Employment & Productivity

Where the Assets Are

The Federal Reserve’s distributional accounts are a combined product of two Fed projects, the quarterly financial accounts, which we review soon after their publication, and the triennial Survey of Consumer Finances, a detailed look at household income and balance sheets. Often when we do our quarterly reviews of the financial accounts, we lament that the aggregates (which behave pretty much like means) don’t tell us anything about distribution. Middle-class wealth, such as it is, is largely in housing, while high-end wealth is largely in financial assets. The movements in those assets are proxies for a distributional analysis, and now we have the real thing.

We graphed dollar levels, not shares, but a few words about them first. In 2019Q2, the top 1% of the distribution owned 29.0% of all assets, up from 21.2% in 1989; the bottom 50% went from 7.3% to 6.1%. Percentiles 90-99 saw little change in their share, but the next 40% lost 7 points of share, 37.2% to 30.1%. Holdings of stocks and mutual funds also become more concentrated, with the top 1% going from holding 47.8% in 1989Q3 to 52.0% in 2019Q2. The bottom 1% saw their share rise from 1.0% to 2.2%. Between the extremes, the most interesting development was how those between percentiles 50 and 90 rode the 1990s stock boom, going from owning 14% of stock in 1989 to a peak of 19.1% in 2001; they now account for just 11.4%. The top 1% went from holding 23.9% of net worth in 1989 to 32.4% this year; the next 9% were unchanged at 37.0%; the next 40% went from 35.4% to 28.7%; and the bottom half from 3.7% to 1.9%. In 1989, the top 1% had 6.5 times the share of the bottom half; in 2019Q2 it was 17.1 times—though that is down from a 2011 peak of 150 times, when the bottom half, hammered by the housing bust, was barely above water.

On to the graphs, which show residential and nonresidential net worth by fractile (slice of the distribution), first in the aggregate and then by household. (We estimate the household numbers by dividing the aggregate by the fractile’s share of total households in the quarter.) “Nonresidential” subtracts the value of real estate from assets and adds back mortgages from assets. It also excludes consumer durables, which are illiquid and depreciate rapidly, which the Fed counts as a household asset. We also deflate by the PCE index; the Fed presents nominal figures.

Although the 1% gets all the press, when it comes to residential net worth they don’t hold as much as the next 9% or the next 50%, though of course those populations are far more numerous. So, movements in the balance sheets of the 90-99%, what in economic slang is oddly called the upper middle class (as it is in the new book by Saez and Gabriel Zucman) and the next 40%, the better off segments of the “middle class,” matter for consumption. The bottom 50% has close to nothing in the aggregate.

The picture changes when you take out the residential parts: there, the 1% have more than percentiles 50–89, and is within hailing distance of 90–99. The bottom 50% have a little more than nothing; they’re disproportionately renters (though they took a hit on residential wealth in the crash), and might have a small savings or retirement account, but not much else.

Looking at households, the bottom 50% meanders around the zero line; they had a net worth of $15,280 in 2019Q2. The 40% above them had a net worth of just under $160,000. You can’t see it on the graph, but that’s up 42% since 1989, though there was an intervening hit of -37% during the housing collapse. The top 1%, who don’t have most of their wealth in housing, still have a lot: $2.9 million, up 188% from 1989. But again, the 1% star in nonresidential wealth: $25.3 million in 2019Q2, up 214% from thirty years earlier. The next 9% were not begging: $3.2 million. The bottom 50% have a net of $84,189 to their name, up 90% from 30 years ago, well under half the gain clocked by the top 1%.

Again, people are living in very different universes.

by admin· · 0 comments · Employment & Productivity

Farming Electrons

Many Midwestern states have become energy as well as food producers. North Dakota and Oklahoma produce lots of the non-renewable kind, but for the other Midwestern states, the energy comes primarily from ethanol and wind. The U.S. Energy Information Administration (EIA) reported that during 2018, 92% of the 383.1 million barrels of ethanol produced in the United States came from the Midwest, as did 47% of the total USA production, 275 TeraWatt-hours, of wind-generated electricity. In Iowa, wind turbines occupy about 7 thousand acres, which round up to 0.03% of the 23 million acres of cropland, and generate 42% of electricity produced in the state.

But first: Mike Lipsman is an economist, who is President and Chief Economist for the Strategic Economics Group (SEG). During both his years with state government and as a private consultant he has completed numerous agricultural and energy sector studies. We are happy to publish the meticulous work he did on this article, which presents high-level views of the gross and net energy yields from ethanol and wind technologies in the United States, and then uses Iowa as a case study to illustrate the tradeoffs between the two technologies.

The Energy Balance: The first contender

In the United States corn serves as the primary feedstock for the production in ethanol. In other countries, such as Brazil, ethanol is made from sugar cane or other crops. The average energy content of a gallon of ethanol equals 76,100 BTUs (British thermal units). About 2.8 gallons of ethanol can be produced from one bushel of corn.

But the important number is the energy balance or Energy Returned on Energy Invested (EROEI), the ratio of the amount of energy contained in a gallon of ethanol and the amount required to produce that gallon. Here there is room for disagreement: How carefully should inputs be analyzed, and which assumptions are most useful? Not for us to say, and we’ll stay out of those weeds.

In their January 2016 article, Bentsen, Felby, and Ipsen summarize energy balance findings from 27 prior studies, twelve of which pertain to corn-based ethanol produced in the United States. Looking at the US studies, energy balances are somewhat higher if credits for by-products, like distillers grain used for animal feed, are allowed, and range from 0.58 to 1.14 without such credits, and 0.69 to 1.9 with. Of course, the technology used to produce ethanol has itself become more energy efficient and, indeed, the lowest values come from studies produced in 1991, the highest from a 2005 study, so we’ll use 1.9. That energy balance means a gallon of ethanol yields net energy equal to 36,047 BTUs, and a bushel of corn used to produce ethanol produces net energy of 100,932 BTUs.

As an aside, commercial-scale ethanol production got underway during the oil embargoes of the 1970s, and as a replacement for lead used to lift octave levels. The less-than-1 ratios above mean that ethanol production was consuming more energy than it produced, but was achieving other objectives.

The Energy Balance: Enter the Turbine….

The National Renewable Energy Laboratory’s survey of 172 wind firms shows that including the concrete tower pad, power substations, and access roads, a utility-scale wind turbine with a nameplate capacity of about 2MW directly occupies about 1.5 acres. To minimize the effects of turbulence, the optimal density of wind turbines is about five per square mile, and most of the land in a wind farm remains available for crop production and pasture.

No matter what you often hear, it takes 0.27 years for a 2MW wind turbine to produce the amount of energy consumed to install it, and the average life-span of the turbine is 20 years. That means about 74.1 times more energy comes out than goes in. That compares to ethanol’s highest efficiency measure, just 1.9 times as much energy as was consumed in production. For those of you who like to think in gross margins, a wind turbine’s net yearly output is 98.7%.

Details: A 2MW wind turbine with an efficiency factor of 30%, meaning it’s producing energy about 30% of the time, will generate 17,933.5 billion BTUs of energy per year. Spread over its 20-year life, the annual amount of energy consumed in manufacturing and installing a 2MW wind turbine is 242.1 billion BTUs, and the net amount of energy produced by a 2MW wind turbine equals 17,691.4 billion BTUs/year.

How’s it going in Iowa?

During 2018, Iowa produced 2.5 billion bushels of corn, and Iowa’s ethanol plants produced 4.4 billion gallons of fuel ethanol, about 27% of total U.S. production. This implies that about 1.6 billion bushels of corn were used to produce ethanol, equating to a net energy yield of 156.8 trillion BTUs. Iowa’s wind turbines generated 21,685.1 GWh of electricity during 2018, or 73.0 trillion net BTUs. That means ethanol yielded about 2.15 times as much net energy as did wind turbines, but the amount of corn used to produce the ethanol spread over 7,800,000 acres, while the land occupied by the 4,859 utility-scale Iowa wind turbines was just a bit more than 7,000 acres. Problem number one.

But let’s look at net revenue. The past couple of years have not been particularly good financially for corn farmers in Iowa. According to Iowa State University Extension, the average cash price of corn in 2019 was $3.71 a bushel, while the fully allocated cost of growing that bushel ranged from $3.23 to $3.76, depending on whether the field was planted in soybeans or corn the prior year, if you must know. So, on a fully allocated cost basis the return for planting corn during 2019 was either a loss of 5-cents per bushel or a gain of 48-cents. On a per-acre basis, assuming a 200-bushels per acre yield, the return ranged between -$10 and $96. And even if only variable costs are taken into consideration the gross margin from planting corn averaged only between $350 and $420 per acre.

Property owners who lease their land for siting wind turbines generally receive annual payments of 2% to 4% of the gross revenue yielded by the wind turbine. Working with the nameplate capacity of Iowa’s utility-scale wind turbines, averaging 1.65MW with a 33% efficiency, or 4,813.2 MWh per turbine a year, and the retail price of electricity in the state, $89.2/MW, shows that the average return on a turbine is $429,377, or $286,224 per acre. At 3%, that’s a $8,600 payment to the landowner per acre, which compares to the highest margin on ethanol inputs of $420.00. ($8,600 is higher than that coming from the older turbines in place that have lower capacity.)

Wind farming can be a lucrative, reliable, and stable source of supplementary income for rural landowners. Iowa ranks second in terms of wind capacity and first in terms of share of electricity produced from wind in the nation, and has real potential to expand. The National Renewable Energy laboratory estimates that Iowa has a wind energy potential of 570,714 MW, so Iowa’s existing capacity of 10,190MW barely scratches the surface. It’s kind of “fun with statistics” to put that in percentage terms, but that’s an eye-popping growth rate of 5,600%. Consider the effects of that kind of sustainable growth around the country.

The Farm Bureau is not on board, and there’s a lot of pushback, often supported by claims that don’t hold up. And many complaints that have merit can be mitigated. But straight-up economics suggest that farming electrons is far more lucrative than farming ethanol, and would go a lot further toward bridging the rural divide.

Side note:
Birds, and don’t forget bats, do get killed flying into turbines, and about one third of those deaths are large, scarce raptors, including our beautiful arctic visitors who wing down every winter to course our fields. Sound conservation practices & wise siting can offset some of this, while providing local employment BTW, and slower blades are already lowering the counts.

Nevertheless, when we think about the raw numbers of bird deaths from different sources, we have to consider the status of each species involved, not easy to do. Estimates vary widely, and are changing as more solar and wind-generating facilities are built. There are also real concerns about differential detectability, as in, is it easier to find evidence of bird kills near urban buildings than by rural turbines? In any case, some of the highest current estimates for wind turbines are about 330,000 a year. Too many, yes, but dwarfed by annual deaths from building strikes, with current estimates ranging from hundreds of millions to a billion, fatalities from agricultural chemicals used in corn and soybean production, or feral and free-range cats, whose kills are in the billions.

Or take a page from Benjamin Sovacool who suggests we look at death rates in terms of energy produced. His preliminary findings
show wind farms responsible for 0.3 fatalities per GWh, with fossil-fuel powered stations responsible for 5.2 fatalities, a figure that, of course, includes the effects of climate change.

Not the last word, but a context. In the meantime, please keep your cats in, and support lights out programs to reduce building strikes.

“The boss told me, I’d get paid weekly…

…and that’s exactly how I’m paid.” Johnny Paycheck

If it’s so hard to find workers…

The Bureau of Labor Statistics announced in August that real hourly earnings were down 0.1% for all employers in July (+0.3% in earnings +0.3% increase in CPI for urban consumers, and rounding—more on that in a bit), and real weekly earnings were down 0.3%, adding in the 0.3% decrease in the average workweek.

Over the year, real hourly earnings were up 1.3%, but the workweek was down 0.3%, and average weekly earnings were up just 0.8%.

For production and non-supervisory workers, real hourly earnings were down 0.2% in July (+0.2% in earnings and +0.4% in the price index for Urban Wage Earners and Clerical Workers), and weekly earnings were down 0.5% in the month, adding in the decline in the workweek. Over the year, real earnings were up 1.6%, but a 0.9% decline in the workweek spiked that down to +0.7% in weekly wages.

It’s tough getting used to a falling workweek—it was so easy just to leave 34.5 hours circled on the forecast spreadsheet—but the declines seem to be real and persistent, and not just coming from the sectors one would expect, like retail, which has been falling for decades. The Bureau of Labor Statistics has, of course, added in specific sectoral detail to their releases over time and, as one would expect, the goods-producing sectors were the first to come online.

We started the graphs below in 1965 for consistency’s sake, though manufacturing goes back all the way back to 1941 (and some sectors don’t begin until 1972). World War II really shows up in the early years of the series, when the workweek exceeded 45 hours, but it fell back towards 40 with demobilization. It’s too bad we can see what other sectors looked like back then.


Please note the difference in hours worked in the graphs: the goods sector shows no long-term decline, leisure & hospitality is low and weakening, and the split between wholesale and retail trade widening, for obvious reasons.

The all-workers series starts in 2006, so we didn’t use it for graphing, but we did compare recent performance of the all workers and production work weeks. For private service-providing workers, the production side lost 0.3 hour in 2014 but all workers did not, meaning supervisory hours were up, but recently they have moved together, although production workers’ week is 6 minutes longer.

Production workers hours are more jagged in the logging and mining sector and have seen some declines that don’t show up in all hours. (Logging and mining isn’t graphed, because things were getting crowded.) Also, production workers’ hours, at 47.2, are below their 2014 peak of 47.9, while all workers’ weeks are longer than they have been since 2006. In manufacturing, production hours’ slide from 42.4 to 41.5 since April 2018 is a bit steeper than all worker’s decline, but in retail trade, oddly, production workers’ hours have risen 8/10s to 30.2 while all workers fell from 31.8 hours to 30.7.

In leisure & hospitality, all workers are half an hour above their prior trough while production workers are below, and in bars & restaurants production workers are now slipping in a modest jagged way, but still up about half an hour from the 2010 trough, while all workers are slightly down.

The two series travel together in construction, and in education & health, although, you guessed it, health care hours are stronger than education hours. One could make a “we don’t need no education” crack about that, but since there are a lot of people working for those “under federal investigation” for-profit outfits on that line, we’ll raise a glass instead.

Using a long line graph obscures recent movements, so we’ll note that over the year total all-worker private workweeks are down from 34.5 to 34.3 hours, and within that goods production is down 0.4 tenths of an hour, construction down 0.3 over the year and down 0.2 over the month, manufacturing down 0.6 over the year and 0.3 over the month. Retail was steady over the month, at 30.7 hours, which is down 0.4 from last year, and education and health are flat for the year and month, but down 0.1 from earlier in 2019. Leisure & hospitality is down 0.3 over the year, and transportation and warehousing down a full hour to 38.1 hours. Manufacturing overtime for both durable and non-durable goods continues to fall.

If it is so hard to find workers, and firms are holding on to their current employees, many of whom want to work longer hours, why are workweeks falling?

by admin· · 0 comments · Employment & Productivity

Benchmark Blues: BLS to Cut 0.3%, or 501,000 jobs, from 2019 levels

The extrapolation methods used by the Bureau of Labor Statistics in producing their monthly estimates (their word) of NonFarm Payroll (NFP) growth can obscure the magnitude of cycle turns, which is why it is important to pay attention to the annual benchmark, derived from the Unemployment Insurance filings mandated by federal law that cover 97% of the NFP universe.

The rule of thumb at the BLS is that if the benchmark falls between +/-0.2%, the average of the last 10 years, everything is copacetic, but if it exceeds that there is real information there. This morning the BLS released the preliminary benchmark for 2019 and, unfortunately, there is information there. The overall employment level is slated to be taken down by -0.3% or 501,000 jobs when it is made formal in January 2020, and in the private sector -0.4%, or -514,000 of the jobs previously estimated will be benchmarked away.

Largest losses are in logging & mining, -2.2%, or a scant -16,000 jobs, leisure & hospitality -1.1%, a not-so scant -175,000 jobs, retail trade -0.9%, or -146,400 jobs, professional/business services, -0.8%, or -163,000 jobs, and wholesale trade, -0.6%. Transportation & warehousing will be revised up 1.4%, or about 80,000 jobs, information 1.2% or 33,000 jobs, and government 0.1%, or 13,000 jobs. That’s it for the plus signs.

As you can see on the table, this is both out of trend, and the largest negative benchmark since the 2010 decline in the aftermath of the great recession.

Dwindling Labor Share

Here we revisit a familiar topic: the decline in the labor share of national income. We were prompted to revisit by a recent post to the St. Louis Fed’s website with the provocative title “Capital’s gain is lately labour’s loss” (Anglo spelling in original). It draws on the work of Loukas Karabarbounis and Brent Neiman (KN), which we’ve also discussed, though mostly in passing. KN’s data runs only through 2012; the St. Louis Fed post draws on their in-house FRED database to update it through 2017 for five major economies.

The declining labor share is interesting for several reasons. For decades, most economists assumed the share to be constant, which makes it far easier to develop economic models of production functions and economic dynamics. But the labor share is not constant. In their examination of 59 countries with at least 15 years of data between 1975 and 2012, BN found 42 with a declining labor share, measured against corporate value-added. A major reason is the declining cost of investment goods; the St Louis researchers present a series showing a near-relentless decline in the price of capital goods vs. consumer goods since 1948, with an acceleration in the 1980s. (The average decline from 1948 through 1979 was 1.6%; from 1980 to 2016, 2.6%.) That makes it easy to substitute capital for labor, to the detriment of labor’s share.

The extension of the data for the five years doesn’t change the fundamental story. The labor share in the five economies shown in the graph on the top of p. 7 was little changed between 2012 and 2017, despite sharp declines in the unemployment rates in most. You might think that a tightening labor market might boost labor’s share, but that hasn’t happened.

As the graphs above show, the declines happened to different degrees and over different intervals for the five countries shown. The declines range from 3 percentage points in the US to 8 in Canada; expressed as percentage (not point) declines, they range from 5% in the US to 11% in Canada (with the other four countries not far behind). Remember, it had been a well-established axiom in economics that this was not supposed to happen.

BN find that most of the decline in the labor share has happened within industries, so it can’t be explained by compositional changes such as the shift from manufacturing to services, which, among other things suggests things other than globalization are at work (given the varying exposure of different industries to international competition). And they also find a decline in the labor share within China, which makes it an unlikely culprit for the decline in the labor share in the richer countries.

They conclude that the decline in the price of investment goods accounts for about half the decline in labor’s share. An interesting question is what accounts for the other half. They don’t examine the effect of labor market deregulation and the declining power of unions, but those seem like worthy avenues of investigation, as they have been in other research pieces.