A Radical Critique Of Universal Basic Income

Authored by Charles Hugh Smith via OfTwoMinds blog,

This critique reveals the unintended consequences of UBI.

Readers have been asking me what I thought of Universal Basic Income (UBI) as the solution to the systemic problem of jobs being replaced by automation. To answer this question, I realized I had to start by taking a fresh look at work and its role in human life and society. And since UBI is fundamentally a distribution of money, I also needed to take a fresh look at our system of money.

That led to a radical critique of Universal Basic Income (UBI) and an outline for a much more sustainable and just system of money and work than we have now. To adequately explore these critical topics, I ended up writing a 50,000 word book, Money and Work Unchained.

Universal Basic Income (UBI) is increasingly being held up as the solution to automation"s displacement of human labor. UBI combines two powerful incentives: self-interest (who couldn"t use an extra $1,000 per month) and an idealistic commitment to guaranteeing everyone material security and reducing the rising income inequality that threatens our social contract--a topic I"ve addressed many times over the past decade.

UBI"s goals - guaranteeing material security and reducing income inequality - are not just worthy; they are essential. The question then becomes: how do we achieve these goals?

The conventional critiques of UBI focus on the practicalities of funding such a substantial universal entitlement. Where will the trillions of extra dollars required come from? Can we pay for UBI by "taxing the robots" or borrowing/ printing more currency?

But a radical critique must go much, much further, and ask: is UBI the best that we can do? If we provide the basics of material security--the bottom level of Maslow"s hierarchy of human needs--what about all the higher needs for positive social roles, meaningful work, and the opportunity to build capital?

This critique reveals the unintended consequences of UBI: rather than deliver a Utopia, UBI institutionalizes serfdom and a two-class neofeudalism in which the bottom 95% scrape by on UBI while the top 5% hoard what every human wants and needs: positive social roles in our community, meaningful work that makes us feel needed, and the opportunity to build capital in all its manifestations.

UBI is the last gasp of a broken, dying system, a "solution" that institutionalizes all the injustices of serfdom under the guise of aiding those left behind by automation. We can do better--we must do better--and I lay out how to do so in this book.

A radical critique must also examine the widely accepted assumption that automation will destroy most jobs. Is this assumption valid? It turns out this assumption rests on a completely false understanding of the nature of work, the economics of automation and the presumed stability of an unsustainable global economy.

Read the first section for free in PDF format.

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I"m offering Money and Work Unchained to my readers at a 25% discount ($7.45 for the Kindle ebook and $15 for the print edition) through Saturday, December 9, after which the price goes up to retail ($9.95 and $20). If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

San Franciscans Pissed To Learn Their Liberal Policies Caused A Wave Of Restaurant Failures

In a note that we"ll file away under the definition of "irony", Bloomberg wrote today that the fun-loving, free-spirited socialists of San Francisco are suddenly really pissed off that their liberal economic policies have resulted in a wave of restaurant failures, making it nearly impossible to find good food at an "affordable" price. 

We would be pissed too...who could have guessed that artificially raising wages well above market supported rates would result in business failures?

On Thursday, the Michelin Guide announced its 2018 Bib Gourmand winners for San Francisco with only 67 restaurants on the list this year, a decrease from the 74 restaurants in 2017. Twelve restaurants in total dropped off, once you factor in some new additions. In 2016, there were 73 restaurants, and in 2015, 76 were on the list.

Restaurants that rate a spot on the Bib Gourmand list are defined as places that offer notable food at a reasonable price. Michelin specifically defines that as two courses plus dessert or wine for $40, not including tax or tip. A group of anonymous inspectors choose the restaurants. Bib Gourmand restaurants are not eligible to receive Michelin stars.

Some of the attrition on the 2018 list is due to places that simply fell off (or maybe even got promoted to the star list, proper), like Bistro Jeanty in Yountville, Bistro 29 in Santa Rosa, and Le Garage in Sausalito. But the alarming rate of restaurant closures in the Bay Area also accounts for the dip on the list, with spots like Bar Tartine and Mason Pacific in San Francisco and Scopa in Healdsburg wine country shutting their doors.

So what was the catalyst that sparked the ongoing massive wave of San Francisco restaurant failures?  Well, Bloomberg figures it"s the result of soaring minimum wages and health care costs...you know, all the things that San Fran liberals argue and protest for.

Factors like skyrocketing rents, minimum wage and health care have certainly taken a toll on Bib Gourmand-style restaurants around the Bay Area. More than 60 restaurants closed between Sept. 2016 and Jan. 2017, according to the East Bay Times. “We’re at this precipice where the model of the full-service restaurant is being pushed to the brink,” said Gwyneth Borden, executive director of the Golden Gate Restaurant Association.

Although ecstatic by the news of her Bib Gourmand, Brown Sugar Kitchen’s chef/owner Tanya Holland echoed the sentiment during a phone interview: “It’s so challenging to operate this kind of restaurant in the Bay Area right now” especially when it comes to staffing, she said.

Of course, as we pointed out back in January, a Thrillist article written by Kevin Alexander highlighted the demise of one independently owned restaurant in San Francisco, AQ, that shut down earlier this year for all the same reasons listed above.  When it came to minimum wage hikes, Alexander found that just a $1 per hour minimum wage increase reduced an independent restaurant"s already thin profit margins by $20,000, or 10%.  So we imagine the $5 minimum wage hike that California just passed is probably slightly less than optimal for restaurant owners.

I should say before I go any further that all of the restaurant owners and chefs I"ve talked to are compassionate humans who support better coverage and livable wages, and seem on the whole progressive by nature, but restaurant margins are already slim as hell. There are no political agendas here -- they"re just genuinely worried about how to afford to pay extra without radically changing the way they do business.

Let"s start with the minimum wage. According to the Bureau of Labor Statistics, of the 2.6 million people earning around the minimum wage in 2015, the highest percentage came from service jobs in the food industry. Though the Obama administration"s attempt to increase the federal minimum wage above $7.25 failed, 21 states and 22 cities have raised the minimum wage starting this year, including Washington, DC ($12.50 an hour), Massachusetts ($11), New York ($9.70), and Arkansas ($8.50).

Considering that hour-wage workers are usually the lowest earners and the increase is essential to ensure they earn an actual living, this is the least controversial of the newer expenses and something almost everyone in the industry supports, in theory, but it doesn"t change the fact that it"s an additional cost that must be factored in. If you have 10 hourly employees working eight-hour shifts, five days a week and you raise the wages a dollar an hour, that comes out to a nearly $20K increase on the year. In AQ"s best year -- a phenomenal year by restaurant standards -- that would have been nearly 10% of profits.

Meanwhile, when it comes to Obamacare, Alexander noted that AQ was hit with an incremental $72,000 of annual expenses in 2015 that didn"t exist in 2012, which eroded another ~30% of the company"s peak net income.

Then there"s health care. For the better part of its history, the restaurant business was a health care-free zone, which is ironic, given this Bureau of Labor Statistics" description of the back-of-house work environment: "Kitchens are usually crowded and filled with potential dangers." With the introduction of Obamacare, most restaurant workers finally got the coverage they"ve needed for years through the employer mandate, but critics often talk about the strain it puts on small-business owners due to a puzzling and controversial element that defines "full time" as 30 hours per week, and not the 40-hour workweek used almost everywhere else (the Save American Workers Act proposes to move this back to 40 hours).

Though this mainly affects bigger restaurants with staffs of 50 or more full-time workers, independent sit-down restaurants still need to provide suitable coverage (meaning it has to be affordable, less than 9.5% of the employee"s income) or face fees of $2K per employee. Consider AQ. Semmelhack told me that in 2012 they paid $14,400 for health care costs. In 2015, they paid $86,400. That"s an increase of $72K MORE per year than 2012, or 29% of their best year"s profit.

Then there are those pesky rental rates which have been driven ever higher by nearly a decade of 0% interest rates that have resulted in artificially high demand for "yieldy" commercial real estate.

In the restaurant world, rent always sucks. Unless you manage to play it perfectly, as a restaurant owner you"re either moving into a sketchy or "emerging" neighborhood where the rent is cheap but few want to go there, or you"re overpaying for an established "hood and need to be a runaway success from day one. And even if you do manage to make it in the former type of neighborhood, your success often ends up pricing you out of the "hood you helped revitalize.

In Miami, Michelle Bernstein"s Cena by Michy helped rebirth the MiMo historic district but was forced to close this year, after the landlord attempted to triple the rent. And even Danny Meyer had to close and move Union Square Cafe in New York, which, since 1985, had served as one of America"s culinary landmarks, when he couldn"t rationalize paying the huge rent hike the landlord proposed.

What"s next?  Is San Francisco going to tell us how mad they are that Obamacare is driving up healthcare premiums?

Guaranteed Income And Living Wage Schemes Cannot Possibly Work

Authored by Mike Shedlock via MishTalk.com,

Facebook founder Mark Zuckerberg Supports Universal Basic Income.

In its basic form, universal basic income means “everyone gets a paycheck, whether they have a job or not.”

Many expect even more. They want a guaranteed “living wage”.

Useless Trials

Such schemes cannot possibly work. But that does not stop fools from trying.

For example, Finland is giving out a guaranteed monthly income of nearly $600 to 2,000 citizens.

Canada’s province of Ontario, which includes Toronto, started a pilot program in April that provides 4,000 citizens with an unconditional income of about $12,600 a year. Applicants must be between ages 18 and 64 and living on a limited income.

Those studies cannot prove anything, no matter what the results.

Free Money Proposals Do Not Scale

Sure, one can do a trial and show that 20,000 or whatever sample size is better off.

However, any benefit to the trial participants must at the expense of a bigger deficit or higher taxes on everyone else.

Imagine giving 200 million people a guaranteed living wage. Who is going to pay for it?

Next, imagine all of Europe doing this coupled with freedom of movement.

Why stop there? Imagine the same program for the entire world? Free money for everyone!

Hawaii Considers A "Universal Basic Income" As Robots Seen Stealing Jobs, There's Just One Catch...

Forget social security, medicaid and WIC, today"s progressives have moved well beyond discussing such entitlement relics of the past and nowadays dedicate their efforts to the concept of a "Universal Basic Income" for all...call it the New "New Deal".  You know, because having to work for that "car in every garage and chicken in every pot" is just considered cruel and unusual punishment by today"s standards.

Of course, it should come as little surprise that the progressive state of Hawaii, which depends on easily automatable jobs tied to the tourism industry, is among the first to pursue a Universal Basic Income for its residents.  And while the idea of passing out free money to everyone seems like a genius plan, if we understand it correctly, as CBS points out, there is just one catch...figuring out who will pay for it.

Driverless trucks. Factory robots. Delivery drones. Virtual personal assistants.

As technological innovations increasingly edge into the workplace, many people fear that robots and machines are destined to take jobs that human beings have held for decades--a trend that is already happening in stores and factories around the country. For many affected workers, retraining might be out of reach —unavailable, unaffordable or inadequate.

Over the past two decades, automation has reduced the need for workers, especially in such blue-collar sectors as manufacturing, warehousing and mining. Many of the jobs that remain demand higher education or advanced technological skills. It helps explain why just 55 percent of Americans with no more than a high school diploma are employed, down from 60 percent just before the Great Recession.

Hawaii state lawmakers have voted to explore the idea of a universal basic income in light of research suggesting that a majority of waiter, cook and building cleaning jobs — vital to Hawaii"s tourism-dependent economy — will eventually be replaced by machines. The crucial question of who would pay for the program has yet to be determined. But support for the idea has taken root.

"Our economy is changing far more rapidly than anybody"s expected," said state Rep. Chris Lee, who introduced legislation to consider a guaranteed universal income.

Lee said he felt it"s important "to be sure that everybody will benefit from the technological revolution that we"re seeing to make sure no one"s left behind."

But taking billions from hard working Americans to "spread the wealth around" has never been all that difficult before so presumably this too should prove to be a relatively minor issue.

In all seriousness, where does Representative Lee and CBS figure Hawaii will get the funding for their guaranteed income plan?  Well, as it turns out, Facebook co-founder Chris Hughes made a very generous $10mm donation to support programs just like this...the only problem, of course, is that Hawaii would need about 1,000 times that amount to fund Chris Lee"s plan for just one year.

For now, philanthropic organizations founded by technology entrepreneurs have begun putting money into pilot programs to provide basic income. The Economic Security Project, co-led by Facebook co-founder Chris Hughes and others, committed $10 million over two years to basic income projects.

Tom Yamachika, president of the Tax Foundation of Hawaii, a nonprofit dedicated to limited taxes and fairness, has estimated that if all Hawaii residents were given $10,000 annually, it would cost about $10 billion a year, which he says Hawaii can"t afford given its $20 billion in unfunded pension liabilities.

That said, it"s difficult to argue with Karl Widerquist"s argument that Hawaiians deserve a "beach dividend" for their heroic efforts in being born and continuing the difficult task of breathing day in and day out.

Karl Widerquist, co-founder of the U.S. Basic Income Guarantee Network, an informal group that promotes the idea of a basic income, suggests that Hawaii could collect a property tax from hotels, businesses and residents that could be redistributed to residents.

"If people in Alaska deserve an oil dividend, why don"t the people of Hawaii deserve a beach dividend?" he asked.

And while we have little doubt that Widerquist has fully thought through his suggestion that Hawaii just raise an incremental $10 billion every year via a tax on hotel stays...we thought we"d run the math just to make sure his plan holds water.  As it turns out, roughly 3 million families visit Hawaii for a little R&R every year which means each family would only have to pony up an extra $3,400 per hotel stay to cover Hawaii"s Universal Basic Income plan.  Seem more than reasonable, right?

Here's How Many Americans Are Living Paycheck To Paycheck (Hint: It's A Lot)

Is your family forced to count down the days each month until the next paycheck arrives?  If so, you"re part of a staggering, and growing, majority of households in America, the richest country on the planet, that is forced to do the same.  

According to a new poll conducted by Harris Poll on behalf of CareerBuilder, over three-quarters of American households are forced to live paycheck to paycheck to make ends meet. 

More than three-quarters of workers (78 percent) are living paycheck-to-paycheck to make ends meet — up from 75 percent last year and a trait more common in women than men — 81 vs. 75 percent, according to new CareerBuilder research. Thirty-eight percent of employees said they sometimes live paycheck-to-paycheck, 17 percent said they usually do and 23 percent said they always do.

Having a higher salary doesn"t necessarily mean money woes are behind you, with nearly one in 10 workers making $100,000 or more (9 percent) saying they usually or always live paycheck-to-paycheck and 59 percent in that income bracket in debt. Twenty-eight percent of workers making $50,000-$99,999 usually or always live paycheck to paycheck, 70 percent are in debt; and 51 percent of those making less than $50,000 usually or always live paycheck to paycheck to make ends meet, 73 percent are in debt.

Not surprisingly, the problem is even worse for minimum wage workers, 54% of whom say they have to work more than 1 job to cover their monthly expenditures. 

The majority of workers (81 percent) have worked a minimum wage job, and 71 percent of them were not able to make ends meet financially during that time — more than half (54 percent) had to work more than one job.

To alleviate some financial burden, 83 percent of employers that are hiring minimum wage workers this year (45 percent) will be raising the minimum wage at their organization.

Meanwhile, 57% of households say they can"t afford to save even $100 a month.

Less than a third of workers (32 percent) stick to a clearly defined budget and a slight majority (56 percent) save $100 or less a month:

• None: 26 percent


• Less than $50: 15 percent


• $51 to $100: 16 percent


• $101 to $250: 14 percent


• $251 to $500: 11 percent


• $501 to $750: 5 percent


• $751 to $1,000: 4 percent


• More than $1,000: 10 percent

The scariest part of the poll, as CBS points out, is that the number of people living paycheck to paycheck is actually growing despite the fact that the Fed and our politicians continue to brag about near "full employment."

The survey highlights a troubling trend in household finances: More than eight years since the end of the recession, the share of Americans who are living on the financial edge is growing, said Mike Erwin, a spokesman for CareerBuilder. While some may want to blame Americans" spendthrift ways, Erwin pointed to two trends that continue to put financial stress on households: stagnant wages and the rising cost of everything from education to many consumer goods.

"Living paycheck to paycheck is the new way of life for U.S. workers," he said. "It"s not just one salary range. It"s pretty much across the board, and it"s trending in the wrong direction."

A year ago, about 75 percent of U.S. workers said they were living from payday to payday, a number that has grown to 78 percent this year. The study, conducted by Harris Poll, surveyed nearly 2,400 hiring and human resource managers and 3,500 adult employees who worked full-time in May and June.

Meanwhile, employers seems to see straight through the "full employment" charade because wage growth continues to be completely nonexistent...an outcome that would seem inconceivable in an under-supplied market.

Weak wage growth is partly to blame for the financial stress felt by many Americans. Median household income is still stuck in low gear, with the U.S. Census reporting only one year of income gains since 2007, the year the recession officially started.

The end result: American households are still earning 2.4 percent below what they brought home at their income peaks in 1999. At the same time, expenses for food, fuel, education, housing and other costs have risen.

"Jobs have come back, but we haven"t seen salaries rebound," Erwin said. "Right now we are in a time when the cost of living is way outpacing the amount of money that people are getting through raises."

Of course, the real question is precisely how many of these households live in a McMansion that"s 2x larger than what they need for their family and drive around in brand new BMWs that get replaced with new leases every 3 years?

Study Finds Higher Min. Wages Bring Crushing Job Losses For Female And Minority Workers

Anyone who has a basic understanding of elementary-level arithmetic and some common sense can easily explain why raising the minimum wage is bad for employment levels.  In a nutshell, higher labor costs simply improve the payback profile of capital investments in technology thus accelerating job losses.

We recently shared the following example regarding California"s minimum wage hike from $10 per hour to $15.  At $10 per hour and a 10-year payback, employers may be reluctant to invest in new technology.  But, at $15 per hour and a 6-years payback, that investment become a no-brainer.

 

Unfortunately, while these concepts are somewhat simplistic for most us, they have confounded left-leaning economists and politicians pretty much since the beginning of time.

And while no amount of empirical evidence will change their minds, here is yet another study, this time from Grace Lordan of the London School of Economics and David Neumark of UC Irvine, offering up evidence that raising minimum wages only serves to increase unemployment and disproportionately crushes female and minority low-income workers.

Entitled "People Versus Machines: The Impact of Minimum Wages on Automatable Jobs," the study found that each $1 increase in the minimum wage decreased the "share of lowskilled automatable jobs by 0.43 percentage point."  Here"s a summary of Lordan"s findings:

Overall, we find that increasing the minimum wage decreases significantly the share of automatable employment held by low-skilled workers. Our estimates suggest that an increase of the minimum wage by $1 (based on 2015 dollars) decreases the share of lowskilled automatable jobs by 0.43 percentage point (an elasticity of ?0.11). However, these average effects mask significant heterogeneity by industry and by demographic group. In particular, there are large effects on the shares of automatable employment in manufacturing, where we estimate that a $1 increase in the minimum wage decreases the share of automatable employment among low-skilled workers by 0.99 percentage point (elasticity of ?0.17). Within manufacturing, the share of older workers in automatable employment declines most sharply, and the share of workers in automatable employment also declines sharply for women and blacks.

Meanwhile, the results are even worse for workers over 40, females and minorities...

For example, a higher minimum wage significantly reduces the shares of both younger (? 25) and older (> 40) workers in jobs that are automatable, by a larger magnitude compared to those aged 26-39. For the younger and older groups, the estimates imply that a $1 increase in the minimum wage reduces the shares in automatable work by 0.94 and 0.72 percentage points respectively (the corresponding elasticities are ?0.20 and ?0.17. Looking by both age and industry, for older workers (? 40 years old) the negative effect mainly arises in the manufacturing and public administration sectors (a decrease of 1.68 and 3.50 percentage points for a $1 minimum wage increase respectively), while for younger workers (< 25 years old) the effects are large in many sectors but the estimate is close to zero for manufacturing. The middle age group, also, exhibits a decline in the share of workers in automatable jobs in manufacturing when the minimum wage increases – a 1.21 percentage point decline for a $1 increase. Thus, older workers appear more vulnerable to substitution away from automatable jobs when the minimum wage increases.

On average, females are affected more adversely than males: in the aggregate estimates in column (1), the negative estimate is significant only for females, and is almost ten times larger, indicating that, for females, a minimum wage increase of $1 causes a decrease of 1.01 percentage points in the share of automatable jobs (the elasticity is ?0.14). Across industries, these negative effects for females are concentrated in manufacturing, services, and public administration; for example, a $1 minimum wage increase reduces the share of automatable jobs in public administration by 3.67 percentage points – an elasticity of ?0.41). For males, only the estimate for manufacturing is statistically significant; the estimated effect implies that a $1 increase in the minimum wage causes a decrease of 0.62 percentage point (an elasticity of ?0.13).

Table 3 also points to similar overall effects by race, with a $1 increase in the minimum wage reducing the share in automatable jobs by 0.57 percentage point for whites and 0.72 percentage point for blacks. However, the effects are heterogeneous across industries. There are large estimated effects in manufacturing (1.19 percentage points) and public administration (1.53 percentage points) for whites, although only the first estimate is statistically significant. For blacks, there are large and statistically significant decreases in automatable shares in manufacturing and transport (declines of about 4.5 percentage point in both).

But, as usual, we"re sure this extra data will have no impact on Bernie"s "Fight for $15."  Amazing how some politicians will embrace math and science when arguing climate change but completely reject it when discussing minimum wage...wonder why?

Growing Number Of Companies Complain About Inability To Find Workers: So Why Is Wage Growth So Low?

Authored by Mike Shedlock via MishTalk.com,

Since 2010, the highest year-over-year wage increase in any month for production and nonsupervisory employees is near 2.6%.

For a two-year stretch between summer of 2011 and summer of 2013 wage increases less than 2% were the norm.

Yet, firms complain about labor costs while simultaneously complaining about the lack of workers.
 

Bloomberg reports Firms Under Pressure as Labor Drought Grows, U.S. Survey Shows.

A growing number of companies are finding it difficult to recruit skilled workers, which threatens to curtail profits and growth, according to a quarterly survey conducted by the Washington-based National Association for Business Economics.

The results of NABE’s July Business Conditions Survey published on Monday showed that 34 percent of respondents have had trouble hiring skilled employees over the last three months, up from 27 percent in January. The Washington-based association polled 101 panelists, who are economists from companies and industry associations.

In response, companies are sponsoring foreign workers, expanding their search and hiring more independent contractors, according to the survey. They’re also boosting automation, stepping up internal training and in some cases improving pay, Jankowski said.

Perhaps at least partially as a result, more than a third of respondents cited labor costs as having the largest negative impact on their profits so far this year.

Year-Over-Year Wage Growth

Year-Over-Year Wage Growth

Is 2.6% wage growth too hefty even as corporations complain about a lack of workers?

What’s Going On?

• It’s not just salaries. Obamacare and benefits are hurting many companies.


• Cheap money from the Fed keeps zombie companies alive.


• Cheap money from the Fed induced (and still does) overexpansion fast of food restaurants and retail stores of all sorts.


• Workers really are not worth benefit costs plus an extra 3% so companies seek to automate.


• Are McDonald’s workers worth $15? Please be serious.


• Amazon and online shopping are weakening retail profits.

Finally, I suspect the survey is deeply flawed.

Does some random small to medium-sized company have the same weight as Walmart? The regional Fed manufacturing and ISM surveys seem to have that defect.

Yet for now, enough stores are still expanding which adds to job growth despite automation. Apparently, the goal is a McDonald’s or a Walmart on every corner.

We will not quite get that far. Rampant expansion will turn on a dime at some point, most likely globally.

Missouri Legislature Reverses St. Louis Minimum-Wage Hike

A week ago, we reported on a study from the University of Washington that exposed how the city of Seattle’s progressive minimum wage increases, which began in 2015, are – contrary to the hopes of misguided liberals – actually crushing the city’s poor.

Specifically, the study found that higher minimum wages caused a 9.4% reduction to total hours worked by low-skilled workers, or roughly 14 million hours per year.  Given that a full-time employee works 2,080 hours per year, that"s equivalent to just over 6,700 full-time equivalents who have lost their jobs, just in the city of Seattle.

While the higher minimum wage law remains intact in liberal Washington State - despite the research suggesting that it’s harming Seattle"s most vulnerable workers - the Missouri legislature recently acted to prevent a similar catastrophe from playing out in St. Louis by passing what’s known as a preemption law to invalidate a city-approved minimum wage hike that was slated to take effect in late August. The hike would’ve raised the city’s minimum wage to $10 an hour, from the state-approved $7.70.

Preemption laws are becoming increasingly popular in GOP-controlled states as cities – typically bastions of liberal sentiment – try to raise minimum wages above statewide minimum levels. As the Huffington Post reports, it’s impossible to say how many St. Louis employers will take the GOP up on the offer to slash pay, given the effect such a move could have on competitiveness and morale.

But if businesses agree that the wage hike was too aggressive, then at least some of them will likely revert to lower pay rates, particularly in low-wage industries like fast food.

“If St. Louis’ existing measure were to stay in effect, the city’s minimum wage would be $10 this year and would then climb to $11 in 2018. The statewide rate of $7.70 typically goes up just a few cents a year, since it’s tied to an inflation index.

St. Louis originally passed a minimum wage hike two years ago, prompting business groups to sue to stop it in court. The Missouri Supreme Court recently ruled that the St. Louis measure was lawful, but the new state preemption law renders it irrelevant.”

However, St. Louis is one of the more interesting preemption-law case studies because it undoes a hike that was already approved – even if it hadn’t yet gone into effect. But at least 17 states have preemption laws that stand in the way of local minimum wage legislation, according to a recent study by the National League of Cities.

Though Missouri is hardly alone. Just days after the Birmingham, Ala. City Council passed a wage hike in February 2016, GOP state legislators in Alabama passed a preemption law taking aim at the new $10.10 minimum wage. The Alabama chapter of the NAACP ended up filing a civil rights lawsuit against the state, claiming that the majority-white legislature was disenfranchising Birmingham residents, who are 73 percent African-American.

Fearing the political backlash associated with potentially cutting people’s pay, Missouri Gov. Eric Greitens wouldn’t affix his signature to the bill; Missouri’s constitution stipulates that bills that go unsigned by the governor automatically become law.

Albert Edwards: "What On Earth Is Going On With US Wages"

When Albert Edwards predicted in late 2016 that a surge in wage inflation was imminent, we were confused by this prediction from the world"s preeminent deflationist: after all, not only had not a single economic indicator validated a tighter labor market despite unemployment just above 4%, but as we have have repeatedly demonstrated what little wage inflation existed, was attributable to managerial-level, supervisory positions while the bulk of job creation remained with minimum-wage jobs, which have continued to see virtually no wage growth. Even Morgan Stanley, a far greater bull than Edwards, one month ago admitted that "wage growth is leveling off, may be slowing."

Which is why we have to give Edwards credit: some 6 months after his initial call, he had the courage to do what is never easy and admit he was wrong, and that contrary to his expectations wages are not going up after all.

Talking about wrong, I have to put my hands up. I have been expecting US wage inflation to roar ahead over the past three months to well above 3%, yet every data release has surprised on the downside. Wage inflation, as measured by average hourly earnings, has actually levelled off at close to 2½% while wage inflation for ‘the workers’ is actually slowing (see chart below)! Strictly speaking, "the workers" are defined (by the BLS) as "those who are not primarily employed to direct, supervise, or plan the work of others. Hey, that"s me!

So with the concession aside, Edwards is left with even more question, starting with "What on earth is going on with US average hourly earnings?"

Three consecutive Employment Reports have seen this key measure of wage inflation surprise by its weakness. I feel especially foolish as I had written that wages were set to accelerate sharply, forcing the Fed to tighten aggressively and thereby driving both bond yields and the dollar higher. Doh! While many commentators last year, including the Fed, expressed surprise that US wage inflation had been so quiescent despite a tight labour market, I thought there was a simple explanation. I believe that nominal wages had not accelerated more rapidly through 2016 primarily because headline CPI inflation had been so subdued, staying in a 0-1% range for most of the last couple of years. Hence nominal wages did not need to accelerate rapidly for workers to be much better off as 2-2½% nominal wage inflation translated into  strong real wage rises of around 1½-2% - the most rapid for years (see circled area in chart below).

As headline CPI inflation surged this past six months, rapid real wage growth turned into real wage stagnation (see chart above). I believed that a tight labour market would prompt an aggressive reaction from "the workers" to maintain the previous 1½-2% rate of real wage inflation they had enjoyed and got used to through 2015 and 1H 2016. Hence I expected nominal wage inflation would roar upwards in 1Q this year. How wrong I was!

There is even more confusion in the data, because Edwards points out another disconnect: while the BLS" measure of hourly earnings has gone nowhere, and real earnings have in fact tumbled, the employment cost index has spiked, "with wage and Salaries jumping from a 0.5% rise in 4Q to rise by 0.8% in 1Q 2017 ? the fastest quarterly rise since 2007. On a yoy basis, this measure of wage inflation still showed a 45 degree upward trajectory into 1Q 2017 (see left-hand chart below). Adding benefits to wages and salaries, total compensation also rose by 2½%."

Then there is the issue of declining productivity, because when calculating productivity and unit labour cost growth, the BLS estimates non-farm businesses saw their workers compensation jump from the 3% average rate seen in 2016 to just shy of 4% yoy in 1Q 2017?. This has implications on corporate profits:

"Together with sluggish 1% productivity growth, this means that unit labour costs are rising by almost 3% yoy, well in advance of the rate by which corporates are able to raise their output prices (see right-hand chart above). The bottom line is that US corporate margins are suffering a savage squeeze and have been for some time. What then do I make of the heady 1Q company reporting round? Not much."

Perhaps in retrospect, between the divergent AHE and ECI data, Edwards was not entirely wrong, as he suggests:

The truth is that the closely watched average hourly earnings measure of wage inflation has not accelerated in response to a surge in headline CPI in the way I had expected. So strictly speaking I have been wrong and as such I must throw myself upon your bountiful mercy. But let me say in my defence that other measures of wage inflation have shown exactly the acceleration I had expected. The fight-back by labour to secure their rightful share of the economic pie is ongoing, but it seems likely that the savage downward trend in the share of labour compensation that had been in place since the 2001 recession seems to have at last been broken (see chart below). The laws of economics have not been abolished after all ? at least not in the US.

Yet while the jury may still be out on US wages between two contradictory data sets from the BLS, when one looks outside the US, things are clear: despite years of QE, there is no wage growth. For evidence, look no further than Japan. Edwards again:

Japan is becoming an economic enigma. Last week saw some truly astonishingly weak wage inflation data ? so weak that it sent the yen sharply lower on expectations that the Bank of Japan might need to step up their already ridiculously outsized QE programme to even higher levels. Wages for March fell by 0.4% yoy, well below both the expected 0.5% gain and February"s 0.4% rise. Even the far less erratic underlying wages (excluding overtime and bonus payments) weakened sharply and declined yoy in March. In real terms, total cash earnings were miserable too, falling by 0.8% from a flat reading in February (see charts below). Certainly on this measure Abenomics has been a total and utter failure.

The idea was simple, QE (or QQE as the Japanese call it) would as an indirect consequence send the yen sharply lower (as it did in 2013/14), which would push up headline CPI inflation (also buoyed by the 2014 VAT hike) and drive wages higher in what was a tight labour market.

And when I say tight, I mean properly tight. This is not the US, where most commentators agree there is likely to be more slack than the low headline unemployment numbers suggest due to the sharp decline in the participation rate since the last recession. By contrast, the Japanese labour market is unambiguously as tight as it ever has been in history (see left-hand chart below). Yet wage inflation remains moribund.

Without any real cost-push wage pressures, and with the initial inflationary impulse on headline and core CPI of the declining yen of 2013-14 receding into a distant memory, core CPI inflation (ex food and energy) has begun to fall once again (for this see right-hand chart above, and note that headline and CPI ex-food are rising moderately only because the yoy impact of the oil price has gone from negative last year to positive this year). So after all the trillions of dollars of QE and huffing and puffing, Abenomics has failed to deliver its much touted exit from the deflationary mire.

And before readers respond with "there is always more QE", the problem is that for both the ECB and BOJ, the answer is increasingly, "there isn"t" as both central banks are just months away from running out of eligible bonds to buy, beyond which point the entire bond market may simply lock up, or the central banks will have to even more actively start buying equities, with both outcomes effectively a nationalization of capital markets. And the last time we checked with the USSR, that strategy did not work out too well...

Visualizing The Collapse Of The Middle Class In 20 Major U.S. Cities

When future historians look back at the beginning of the 21st century, they’ll note that we grappled with many big issues. They’ll write about the battle between nationalism and globalism, soaring global debt, a dysfunctional healthcare system, societal concerns around automation and AI, and pushback on immigration. They will also note the growing number of populist leaders in Western democracies, ranging from Marine Le Pen to Donald Trump.

However, as Visual Cpitalist"s Jeff Desjardins notes, these historians will not view these ideas and events in isolation. Instead, they will link them all, at least partially, to an overarching trend that is intimately connected to today’s biggest problems: the “hollowing out” of the middle class.

VISUALIZING THE COLLAPSE OF THE MIDDLE CLASS

The fact is many people have less money in their pockets – and understandably, this has motivated people to take action against the status quo.

And while the collapse of the middle class and income inequality are issues that receive a fair share of discussion, we thought that this particular animation from Metrocosm helped to put things in perspective.

The following animation shows the change in income distribution in 20 major U.S. cities between 1970 and 2015:

The differences between 1970 and 2015 are intense. At first, each distribution is more bell-shaped, with the majority of people in a middle income bracket – and by 2015, those people are “pushed” out towards the extremes as they either get richer or poorer.

A BROADER LOOK AT INCOME INEQUALITY

This phenomenon is not limited to major cities, either.

Here’s another look at the change in income distribution using smaller brackets and the whole U.S. adult population:

It’s a multi-faceted challenge, because while a significant portion of middle class households are being shifted into lower income territory, there are also many households that are doing the opposite. According to Pew Research, the percentage of households in the upper income bracket has grown from 14% to 21% between 1971 and 2015.

The end result? With people being pushed to both ends of the spectrum, the middle class has decreased considerably in size. In 1971, the middle class made up 61% of the adult population, and by 2014 it accounted for less than 50%.

As this “core” of society shrinks, it aggravates the aforementioned problems. People and governments borrow more money to make up for a lack of middle class wealth, while backlashes against globalism, free trade, and open borders are fueled. The populists who can “fix” the broken system are elected, and so on.

Morgan Stanley: "Wage Growth Is Leveling Off, May Be Slowing"

While Friday"s headline payrolls print - the lowest since May - was disappointing even to the biggest economic optimists, many found refuge in the sharp drop in the unemployment rate, which ticked lower to 4.5%, the lowest print in a decade. And yet there was a problem: with the unemployment rate tumbling, at least in theory indicating even less slack in the labor market, wage growth barely hit consensus estimates. Instead, if indeed the growth narrative is accurate, and if more people were employed, wages should be rising. However, it was this weakest link of the entire reflation/recovery narrative that disappointed once again.

In fact, it was even worse: as Morgan Stanley"s Robert Rosener write overnight, "wage pressures in March were supported almost entirely by a massive jump in earnings in Professional & Business Services. Outside of this bright spot, wages in other industries were muted, and suggests wage growth in a broad range of industries may be leveling off, or even slowing."

As Rossener further notes, to describe wage pressures in March as "spotty" may be an understatement. The 0.19%M gain in average hourly earnings was supported almost entirely by a massive jump in the Professional & Business Services industry. Outside of this one bright spot, wage pressures in other industries were surprisingly muted (Exhibit 1), and suggests wage growth in a broad range of industries may be leveling off or even slowing.

According to MS, the 0.92% sequential gain in average hourly earnings in Professional & Business Services was the second largest monthly increase on record, and this accounted for nearly all of the increase in aggregate average hourly earnings. In other words, average hourly earnings would have been roughly flat on the month were it not for the outsized increase in earnings for Professional & Business Services. To be sure, the bounce in wage growth for this job category was decidedly welcome: As a generally high-paying industry, stronger wage growth in Professional & Business Services can go a long way in supporting stronger aggregate outcomes for average hourly earnings.

The key question from here is whether or not the upside in March can be sustained, or if it"s just noise.

Yet while the silver lining in professional services will be closely watched, a bigger question is what happens to wages in all the other key indudtries, where as noted above, March saw substantial weakness.

Here, Rosener writes that "consistent with signs of a recent softening in wage pressures in a number of industries, our wage growth diffusion index has shown a meaningful narrowing in the breadth of wage pressures across industries in recent months—only 38.5% of industries are now showing above-trend rates of wage growth, down from 46.2% in February and a high of 61.5% in August 2016."

Some more observations from Morgan Stanley:

• The jump in average hourly earnings in Professional & Business Services helped boost wage growth in the broader high-wage industry segment as a result, with average hourly earnings in high-wage industries rising to 3.0%Y in March from 2.7%Y in February (Exhibit 5).


• Wage growth in middle-wage industries fell sharply in March to 2.1%Y vs 2.6%Y in February (Exhibit 6).


• Wage growth in low-wage industries ticked down to 2.6%Y from 2.8%Y, although smoothing through the volatility shows a steady trend for wage growth in low-wage industries around 2.6%Y (Exhibit 7).


• Consistent with fewer workers experiencing wage gains, the median rate of wage growth across industries fell notably in March. Median wage growth fell to 2.5%Y in March from 2.8% (Exhibit 8)

* * *

Taking all that, and the bigger jobs picture in mind, what does the labor market mean for the Fed"s June decision? The answer: it depends on whether you see the glass as half empty or half full.

The optimist says, "Well, the unemployment rate continues to fall and the Fed has been expecting the pace of job gains to slow. At 163k per month over the past 6 months, shown in Exhibit 2, the economy has been adding jobs well above the pace needed to keep the unemployment rate moving lower." The labor market is tightening, right?

The pessimist says, "Despite continued strength in the labor market, signs of labor market tightness are few and far between. Yes, the unemployment rate is falling, but core measures of wage growth remain anemic. Just look at the year-on-year rate of wage growth among production and non-supervisory workers, as shown in Exhibit 3. At 2.3% Y/Y in March, growth in wages of these workers was lower than it was in the year ending early 2014. This just means NAIRU (Natural Rate of Unemployment) is lower."

Morgan Stanely"s summary:

"Even though NAIRU could be (much) lower, we don"t think the FOMC consensus will let that affect their decision on rates for now. One weak headline payroll number is also unlikely to dissuade the consensus from believing that continued gradual rate hikes remain appropriate. However, if the April or May payroll number disappoints, that could change.... we"ll be watching carefully for clues as to whether small business hiring slows in the wake of inaction by the Trump administration and Republican-controlled Congress. So we"ll be watching with interest the NFIB Small Business Optimism index released on Tuesday, April 11."

What this means for markets and the economy: the Trump "reflation" rally, having already withered across many market indicators, has finally moved to the economy and actual wages, where it increasingly appears to have been nothing more than a mirage.

Why Special Interests Sacrifice The Future For Short-Term Gain

The special interests that dominate politics dominates to produce a form of economic warfare. The more some can manipulate the political machinery, the more they can feather their own nests. They even use similar propaganda techniques.

In wartime, we are always defined as the good guys, ennobled by our moral cause. "They" are the bad guys, to be demeaned and dehumanized, so few will be bothered by what is done to them. Similarly, in domestic politics, representatives of each group paint themselves as particularly worthy or needy, making their advocacy morally superior, contrasted with their opponents whom they tar as selfish or unprincipled.

However, advocates for such causes do not always occupy the moral high ground they try so hard to create. They advocate coercing those who have done no harm to others to justify it. Further, the policies proposed often benefit existing members of a group, but harm those who will be members of that group in the future.

In such cases, justifying the political plunder to deliver a group’s demands because they are particularly deserving is self-contradictory. If membership in a group justifies special treatment, the same must apply to future members as well. Therefore, policies that benefit current members, while harming equally deserving future members, necessarily violate their own rationale.

The first example of how this works is the use of minimum wage laws.

Much in the news of late, these laws are promoted as helping low-skill workers. It is true that those lucky enough to keep their existing jobs, hours, working conditions, on-the-job training, promotion possibilities, etc., can gain. But other low-skill current workers, who lose jobs, hours or training, are harmed. Beyond that, though, by raising the cost of hiring low-skill workers, it leads employers to reduce the number of jobs and training opportunities available to future low-skill workers, with the consequences worst for the least-skilled. Similarly, arguments for living or prevailing wage laws, to provide “good” jobs, raises the cost of hiring workers relative to alternatives such as automation, reducing the number of future “good” jobs available.

Another good example is rent control.

A recently-introduced bill in the California legislature, AB 1506 would allow local governments to dramatically expand rent control in California, where I live.

It is true that rent control would benefit many current renters, by lowering what they pay and locking in their too-good-to-give-up gains for years. But coming at the expense of property owners, it would progressively reduce the supply of rental housing over time. And those eventual effects are very large. As Swedish economist Assar Lindbeck once commented, “next to bombing, rent control seems in many cases to be the most efficient technique so far known for destroying cities.” That reduced future rental housing, particularly for unoccupied units, harms all future renters.

A third example is taxation on capital. 

Some claim that taxing or regulating capital more heavily will benefit laborers. But, reducing the payoffs to saving and investing with increased burdens reduces the growth rate of the capital stock. With fewer tools, future workers will be less productive, reducing their earnings and well-being.

Other special-interest groups follow the same pattern. Those now old want others to pay for more of their retirement, health care, etc., because they claim to be especially needy or deserving. But the cost must then be imposed on others who are not yet old. That will leave future generations worse off when they become old. Similarly, licensing and other restrictions are proposed to benefit current suppliers, but they harm potential future suppliers by denying them entry.

Those who want government to pickpocket others for them go to great lengths to claim special worthiness. However, not only does what they want punish innocent parties, but many of those harmed are future members - often a much larger number - of the “special” groups proponents claim to care so deeply about. That unwarranted harm and the glaring inconsistency between rhetoric and future reality justifies thinking far more carefully about such policies before buying into the propaganda.

Perfect Example Of Why Job Losses From Minimum-Wage-Hikes Are Being Underestimated, &#039;Bigly&#039;

Over the past several months, we"ve highlighted a number of economic studies analyzing the potential negative impact, in terms of job losses, that may be expected to result from the state-mandated minimum wage hikes that are currently being implemented around the country.

One such study came from the American Action Forum (AAF) and estimated that 2.6 million jobs will be lost around the country over the next several years as states phase-in minimum wage hikes that have already been passed (see "State Minimum Wage Hikes Already Passed Into Law Expected To Cost 2.6 Million Jobs, New Study Finds").  Here were a few of the key takeaways:

• In isolation, the minimum wage increases in 2017 will cost 383,000 jobs;


• The entire minimum wage increases currently phasing-in will cost over 2.6 million jobs; and


• Each job lost only leads to an extra $6,900 in total wage earnings across all workers.

After running a lot of really complicated math using complex equations that most of us stupid people just wouldn"t understand, these studies ultimately come down to a simple economic premise: elasticity of demand (a.k.a. "the higher shit is priced the less people will buy of it" rule).  In fact, the AAF analysis even summarized their study by saying that each 10% increase in wages results in an proximate 0.3% - 0.5% decline in net job growth...a rule which they used to conclude the following:

While proposals to raise the minimum wage are well intended, it is important to consider the negative labor market consequences. Meer & West (2015) find that raising the minimum wage reduces job creation. Specifically, they find that a 10 percent increase in the real minimum wage is associated with a 0.3 to 0.5 percentage-point decline in the net job growth rate. As a result, three years later employment becomes 0.7 percent lower than it would have been absent the minimum wage increase.

While the Meer & West (2015) findings may not seem very problematic, when taking into account the magnitude of the minimum wage increases and the number of states implementing new laws, the negative labor market consequences add up. Let’s first examine the minimum wage hikes of 2017 in isolation, without considering previous or future minimum wage increases under the new state laws.

The problem is that these studies consistently underestimate the number of jobs that will be impacted by minimum wage hikes.  For the most part, the economists simply tally up the number of jobs in a given market that currently fall beneath the new minimum wage threshold and then assume that a certain percentage of them will disappear.

In reality, minimum wage hikes trigger pay increases across the pay scale, not just for the employees earning minimum wage, because most people make employment decisions based on relative wages and not absolute wages. 

Consider, for example, the folks working at a California McDonalds where the minimum wage was $10 per hour in 2016 but is set to increase to $15 over the coming years.  Lets also assume that most of the customer service staff earns the minimum pay rate while managers earn $15.  Under the methodology above, the manager would never be counted as an "at-risk" position because his job would never technically fall below the new minimum wage.  But, in reality, there"s no conceivable world where the manager will simply agree to keep his $15 per hour pay rate once all of his workers have received a 50% pay increase and now make the same as him...instead, he"ll run some basic math and conclude he needs to be making $22.50 per hour to have the same "relative" compensation he had before or he"ll just go work as an order taker with less responsibility. 

And while these are simple concepts to most of us, even if we don"t understand the complicated econometrics equations, as the Associated Press points out today they"re completely foreign concepts to our elected officials who ignorantly passed minimum wage bills across the country without understanding the real economic consequences.  As a perfect example, apparently New York Governor Andrew Cuomo was shocked to learn that home healthcare experts would rather take his new $15 per hour minimum wage job flipping burgers with no stress than to earn the same amount of money for a job that requires a ton of expensive education and stressful, long hours....who knew?

It"s a national problem advocates say could get worse in New York because of a phased-in, $15-an-hour minimum wage that will be statewide by 2021, pushing notoriously poorly paid health aides into other jobs, in retail or fast food, that don"t involve hours of training and the pressure of keeping someone else alive.

"These should not be low-wage jobs," said Bruce Darling, executive director at the Center for Disability Rights. "We"re paying someone who gives you a burger the same as the person who operates your relative"s ventilator or feeding tubes."

There are 2.2 million home health aides and personal care aides in the U.S., with another 630,000 needed by 2024 as the Baby Boomer generation ages, according to the nonprofit research and consulting group PHI. New York state employs about 326,000 home health workers but is predicted to need another 125,000 by 2024.

For now, home health aides in New York state earn an average of about $11 an hour, though wages are lower in upstate regions. Advocates say the system needs an overhaul that focuses on higher pay, worker retention and finding methods of compensation beyond what is provided through Medicaid.

Here"s an idea...how about we just let markets set wage rates?

New Study In D.C. Finds That New $15 Minimum Wage Could Cost 1,200 Jobs

Authored by Ted Goodman via The Daily Caller

A new study that analyzes the potential effects of a $15 minimum wage in the District of Columbia (Washington, D.C.), found that an increase to $15 could cost 1,200 jobs.

The District of Columbia’s Office of Revenue Analysis released a report Thursday, asserting that 150,000 workers in the District would be affected by the higher minimum wage and as many as 1,200 jobs could be lost by 2020 due to the new policy.  Of course, nearly one-third of those jobs are in the food service industry where young people, already suffering from massive unemployment rates, represent a disproportionate percentage of the labor force. 

The study further states that as many as 2,000 jobs could succumb to the increased minimum wage by 2026.

The mayor’s “Fair Shot Minimum Wage Amendment Act,” stipulates that the minimum wage increases to $15 an hour by 2020, with incremental increases each year. The minimum wage is currently $11.50.

The findings revealed that nearly two-thirds of the pay increases will benefit non-D.C. residents who work in the District, but live elsewhere (likely Virginia or Maryland, which borders D.C.). While nearly two-thirds of the pay increases go to non-residents, D.C. residents will absorb 80 percent of the job losses.

“This study proves what we’ve known all along: this dramatic D.C. wage hike will hurt the most vulnerable in the District, costing them jobs and important economic opportunities,” Jeremy Adler, Communications Director for America Rising Squared, a conservative policy organization, told the Daily Caller News Foundation (TheDCNF).

“D.C. must focus on creating more good-paying jobs for workers that need them the most and it’s clear an artificial minimum wage increase is the wrong approach to achieving this goal,” Adler continued.

The Obama administration proposed an increase to the federal minimum wage from $7.25 to $9.00 an hour in 2013. The former president continued to call for an increase in the federal minimum wage throughout his presidency.

Seattle, Washington raised its minimum wage to $15 in 2014, followed by San Francisco and Los Angeles. New York Gov. Andrew Cuomo signed into law a new $15 minimum wage for his state in 2016, and the University of California proposes to pay its low-wage employees $15.

How "Superstar" Companies And Technology Are Killing The American Worker

We"ve frequently written in recent months about the unintended consequences of politicians meddling in labor markets by setting artificially high minimum wage rates (see "State Minimum Wage Hikes Already Passed Into Law Expected To Cost 2.6 Million Jobs, New Study Finds").  Of course, the combination of higher wages and declining technology costs are wreaking havoc on labor markets as they serve to significantly improve the return on invested capital profile of new labor-replacing capital projects.  Here are just a few examples:

There"s the Big Mac ATM...

Uber"s autonomous vehicle, which is sure to put a dent in the number of taxi drivers needed over the next decade...

And there are even autonomous tractors that come complete with cameras, radar, GPS and a tablet remote control but it"s missing 1 key thing...a seat for a driver.

In fact, as Bloomberg points out today, total compensation as a percent of GDP in the United States has been on the decline for decades with a sharp decline corresponding with the tech boom of the 2000s.

But, it"s not just technology and labor-replacing capital investments driving aggregate wages lower.  As a working paper for the National Bureau of Economic Research notes, market share consolidation has also had a huge impact on aggregate wages as larger companies are able to defray the impact of fixed labor overhead. 

Autor and his fellow authors say superstar companies, because they"re big, can defray fixed labor costs such as headquarters staff over a bigger base of revenue and profits.  But why are there more such companies now than in the past? One theory they discuss is that new "competitive platforms," such as the ability to compare prices on the internet, make it easier for the best companies to set themselves apart. Or it could be the proliferation of "information-intensive goods" such as software, which require relatively few people to produce in volume.

Using data from 676 industries in six sectors in the Economic Census, the authors find that the share of revenue controlled by the top four companies in an industry rose on average from 38 percent in 1982 to 43 percent in 2012 in the manufacturing sector; from 24 percent to 35 percent over the same period in finance; and from 15 percent to 30 percent in the retail trade. Concentration also rose in services and wholesale trade while falling slightly in utilities.

Next, the authors showed that the labor share fell the most in the industries with the greatest increases in concentration. They found no evidence that the superstars" gains were ill-gotten. The increasing concentration seemed to be a sign of business success, not lobbying: The industries in which concentration increased the most, they found, were the ones that had the strongest growth in workers" productivity.

Per the charts below, the study found that industries with the highest growth in market share concentration also had the worst performing labor markets over the past three decades.

Conclusion: Technology and markets "increasingly concentrate rewards among firms with superior products or higher productivity—leading to better quality or lower costs—thereby enabling the most successful firms to control a larger market share."

Unfortunately, we"re likely in the early innings of this downward spiral.

Wall Street Responds To Today&#039;s Jobs Report

Following today"s jobs report, the market"s reaction to the unexpectedly strong January payrolls visualized in the charts below, is straightforward: the disappointing wage growth is an indication that the Fed may not hike rates for quite a bit longer than expected, and will likely will be forced to reduce its rate hike expectations from 3 to 2 (in line with the market) or fewer if wage growth continue to stagnate.

Sure enough, Wall Street"s strategists agree. As the following compilation of reactions shows, the prevailing reaction to today"s report is that while January job gains beat expectations, slower wage growth and disappointing underemployment figures help temper expectations for a near-term Fed hike.

Some examples, courtesy of Bloomberg:

TD (Mark McCormick)

• Jobs number is sweet spot for risk markets; growth is holding up with little impetus to nudge the Fed into action next month


• A softer read on wages and uncertainty over the economic agenda probably keeps USD sidelined for a bit longer


• This scenario favors continued momentum in some of the growth-sensitive currencies; could see the rallies in AUD, NZD and even NOK persist near-term

BofA (Michelle Meyer)

• Investors were setting up for a higher number given upside surprise in ADP on Wednesday; however, this was offset by increase in unemployment and softness in wages


• Report suggests labor market might not be as tight as previously believed


• Likelihood of the Fed hiking in March is fairly low and jobs report consistent with that


• BofA expects one Fed rate increase this year, in September, with risk of two rate hikes

Bank of Tokyo-Mitsubishi (Chris Rupkey)

• January employment report “strikes a blow” in hopes for a faster pace of rate hikes from “slow and steady” Fed


• “‘Big jobs today, but what about tomorrow’ will be the concern from Fed officials”


• Fed will be unlikely to act before there’s more certainty in Trump policies that could boost growth, make easier monetary conditions from Fed less necessary

Societe Generale (Stephen Gallagher and Omair Sharif)

• Jobs report shows “no additional pressure on the Fed to move beyond its indications of gradual rate hikes”


• “Evidence on labor market tightness abated in January”

Goldman Sachs (led by Jan Hatzius)

• Report “appears consistent with healthy economic growth, but only moderate pressure on labor resources”


• Reduces odds of a rate hike in March to 15% from 35%


• Maintains call for 3 rate increases this year, in June, September and December

CIBC (Avery Shenfeld, note)

• Only sore spot in jobs report was avg hourly earnings


• “Although the annual rate of wage inflation was likely to decelerate a couple of ticks, the fall from the revised 2.8% to 2.5% will be seen as a counterbalance to the stronger headline payroll number”

Janus Capital (Bill Gross)

• “Schizophrenic report” doesn’t alleviate skepticism about 3-4 percent growth promised by Trump administration


• “I think we’re stuck in a 2% real GDP world”


• While slow wage growth may be good for corporate profits, for consumers, “if their money is only growing at 2.5%, that’s a slow-growth economy”

Market Securities (Christophe Barraud)

• January payrolls report “looks somehow disappointing,” will create uncertainty among policy makers that wage pressures are materializing and full employment is close


• Could damp expectations for tighter policy


• Slowing wage growth suggests both personal income and spending were weak in January
  Underemployment results disappointed, while number of people working part-time increased by 242k; numbers don’t confirm that labor slack diminished

Marketfield Asset Management (Michael Shaoul)

• January jobs report “noisy” yet kept prior trends intact


• Weaker avg hourly earnings “greeted with some relief since it reduces the pressure on the FOMC to act in early part of 2017”


• Avg hourly earnings “is a lousy data series, but we accept it is one that the FOMC will follow when setting policy”

BNY Mellon (Marvin Loh)

• Tempered Fed expectations are biggest market takeaway from report, as it signals existence of more slack in labor market than headline unemployment rate would suggest


• “Any trough and subsequent increase in the participation rate would indicate continued jobs growth with limited wage pressure, a possible holy grail for corporate America”


• After report, anyone who thought Fed might raise rates in March will likely move their forecast to June

ING (James Knightley)

• Wages were a ‘big miss’’ but this likely is a “temporary slowdown with strong employment numbers ensuring that the trend is for faster wage growth in the months ahead”


• ING reiterates forecast for March Fed rate hike; expects that to be followed by another increase in 3Q


• “GDP growth on an upward trend”


• “Inflation figures looking consistent with the Fed’s medium term aspirations” so case for March hike “remains strong”

SouthBay (Andrew Zatlin)

• January data did not capture minimum wage hikes, which will show up in February, and that helped suppress wage inflation; expect a bigger jump next month


• If assumption is correct, the current environment of a patient Fed with slower and more gradual rate hikes could flip after next month’s jobs data

Evercore (Krishna Guha)

• January NFP report creates “little need for the Fed to pull forward the next rate hike to March”


• A move by May “is slightly more likely than not,” given strength in hiring


• Combination of strong employment growth with more supply to keep Fed “at bay” for now, “is perfect for U.S. equities”

Prestige Economics (Jason Schenker)

• Continued job creation backs hawkish Fed


• “A March Fed rate hike is a lock” after supportive jobs report and slightly stronger language regarding inflation in the Fed statement this week


• “We have been expecting a March rate hike, and only a shocking turn of policy or major upheaval in financial markets would derail that expectation”


• Sees upside risks for USD before Fed’s March meeting

Source: Bloomberg

State Minimum Wage Hikes Already Passed Into Law Expected To Cost 2.6 Million Jobs, New Study Finds

Even though we know that Bernie and his alt-left compatriots will never tire of their endless "Fight for $15" no matter how much data we throw at them, we thought we would go ahead and highlight yet another economic study detailing the devastating job losses that will result from minimum wages hikes that have already been passed in states all around the country.

The latest study comes for the American Action Forum (AAF) and estimates that 2.6 million jobs will be lost around the country over the next several years as states phase-in minimum wage hikes that have already been passed.  Here are the key takeaways:

• In isolation, the minimum wage increases in 2017 will cost 383,000 jobs;


• The entire minimum wage increases currently phasing-in will cost over 2.6 million jobs; and


• Each job lost only leads to an extra $6,900 in total wage earnings across all workers.

Below are the 14 states where the minimum wage is set to increase in 2017 as well as the entire increases anticipated for states where large increases have been passed but will be phased in over several years. 

First, AAF estimates that the minimum wage increases planned for 2017 alone will result in 383,000 job losses.  The analysis assumes that each 10% increase in wages results in a 0.3% - 0.5% decline in the net job growth rate. 

While proposals to raise the minimum wage are well intended, it is important to consider the negative labor market consequences. Meer & West (2015) find that raising the minimum wage reduces job creation. Specifically, they find that a 10 percent increase in the real minimum wage is associated with a 0.3 to 0.5 percentage-point decline in the net job growth rate. As a result, three years later employment becomes 0.7 percent lower than it would have been absent the minimum wage increase.

While the Meer & West (2015) findings may not seem very problematic, when taking into account the magnitude of the minimum wage increases and the number of states implementing new laws, the negative labor market consequences add up. Let’s first examine the minimum wage hikes of 2017 in isolation, without considering previous or future minimum wage increases under the new state laws.

Of course, for most states that have enacted minimum wages increases, 2017 hikes are just one component of multi-year increases.  Below is a look at how much minimum wages are expected to increase overall after they"re fully implemeneted. 

Using the same correlations between minimum wage increases and net job losses noted above, AAF estimates that 1.8 million jobs will be lost once current increases are fully implemented. 

As if that weren"t enough, several states, including California, passed their current minimum wage laws several years ago.  Therefore, adding in jobs that have already been lost from current minimum wage legislation, AAF estimates that a total of 2.6 million jobs will be lost courtesty of misinformed liberal agendas. 

So goodluck with the continued crusade, Bernie!  If you get hungry along the way, we highly recommend you try out a sandwich from this new "Big Mac ATM" which comes with McDonald"s special sauce and all the fixin"s but requires exactly 0 of your minimum wage workers to cook.