Category Archives: Business and Economy

When looking at the minimum wage, should we consider whether a poorly paying job is better than no job?

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I ran into an argument about whether the minimum wage should be raised in the United States and it got me thinking about the reasons behind the argument for raising it. To start, here is some of the debate:

One of the harshest realities of America’s slow economic recovery — and there are many — is the fact in spite of modest job growth, pay for workers is falling. Year over year, average inflation adjusted wages have dropped by 0.6 percent for all private sector employees. They’re down a full 1 percent for non-supervisors — your retail salespeople, your shop floor factory workers, your cashiers. In other words, even as the overall employment picture has improved in fits and starts, the working poor are getting poorer.

Some believe this is a sign of the recovery’s weakness, and today the National Employment Law Project used it as a rallying point to call for a higher minimum wage. According to their analysis, which is current through the beginning of 2011, while the bulk of job losses during the recession affected medium wage earners, such as paralegals and nurses, most of the hiring post-recession has been for low-paid service work. Middle class jobs, they argue, have been replaced with poverty wage jobs…

But here’s the alarming part. All of this might simply mean that the same forces that caused wages to stagnate before the recession will make them stagnate after the recession. It’s just another sign that income inequality is here to stay, unless something radical changes that will give working class families a larger slice of the pie. Will raising the minimum wage do that? It might help on the margins, certainly for the 3.8 million workers who earn it.  (I’m not one of those who believes that a higher minimum wage actually kills jobs. This great, short Slate piece from 2004 explains why.) But the vast majority of American workers won’t see much benefit from it. Rather, fixing the wage problem means we need to think about the fundamental problems skewing income growth towards the top, from spiraling CEO pay to an inadequate education system.

Falling wages are taking us back to where we were before the recession. For many workers, that’s not a good place. And there aren’t any easy ways out of it.

Of course, arguments for raising the minimum wage often focus on the idea that it is not enough money to live on. Hence, calls for a living wage that is more closely tied to a more steady standard of living.

But I wonder if there isn’t a bigger issue at work here: the idea that low-paying jobs may not be worth having. In other words, people might be better off without a minimum wage job. The low-paying job may be helpful in securing a new job (you don’t want an unemployment gap in your resume) or moving up but too many of these low-paying jobs pay so little that employees may not be able to do the things they need to do to move up (move to a new area where jobs are more plentiful, own a reliable car to expand job prospects, enroll in classes, etc.). Additionally, a number of these jobs don’t really offer chances for advancement; if they do, it is limited to a small group of workers. So these workers can get trapped in a cycle of low-paying positions that meet some basic needs to survive but never provide the hope to do something better. This is reflected in books like Nickel and Dimed: it is hard enough to do the daily grind, let alone find some light at the end of the tunnel in terms of a better-paying job.

In this sense, making a small adjustment to the minimum wage wouldn’t seem to do much. It might offer a little more money but this is likely eroded quickly by inflation (past and future). What we then need is more jobs that provide a higher standard of living and give more employees the opportunity to move on and up to something better.

(I realize there is a lot more going on here. But I wanted to get at the idea that simply having a job isn’t a guarantee of having the chance to reach the American Dream. Being willing to work doesn’t necessarily guarantee a good outcome. This also reminds me of Katherine Newman’s book No Shame In My Game about the working poor who want to work but can’t access the jobs that would lead to success.)

Argument: “Peak Housing, Peak Fraud, Peak Suburbia, and Peak Property Taxes”

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Charles Smith suggests the housing issues in the United States are related to several other concerns and all of this isn’t likely to improve soon.

I don’t know if Smith is correct but why aren’t more people talking about the possible long-term consequences of a depressed housing market? Is this unlikely to happen or are people afraid that this actually might happen?

Can Weber’s concept of charismatic authority predict a decline for Apple?

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One analyst suggests that Apple without Steve Jobs will decline because as sociologist Max Weber suggested, organizations change after their charismatic leader is gone:

Weber described three essential business categories: Legal/bureaucratic, traditional, and charismatic, with the latter companies typically helmed by individuals with the “gift of grace.”…
“Followers and disciples have absolute trust in the leader, fed by that leader’s access to nearly magical powers. Charismatic authority repudiates the past, and is in this sense a specifically revolutionary force.”

According to Colony, Apple chose a “proven and competent executive” – Tim Cook – to succeed Jobs. Nevertheless, the analyst believes the new CEO’s “legal/bureaucratic approach” will prove to be a mismatch for an organization that feeds off the gift of grace…

“Apple’s momentum will carry it for 24-48 months. But without the arrival of a new charismatic leader it will move from being a great company to being a good company, with a commensurate step down in revenue growth and product innovation,” the analyst predicted.

I guess we can wait and see if Weber’s ideas apply to this situation. Weber described this transition after the loss of a charismatic leader as a process of routinization where the group bureaucratizes this charisma.

A few things make this process more messy:

1. At one point, Steve Jobs didn’t have this “magic” either such as before he was inventing things or when he stepped down from Apple. This suggests that context matters: certain ideas are produced or take off based on a variety of other circumstances.

2. Judging by the recent stock price, investors don’t seem too worried about Apple’s future. At what point will they and other start publicly suggesting that the loss of Jobs is a really big hurdle to overcome? Is this an “acceptable” reason for a company to plateau?

3. Shouldn’t one measure of a good leader be the ability to empower others to take over and do well (or even better?) in the future when that leader is gone? If so, perhaps we should be asking whether Jobs was equipping others at Apple to succeed after him or not.

4. Is this an inevitable process for groups that lose a charismatic authority?

Sociology article helps lead to getting diversity information on NYC financial firms?

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Earlier this week, two major financial firms said they would release data on the gender and race of their employees:

There is no requirement that Corporate America disclose its diversity data, but Monday two major companies – Goldman Sachs and MetLife — announced they’d be giving up the long-held secret…

The information is available and has been since 1964, because under the Civil Rights Act of that year, companies with 100 workers or more have had to report the data on race and gender annually to the U.S. Department of Labor. The problem has been, they were not under any requirement to release that data to the public, or even to local governments such as New York…

And there’s a lot of inequality, especially in the higher ranks at companies where the lack of diversity is greatest.

When I saw this, I was disappointed we didn’t get any information willing these companies were to start releasing this data or whether they were feeling enough public or government pressure. And then the article had a quote from the author of a recent sociology article on the topic that was published in a top journal and I wondered if this article made any difference…

Liu’s push for disclosure is a good first step on the road to more diversity, said Emilio J. Castilla, professor at MIT Sloan School of Management and author of  an article titled “Bringing Managers Back In: Managerial Influences on Workplace Inequality,” published in the American Sociological Review late last year.

“But this might not be enough,” he stressed. “They’re increasing transparency, showing some percentages, but I’d think about accountability. Are there organizational procedures in place to make sure these efforts result in the outcomes they want?”

I’m probably too hopeful here that an article in a sociology journal was influential but it couldn’t hurt…right?

British economics writer: economics has failed but are the sociologists ready to step up?

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This is an interesting viewpoint: “Mainstream economic models have been discredited. But why aren’t political scientists and sociologists offering an alternative view?” Here is some of the discussion about how sociology has failed to seize this opportunity:

Perhaps you have more faith in the sociologists. Take a peek at the website for the British Sociological Association. Scroll through thepress-released research, and you will not come across anything that deals with the banking crash. Instead in April 2010, amid the biggest sociological event in decades, the BSA put out a notice titled: “Older bodybuilders can change young people’s view of the over-60s, research says.”

Or why not do the experiment I tried this weekend: go to three of the main academic journals in sociology, where the most noteworthy research is collected, and search the abstracts for the terms “finance” or “economy” or “markets” since the start of the last decade.

Comb through the results for articles dealing with the financial crisis in even the most tangential sense. I found nine in the American Sociological Review, three in Sociology (“the UK’s premier sociology journal”), and one in the British Journal of Sociology. Look at those numbers, and remember that the BSA has 2,500 members – yet this is the best they could do…

It wasn’t always like this. One way of characterising what has happened in America and Britain over the past three decades is that people at the top have skimmed off increasing amounts of the money made by their corporations and societies. That’s a phenomenon well covered by earlier generations of sociologists, whether it’s Marx with his study of primitive accumulation, or the American C Wright Mills and his classic The Power Elite, or France’s Pierre Bourdieu…

Nor is there much encouragement to engage with public life. Because that’s what’s really missing from the other social sciences. When an entire discipline does what the sociologists did at their conference last week and devotes as much time to discussing the holistic massage industry (“using a Foucauldian lens”) as to analysing financiers, they’re never going to challenge the dominance of mainstream economics. And it’s hard to believe they really want to.

Ouch.

I can imagine some sociologists might argue that the world is much bigger than markets and economics. They would not be wrong. At this same time, this critique could be viewed as a call to action: does sociology offer a compelling alternative way to view the world? How can we account for both economic and social life?

I will say that there does appear to be growing interest in economic sociology. This may not be reflected in these particular journals but more sociologists are looking at the social and cultural dimensions of economics. As noted, this was a key concern of a number of foundational sociologists, observers who noticed that industrialization was changing the social world. I wonder how many sociologists would view studying the economic realm as something “dirty” (too many ties to capitalism, too messy, too close to economics, etc.) or “uninteresting” (not what really motivates them to research, teach, and engage in public life).

Economist argues best restaurants often in “dumpier locales”

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Over at the Atlantic, George Mason University economist Tyler Cowen explains why excellent restaurants consistently appear in the “cultural wasteland” of suburbs:

Low-rent restaurants can experiment at relatively low risk. If a food idea does not work out, the proprietor is not left with an expensive lease. As a result, a strip-mall restaurant is more likely to try daring ideas than is a restaurant in, say, a large shopping mall. The people with the best, most creative, most innovative cooking ideas are not always the people with the most money. Many of them end up in dumpier locales, where they gradually improve real-estate values…..

I love exploring the suburbs for first-rate ethnic food. Many people consider suburbs a cultural wasteland, but I am very happy searching for food in Orange County, California; the area near San Jose; Northern Virginia, near D.C.; Somerville, Massachusetts; and so on….It is especially common to see good ethnic restaurants grouped with mid-level or junky retail outlets. When it comes to a restaurant run by immigrants, look around at the street scene. Do you see something ugly? Poor construction? Broken plastic signage? A five-and-dime store? Maybe an abandoned car? If so, crack a quiet smile, walk through the door, and order. Welcome to the glamorous world of good food.

Cowen’s argument about restaurants reminds me of another Atlantic piece celebrating “low road” buildings which Brian previously discussed.  It’s not surprising that great work–and great food–often happens in low rent locales like “junky” suburban strip malls and office parks given their lower (financial) barriers to entry and lower operating expenses that free up more cash to flow each month into improving their tenants’ business.

Still, it strikes me that the financial health of restaurants is more location-dependent than for many of the business populating “low road” office parks.  Whereas many office-based business are not dependent on high volumes of foot traffic for survival, restaurants almost invariably are.  (Unless, of course, that particular restaurant focuses primarily on a delivery and/or catering business model.)  A less prestigious restaurant location is a good value for the owner (and likely to survive long term) only if the drop-off in foot traffic/customers due to the “bad” location is more than outweighed by lower rent.

More foreclosures on the way in 2012?

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While many might hope for economic progress during 2012, some are suggesting that another wave of foreclosures will hit during 2012:

In 2011, the “robo-signing” scandal, in which foreclosure documents were signed without properly reviewing individual cases, prompted banks to hold back on new foreclosures pending a settlement.

Five major banks eventually struck that settlement with 49 U.S. states in February. Signs are growing the pace of foreclosures is picking up again, something housing experts predict will again weigh on home prices before any sustained recovery can occur…

Online foreclosure marketplace RealtyTrac estimated that while foreclosures dropped slightly nationwide in February from January and from February 2011, they rose in 21 states and jumped sharply in cities like Tampa (64 percent), Chicago (43 percent) and Miami (53 percent).

One big difference to the early years of the housing crisis, which was dominated by Americans saddled with the most toxic subprime products — with high interest rates where banks asked for no money down or no proof of income — is that today it’s mostly Americans with ordinary mortgages whose ability to meet payment have been hit by the hard economic times…

Is this the final wave?

If it is primarily “hardworking, everyday Americans” who bear the brunt of the 2012 foreclosures, will the coverage of foreclosures and the proposed remedies change? In previous years, it has been easy for some to suggest that those who made and accepted subprime mortgages deserved what they had coming as they extended their credit and debt too far. If this year’s foreclosures are now occurring to people who didn’t overextend themselves yet still fell prey to the economic crisis, will the narrative change?

“A region’s workforce is not defined by its immediate suburbs”

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The Chicago Tribune has a story about “super-commuters” who make the trip between Chicago and St. Louis. While the story seems more intent on putting a face on this growing phenomenon (although the numbers are still relatively low), there is a very interesting quote from a researcher about how we should view jobs and regional economies:

Regardless, said Mitchell Moss, the NYU professor who authored the study, the trend speaks to both the increased flexibility of modern-day workers — “the office” can be almost anyplace — and the challenges facing two-income families in a weak job market: Why uproot your family when your spouse can’t get a job in the new city?

The trend illustrates how the economies of places like St. Louis are increasingly hitched to their neighbors.

“It tells you that there is an inter-regional economic relationship, which is growing between places like St. Louis and Chicago,” Moss said. “A region’s workforce is not defined by its immediate suburbs.”

I’ve written several times about the need for more regional cooperation in the Chicago region between city and suburbs (see this post regarding Mayor Daley and this post about Mayor Emanuel). With limited cooperation, communities can end up fighting over corporations and jobs, whether tax money from a particular municipality should be spent elsewhere, and how best to address regional-level issues like transportation or affordable housing.

What exactly would it mean for Chicago and St. Louis to cooperate? One area could be transportation: I assume both Chicago and St. Louis were on-board for plans to construct a high-speed rail line between the cities. Environmental issues could be another area. For example, both cities rely on interconnected water sources and shipping so common issues could arise (but remember there is a regional fight about Asian carp). But what about business issues? Could they set aside their separate issues to encourage economic development that might benefit both cities? Are there really economic opportunities they could both benefit from in spite of the distance between them?

Ads to forestall foreclosure?

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From the how-can-I-best-annoy-my-neighbors department, WebUrbanist explains how you can trade your home’s exterior for mortgage payments:

Looking to make a little extra money, and instigate an all-out war with your neighbors? A company called ‘Brainiacs from Mars‘ has the perfect solution. They’ll paint your house in the brightest, most annoying colors imaginable and plaster it with logos in the ‘Billboard Home Initiative’, which is aimed at homeowners dealing with the threat of foreclosure.

I guess homeowners facing eviction now have a new way to not go quietly.  Though I wonder if pulling a stunt like this would actually accelerate the foreclosure process.  With so many homeowners behind on their mortgage payments and the huge backlog of foreclosure cases in some areas, it strikes me that purposely turning one’s home into a garish billboard might move actually one to the very top of a bank’s priority list for eviction.

The role of emotions in buying a McMansion

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“Financial journalist and author” Jean Chatzky discusses her rules about money and hints that buying a McMansion and working with money in general is complicated by emotions:

Have money rules changed with the recession?

I don’t know that the money rules have changed, but I think the recession has made people realize the importance of some of the money rules. For example, Money Rule #26 is “Just because someone will lend it to you, doesn’t mean you should borrow it.” I think it’s the lesson of the housing crisis. We over-borrowed. We took out bigger mortgages than we could truly afford because the banks were willing to give it to us. Every unfurnished McMansion proves that point. For everybody who’s ever felt house-poor or student-loan poor or credit-card poor, the recession has hammered that home.

Why do people tend to overcomplicate money?

It’s really emotional. If I had a bottle of champagne and I opened it with a group of friends, there would be this feeling that we should divvy it up fairly. But if I said, “I have some extra money,” people start making value judgments. There’s morality involved with how we divvy up the money.

Combined with that is the fact that we’re not taught about money as kids or in the schools. There’s not room for it in the curriculum. Getting financial literacy into every school in the country is a very important thing to do, but it’s an uphill battle. The combination of those two things makes many of us feel insecure when it comes to making the right decisions about our money, whether we’re spending it, saving it, or investing it.

Her rules seem meant to limit the emotional side of money. If you have rules to follow, you can sidestep the emotional aspects. While the rules may be helpful, this is a good reminder that economic activity is often emotional. We often talk as if humans make decisions purely for economic reasons when the real story is much more complicated. Stock trading and investing in stocks, purchasing consumer goods, and saving money are laden with emotions.

So what emotions lead to purchasing a McMansion? I haven’t seen an academic study that addresses this. However, critics of McMansions have made a number of arguments about why people buy McMansions: they want to impress other people, they have little sense of style or design, they have money to burn, they don’t realize they can get by with less space, they are unaware of how others might negatively view their home, and they are obsessed with getting a deal without thinking about quality. Critics generally argue that McMansions are attempts at displaying a particular status to others and this causes the buyer to overlook some concerns to which they should pay attention.

I’m guessing that McMansion purchasers wouldn’t give the reasons that critics suggest. At the same time, purchasing a home, usually the biggest purchase of someone’s life, is full of emotions. Buying a dwelling is one thing but when you add up a mortgage plus the idealization of a home in the American Dream and it becomes much more than that.