Coppola Comment

We are used to thinking of workers as free agents who sell their labour in a market place. They bid a price, companies offer a lower price and the market clearing rate is somewhere between the two. Free market economics, pure and simple.  But actually that's not quite right. The financial motivations of workers and companies are entirely different. To a worker, the financial benefit from getting a job is an income stream, which can be ended by either side at any time. But to a company, a worker is a capital asset.  This is not entirely obvious in a free labour market. But in another sort of labour market it is much more obvious. I'm talking about slavery.  Yes, I know slavery raises all sorts of emotional and political hackles. But bear with me. I am only going to look at this financially. From a financial point of view, there are more similarities than differences between the slave/slaver relationship and the worker/company relationship - and the differences are not necessaril

Last week I attended a workshop entitled "Enhancing the Bank of England Toolkit," hosted by the Progressive Economy Forum. Presented at the workshop, and underpinning most of the debate, was this report from GFC Economics and Clearpoint Advisers, which was written for the Labour Party and first issued last June. The report was widely criticised at the time, as one of its authors ruefully observed in the introduction to the presentation. Nonetheless, the authors presented it unamended. The report recommends setting a productivity target for the Bank of England in addition to its existing inflation target: An additional target will be introduced: productivity growth of 3% per annum. The Bank of England will be required to explain how its policies are impacting upon productivity and, therefore, the potential growth path of the economy. This target is extremely challenging. A footnote in the report notes that labour productivity growth since 1950 has averaged 2.4%, and

This post originally appeared on Pieria in July 2014.  Roger Farmer has a blogpost in which he shows that labour markets don’t clear. Specifically, employment varies with the business cycle, whereas the labour force participation rate and hours worked only show long-term secular trends. During cyclical downturns, therefore, we must conclude that there is more labour available than there are jobs. New Keynesians say that the reason for this is sticky wages . If only nominal wages could fall enough,the market would clear and there would be no cyclical increase in unemployment. Therefore there should be labour market deregulation so that wages can flex with the business cycle. Roger Farmer questions this: he argues that the market simply does not clear at any wage. I disagree. I think the market does clear – when wages fall to starvation level. Humans need a minimum income to sustain life, but employers have no responsibility for ensuring that the remuneration of employees me

The ONS's latest flash productivity estimate is rather good. Productivity in Quarter 3 2017 was up by 0.9% on the previous quarter. Here's what ONS has to say about it: Output per hour growth in Quarter 3 2017 was the result of a 0.4% increase in gross value added (GVA) (using the preliminary gross domestic product (GDP) estimate) accompanied by a 0.5% fall in total hours worked (using the latest Labour Force Survey data). This fall in total hours was driven primarily by a 0.5% fall in average hours per worker. Yes, yes, I know - economics jargon. Let me translate. ONS in plain English: People are working fewer hours, but they are producing more every hour.  Of course, this should be set against the backdrop of persistently low productivity since the 2008 financial crisis. Productivity has taken nearly a decade to return to its pre-crisis level: The ONS says that productivity has been weak because the labour market has been relatively strong during this time: Both

Scott Sumner has been reading Piketty . And in the first of (apparently) several posts he picks Piketty apart, starting with this passage: "In my view, there is absolutely no doubt that the increase of inequality in United States contributed to the nation’s financial instability. The reason is simple: one consequence of increasing inequality was virtual stagnation of the purchasing power of the lower and middle classes in the United States, which inevitably made it more likely that modest households would take on debt, especially since unscrupulous banks and financial intermediaries, freed from regulation and eager to earn good yields on the enormous savings injected into the system by the well-to-do, offered credit on increasingly generous terms." "Where does one begin?" cries Sumner. And he then proceeds to give five reasons why this particular passage is wrong: "1.  In my view there is plenty of doubt as to whether inequality contributed to the crisis

New Keynesians argue that sticky wages prevent labour markets from clearing. I disagree - I think labour markets can eventually clear. But we don't allow them to do so, because the social costs of are far too high. At Pieria, I explain why this is. Read the whole article here .

Please note that throughout this post I take "labour force" to mean people aged 15-64, which is consistent with OECD definitions. I exclude over-65s and children under 15.  Patrick Artus at Natixis notes that there is something “odd” about the US’s economic recovery. The labour force participation rate (or rather "activity" rate, as I am using OECD definitions) is falling for both men and women.  The male activity rate has been falling for a long time. But until about 2000, the female activity rate was rising sharply. It levelled off during the 2000s and is now falling. Falling activity rates are often blamed on the long-term unemployed giving up the quest for work. And indeed the US does have a long-term unemployment problem at the moment: But of course, measures of the long-term unemployed tell us nothing at all about discouraged demand: if they are reported as “unemployed”, then they are counted IN the active labour force.

My latest post at Pieria looks at labour market trends in the United States. Male employment is declining, and has been for half a century. But does that justify the claim that there is something fundamentally unhealthy in the American labour market? Is it really true to say "America isn't working"? Read the article  here .

I don't think I've ever before posted three articles on three different sites in the same day. But I have now. And what's more they are all related to each other. So for those who are interested in all things related to basic income, here are the links to the three posts with a brief explanation of each. At Pieria, my study of the Speenhamland system of poor relief, which was actually an experiment in basic income . It was vilified for depressing wages, creating labour shortages, encouraging unsustainable population growth and requiring ever-higher taxes to support it. But as I show in the post, none of these is true. It actually worked well, and the things it was blamed for were largely caused by other factors. But when it was abolished, it was replaced with the cruellest form of welfare ever devised - and it looks ominously as though we may be heading down that same path again. At Forbes, my discussion of why we need a minimum wage . If we are going to have in-work an

This is a long overdue response to Nick Rowe's question about whether some kind of "taboo" makes employers less willing to exercise their right to dismiss than workers to exercise their right to leave, thus making it more difficult for them force down wages in response to adverse economic circumstances. The argument that unemployment happens when wages fail to adjust sufficiently to changed market dynamics is a well-aired one . But explanations of "sticky wages" tend to focus on structural rigidities such as employment protection legislation. Nick wonders whether the explanation is more psychological. Just because something is a psychological effect doesn't mean it can't be quantified. Pricing intangibles is something of a black art, but as we move into a post-industrial society it will become increasingly important; you may not even be able to explain what your asset is, let alone kick it, but you go to considerable lengths to obtain it and keep it

My latest at Pieria : "Krugman has an  interesting article  in the New York Times. In it he suggests that when interest rates are at the zero lower bound and therefore (in an economy where physical cash is still important) unable to fall further, there is effectively no floor to aggregate demand. Here are his charts showing the difference between an economy where interest rates can fall and one where they can't. Classical AS/AD model. LRAS = long-run aggregate supply SRAS = short-run aggregate supply AD = Aggregate demand Krugman explains this chart as follows: "Suppose aggregate demand falls for some reason, say a global financial crisis. Then what the textbook says happens is illustrated by the red arrows. First the economy contracts, then, over time, it expands again as prices fall. And this leads to the notion that demand-side stories are all bound up with the assumption of price stickiness..... .... you should think though the mechanism by which flexible