employment


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Employment case for constructive dismissal and $200M in damages.

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Feeds through to NZ.

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Some, quite a lot actually, of jobs are never coming back. Robots, computer technology all are dissipating the employment prospects of the line manufacture worker to the middle management services provider.

This will mean that until the new opportunities become available or apparent to these displaced workers, unemployment will remain uncomfortably high. There will be disruption within corporate profits. This period, while a blip in history, will last potentially a worker’s working life.

Time to retrain. Until the opportunities become clearer, this means into higher [intellectual] services. Businesses I suspect will also in many instances become smaller, at least while the competitive fight for market share predominates.

If the Fed is true to its word, this means low interest rates and higher inflation for quite some time. Investment becomes critical for those hoping to retire at some point. Bonds are a lost cause currently. Commodities and stocks are the two areas to be. Stocks hold the edge. The volatility however will be uncomfortable for many.

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Jerry in his post relating to the minimum wage would seem to be advocating for fascism.

So for example, to go from the current $7.25 to the $9.25 (or $8.25 or $10.50), the law should lay out a specific time, in which there will be small, but steady raises in the minimum wage. So to go from $7.25 to $9.25, the law will require the minimum wage to rise – let’s say 25 cents (I don’t know what figure would be ideal….but 25 cents seems rational) – every 6 months. Employers will still be forced to pay more for minimum wage workers, but they will be ready for the changes as the effect won’t be as sudden and it will give them time to adjust to the higher costs.

The use of the law here is misguided. The law is to protect natural law rights, fundamental rights. What right is there to be paid a legally mandated minimum wage? None. It is in addition a violation of economic law. It creates unemployment.

Further, when the law is employed by the state in such a fashion, it has a name. That name is fascism.

The reality of bureaucratic administration has been with us at least since the New Deal, which was modeled on the planning bureaucracy that lived in World War I. The planned economy — whether in Mussolini’s time or ours — requires bureaucracy. Bureaucracy is the heart, lungs, and veins of the planning state. And yet to regulate an economy as thoroughly as this one is today is to kill prosperity with a billion tiny cuts.

Jerry has a plan, should plan ‘a’ fail.

And to minimize adverse long-term policy if they do fail, a law should be written for the reversal of the minimum wage hike/decrease if X, Y, & Z are not successfully accomplished within a specific time. Now I’m making it very simple but of course great detailed work would (should?) go into figuring out the parameters, requisites and goals. We don’t want to be stuck with a law that might be hurting us. Basically, we want a “reset” button if it fails.

How exactly should this “detailed work” be undertaken? The two approaches will provide very different conclusions. Empiricism will provide some sort of model. Rationalism, the a priori, will demonstrate the error of the undertaking.

One other thing that gets lost in the minimum wage debate is that different parts of the United States might have different effects. The US is huge. Even some states are huge and can differ a lot in different regions. That’s why I don’t think cross-country comparisons are that wise when it comes to minimum wage laws because labor markets, cultures, fiscal/monetary policies, and just plain luck can produce different results in different places.

Of course the conditions are different. Of course conditions will change continuously, thus any static law is guaranteed to fail.

So maybe we might want to adopt different types of laws in different places in different fashions. Maybe in California, raising the minimum wage would have net positive results, while raising it in Texas would have net negative results. Or getting rid of the minimum wage would have net positive results in Texas while net negative in California. I don’t know. I’m just saying this is something we must consider.

Why not abandon positivist law entirely and allow ‘economic laws’, viz the free unfettered market to allow adaptation to the variable conditions of exchange?

You want to raise wages? Then you need to raise employment through production. How do you manage that? Employment is a function of Discounted Marginal Value Product [DMVP]. DMVP is raised through the addition of new capital that raises production, making each individual worker more productive, thus raising his individual DMVP. A higher DMVP results in higher wages.

Of course this is the question that the Federal Reserve would love the answer to…hence their perseverance with QE and other credit expansion policies, even though after five years and counting, they have failed.

New capital is invested by entrepreneurs from savings and/or increased debt, which are the savings of others, although in a fiat money economy this is less the case where fractional reserve lending can create new money ex nihilo.

Those savings or incurred debt are invested in new capital to produce goods and services. The savings, excluding ex nihilo money creation, originate in earnings, gained from exchanging goods and services on the market economy.

Why then does ex nihilo credit expansion fail? Because an artificial interest rate set by ‘law’ cannot overcome market forces and the natural rate of interest which governs the investment of capital. In exactly the same way would a minimum wage set by law [which of course it already is] fails. Simply look at the current unemployment.

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I have been so busy at Law School that I haven’t had an economic post in quite some time. With this being jobs Friday on Wall St, now seemed as good a time as any.

Employment numbers are picking up. But really, so what. The type of job that is being created and the wages that it pays are the important factors when looking at job creation.

Manufacturing jobs, high wage jobs, are disappearing and staying low. While fast food service etc are being created. The pay is however minimum wage. As this transition takes place, average earnings and consumption falls.

This has in no small measure contributed to the muted economic recovery. If you lost a higher paying job which could only be replaced with a lower paying job your consumption habits must change.

We had earnings finish up this week and they were not great. In fact the bar has been lowered to such an extent that earnings do not actually provide anything much of importance. Add to that the accounting manipulations that will be occurring and they are almost worthless. A significant reason is the falling aggregate power of consumption.

Which is why the Federal Reserve will continue to inflate. Until of course that the inflation forces it to stop, which while it may take a while longer, will eventually happen. At that point stocks will be sold. Until then, the market remains an uneasy buy.

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The jobless nature of the recovery is particularly unsettling. In June, the government’s Household Survey reported that since the start of the year, the number of people with jobs increased by 753,000 – but there are jobs and then there are “jobs.” No fewer than 557,000 of these positions were only part-time. The June survey reported that in June full-time jobs declined by 240,000, while part-time jobs soared 360,000 and have now reached an all-time high of 28,059,000 – three million more part-time positions than when the recession began at the end of 2007.

That’s just for starters. The survey includes part-time workers who want full-time work but can’t get it, as well as those who want to work but have stopped looking. That puts the real unemployment rate for June at 14.3%, up from 13.8% in May.

A collapse in the US median income level has historically coincided with the Fed running a policy of negative real interest rates. The reason why unemployment tends to be lower during periods when capital has a real cost attached was explained in some detail in a piece written in early 2011. This dour relationship has been maintained over the last two years and median income has, as I suspected, continued to fall. Make no mistake, if monetary policy is not substantially changed, then median incomes will continue to fall.

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We are watching the Fed employ a trickle-down monetary policy. They hope that if they pump up the banks and stock market, increased wealth will lead to more investment and higher consumption, which will in turn translate into more jobs and higher incomes as the stimulus trickles down the economic ladder. The kindred policy of trickle-down economics was thoroughly trashed by the same people who now support a trickle-down monetary policy and quantitative easing. It is not working.

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Payrolls rose by 195,000 workers for a second month, the Labor Department reported today in Washington, exceeding the 165,000 gain projected by economists in a Bloomberg survey. The jobless rate stayed at 7.6 percent, close to a four-year low.

Hourly earnings in the year ended in June advanced by the most since July 2011, giving Americans already buoyed by higher home prices more reason to boost household spending, which accounts for 70 percent of the economy. Stocks climbed, while the yield on the Treasury 10-year note rose to the highest in almost two years on expectations the Federal Reserve will start trimming $85 billion in monthly bond purchases in September.

Market seems [and is] willing to trade higher. The dip seems to have been bought. The backtracking by the Fed after Bernanke’s interview seems to have inspired enough bullish buying to get the market higher. All is good again.

Until you look at Treasury yields. Big move. Now the question is can stocks continue higher with higher rates?

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Today that answer seems to be yes. Will it remain a yes…and if so, to what yield rate?

The consensus on rates seems to be that it will be good for the banks. The banks have a large swap trade, which is definitely bad for banks, just how bad will have to wait to earning to see if the bad outweighs the good stuff.

Higher rates means that raising capital becomes more expensive, the market rate climbs back towards the natural rate, which will slow down any expansion that might have been planned. Which bodes what exactly for employment? Employment is a lagging indicator, so the capital [raise] and spend cycle is already complete?

The mixed message coming from the two markets will keep the uncertainty levels high. The conviction of buyers will likely be low which will keep prices and reversals quite active I suspect for a time yet.

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