Increasing Mobility of Low Income People to Higher Incomes

I am going to comment on an article by W. Bradford Wilcox posted at the American Enterprise Institute on income mobility in the United States.  He has presented some data of Harvard economist Raj Chetty, a principal investigator at the Equality of Opportunity Project, based on local variations of local income growth, the share of single mother households locally, and local government spending.  The mobility is question here was actually one with a very high bar.  A child born into a lowest quintile household has to be a highest quintile earner by age 30.  Most highest quintile earners are well into their careers and tend to be much older 30.

Wilcox has fit these data sets with linear functions.  The data are interesting, though the linear fits are problematic for two of his three plots of the data.  In light of the recent renewal of Obama's redistributionist efforts, only partially and even falsely carried out by ObamaVaporCare, this is a good time to talk about what really affects income mobility.

The first plot, which is reasonably fit with a linear function, is:

This is not surprising.  Where income growth is strong in America, labor is more valued and those who want to work hard have many opportunities to make money.  Of course Obama's anti-business policies, high energy costs, excessive regulations, and the costs of ObamaVaporCare decrease income growth and are therefore likely to decrease income mobility on the national scale.  Nonetheless, local government efforts to suppress the free market will still leave a strong imprint on local mobility variations.  There is no question that it is much easier to start a business in some areas than in others, as an example with important affects on mobility.

Another critical effect on income mobility is:

Clearly an increasing share of households run by a single mother has a very negative effect on income mobility for their children.  The linear fit here is nonsense.  The proper fit is with a hyperbolic curve, which indicates a much stronger impact of single mother households on income mobility than a linear effect.  It has long been understood that there was a strong effect, but this data makes it very clear how strong and dominant that effect is.  It is well-understood that entitlement programs tend to increase the number of single mother households, so most of Obama's likely efforts to decrease income inequality will likely make it worse.  One of the many impacts of his policies already has been to increase energy costs, which really hurts those with little income badly.  How local government welfare programs are run will have a big impact on the number of single mother households.  Generally, the more money spent on such programs, the more single mother households.

The third plot is:

The thought here was that local government spending supports education, so with better local education systems, income mobility would be increased.  There probably is some such effect in some school districts, but we also know that generally increased spending on schools does not really correlate well with greater learning.  In some school districts, the people do have a high regard for education, but in many other districts it is just another labor union entitlement program to gain the teachers union votes.  Many inner city school systems are well-funded, but horribly managed.  So it is not surprising that the data does not follow any definable dependence in this case.  The data more nearly resembles a hand print with the palm pressed firmly and the fingers splayed out and pressing lightly.  Indeed, the thumb is nearly straight up, indicating that one can get virtually any result from spending $2,000 per capita on income mobility.  Clearly, neither local government spending nor local education spending is the primary effect on income mobility.  This is not to say that real learning is not important.  That I am sure is a critical effect.  But, sad to say, real learning is not something Obama is interested in.

Income mobility depends upon the opportunity to earn a living, which is heavily dependent upon government policies not shutting down or over-regulating opportunities.  Because freedom of contract is heavily suppressed in the USA, many opportunities to earn are decreased.  One such egregious way to decrease opportunity to earn and to develop a career is to increase the minimum wage.  Doing so hurts the under-educated the most by keeping them from getting their first jobs.  This keeps them from acquiring skills and from establishing a record as a worthy employee.  It forces many to turn to crime.  The high costs of providing health insurance under ObamaCare and the minimum wage increases that took effect just before and during the start of the Great Socialist Recession have already had a disproportionate impact on ensuring the unemployment and part-time employment of those in the lowest quintile income households.  Obama has been no friend to the small businesses that often hire young people and give them their first opportunity to prove themselves.

It is another Obama farce to claim that he is going to do something to increase income mobility and to reduce income inequality.  As always, he will cause effects opposed to those he claims he will achieve.  Of course his main purpose in this income inequality rhetoric is to distract the American People from the disasters he has already caused in the economy and with our medical care.

Job Creation Remains Stagnated - 4.33 years of Stagnation

Almost all reports about the April unemployment numbers have been positive.  It is easy to see why people are grasping at straws given the bleak employment situation of the last four years and more.  But, a rational analysis of that situation shows it to continue in all due bleakness.  Let us observe the long term record of missing jobs based upon the percentage of the non-institutional working age population that chose and could find jobs in January 2000.  Jobs were plentiful and comparatively enticing then.  Now, not nearly so much.

The missing jobs record is shown below, based on the household survey without seasonal adjustment:

Given the record of false cost of living reporting by the government, I have been loathe to accept their seasonally adjusted employment figures for both lack of trust in their honesty and because in such extraordinary employment conditions over such a long time, it would be difficult to develop a good algorithm for the seasonal fluctuations.  So, we will need to compare April 2013 with April of 2012, 2011, and 2010 to see how the economy is doing in providing jobs.  There is only the very barest improvement since April 2012, but the number of missing jobs compared to April 2011 is virtually identical!  Worse yet, April 2010 had fewer missing jobs than the Aprils of 2011, 2012, and 2013!

This story of no improvement beyond just keeping pace with population growth, but not actually replacing the lost jobs of the deep government-induced credit collapse of 2008, has been the consistent story for 4 and one-third years now.  This has been a most extraordinary recession - - induced by government and maintained adamantly by government.

The employment record is given in detail in the table below:

Now let us compare the percentage of missing jobs, rather than the absolute number of missing jobs, for the months of April from 2010 through 2013.  Respectively, we see the real unemployment rate was 13.03%, 13.47%, 13.34%, and 13.14% for these April months.  This is pretty much as much stagnation as one can get.  Yes, the April jobs situation is not as bad as it was in March, but then in every one of the last four Aprils this has been true.  It is just part of the seasonal fluctuation in jobs.

There has been no headway in reducing the number of Americans who are working part-time for economic reasons.  In April 2012 there were 7,694,000 such unwilling part-time workers.  In April 2013, there are 7,709,000 such unhappy workers.  Far from a reduction in the high part-time work percentages created by the recession, there has actually been a small increase of 15,000 part-time workers.

In addition, there has been an increase in the number of persons working part-time for non-economic reasons, such as attending college.  These numbers have increased from 19.443 million in April 2012 to 19.829 million in April 2013.  This increase of 386,000 in part-time workers for non-economic reasons according to the Bureau of Labor Statistics classification does not necessarily mean that the reasons actually are non-economic.  In many cases, someone may be going to school rather than working because they otherwise think they cannot find a job.  Or, they may be taking care of a sick relative or children rather than paying someone else to do it, because they cannot get a good enough job to be able to pay someone else.

There is good reason to believe that the looming train-wreck of ObamaCare is discouraging small businesses from hiring full-time employees and in some cases from hiring part-time employees as well.  So, part-time work is increasing, while full-time work is in stagnation at decidedly recession levels.

This complete jobs stagnation record over such a long period is definitely the result and responsibility of the Obama regime.  The American private sector has to be knocked down continuously to keep it from recovering.  Obama and his socialist thugs are only too committed to doing exactly that.  One of their amazing feats has been to keep the American people completely distracted from the abysmal job creation record during the Obama administration time in power.  Gun control, immigration reform, and the micro-reduction in the rate of increase in government spending due to the sequester have been played magnificently as distractions from the wreckage of the American economy.

March Employment Situation Worsened

After a long period of almost total stagnation in the employment numbers, the March 2013 household survey numbers without seasonal adjustment show more missing jobs than was the case in each of the last three March months of 2012, 2011, and 2010!  Not only has there been no jobs recovery, but there is now a clear backward slide.  With Obama's European socialism economic policies, we are now seeing evidence of long-term European unemployment.  To be sure, the so-called unemployment rate fell from 8.08% in February to 7.65% in March, but this is only because the workforce participation rate fell to 63.07%, the lowest rate in the table below.  Americans are still dropping out of the labor force.  Apparently they are not feeling the Hope that Obama has so often claimed he was going to deliver to them.

Basically, the number of missing jobs is maintaining the pattern it has from the start of 2010.  There is no evidence of improvement.  Yes, the March data was a step back, but one month is of very limited import by itself.  What is important is that the pattern of total stagnation shows that Obama's anti-business policies have been very effective in preventing the economy from rebounding from the recession.  This is truly the never-ending Obama Recession.

The situation is really even worse than the missing jobs chart indicates.  More and more people are under-employed.

Many employers who had not been too worried about the implementation of ObamaCare are learning to worry about it.  Many had planned to have more part-time employees so they would not have to provide them expensive ObamaCare health insurance policies or pay tax penalties on them.  By now many have heard that the IRS is going to add up the hours of all employees and treat employers as though they have 50 employees or more if the equivalent hours of all employees equal or exceed those of 50 employees working the minimum 30 hours required to be on employer paid health insurance.  This has to have forced many employers to cut back on employees to get under the 50 employee limit or to not hire additional workers.  Many employers probably still do not know about this insidious IRS plan to sweep employers into ObamaCare.

In addition, employers are learning that the exchanges that were to provide them with some measure of health insurance options in 2014 will not now be implemented until 2015.  These employers will be forced to take a single plan, like it or not, in 2014.  They are also now hearing more and more about how much more expensive health insurance will be under ObamaCare.  All of these ObamaCare factors are very negative factors for job creation.

The ADP says for those companies with employees numbering from 50-499, the group most directly affected by the health care reform, a rather sharp slowing in job creation has occurred this year: 43,000 jobs created in January, 20,000 in February, and -5,000 in March.  Of course smaller companies do not have to provide health insurance or pay the penalty tax, but for those that do provide health insurance, ObamaCare is going to drive their costs way up.  The Society of Actuaries believes the cost will go up an average of 32% due to ObamaCare.  The costs for young workers, therefore for most new workers, will go up much more since they are expected to cover more of the costs for those in less good health, such as much older workers and the chronically ill.  Small growing companies will face much higher costs in their early years since they tend to hire more of the young workers whose health insurance used to cost much less than it will.  This will add to the woes of young people in finding their first jobs.

We may be looking back a year from now and be wishing for the jobs stagnation of the last 3.25 years.

ObamaCare Reduces Employee Hours at Colleges

Sometimes Justice pays a visit to those who have most assiduously attempted to evade it.

Obama and his Collectivist Party have had extremely high support at our colleges and universities.  Recent college graduates, including many who cannot find jobs, voted for him overwhelmingly not just in the 2008 election, but in the 2012 election when any sane person would have known better.  The faculty and support staff of most colleges and universities have been even more fanatical supporters of the socialist president and the Democrat Socialist Party.  Most of them eagerly supported ObamaCare, the law no one read and most of which was subsequently written in reality by bureaucrats, who are still busy writing it.

The Justice is that most colleges are now under some financial pressure and finding it hard to allow their operational costs to exceed the inflation rate several times over for the first time in decades.  Many, in their mad quest to add more and more administrative personnel, had been scrimping on faculty for a long time.  In 1975, full time non-tenure track faculty and part-time adjunct teaching staff were 43% of the faculty at U.S. colleges.  In 2009, they had grown to 69% of the faculty.  Tenured and tenured track faculty have shrunk dramatically, which supposedly would mean that teaching skills have decreased as well.

It now turns out that ObamaCare is causing numerous colleges to reduce the hours of their long-growing adjunct professors to fewer than 30 hours a week so that they will not have to pay the penalty tax for not providing them with health insurance.  See the Wall St. Journal of 19-20 January 2013 for more on this.  They most certainly do not want to actually provide them with health insurance since the ObamaCare insurance requirements are causing the cost of health insurance premiums to skyrocket.  The worst of the cost increases are just about to land hard on employers everywhere.

Of course colleges are not just planning to reduce the hours of adjunct professors.  They plan to reduce the hours of many on their support and administrative staffs also.  Just as restaurant chains and retail chains are reducing the number of hours of their employees to less than 30 hours a week, so are many colleges planning to make such reductions.  In the ObamaCollectivistNation, fewer and fewer people will have full-time jobs.  It was really the same in the Soviet Union, where 12 people commonly stood around and watched as one or two people did some work.  Of course, there they pretended they all had part-time jobs, but they were paid in accordance with the work they did not do.

A Mr. Balla, an adjunct professor at Stark College in North Canton, Ohio, said after receiving a letter informing him of his reduced hours:

I think it goes against the spirit of the law.  In education, we're working for the public good, we are public employees at a public institution; we should be the first ones to uphold the law, to set the example.

 He says he will not be able to afford ObamaCare insurance on his own.  Poor special person!  Perhaps he should just suck it up and find a job in the private sector that he looks down his nose at and learns how hard it is to earn a living while carrying all the entitlees  and "public" employees on your back and obeying the flurry of unreadable and unintelligible regulations and the many irrational mandates of the local, state, and federal governments.  It really irks me that these people claim to be serving the "public" when they are so clearly serving themselves as privileged rulers over the brutes they think populate the private sector.  This guy claims his right to the Cadillac ObamaCare insurance provided by the taxpayer even as millions of private sector workers have their employment hours reduced because of his lovely ObamaCare tyranny.  He claims his special privilege as a worker for the public good even as tax revenues from the many with fewer hours worked in the private sector must go down.  But, our saintly educator must get his privileged health insurance despite any such inconvenient reality.  The Federal Reserve will surely just print the additional needed money and give it to the colleges.

The colleges have long failed to serve us well.  They are bastions opposed to the sovereign individual rights of each of us.  They have long favored collectivism and opposed the American Principle of limited government with powers so restricted that it could not violate individual rights.  Their man Obama just reiterated his allegiance to collectivism and his real opposition to our individual rights in his Second Inaugural Address.

What is more, they do not even do a decent job of preparing their students for work in the private sector.  They are turning out droves of young people too privileged to actually be willing to work hard.  Their student product is ignorant of civics and U.S. history, of economics, of business reality, of the climate, of fossil fuels and their use, of writing skills, of logic and the construction of rational thought, and of science.  Most fallaciously believe they are qualified to choose the values by which others shall be forced to live their lives and able to choose politicians who will micromanage our incompetent lives in the private sector.  They are so full of themselves and so very hollow in reality.  Just like our Mr. Balla.

Well, their support for ObamaCare is about to result in their shooting themselves in the foot.  At least unless the efforts of such college groups as the American Association of Community Colleges to get the IRS to write the rules to exclude colleges from ObamaCare's requirements works.  The Obama regime has a tremendous propensity for writing administrative rules that exclude their biggest supporters from the rule of law.  We have already seen them write massive exceptions for unions and for companies from Nancy Pelosi's district.

Speaking of unions, more and more of college adjunct professors are already in unions.  About 37% of part-time non-tenured faculty are in unions already.  The colleges are fearing that putting these people on fewer hours will cause even more of them to join unions.  It is very funny that unions and their Collectivist Party are nearly universally supported on college campuses,  until unions approach their lower paid faculty and threaten to make the colleges pay them more money.  Colleges are rather the ultimate joke when it comes to hypocrisy.  How ironic that the ObamaCare that they cannot afford will push more of their lower paid faculty into unions that will demand higher pay they cannot afford.  Yet the justice come home to roost upon these bastions of irrationality is really quite sweet.

Obama's New Normal Part-Time Economy

Average hours worked for all non-farm private employees has been stuck at 34.4 hours for 4 months now.  The average hours for non-farm private production and non-supervisory employees dropped 0.1 hours in October to 33.6 hours.

Real per capita GDP is $50,166 through the third quarter, but it would be $55,932 if long-term historical trends had not been replaced by the Obama "new normal."  This loss of $5,766 per person is sorely felt.  High unemployment and all-too-common part-time employment has kept the economy from expanding at historic rates.

As Mike Shedlock has noted, the recovery of hours worked following the period of nominal GDP contraction shown in the light blue region of the plot below has stalled out.  The earlier rate of increase was substandard following a recession.  For many months now, Obama's "new normal" has settled in.  The question is, are Americans ready to settle for the Obama "new normal."

There is no reason at all to do so.  The U.S. economy is more than ready to recover, if only Washington will stop doing everything it can to prevent business success.  One of the big factors is the pressure that ObamaCare, really ObamaUncaringTax, is putting on businesses to convert full-time positions into part-time positions.  ObamaCare defines full-time employment for the purposes of requiring health insurance coverage or the payment of a penalty by the business as a mere 30 hours of work a week.  As a result, many businesses are putting a limit of 25 to 28 hours a week on their employees.  The tax assessment on employees requires a look-back period of 3 months to a year, to be selected as an option by the employer.  Consequently, companies have had to ensure that at the latest, many of their employees had less than 30-hour workweeks for more than the last 3 months of this year.  The Obama "new normal" is a 25-hour workweek for many Americans.

Further Comments on the Dismal September Jobs Report

Here are some further comments on the September jobs report we should all be aware of:

• The increased employment of Americans only affected white Americans.  The employment rates for blacks, Hispanics, and teenagers were unchanged at their much higher rates.
• The long-term unemployed number changed little.  40.1% of the unemployed have been unemployed for more than 27 weeks.
• The number of people employed part-time for economic reasons increased by 600,000, which is equal to most of the 775,000 new jobs that were supposed to have been created in September according to the household survey!
• The establishment survey total non-farm payroll employment was up by only 114,000 in September, which is way below the anemic 2012 average of 146,000 per month and still more below the pitiful average per month in 2011 of 153,000.  It is important to note that 114,000 establishment jobs is far, far less than the household survey number of 775,000.
• Employment rose in health care, transportation, and warehousing.  The increase in transportation and warehousing at this time of year may be in anticipation of Christmas.
• Manufacturing employment dropped by 16,000 jobs.

There was a 206,000 person increase in the working age population available for work in September according to the household survey.  If the same fraction of these people were to become employed as were in January 2000, when jobs were plentiful, then 133,426 of them would have needed jobs in September.  Even to hold the sorry ground now in which a smaller fraction of the population is employed, 121,128 would have needed jobs.  Established non-farm businesses only provided 114,000 jobs, so this population growth was not even accommodated.

On the other hand, the household survey data says many more new jobs were created, so most of those additional jobs are self-employed or in the farm sector.  We also know most of those jobs are part-time jobs due to that 600,000 increase in part-time jobs.  My expectation is that many of these jobs are due to people who have been long out of work setting up their own business at home.  We know this to have been the case for a very large fraction of the new jobs created since the depths of the recession.  Desperate families may also have wives who are raising children setting up more businesses to earn a few dollars to pay for the rising cost of living and to supplement the falling incomes of husbands.  We know that women have been setting up their own small businesses in record numbers.

Median household income adjusted for the official, understated cost-of-living was down to $50,054 in 2011, or 8% less than in 2007.  Properly adjusted, household incomes were even more degraded.  This should drive people into the part-time workforce who would not normally be there.  So, while capitalized start-up businesses have been way down, home businesses with no real capital have been growing in numbers.  Unfortunately, most of them generate considerably less income than would a job at an established business.

It has been pointed out that in years past, employment of 18 to 25 year olds has fallen drastically in September as students returned to college and gave up their summer jobs.  Not this September.  Also not last September.  I suspect two things are going on here.  One is that these last two summers, many fewer students were able to find jobs in the summer, so the student drop in employment in September was much less due to them returning to college.  The other effect is that with college expenses having increased much more than family incomes have for many years and the actual loss of real family incomes over the last few years, many more students may have very part-time work-aid assignments at their colleges as part of their student-aid package.  In the past, the BLS was inclined to ignore these very part-time college jobs and not count these students as employed while in college.  What if they are now very assiduously counting these work aid students as part-time employed in the household survey?  This would account for the strange increase in employment of 18 - 25 year olds these last two Septembers and for the huge increase in part-time jobs precisely in the month of September.  [Update on morning of 10 October 2012.]

We are also hearing more and more reports that many businesses such as restaurants and other service businesses are more and more reluctant to hire full-time employees with the onset of the ObamaUncaringTax program, sympathetically called ObamaCare.  There is already a switch to hiring part-time workers.  Restaurants are adopting the policy of mostly hiring people for 28 hours a week.  An employer needs to hire about 43% more people at 28 hours a week compared to at 40 hours a week.  That is good for a major surge in hiring which Obama is happy to claim is all his doing.  In a way it is, since he gave us ObamaUncaringTax.  Of course that program will ultimately also cost Americans not just full-time jobs, but it will also decrease the total number of hours for which people are hired across the nation.

Overall economic activity will slow as a result of ObamaUncaringTax.  In addition to discouraging the optimal use of employees, it will also be adding to the corporation tax and making us still less competitive with the corporations of other countries.  It adds to our medical care and insurance costs, redirecting the additional money we are forced to spend on overburdened doctors and hospitals from other parts of the economy.  There was already going to be considerable redirection of money into the medical sector due to the aging of the Baby Boomers.  That was already going to cause many problems in our society, including people losing jobs in other industries as a result.

Now Obama and the Democrats have decided to make that problem and the wrenching effects much worse by adding many more medical service demands from younger, more healthy Americans.  After all, if you have to pay for a government approved plan with a low deduction and with many services most Americans have not previously thought were worth paying for, you are going to use more medical services.  Doctor visits for reasons of low importance will go way up.  Pity the frazzled doctors, except those with enough intelligence to refuse to take time for such patients.  In practice, that will mean that more doctors will be refusing to take Medicaid patients and those on ObamaCare insurance that pays them less than the free market would under their still more over-worked conditions.