Contract workers: Who’s the boss?

Courts and regulators turn the screws on firms that use irregular workers

September 4, 2014

FEDEX, Walmart and McDonald’s are among America’s largest employers. Yet many of the people who drive FedEx’s delivery trucks, staff Walmart’s warehouses and serve McDonald’s hamburgers are not their employees. Instead, they work for subcontractors, franchisees or themselves.

Flexible work arrangements have long been a hallmark of America’s ever-shifting economy. Lately, though, they have drawn more criticism. Earlier this year David Weil of Boston University published “The Fissured Workplace”, which argues that many employers have met competitive pressures by splitting off functions to subcontractors, vendors and franchisees, where workers’ wages and benefits stagnate. On September 3rd the OECD, a club of rich countries, fretted that a divide is opening between secure, permanent jobs and insecure, ill-paid temporary ones.

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Free exchange: Fluid dynamics

America’s famously flexible labour market is becoming less so

Aug 30th 2014 | From the print edition

AT FIRST glance, the labour markets in America and Europe could not be more different: in the former unemployment has fallen steadily since 2010, while in the euro zone, it is still close to an all-time high. Not surprisingly, Janet Yellen, the chairman of the Federal Reserve, and Mario Draghi, the president of the European Central Bank, struck very different notes at an annual economic conference held in Jackson Hole, Wyoming, in late August. Ms Yellen made it clear the Fed is debating how close the economy is to full employment and thus how soon rates, currently near zero, should rise. Mr Draghi, in contrast, hinted that more measures to stimulate the European economy are in the offing.Yet Ms Yellen, Mr Draghi and many other central bankers at the conference share a common concern: their labour markets are bifurcating into secure, predominantly skilled jobs on the one hand and insecure, mostly unskilled work on the other. The fear is that the split is due to inflexible labour markets that make it hard to climb up the job ladder.Historically, Europe and Japan have suffered more from inflexible labour markets. In Spain, for example, centralised wage bargaining and other protections for workers made it difficult for employers to sack permanent employees or cut their wages (these rules were recently eased). Instead, firms hired armies of temporary workers, who bore the brunt of the massive job losses that began in 2007. Similarly, the prevailing system of “lifetime” employment made it hard to reduce labour costs when deflation ate into Japanese firms’ profits. They have responded by making ever greater use of part-time workers with few protections.

Bandwagon behaviour: Why missing out on one job application is bad news for your chances in the next

Jul 20th 2013 |From the print edition

[Greg Ip] A TRULY informed diner would choose a restaurant based on the quality of the menu and the chef’s experience. The discerning investor would decide which company to back after studying the business plan and meeting the founders. In reality, people often copy the choices of others. Diners pick the crowded restaurant over the empty one. Investors go with the company that already has multiple backers.

Such bandwagon effects are not necessarily irrational. Often, the buyer knows less about a product than the seller; the collective wisdom of the crowd can correct for such “asymmetric information”. It can also be a way of coping with a surplus of choice: rather than study 100 models of music player, why not assume the market has already figured out the duds?
The existence of bandwagon behaviour can be hard to prove. A product or an asset usually becomes popular (or unpopular) in the first place because it is genuinely superior (or inferior). But some have tried to isolate the self-fulfilling effects of popularity. One 2004 study* by Alan Sorensen, now of the University of Wisconsin, examined accidental omissions from the New York Times bestseller list. By comparing the sales of books that did make the list and unlisted books that should have, the author could isolate the effect of inclusion—a modest boost to first-time authors’ sales. In a 2008 study by Matthew Salganik of Princeton University and Duncan Watts, now at Microsoft Research, participants tricked into believing a song was more popular than it actually was were more likely to download it.

Scholars are now asking whether herd behaviour also prevails in labour markets.

Where did everyone go?

Demography may explain the weakness of America’s recovery

Mar 23rd 2013 |From the print edition
[Greg Ip] MILTON FRIEDMAN once compared the business cycle to an elastic string stretched on a board. How far the string is plucked determines how much it springs back; similarly, the depth of a recession decides the strength of recovery. America’s recent experience has not been kind to the plucking model. Although the recession was the deepest since the second world war, the recovery has been a disappointment. In the three years since the end of the recession in mid-2009, growth averaged 2.2%, barely half the 4.2% average of the seven previous recoveries.

In part, this is because recoveries from financial crises face greater difficulties. Consumers are too much in debt; businesses cannot or will not spend; a damaged banking system stifles credit. But in its annual economic report, issued on March 15th, Barack Obama’s Council of Economic Advisers argues that this is not the whole story. The plucking model presumes that after a recession, the economy returns to an underlying trend rate of growth that is determined by the supply of workers, capital and technology. Mr Obama’s economists argue that the trend is now much lower than in the past. The recovery, then, is not nearly as disappointing as it is often portrayed; Americans have set their sights too high.

Raising the minimum wage: Trickle-up economics

The president proposes a hefty increase in the minimum wage

Feb 16th 2013 | WASHINGTON, DC |From the print edition

[Greg Ip] BARACK OBAMA has long made income inequality a central theme of his second-term agenda. He has already tackled inequality from the top by preserving tax cuts for everyone but the rich. In his address to Congress on February 12th, he dealt with it from below, proposing to raise the federal minimum wage by 24%, benefiting, so the White House claimed, 15m low-wage workers.

America’s minimum wage has long been low by international standards, equalling just 38% of the median wage in 2011, close to the lowest in the OECD (see chart). Congress changes it only occasionally, and in the interim inflation eats away its value. The wage was last raised, to $7.25 per hour, in 2009. Since then its real value has slipped back to where it was in 1998. Twenty states now have minimum wages above the federal rate, compared to 15 in 2010, according to the Economic Policy Institute, a liberal research group.

Mr Obama’s proposal would boost the nominal wage to $9 per hour by 2015, restoring it, in real terms, to its 1979 level, though relative to median wages it would still be lower than in many other rich countries. Thereafter, it would be indexed to inflation. He would also raise the minimum wage for workers who receive tips for the first time in over 20 years.

The proposal drew the predicted response: labour and liberal groups said it would reduce poverty and raise the spending power of the poorest workers, while businesses and Republicans (whose co-operation is needed if the proposal is to become law) said it would cost low-skilled workers jobs.

America’s jobs numbers: A steady pulse

Dec 7th 2012, 16:57 by G.I. | WASHINGTON, DC

AMERICA’S jobs numbers are less freighted with political significance now that the election is over, but they’re still an important measure of the economy’s pulse. The numbers released on November 7th show that the pulse is steady: employment growth remains moderate and unemployment continues to fall faster than the economy’s strength can explain.

Non-farm payrolls rose last month by 146,000. Wall Street had expected only half that number because of the impact of Hurricane Sandy, which struck at the end of October, just before the Bureau of Labor Statistics surveyed employers and households. But the BLS said, “Our analysis suggests that Hurricane Sandy did not substantively impact the national employment and unemployment estimates.” Nevertheless, payrolls in both September and October were revised down, by a combined 49,000.

Social media and job titles: A pixelated portrait of labour

Mar 10th 2012 | WASHINGTON, DC | from the print edition

 OFFICIAL statistics can tell you how many workers were jobless last month, how many had college degrees and how many worked in construction. But they cannot tell you how many know Hadoop, a software for managing data that is much in demand these days.LinkedIn, however, says it knows that, and much else gleaned from the profiles of its millions of members. The social-media website for professionals can tell you that one of the fastest-growing job titles in America is “adjunct professor” (an ill-paid, overworked species of academic). One of the fastest-shrinking is “sales associate” (see chart).

Researchers already mine the internet for hints about disease outbreaks, the national mood or inflation. LinkedIn thinks its data can do the same for the job market. It has more than 150m members worldwide, 60m of them in America. That should be enough to draw accurate inferences about the entire American labour force.

College enrolment: Snob nation

Surging enrolment may help explain a labour-market puzzle

Mar 10th 2012 | WASHINGTON, DC | from the print edition

 [Greg Ip] ON FEBRUARY 25th Rick Santorum, the second-ranking Republican presidential hopeful, called President Barack Obama a snob for advising everyone to get themselves a college education. America, apparently, is a nation of snobs. In a recent poll 94% of parents said they expected their children to go to college. And in January almost 60% of Americans aged 16 to 24 were enrolled in school, an all-time high for that month.

Enrolment has been rising for decades, egged on by parents, presidents of both political stripes (not to mention Mr Santorum, when a senator) and the rising wage premium that college graduates command. The recession added an extra kick. Enrolment rose from 57% in the 2007-08 academic year to 59% in 2010-11.

Jobs and the economy: A game of two halves

Employment springs to life; will it fade again?

[Greg Ip] Feb 11th 2012 | WASHINGTON, DC | from the print edition

EVEN people who don’t normally care much for football tune in to the Super Bowl to watch the best commercials Madison Avenue can dream up. The most talked about this year was Chrysler’s gritty tribute to the economic revival of America and Detroit. More short film than commercial, it ends with the actor Clint Eastwood huskily declaring that “Our second half is about to begin.”

The muscular patriotism brought lumps to the throats of sentimental viewers; the more cynically minded called it a re-election ad for Barack Obama, whose administration saved Chrysler from oblivion with a bail-out in 2009. A better explanation may simply be timing: it coincides with the best evidence in months that America’s economy, led by manufacturing, really is on the mend.

Five days before its ad aired, Chrysler, now part of Italy’s Fiat, reported its best January sales since 2008, up 44% from a year earlier. The next day it announced it would hire 1,800 people at a plant in Belvidere, Illinois, to build its new Dodge Dart. The good news is hardly confined to Chrysler. The auto industry as a whole sold 1.2m vehicles in January, many more than expected, and a 4% increase from December.

The American economy: A very good week

Dec 2nd 2011, 14:10 by G.I. | WASHINGTON

 PERHAPS it’s time to dial back some of the gloom. This week gave us positive news on two fronts. First, the underlying American economy seems to be in reasonably good shape. Second, the biggest risks hanging over the economy—policy errors in America and Europe—receded just a bit. It is not time to declare the all clear. This recovery, having disappointed so many times before, probably will again at some point.

But for now, let’s look at  the positive case.