Debunking Those So-Called “revenge”/”Obamacare” Layoffs (w/Math)

Did you know that 355,000 people were laid-off last week because Obama was re-elected?  Or, at least, that’s what many Conservative activists would have you believe.  Apparently, there is this growing meme going around the internet that companies are laying people off because Obama and “Obamacare” is here to stay.  This is all likely to be typical partisan bull-crap.  I never thought I’d have to explain the inner-workings of the Free Enterprise System to the party that claims to love capitalism.  But… here we go.  We’ll start with basic concepts and then move on to “the math”.  By the end of this post, you’ll know why this meme is likely to be crap, the numbers backing up that assertion, and when (and how) we’ll have the numbers to prove it.

First of all, this is a huge country with a huge economy.  Large numbers of people are being hired and fired, laid-off and brought back every single day.  Additionally, large numbers of business are being started and bankrupted, growing and shrinking, every single day.  The beauty of free enterprise is that nothing ever stands still.  Things are moving and changing all the time which causes other things to move and change and so on.  This is the reason it is so hard to study macro-economies.  There are so many micro-economic things going on you can never be 100 percent certain of which event caused another event.

The best anyone can do to understand how an event affects the economy is to gather economic numbers(like jobs and sales data) and compare trends to certain events.  Unfortunately, even for the professionals, that is not an easy task.  Nor, can many things be definitively proven.  That’s because, as any scientist will tell you, “CORRELATION DOES NOT IMPLY CAUSATION“!.  That phrase should be tattooed on the wrists of every economist so they have to stare at that phrase while typing up papers and reports that make that very claim.

In the beginning of the post I claimed 355,000 people lost their jobs last week because of the election.  That of course was a half-truth.  In an economy as big as ours we have 100s of thousands of people losing their jobs every. single. week.  Even in a healthy and growing economy.  The fact is, we have even more people being hired every week to offset that.  But, the right-wing aren’t using employment numbers to make their current claim(we won’t actually know those numbers until Thursday).

The right-wing is pointing to companies that are announcing massive lay-offs as proof, PROOF! that Obama and “Obamacare” are killing jobs.  So let’s look at those numbers.  Fortunately, the department of labor keeps statistics on how many companies have a “mass layoff event”.  Their definition of a mass layoff event is when at least 50 initial claims are filed against an establishment during a consecutive 5-week period.  Fortunately, they have the entire archive of their past data posted online.

As it turns out, there are a lot of mass layoff events every month.  For the last year there are usually over 1,000 mass layoff events every month (not seasonally adjusted).   I add that “not seasonally adjusted” because mass layoff events tend to fluctuate depending on the time of year.  For instance, post Christmas time will have a lot of lay offs as stores get rid of their extra holiday help.  Therefore, instead of comparing month-to-month numbers, it is sometime better to compare this months number to this month of last year.  That is what we’re going to do.

November 2011 had 1393 mass layoff events.  Last I looked at a calendar there were 30 days in November.  So that means, on average, there would be at least 46 mass layoffs every single calendar day during a Normal November.  This is assuming mass layoffs happen on weekends as well.  If we assume mass layoff events only happen during the week the average would be even higher.  But since I want to give the right-wing the best chance to prove their crazy theories, I’ll stick with the lower number.

Let’s compare that number to right-wing doomsday claims.  If there are mass layoffs we should be seeing an increase over the average rate of 46 a day.  We should be seeing 50, 60, or 70 a day to register an increase in layoffs.  If there was a massive movement I would expect to see double of the average(like happened in 2008 when the Bush economy was spiraling downwards).

Exhibit A: The article I linked to earlier has a scary-sounding tweet that claimed that “45 companies announce layoffs in last 48 hours[after Obama’s re-election”.  In a 48 hour period, we should see an average of 94 mass layoff events.  That means their scary claim would be less than HALF the pace of mass layoffs during a typical November.  If their claim is true, that would be a low number and something to be celebrated.

Exhibit B:  The Blaze, home of Right-Wing Glenn Beck, has a B.S. article listing 37 layoffs and “closure” announcements in a 48 hour period.  Even smaller than the claim in exhibit A.  Additionally, they cheat by listing EVERY layoff announcements, even ones that are less than 50(my 46 number counts only those over 50).  They are still very VERY far short of an increase, let alone a doubling.

Exhibit C:  These right-wing bloggers have now setup a website to try and document supposed mass layoffs.  Here are their numbers since the Wednesday after Obama was elected(combining layoffs and storeplant closures):  Wedenseday was 25, Thursday was 23, Friday 17, Saturday 25, Sunday 1.  I don’t know if this site cheats like the Blaze and lists layoffs that are less than 50 – I’ll let somebody else click and read each announcement.

As you can see these listing are far short of even reaching the typical November rate and therefore offer absolutely ZERO proof of mass “revenge” or “Obamacare” layoffs.  I suspect that not all mass layoff events are reported.  I’m guessing the real number is higher than these articles report, but they are also likely at a typical November rate.

Unfortunately, the mass layoff event data isn’t printed quickly.  It takes time for the department of labor to compile the statistics and interview companies about their layoffs.  For instance, September’s numbers weren’t reported until October 23rd.  Which means we won’t get November’s number until around December 23rd.  (November 23rds report will be of October, before Obama’s reelection).

When the report does come up, I recommend looking at seasonally adjusted numbers, to see how much different the number is from October.  The seasonally-adjusted numbers averages out seasonal affects.  As long as that number is near October’s it will mean there was no mass “revenge” or “Obamacare” layoffs.  Additionally, you can check the raw numbers and compare them to the previous November numbers.  Unless that number is twice it was last year, it’ll mean no mass layoffs happened above and beyond normal economic activity.

My educated guess is that these layoffs would’ve happened anyways.  For those claiming they are laying off because of Obama, I think some business people are making political claims to serve a personal agenda.

 

 

 

General Theory Study Guide: Book 1, Chapter 2, Sections I and II

To start off Chapter 2 of “The General Theory of Employment, Interest, and Money”, Keynes makes a keen observation of the economics profession.  That there is a tendency to talk more about how an economy distributes its wealth, and not how to produce more wealth as well as what determines the employment of the available resources.  He attributes this to be because classic political economists believe that the answer is so simple and obvious it is barely worth mentioning.   However, since Keynes is planning on refuting much of it, he’ll prove that he understands the “classical” position by restating it.  In Section 1,  Keynes restates the classical position on several economic items, including: What determines wages, the “types” of unemployment, and how to reduce unemployment.  In section II, Keynes starts to refute some of these by implying that there is the possibility that there is another type of unemployment.

Section 1 is just a restatement of the “classical” view of wages and unemployment. Keynes uses Professor Pigou‘s writings as representative of the mainstream understanding of economics.  The reason is that Pigou was, at the time, the head of the world renown school of economics at University of Cambridge.  He studied under Alfred Marshall.  I would probably compare Pigou to Larry Summers or Greg Mankiw.  A well-known, influential economist who mostly adheres to conventional wisdom.

The classical view of wages is the typical supply vs. demand curve, like the one below, that we’re all used to seeing.  The value of the worker to the company sets the demand line.  The willingness of workers to give up their time sets the supply line.

Simple Supply and Demand Curve of Labor

The classic postulate allows for only two types of unemployment.  The first is “frictional” That’s a fancy way of saying someone is literally “between” jobs for various reasons.  For instance, was just laid-off and is looking for another job.  The other type is ‘voluntary’ unemployment.  And I purposely use quotes around voluntary.  This is unemployment where a person or persons either doesn’t want a job, or is holding out for more pay.

From this, Keynes lists the 4 logical ways to increase employment according to the Classic economists:(I’m paraphrasing)

A)  Better policies to make “frictional” unemployment end quicker.

B)  Make workers more willing to give up their time(to eliminate so-called “voluntary” unemployment)

C) Make workers more productive so that companies are willing to hire more at the current wage

D) All Labor becomes cheaper as compared to everything else a company(or “firm”) needs to make its products

Before going to Section two let’s look at the two categories of unemployment the classic economists recognize vs. those that we recognize today.  Today, economists recognize “frictional” unemployment, just like pre-Keynes’s classic economists.  Today, we also recognize “structural” unemployment.  Since structural unemployment just means workers don’t have the skills or knowledge to do the jobs that are available, we could categorize that as long-term frictional unemployment that the classics recognize.  That means the only point of contention between classics and today is Voluntary and “Cyclical”.    “Voluntary” unemployment isn’t even considered a “type” of unemployment these days.  The other category we have today, “cyclical” is what Keynes is introducing to the world.  It is appropriate that these are the types that the others don’t recognize.  Because, in section II, Keynes will introduce what people will one day call “cyclical” unemployment.  However, what we call cyclical unemployment today, classical economists would call “voluntary”.

Section II

In this section, Keynes is calling “Bullshit!” on the classical theory as he describes in section I.  the mainstream view of the time was that if unemployed workers would just quit being so obstinate and agree to a decrease in wages, then they could get a job and end mass unemployment.  Therefore, mainstream economists believed that massive “cyclical” unemployment was really just a type of ‘voluntary unemployment’.  Keynes takes 2 issues with this.  The first issue is covered in this section and is only a minor issue.  The second issue is the “fundamental” issue and will be described in this book.

To start off explaining his first issue, Keynes again demonstrates his understanding of classic economics.  In classic economics, economists always assume that the money(or dollar) wages workers agree to are always the same as the REAL wage(i.e. adjusted for inflation) that they would work for.  Logically, if a worker would quit if an employer cut his salary by 10%, then a worker would also quit if prices of products rose 10%.  This seems logical because in both scenario’s workers are getting 10% less stuff in the end.  Classical economists agree with this logic.

Keynes points out that this doesn’t happen in the real world.  Workers will not resist short term REAL wage cuts that come in the form of rising prices, but do resist short term dollar cuts in wages.  As Keynes puts it, “whether logical or illogical, experience shows that this is how labor in fact behaves.”  Keynes claims that the  Classical economists actually acknowledge that a short term drop in REAL wages won’t lead to workers quitting – but they assume that. since it’s a short term thing, it isn’t a significant departure from their theory. Keynes disagrees. If dollar-wages aren’t solely dependent on REAL wages then the whole classical theory of employment falls apart.

The second issue is the more fundamental issue to Keynes. Wage workers have no way to lower their own REAL wages as a group, they have only the ability to redistribute REAL wages.  Here is what I think Keynes is getting at:  An individual can always agree to lower his or her own wages to get a job.  However, that act alone will not increase employment, instead what will happen is that someone else becomes unemployed.  If labor as a group lowers it’s REAL wages as a group, the number of workers won’t increase, instead, the income will only be redistributed to non-labor input.  He doesn’t say what that input is, but I assume he means capital and land.  Explaining how and why this all happens is the purpose of this book.

The Cost of Labor SHOULD be High

Conservative politicians and commentators repeatedly assert that employers need to reduce “labor costs” to stay competitive(Examples here and here).  They assert that lower wages will be better for the country by creating more jobs and cheaper products.  These assertions do not standup well against 30 seconds of critical thinking.  Putting aside the morality of lowering wages, The cost of human labor should be high for very practical reasons.  High labor costs is what drives employers and customers to find new ways to automate everyday jobs.

Despite the current depression we are in, the manufacturing capability of U.S. factories is greater than it’s ever been.  This may go against conventional wisdom that says manufacturing is dying in the country.  That is simply not true, it just quit hiring as many people.  Of the people who still work in U.S. factories, their productivity is so great that even with fewer workers, they are able to produce more than their counterparts of 50 years ago.  By automating factories, employers can produce more with fewer people and the result is cheaper prices.  In a perfect economy, those no longer needed to work in a factory would get different jobs and produce something else and we’d all end up with more overall wealth. Now this is progress that liberals should cheer(Of course, in today’s economy, those employees have no where else to go. The reasons of which are far beyond the scope of this post)

Employers automated all those factory jobs because it was cheaper than continuing to pay workers for the same work.  If their cost of labor had been low, as conservatives want it to be, that automation would never have occurred and auto workers would be putting together Ford cars the same way they assembled Model Ts.  Conservative policies of lower wages holds society back.

You might think, “Sure, that works in factories, but you can’t automate services or retail jobs– their wages must stay low for my benefit.”  This is not true, automation in retail has already occurred and will continue to occur.  Think of how much time is saved by bar code scanners.  How much time is saved by a clerk no longer needing to manually type in the price of a product.  Add to that automatic inventory tracking.  Also Security tags that sound alarms when leaving a store reduces the cost of having to hire an army of security guards to prevent shop lifting.  If the cost of labor was low to hire these people, employers would never have been interested in investing in these things.  And These are just the things that have already been automated.  Heaven only knows what else might be automated if the cost of labor was higher.  Maybe automatic baggers at the grocery store.  Maybe carts that restock the shelves.

With higher labor costs even services that seem impossible to automate might be ripe for an enterprising entrepreneur.  It is not unheard of for services to be automated.  The number of household with maids went down considerably with the invention of things like the washing machine and dishwasher.  If the cost of hiring a maid was low, these inventions would not have caught on because it was still cheaper to just hire someone to do it.  Just like in retail, there are still several services that could be automated.  For instance, there are already robotic lawn mowers.  How long will it be before owners of golf courses or other owners of other large tracts replace yard workers with automatic mowers and leaf baggers.  The answer, of course, is as soon as the machine costs less than labor.  If the cost of labor was higher, this automation would happen sooner.  If we continue to follow conservative policies of low wages, progress like that will never occur.

I don’t mean to belittle or down play the suffering caused by people who have their jobs replaced by a machine.  However, I think that calls for a much stronger social safety net, and does not justify holding back progress.  Technology and putting it to use by investing in new automation is what helps increase overall wealth in the economy.  Conservative policies of low wages are not only heartless, but hold back the economy and our country from greatness.