In the News: Part Time Work May Be the New Normal for a while...

This posting is of major interest to ECON 2301 Students.  However, some ECON 2302 angles may show up as well.  As always, any articles I have analyzed in this blog are OFF LIMITS to my students for use in their Article Analysis papers due later in the semester.  

On September 2nd (Labor Day), USA Today published an article entitled "Is Part Time Work The New Normal?" The article details how it's not just folks in their 20s, but folks in their 30s and 40s who are juggling part time jobs, many a mix of professional and so-called McJobs (thank you Douglas Coupland, author of Generation X for coining that brilliant term) in order to make ends meet.  Some of this is the result of our slow, anemic recovery from our most recent recession in the business cycle, some of it may be due to other factors. Per the article, involuntary part-time workers — those who are seeking full-time work or holding multiple jobs — remain between 19% and 20% of the nation's workforce, up from 17% in 2007.

While some folks are happily saying we are almost fully recovered, the details are saying "not so fast!"  As the article stated very directly "Of the nearly 1 million new jobs created this year (2013), 80% or 800,000 of them are PART TIME positions."  This then begs the question:  if the jobs created are only part time jobs, then why is the unemployment rate going down?  Shouldn't it not go down as much if the jobs created are part time?  Actually, as usual, things are a lot more complex than they seem.

First of all, the way most countries measure their labor force is by head count, not by workers working 40 hours per week or annual salary paid jobs.  According to the US Dept. of Labor's standards, all that a person has to work is 20 paid hours in the 4 week period prior to the day of record (2nd Wednesday of the month) in order to be counted as a fully employed member of the Labor Force.  This goes against the way many managers measure employment--FTE or full-time-equivalent, which is 40 paid hours in a week.  Someone who works 5 hours a week is one-eighth of an FTE, not counted the same as a full timer.

Second, anyone who has not had paid hours recorded (this is measured by Social Security or Tax ID) during the 4 week period before the Day of Record, but has been filling out job applications (again, SSN/TID tracks this) is counted as an Unemployed member of the Labor Force.  Anyone who has neither had paid hours nor has been applying for work is not in the Labor Force at all.

The unemployment rate is simply a percentage calculated from the total number of unemployed Labor Force members, divided by the total Labor Force Members both employed and unemployed.  There is no distinction made for small hour part time labor, 1/2 time, 70%ers or Full Timers.  All labor force members who are being paid and having FICA taxes coming up under their SSNs are fully employed by the government's measuring stick.  The government does an annualized measure of the unemployment rate every month and produces the official reading for each calendar year.

Typically during recession in the business cycle--the part of the downturn that's below the secular trend line, where production and spending start to drag the trend down and involuntary (aka cyclical) unemployment is on the rise--part time jobs start to become more commonplace.  However during recovery in the business cycle--the part following recession and trough where spending and production are rising, but are still below the trend line--there is usually a gradual increase in full time employment.  Although spending and production have risen, the question is why haven't the number of Full Time positions risen along with them?  There are several factors at work that need to be examined:

1.  Recovery is NOT the same as Expansion
Too many Economics Textbooks have dumbed down the business cycle and lumped recovery and expansion phases together.  The reality is that recovery is still below the secular trend in the business cycle, while expansion is above the secular trend.  Recovery means you're trying to get back to the position on the trend line you were at production/spending wise before the recession.  Expansion is where real economic growth is happening.  The reality is that the US Economy has had a SLOW ANEMIC RECOVERY and we are not at or above the secular trend line at present.  It's possible pundits and politicians are in such a hurry to declare the recession over they are ignoring reality.  They need a reality check.

2.  Businesses are trying to Keep Costs Low
Many businesses had to find creative ways to reduce their operating costs in order to survive the most recent recession.  For most owners and operators of businesses, labor costs are the easiest cost to control.  For one, hourly wage labor is an example of a variable cost--costs directly tied to quantity of output produced by a firm.  When a firm sells more output, variable costs are higher, and when a firm sells less output as is the case during a recession, the firm's variable costs are lower.  Some of these costs are easily controlled, like electricity and water usage, which are used instantly.  Some, like materials used to make products, are more difficult to control as usually these are bought in bulk and are used gradually, rather than instantly.  Labor is neither instant nor gradually used, but falls somewhere in between.  If a burger joint's manager checks the sales in the register and sees the revenue the firm has earned for a shift has fallen below costs, they can't suddenly get the price per pound they paid for the beef in the freezer or the potatoes in the cooler reduced, but the manager can send 2 people home, cutting his labor cost for the shift by 6 worker hours or about $60.00 in total in the Houston area.

On a larger scale, there is a huge difference in costs between full time and part time workers, whether they are hourly wage or salaried workers.  Besides the paycheck differences, full time hourly wage workers who work 40 hours per week or more must be provided health insurance per federal law prior to Obamacare (see below).  However, in some states, the law is 20 to 25 hours.  Additionally, providing retirement savings, professional development training, disability insurance and other such benefits are common, even where not mandated by law.  In order to reduce the costs of employing workers, many companies reduced the hours of the majority of their staff to under 40 hours in order to cut the extra costs of benefits, the most expensive of which is Health Insurance.

3. Worker Attitudes are changing about Part Time Employment
Per the article:

"The number of jobs that need to be done by full-time employees continues to diminish," said Carl Camden, president and CEO of Kelly Services, a global temporary staffing agency, based in Troy, Mich. "Work has become more fragmented, and more people are willing to work in non-traditional environments." Since 2008, the percentage of people in the workforce regarding themselves as free agents has grown from 26% to more than 40%, according to a Kelly survey. Employees — especially Generation X workers in their 30s and 40s — want more freedom to set their own hours and create their own enterprises, and older workers — baby boomers in their 50s and 60s — are retiring slowly and taking on part-time jobs

I've heard it said by the Silent Generation (those born 1925 to 1945, my parents' generation) and some of the OLDER  Baby Boomers (Born 1946 to 1964, talking of those born in 1950s and earlier) that too many young people--Generation Xers (born 1965 to 1979, my generation) and Millenials (Born 1980 to 2000) have no sense of company loyalty and change jobs almost as fast as we change Facebook friends.  This is not entirely accurate, but there is good reason for this perception to prevail.  Look at the last 5 years, plus the first few years of the 1990s (when I completed my degree):

2007 to present feels A LOT like 1991 to 1995.  These were years of Recession, slow economic growth and limited opportunities.  During both these time frames you had people finishing advanced college and graduate degrees with very few job opportunities out there.  I personally knew 3 people who were doing everything they could in 1992 to get scholarships to earn another Master's Degree so they could work as a Teaching or Research Assistant since there was no demand for their degrees in the private sector.  I recently met a young Barista at Starbucks who changed his major from Accounting to Engineering because as a junior in college, he was not finding any internships, and friends who were graduating were finding no jobs out there for them.  However, he'd found there were lots and lots of jobs out there for engineers and he was having to extend his degree plan from 4 to 6 years in order to graduate with a degree that was employable.  It's kind of hard to do that midstream but the Economy and society change at an accelerated pace these days and those who don't adapt fast can get left far behind before they realize it.

I personally had 3 part time jobs between 1992 and 1994--weekdays banking, 2 evenings a week as an adjunct professor and weekend sales in a health food store.  I had to do these 3 jobs in order to pay rent, utilities, buy food and pay my car note & student loans.  I did not have the option of moving back to my parents' house because the economy where they lived was even worse than it was in Houston at that time and I had to stay where there were opportunities to get ahead.  After 2 years of that, I obtained a full time position in the bank, ditched the Health Food store sales job, but did not stop teaching Economics part time because I'd seen too many coworkers in banking lose their job over something trivial or due to cost cutting procedures by the bank.  I can also tell you for a fact that many of the faculty at HCC, Lone Star College, San Jacinto College, Wharton College, University of Phoenix, Devry and Strayer University are Adjunct Faculty (part time) at 2 or 3 other institutions of higher learning in the Houston area.  This is because these colleges, in order to keep costs and tuition down, hire mainly part time faculty.

Additionally, the amount of offshoring of skilled jobs like accounting, tech support and customer service to foreign countries like India, the Philippines and Taiwan has put degreed professionals in fear of their livelihood and has made them feel they have to keep looking for the next job while they are employed in their current job.  There's also the feeling that if the job that you do well can be easily replaced with a cheaper alternative over Skype, the company is not showing you any loyalty, so why should you show them what is not reciprocated?

Other workers want to give themselves flexibility by working multiple part time jobs instead of one full time job.  I personally know people that work a morning part time job and an evening part time job, but are off from 2 PM to 6 PM to pick up their kids from school and work with them on Homework, whereas a full time job of 8 to 4 or 9 to 5 doesn't offer this kind of flexibility. This also frees up their time to pursue other ventures.  I know a number of part time employees of restaurants, colleges, accounting firms and law firms who have side businesses they are developing.  There have been more than a few entrepreneurs who used their spare time to start businesses while working part time, making their own opportunities when job opportunities fail to show.

4. Obamacare is the Elephant in the Room
It is a favorite argument of some folks that the reason why Full Time jobs aren't making a comeback despite the recovery is due to Obamacare becoming law in the next couple of years.  The major provisions of the law:

• Full time as defined by this law is 30 hours per week or more 
• Those employers with at least 50 full time employees per that definition must provide “qualified” health coverage for all of their full-time employees
• Those who don't must pay an annual penalty of $2,000 per full-time employee (after the first 30) if they don’t provide such coverage. If they do provide coverage but it’s not affordable, the penalty is $3,000 per employee who finds it unaffordable (with a cap at the penalty they’d pay for not offering coverage at all)
• “Affordable” is defined as less than 9.5% of the employee’s family gross income

The penalty is assessed on a monthly basis. In other words, if an employee works 121 hours in a given calendar month, that 121st hour costs the employer $166.67 (one-twelfth of $2,000), in addition to the employee’s pay for that hour and the payroll tax on that amount. That’s a hefty charge, and it’s much more than the hourly rate typical for part-time employment in most industries.

• If the employer decided to let the employees work more than 30 hours (and pay the penalty), the money to pay the penalty would have to come from somewhere. 
• It could come from reduced profits, higher prices – or lower pay for workers. Many business run at very slim profit margins, so it’s unlikely that they could take the entire hit to their profit and stay in business. 
• Business‘ ability to raise prices is limited by customers’ willingness to pay. Chances are, employees would have to absorb some of the penalty – perhaps most of it – in the form of lower wages.
• For workers making at or near the minimum wage, there is even less flexibility. The wage cannot be reduced by federal or state law if the state minimum wage rate is higher than the federal, so the employer’s only option is the reduce work hours to avoid having to pay the penalty.

The easiest way for many businesses to avoid these penalties is to do what Hobby Lobby, Wal-mart, Restaurants and even some colleges have done:  reduce the majority of their staff's paid hours to 25 hours per week or less in order to avoid the penalties Obamacare would charge them for not providing health insurance to their employees who work in the 30 to 40 hour per week range.

The irony of all this is that the number of jobs created would increase, while the average workweek for employees would be reduced by 25 to 30%, along with the average paycheck for those employees.

However, defunding Obamacare or not enforcing it won't magically make full time jobs reappear.  
If you re-read my earlier statement, businesses have had to cut costs rigorously well before this oncoming federal law due to the state of the economy.

A Reality Check to All of us 
The reality is the only thing that will bring about growth in the number of full time jobs will be a combination of dropping production costs, rising sales of goods and services and an increase in the rate of real economic growth within the economy due to a real increase in production and sale of goods and services.  While our economy has experienced some growth during this recovery, the rate of growth has been slow.  Looking at the chart below, we had negative growth in real GDP for a few years, at one point as bad as 4.1% drop.  The recent 2 years had a growth rate that was much better, but the average rate of growth in GDP has been 1.00% for the past 5 years.  Usually for healthy growth, real GDP has to grow by 3% or more each year, and that's not what we've been having lately.  The past 3 years have basically offset the losses of the previous few, which means we've moved back to where we were when the recession was underway, but are nowhere near positive growth.

As always, any one of my students who makes a good, thorough, well-reasoned comment MIGHT earn an extra point on an upcoming test.  Non-students, I welcome similar comments from you.  Stick the the economics, check your politics at the door (especially the extreme Liberals and extreme Conservatives)!

Success to you all!!!

Professor Hank

In the News: Price of Beef and Cattle

As a man who loves a good ol' char-grilled steak, the price of Beef and Cattle are of great interest to me.  As an Economics Professor, I also recognize the work of market economics in driving the price and availability of good steaks and beef.  Cattle are the resource that produces beef.  The cost of cattle drives the cost of beef and ultimately affects the price you pay for a steak in a steakhouse, a pot roast at a local grocery store or a burger at a local burger joint.  Texas is one of the largest producers of cattle and beef, and the markets for both of these have been affected by a number of factors.

In the Houston Chronicle, back in May of this year, it was stated that Cattle prices were rising as ranchers began rebuilding their herds.  2011 was a severe drought in Texas and much of the North American Midwest from Manitoba through the Dakotas, Nebraska, Texas and all the way down to Sonora and Chihuahua.  These are regions where a lot of agricultural products--especially grain and cattle--are produced in North America.  Per the article:

A quality cow that sold last year for no more than $1,800 now fetches about $3,000. The
average price for a bull is up $500. And a cow with a 300-pound to 400-pound calf by her side is selling for about $2,800, sometimes more than $3,000 — almost double the $1,700 they commanded two years ago. 

Last year's historic drought forced ranchers to cut their herds because they had no grass and couldn't afford high hay prices. Hundreds of thousands of cattle were slaughtered or sent out of the state, leaving Texas, the largest livestock producer in the nation, with its smallest herd since the 1950s.

All of these factors are pointing to shifts in Market Supply and/or Market Demand.  

Lets break this down one step at a time:

2011 Market for Beef

In 2011, there was a severe drought.  As a result of this, the cost of maintaining cattle being raised for beef went up since ranchers had to buy hay or grain, and pay more for water in order to raise cattle.  The end result was an increase in the slaughter of cattle, making the supply of beef (meat produced from cattle) increase.   This particular factor (the excessive, unexpected drought of 2011) is called Supply-side Sunspot activity.  The fact that weather is beyond the control of ranchers and that it affected their cost of maintaining cattle led to the thinning of the herd at that point in time.  (Consider: what does thinning of the herd do to the ranchers' operating costs AFTER their herds are thinned?) The Graph to the right shows that the equilibrium price of beef last year dropped due to the extra cattle slaughter, flooding the market with cheap ground beef, steaks and other prime cuts of meat--equilibrium quantity of Beef rose while equilibrium price of Beef dropped.

2012 Market for Live Cattle

Now fast forward one year.  During the past winter, we had plenty of rain, watering ponds on ranches filled up, the grass grew thick, lush and green again and now Ranchers are looking for cattle to restock their herds.      As a result we see the price of cattle increasing due to the Ranchers wanting and being able to buy more cattle to restock their herds.  (Consider:  which curve is moving for cattle?  Why is it making the price of cattle rise?)  Since many ranchers are considering this to be a better year and many are optimistic, they are buying up more cattle.  Ranchers are the buyers in the market for live cattle, and therefore this is a case of a shift in market Demand, caused by a change in consumers' expectations of the future.    The graph on the left illustrates how when market Demand increases with no change in Supply, equilibrium price and quantity increase.

Jason Cleere, a rancher and beef cattle specialist with Texas AgriLife Extension at Texas A&M University, believes that while ranchers are restocking, they remain cautious. The rains have slowed significantly in the past month, and many ranchers are heeding climatologists' warnings that the next decade in Texas will be relatively dry. They're keeping herds small so they're better prepared for the next, inevitable, dry spell. 

"Ranchers in general have been a little bit more conservative on going out and rebuilding because they want to see what happens as we move into the summer," Cleere said. "Ranchers went through a lot of cash reserves last summer, and they can't do that again this year." With cattle prices high, cash reserves low, the weather uncertain and calves taking nine months to be born and several years to be ready for slaughter, many estimate the beef industry may need five years to fully recover. 

It's a layered business. There are those who raise cattle for breeding. They sell to ranchers who raise cattle for beef and breed their herds to restock. Livestock dealers buy cattle from those ranchers and sell the animals to feedlots, where they are fattened up before heading to slaughterhouses.  The drought impacts each layer of the market differently.  

 Of course, what most of us who consume beef want to know is how will this affect the price of our favourite steaks, burgers, ribs and brisket?  And you students need to speculate on how each layer of the market as affected and how it ultimately plays out for the consumer of the final good.

Questions for the Comments Section:


1.  What does the increase in the price of cattle do the the costs of raising them to the ranchers who breed cattle?  The ranchers who raise cattle for beef?  The ranchers who raise cattle to produce milk/dairy products?


2.  How do these events affect Livestock dealers and the price of cattle sold to feedlots?  


3.  How do all of these things ultimately affect the price of a steak or a burger to the consumer?  


Remember:  Although both S & D curves may shift usually one shifts by a greater magnitude than the other, dominating the effect.  


Success to you all!!!

Prof. Hank Lewis

In the News: Federal Reserve's Top Trader Quits

This article analysis will be of special Interest to my ECON 2301 Students.  I suggest reading it and posting answers to the questions in the comments as they *may* be worth a few extra credit points. 


In an article dated April 7, 2012, it stated that Brian Sack, a key trader with the Federal Reserve Bank of New York, has resigned his post.  Per the article:

Brian Sack

One of the key stewards of the Federal Reserve's unconventional monetary stimulus is parting ways with the central bank, a move that stunned Wall Street and left large shoes to fill in its all-important market trading section. Brian Sack, head of the markets group at the Federal Reserve Bank of New York, has tendered his resignation, according to a release Thursday from the New York Fed. Sack, 41, will stay in his current post until June 29, when the Fed's latest monetary stimulus program, known as Operation Twist, is set to expire. He will then be placed on leave until Sept. 14, during which he will have limited contact with the bank, the release said.

The departure comes as debate grows over the future of the ultra-easy monetary policy pursued by the Fed since the 2008-09 financial crisis. Investors and bond dealers are now intently questioning whether the Fed is prepared to embark on a third bond-buying program to boost the economy or is preparing for an eventual unwinding of those policies to tighten monetary conditions. With the economy improving, the question remains whether growth can remain sufficiently healthy without further monetary support while threats to the economic and investment climate continue from sources such as the euro zone's sovereign debt crisis.

"I'm dumbfounded," said Raymond Stone, co-founder of Stone & McCarthy Research Associates, which closely tracks Fed policy. "He laid the groundwork for a lot of things the Fed has done and communicated clearly to the market. He did an excellent job in a difficult environment." 

Per our reading in Chapters 9, 10 and 11 in the Rittenberg/Tregarthen Macroeconomics Book, The Federal Reserve serves as the US Central Bank and is the main agent of Monetary Policy.  The New York Federal Reserve has a permanent seat on the Federal Reserve Open Market Committee, which is in charge of conducting open market operations.

Questions for Discussion:


1.  What is the goal of Easy Monetary Policy?  Why has the Federal Reserve been enacting it since 2008/2009?  Has it been successful?  Why or Why not?


2.  What are open market operations?  How are they done in easy mode of Monetary Policy?  How to they affect interest rates, total spending the overall economy?


3.  Why does the New York Federal Reserve have a permanent seat on the Open Market Committee?  How does this change in a Key Bond Trader potentially impact Open Market Operations?


As always, thoughtful comments and questions are welcomed.

Success to you all!

Prof. Hank Lewis