Just how bad must wages and benefits be for most people?

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In my post from a couple of days ago, I linked to and quoted from this from Yahoo quoting former Labor Secretary Robert Reich:

In addition, while the economy has been expanding for nearly three years and hiring is picking up, Reich notes, "we also see some major declines in terms of median wage. And that's particularly true for the bottom 90 percent."

In the past, economists argued that wage growth lagged in part because employers were spending more on benefits like health care and pensions. But that hasn't been the case in the past few years. A recently released study from the National Institute for Health Care Reform shows that in 2010, the percentage of Americans with insurance who got insurance from employers fell to 53.5 percent, down sharply from 63.6 percent in 2007. "At the top of the talent chain, employers are providing very generous health insurance, deferred compensation, and everything you can imagine," notes Reich. "But as you go down the job ladder, particularly to people who are doing routine jobs, they're getting less and less. There has been a substantial erosion of health care benefits for the bottom 90 percent.

As I surfed the various news sites this morning though, I did find a couple of articles pointing out that some groups are still seeing their salaries and benefits go up, so all is not lost.

In the "No CEOs Left Behind" category, we have this article from today's (April 4) USA Today, "CEO pay soars while workers' pay stalls":

At a time most employees can barely remember their last substantial raise, median CEO pay jumped 27% in 2010 as the executives’ compensation started working its way back to prerecession levels, a USA TODAY analysis of data from GovernanceMetrics International found. Workers in private industry, meanwhile, saw their compensation grow just 2.1% in the 12 months ended December 2010, says the Bureau of Labor Statistics.

Two years of scaling back amid tough economic times proved temporary as three-quarters of CEOs got raises in 2010 — and, in many cases, the increases were substantial.

This blog post from Reuters written by a corporate board member points out a few of the problems with executive pay:

There are several factors at play as the remunerations committee and the board as a whole try to weave together pay packages.

Compensation consultants.
...snip...
Personal feelings.
...snip...
A disconnect from today’s reality.
...snip...
A lack of direct accountability.

I especially like that third point. A disconnect from today's reality indeed. And speaking of disconnects from today's reality, we have this from Bloomberg today on rising Wall Street salaries for most:

Most Wall Street (S5FINL) employees got higher salaries in 2011, with the biggest bumps going to those at boutique banks and alternative asset managers, according to a survey by eFinancialCareers.com.

The online survey of 2,860 financial professionals found that 54 percent received salary increases -- excluding bonus -- and 40 percent reported no change from 2010, according to an e- mailed description of the survey’s findings. Workers at so- called bulge-bracket banks got an average increase of 3 percent, compared with a 14 percent gain for people at boutique banks and a 13 percent raise for those at fund managers.

When year-end bonuses were included, average pay last year fell for workers at companies including Goldman Sachs Group Inc. (GS) and JPMorgan Chase & Co. (JPM)’s investment bank amid declining revenue. As year-end bonuses dropped, some banks raised base salaries that in past years contributed just a fraction of pay for senior employees.

But no matter what happens, we can be assured that Jamie Dimon will find something to whine about. Why just this morning, the Commodities Futures Trading Commission has fined JPMorgan the astronomical sum of $20M to settle charges related to the Lehman Brothers bankruptcy. TWENTY MILLION DOLLARS! (/Dr Evil voice) Why based on JPMorgan's reported profit from 2011 of $19B, that's a whopping .1%. By my rough math, that is less than a half day's worth of profits.

And because I can:

How does an interconnected global economy avoid a global recession?

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As I was surfing through various news sites this morning (April 2), I noticed a number of articles discussing problems with the European and US economies which lead directly to the question I have posed in the title of this post:

How does an interconnected global economy avoid a global recession?

Unfortunately, I do not know the answer but if I had to guess, it would be to say "It can't."

The first article I noticed was from tha AP via Yahoo titled, "Euro unemployment spikes to record 10.8 percent." Reuters reported it as "Euro zone unemployment reaches near 15 year high":

Unemployment in the euro zone reached its highest level in almost 15 years in February, with more than 17 million people out of work, and economists said they expected job office queues to grow even longer later this year.

Joblessness in the 17-nation currency zone rose to 10.8 percent - in line with a Reuters poll of economists - and 0.1 points worse than in January, Eurostat said on Monday.

Economists are divided over the wisdom of European governments' drive to bring down fiscal deficits so aggressively as economic troubles hit tax revenues, consumers' spending power and business confidence which collapsed late last year.

As a companion to these was this blog post from Reuters on youth unemployment across Europe:

In Spain the number of under 24-year-olds out of work is 50 percent, in Italy nearly a third of young people are without a job and in France the figure is a quarter.

However, in Germany youth unemployment is expected to sink to record lows over the coming months and is currently well below 8 percent.

...snip...

So what is Germany doing right and can Spain learn a few lessons? In an article written for the Centre for European Reform, John Springford lays the problem out clearly. In EU countries where rates of unemployment are high levels of participation in higher education and vocational studies is approximately 40 percent. In Germany, Norway, the Netherlands, Denmark and Finland, where youth unemployment is fairly low, rates are closer to 60 percent in some cases.

But it is not just high unemployment in general and among the young in particular that is problematic. Today's NY Times had this article on the swelling ranks of the working poor in Europe:

Europe’s long-running euro crisis may be cooling. But the economic distress it has left in its wake is pushing a rising tide of workers into precarious straits in France and across the European Union. Today, hundreds of thousands of people are living in campgrounds, vehicles and cheap hotel rooms. Millions more are sharing space with relatives, unable to afford the basic costs of living.

These people are the extreme edge of Europe’s working poor: a growing slice of the population that is slipping through Europe’s long-vaunted social safety net. Many, particularly the young, are trapped in low-paying or temporary jobs that are replacing permanent ones destroyed in Europe’s economic downturn.

Now, economists, European officials and social watchdog groups are warning that the situation is set to worsen. As European governments respond to the crisis by pushing for deep spending cuts to close budget gaps and greater flexibility in their work forces, “the population of working poor will explode,” said Jean-Paul Fitoussi, an economics professor at L’Institut d’Études Politiques in Paris.

Meanwhile in the US, there was this post from Yahoo:

In addition, while the economy has been expanding for nearly three years and hiring is picking up, Reich notes, "we also see some major declines in terms of median wage. And that's particularly true for the bottom 90 percent."

In the past, economists argued that wage growth lagged in part because employers were spending more on benefits like health care and pensions. But that hasn't been the case in the past few years. A recently released study from the National Institute for Health Care Reform shows that in 2010, the percentage of Americans with insurance who got insurance from employers fell to 53.5 percent, down sharply from 63.6 percent in 2007. "At the top of the talent chain, employers are providing very generous health insurance, deferred compensation, and everything you can imagine," notes Reich. "But as you go down the job ladder, particularly to people who are doing routine jobs, they're getting less and less. There has been a substantial erosion of health care benefits for the bottom 90 percent.

David Dayen at FDL News points out that "Austerity doesn't work." Austerity in Europe squeezes the 90%, throws more people into unemployment and creates more working poor. The same thing in the US. In an interconnected global economy, how can we not have a global recession when seemingly the entire industrial world is being squeezed.

And because I can:

I really do want to believe in the economy...

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In the coming up on two years that I have been writing about the economy, jobs, un and underemployment at this little corner of the Intertoobz, I've tried to admit when my predictions have been a bit off. Like here and here where last summer I predicted we would be in a double-dip recession by the end of 2011. While we didn't fall back into recession on the time frame I envisioned, I still see it as quite possible.

I do hope I get to admit being wrong on that. I so very much want to believe the economy is really improving and the jobs picture will brighten but I just can't shake the feeling that it is all smoke and mirrors.

Today, (Thursday, January 19), the report of Initial Jobless Claims for last week came out and once again, the economists are surprised. Via Bloomberg:

Claims plunged by 50,000 to 352,000 in the week ended Jan. 14, the lowest level since April 2008, Labor Department figures showed today in Washington. The median forecast of 41 economists in a Bloomberg News survey projected 384,000. A Labor Department spokesman said the decrease reflected volatility seen during this time of year. The four-week average, which smoothes out fluctuations, decreased to 379,000 last week from 382,500.

...snip...

Jobless claims were projected to decrease from 399,000 initially reported for the prior week, according to the Bloomberg survey. Estimates ranged from 363,000 to 405,000. The Labor Department revised the previous week’s figure up to 402,000.

I am not at all surprised that last week's figures were revised upwards as that is the pattern over hte last few months at least. I did not make an official prediction but will admit that I thought this week's number would be back well above 400K. Once again, I do prefer to be wrong on these.

But then I see articles across the Toobz like this from Tuesday from US News (via Yahoo) with the headline "Are We Entering a Jobless Recovery?" and I just want to weep at the incredible combination of stoopid and duplicity to that gives us such a headline. The Great Recession/Lesser Depression is supposed to have ended in June 2009 so we are 2 1/2 years into a "recovery" and US News is just now questioning that it may be jobless?

But there is a downside to the Fed's favorable report and the good news on Wall Street. While the economy is growing, few new jobs are being created. The unemployment rate fell from 9.4 percent in December 2010 to 8.5 percent in December 2011. But without more dramatic job growth, low-skilled workers and the long-term unemployed will continue to have a hard time finding a job.

Economists now fear that the United States is entering what is known as a "jobless recovery," an economic recovery in which few new jobs are created. If economic expansion continues without adding a significant number of jobs, many unemployed workers will simply be left behind with few job prospects.

Unfortunately, the article doesn't get much better as it goes on to lay out standard "Gee, all you need is new training and education for the miracle to occur" when in fact, one of the groups hardest hit has been new college graduates from '08 - '11. Of course, if all we needed were training and skills to take all these jobs that are available, sure seems as if salaries would be rising in those areas with the needed new skills but that has not been happening.

Also from Tuesday was this piece from Reuters:

More than four years after the United States fell into recession, many Americans have resorted to raiding their savings to get them through the stop-start economic recovery.

In an ominous sign for America's economic growth prospects, workers are paring back contributions to college funds and growing numbers are borrowing from their retirement accounts.

Some policymakers worry that a recent spike in credit card usage could mean that people, many of whom are struggling on incomes that have lagged inflation, are taking out new debt just to meet the costs of day-to-day living.

American households "have been spending recently in a way that did not seem in line with income growth. So somehow they've been doing that through perhaps additional credit card usage," Chicago Federal Reserve President Charles Evans said on Friday.

With all due respect to Reuters and the author(s) of this "Insight" piece, this should not be a surprise. We have record people on Unemployment for long term, unemployment that averages $330 per week across the country, people who have exhausted all levels of unemployment compensation yet still have rent or mortgages, utilities bills, and the need to keep themselves and their families alive. Do you have a better option?

Today, Alison Lin at MSNBC was a little closer to reality with this:

The sudden loss of a job has become, if not commonplace over the last years, at least not very surprising.

And yet, many Americans remain unprepared for not having an income. A new survey from Country Financial finds that one-third of Americans would immediately fall behind on their bills if they lost a job and were left with no income.

That’s virtually the same result that Country Financial got the last time they asked the same question, in July of 2009.

But the banksters are at least mostly hitting their Wall Street predictions so it is all good I guess.

Which group lives in the bigger bubble, Wall Street or Beltway Villagers?

And because I can:

These are only problems for the top 1%

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If you read me often enough, you have probably noticed that I tend to check various news and opinion sites throughout the TradMed each morning, after I've spent a few minutes reviewing emails and jobs sites. Most of the time, I just shake my head at the various levels of stupidity I find, not being able to quite give it the full YOU HAVE GOT TO BE F*CKING KIDDING ME! treatment so richly deserved. Then there are days like today where teh stoopid is so truly dumbfounding.

Today, we have Henry Kravis, co-founder of private equity firm KKR, sending up a fine whine to Bloomberg on how tighter credit rules are forcing the private equity firms to kick in more of their own money and making buy-outs more expensive. Sayeth Mr Kravis:

“As the debt markets tighten and the cost of capital goes up, something has got to give,” Kravis said yesterday at the Bloomberg Dealmakers Summit in New York. “You just have to pay more.”

Kravis, 67, said the cost of capital for a leveraged buyout has risen more than 2 percentage points since the firm agreed to buy Pfizer Inc.’s Capsugel unit in April, forcing buyers to put up more cash for deals and borrow less. Uncertainty in the equity markets also is making it more difficult to reap profits through initial public offerings or sales of companies owned by private-equity funds, he said.

...snip...

Buyout firms typically use loans secured on the targets they acquire to finance more than half of the purchase price and cash from their own funds for the rest. The firms seek to improve performance at the companies they acquire or expand them before selling them within about five years.

KKR, which Kravis created in 1976 with George Roberts and Jerome Kohlberg, is expanding into hedge funds, real estate and underwriting to reduce reliance on buyouts after the firm gained a listing on the New York Stock Exchange last year. KKR this year hired a group of former Goldman Sachs Group Inc. (GS) traders led by Bob Howard to start KKR’s first hedge fund.

Wow. Just. Wow.

Mr. Kravis joins JP Morgan Chase CEO Jamie Dimon as a poster child for those who have no clue about life amongst the peons. Now Dimon has set the whiners' bar high with his whines about how banksters get no love and how it's just so mean as to be anti-American to require banks to increase their capital but I think Kravis has nudged Lloyd Blankfein out of second place.

Private Equity firms use small per cents of their own funds and large debt in leveraged buy-outs. There seem to be as many articles saying LBOs are bad as there are good. I'm sure it is no surprise that I lean towards the LBO = bad perspective. While there may be some benefits in efficiencies, there are far too many examples of lost jobs, high interest payments on those loans, and destroyed pensions. The pattern seems to be Private Equity firm creates huge debt to take over Business. Business then has to service the resulting debt before investing in R&D, employees, pensions, whatever. In order to streamline costs, Private Equity firm is within a couple of years "forced" to declare bankruptcy, turning their pension obligations over to the Pension Benefit Guaranty Corporation. At the end of approximately five years, the private equity firm files for an "Initial Public Offering" for all or part of the firm they had taken private five years before. IN the intervening years, they have cut employees, destroyed the pension, used company assets to pay off the debt (which never seems to be in their names, but only in the name of the company they used the debt to acquire) and walk away with more millions to off set the devastation they leave in their wake.

Congratulations Henry Kravis, your whine even managed to top that of folks CNN found who complained that they were more like Joe Schmuck than Warren Buffett and shouldn't have to pay a "Millionaire's Tax":

Only 24% of millionaires said higher taxes on higher incomes is the fairest way to go, according to recent survey from Spectrem Group, a research firm specializing in finances of affluent Americans. The biggest chunk of millionaires, 44%, think a flat rate tax across all income brackets is the fairest system.

...snip...

One millionaire CNNMoney reader said that for the past five years, his tax rate (including state income taxes) has ranged from 40% to 55% -- which he thinks is more than enough money to be forking over to Uncle Sam.

Uh, Earth to CNN Money reader - taxes going to the state are not going to Uncle Sam. You might also check with the folks making $30K or $40K per year and find out how much they are paying in taxes and fees at all levels.

DoG, but these WATBs do tend to irritate, don't they?

And because I can:

It's Not the Bad Economic News that Surprises Me

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Unlike economists, I can in no way ever claim to be surprised at all the continuing bad news on the economy (and yeah, I will continue to link to and milk that schtick). Just today, we have the Initial Unemployment Claims report (via CNN):

In the week ended May 28, 422,000 Americans filed for their first week of unemployment benefits, the Labor Department said Thursday.

While that marked a 6,000 decrease from the revised 428,000 initial claims filed the week before, it was worse than economists' expectations for 413,000 claims.

...snip...

Next up is the government's monthly jobs report due Friday. Economists surveyed by CNNMoney say they're expecting to see that 170,000 jobs were created in May and that the unemployment rate eased to 8.9% from 9% in April.

In case you're wondering, that "revised" figure from last Thursday's Initial Unemployment Claims report was revised upward from 424K. Given how woefully inaccurate the economists' predictions have been, I will go out on a limb as I stated yesterday and predict that the BLS numbers for May will be much lower than 170K. I'm thinking more likely closer to a quarter of that (42.5K) but I do hope that I'm wrong. As far as the "unemployment rate" easing, this article from the AP (via Yahoo) this morning (Thursday June 2) goes a long way to explaining why the "official" unemployment rate may drop. Good way to make the figures look better by not counting those who get frustrated and give-up.

The Need for Jobs Cuts Across All Groups

There are roughly 25M to 30M Un and Underemployed people in the United States today. Some of the millions show up in the base statistics provided by the Bureau of Labor Statistics while other groups do not. Among the groups that do not show are people who have been declared "self-employed" as well as new college grads, yet both groups are full of people trying to find gainful employment in professional fields.

Yesterday (Monday, May 9) Business Week (via Yahoo) had this article on how wonderful things are for the 2011 new college grads:

The class of 2011 is enjoying the best job market for new grads since the 2008 financial crisis, according to the National Association of Colleges and Employers. It's being driven by gains in finance, energy, and technology, says Edwin W. Koc, NACE's research chief, who foresees younger workers filling a backlog of jobs after two years of stagnant hiring.

In Silicon Valley, postings have doubled from two years ago at technology career website operator Dice Holdings (NYSE:DHX - News). "It's quite a stunning comeback," says Lance Choy, director of the career development center at Stanford University. Postings on Stanford's online job board for full-time positions surged 36 percent to 1,900 in the fourth quarter of last year compared with a year earlier.

Sounds wonderful for those new grads, right? Well, not so fast there Bunky. A few weeks ago, USA Today had a similar article but while also mentioning the percent increase of new jobs for new grads this year, also let slip the unpleasant reality:

The increase in open positions means employers have half as many applicants per job now than at this time last year: 21.1 applicants this year vs. 40.5 in 2010.

Yes, it is a good thing that the percent of new jobs available to new grads is up but that good news has to be tempered by the reality that there are still so many applicants for each job. My SWAG is that the 2011 applicants are competing with the 2010, 2009, and 2008 applicants as well.

Life In An Alternative Universe

I am becoming more and more convinced that there are multiple parallel universes occupying life on this one planet we call Earth. It is seemingly the only even remotely rational explanation for the disconnect between the views of most people in the United States (and the World) versus the views of the Beltway Villagers, Media Courtiers, and the excessively affluent.

Today's (Friday, Arpil 22) NY Times presented the results of a poll of the "Nation's Mood":

Americans are more pessimistic about the nation’s economic outlook and overall direction than they have been at any time since President Obama’s first two months in office, when the country was still officially ensnared in the Great Recession, according to the latest New York Times/CBS News poll.

Amid rising gas prices, stubborn unemployment and a cacophonous debate in Washington over the federal government’s ability to meet its future obligations, the poll presents stark evidence that the slow, if unsteady, gains in public confidence earlier this year that a recovery was under way are now all but gone.

Capturing what appears to be an abrupt change in attitude, the survey shows that the number of Americans who think the economy is getting worse has jumped 13 percentage points in just one month. Though there have been encouraging signs of renewed growth since last fall, many economists are having second thoughts, warning that the pace of expansion might not be fast enough to create significant numbers of new jobs.

So what are the Media Courtiers reporting on? The Washington Post had this report on the "Biden deficit task force":

The Rush to Declare "Recovery" and Move On

There are times that I begin to despair a bit about all the crap going on all over. I can't do anything about earthquakes, tsunamis, and nuclear disasters (all in one) but I can address some of the reporting I've seen in the TradMed the last couple of days.

Apparently the Beltway Village Idiots Pundits are anxious to stop writing all those bummer articles about the un and underemployed and the destruction of the global economy. I guess it's just too Debbie Downer for them. So they've started the "Everything's Getting Better" articles. The NY Times and Floyd Norris started with this headline:

Crisis Is Over, but Where’s the Fix?

Of course, without anything being fixed, it's rather difficult for the "crisis" to be over. And to be fair, Norris does address some of this in the article:

When the financial system began to crumble more than three years ago, the world rushed to rescue it. Country after country went deeply into debt to keep banks afloat and prevent a deep recession from turning into something worse.

...snip...

But the world has changed since then. The economic recovery in most developed countries is stuttering at best, and governments are struggling with their own finances. It is time for remorse and second-guessing.

A surprising citadel of that second-guessing is at the International Monetary Fund, where researchers this week concluded that the rescues “only treated the symptoms of the global financial meltdown.”

The researchers, Stijn Claessens and Ceyla Pazarbasioglu, warned that “a rare opportunity is being thrown away to tackle the underlying causes. Without restructuring financial institutions’ balance sheets and their operations, as well as their assets — loans to over-indebted households and enterprises — the economic recovery will suffer, and the seeds will be sown for the next crisis.”

...snip...

In retrospect, it is clear that the bailouts came with too little pain for those responsible. Bondholders who financed banks that failed largely escaped pain. That was true even in Ireland, where the bailout would have led to a default of government debt had Europe not stepped in. It is still not clear how Ireland will pay its national debt, but the bank bondholders did fine.

Norris goes on to point out that one of the problems is the lack of accountability. Imagine that?