The Danger of Complacency

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Oren M. Levin-Waldman will discuss his most recent  article: “The Danger of Complacency” on Wednesday, June 6, 2018th at 10am EDT on the Westchester On the Level radio broadcast. Listen “Live” or “On Demand”. Use the following hyperlink  to hear the discussion with the professor on this very issue. (NOTE: This URL is activated only 5 minutes before the 10am hour on the day of the broadcast and is thereafter part of our archive. To listen, make an inquiry, or share your perspective, please call 347.205.9201. Participants are asked to be respectful of all our guests and to stay on topic. This segment will air from 10-11am.


The Danger of Complacency By OREN M. LEVIN-WALDMAN

Oren M. Levin-Waldman, Ph.D.

The official unemployment rate has dropped to 3.8 percent and for many this is seen as an indication that the economy is once again booming. If unemployment is down, the argument goes, wages are likely to rise. If wages rise, the economy will grow even further because the increased purchasing power will lead to an increase in aggregate demand for goods and services. To the extent that this is true, this would surely be good news that we should be celebrating.

The problem, however, is that it is easy to become complacent because the official unemployment rate does not tell the full story and easily masks many ongoing problems. To be counted in the official unemployment rate, one has to have been looking for work within the last four weeks. For the most part, the unemployment figures are based on claims filed for unemployment insurance (UI). UI, however, is only good for six months. Therefore, one who has exhausted one’s UI benefits and is no longer filing a claim may no longer be considered unemployed. Rather this person is considered to be jobless.

What the unemployment rate does not tell us is how many of these workers who are employed are really underemployed or simply working part-time. One who takes a low paying job beneath one’s skill level just to have a job is considered underemployed. One who takes a part-time job is no longer considered unemployed. And one who drops out of the labor market and no longer feels like searching for employment is also no longer considered to be unemployed.

To include those who have simply dropped out of the labor market would yield a jobless rate of 7.6 percent. And were we to include part-time workers who would prefer to work full-time and those who are underemployed, the jobless rate would be higher still. Moreover, a low official unemployment rate says nothing about the types of jobs that are being created or whether their wages are sufficient for workers to be members of the middle class.

By the laws of supply and demand lower unemployment, especially if there is a shortage of available workers, should lead to an increase in wages. But an increase in wages to what? There is still a limit to how high wages will go. Employers who feel that their workers aren’t worth higher wages will often leave jobs unfilled. Moreover, if the beginning reference point for wages is low to begin with because labor market institutions have been decimated, then the range for these wages will still be low.

\We don’t know that the jobs being created, if that is what the unemployment rate is telling us, are necessarily middle class jobs. We still have a two tiered economy with highly skilled and highly paid workers at the top and poorly skilled and poorly paid workers at the bottom. The good paying blue collar jobs were always in manufacturing, and that base is gone. Given the reality of the global two-tiered economy, many jobs for less skilled workers are being created in the lower paying service sector.

This means that many workers are either piecing together several part-time jobs or working part-time on top of their low paying full time jobs. In other words, these new job numbers tell us little about the health of the middle class, which should be the primary measure for the state of the economy.

It would be easy to say the economy has improved and therefore there is nothing more that needs to be done from a policy standpoint. And yet, there are still major issues that need to be addressed for the benefit of the middle class. Aside from the fact that wages have been stagnant in real terms for several decades now, healthcare costs continue to rise. Perhaps the Affordable Care Act ensured greater access to insurance — which is not the same as access to healthcare — it did little to arrest rising healthcare costs. Premiums still continue to rise.

Even if low wage workers will see their wages rise due to falling unemployment, those gains are easily wiped out from rising healthcare costs, even with the subsidies. Moreover, now that the individual mandates have been eliminated low wage workers who aren’t offered health insurance and cannot afford it even with subsidies will most likely remain uninsured.

The falling unemployment rate also easily diverts attention from the structural issues in the economy which will require considerable human capital investment. If we have a two tiered economy and low wages at the bottom because of an oversupply of unskilled workers, then we have an economy that increasingly demands more skilled workers. Inequality, by this way of thinking, is due to a skills mismatch between the jobs that are available and the qualifications of the workers. This is the idea that the global economy is biased towards technical change requiring more skilled workers.

Although job training programs sound good on paper, more emphasis is needed on improving general K-12 education. Many economists have observed that income inequality was less during the 1950s when more people were completing high school. This is often referred to as the high school premium. As the number of those completing high school declined during the 1980s income inequality increased. More needs to be invested into improving the quality of K-12 education so that more workers will be prepared for working in the new economy.

We have to assume that despite a lower unemployment rate that manufacturing is not returning to the country. The service sector is here to stay and blue collar workers will have to find their way in the services. For those who will be forced into the low-wage service sector, labor market institutions that prop up wages are essential. Service workers still need to be represented by unions and for those who are not, wage floors are still necessary.

Here is where complacency becomes especially dangerous. We often think those types of institutions are only necessary during a difficult economy, especially one where workers have less bargaining power. But they are always necessary, and the danger is to think because wages are rising due to falling unemployment rates that these institutions are no longer needed.

The greatest danger, however, is if we lose sight of the issues that remain to be dealt with because we have fooled ourselves into believing that the tides are once again rising and we can once again rest on our laurels. Confidence should not be confused with complacence, because it is the latter that is truly dangerous.


Restoring the Middle Class through Wage / Oren M. Levin-Waldman / Palgrave MacMillan

This book makes the case for minimum wage as a way to improve well-being of middle-income workers, reduce income inequality, and enhance democracy….


Minimum Wage: A Reference Handbook / ABC – CLIO

The Minimum Wage: A Reference Handbook By Oren M. Levin-Waldman. As of 2014, the minimum wage in Seattle is $15 an hour — double the federal minimum wage.


“Wage Policy, Income Distribution, and Democratic Theory” By Oren M. Levin-Waldman

Read the review of the just published “Wage Policy, Income Distribution, and Democratic Policy By Oren M. Levin-Waldman.


Oren M. Levin-Waldman, Professor at the Graduate School for Public Affairs and Administration at Metropolitan College of New York, Research Scholar at the Binzagr Institute for Sustainable Prosperity, as well as faculty member in the Milano School for International Affairs, Management, and Urban Policy at the New School.


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