Tag: labor market

Revisiting the issues of labor discrimination

Posted on by fqzhang

It is generally accepted by economists that discrimination is an influential factor in affecting the functioning of a modern day economy. Theories regarding discrimination – its impacts on the global economy and possible solutions to the problem – have been debated and argued by influential economists over the decades. A key question that we ask ourselves is: will the market regulate itself and be able to eliminate discrimination, or does the government have to intervene? If so, what is the best approach to government intervention? This question can be seen as a part of the larger debate between the neoclassical economists and the Keynesian economists over the role of government in our economies and social lives.

This problem of whether or not to regulate the issue of discrimination has been debated by politicians and economists over the years, especially since discrimination is not only an economic issue, but also a social one. Historically, governments have taken a generally laissez-faire approach to economics in society, and regulations are few, especially in the US. This changed dramatically starting in the late 19th century, with the emergence of populist movements such as women’s suffrage, and accelerated dramatically during the two World Wars and the Depression era, when governments began to take a more active economic role in society and mandated fairness in hiring in order to receive federal funding. Finally, the Civil Rights movement of 1950s and 60s pushed the issue to the forefront and the government enacted broad legislations regarding labor employment practices. Two of the most notable legislations of the period are the Equal Pay Act of 1963 and Title VII of the Civil Rights Act of 1964. The Equal Pay Act have stated that firms should take into consideration a person’s gender in the determination of wages using the theory that that the same amount of work deserve the same amount of pay. Title VII of the Civil Rights Act made it illegal to discriminate based on a person’s “race, color, religion, sex or national origin”, and implemented a comprehensive list of anti-discriminatory methods.

However, in more recent years, the problem of discrimination takes on a new turn with the rise of “Deregulation” and the stepping away of government from some of its historic stances on promoting more equality in the market-place, and igniting the debates anew.

labor and management.jpgThe current consensus is, in a way, a reaction against the free-market advocates, which have become especially popular in the US since the 1980s. In fact, it has been argued by economists that discrimination has increased from the ‘80s onward, in large part due to the popularity of this line of argument. We can examine this opposite side of the argument by looking at the positions taken by two of the greatest economists of the latter twentieth century: Milton Friedman and Robert Lucas. Friedman had argued that the free market will resolve the problem of discrimination itself because discrimination is inefficient in the long-run (“Capitalism and Freedom”, 1962). In one of his most often quoted passages, he stated “It is a striking historical fact that the development of capitalism has been accompanied by a major reduction in the extent to which particular religious, racial, or social groups have operated under special handicaps in respect of their economic activities; have, as the saying goes, been discriminated against.” Friedman believed that the employer’s self-interest will cause them to overlook the other categorical attributes of an individual in favor of whoever can work the cheapest for the most amount of productivity.

On an interesting note, Friedman was himself the subject of discriminations during his times at the University of Wisconsin at Milwaukee, and one of the chief reasons he chose the University of Chicago for its PhD program was due to its open and more tolerant environment. In a sense, Friedman affirmed the idea that discrimination is detrimental to the employer (in this case the university) by “voting with his feet” to a location that was more tolerant.

Writing along a similar line, Robert Lucas stated that any irregularity in the “Market” introduces a distortion that will resolve itself over time. And in his view, government attempts in ending discrimination will simply introduce new inefficiencies in the marketplace that has to be resolved. What both of these economists suggested is that firms are very rational and they pursue the maximum amounts of profits possible. In order to do this, it only makes them to only care about costs and benefits, and since race/ethnicities/gender, etc. does not have a specific benefit or cost associated with them, firms will not discriminate. For those firms that do discriminate, in the long run they will become inefficient and the competition will eliminate them from the marketplace. The free market is the best left alone, according to Friedman and Lucas, since the mechanism of incentives in a rational society will help to eliminate discrimination and get rid of these inefficiencies.

 

Meanwhile, the mainstream have taken the view that in order for discrimination to be solved, the markets must be regulated through governmental legislations and acts. They are essentially arguing for a top-down, command-and-control method in regulation approaches to enforce those regulatory methods. Many noted that more regulation has been the historical trends, as more legislations have come on board over the years to prohibit certain behaviors from employers. They outlined two main approaches by governments to combat discrimination. The first is what is generally referred to as “Nondiscrimination” where employers are essentially blind to race, ethnicity, or sex, and to determine that those factors should not play any role in the selection of workers (This is the principle behind the Equal Pay Act). The other approach is termed “Affirmative Action”, where employers MUST take race, ethnicity, and gender into account to ensure fair representation, especially for historically disadvantaged groups. These two approaches have proven to be somewhat contradictory, i.e. how to ask ask employers to be blind to the differences between workers while at the same time be cognizant of the fact that certain groups should be considered more highly, holding other factors constant? This contradiction made it difficult to implement some of these methods in ending discrimination, and it is somewhat flawed as a result.

In addition, Title VII also distinguished between disparate treatment and disparate impact; where disparate treatment is defined as being proof that the workers are intentionally being discriminated against, while disparate impact are defined as result from actions, however unintentional, that results in some groups being disproportionately impacted. All of these are important considerations for firms that are trying to avoid discrimination.

In cases where it can be difficult to implement equal for equal work, they introduced the idea of comparable worth to help measure employee value. Often, many noted, it is impractical to “achieve equal pay for equal work”. Therefore, some have supported the goal of equal pay for jobs of “comparable worth”, and what determines the comparable worth is market forces. Comparable-worth policies have generally relied on job-rating schemes by employers to determine or justify pay differentials. However, this job-rating scheme is highly subjective and subject to great controversies.

As a case example, many pointed to the example of the Federal Contract Compliance Program, where governments monitor hiring and promotion practices of federal contractors. This program utilized affirmative action to ensure that groups that have been historically disadvantaged received preferences. In terms of absolute numbers, the federal contract compliance program increased opportunities for minority groups tremendously. The concerns with these programs is that when underrepresented groups are given preferences in hiring, this might result in less qualified workers being hired. And since the programs only covered the federal contractors, it is possible that while the program attracted talented minorities, there might be no overall gains in employment due to other sectors of the economies being neglected. As evidence of the effectiveness of the government programs, some have pointed out that government policies have distributed new employment opportunities among federal contractors towards blacks and Hispanics. The ratio of black to white incomes has risen since the 1960s, but we cannot effective draw causation relationships between this and the governmental legislations.

Finally, the mainstream believed that it is important to continuously monitor the economy to catch discriminators. One way to do this is to conduct an audit where blind experiments are conducted, telling auditors to look at firms and measure the effects of discrimination. However, these studies are very difficult to conduct since the auditors cannot know the purpose of the experiment (since that will introduce an element of bias), while at the same time, they are very difficult to conduct due to cost constraints. In another famous experiment, which has since been replicated worldwide, experimenters send out resumes to a number of different firms. It was found that white-sounding names needed 10 resumes to receive one call back, while black sounding names required 15 resumes to receive one call back, a 50% difference in employer response rate. However, even this experiment can be subject to bias, as the names may in themselves be a signal on the quality of the workers, and not necessarily having anything to do with race itself. For instance, it is possible to have a name of “Jared” being associated with a bad worker, but not necessarily to that person’s race.

 

I believe that while the the mainstream’s position is elegantly argued for, and we agree with the general premise that the markets need to be regulated. However, I believe that regulations may not work in all cases. The solutions many economists presented are excellent, but may not be adequate since it doesn’t allow a degree of freedom to the individual to decide in specific cases of discrimination. Governments can do a number of other things that can combat the effects of discrimination, besides direct, top-down regulation. I believe that the government should embrace a comprehensive, top-down approach in fighting discrimination, while at the same time, it might work with other players in the market so that anti-discriminatory laws can be used effectively and efficiently.

Firstly, I believe that free markets are efficient in the sense that it generally can allocate resources as needed to the market actors. Markets generally have a very remarkable ability to become efficient with the right incentives. However, in the case of discrimination, it may become inefficient due to the lack of those incentives. In many cases, discrimination can be good for businesses since they are able to charge different wages to different individuals, and they are able to get the same amount of work out of some workers while costing a fraction of the wage expense. This has historically been the case with what we call the “gender wage gap”, where men and women are paid different wages for essentially the same amount and quality of work. In addition, we often see firms hire workers whom they or their employee knows well (a network effect). This can be discriminatory because the results (disparate impacts) can be discriminatory in nature. The only way to solve these issues is by having firms being regulated directly by the government to change the historic legacy.

Secondly, I believe that governments should take a leading role, but not the only role in helping to end discrimination. A government’s approach should be based on both “carrot” and “sticks”. Governments can directly punish the worst discriminatory offenders, while at the same time, they offer incentives to encourage diversity in the workplace. Governments should consult the private sector to see why they may not want to hire women/minorities, and work with them to help design incentives to help end discrimination.

Thirdly, governments can also utilize other methods that are not direct regulations, for instance through education in non-discrimination. This in fact has been promoted in the schools’ educational curriculum in the past few decades and have been credited with helping new generations of workers and employers understand the value of diversity in the workplace. Educational changes can cause the deepest changes in the way workers interact with others and in a firm’s hiring practices. In many cases, the markets simply are not aware of the potential benefits a diverse workforce can bring along, and it takes some educational efforts, in part facilitated by the government, to change the firm’s hiring practices.

Lastly, I believe that the free movement of people has been extremely beneficial for firms and discriminatory practices would stop this free movement of people. Government should do all it can to make sure that worker mobility is not impacted, as historically, workforces that move around tend to reward firms that are the fairest and most efficient at utilizing labor. For instance, during mass construction projects that are undertaken by the government or large corporations in the past, people of different ethnicities often come and work together, albeit sometimes on different parts of the same project (i.e. the transcontinental railroad). This has been very beneficial for the employers as they are able to attract the best talents due to the mobile workforce.

To conclude, I believe that our solution is a compromise between the neoclassical, free-market advocates on the one hand, and the regulation-heavy advocates on the other. Businesses exist in an environment where discrimination exists and governments need to ensure that workers do not encounter discrimination through regulations, workplace incentives and education programs. At the same time, governments need to consult with private companies to see what works best to end discrimination. A collaborative environment between governments and businesses, we believe, is often the best one in ending discrimination. Behind all of these proposals in ending discrimination is our firm belief that markets, when given the right incentives, will come to the rational conclusion: Discrimination results in an inefficient utilization of resources, firms will lose out on some of the best talents, and in the long run, only firms that do not discriminate can survive in our global, interconnected world.

China’s Future, a demographic perspective

Posted on by fqzhang

Headlines around the world have often captured the economic rise of China in vivid details: its ever-expanding industrial output, its rapid increase in the amount of mega-corporations that threatened to upset the status quo (think of Lenovo, Huawei, and Alibaba), and above all, its mass market of consumers, who are only beginning to consume in quantities not hereto imagined. But in this blog post, I want to focus on another core aspect of its economy that perhaps is more crucial for China’s economy in the long run: its labor force.

Mao had famously said something to effect that the more populous a nation is, the more strength that it has. Initially, what he meant to suggest is that because China is so populous, it is able to survive a nuclear confrontation or any other national catastrophes that could have easily crippled other nations. And for a long time, China’s demographic growth had been remarkable, seeming to heed his words, growing from 543 million in 1950 to 814 million in 1970 (see graphs)China population pyramid 1970, whChina_Pop_Pyramid_2012 en the median age in the country is only 20. Of course, many nations have growth much fast than this, but for a nation the size of China, the impacts are quite noticeable. However, simply by adding raw number of people to the economy does not suggest that the economy has been growing as well. In fact, in certain years (see graph 2), the economy contracted quite severely during the Mao era. Overall the pace of growth is only from the duration of the period from to    .

This lack of growth during the Mao era can be contrasted to the beginning of the Deng Xiaoping era, where following a series of liberalizations, the economy had become more robust and dynamic, growing at over 9% percent each year for the period from 1979-2014Chinese economic growth compared to its neighbors. The implementation of economic reforms in the form of special economic zones, etc, helped to propel the economy into new economic heights. Another factor that propels this growth that is often neglected is the so called “demographic dividends”.

The past 35 years had witnessed what is often termed as a demographic dividend, whereby the nation have both low old-age population and low younger generation. This period in a nation’s history (particularly in the case of East Asia, where this effect is the most pronounced) is characterized by high economic growth. For instance, look at the demographic pyramid for 2012. The majority of the population is of working age and contributing to national economic output, at the same time, less economic resources are required to take care the elderly (in the form of healthcare, etc), and less is needed to take care of the young (in the form of education, etc). This saving of resources freed up more capital and labor for the economy, and enabled the phenomenal economic growth that we came to associate with the East Asian countries.

However, one can readily see that there is a catch to this scenario. Population all eventually age and the working population today is the retirees of tomorrow. With a rising share of the elderly, the demographic boom will quickly turn into a demographic bust. In China’s case, this will become an acute problem (see graph)China2050. Decades from now, when 20, 30 or even 40% of the population is over the age of 65, what do we do then? Economically, the burden will be ever greater on the central government to provide for the elderly, increasing tax burdens on already a smaller working age population. If there is a lesson from the Japanese experience for China, it’s that population is at the center of any comprehensive national development strategy. Failure to take into account the demographic factor will have catastrophic consequences.

A musing on the word “farmer”

Posted on by fqzhang

Here in the United States, we frequently use the word farmer to describe someone who engaes in agricultural pursuits or who derive a large source of their income from farming activities. Accoding to the most commonly used definition (as defined by the Merriam-Webster dictionary): “a person who cultivates land or crops or raises animals (as livestock or fish).” Based on this definition, a large portion (over a billion in fact, according to official figure, but like with all statistics, the true figure is much higher) is engaged in agricultural pursuits. Farmers have always been recognized as one of the largest groups of people in society, and their role in the production of food is very well appreciated. But are all “farmers” created equal?

I remember hearing about people in my hometown who are considered to be “farmers” (in rural areas of California) but were in fact large landowners who owned thousands of acres of land (chiefly planted with almond trees) and whose revenue is in excess of 10 million dollars a year. Now compare a picture of this individual with a sub-Saharan “farmer” who engages in subsistence farming (like other 60% of the population of Sub-Saharan Africa), and whose produce can barely feed his own family of 7, and you quickly get a picture of the diversity in the word “farmer”.

The word “farmer” in its modern usage is essentially an American construct, as it implies ownership of the land you are working on and have to be associated, at least in America, with large estates and strong independent ownership. The millions of people who work on those farms on a contractual basis are termed “farm workers” rather than farmers, since they are merely needed for the harvesting and planting of fruits/vegetables/crops. In many ways, being a “farmer” in the United States doesn’t seem to be a bad occupation: you receive a steady source of income and derive a sense of satisfaction from working for yourself. Granted, no one in a capitalistic society is entirely free from the fluctuations on the market or the uncertainties of weathers, but with economy of scale (which many farmers in the US enjoy), over the long run, farmers seemed to be living a decent life. With increasing consolidation in the United States in the farming industry, the small family farms are increasingly becoming a thing of the past, and we entering an age where large corporate farmers are becoming the way of the future.

For the rest of the world, “peasant” is the more appropriate term. Even in advanced developing nations like China, over 30% of the labor force engaged in farming as their daily occupation, and in the rest of the developing and underdeveloped world, the peasantry ranges from 40% to 80% of the population of the area. The peasantry is a poor lot with none of the connotations that we associate with being a “farmer”. But unfortunately, this is also the state of the world that we live in. However, to capture the true state of the world’s farming community, we should use the word “peasant” a little more.

Labor market in Japan: Is female participation the key to economic recovery?

Posted on by fqzhang

I came across this article quite recently on NPR news, “Is ‘Womenomics’ The Answer To Japan’s Economic Woes?” http://www.npr.org/blogs/parallels/2014/12/03/368143686/is-womenomics-the-answer-to-japans-economic-woes . The author posed the question of whether or not Japan’s recent policy, dubbed “Abenomics”, is going to pull the nation out of economic stagnation. One key component of this economic revitalization is to introduce women into the workplace and to provide a more talented pool of workers for the economy to draw upon. However, his policies have been controversial as well, since he is accused of helping only a small group of women, and not doing enough to help advance the careers of others. The debate, therefore, revolves around what is the economic role for women in a society such as that of Japan’s?

It is no secret that the Japanese economy is in a sluggish condition, with many structural problems present. Personally, I believe in the importance of sustained economic growth to bring benefits to society, and if having greater participation can contribute to the economic development, then I believe it is the duty of a government to help women assimilate into the workforce. This will no doubt face considerable resistance from many in a traditional society such as that of Japan, where women in the workplace, especially in jobs like manufacturing, is still something rarity, and women are expected to become the child-bearers and homemakers in society. But we must not forget the fact that the Japanese workforce is shrinking due to population decline, and immigrations are still being severely restricted in the nation. Therefore, it is imperative for Japan to increase the size of its labor force by including more women than before in order to save many of the industries in the country from being relocated elsewhere.

This sort of change requires a fundamental shift in the way a society views how their economy should be organized. If we look back at the history of Japan, we see that Japanese society reorganized itself from a feudal agricultural nation into an industrial one in the late 19th century; and post-World War Two, when Japan orientated itself to become an exporting nation, with an emphasis on electronics. These sort of changes did not happen overnight and had to overcome challenges within society, the landowners and domestic industrialists respectively. Also in each case, the government, in the form of a centralized bureaucracy and the Ministry of Economy, Trade, and Industry (METI), helped to propel the nation into greater economic advancements.

In today’s Japan, societal views of women have not changed in decades, even though the economic fortune of Japan have shifted considerably. In response to this new crisis in the labor market, I believe that the government has the opportunity to once again take a proactive role in society, and to encourage economic development by making drastic changes in the social framework. By providing subsidies to industries that hire women, by giving better childcare and social benefits, by opening technical training programs for women, the Japanese government can introduce more women into the workforce. Japan has done it before, spear-heading changes in its economy and transformed itself into the 3rd largest economy in the world today. I believe that with the right amount of political will to foster these social changes, Japan can once again become an engine of global economic growth.

The return of manufacturing jobs to the US: challenges and responsibilities

Posted on by fqzhang

In a recent article from NBC news, a report came out that suggested that manufacturing jobs are returning to the United States, mostly in the form of work in auto-plants and other machinery manufacturing plants. However, the article also pointed out that even though the jobs are returning to the US, the quality of the job simply is not the same: the pay is lower and job security is also far less, with many temporary and contract workers. This poses a dilemma for both policy makers as well as auto manufacturing firms: while it is good to have jobs returned to the United States, is it okay to pay workers poorly and not offering other forms of benefits? Or should companies also have a responsibility to give “good” jobs to Americans?

I believe that the first order of business for a government is to ensure that jobs exist for the vast majority of its peoples, and while things like health benefits for workers and higher wages are important, this should come after jobs have been secured. Of course, that is not to say that in our quest for jobs, we can let businesses have a free rein over what they want to do; they must still adhere to legal regulations and other government regulations. As the cost of fuel have risen dramatically in the past decade (the current dip in prices of oil may only be temporary), and the cost of labor have risen elsewhere, it makes more sense for firms to manufacture in the United States, which remains one of the largest consumer market for products in the world. This is a historic opportunity that our government should not ignore, for a couple of reasons. First, millions of Americans are still out of work, and often manufacturing jobs can provide for those lacking skills in other fields. Secondly, and more importantly, a manufacturing base here in the US can help us wither more business crisis in the years to come. A more-manufacturing based economy can help in the following way: suppose an economy is in a recession and aggregate demand is down. A government stimulus can help the economy by ordering more goods even though there is no demand, and this in turn triggered greater output, greater employment, greater income, and kicks off a multiplier effect. A more service-oriented economy simply cannot do that, since government cannot purchase a service when there is no demand, and government spending can have a difficult time stimulate spending. So, in this sense, the return of manufacturing to the US, even at lower wages, can help us recover from a recession faster in the future.

Moreover, we must adjust our mindset toward large manufacturers like GM. Gone were the days when a factory worker can have enough wages to support a family of 4 and enjoy middle-class living standards. Manufacturing is no longer what is used to be because of the increased competition from overseas markets and greater automation in the workplace. But we must not let this fact deter us from taking advantage of opportunities that comes our way. After decades of “de-industrialization”, with industrial capacity being moved offshore, perhaps it is now time to “re-industrialize” and to leverage our country’s unique advantages to form a new, rebalanced economy.