Our New Reality


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Dear Readers,

I am delighted to share with you my most recent article. The best way to summarize it is by sharing these quotes with you from The New Geography of Jobs by Enrico Moretti in order to guide you better. The unfortunate thing is that not everyone is prepared to embrace the changes that are engulfing this wonderful nation. I hope you enjoy reading this article as much as I enjoyed writing it.

These quotes are a great segway into my article.

“On the surface it seems we have good reason to be worried. Middle class salaries are declining. Good jobs are scarce. Take the typical forty-year-old male worker with a high school education: today his hourly wage is 8% lower than his father’s was in 1980, adjusted for inflation. This means that for the first time in recent America history, the average worker has not experienced an improvement in standard of living compared to the previous generation. In fact he is worse off by almost every measure. On top of this, income inequality is widening. Uncertainty about the future is now endemic.”

“Over the past half century the United States has shifted from an economy centered on producing physical goods to one centered on innovation and knowledge.”

See you soon,
Optimization with an Impact (OpIm)
E-mail: schools052@gmail.com|www.optimizationwithanimpact.com|www.fiscalintelligence.org

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Our New Reality

  1. 1. “OUR NEW REALITY” “The structural changes that many refuse to acknowledge and embrace” Optimization with an Impact (OpIm) P 646.770.3449|E-mail:schools052@gmail.com|www.optimizationwithanimpact.com|www.fiscalintelligence.org “OpIm relieves instructional leaders of non-instructional tasks so they can focus on student achievement and professional development of the teaching staff.” 1 As I sat down to read the newspaper on a beautiful Sunday morning, I wasconfronted with front page news that read as follows “LI’s New Economic Normal “More Jobs, Lower Pay.” 1 This “economic normal” had not so long ago become part of the fabric of our nation and a problem only a few are willing to acknowledge and accept. Another article published by the Wall Street Journalback in October 2012, “Finding Jobs, But Working For Less Pay,” 2 made reference to the same issue.The wage stagnation and the disheartening--unemployment recovery have created a quagmire for the U.S. economy difficult to understand but not completely unknown to some of the economists that have been writing about these issues for quite some time now. The reference to a quote by a prominent Pulitzer writer, Mr. Thomas Friedman, was currently cited by Prof. Roger Martin in the Spring edition of theRotman Magazine and could not be more timely : "There was a time, not long ago, when people with average skills, doing an average job, could eke out an average lifestyle and live happily ever after. But as Thomas Friedman recently declared in the New York Times, "Average is officially over." What was seen as average performance in the past will no longer earn people an average wage or a middle class standard of living. The result? Every one of us needs to ask ourselves if what we are doing is - to some degree- unique and irreplaceable 3 . " This is a new reality that people would like to postponeand/or pretend that it is not happening. Unfortunately, I have to be the carrier of bad news that this is not going to change any time soon and there is not a silver bullet that can correct this issue overnight. Before we move deeper into the subject, it is important to pause in order to understand the distinction between cyclical and structural adjustments. Cyclical adjustments are reversible responses to lulls in demand. The job losses associated with cyclical shocks are temporary. On the other hand, structural adjustments transform a firm or industry by relocating workers and capital. Therefore, the job losses associated with it are permanent. This clearly explains the painful long lag before employment rebounded that we have to get accustomed to.This is exactly what I mean when I talk about a new reality. Although most of our recent recessions have been permeated by structural-related adjustments, it is extremely difficult for everyone to get used to them. Erica L. Groshen and Simon Potter shed some light on the structural side of this argument in an article published by the Federal Reserve Bank of New York’sCurrent Issues in Economics and Finance. They found that the recessions of 1990-91 and 2001were far more greatly structural than recessions in the past. What could make one think that “the great recession” should be any different? To put everything into perspective, 79% of the employees during the recession of 2001 worked in industries affected further by structural shifts than by cyclical shifts. 4 The salaries for the majority of employees remain stagnated since the early 1990’s. No one talks about that in much detail, because it is a reality difficult to get used to and one that has been impacting the middle class across the U.S. ever since. The government and wealthy elite have done all they can to divert our attention from imminant issues affecting the economy, but the status of the economy is clearly sending signals to us that tells us otherwise. It should be clear to everyone that the “great recession” created a problem for all the economic agents, but it is certainly not the cause of the wage stagnation that we are all experiencing nowadays. The wage stagnation issue might have been exacerbated by the recession, but there are many factors that indicate it was not caused by it. 1 Mason-Draffen, Carrie and Incantalupo, Tom. 2013.“LI’s New Economic Normal “More Jobs, Lower Pay”Newsday. May 25. 2 Athavaley, Anjali. 2012. Finding Jobs, But Working For Less Pay. New York. Wall Street Journal.October 19. 3 Martin, Roger 2013. Secret Sauce. Rotman Magazine, Spring 2013. 4 Erica Groshen and Simon Potter, “Has Structural Change Contributed to a Jobless Recovery?” Current Issues in Economics and Finance, Federal Reserve Bank of St. Louis Review 87, no. 4 (July-August 2005): 555-80
  2. 2. “OUR NEW REALITY” “The structural changes that many refuse to acknowledge and embrace” Optimization with an Impact (OpIm) P 646.770.3449|E-mail:schools052@gmail.com|www.optimizationwithanimpact.com|www.fiscalintelligence.org “OpIm relieves instructional leaders of non-instructional tasks so they can focus on student achievement and professional development of the teaching staff.” 2 You may be asking yourself what is the connection between this macroeconomic problem and the school districts. Salary stagnation and job recovery impact the following chain of events adversely: good schools attract home buyers, which drives up home prices, which increases the property-tax revenues commanded by the good schools, which further increases school quality, which attracts still more demand, and so on 5 .If people are making less money or no money at all,they won’t be able to afford the houses surrounding good school districts,putting a great deal of pressure on their budget. In addition to that, this issue will result in property owners having less disposable income, creating a problem for fiscally trapped municipalities and school districts that continue to increase their property taxes in order to pay for their ever increasing costs (i.e., pension costs and outstanding debt). Recently, Long Islanders rejected the proposal of several school districts to increase the property taxes above and beyond the property tax cap which requires a 60% supermajorityin order to be implemented. The residents that voted against the measure were clearly displeased by the higher tax increase. A Manhasset resident states that he was not very happy with it: “We are looking at almost 6% increase, and that’s a lot in this economy.” Another resident in a different municipality expresses his concern as follows: “It is getting to the tipping point where I can’t sell my house because the taxes are too high.” 6 Their concerns and otherspoint to a single factor -affordability- which has come under a lot of pressure lately due to the salary stagnation originating in the early ’90s, which was exacerbated by the “great recession” and not created by it. Household finances have been impacted badly and will remain to be so in the near future. We might have to rethink and/or reconsider the word “average” moving forward. After reviewing robust scholarly works written about the subject, average may be understood as merely surviving in the not so distant future. James Tobin stated correctly when he said: “the terms in which a problem is stated and in which relevant information is organized can have a great influence on the solution”.The resolution to this problem begins with the recognition of it by elected officials, the communicationto the constituents of the proper information, and by working together within this new paradigm for a better future for everyone. 5 Piketty, Thomas and Saez, Emmanuel. Income Inequality in the United States, 1913 -1998. NBER Working Paper Series 8467 6 Hildebrand, John and Napolitano, Jo. 2013.“School officials: Few districts will try to pierce caps in future”. Newsday. May 22