules that apply stronger or weaker weights to the employment and inflation gaps. The find that "because monetary policy acts with a lag, waiting for inflation to materialize before reacting is undesirable, particularly when economic conditions are such that outsized deviations of inflation from its target are a plausible outcome."

This is interesting. While camp Bivens sees the combination of the flat PC and overestimated u* as a reason for accommodative monetary policy, their simulations suggest that because of the flat PC, over-weighting the inflation gap will lead to wide and damaging (to demand) swings in monetary policy.

In fact, conditions in the current economy partially drive their result. Suppose the Fed listens to Bivens et al and targets inflation instead of unemployment. Because inflation has long undershot the Fed's 2% target and the PC is so flat, it would take historically very low unemployment to juice inflation. Conversely, suppose some shock to the system…like, um, a trade war…led inflation to spike; then, the authors argue, it would take really high unemployment to bring inflation back down.

The study's simulations thus find that if the Fed weighted up its inflation target relative to its unemployment target, the jobless rate could fall so low or climb so high that it could generate "risks to financial stability and more generally to the sustainability of macroeconomic outcomes."

One way they end up there is by scoring success through a "loss function" that penalizes policy makers for letting the jobless rate fall below u*. But with u* higher than it should be, this approach doles out undeserved penalties for running a hot labor market (when they plug in a u* of 3.7%, upweighting the employment gap looks less favorable; compare Table 3, column F, rows 3 and 6). Their symmetric loss function (being below u* is as bad as being above it) also discounts the extremely valuable benefits of super-tight labor markets to less advantaged workers, a benefit that is especially worth tapping right now given the lack of price pressures. I'd want a loss function to reflect these benefits, one that treats being below u* as preferable to being above it.

As noted, the authors are explicit about this point, and the loss function they use is standard fare. Still, the paper is replete with so many variants, why not add one more? I urge the authors to run the results through a loss function that meets the criteria just noted.

I've got two more objections to the findings.

First, at least as I read it, the paper seems to suggest the Fed is unable to look past inflation perturbations caused by supply shocks. As just noted, the simulations appear to combine this inability with the flat PC to generate sharp, yet unnecessary (because it's a temporary shock, not a shift in demand), accommodation or tightening. But this seems demonstrably wrong, as just recently, Fed statements have included many references to temporary shocks to prices, including energy, cell phone pricing, and Trump's trade mishegos (the latter of which could eventually whack demand).

Also, what about all those years of hard work by Fed officials to anchor expectations? That too leads people to look through temporary shocks and assume stable, long-term prices. (See the bottom panel of their Figure 1 for evidence of well-anchored inflation expectations.)

Second, in numerous places, including the quote above, the paper argues that it's better to be a bit more hawkish to avoid financial instability. This seems like step backwards. Former Chair Yellen and others have been very clear on this point: when we use tighter monetary policy to regulate bubbles in financial markets, we penalize the great many to hold back the reckless few. It is macroprudential policy and Dodd-Frank style regulation that should be the first line of defense against excesses in financial markets.

I get that Powell recently (wisely) argued that, given their far-reaching potential damage, the Fed should put financial excesses high on its watch list. But, if the real economy is not overheating, that doesn't imply that fighting them with higher rates is preferable to regulation, "irrational-exuberance"-style forward guidance, and higher capital buffers.

That said, I strongly recommend the paper to those of us calling for heavier relative targeting of inflation as opposed to employment. It offers some high-calorie food for thought.

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Where Labor Unions Aren’t Going Away

Where Labor Unions Aren't Going Away

Unons are much stronger in Nordic countries than in the U.S. They're also very different.

By Justin Fox
September 3, 2018, 5:00 AM EDT
This isn't Denmark.  Photographer: Drew Angerer/Getty Images
Justin Fox is a Bloomberg Opinion columnist covering business. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of "The Myth of the Rational Market."
Read more opinionFollow @foxjust on Twitter

Unions are on the decline in the U.S., and have been for a long time. Last year, only 6.5 percent of private-sector workers in the U.S. belonged to one. (Among public-sector workers the unionization rate was 34.4 percent and has held relatively steady over time, but the public sector's share of the workforce has been shrinking since the 1970s.)

You probably already knew that, more or less. But low and declining union membership is not just an American thing (yes, this chart looks a little squished, but I thought I should have the same scale on all of them to make them easier to compare):

Union Members Are a Shrinking Minority

Percentage of workers who belong to unions

Source: Organization for Economic Cooperation and Development

Administrative data for France, Germany, Japan and the U.K., and Canada through 2015 and the U.S. through 1980, with survey data after that.

So union membership is even lower in France than in the U.S.! As I learned from the National Review's Reihan Salam a few years ago when I first discovered this amazing fact, though, that's kind of misleading. Almost every worker in France is covered by collective bargaining agreements between the country's unions and employers.

But Unions Still Have Some Clout

Percentage of workers with collective bargaining coverage

Source: Organization for Economic Cooperation and Development

Dotted lines represent years with no data.

It is French law that has guaranteed this continued strong role for unions even as membership dwindles, and it seems fair to say that the results have been less than optimal. Even with President Emanuel Macron's recent efforts to increase labor-market flexibility, the French economy remains beset by high labor costs, frequent strikes, a low labor-force participation rate and excruciatingly slow growth.

In Germany, which generally has a better reputation as far as labor-market policies go, unions continue to play a much bigger role than they do in the U.S., but their clout has been on the decline since the 1990s. In the U.K., that decline began in the late 1970s, which happens to be when Margaret Thatcher became prime minister and made breaking the power of unions a top priority. In Canada, the declines in both union membership and collective bargaining representation have been relatively muted, but both did start from a pretty low base.

These statistics offer some support both for those who argue that that the union decline has been inevitable (it's been happening in all the big developed economies, after all) and those who see it as an unfortunate political choice (the timing and the trajectory have differed by country). More backing for the latter argument can be found in the experience of the group of nations with the highest union membership rates in the developed world, the Nordic countries.

It's Different in the Nordic Countries

Percentage of workers who belong to unions.

Source: Organization for Economic Cooperation and Development

Administrative data for Denmark and Finland, and for Norway through 2015 and Sweden through 1986 with survey data after that.

Yes, even Denmark, Finland, Norway and Sweden have seen declines in unionization since the early 1990s, which is when the region experienced its own local version of the financial crisis and deep recession that beset rest of the developed world in 2008 and 2009. But union membership is still really high! (I should note here that Iceland is also a Nordic country and its unionization rate is even higher, at 90.4 percent in 2016, but it's so tiny and its historical data so spotty that I left it off the chart.) The percentage of workers covered by collective bargaining agreements is even higher, and holding somewhat steadier.

The Nordic Difference, Part 2

Percentage of workers with collective bargaining coverage

Source: Organization for Economic Cooperation and Development

Dotted lines represent years with no data.

The thing about unions in the Nordic countries, though, is that they're different from unions in most other countries. I learned this in Denmark in 2007 when a union steward at Lego A/S, which had just announced plans to move a bunch of factory work to Eastern Europe, gave me an impassioned lecture on the positive economic aspects of outsourcing. Unions in Denmark saw (and presumably still see) preserving the competitiveness of Danish industry as a much higher priority than protecting specific jobs. They arrived at this mindset in part because Denmark is a small country trying to succeed in a big, scary world, but also because access to generous unemployment benefits is what leads many (perhaps most) workers in Denmark to join unions in the first place.

Denmark, Finland and Sweden are what are called "Ghent system" countries, where unions administer the unemployment insurance program with help from government subsidies. Norway used to have a Ghent system but abandoned it in 1938. Belgium, where the actual city of Ghent is located, has a "partial Ghent system." In recent years, the link between union membership and unemployment insurance has weakened in the remaining Ghent system countries too, with most union-affiliated insurance providers now formally independent, and scholars from those countries have written lots of papers about the pressures the system is under. But from the perspective of many outside observers it still looks pretty great in the way that it combines continued union strength with a flexible, pragmatic approach to serving workers that seems quite compatible with economic competitiveness.

Interestingly, some of the biggest American fans of this approach in recent years have come from the political center-right. The Atlantic's Jonathan Rauch cited the Ghent system approvingly in making "The Conservative Case for Unions" last year; the Manhattan Institute's Oren Cass did the same in a City Journal article on "More Perfect Unions"; and in their 2008 book, "Grand New Party: How Republicans Can Win the Working Class and Save the American Dream," the aforementioned Reihan Salam and New York Times columnist Ross Douthat advocated "new model unions" that would focus more on providing services and training to members than negotiating with their employers.

Some traditional unions in the U.S. are already responsible for providing pensions, which hasn't been going very well for them lately. The "new model" Freelancers Union, founded in 1995, offers health coverage and other forms of insurance to independent workers, as well as political advocacy. This is an awfully long way from the Nordic system in which unions play a central role not only in providing unemployment insurance but in determining how much money everybody makes. But on Labor Day one can always dream, I guess.

--

John Case
Harpers Ferry, WV

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Setting the Record Straight on Secular Stagnation: Don't get into a knife fight with Larry Summers?

This post takes on Joseph Stiglitz' critique of Summers "secular stagnation" theory as a cover for the Obama administration failure to win a bigger stimulus (public  spending to raise demand) after the 2008 crash. This is really an argument about the rights and wrongs of economic outcomes vs the possibles and impossibles of political  reality. But both of these guys are among the smartest economists around.

*************************************************

Setting the Record Straight on Secular Stagnation

Sep 3, 2018 LAWRENCE H. SUMMERS
Echoing conservatives like John Taylor, the Nobel laureate economist Joseph Stiglitz recently suggested that the concept of secular stagnation was a fatalistic doctrine invented to provide an excuse for poor economic performance during the Obama years. This is simply not right.

CAMBRIDGE – Joseph Stiglitz recently dismissed the relevance of secular stagnation to the American economy, and in the process attacked (without naming me) my work in the administrations of Presidents Bill Clinton and Barack Obama. I am not a disinterested observer, but this is not the first time that I find Stiglitz's policy commentary as weak as his academic theoretical work is strong.


THE MYTH OF SECULAR STAGNATION

Aug 28, 2018 JOSEPH E. STIGLITZargues that the concept was always merely a fig leaf for bad politics and flawed economic policies.

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Stiglitz echoes conservatives like John Taylor in suggesting that secular stagnation was a fatalistic doctrine invented to provide an excuse for poor economic performance during the Obama years. This is simply not right. The theory of secular stagnation, as advanced by Alvin Hansen and echoed by me, holds that, left to its own devices, the private economy may not find its way back to full employment following a sharp contraction, which makes public policy essential. I think this is what Stiglitz believes, so I don't understand his attacks.

In all of my accounts of secular stagnation, I stressed that it was an argument not for any kind of fatalism, but rather for policies to promote demand, especially through fiscal expansion. In 2012, Brad DeLong and I argued that fiscal expansion would likely pay for itself. I also highlighted the role of rising inequality in increasing saving and the role of structural changes toward the demassification of the economy in reducing demand.

What about the policy record? Stiglitz condemns the Obama administration's failure to implement a larger fiscal stimulus policy and suggests that this reflects a failure of economic understanding. He was a signatory to a November 19, 2008 letter also signed by noted progressives James K. Galbraith, Dean Baker, and Larry Mishel calling for a stimulus of $300-$400 billion – less than half of what the Obama administration proposed. So matters were less clear in prospect than in retrospect.

We on the Obama economic team believed that a stimulus of at least $800 billion – and likely more – was desirable, given the gravity of the economic situation. We were told by those on the new president's political team to generate as much validation as possible for a large stimulus because big numbers approaching $1 trillion would generate "sticker shock" in the political system. So we worked to encourage a variety of economists, including Stiglitz, to offer larger estimates of what was appropriate, as reflected in the briefing memo I prepared for Obama.

Despite the incoming president's popularity and an all-out political effort, the Recovery Act passed by the thinnest of margins, with doubts about its ultimate passage lingering until the last moment. I cannot see the basis for the argument that a substantially larger fiscal stimulus was feasible. And the effort to seek a much larger one certainly would have meant more delay at a time when the economy was collapsing – and could have led to the defeat of fiscal expansion. While I wish the political climate had been different, I think Obama made the right choices in approaching fiscal stimulus. It is of course also highly regrettable that after the initial Recovery Act, Congress refused to support a variety of Obama's proposals for infrastructure and targeted tax credits.

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Unrelated to the topic of secular stagnation, Stiglitz takes a swipe at me by saying that Obama turned to "the same individuals bearing culpability for the under-regulation of the economy in its pre-crisis days" and expected them "to fix what they had helped break." I find this a bit rich. Under the auspices of the government-sponsored enterprise (GSE) Fannie Mae, Stiglitz published a paper in 2002 arguing that the chance that the mortgage lender's capital would be depleted was less than one in 500,000, and in 2009 he called for nationalization of the US banking system. So I would expect Stiglitz to be well aware that hindsight is clearer than foresight.

What about the Clinton administration record on financial regulation? With hindsight, it clearly would have been better if we had foreseen the need for legislation like the 2010 Dodd-Frank reforms and had a way to enact it with a Republican-controlled Congress. And certainly we did not foresee the financial crisis that came eight years after we left office. Nor did we anticipate the ways in which credit default swaps would mushroom after 2000. We did, however, advocate for GSE reform and for measures to rein in predatory lending, which, if enacted by Congress, would have done much to forestall the accumulation of risks before 2008.

I have not seen a convincing causal argument linking the repeal of the Glass-Steagall Act and the financial crisis. The observation that most of the institutions involved – Bear Stearns, Lehman Brothers, Fannie Mae, the GSE Freddie Mac, AIG, WaMu, and Wachovia – were not covered by Glass-Steagall calls into question its centrality. Yes, Citi and Bank of America were centrally involved, but the activities that generated major losses were fully permissible under Glass-Steagall. And, in important respects, the repeal of Glass-Steagall actually enabled the resolution of the crisis, by permitting the merger of Bear and JPMorgan Chase and by allowing the US Federal Reserve to open its discount window for Morgan Stanley and Goldman when they otherwise could have been sources of systemic risk.

The other principal attack on the Clinton administration's record targets the deregulation of derivatives in 2000. With the benefit of hindsight, I wish we had not supported this legislation. But, given the extreme deregulatory approach of President George W. Bush's administration, it defies belief to suggest that it would have created major new rules regarding derivatives but for the 2000 act; so I am not sure how consequential our decisions were. It is also important to recall that we pursued the 2000 legislation not because we wanted to deregulate for its own sake, but rather to remove what the career lawyers at the US Treasury, the Fed, and the Securities and Exchange Commission saw as systemic risk arising from legal uncertainty surrounding derivatives contracts.

More important than litigating the past is thinking about the future. Even if we disagree about past political judgements and about the use of the term "secular stagnation," I am glad that an eminent theorist like Stiglitz agrees with what I intended to emphasize in resurrecting that theory: We cannot rely on interest-rate policies to ensure full employment. We must think hard about fiscal policies and structural measures to support sustained and adequate aggregate demand.

--

John Case
Harpers Ferry, WV

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Skimpy postings for two weeks

Carol and I are on a Baltic Cruise for 2 weeks. Skimpy postings likely from the "boat". Cheers to all. 

John

Enlighten Radio:The Enlighten Radio Profundity period -- Sept 2 - 17

John Case has sent you a link to a blog:



Blog: Enlighten Radio
Post: The Enlighten Radio Profundity period -- Sept 2 - 17
Link: http://www.enlightenradio.org/2018/09/the-enlighten-radio-profundity-period.html

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The Impact of Higher Temperatures on Economic Growth [feedly]

The Impact of Higher Temperatures on Economic Growth
http://ritholtz.com/2018/08/the-impact-of-higher-temperatures-on-economic-growth/

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