Mish's Global Economic Trend Analysis

---

Utopian Union Fantasy: What If Every California Worker Made What City of Irvine Workers Make? Posted: 24 Apr 2013 11:59 AM PDT This is a guest post written by Ed Ring, editor of UnionWatch, a project of the California Public Policy Center. Ed Ring asks What If Every Worker Made What City of Irvine Workers Make? Everything that follows is from Ed Ring. "Jennifer Muir, a spokeswoman for the Orange County Employees' Association, which represents more than 18,000 public employees in Orange County, said the California Public Policy Center's study was a politically motivated attack on public employees and unions. Aside from promoting the center's anti-public employee union agenda, Muir said, the reports are misleading and shift focus away from the discussions that matter most. Union leaders have long urged for people to consider the possibility that private-industry employees are being undercompensated and should receive retirement benefits and health coverage."   Orange County Register, April 19, 2013 The study Muir refers to, entitled "Irvine, California – City Employee Compensation Analysis," was published on April 8th, 2013, by our parent organization, the California Public Policy Center. To call this study "a politically motivated attack on public employees and unions," as Muir alleges, is itself a distraction. It's easy, and necessary, to impugn the motives behind information when the information itself is so embarrassing. As noted, Muir went on to accuse the study of "shifting focus away from the discussions that matter most… that private-industry employees are being undercompensated." Let's recap some of the facts regarding Irvine's city employee compensation, drawing both from the CPPC study (which itself used payroll data provided by the City of Irvine), as well as from the Orange County Employee Retirement Systems 2011 Annual Report: The average City of Irvine employee receives direct pay of $95,751 per year, and when the cost of employer paid benefits is included, this average goes up to $143,691 per year (Source: CPPC Study, Table 1.   The average participant in the Orange County Employee Retirement system who worked 25-30 years and retired last year collects a pension of $70,920 per year. If they worked 30 years or more, like virtually every private sector worker, that average goes up to $81,192 per year (Source: OCERS Annual Report, page 109. Now let's suppose that private industry employees are indeed being undercompensated. What are the economic implications of paying them a proper living wage à la Irvine – and every other unionized public sector job in California? Here are some facts: In 2010 there were 8.3 million residents in California over the age of 55, which is the age by which a public employee may reasonably be assumed to have logged 30 years – assuming they completed their education by age 25 and entered the workforce for a full career in public service (source: U.S. Census Bureau.   Also In 2010, the GDP of California – its entire economic output – was $1.9 trillion (source: LA Times).This means that if everyone over the age of 55 in California got a pension of $70,000 per year, it would cost $581 billion per year, 31% of California's entire economic output. Ms. Muir is invited to explain exactly how we're going to accomplish this.   Using the same census data, in 2010 there were 15.8 million people between the ages of 25 and 55. Assume that two-thirds of these people work full-time, and the other one-third are unemployed spouses, stay-at-home parents, or are otherwise supported by a working partner. If every one of these 10.5 million people collected total compensation of $140,000 per year, this would cost $1.47 trillion per year, or 77% of California's entire economic output. So according to this utopian vision, if everyone could just receive the same compensation packages as the average full-time worker for the City of Irvine, it would consume 108% of California's entire economic output. There's a bit more to this, however. In the real world, wages and salaries fluctuate between around 44% and 54% of GDP (source: TelltaleChart.org). We may argue over what share of GDP legitimately belongs to workers vs. corporations – bearing in mind that corporate profits are an absolute necessity for a public sector pension plan to have any hope of remaining solvent, and these profits are also necessary to invest in equipment and conduct R&D if we are to have any hope of remaining an economically viable nation – but let's use an unprecedentedly generous proportion. Let's assume that 60% of California's GDP is comprised of wages, benefits, and pension payments. To complete this thought, we're now going to have to indulge in some basic algebra (T=trillion), one of those nasty tools of analysis that never plays well in a 30 second TV commercial, but nonetheless is an ideal tool to express cold quantitative reality, rather than utopian union fantasies: [ .58T (pensions) + 1.47T (wages) ] / .6 (40% for corp. profits) = GDP of 3.48T Isn't that terrific? All we have to do is wave a wand and instantly, we'll nearly double California's GDP from $1.9 trillion per year to 3.5 trillion per year. Nobody will be "undercompensated" any more! Then we can afford to implement this compelling vision of social justice – total compensation of $140,000 per year for every full-time worker, then after 30 years, a pension of $70,000 per year. It should be easy. Perhaps new legislation is called for. End Guest Post Ed and I frequently trade guest posts on subjects related to unions wages, pensions, and the precarious state of California's economy. If you are interested in such matters, you may wish to Subscribe to UnionWatch. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Spain's GDP Contracts at 2% Annualized Rate in First Quarter Posted: 24 Apr 2013 10:06 AM PDT According to the Bank of Spain and as reported by Libre Mercado, Spain's GDP Drops at 2% Annualized Rate in First Quarter The Spanish economy fell 0.5% in the first quarter and declined 2% year on year, according to economic bulletin of the Bank of Spain , which estimates a fall of 4.5% of employment in the same period, two tenths less than in the previous quarter. The monetary authority notes that Spain continued the "contraction pattern" of activity in the first quarter, although at a "more muted" than in the final last year, where the GDP contracted by 0.8 % quarterly rate. However, he warns that this improvement could "have dimmed" in the latter part of the quarter, under "decreasing profile" of some indicators. The Bank of Spain estimates that domestic demand fell by 0.8%, also lower than in the previous quarter, to reverse the impact of temporary factors that had a negative impact on domestic spending in the final months of 2012, as raising indirect taxes and the abolition of the bonus for public employees. However, the central bank indicated that the reduced capacity of household savings, the fall of his wealth, the persistence of job outlook "uncertain" and a high debt leaves little room for recovery of short-term consumption. For residential investment, it also highlights that demand continues to show "great weakness". Thus, private consumption fell by 0.3%, against a fall of 2% in the previous quarter, while gross capital formation contracted by 1.8%, also well below the 3.9% decline previous quarter. Don't Cheer Yet Spain is contracting less than last quarter, and although unemployment is still rising, it's also at a less pace than last year. Is this something to cheer about? Not really. Spain's budget deficit targets missed by a mile, and had they been closer, everything else would have been worse. Moreover, while things are getting worse at a decreasing rate in Spain, it's important to note that things are getting much worse at an increasing pace in Germany. For details, please see Germany Private Sector Output Declines First Time Since November; Eurozone Activity Declines 19th Time in 20 Months. There is very little to cheer about in the eurozone. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

You are subscribed to email updates from Mish's Global Economic Trend Analysis To stop receiving these emails, you may unsubscribe now.	Email delivery powered by Google
Google Inc., 20 West Kinzie, Chicago IL USA 60610