In Hume’s spirit, I will attempt to serve as an ambassador from my world of economics, and help in “finding topics of conversation fit for the entertainment of rational creatures.”
Foreign exchange markets are extraordinarily large. \”Trading in foreign exchange markets averaged $5.3 trillion per day in April 2013. This is up from $4.0 trillion in April 2010 and $3.3 trillion in April 2007.\” The growth rate of the foreign exchange market in recent years has been about 35% annually.
What accounts for this very large total? In round numbers, world GDP is about $70 trillion, and world exports are about 30% of that amount–call it $21 trillion per year. Clearly, foreign exchange markets are not mainly driven by the direct needs of exchanging currency for exports and imports. Flows of foreign direct investment around the world were about $1.3 trillion in 2012. Total global holdings of portfolio investment were about $39 trillion in 2011. Thus, it doesn\’t seem that the need to exchange currency for either foreign direct investment or for portfolio investment can explain what\’s happening in foreign exchange markets, either. The remaining possible explanation is that the enormous size of exchange rate market arises primarily out of short-term decisions about hedging risk and seeking return in a global economy, where many financial and nonfinancial firms are continually adjusting their exposure to the possibilities of future movements in exchange rates.
Another main message of the BIS report concerns the role of the U.S. dollar in foreign exchange markets. It continues to be true, as it has been for decades, that many foreign exchange trades between currencies A and B involve first turning a currency into U.S. dollars, and then switching to the other currency. \”The US dollar remained the dominant vehicle currency; it was on one side of 87% of all trades in April 2013. The euro was the second most traded currency, but its share fell to 33% in April 2013 from 39% in April 2010. The turnover of the Japanese yen increased significantly between the 2010 and 2013 surveys. So too did that of several emerging market currencies, and the Mexican peso and Chinese renminbi entered the list of the top 10 most traded currencies.\”
I\’ll attach a list of currencies, in the order they are traded in foreign exchange markets. Of course, the report has more details about changes since the first survey in 1998, as well as the specific financial instruments used.
The future US workforce needs a wide range of skills, only some of which are likely to be delivered through a conventional two-year or four-year college degree. Natalia Aivazova looks at \”Role of Apprenticeships in Combating Youth Unemployment in Europe and the United States,\” written as Policy Brief PB13-20 (August 2013) for the Peterson Institute for International Economics.
As a starting point, here\’s a graph showing what share of students age 15-19 are in apprenticeship programs in EU countries. In Austria and Denmark, it\’s more than one-quarter; in Germany, it\’s more than one-third. And it\’s worth emphasizing that this measure of apprenticeships tends to understate what overall share of the population had an apprenticeship at some point in time; for example, a 15 year-old may not have an apprenticeship now, but might have one in the next year or two.
\”Registered apprenticeship programs are overseen by the Office of Apprenticeship in the US. There is no direct federal funding for apprenticeship programs, but the Office of Apprenticeship supports programs that seek federal recognition through regulations, technical assistance, maintenance of a national database, issuance of certificates, and promotional activities. Registered Apprenticeship programs are provided by employers, employer associations, joint labor/management organizations, government agencies and the military. Each industry establishes its own minimum age requirement (at least 16 with a typical minimum of 18). Most programs require applicants to have a high school diploma or GED certificate. Some require completion of subjects such as algebra, or technical topics such as blueprint reading. As of 2008, about 27 000 registered apprenticeship providers were training about 480 000 apprentices — about 0.3% of the total work force. While there are registered apprenticeship programs for over 1 000 occupations, apprenticeship tends to be concentrated in fields that require little or no postsecondary education. But in response to calls from the Government Accountability Office (GAO) the U.S. Department of Labor has made efforts to expand registered apprenticeships in sectors with good employment prospects, and requiring mid and high level skills such as health care and IT.\”
For some sense of the promise of internships, look at unemployment rates for younger people in the 15-24 across a number of countries. Of course, the lack of apprenticeships isn\’t the only reason, nor even close to the main reason, that youth unemployment is above 50% in Spain and Greece. But it\’s nonetheless intriguing that the countries with the lowest youth unemployment rates tend to be those with the highest share of apprenticeships.
Most Americans seem to have a constricted view of apprenticeships: sure, they are fine for a few students that are entering the construction trades and not likely to flourish in a four-year college. But perspective is much too narrow. Apprenticeships can cover a wide range of possible jobs. Apprenticeships can build both specific job-related skills and also soft skills like showing up on time, ready to work. They can also help create connections between young people and the workforce at a time in history when the older connections–like following in the same career as your parents, or the friends of your parents–is clearly not working for many young people. And yes, for the substantial portion of U.S. students who aren\’t likely to flourish if they tried to follow the path of extending their formal education for four more years after high school, apprenticeships offer another path to skilled jobs with decent pay and prospects for career advancement. Here\’s some background from Aivazova on the situation in Germany and Austria (citations omitted):
\”Apprentices typically spend one or two days a week in a vocational school where they are taught based on a federally agreed program of both general and occupation-specific instruction. The rest of the workweek is spent on the job, in a training program designed by the specific firm in collaboration with education authorities, sector employers, and employee organizations. Apprenticeships last two to four years, depending on the profession, and are followed by a final examination. In Germany, 59 percent of apprentices are then employed by the firm that trained them. Apprenticeships are offered in over 300 occupations, of which 60 percent are in the service sector and 40 percent are in industrial production …
\”In 2006, the top two apprentice occupations in Germany were automotive mechanics and retail sales. In Austria, the most popular apprentice occupations were retail trade, office work, and heavy goods and automotive maintenance. Retail trade and manufacturing are more likely to employ youth, and apprentices in Austria and Germany are smartly choosing to enter those sectors. Little wonder then that German and Austrian youth, already professionally trained in the sectors most likely to employ them, have an easier time finding work. …
\”To implement successful apprenticeship programs, governments should pass legislation to create nationally recognized apprenticeship-completion certifi cates as well as regulate apprenticeship content to ensure quality and transferability of skills. Apprentices should be given a stipend (typically one-third to one-half of the wage of a regular employee in that sector) and other benefits such as health insurance. … Critical to the success of apprenticeships is participation of labor unions and private businesses. To attract firms they must be given considerable autonomy in developing the on-the-job training components of apprenticeships. If necessary, firms can also be offered tax incentives and training subsidies.\”
Jessie Romero has an \”Interview\” with John Haltiwanger published in Econ Focus, a publication of the Federal Reserve Bank of Richmond (Second Quarter 2013, pp. 30-34).
On the creation of the job creation and destruction data
\”Steve Davis and I met back in the mid-1980s, and we had this idea that to understand how the labor market works, it would be critical to understand the ongoing process of what we called job creation and job destruction. In the mid-1980s, we got to know Dunne, Roberts, and Samuelson, who were using lower-frequency Census data to study the entry and exit of firms and firm dynamics. We asked them if they thought it was possible to get access to the data to look at higher frequencies, say monthly or quarterly. And they said, “Well, we don’t know, but why don’t you call these guys up?”
So Steve and I called up the Census Bureau. Robert McGuckin, the director of the Bureau’s Center for Economic Studies (CES) at the time, invited us to come give a seminar. We got two reactions. Bob McGuckin was incredibly enthusiastic. But some of the folks said, “You guys are nuts!” They kept saying that the data were not intended for this task, that we were pushing them in a way they weren’t meant to be pushed. Steve and I were cognizant of that, but we started working with the data and realized their potential, and that led to us developing these concepts of job creation and destruction and how to measure them.
Over the years, one of our most satisfying accomplishments was to convince the statistical agencies that this was important. The Census Bureau and the Bureau of Labor Statistics (BLS) now have regular programs where they are turning out the kind of statistics that we developed. Back in the 1980s, there were only a handful of people working with the firm-level data. We literally were in basement rooms without windows. Now the CES has 100 staff members and 15 research data centers spread across the country — and most of the staff work in rooms that have windows!\”
Recruiting intensity in the Great Recession
\”We were struck by the fact that there was a pattern in the job-filling rate that was not consistent with the standard search-and-matching model: Businesses that were very rapidly expanding filled their jobs much faster than other kinds of businesses. In the standard search-and-matching model, if you want to expand quickly, you just post more vacancies. We found that was true — businesses that were expanding rapidly did post more vacancies — but we also found that they filled them much more quickly. So what’s going on there? The model that we came up with is that firms don’t just post vacancies, they also spend time and resources on hiring people. So if you want to hire more people, you can raise the wage you offer, or you can change the way that you screen workers — these are just two examples of the variety of margins that a firm can use. As shorthand, we’ve called these margins “recruiting intensity.” We also found that recruiting intensity dropped substantially in the Great Recession and has been slow to recover.\”
When policy tries to stop job destruction
\”I think the evidence is overwhelming that countries have tried to stifle the [job] destruction process and this has caused problems. I’m hardly a fan of job destruction per se, but making it difficult for firms to contract, through restricting shutdowns, bankruptcies, layoffs, etc., can have adverse consequences. The reason is that there’s so much heterogeneity in productivity across businesses. So if you stifle that destruction margin, you’re going to keep lots of low-productivity businesses in existence, and that could lead to a sluggish economy. I just don’t think we have any choice in a modern market economy but to allow for that reallocation to go on. Of course, what you want is an environment where not only is there a lot of job destruction, but also a lot of job creation, so that when workers lose their jobs they either immediately transit to another job or their unemployment duration is low. …
I think lots of countries hear this advice from economists or from organizations like the International Monetary Fund or the World Bank, so they open up their markets, they open up to trade, they liberalize their labor and product and credit markets. And what happens is, job destruction goes up immediately, but job creation doesn’t. They realize that they’ve got a whole bunch of firms that can’t compete internationally, and they’re in trouble. … On the one hand, there is lots of evidence that countries that distort the destruction margin find themselves highly misallocated, with low productivity and low job growth. On the other hand, it’s difficult to just let things go without having well-functioning market institutions in place …\”
A slowdown in new business formation
\”We’ve always known that young businesses are the most volatile. They’re the ones experimenting, trying to figure out if they have what it takes to be the next Microsoft or Google or Starbucks. But now we’re seeing a decline in the entry rate and a pretty stark decline in the share of young businesses. … But it’s also important to recognize that the decline in the share of young firms has occurred because the impact of entry is not just at the point of entry, it’s also over the next five or 10 years. A wave of entrants come in, and some of them grow very rapidly, and some of them fail. That dynamic has slowed down. Should we care? The evidence is we probably should, because we’ve gotten a lot of productivity growth and job creation out of that dynamic. A cohort comes in, and amongst that group, a relatively small group of them takes off in terms of both jobs and productivity. So the concern is, have we become less entrepreneurial? If you’re not rolling the dice as often, you’re not going to get those big wins as often. …
We’ve been struck by how rare success is for young businesses. When you look at normal times, the fraction of young small businesses that are growing rapidly is very small. But the high-growth firms are growing very rapidly and contribute substantially to overall job creation. If you look at young small businesses, or just young businesses period, the 90th percentile growth rate is incredibly high. Young businesses not only are volatile, but their growth rates also are tremendously skewed. It’s rare to have a young business take off, but those that do add lots of jobs and contribute a lot to productivity growth. We have found that startups together with high-growth firms, which are disproportionately young, account for roughly 70 percent of overall job creation in the United States.
The labor share of national income is falling, both in the U.S. (see here and here) and around the world (see here and here). One useful way to gain understanding on this issue is to break down the different components of labor and capital income and see what\’s driving the change. The Congressional Budget Office provides a useful overview of this approach with U.S. data in its July 2013 report, \”How CBO Projects Income.\”
Here\’s a figure showing the labor share of income for the U.S. economy as a whole, as well as for as for the business sector as a whole and the corporate sector (that is, businesses that are officially incorporated). As I\’ve noted before, back around 1980 when I was first getting my feet wet in economic data, the standard line belief was that the labor share of income was roughly constant. Even into the 1980s and 1990s, one could argue that the labor share of income was hovering in more-or-less the same fairly narrow range. But the fairly drop in labor share of income since about 2000, down to 59.3% of total income in 2011, is below any post-1950 value.
The figure also shows that the big drop in labor\’s share of income has occurred in the corporate sector.
Why has the fall been so large in recent years? Clearly, the depth of the Great Recession and the sluggishness of the economy since the end of the recession in 2009 make a difference to what labor is receiving. The typical pattern is is that labor income tends to rebound as an economy recovers, but the recovery has been so listless that labor\’s share has stayed low.
But there are also concerns that the decline in labor\’s share of income may be a more long-term phenomenon, tied to technology and globalization. Here\’s the CBO comment (footnotes leading to citations of research on these points omitted):
\”For example, technological change may have reduced the returns to labor relative to capital in several ways: By expanding options for employing capital in place of labor (such as through automation); By reducing the relative price of capital goods, especially those used for communications and information processing; and By increasing the pace at which skills tied to old technologies become obsolete, thereby reducing the productivity of workers whose skills are not up to date. Moreover, technological change has increasingly contributed to the globalization of markets for services as well as for goods. At the same time, globalization of labor and product markets may have increased the returns to capital relative to labor by enabling the United States to specialize in the production of goods and services that require the capital inputs that it has in abundance relative to most other countries.Globalization may have also eroded the bargaining power of workers by increasing the mobility of capital.
Here are a few other aspects to the labor-share-of-income story. One is that the roughly constant labor share of income from 1950 to about 2000 may be a bit misleading in some ways, because it was actually made up of some offsetting trends.
The relative stability of the overall labor share between 1950 and 2000 reflected in large part the offsetting effects of changes in the sectoral composition of the economy. Expansion of the nonprofit sector, which includes most hospitals, for example, put upward pressure on the labor share because that sector is labor-intensive and has a high labor share of income. In contrast, growth of income generated by owner-occupied housing, which represents the bulk of income generated by the household sector, increased the income going to capital and put downward pressure on the labor share of income.
As the second arguments here notes, the drop in labor income as a share of GDP can also be viewed as a rise in capital income as a share of GDP. Moreover, in the economic statistics behind these calculations, owner-occupied homes are treated as if they were rental businesses, with those who own the home acting as \”landlords\” who rent the home to themselves. The value of living in the home that you own (which is estimated or \”imputed\” by the government statisticians) is treated as capital income.As CBO explains: \”That imputed net rental income is recorded in the NIPAs [National Income and Product Accounts] as the difference between the value generated from housing services and expenses such as mortgage interest, maintenance and repairs, property insurance premiums, property taxes, and depreciation.\”
Here\’s the pattern of \”Rental and Royalty Income of Persons since 1950. Clearly, most of fluctuation in the last 40 years is related to this imputed \”household rental income\” from those living in homes that they own. Compared to the period from the mid-1970s to the early 1990s, this factor can help to explain why capital income is about 1% of GDP higher, and thus why the labor share of income is lower. (The drop around 2006 is presumably due to the drop in housing prices at about that time.)
\”Consumption of fixed capital,\” perhaps better known as depreciation, is another reason why the capital income share has risen over time. From the government statistician point of view, the value from using up or wearing down fixed physical capital is a form of capital income. CBO explains: \”Consumption of fixed capital has grown as a share of GDI since the mid-1970s, largely as a result of the shift in investment spending toward assets with shorter service lives (especially computers, communications equipment, and software) and thus higher rates of depreciation.\” Again, this factor can help to explain why the capital share of total income is larger and the labor share of income is correspondingly smaller.
Finally, a big share of capital income is profits to firms. Profits fluctuate a lot year to year, but if you squint a bit at this figure, it looks as if there is an overall downward tend in profits from the 1950s to the 1970s, and then an upward trend in profits since then. Of course, higher profits being earned by firms can also be explained to some extent by the opportunities opened up by technology and globalization discussed earlier.
From all of this, here are a few take-away thoughts: The labor share of income in the U.S. economy is historically low. Some of this will self-correct as employment gradually rises again. Some of it is due to change in technology and globalization that have raised the return to capital and put downward pressure on the pay of substantial groups of workers. Some of the fall in labor\’s share of income is due, in a statistical sense, to less-discussed factors affecting capital income like a rise in recent decades in the value of living in a home that you own, and to the fact that capital investment in information technology has a shorter life and depreciates faster than past capital investment.
One of my guilty pleasures is reading a fair amount of mystery/crime/suspense fiction. As someone who edits, writes, and explains for a living, I\’m intrigued by how the top writers in this form manage to keep me turning pages and paying close attention, chapter after chapter. After all, the top authors (with arguably a tiny handful of exceptions over the decades) not great novelists. The top authors are working with pretty much the same basic plotlines as other writers in this form. But at least to me, their prose has a propulsive force.
Elmore Leonard, one of the masters of this form, died in late August. (I was on vacation that week, and only just heard the news.) Here are his 10 rules for writing as he laid them out–with some additional explanation and examples for each rule–in a June 2001 article in the New York Times. Most of the rules are about his genre, and thus not directly relevant to academic writing, but on the philosophy that most academics should take advice about their writing from anywhere they can get it, here\’s the list.
Elmore Leonard\’s Ten Rules of Writing
1. Never open a book with weather. 2. Avoid prologues. 3. Never use a verb other than \”said\” to carry dialogue. 4. Never use an adverb to modify the verb \”said”. 5. Keep your exclamation points under control. You are allowed no more than two or three per 100,000 words of prose. 6. Never use the words \”suddenly\” or \”all hell broke loose.\” 7. Use regional dialect, patois, sparingly. 8. Avoid detailed descriptions of characters. 9. Don\’t go into great detail describing places and things. 10. Try to leave out the part that readers tend to skip.
My most important rule is one that sums up the 10. If it sounds like writing, I rewrite.
For academics, I\’d suggest particular attention to rule #2, about avoiding prologues, and rule #10, about leaving out the part that readers tend to skip. I see a lot of early drafts where the first paragraph, or first two or three paragraphs, is just throat-clearing. And academic prose is full of self-indulgence passages that were apparently important to the author, but which matter little or at all to readers.
Heading into the Great Recession, many people thought they had family and friends upon whom they thought they could draw for support. But when the crunch hit, the support wasn\’t there. Here\’s the evidence drawing from a short paper by Julie Siebens of the U.S. Census Bureau in \”Extended Measures of Well-Being: Living Conditions in the United States: 2011.\”
The Survey of Income and Program Participation, on which this data is based, asks (among other questions) about a list of nine possible hardships: 1) difficulty meeting essential expenses; 2) not paying rent or mortgage; 3) getting evicted; 4) not paying utilities; 5) having utilities cut off; 6) having phone service cut; 7) not seeing a doctor when needed; 8) not seeing a dentist when needed, or 9) not always having enough food. In 2011, 6% of US families reported experiencing three or more of these hardships. In the lowest quintile of the income distribution, 12.2% reported experiencing three or more of these hardships.
Here\’s an illustrative figure showing what share of people reported experiencing certain hardships in 2011.
But what jumped out at me was the follow-up figure: Of those who experienced hardships, what were their expectations about how much they could rely on family and friends, and to what extent were those expectations met?
The common pattern is that about half of households expected that family or friends could help. But in fact, a much smaller proportion actually received the help they had expected. It would take a fine novelist or playwright to do justice to the underlying stories of disappointment behind these graphs. In some cases, people probably had unrealistic expectations of how much their family and friends were willing to help out. In other cases, it\’s probably the case that family and friends were also being hit by economic bad news of their own, and weren\’t in any position to help out.
In economic and social terms, the Great Recession is not nearly as severe as the Great Depression of the 1930s. But in somewhat the same way that the Great Depression cast a dark shadow over political attitudes that lasted for years, I suspect that the Great Recession will leave its own lasting shadows. For more than five years now, Americans experiencing a society in which jobs were hard to come by–whether for themselves or for their friends, family, and neighbors–and a society in which family and friends didn\’t prove able to help each other in the ways that had been expected.
The World Investment Report 2013 from UNCTAD (the UN Conference on Trade and Development) is my go-to source for statistics about levels and trends of foreign direct investment. This year, Chapter IV offers an interesting additional essay on \”Global Value Chains: Investment and Trade for Development. Here are a few points that jumped out at me.
The Preeminence of International Trade in Intermediate Goods The textbook story of international trade, in which an easily identifiable product made in one country like cars, computers, textiles, oil, wine or wheat is traded for a similar good in another country is no longer a fair representation of the majority of world trade. \”About 60 per cent of global trade, which today amounts to more than $20 trillion, consists of trade in intermediate goods and services that are incorporated at various stages in the production process of goods and services for final consumption.\”
Here\’s a concrete example of trade in intermediate goods through a global value chain as it operates in Starbucks:
\”For instance, even the relatively simple GVC [global value chain] of Starbuck’s (United States), based on one service (the sale of coffee), requires the management of a value chain that spans all continents; directly employs 150,000 people; sources coffee from thousands of traders, agents and contract farmers across the developing world; manufactures coffee in over 30 plants, mostly in alliance with partner firms, usually close to final market; distributes the coffee to retail outlets through over 50 major central and regional warehouses and distribution centres; and operates some 17,000 retail stores in over 50 countries across the globe. This GVC has to be efficient and profitable, while following strict product/service standards for quality. It is supported by a large array of services, including those connected to supply chain management and human resources management/development, both within the firm itself and in relation to suppliers and other partners. The trade flows involved are immense, including the movement of agricultural goods, manufactured produce, and technical and managerial services.\”
And here\’s are a couple of figures showing the importance of trade in intermediates to the exports of various countries. The darker green bar shows the \”upstream\” component of global supply chains: that is, what is the share of foreign value-added that is first imported, but then is re-exported by an economy. The lighter green bar shows the \”downstream\” component of global supply chains: that is, what share of exports from the country is later going to be part of the value-added of exports from another country. The sum of these two is the \”GVC participation rate,\” that is, what share of exports from a country are involved either upstream or downstream in a global value chain.
And here\’s a list by country:
The Centrality of Transnational Corporations in International Trade Global supply chains are typically coordinated by transnational corporations, often through making foreign direct investments in other countries (which is why it makes sense to have a discussion of global supply chains in a report focused on foreign direct investment). In fact, a relatively small number of transnational corporations are the organizations that coordinate and carry out the overwhelming majority of international trade, through some combination of owning foreign subsidiaries, contract manufacturing, franchising, or arms\’-length buying and selling from local firms.
\”In the EU, the top 10 per cent of exporting firms typically accounts for 70 to 80 per cent of export volumes, while this figure rises to 96 per cent of total exports for the United States, where about 2,200 firms (the top 1 per cent of exporters, most of which are TNC [transnational corporation] parent companies or foreign affiliates) account for more than 80 per cent of total trade. The international production networks shaped by TNC parent companies and affiliates account for a large share of most countries’ trade. On the basis of these macro-indicators of international production and firm-level evidence, UNCTAD estimates that about 80 per cent of global trade (in terms of gross exports) is linked to the international production networks of TNCs …\”
Global Value Chains and Economic Development
Clearly, global supply chains lead to prices for consumers in the importing countries that are lower than they would otherwise be–that\’s most of the reason that transnational corporations develop such chains. They also make profits for transnational corporations? But do the global supply chains help low- and middle-income countries develop? The answer depend several factors.
Does the position in the global value chain lend itself to additional learning? \”Is it the type of chain that presents potential for learning and upgrading? Will it enable capabilities to be acquired by firms that can be applied to the production of other products or services? In the garments industry, Mexican firms have been able to acquire new skills and functions, becoming full-package suppliers, while it seems very difficult for firms in sub-Saharan Africa supplying garments under the African Growth and Opportunity Act programme to move beyond cut, make and trim.\”
Does the host economy offer a supportive environment? \”Is there an environment conducive to firm-level learning and have investments been made in technical management skills? Are firms willing to invest in developing new skills, improving their capabilities and searching for new market opportunities? Local firms’ capabilities and competences determine their ability to gain access to cross-border value chains, and to be able to learn, benefit from and upgrade within GVCs [global value chains]. Government policies can facilitate this process.\”
The overall pattern seems to be that participation in global value chains does in fact typically benefit economic growth and development, but there are a bunch of potentially difficult and important issues about treatment of workers, environmental effects, interactions with local institutions and the host government, ans so on.
As the school year gets underway, here are some figures comparing the situation of America\’s K-12 teachers to those of primary and secondary teachers in some other countries around the world. The figures are taken from the OECD volume \”Education at a Glance 2013.\” The quick bottom line: the average U.S. teacher faces a similar student/teacher compared to the average for teachers in other countries, but the relative pay of US teachers compared to the average wage is lower than the similar ratio in many countries, and the number of hours worked by US teachers is higher than in other countries.
First, here\’s a look at the ratio of teachers to students across countries: the top panel is pre-primary education, followed by primary education, lower secondary education, and higher secondary education.
Next, here\’s a look at teacher pay. When compared in absolute dollars, the pay of U.S. teachers looks quite good by international standards–but after all, the U.S. economy generally has higher per capita incomes and higher wages than these other countries. Thus, the figure here shows the ratio of the pay of teachers to the pay of someone with a tertiary (that is, college) degree in these comparison countries.
Finally, here\’s a comparison of the number of hours that teachers work in different counties, where US teachers are well above average, using the example of lower secondary school.
The expectations of teachers and responsibilities of teachers can be quite different across countries, so it would be a mistake to view these comparisons as precisely apples-to-apples. But bring them up with a teacher of your acquaintance, and you\’ll get an earful of reaction.
[Originally published on this blog on Labor Day, 2011]
It\’s clear that the first Labor Day celebration was held on Tuesday, September 5, 1882, and organized by the Central Labor Union, an early trade union organization operating in the greater New York City area in the 1880s. By the early 1890s, more than 20 states had adopted the holiday. On June 28, 1894, President Grover Cleveland signed into law: \’\’The first Monday of September in each year, being the day celebrated and known as Labor\’s Holiday, is hereby made a legal public holiday, to all intents and purposes, in the same manner as Christmas, the first day of January, the twenty-second day of February, the thirtieth day of May, and the fourth day of July are now made by law public holidays.\”
\”On the morning of September 5, 1882, a crowd of spectators filled the sidewalks of lower Manhattan near city hall and along Broadway. They had come early, well before the Labor Day Parade marchers, to claim the best vantage points from which to view the first Labor Day Parade. A newspaper account of the day described \”…men on horseback, men wearing regalia, men with society aprons, and men with flags, musical instruments, badges, and all the other paraphernalia of a procession.\”
The police, wary that a riot would break out, were out in force that morning as well. By 9 a.m., columns of police and club-wielding officers on horseback surrounded city hall.
By 10 a.m., the Grand Marshall of the parade, William McCabe, his aides and their police escort were all in place for the start of the parade. There was only one problem: none of the men had moved. The few marchers that had shown up had no music.
According to McCabe, the spectators began to suggest that he give up the idea of parading, but he was determined to start on time with the few marchers that had shown up. Suddenly, Mathew Maguire of the Central Labor Union of New York (and probably the father of Labor Day) ran across the lawn and told McCabe that two hundred marchers from the Jewelers Union of Newark Two had just crossed the ferry — and they had a band!
Just after 10 a.m., the marching jewelers turned onto lower Broadway — they were playing \”When I First Put This Uniform On,\” from Patience, an opera by Gilbert and Sullivan. The police escort then took its place in the street. When the jewelers marched past McCabe and his aides, they followed in behind. Then, spectators began to join the march. Eventually there were 700 men in line in the first of three divisions of Labor Day marchers.
With all of the pieces in place, the parade marched through lower Manhattan. The New York Tribune reported that, \”The windows and roofs and even the lamp posts and awning frames were occupied by persons anxious to get a good view of the first parade in New York of workingmen of all trades united in one organization.\”
At noon, the marchers arrived at Reservoir Park, the termination point of the parade. While some returned to work, most continued on to the post-parade party at Wendel\’s Elm Park at 92nd Street and Ninth Avenue; even some unions that had not participated in the parade showed up to join in the post-parade festivities that included speeches, a picnic, an abundance of cigars and, \”Lager beer kegs… mounted in every conceivable place.\”
From 1 p.m. until 9 p.m. that night, nearly 25,000 union members and their families filled the park and celebrated the very first, and almost entirely disastrous, Labor Day.\”
As to the originator of Labor Day, the traditional story I learned back in the day gave credit to Peter McGuire, the founder of the Carpenters Union and a co-founder of the American Federation of Labor. At a meeting of the Central Labor Union of New York on May 8, 1882, the story went, he recommended that Labor Day be designated to honor \”those who from rude nature have delved and carved all the grandeur we behold.\” McGuire also typically received credit for suggesting the first Monday in September for the holiday, \”as it would come at the most pleasant season of the year, nearly midway between the Fourth of July and Thanksgiving, and would fill a wide gap in the chronology of legal holidays.\” He envisioned that the day would begin with a parade, \”which would publicly show the strength and esprit de corps of the trade and labor organizations,\” and then continue with \”a picnic or festival in some grove.
But in recent years, the International Association of Machinists have also staked their claim, because one of their members named Matthew Maguire, a machinist, was serving as secretary of the Central Labor Union in New York in 1882 and who clearly played a major role in organizing the day. The U.S. Department of Labor has a quick summary of the controversy.
\”According to the New Jersey Historical Society, after President Cleveland signed into law the creation of a national Labor Day, The Paterson (N.J.) Morning Call published an opinion piece entitled, \”Honor to Whom Honor is Due,\” which stated that \”the souvenir pen should go to Alderman Matthew Maguire of this city, who is the undisputed author of Labor Day as a holiday.\” This editorial also referred to Maguire as the \”Father of the Labor Day holiday. …
According to The First Labor Day Parade, by Ted Watts, Maguire held some political beliefs that were considered fairly radical for the day and also for Samuel Gompers and his American Federation of Labor. Allegedly, Gompers did not want Labor Day to become associated with the sort of \”radical\” politics of Matthew Maguire, so in a 1897 interview, Gompers\’ close friend Peter J. McGuire was assigned the credit for the origination of Labor Day.\”
Back in January 1969, the story goes, U.S. Treasury Secretary Joseph Barr testified before the Joint Economic Committee of Congress that 155 Americans with income of over $200,000 had paid no income tax in 1967. Adjusted for inflation, $200,000 in 1967 income would be equal to about $1.4 million in 2013. Back in 1969, members of Congress received more letters from constituents about 155 non-taxpayers than they did about the Vietnam War.
The public outrage notwithstanding, it\’s not obvious to me that 155 high-income people paying no income taxes is a problem that needs a solution. After all, a few high-income people will have made very large charitable donations in a year, knocking their tax liability down to zero. A few taxophobes will invest all their funds in tax-free municipal bonds. A few may have high income this year, but be able to offset it for tax purposes with large losses from previous years. It only takes a few dozen people in each of these and similar categories to make a total of 155 high-income non-taxpayers.
At the high end, the top 0.1% of the income distribution would kick in at about $1.5 million in annual income for 2013–not too different, adjusted for inflation, from the $200,000 level that created such controversy back in 1969. Of the 119,000 \”tax units\” in the top 0.1% of incomes, 0.2% paid no income tax–so about 200-250 people. Given the growth of population in the last four decades, it\’s a very similar number to those 155 non-taxpayers that caused such a stir back in 1969.
The big change, of course, is that after 1969 an Alternative Minimum Tax was enacted in an attempt to ensure that all those with high incomes would pay something in taxes. But with about 162 million tax units in the United States, and an income tax code that has now reached 4 million words, it\’s not a big shock to me that a few hundred high-income people would be able to find legitimate and audit-proof ways of knocking their tax liability down to zero.
Rather than getting distracted by the lack of tax payments by a few hundred outliers, I\’d much rather focus on the tax payments of all 119,000 in the top 0.1%, or all 1,160,000 in the top 1%. As I\’ve written before on this blog, I\’m open to policies that would raise marginal tax rates on those with the highest incomes, especially if they are part of an overall deal to reduce the future path of U.S. budget deficits. But I would prefer a tax reform approach of seeking to reduce \”tax expenditures,\” which is the generic name for all the legal deductions, exemptions and credits with which those with higher incomes can reduce their taxes (for earlier posts on this subject, see here, here, and here).
The other pattern that jumps out when looking at those who pay zero in income taxes is that the overwhelming majority of them have low incomes. The table shows that 87% of those in the lowest income quintile, 52% of those in the second income quintile, and 28% of those in the middle income quintile owed nothing in federal income taxes. This situation is nothing new, of course. The original federal income tax back in 1913 was explicitly aimed only at those with high incomes, and only about 7% of households paid income tax. Even after the income tax expanded during World War I, and then was tweaked through the 1920s and into the 1930s, only about 20-30% of households owed federal income tax in a given year.
The standard explanation for why the federal income tax covers only a portion of the population is that it is the nation\’s main tax for having those with higher incomes pay a greater share of income in taxes. With payroll taxes for Social Security and Medicare, as well as with state and local sales taxes, those with higher incomes don\’t pay a higher share of their income–in fact, they typically pay a lower share of income.
The standard argument for why a higher share of people should pay into the income tax is that democracy is healthier if more people have \”skin in the game\”–that is, if tax increases and tax cuts affect everyone, and aren\’t just a policy that an untaxed or lightly-taxed majority can impose on a small share of the population. I recognize the theoretical power of this argument, but in practical terms, it doesn\’t seem to have much force. If those with low incomes made minimal income tax payments so that they had \”skin in the game,\” and then saw those minimal payment vary by even more minimal amounts as taxes rose and fell, it doesn\’t much alter their incentives to impose higher taxes on others. Also, it doesn\’t seem like the US has been subject to populist fits of expropriating the income of the rich, so I don\’t worry overmuch about it. Sure, it would be neat and tidy if we could reach a broad social agreement on how the income tax burden should be distributed across income groups, and then with that agreement in hand, we could raise or lower all taxes on everyone together. But I\’m not holding my breath for such an agreement on desirable tax burdens to be reached.
, the top 0.1% of the income distribution would kick in at about $1.5 million in annual income for 2013–not too different, adjusted for inflation, from the $200,000 level that created such controversy back in 1969. Of the 119,000 \”tax units\” in the top 0.1% of incomes, 0.2% paid no income tax–so about 200-250 people. Given the growth of population in the last four decades, it\’s a very similar number to those 155 non-taxpayers that caused such a stir back in 1969.