Tag Archives: economics

Overwork And Its Costs: The U.S. in International Perspective

On average, U.S. workers with jobs put in more hours per year  than workers in most OECD countries. In 2012, only Greece, Hungary, Israel, Korea, and Turkey recorded a longer work year per employed person.

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A long work year is nothing to celebrate. The following chart, from the same Economist article, shows there is a strong negative correlation between yearly hours worked and hourly productivity.

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More importantly, the greater the number of hours worked per year, the greater the likelihood of premature death and poor quality of life.  This reality is highlighted in the following two charts taken from an article by Angus Chen titled “8 Charts to Show Your Boss to Prove That You Can Do More By Working Less.”

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In sum, we need to pay far more attention to the organization and distribution of work, not to mention its remuneration and purpose, than we currently do.

Martin Hart-Landsberg is a professor of economics at Lewis and Clark College. You can follow him at Reports from the Economic Front.

Diverse Countries Do Better with Female Heads of State

Countries with a lot of ethnic diversity generally show weaker economic growth than homogeneous countries.  A new study, however, discovered a variable that strongly reverses the trend: women leaders.

Management professor Susan Perkins and her colleagues compared the economic growth rate of 139 countries over 55 years.  They found that diverse countries did significantly better when a woman was at the helm.  The more diverse the country, the stronger the effect.

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Perkins and her co-authors cautiously attempt to explain their data (here), but think that it may have something to do with leadership style.  Female leaders have been shown to be more collaborative and non-authoritarian than men. Co-author Nicholas Pearce speculates:

In countries with a lot of internal conflict, oftentimes people are looking for signals that the person in charge is going to be collaborative and not dictatorial or self-interested. Women’s gender role is symbolic of collaboration, that they’re going to empower marginalized voices.

Because of gender stereotypes, then, women may seem more trustworthy. Meanwhile, real differences in leadership style may affirm those expectations and be more effective in practice.

Lisa Wade is a professor of sociology at Occidental College and the co-author of Gender: Ideas, Interactions, Institutions. You can follow her on Twitter and Facebook.

Chicago’s Disappearing Middle Class

By now most readers are likely familiar with the idea that the American middle class is shrinking.  Most income and wealth gains over the past 40 or so years have gone to the richest Americans, while poverty is spreading and getting deeper.  As a result, the percent of Americans who can reasonably claim to be middle class is shrinking.

I found a fantastic animation illustrating this process in the neighborhoods of the city of Chicago.  Borrowing data from education scholar Sean Reardon and sociologist Kendra Bischoff, Daniel Hertz calculated where the  median family income of each Census tract fell relative to the entire metropolitan area.  Orange tracts are ones where the median family income is 0-45% of the median for Chicago as a whole (struggling families), dark green tracts are ones where the median is 200% or more (resource rich families).  Grey is, literally, middle class.

For simplicity’s sake, here is 1970 and 2012 right next to one another.  Notice that the 1970 map involves a lot more grey (middle class) and the 2012 map involves a lot more green (rich) and especially orange (poor).

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Here’s the animation:

1For another interesting measure of the shrinking middle class, see our post showing increases in high paying and low paying jobs, but decreases in jobs that pay middle income wages.

Lisa Wade is a professor of sociology at Occidental College and the co-author of Gender: Ideas, Interactions, Institutions. You can follow her on Twitter and Facebook.

The Rich to the Poor: Do What I Say, Not What I Do

Economic policies often rest on assumptions about human motivation.  Here’s Rep. Ryan (Republican of Wisconsin):

The left is making a big mistake here. What they’re offering people is a full stomach and an empty soul. People don’t just want a life of comfort. They want a life of dignity — of self-determination.

Fox News has been hitting the theme of “Entitlement Nation” lately. This Conservative case against things like Food Stamps, Medicare, welfare, unemployment benefits, etc rests on some easily understood principles of motivation and economics.

1.    Giving money or things to a person creates dependency and saps the desire to work. That’s bad for the person and bad for the country.
2.    A person working for money is good for the person and the country.
3.    We want to encourage work.
4.    We do not want to encourage dependency.
5.    Taxing something discourages it.

Now that you’ve mastered these, here’s the test question:

1. According to Conservatives, which should be taxed more heavily:

a.    money a person earns by working.
b.    money a person receives without working, for example because someone else died and left it in their will.

If you said “b,” you’d better go back to Conservative class. A good Conservative believes that the money a person gets without working for it should not be taxed at all.

Not all such money, of course.  Lottery tickets are bought disproportionately by lower-income people.  If a person gets income by winning the PowerBall or some other lottery, the Federal government taxes the money as income. Conservatives do not object.  But if a person gets income by winning the rich-parent lottery, Conservatives think he or she should not pay any taxes.

What Conservatives are saying to you is this: working for your money is not as good as instead of inheriting it. This message seems to contradict the principles listed above. But, as Jon Stewart recently pointed out, Conservatives apply those principles of economics and motivational psychology only to the poor, not to wealthy individuals or corporations.

Cross-posted at Montclair SocioBlog and the Huffington Post.

Jay Livingston is the chair of the Sociology Department at Montclair State University. You can follow him at Montclair SocioBlog or on Twitter.

Why Income Inequality Will Likely Keep Getting Worse

Thomas Piketty has just published a massive new book tackling the explosive growth in income inequality.  Here’s what it looked like in Europe and the United States in 2010 (source):
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A New York Times review of the book, Capital in the Twenty-First Centurybegins as follows:

What if inequality were to continue growing years or decades into the future? Say the richest 1 percent of the population amassed a quarter of the nation’s income, up from about a fifth today. What about half?

To believe Thomas Piketty of the Paris School of Economics, this future is not just possible. It is likely…

His most startling news is that the belief that inequality will eventually stabilize and subside on its own, a long-held tenet of free market capitalism, is wrong. Rather, the economic forces concentrating more and more wealth into the hands of the fortunate few are almost sure to prevail for a very long time.

Piketty’s pessimistic view is based on his argument that income generated from capital normally grows faster than the economy or income from wages.  This means that the private owners of capital benefit disproportionately from growth, which makes it easier for them to increase their asset holdings and by extension future income.  And, since wealth and income translate into political power, we face a self-reinforcing dynamic leading to ever growing inequality.

This suggests that embracing a system based on maximizing the returns to private owners of capital is a mistake for the great majority of working people. A recent study by the investment bank Credit Suisse provides more evidence for this conclusion.  As Michael Burke explains,

The study… shows that long-term growth rates of GDP in selected industrialized economies are negatively correlated with financial returns to shareholders.

That is, the best returns for shareholders are from countries where GDP growth has been slowest, and vice versa. Where growth has been strongest, shareholder returns are weakest…

The negative correlation [seen in the chart below] does not prove negative causality. But it does support the theory which suggests that the interests of shareholders are contrary to the interests of economic growth and the well-being of the population.

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All this information is worth keeping in mind the next time business and political leaders tell us that the key to our well-being is boosting business confidence, the market, or private returns on investment.

Cross-posted at Reports from the Economic Front.

Martin Hart-Landsberg is a professor of economics at Lewis and Clark College. You can follow him at Reports from the Economic Front.

Is Massive Financial Risk the New Recipe for Success?

Do Millennials really carry more debt than their parents and grandparents did at their age? Yes, according to a new study by sociologist Jason Houle.  “In order to participate in society and gain economic independence,” he writes, “many young adults today must take a massive financial risk.”  Or, as he puts it, “out of the nest and into the red.”

The graph below compares the amount of debt held by three generations in young adulthood (adjusted for inflation and controlled for other variables). Notice that the median debt load has grown, but the average debt load has grown much faster. This means that, while debt has grown over all, averages are also pulled up by a small number of young people that have really high levels.

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Some evidence suggests that high debt individuals may be coming from lower income families. They take on debt as young people because the adults in their lives have already maxed out. They can’t count on their parents, for example, to take out a second mortgage on the house in order to pay for their college education. So, if they want to go to college, they have to take on the debt themselves.

Houle’s analysis, however, also shows that the kind of debt has changed across the three generations. The pie charts below reveal that the proportion of debt accounted for by home or car loans has shrunk, while the proportion accounted for by education loans and unsecured debt, like credit cards, has risen.

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Moreover, Houle argues that this profile of generation Y’s debt is class specific:

The more advantaged are able to take on debt that helps them pursue a middle class lifestyle and build their wealth, while the less advantaged must take on debt to pay their bills and keep their heads above water.

So, is massive financial risk the new recipe for success?

For some, the answer may be yes. But for many, the gamble does not pay off. Students that take out college loans, for example, are more likely to drop out of college than those who have a parent that can pay. The combination of school loans and minimum-wage jobs can add up to a lifetime of economic insecurity. But, without other resources, not risking at all almost guarantees failure in this economy.  For this reason, Houle argues, the availability of credit and acquisition of debt may be just another driver of income and wealth inequality.  It’s a disturbing story that you can read in more depth here.

Lisa Wade is a professor of sociology at Occidental College and the co-author of Gender: Ideas, Interactions, Institutions. You can follow her on Twitter and Facebook.

“Businesses are Swimming in Money”: More Profit Protection Will Not End the Recession

One conventional explanation for our economic problems seems to be that our businesses are strapped for funds.  Greater business earnings, it is said, will translate into needed investment, employment, consumption and, finally, sustained economic recovery.  Thus, the preferred policy response: provide business with greater regulatory freedom and relief from high taxes and wages.

It is this view that underpins current business and government support for new corporate tax cuts and trade agreements designed to reduce government regulation of business activity, attacks on unions, and opposition to extending unemployment benefits and increasing the minimum wage.

One problem with this story is that businesses are already swimming in money and they haven’t shown the slightest inclination to use their funds for investment or employment.

The first chart below highlights the trend in free cash flow as a percentage of GDP.  Free cash flow is one way to represent business profits.  More specifically, it is a pretax measure of the money firms have after spending on wages and salaries, depreciation charges, amortization of past loans, and new investment.  As you can see that ratio remains at historic highs.  In short, business is certainly not short of money.

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So what are businesses doing with their funds?  The next chart looks at the ratio of net private nonresidential fixed investment to net domestic product (I use “net” rather than “gross” variables in order to focus on investment that goes beyond simply replacing worn out plant and equipment).  The ratio makes clear that one reason for the large cash flow is that businesses are not committed to new investment.  Indeed quite the opposite is true.

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Rather than invest in plant and equipment, businesses are primarily using their funds to repurchase their own stocks in order to boost management earnings and ward off hostile take-overs, pay dividends to stockholders, and accumulate large cash and bond holdings.

Cutting taxes, deregulation, attacking unions and slashing social programs will only intensify these very trends.  Time for a new understanding of our problems and a very new response to them.

Cross-posted at Reports from the Economic Front.

Martin Hart-Landsberg is a professor of economics at Lewis and Clark College. You can follow him at Reports from the Economic Front.

Opinions on Economic Inequality Driven by Ideology, not Income

A majority of both Democrats and Republicans believe that economic inequality in the U.S. has grown, but they disagree as to its causes and the best solutions, according to a new survey from the Pew Research Center.  While 61% of Republicans and 68% of Democrats say inequality has widened, only 45% of Republicans say that the government should do something about it, compared to 90% of Democrats.  A study using the General Social Survey has confirmed the findings.

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Republicans and Democrats also disagree about what the best interventions would be.  At least three-quarters of Democrats favor taxes on the wealthy and programs for the poor, but 65% of Republicans think that helping the poor does more harm than good.Screenshot (25)

The differences may be related to beliefs about the cause of poverty.  Republicans are much more likely to endorse an individualist explanation (e.g., people are poor because they are lazy), whereas Democrats are more likely to offer a structural explanation (e.g., it matters where in the class structure you begin and how we design the economic system).

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Interestingly, answers to these questions vary much more by political affiliation than social class.  Using data from the survey, I put together this table comparing the number of percentage points that separated the average answers to various questions.  On the left is the difference by political party and, on the right, income (click to enlarge).

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Clearly political affiliation drives opinions on the explanation for and right solutions to income inequality more so than income itself.

This is a great example of hegemony.  A hegemonic ideology is one that is widely supported, even by people who are clearly disadvantaged by it.  In this case, whatever you think of our economic system, it is pretty stunning that only there is only a six point gap between the percent of high income people saying it’s fair and the percent of low income people saying so.  That’s the power of ideology — in this case, political affiliation — to shape our view of the world, even going so far as to influence people to believe in and perhaps vote for policies that are not in their best interest.

Cross-posted at Pacific Standard.

Lisa Wade is a professor of sociology at Occidental College and the co-author of Gender: Ideas, Interactions, Institutions. You can follow her on Twitter and Facebook.