econlife - What a Government Shutdown Does to Each of Us by Elaine Schwartz

A government shutdown is again in the news. The key date is December 21. If federal agencies without funding do not get their money by then, they have to follow their shutdown rules.

I suspect most of us will be affected. These are the facts:

Shutdown Agencies

Five agencies (blue) did get their Fiscal 2019 funding while seven (gray) did not. Those seven received a temporary reprieve from a CR (Continuing Resolution) that expires on December 21. If there is a shutdown, it’s the seven agencies that will be hit. And even then, not everything. It all depends on who is “essential.”

As for the numbers, we are talking about 750,000 government employees. Estimates indicate that 400,000 would work without pay and 350,000 would be furloughed. While the “essential” unpaid employees do get paid retroactively from new funding, those who are furloughed will not necessarily receive their back pay. But in the past, Congress voted to give them the money.

This potential partial shutdown sounds less catastrophic than the actual 16-day shutdown during October, 2013. At that time, suspended services included issuing new Medicare and Social Security cards. The EPA could not inspect 1200 different sites while the FDA postponed close to 900 inspections. The National Parks lost $500 million dollars in visitor fees and the Panda Cam went dark at the National Zoo. The IRS also had to turn away 1.2 million requests related to mortgage and loan approvals.

In the aggregate, economists believe shutdowns cost billions because of lost fees and pay to employees who were sent home. Then, to that government cost we can add the private sector where hotels near national monuments lose business, realtors have transactions cancelled, loggers cannot work in National Forests. Standard & Poor’s estimated a $24 billion hit to the 2013 GDP–a .6% slice of growth that was cut out.

Our Bottom Line: The Cost

The word “shutdown” obscures the massive impact. Summarized in one term, it sounds simple. But it is not.

I am reminded of what we have said before about the British seacoast. Quoting mathematician Benoit Mandelbrot, we pointed out that when you see the shoreline from afar, it looks like a smooth curving line. But look more closely at the coast–and at government shutdowns–and you recognize the details you need to know.

My sources and more: For the current shutdown basics, Bloomberg had a good article, the Committee for a Responsible Federal Budget had some history, and The Washington Post had some interesting detail. You might also want to read more about the three-day shutdown last January.

Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.

econlife - (Mc)Wages Around the U.S. by Elaine Schwartz

At 162 million (or so), the U.S. labor force is large and diverse. So, when we say that wages are 2.9% higher than last August, it sounds simple. But it really is not.

Where you live can determine what you earn.

McWages

It’s tough to compare wages around the United States. Yes, lots of people could be called auto workers or potato and computer chip makers. However, depending on the region, we would find that similar sounding jobs can be rather different.

But not for McDonald’s.

Looking at McDonald’s “basic crew” employees, we can compare “apples to apples.”  At a Hamburger University campus, you can get a similar education. And, at your local McDonald’s, no matter where, you follow the same operations manual. Or as Princeton professor Orley Ashenfelter and his co-author Štěpán Jurajda explained, you have “standardized capital.”

Wages

Because those McDonald’s jobs are so similar, we can get a more accurate picture of wage differences. In 2016, 29 states and 41 cities deviated from the federal hourly minimum of $7.25. Ohio had a minimum wage of $8.10 then (now it’s $8.15) while Pennsylvania was at the federal minimum (and still is) for its privately employed work force. The impact on the McWage was evident. In Ohio, it was $8.35 and Pennsylvania, $7.81.

Similarly, across the nation, people’s McWage rates differ for almost identical work. In the following map, the darkest blue areas take us between $8.75 and 13.00 an hour while the next lighter blue is $8.05-$8.75. At the bottom, in very light blue and almost white, we go from an hourly wage of $8.05-$7.50 to $7.50-$7.25:



Purchasing Power

Correspondingly,  McDonald’s workers’ purchasing power is not the same. With one hour of wages, an Ohio employee can buy 2.05 Big Macs while a Pennsylvania employee could get 1.81. But for the highest purchasing power, we have to go to Nebraska, Minnesota, and North Dakota where one hour of work gets them 2.3 Big Macs. At the other end are Maine and Louisiana where workers can buy approximately 1.7.



As for Big Mac prices, there is a whopper of a difference. Big Macs varied in 2016 from a (median) high of $8.36 down to $2.76.

Our Bottom Line: The Zigzags in the British Coastline

The authors of the Princeton paper point out that much of our labor force information is from surveys that are general. While they let us compare workers with a similar education and occupation, they don’t convey the massive differences among these workers.

Instead, because the Princeton paper looks more closely at the McWage worker, it can show us (for example) the “negative employment impact of Chinese imports.” Their point is that a close look not only unveils a correlation but also the potential for greater insight. If we know precisely who is affected by changes in trade, we can design programs that target them.

So, while our focus has been McDonald’s basic crew employees, we are really talking about an immensely varied labor force. When the Labor Department tells us that wages have increased by 2.9% ($.77) during the past year, they are referring to a current national hourly average of $27.16. But you can see that the average, while important, can obscure a much more complex situation.

In the same way, Benoit Mandelbrot, the father of fractal geometry, told us that the closer you look at Great Britain’s coastline the more you see. From a distance, it is a curved line. However, looking closely, we see countless indents and zigzags.

So too with the U.S. labor force.

My sources and more: While reading the McWage paper was a slog, its ideas were fascinating. Similarly, for a firsthand look at the statistics, the August employment report had the wage data and a link to wages in different industries. The one article I recommend is from CNBC about why fast food workers in North Dakota “bring home the Bakken.” It conveys ideally why McDonald’s pays a high wage rate there.

Please note that this post was slightly edited after publication to improve clarity.

Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.