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Wednesday, March 27, 2013

EU Proposes Tighter Rules on Investment Incentives

The European Commission's Directorate-General for Competition is the EU equivalent of the U.S. Department of Justice Anti-trust Division plus units for controlling domestic subsidies to industry. According to a new policy briefing from the European Policies Research Centre at the University of Strathclyde, DG-Competition has released a draft of new regulations on "regional aid" (subsidies to firms in poorer regions of the EU) that, among other things, includes tighter rules on investment incentives.

EU rules on subsidies to business have long fascinated me because they present a stark contrast to the totally unregulated bidding wars for investment we see here in the United States. As I have shown, EU Member States have been able to obtain investments with far lower subsidies than U.S. states have, even for the same company! A big part of this is due to the rules on regional aid, which specify the maximum subsidy each region can give to a business, and reduce that maximum for investments over € 50 million. The proposed rules for 2014-2020 go further than ever before.

The big change is that large firms would only be eligible for regional aid in areas with gross domestic product per capita below 75% of the EU average, that is, only in the poorest areas of the European Union (plus so-called "outermost regions" like French Guyana). Currently, countries are allowed to give subsidies in regions that are only poor relative to national standards, and every Member State has areas that qualify to give investment incentives to large firms.

This would be a gigantic change, as many whole countries would no longer be able to give investment incentives to large firms. These countries are:

France (except for outermost regions)

 These countries would still be able to give regionally based investment subsidies to small and medium sized enterprises, which are defined as companies with fewer than 250 employees and either sales of less than or equal to € 50 million annually or a balance sheet of less than or equal to € 43 million.

If we did this in the United States, it would be the equivalent of saying that every part of the country with at least 75% of average per capita income would be barred from giving investment incentives, which of course would mean the poorest areas could give less than they do currently. This is obviously a political non-starter; we have to focus now on transparency and ending subsidized job piracy. But it's interesting to look ahead sometimes and see what kind of controls on subsidies are technically feasible.

Thanks to Fiona Wishlade, director of the European Policies Research Centre,  for sending this report to me.

Tuesday, March 26, 2013

Speaking of Inequality (with correction)

Travis Waldron at Think Progress pointed out this excellent article by David Cay Johnston. It dovetails well with my last post, which showed the fall of individual real wages and their failure to regain their peak fully 40 years after it was reached.

Johnston writes:
Incomes and tax revenues have grown from 2009 to 2011 as the economy recovered, but an astonishing 149 percent of the increased income went to the top 10 percent of earners.
If you wonder how that can happen, the answer is simple: Incomes fell for the bottom 90 percent.
While this data is at the level of tax filing households, it is consistent with what we see at the level of the individual. More nuggets from Johnston:

From 1966 to 2011, adjusted gross income in the bottom 90% grew a total $59 (2011 dollars, not the 1982-84 dollars I used in my last post) in 45 years, from $30,378 to $30,437.

"Candidate Bush said his tax cuts would make everyone prosper. But the real average pretax income of the bottom 90 percent in 2011 was $5,340 less than in 2000, a decline of more than $100 per week, or 15 percent, in pretax income."

The income share of the bottom 90% fell from 66.3% to 51.8% over the 1966-2011 period.

So we have seen inequality increase in pretax income plus changes in tax policy that have reduced the effective tax rates on corporations and capital gains, income which goes overwhelmingly to the rich. Thus, post-tax inequality is even worse than pretax inequality.

Johnston's report builds on the work of economists Emmanuel Saez and Thomas Piketty. Together with Facundo Alvaredo and Tony Atkinson, they have created the World Top Incomes Databases, very much worth checking out for a comparative look at U.S. inequality.

Correction: I initially saw Johnston's article linked from Think Progress, not Daily Kos, as I realized almost immediately after I hit the "publish" button. Apologies to Travis Waldron.

Sunday, March 24, 2013

Real Wages Decline; Literally No One Notices

Your read it here first: Real wages fell 0.2% in 2012, down from $295.49 (1982-84 dollars) to $294.83 per week, according to the 2013 Economic Report of the President. Thus, a 1.9% increase in nominal wages was  more than wiped out by inflation, marking the 40th consecutive year that real wages have remained below their 1972 peak.

Yet no one in the media noticed, or at least none thought it newsworthy. I searched the web and the subscription-only Nexis news database, and there are literally 0 stories on this. So I meant it when I said you read it here first. In fact, there was little press coverage of the report at all, in sharp contrast to last year.

Below are the gory details. The data source is Appendix Table B-47, "Hours and Earnings in Private Non-Agricultural Industries, 1966-2012." The table has been completely revised since last year's edition of the report. The data is for production and non-supervisory workers in the private sector, about 80% of the private workforce, so we are able to focus on what's happening to average workers rather than those with high incomes.. I use weekly wages rather than hourly because there has been substantial variation (with a long-term decline) in the number of hours worked per week, from 38.5 in 1966 to 33.7 in 2012. The table below takes selected years to reduce its size.

Year     Weekly Earnings (1982-84 dollars)

1972     $341.73 (peak)
1975     $314.77
1980     $290.80
1985     $284.96
1990     $271.10
1992     $266.46 (lowest point; 22% below peak)
1995     $267.17
2000     $285.00
2005     $285.05
2010     $297.79
2011     $295.49
2012     $294.83 (still 14% below peak)

This decline is especially amazing when we consider that private non-farm productivity has doubled in this period:

But, if you've been paying attention, you know the drill: higher productivity plus lower wages = greater inequality. The question is, why aren't our media paying attention when real wages fall, yet again?

Cross-posted at Angry Bear.