Explaining Southern California's economy

Easy choice: Money and no job, or a job and no money?


Federal Reserve

Ever long for the days of Dow 1000? If you have a job but no money, maybe you should.

Felix Salmon has a great post today about, basically, why we need to tax capital gains at a higher rate. I made a rare Tuesday appearance on "America Now" — the radio program hosted by the always lively Andy Dean, with whom I usually discuss and debate economics and business on Fridays — and wound up talking about this very topic, as it relates to Mitt Romney's taxes. 

In a nutshell, capitals gains is income derived from investment returns — selling stocks and bonds, or collecting dividends, that type of thing. The argument in favor of keeping them lower than income tax is that people with money to invest, i.e. the affluent, need an incentive to keep investing. The idea is that a virtuous circle will be created, with investment creating jobs and jobs creating income and that income being invested, by people who wouldn't otherwise invest. Presto! Economic growth!


April jobs report: Welcome to your spring slowdown, as employment growth slackens

Justin Sullivan/Getty Images

Job seekers wait in line to enter the San Francisco Hire Event job fair on November 9, 2011 in San Francisco, California. There's been a drop-off in new jobs as winter turns to spring.

"Little changed, little changed, little changed." That's the mantra from today's April jobs report from the Labor Department. It's not horrible: the economy added 115,000 jobs last month and the unemployment rate fell to 8.1 percent from 8.2. But economists were expecting more like 160,000. The modestly good news is that the initially rather disappointing March number was revised up to 154,000 from 120,000. This continues a trend of upwards revisions. February was also revised up, again, to nearly 260,000.

Unfortunately, the trend that isn't continuing is monthly job growth above 200,000 new jobs added each month. That pace would translate into GDP growth — a general measure of how well the economy is doing — in the 2.5-percent ballpark. That's not the 4-5 percent you'd expect in a "normal" recovery, but it also isn't the meager 1.7 percent we averaged in 2011, when the economy endured several shocks that kept us on the edge of a double-dip recession.


This is where Apple pays Chinese workers $2 an hour to make iPhones


It's actually starting to build: the Apple backlash. A decade ago, the company was almost bankrupt. Today, it has a market cap of $481 billion, almost $100 billion cash in the bank, and a share price that some analyst think could go to $1000 by 2015, if not sooner.

Those numbers come from Apple's astonishing growth — around 40 percent since January of last year — and its equally astonishing operating profit margins: 30-plus percent. But what enables that growth and those margins is two things: cheap Chinese labor; and customers who are willing to pay a premium.

The video above is from a February 22 broadcast of ABC's "Nightline." The news program got an inside look at Foxconn, the "iFactory" in China where workers are paid less than $2 an hour for a 12-hour shift. More than a dozen of these workers have committed suicide, although it's unclear whether the working conditions drove them to it or whether Foxconn's facilities employ so many Chinese that suicides are going to be inevitable, as a percentage of the employed population.


Bullet Points: Is the grocery workers' new contract a good deal?

Details on the new contract that the UFCW and the major California grocery chains negotiated — and that the union's membership has now approved — are still somewhat sketchy. I'm going to try to find out exactly what the numbers are, but in the meantime, here's a quick breakdown. 

  • According to the LA Times, UFCW members will now pay $7/week for individual health care and $15/week for family care, beginning next April. My understanding was that when a strike was in the offing, the chains wanted $9 and $23, for individuals and families respectively. But prior to this contract most employees were paying $0 for their health care, although so-called "second tier" workers — those hired after the strike in 2004 —were paying $7/$15. So my reading of the new contract is that ALL workers are now contributing to the fund. So while the stores didn't get the contributions they wanted, they did get everyone to contribute the pot, which means that...
  • ...the stores apprently don't have to up their contribution to the health care fund to insure its solvency. The fund had hit trouble because it had been running a deficit, tapping its reserve to cover health costs while operating under the terms of the 2007 contract. Back in 2007, the union and the chains had worked out a deal whereby the stores would be able to reduce their contribution to the health fund, from $3-4/hour to $2-3/hour, in exchange for not adhering to the provisions of the two-tier hiring structure. It bugged me that the union had in effect turned over what was a $260 million health-fund surplus to the stores, but a spokesman for the UFCW pointed out that this enabled the union to get many more families insured.
  • So under new contract, the UFCW's entire membership is insured, and although everyone is contributing. their contributions look like 2007 amounts, rather than 2011 numbers. That's a qualified win because the stores have successfully shifted a significant burden of health costs to workers who were formerly paying nothing. It looks as if they're "subsidizing" this with a wage increase. But there's a problem here, which is that health care costs are rising at a torrid rarte, much faster than wages can keep up.
  • The union was up against a very weak labor market and the threat from some of the chains to close stores. That probably took away some incentive to strike. But if you look at the cost of the last strike, estimated at $2 billion for the stores — not to mention their market-share loses to newcomers and upstarts — you could argue that the chains were willing to spend somewhere between $2 and $8 per union member or family per week, by reducing what they orginally demanded as a health contribution, to avoid losing money and share again.