I appreciate labor economics for what it is. This is what I was repeating in my head over and over again while I gritted my teeth in class the other day as we covered minimum wages and why economists think they are so stupid.
My first favorite class in school was math, not English. Words were the harder problem I always chased because numbers were easy: solutions have frameworks, and problems are quantified. Even in cases with multiple paths toward the same solution, those paths are clear and delineated. It’s soothing in a way that writing never is for me, where each story is comprised only of variables that can be added, subtracted, and rearranged in nearly infinite ways.
Maybe I pursued words because they felt like a greater challenge. Maybe I just like to feel uncomfortable.
But I like to use data in my reporting whenever possible and appropriate -- not because it is trendy and I like to draw charts, but because it serves as a fact-checking tool. But it is intrinsically just as fallible as a personal experience, because it is filtered through people.
This is what I gritted my teeth through in class: this data is broken, this frame is broken, and if this is labor economics, then labor economics is broken.
Minimum wages get labor economists flailing because they’re considered limits on the availability of employment: If a job is more expensive to make, job-makers will make fewer jobs. The true poverty reliever is full time work, they say -- nearly no one who is working at least 35 hours per work year-round is considered poor.
The labor participation rate peaked in 1997-2000 at just over two thirds of people 16 and over. But by 2014, it had fallen to 62.9 percent. The presumption is that this is cyclical: employment expands in a boom, as companies make more money, expand their business, and need to hire more workers -- and that it in turn contracts in a recession.
This seems like a nice rule, but it’s not true.
Today we’re in something of a new gilded age of a redistribution of labor, and a concentration of capital. Economic growth in a knowledge economy does not necessitate job creation. It just makes a few dudes really rich. The presumption that the richest companies will hire the most workers seems outright absurd when it’s explained at length in the heart of Palo Alto, six miles from Facebook (10,955 employees, valued at $265 billion), seven miles from Google (57,100 employees, valued at $444 billion), and 12 miles from Apple (92,600 employees, valued at $632 billion). Palo Alto, where the median household income is $122,484, the median home sale price is $2,340,000, and the minimum wage is $9/hour -- and a marginally more generous $13-15/hour for those on the Stanford campus who will pick up after the students who leave their coffee cups and candy wrappers strewn around the classroom.
By labor economist standards, these people are not poor, because economists judge poverty based on federal guidelines, which place the individual poverty rate at an astounding, homeless-making $11,770. You can’t begin to live on $12,000 a year in Palo Alto, but labor economists won’t consider you poor. We can’t judge this new economy by rules that dictated the old one, and we can’t judge the new contours of poverty and the cost of living by old metrics.
But how new is this economy really? On the first day of class, Professor Pencavel quickly dispensed with the notion that self-employment is on the rise. The vast majority of workers today are employees of relatively large firms. It’s been trending this way for decades, and there’s no indication -- at least none yet -- that this is shifting back.
But there’s one thing gig economy boosters do get right: Contingent and often misclassified work is trendy as hell. Labor law-breaking has always been a business plan, but now it’s a particularly popular one. This is exacerbated by the tendencies of platforms to become monopolies, with total control over how prices and wages are set. Platform-captured self-employment may not make up a significant portion of the labor market today, but it’s not inconceivable that it could yet, soon, depending on the political and policy will of largely local governments across the country.
I don’t know about other labor economists, but Pencavel presumes this scenario will right itself in the courts. Even if that’s true, it could take years to settle just one worker misclassification class action lawsuit against one company, while many other competing platforms enter the market. There are not enough mallets for this game of Whack a Mole, and it’s not fun to play unless you’re a venture capitalist.
The economics of digital platforms seem to have, in many ways, disrupted the economics of labor. Even beyond the platforms, the law of diminishing returns and a supposed concern for worker welfare are used as excuses to split full-time jobs into part-time and contract gigs and lower corporate employment costs. Former Google now Alphabet CEO Larry Page may say he just wants workers to be happy in a time of knowledge economy abundance, but it's impossible to ignore how much cheaper those part-timers would be to employ.
I am all for people working less. I’m just not into how poor they are when they do that.
Real, useable data on recent trends in self-employment doesn’t exist, though we can make some estimates. The market boosters who presume we’ll be 50 percent self-employed soon are lying, and the labor economists who presume self-employment won’t be shifted at all by this new market are myopic. There’s an urgency to this that seems lost on both camps. So as someone who wants to use data to tell stories about how work is and isn’t changing, I am pretty bummed.
If labor economists are concerned about the availability of full-time work as the primary means of alleviating poverty and making the economy go ‘round, they should chill out about minimum wage raises and refocus on what’s going on today. At the very least, they could debunk folks like Page.
John Pencavel is a great economics researcher who’s done a lot of work on the effects of labor unions and worker-owned cooperatives. No matter how much I might disagree with the canon, it’s a privilege to hear him speak twice a week in a small room full of 18 year olds who are mostly checking Facebook.
So I grit my teeth and I appreciate labor economics for what it is. But I have to wonder if labor economics knows what it is these days.