inequality

Debunking the ‘Productivity-Pay Gap’

Published by Anonymous (not verified) on Sat, 18/01/2020 - 3:41am in

Have you heard of the ‘productivity-pay gap’? It’s the (apparently) growing gap between the productivity of US workers and their pay. Here’s what it looks like:

epi_pay_gap

Figure 1: The Productivity-Pay Gap. Source: Economic Policy Institute.

In this post, I debunk the ‘productivity-pay gap’ by showing that it has nothing to do with productivity. The reason is simple. Although economists claim to measure ‘productivity’, their measure is actually income relabelled.

As a result, the ‘productivity-pay gap’ isn’t what it appears. It claims to be a gap between productivity and wages. But it’s not. It’s really a gap between two types of income — (1) the wages of workers and (2) the average hourly income of all Americans. This gap is an important measure of inequality. But it has nothing to do with ‘productivity’.

How economists measure productivity

To understand the problem with the ‘productivity-pay gap’, we first need to understand how economists measure productivity. Economists define ‘labor productivity’ as the economic output per unit of labor input:

\text{Labor Productivity} = \displaystyle \frac{\text{Output}}{\text{Labor Input}}

To use this equation, we’ll start with a simple example. Suppose we want to measure the productivity of two corn farmers, Alice and Bob. After working for an hour, Alice harvests 1 ton of corn. During the same time, Bob harvests 5 tons of corn. Using the equation above, we find that Bob is 5 times more productive than Alice: [1]

Alice’s productivity: 1 ton of corn per hour

Bob’s productivity: 5 tons of corn per hour

When there’s only one commodity, measuring productivity is simple. But what if we have multiple commodities? In this case, we can’t just count commodities, because they have different ‘natural units’ (apples and oranges, as they say). Instead, we have to ‘aggregate’ our commodities using a common unit of measure.

To aggregate economic output, economists use prices as the common unit. They define ‘output’ as the sum of the quantity of each commodity multiplied by its price:

\text{Output} = \displaystyle \sum   \text{Unit Quantity} \times \text{Unit Price}

So if Alice sold 1 ton of corn at $100 per ton, her ‘output’ would be:

Alice’s output: 1 ton of corn × $100 per ton = $100

Likewise, if Bob sold 5 tons of potatoes at $50 per ton, his ‘output’ would be:

Bob’s output: 5 tons of potatoes × $50 per ton = $250

Using prices to aggregate output seems innocent enough. But when we look deeper, we find two big problems:

  1. ‘Productivity’ becomes equivalent to average hourly income.
  2. ‘Productivity’ becomes ambiguous because its units (prices) are unstable.

‘Productivity’ is hourly income relabelled

By choosing prices to aggregate output, economists make ‘productivity’ equivalent to average hourly income. Here’s how it happens.

Economists measure ‘output’ as the sum of the quantity of each commodity multiplied by it’s price. But this is precisely the formula for gross income (i.e. sales). To measure gross income, we multiply the quantity of each commodity sold by its price:

\text{Gross Income} = \displaystyle \sum   \text{Unit Quantity} \times \text{Unit Price}

To find ‘productivity’, we then divide ‘output’ (gross income) by the number of labor hours worked:

\text{Productivity} =  \displaystyle  \frac{\text{Gross Income}}{\text{Labor Hours}}

When we do so, we find that ‘productivity’ is equivalent to average hourly income:

Productivity = Average Hourly Income

So economists’ measure of ‘productivity’ is really just income relabelled. The result is that any relation between ‘productivity’ and wages is tautological — it follows from the definition of productivity.

Ambiguous ‘productivity’

In addition to making ‘productivity’ equivalent to average hourly income, using prices to measure ‘output’ also makes ‘productivity’ ambiguous. This seems odd at first. How can ‘productivity’ be ambiguous when income is always well-defined?

The answer has to do with prices.

We expect prices to play an important role in shaping income. Suppose I’m an apple farmer who sells the same number of apples each year. If the price of apples doubles, my income doubles. That’s how prices work.

If ‘output’ is equivalent to income, it seems that my ‘output’ (of apples) has also doubled. But here economists protest. Your apparent change in ‘output’, they say, was caused by a change in price. To find the ‘true’ change in output, you need to hold prices constant. When you do, you’ll find that your ‘output’ remains the same.

On the face of it, this ‘adjustment’ for price change seems reasonable. But it actually leads to a measurement quagmire. To see this quagmire, we’ll return to Alice and Bob.

Suppose that Alice grows 1 ton of corn and 5 tons of potatoes. Bob grows 5 tons of corn and 1 ton of potatoes. Whose output is greater? The answer is ambiguous — it depends on prices.

Suppose that corn sells for $100 per ton and potatoes sell for $20 per ton. We find that Bob’s output is about 250% greater than Alice’s:

Alice’s Output: 1 ton corn × $100 per ton + 5 tons potatoes × $20 per ton = $200

Bob’s Output: 5 tons corn × $100 per ton + 1 ton potatoes × $20 per ton = $520

Now suppose that corn sells for $20 per ton and potatoes sell for $100 per ton. We now find that Bob’s output is about 60% less than Alice’s:

Alice’s Output: 1 ton corn × $20 per ton + 5 tons potatoes × $100 per ton = $520

Bob’s Output: 5 tons corn × $20 per ton + 1 ton potatoes × $100 per ton = $200

What’s going on here? When we aggregate output using prices, these prices determine the relative weighting given to corn and potatoes. When this weighting changes, the measurement of ‘output’ changes.

As a result, our measure of ‘output’ depends on the particular prices we choose to hold constant. This is a big problem. It means that standard measures of productivity are inherently ambiguous. (For more details about this ambiguity, see my work with Jonathan Nitzan and Shimshon Bichler and with Erald Kolasi.)

To summarize, using prices to aggregate ‘output’ leads to bizarre problems. On the one hand, it causes ‘productivity’ to be equivalent to average hourly income. This means that any connection between ‘productivity’ and wages is circular. On the other hand, the same decision causes ‘productivity’ to be ambiguous. Our measure of ‘productivity’ depends on arbitrary choices about how to adjust for price change. As a result, productivity trends (like the one in Figure 1) are riddled with uncertainty.

Dissecting the ‘productivity-pay gap’

Now that you understand the problems with how economists measure productivity, let’s return to the ‘productivity-pay gap’. I’m going to dissect the evidence in Figure 1.

This chart comes from the Economic Policy Institute (EPI). By dissecting it, I don’t mean to pick on the EPI authors. They use methods that are standard in economics. Instead, I want to show why these standard methods are flawed.

We’ll start with how the EPI measures productivity. They write:

“Net productivity” [of workers] is the growth of output of goods and services less depreciation per hour worked.

To non-economists, this sounds like the EPI is measuring some physical quantity of output. But they’re not. Instead, the “output of goods and services” is economists’ code for the value of goods and services, as measured by Gross Domestic Product (GDP). ‘Depreciation’ is code for the financial depreciation of capital.

When we subtract capital depreciation from GDP, we get something called ‘Net Domestic Product’:

Net Domestic Product = GDP – Capital Depreciation

So the EPI defines ‘economic output’ in terms of Net Domestic Product.

Now here’s the rub. The national accounts are based on the principles of double-entry book keeping. This means that for every sale there is a corresponding income. So when you build a house and sell it for $1 million, you record the sale in one ledger as ‘output’. On the opposite ledger, you record the same sale as ‘income’. So ‘output’ is formally equivalent to income.

In the national accounts, Net Domestic Product is the sales side of the ledger, recorded as ‘output’. It’s equivalent to the income side of the ledger, which we call ‘National Income’ — the income of all individuals in the country:

Net Domestic Product ≈ National Income

I’ve put the ‘≈’ here to mean ‘almost equivalent’. There are some small differences between Net Domestic Product and National Income (some business taxes, for instance). But in practice, the two quantities are nearly identical, as shown in Figure 2.

ndp_ni
Figure 2: US Net Domestic Product And National Income. Data is from the Bureau of Economic Analysis Table 1.7.5.

To calculate workers ‘productivity’, the EPI divides Net Domestic Product by the number of labor hours worked:

\text{Productivity} = \displaystyle \frac{\text{Net Domestic Product}}{\text{Labor Hours}}

But this is equivalent to dividing National Income by the number of labor hours worked:

\text{Productivity} = \displaystyle \frac{\text{National Income}}{\text{Labor Hours}}

When we divide National Income by total labor hours, we’re actually measuring average hourly income. So the EPI’s measure of ‘productivity’ is identical to average hourly income:

Productivity = Average Income per Hour

Given this equivalence, any connection between ‘productivity’ and average hourly income isn’t surprising. It’s a tautology.

How can wages diverge from ‘productivity’?

If productivity is equivalent to average hourly income, how can wages diverge from ‘productivity’? In other words, how can the ‘productivity-pay gap’ exist?

Let me explain.

‘Productivity’ (as measured by the EPI) is equivalent to the average hourly income of all US earners. Since average income can’t diverge from itself, average income and ‘productivity’ can’t diverge. However, if we select a subpopulation of US citizens, their income can diverge from the average. This is just a mathematical truism. If I select a non-random sample from a population, the properties of this sample need not match the properties of the whole population.

To make this thinking concrete, suppose we select only CEOs. Must CEO income track with the national average? The answer is no. CEOs are a unique subpopulation, so their income can diverge from the national average. And as you probably know, CEO income has done just that. Over the last 40 years, the income of US CEOs has grown drastically relative to average income.

Wages of production workers

In Figure 1, the EPI studies the wages of ‘production/nonsupervisory workers’. Because these workers are a subpopulation of the US, their income can (and does) diverge from the national average. Over the last 40 years, the wages of production workers have declined relative to the average houly income.

This decline, however, has nothing to do with productivity. Instead, it owes to a redistribution of income — a redistribution that has two parts. First, the labor share of national income has declined over the last 40 years. Second, over the same period, US wages and salaries have become increasingly unequal.

The declining labor share of income

In the national accounts, there are two basic types of income. If you earn income from property, you earn ‘capitalist income’. If you earn income from wages and salaries, you earn ‘labor income’. The two types of income sum to National Income:

National Income = Capitalist Income + Labor Income

If we select only ‘laborers’, it’s possible for the average hourly income of this subpopulation to diverge from average income of the population. For instance, if capitalist income grows relative to workers’ income, it pulls up the average income. This causes a gap between the wages of workers and the hourly income of the whole population.

Looking back at Figure 1, we see that the ‘productivity-pay gap’ emerges after 1970. Not surprisingly, it’s around this time that the labor share of US income began to drop:

lab_share
Figure 3: Labor’s Share of US National Income. Data is from the Bureau of Economic Analysis Table 1.12. Labor’s share is calculated as the ‘compensation of employees’ as a fraction of national income.

This decline of labor’s share of income is partly why the EPI finds a ‘productivity-pay gap’. Remember that ‘productivity’ (as measured by the EPI) is equivalent to the average hourly income in the US. Since 1970, US workers have received a declining share of this income. Consequently, their wages have declined relative to the average US income.

The growing inequality of labor income

The other reason is that the EPI finds a ‘productivity-pay gap’ is because US wages and salaries have become increasingly unequal. Since 1970, the income share of the top 1% of wage/salary earners has grown steadily:

lab_top_1
Figure 4: Top 1% of Wage/Salary Earners, Share of US Labor Income Data is from the World Inequality Database (average of series flinc and plinc).

It may not be clear how wage inequality would affect the relative income of production workers. To help understand, we’ll divide labor income into two parts:

Labor Income = Production Workers Income + Non-Production Workers Income

Suppose that the income of non-production workers increases relative to the income of production workers. This increase pulls up the average labor income, causing it to outpace the average income of production workers. Still, it’s not clear how this redistribution relates to wage inequality.

This is where hierarchy comes in.

I propose that ‘production workers’ occupy the bottom two ranks in firm hierarchies. The bottom rank consists of ‘shop floor’ workers. The second rank consists of ‘working supervisors’. Everyone in ranks three and above is a ‘non-production worker’ (i.e. manager).

hierarchy_production_workers
Figure 5: Production workers in a hierarchy. Production workers (blue) occupy the bottom two ranks in a hierarchy. The first rank contains ‘shop floor’ workers. The second rank contains ‘working supervisors’. Ranks three and above are ‘managers’.

In this simple model, ‘production workers’ make up about 77% of total employment. That’s not far from the actual US figure of 82%.

prod_workers
Figure 6: Production workers’ share of US private employment. Data is from the Bureau of Labor Statistics, series CES0500000001 and CES0500000006.

What does our hierarchy model tell us about the income of production workers? In hierarchies income increases steeply with hierarchical rank. (I review the evidence here and here.) So if production workers occupy the bottom of the corporate hierarchy, they should also occupy the bottom of the income distribution.

Let’s suppose that production workers occupy the bottom 80% of US labor incomes. If labor income inequality increases, we expect the relative income of production workers to decline.

Figure 7 shows a simple model of what this might look like. Here I’ve defined ‘production workers’ as everyone in the bottom 80% of a hypothetical distribution of income. I then calculate the average income of these production workers and compare it to the average income in the whole population.

wage_mod_plot
Figure 7: A model of the relative income of production workers. Here I model ‘production workers’ as the bottom 80% of earners in the population. As inequality (measured by the top 1% share of income) grows, the average income of production workers declines relative to the average income of the population. For the math people, I’ve modeled the distribution of income with a lognormal distribution.

Because production workers are at the bottom of the income distribution, we expect their income to be below the population average. (That’s why the y-axis values in Figure 7 are below 100%.) But just how far below depends on income inequality.

As we increase inequality in the population (shown on the horizontal axis in Figure 7) the relative income of production workers declines. When inequality is minimal, production workers’ relative income approaches the population average. When inequality is extreme, production workers’ relative income approaches zero.

In Figure 7, the vertical red lines show the US top 1% share of labor income in 1970 and 2012. Given this growing inequality, our model predicts that the relative income of production workers should drop by about 50%. This is on par with the pay gap shown in Figure 1.

In short, the growing inequality of labor income can explain a large part of the apparent ‘productivity-pay gap’. Again, this gap isn’t about productivity. It’s about the declining relative income of production workers.

The price-index problem

While most of the apparent ‘productivity-pay gap’ has been caused by income redistribution, part of this gap is caused by price index shenanigans. In Figure 1, the EPI uses two different price indexes to ‘adjust’ for inflation.

To understand the problems with the EPI’s method, we need to backtrack a bit. I’ve already noted that ‘productivity’ is equivalent to average hourly income. But this wasn’t quite correct. ‘Productivity’ is equivalent to real average hourly income:

Productivity = ‘Real’ Average Hourly Income

Unlike ‘nominal’ income, ‘real’ income adjusts for inflation. To get ‘real’ income, we divide ‘nominal’ income by a price index — a measure of average price change:

\text{Real Income} = \displaystyle \frac{\text{Nominal Income}}{\text{Price Index}}

There are many different types of price indexes. Some track a few commodities. Others track many commodities. Because price change varies wildly between commodities, different price indexes can vary wildly.

Here’s where the EPI errors. It uses the (implicit) Net Domestic Product deflator to measure ‘productivity’ (i.e. real average income per hour). But it uses the Consumer Price Index (CPI) to measure the ‘real’ wage of production workers:

This is a problem. The two price indexes have diverged since 1970 — the very period where the EPI finds a growing ‘productivity-pay gap’. Here’s what the divergence looks like:

ndp_cpi_ratio

Figure 8: The US Net Domestic Product deflator relative to the Consumer Price Index. CPI data is from Federal Reserve Economic Data, series CPIAUCSL. The implicit NDP deflator data is from BEA Table 1.17.6 (the ratio of nominal NDP to real NDP).

To put this in perspective, the EPI’s method is like using different price indexes to compare the ‘real’ income of two people. Suppose Alice and Bob both start out with $100. Over 40 years, both of their incomes grow to $200. We then use the NDP deflator to find Alice’s real income. But we use the CPI to find Bob’s real income. Although their nominal incomes are identical, we find that Alice’s real income outpaced Bob’s by 20%.

The crime here is that we don’t need price indexes to compare incomes. We can compare Alice and Bob’s incomes directly. Similarly, the EPI could have compared the nominal income of production workers directly to the nominal hourly income in the US.

The declining relative income of workers

The problem with the ‘productivity-pay gap’ is that it proclaims to be something it’s not. It’s not a gap between workers’ productivity and their income. Instead, it shows the declining relative income of workers.

The best way to look at this decline is to measure the relative income of production workers:

\text{Relative Income of Production Workers} =  \displaystyle \frac{\text{Average Wage of Production Workers}}{\text{Average Hourly Income of Population}}

Figure 9 shows this relative income over the last 50 years. In 1964, US production workers earned 60% of the average hourly US income. By 2015, this declined to 35%.

differential_income
Figure 9: The relative income of US production workers. Average hourly earnings of production workers is from FRED series AHETPI. Average hourly US income is calculated by dividing National Income (BEA Table 1.7.5) by the number of labor hours worked by US persons engaged in production (FRED series EMPENGUSA148NRUG × series AVHWPEUSA065NRUG).

What’s important here is that we haven’t dressed up income as ‘productivity’. We’re explicitly comparing two types of income — the income of production workers relative to the national average.

The relative income of production workers has nothing to do with ‘productivity’. It’s actually a measure of income inequality. As shown in Figure 10, production workers’ relative income correlates strongly with the income share of the top 1%. As income inequality increases, the relative income of production workers decreases.

differential_income_top1
Figure 10: The relative wages of production workers decline as US inequality increases. For the sources for relative wages, see Figure 8. Data for the top 1% share of income comes from the World Inequality Database.

Is ‘productivity’ still increasing?

The tale told by the ‘productivity-pay gap’ (Figure 1) is that workers’ productivity has increased steadily but wages have not. This is a powerful piece of propaganda. It says to workers “look, the tide has risen, but it didn’t lift your boat”.

The problem, though, is that it’s not clear that the tide has actually risen. We can say for certain that workers relative wages have declined (Figure 9). But what about their productivity? Has it gone up as Figure 1 suggests?

To believe the ‘productivity’ trends in Figure 1, you have put on a brave face. You have to believe that the myriad of subjective decisions made by statistical agencies (reviewed here) are the ‘correct’ decisions. You have to believe that prices ‘reveal’ utility, and that monetary income is the same as economic ‘output’.

I, for one, don’t believe these things. Consequently, I treat official measures of ‘productivity’ as garbage.

How should we measure productivity? It depends on what we think the economy ‘does’. Personally, I like the view taken by atmospheric scientist Tim Garrett. He treats the economy as a heat engine. Garrett uses the analogy of a growing child. It takes energy to maintain the child’s body. And if the child is to grow, it needs to consume increasing amounts of energy. The same is true of the economy.

When you think this way, you realize that ‘useful work’ (the amount of energy put to an end use) is a good indicator of economic output. I propose that we treat useful work per labor as an alternative measure of labor productivity.

How does this alternative measure compare with the standard measure of productivity? Figure 11 shows a comparison. Here I use real GDP per labor hour as the standard measure of productivity. I contrast this with Benjamin Warr and Robert Ayres’ estimate for useful work per labor hour.

useful_work
Figure 11: How a physical measure of US productivity compares to the official measure of productivity. Data is from Benjamin Warr’s REXS Database.

It’s not hard to spot the difference between the two series. The standard measure of productivity tells a tale of steady growth. In contrast, our physical measure suggests that productivity has stagnated since 1970. Interestingly, this is the period when the relative wages of production workers began to decline (i.e. when the apparent ‘productivity-pay gap’ appears).

Here’s an interesting question. Is the stagnation in useful work output related to decline of workers’ wages? Biophysical economist Carey King thinks so. He recently built a model to investigate this connection.

The important point is that it’s far from clear that US productivity has increased steadily over the 20th century. In energetic terms, productivity has stagnated since 1970. I, for one, think that this physical measure of productivity is far more meaningful than the official measure. ‘Useful work’ is based on the laws of thermodynamics. The standard measure of productivity, in contrast, is based on the dubious assumptions of neoclassical economics.

The productivity problem

‘Productivity’ is used by both major schools of economic thought. Neoclassical economists use productivity to claim that the distribution of income is just. They argue that in a competitive economy, workers get what they produce. Marxists, in contrast, use productivity to claim that the distribution of income is unjust. They argue that in a capitalist economy, workers receive less than they produce (because capitalists extract a surplus).

What’s interesting is that these two opposing theories commit the same sin. They define productivity in terms of income. Neoclassical economists do so explicitly, as I’ve described in this post. Marxists do so implicitly because they haven’t developed their own system of national accounts. Instead, Marxists who do empirical work use neoclassical measures of productivity (As an example, see this fascinating exchange between Paul Cockshott, Shimshon Bichler and Jonathan Nitzan.)

The result of this circular definition is that the analysis of productivity is a sleight of hand. ‘Productivity’ is just income relabelled.

The ‘productivity-pay gap’ is a textbook example of this relabelling. It claims to show a growing gap between what workers ‘produce’ and what they get paid. But workers’ ‘productivity’ is actually measured in terms of income — the average hourly income.

This relabelling of income gives the analysis ideological potency. Instead of saying that workers’ relative wages have declined, it says that workers don’t get paid what they produce. The latter, as Marx long ago realized, is far more potent propaganda.

Productivity propaganda cuts both ways

The problem with productivity propaganda is that it cuts both ways. The EPI uses income to measure ‘productivity’ at the national level. But why stop there? Why not equate income and productivity at the sector level, or at the individual level? Curiously, the EPI warns against doing so (see the technical appendix here).

The problem is that the more finely we equate income with productivity, the more we’ll find that everyone ‘gets what they produce’. This is because as we study smaller and smaller groups, we remove the possibility of sampling subgroups whose income diverges from the group’s average income.

As a progressive think tank, the EPI wants to show that workers do not get paid what they produce. So it warns against equating income and productivity at the sector and individual level.

The problem is that the EPI wants to have its cake and eat it too. It wants to equate productivity with income when the results suit it — when the analysis shows a productivity-pay gap. But the more fine grain the analysis, the more this gap will disappear. And so the EPI warns against equating income and productivity at lower levels of analysis.

To be fair, the EPI is doing what many heterodox economists do. They reject the ‘crude’ neoclassical assumption that individual income is equivalent to productivity. Yet they then equate income and productivity at the national level.

This double standard is unjustifiable. Either we side with neoclassical theory and equate income and productivity wholesale. Or we reject neoclassical theory and so reject the accounting system that economists use to measure productivity.

Many heterodox economists are uncomfortable with the latter choice. And it’s not hard to see why. When you reject equating income and productivity, you reject the heart of macroeconomics. You reject the entire suite of measures that macroeconomists use to measure economic output and productivity. In so doing, you reject almost all that you (as a macroeconomist) are taught to hold dear. That’s a scary prospect.

The uncomfortable fact, though, is that if we want to create an alternative to neoclassical economics, we can’t use methods that have neoclassical assumptions baked into them. So a major part of being a heterodox economist is looking for new ways to quantify the economy.

Let’s bring this post to a close. I’m all for reducing inequality. And I think that workers’ wages have grown increasingly unfair. But I’m also a hard-nosed scientist who dislikes analysis with dubious assumptions baked into it. For that reason, I think the ‘productivity-pay gap’ needs to be called what it actually is — a decline of workers’ relative income.

Notes

[1] “Bob is more ‘productive’ than Alice”. Note that this doesn’t mean that Bob caused his greater output of corn. Maybe Bob had better land. Or maybe he had a bigger tracter. Our measure of productivity says nothing about Bob’s abilities.

Further reading

Ayres, R. U., & Warr, B. (2010). The economic growth engine: How energy and work drive material prosperity. Edward Elgar Publishing.

Bivens, J., Gould, E., Mishel, L. R., & Shierholz, H. (2014). Raising America’s Pay: Why It’s Our Central Economic Policy Challenge. Economic Policy Institute.

Bivens, J., & Mishel, L. (2015). Understanding the Historic Divergence Between Productivity and a Typical Worker’s Pay: Why It Matters and Why It’s Real. Economic Policy Institute.

Cockshot, P., Shimshon, B., & Nitzan, J. (2010). Testing the Labour Theory of Value: An Exchange. Nitzan & Bichler Archives.

Fix, B. (2019). Personal Income and Hierarchical Power. Journal of Economic Issues, 53(4), 928–945. SocArXiv preprint.

Fix, B. (2019). The Aggregation Problem: Implications for Ecological and Biophysical Economics. BioPhysical Economics and Resource Quality, 4(1), 1. SocArXiv preprint.

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This is no time for despondency or pulling the duvet over our heads. This is a time to regroup in solidarity to understand the problems and find solutions; our future depends on it. Let’s organise!

Published by Anonymous (not verified) on Sun, 12/01/2020 - 3:26am in

Protester holding sign with slogan "Change the politics not the climate"This time of the year is for making new year’s resolutions and this year was no exception. A local radio channel reported that a survey had revealed that the most popular one was doing more to be ‘green’. However, whilst our good intentions are worthy it is becoming ever clearer that the scale of action required goes far beyond individuals. It is also clear that despite our well-intentioned promises and the increasing alarm bell warnings of the scientific community, the well-oiled engine of consumption rolls on. It invites us through sophisticated advertising to consume the latest piece of technology or travel to exotic places and is designed to persuade us that green and infinite consumption growth can go together. You too can save the planet by buying that ‘sustainable’ cotton t-shirt with the message ‘There is no Planet B’.

Indeed, a report published by the UN Environment Programme and other research organisations revealed that the world’s nations are planning to produce about 50% more fossil fuels by 2030 than would be consistent with limiting warming to 2°C and 120% more than would be consistent with limiting warming to 1.5°C. So much for curbing fossil fuel production and saving ourselves. As Mans Nilsson, an executive director of the Stockholm Environment Institute commented ‘We’re in a deep hole – and we need to stop digging’.

And yet across the world, those messages are being ignored. Our ice caps are thawing at an unprecedented rate. The snows of Kilimanjaro have melted more than 80% since the beginning of the 20th century. Glaciers in India are receding so fast that it is believed that most of those in the central and eastern Himalayas could virtually disappear by 2035. The impact on water resources will be devastating to the livelihoods of around 129 million farmers in India who depend on glacier meltwater to grow their crops – put bluntly, the food we eat. The edges of Greenland’s ice sheet are shrinking, and scientists say that extreme ice melt will affect coastal communities across the world. Thawing permafrost has caused ground to subside more than 4.6 metres in Alaska, worse as permafrost degrades under a warming climate, some of the carbon contained within will decompose and be released into the atmosphere. In Siberia, in what is known as the Kingdom of Winter, the permafrost is also thawing and revealing the bodies of long-dead animals preserved in the permafrost for more than 32,000 years.

GIMMS reported last year on the fires in the Arctic as well as Brazil and Bolivia which destroyed vast tracts of the Amazon forest causing huge devastation in terms of biodiversity loss and threats to valuable water resources. Reuters reported earlier this week that deforestation in Brazil rose to its highest in over a decade in 2019 under the administration of President Bolsonaro. INPE the space research organisation has suggested that the timing and location of the fires were consistent with land clearing encouraged by Bolsonaro as part of his economic development plan which has emboldened ranchers and loggers to slash and burn.

This week people across the world have been looking on in dismay at the ongoing destruction happening right now in Australia as bush fires rage, burning more than 17 million acres across the continent, destroying its biodiversity and killing hundreds of millions of animals in their path not to mention demolishing whole towns, causing loss of life and leaving frightened people in dangerous conditions on beaches waiting to be rescued. Record heat, ongoing drought and dry vegetation have all played a devastating role in the destruction, which will not only affect those habitats for years to come but will also cause an increase in carbon emissions as burning trees release it into the air. The fires will impact on people’s long-term health and damage agriculture and businesses, the consequences of which will be costly.

Extreme weather events from droughts to storms and floods are becoming the norm and the media brings them to our living rooms with instant newsflashes. We can see the devastation they bring across the globe from Australia and Asia to the US and Europe and even the UK where over recent years we have had our fair share of extreme weather from floods to heatwaves. Only this week it was reported by Public Health England that the summer heatwaves of 2019 resulted in almost 900 extra deaths and over the past four years more than 3,400 people have died as a result of extreme heat. And last November very heavy rainfall left acres of valuable farmland under many feet of water destroying crops and affecting livestock and inevitably the livelihoods of farmers. MPs warned last July that the UK was ‘woefully unprepared’ for the impact of the climate crisis.

And yet, disgracefully, some leaders around the globe still have their heads firmly in the sand over the threats to the lives of people and the natural world. The outcome of the climate conference in Madrid which took place in mid-December last year was deemed disappointing by the UN Secretary Antonio Guterres who said that the international community had lost an important opportunity to tackle the climate crisis. Laurence Tubiana from the European Climate Foundation called it a ‘far cry from what science tells us is needed’. With the prospect of next year’s climate conference being held in Glasgow, Boris Johnson has already been warned by environmentalists that preaching to other nations whilst the UK fails to make progress on its own commitments will lead to humiliation.

The commitment of the Conservatives on one of the most pressing issues of our time has been derisory. Expanding aviation and road-building plans are quite simply not compatible with eliminating CO2 emissions. Promoting electric cars may provide a stopgap solution but not a sustainable one since the batteries to power them also require energy to extract, manufacture and dispose of them and indeed the rare earth materials to make them are themselves finite. Add to that the environmental impacts of battery production for use in wind and solar power which may also negate any environmental benefits and one begins to see how things are not simply a matter of exchanging one energy source for another in a finite world of resources where everyone globally will be chasing those same raw materials to sustain and green their economies. Without consideration of the problems of resource availability and strategies to create green supply chains and more reuse and recycling of the rare materials needed for solar photovoltaics, batteries, electric vehicles, wind turbines, greening our world will be fraught with difficulties.

Furthermore, our standard of living has been built on the backs of those poorer countries where many of the resources we need to maintain our lifestyles are found and whilst we benefit, those same countries have also been at the sharp end of our excessive consumption in terms of climate change and western inflicted poverty.

What is needed is a revolution in the way we think about how we live, what our values should be and how we consume. And yet, in light of the challenges we face globally, inertia and lack of real commitment could be viewed as puzzling given the future real costs both financial and physical of inadequate governmental action. However, one does not have to look very far for the answer; rampant, out of control capitalism which relentlessly feeds on driving economies regardless of the consequences. Over 40 years and more political dogma in the form of neoliberal ideology has embedded itself, not only in our governmental and political structures and educational and other institutions, but also in how the public has been led to believe economies work, persuading them that there is no other way, indeed no alternative. The price we are paying in social, environmental and economic terms has been terrifying.

Aside from the vast wealth and indescribable poverty living side by side, with swathes of working people offered up to the god of the market and reaping the consequences in low wages and precarious employment, poor housing and inadequate access to good healthcare and education and other services, we are now experiencing the inevitable environmental consequences of planetary exploitation by large global corporations which dominate the corridors of power, lobby politicians and infiltrate political circles with special advisers to serve their own profit interests. The planet and the natural environment and its resources, human labour and our public services have all become commodities to be traded in the market and bought and sold for profit. The concept of the common good has been replaced by market diktat. Governments which should be serving the interests of their people are instead serving those of large corporations and allowing them to dictate policy and legislation.

The god-like domination of market solutions to our most pressing challenges are, however, not about the common good; they are about keeping the wealth and power in the hands of the few at huge cost. Our democratic institutions are being whittled away so that capitalism in all its rottenness can continue its rape and plunder of nature, its biodiversity, its resources and the people who depend on it.

So, what can we do? It seems sometimes that we are powerless to oppose the mainstream economic orthodoxy and corporate power. However, in light of what is happening, we still do have choices. We can choose to become the ‘lords of the ashes’ or we can choose a different path; one which restores concepts of the common good and of values other than exchange for profit. We need to restore the confidence of working people in democracy and the politicians that serve them and give them confidence that their voice after having been ignored for too long will be heeded.

Shining a lens on monetary realities to show the possibilities for real change and to provide answers to the question of how we pay for a progressive agenda, a green transition and a job guarantee must be foremost in our minds now. We must find ways to reach out to those who have suffered the most as a result of 40 years of political attachment to ideologically driven agendas. We must, as a matter of priority, develop clear and comprehensible strategies to communicate to ordinary working people how an understanding of how money works opens up the opportunity to develop solutions to those serious issues which dominate their lives – from jobs and housing to the decay of public and social infrastructure and their local communities.

To that end, GIMMS is organising two events in London and Manchester with a view to exploring how that might be achieved. To buy a ticket follow the links below. In the light of the disappointing election result, this is not a time to hang up our boots; this is a time to express our solidarity with those who have been left behind and come together to develop a coherent strategy for change which will engage the nation and offer some hope for a better and indeed a sustainable future.

Professor Bill Mitchell and Professor Steve Hall Seminar – London – February 20 @ 1:30 pm – 5:00 pm  – £5.98

Professor Bill Mitchell and Professor Steve Hall Seminar – Manchester – February 21 @ 1:30 pm – 4:30 pm – £5.98

Finally, GIMMS recently added a new fact sheet on the Green New Deal. If you’d like to explore the issue further or indeed find out a bit more about what MMT is please follow either or both of the links below.

The Green New Deal

A brief introduction to Modern Monetary Theory

 

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The Gower Initiative for Money Studies is run by volunteers and relies on donations to continue its work. If you would like to donate, please see our donations page here

 

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The post This is no time for despondency or pulling the duvet over our heads. This is a time to regroup in solidarity to understand the problems and find solutions; our future depends on it. Let’s organise! appeared first on The Gower Initiative for Modern Money Studies.

The Productivity of Bullshit Jobs

Published by Anonymous (not verified) on Wed, 08/01/2020 - 1:44am in

I recently read David Graeber’s book Bullshit Jobs: A Theory. If you’re not familiar, David Graeber is the anthropologist who wrote Debt: The First 5000 Years, a seminal book on the history of money and credit.

In Bullshit Jobs, Graeber takes aim at pointless work. Graeber describes a bullshit job as:

a form of paid employment that is so completely pointless, unnecessary, or pernicious that even the employee cannot justify its existence even though, as part of the conditions of employment, the employee feels obliged to pretend that this is not the case.

Bullshit Jobs is based largely around testimonials from people who feel that they have bullshit jobs. The testimonials are often hilarious and sometimes touching. I recommend reading the book for the testimonials alone. Graeber’s theory is icing on the cake.

One of the things that amused me in the book was the testimonial from Warren, a substitute teacher:

Warren: I work as a substitute teacher in a public school district in Connecticut. My job just involves taking attendance and making sure the students stay on task with whatever individual work they have. Teachers rarely if ever actually leave instructions for teaching. I don’t mind the job, however, since it allows me lots of free time for reading and studying Chinese, and I occasionally have interesting conversations with students. Perhaps my job could be eliminated in some way, but for now I’m quite happy.

This amused me because I currently work as a substitute teacher in a public school district in Toronto. Yes, I’m a PhD graduate who earns a living substitute teaching. Like Warren, I enjoy the job for the free time it affords. I have lots of time to do research (and write this blog).

For his part, Graeber isn’t sure that substitute teaching is a bullshit job (by his definition). If it is, it’s one of the best ones:

It’s not entirely clear this [substitute teaching] is even a bullshit job; as public education is currently organized, someone does have to look after the children in a given class period if a teacher calls in sick. The bullshit element seems to lie in pretending that instructors such as Warren are there to teach, when everyone knows they’re not: presumably this is so the students will be more likely to respect their authority when they tell them to stop running around and do their assignments. The fact that the role isn’t entirely useless must help somewhat. Crucially, too, it is unsupervised, nonmonoto­nous, involves social interaction, and allows Warren to spend a lot of time doing whatever he likes. Finally, it’s clearly not something he envisions doing for the rest of his life. This is about as good as a bullshit job is likely to get.

Warren and Graeber both hit the nail on the head. Substitute teaching is a low-demand job, but it’s probably necessary. This post, however, isn’t about substitute teaching. Instead, Graeber’s book got me thinking about economic theory, and about how economists measure productivity.

How economists measure productivity

Economists’ main theory for explaining individual income is called human capital theory. According to this theory, human capital makes you more productive. This productivity then makes you earn more income.

The problem (which I’ve written about here and here) is that economists don’t have a way of measuring productivity that is independent of income. What they do instead is resort to circular logic. They define productivity in terms of income.

So when you read about labor productivity in the national accounts, this actually has nothing to do with the output of workers. It has to do with their income. Productivity is measured in terms of value added, which is effectively a form of income.

Let’s use the example of education to illustrate how economists’ thinking leads to absurd conclusions. In public education, wages and salaries account for the vast majority of value added. So the value added of public education (and hence, teachers’ ‘productivity’) is a function of teachers’ pay. So poorly-paid teachers appear (to economists) to be less productive than well-paid teachers.

This conclusion is absurd because teacher pay is largely a function of the strength of unions. In the US, public school teachers are poorly paid largely because their unions are weak. But in Canada, public school teachers are well paid, largely because their unions are militant. The consequence is that US teachers add less value than Canadian teachers. So the national accounts would treat US teachers as less productive than Canadian teachers.

If this sounds like nonsense to you, it’s because it is. It’s based entirely on circular logic. Productivity is supposed to explain income. But then economists use income to measure productivity.

In reality, I think income has little to do with productivity, and little to do with the properties of individuals. Instead, income is about social position. Income depends on what others think you do, not what you actually do.

I’ll use my own experience to illustrate. For the past 9 years, I’ve worked as a researcher. As such, my primary ‘output’ (if you want to call it that) has been scientific knowledge. If you looked at my day-to-day activities they’d be remarkably constant. I sat at a computer and wrote papers.

So my scientific activities (and I’d guess my scientific output, however defined) have been more-or-less constant over 9 years. In contrast, my income has fluctuated dramatically. This is because I’ve had many different jobs that financed my research. I’ve been a teaching assistant. I’ve been a Canada Graduate Scholar. I’ve been a substitute teacher. I’ve even collected unemployment insurance.

As neoclassical economists define it, my ‘productivity’ has varied immensely as my income has varied. But this is just wrong. Underneath my changing job titles, my actual activities have changed little. Through it all, I’ve sat at my computer and pumped out research.

The social element of income

Reading Bullshit Jobs reinforced in my mind that we should think of income as a social outcome. When it comes to income, it often doesn’t matter what we actually do. Instead, what matters is what other people think we do.

This is where human capital theory gets it wrong. It attaches income to the properties of individuals. In reality, income has mostly to do with your position in a social network.

When I think about my work experience in social terms, it makes perfect sense. My outward job title (my network position) has changed repeatedly over the years. With this change in position, my income has changed. But my job title is just what other people perceive that I do. They have no idea that through every job, I’ve sat at my computer and written papers. And these papers are what I consider to be my true ‘output’.

When you don’t get paid for what you do

To have an ‘output’ in the national accounts, you have to get paid. As feminist economists point out, this accounting neglects the unpaid work that’s historically been done by women.

Reading Graeber’s Bullshit Jobs made me realize another way that the national accounts do injustice to human work. Many people do bullshit jobs so that they have time to pursue creative activities. These people (including me) regard the non-paid aspect of the activity to be their ‘true’ output. But this unpaid activity gets no respect in the minds of economists. As far as the national accounts are concerned, it might as well not exist.

‘Plunder of the Commons: A Manifesto for Sharing Public Wealth’ – Guy Standing, 22nd January

Published by Anonymous (not verified) on Tue, 07/01/2020 - 12:20am in

Plunder of the Commons:
A Manifesto for Sharing Public Wealth

Speaker: Guy Standing

Chair: Mao Mollona

22nd January, 4pm

Ben Pimlott Lecture Theatre, Goldsmiths

Society is based on three types of property – private, state and commons – and several forms of work, including commoning. The commons have always provided informal social protection, access to shared resources and the means to lessen inequalities. Yet since 1980, especially in the austerity era, the commons have been plundered, by encroachment, enclosure, neglect, privatisation and what is best described as colonisation.

There has been an erosion of five types of commons – natural, social, civil, cultural and the knowledge or ‘intellectual’ commons. More have been passing into the hands of elites or have been commercialised or reduced by neglect. The neo-liberal attack on all commons has vastly increased inequalities, making conventional measures of inequality increasingly misleading. The book on which this presentation is based draws up a Charter of the Commons to revive the commons and to compensate commoners for their loss.

All welcome and registration is necessary. Click here for information on how to find Goldsmiths and the lecture theatre.

The post ‘Plunder of the Commons: A Manifesto for Sharing Public Wealth’ – Guy Standing, 22nd January appeared first on Political Economy Research Centre.

The Power Ethos in the US Military

Published by Anonymous (not verified) on Sun, 05/01/2020 - 11:05am in

In How Hierarchy Can Mediate the Returns to Education I examined the pay structure of the US military. I found that hierarchical rank is (by far) the strongest determinant of military pay.

Here I want to show you that there is a regularity to military pay. In the US military, income is proportional to the number of subordinates one controls. I call this return to social influence the ‘power ethos’. It’s something I’ve predicted is a universal feature of hierarchies.

The military hierarchy

Before getting to the power ethos, we’ll look first at the US military hierarchy. Figure 1 shows employment by rank in the US military. To construct the hierarchy, I’ve assumed that officers outrank all enlistees.

employment_hierarchy

Figure 1: Hierarchical structure of the US military. This figure shows military employment by rank. The bar plots show median rank size over the years 2004–2017. Error bars show variation over the same period. I’ve excluded warrant officers from the hierarchy. Data is from annual demographics reports (Demographics: Profile of the Military Community)

As you can see in Figure 1, the US military hierarchy doesn’t have the classic pyramid shape that we expect in a hierarchy. Instead, it’s a bumpy pyramid. This is because there are more low-ranking officers than there are high-ranking enlistees. The caveat here is that I’m constructing the hierarchy from pay grades. While these grades map onto rank, they may not reflect the actual chain of command in the military. Since I don’t have access to chain of command data, I make do with constructing the hierarchy using pay grades.

The power ethos in the US military

The key feature of a hierarchy is that power flows from top to bottom. This means those at the top wield enormous power. To quantify power in a hierarchy, we simply count subordinates. I define hierarchical power as:

hierarchical power = number of subordinates + 1

In hierarchies, I’ve proposed that resources are distributed according to the power ethos: to each according to their social influence. Using hierarchical power as our measure of social influence, it’s straightforward to test for the power ethos in the US military. We simply test if income relates to hierarchical power. Here’s what we find:

military_power Figure 2: Evidence for the power ethos in the US military. The vertical axis shows average income within each hierarchical rank. The horizontal axis shows average hierarchical power for individuals in each rank. Points indicate a hierarchical rank in a given year. (Warrant officers are excluded from the hierarchy.) I calculate average income within each rank using the midpoint of the experience grid. Data is from annual demographics reports (Demographics: Profile of the Military Community)

So even though the US military hierarchy has an unusual shape, the power ethos still seems to prevail. Income is proportional to hierarchical power.

Does hierarchical power cause income?

It’s clear that the power ethos prevails in the US military. But does this mean that hierarchical power causes income?

The first order answer is no, hierarchical power does not cause income. We know this because the US military pay grid (see Figure 1 here) tells us exactly what causes income — rank and experience. Because ‘hierarchical power’ isn’t on the pay grid, it doesn’t cause income.

But beyond this first order cause, we have to ask — what caused the military pay grid? It seems conceivable that higher ranking officers — those with more power — get more say in creating the pay grid. If this is true, then hierarchical power does cause income (albeit indirectly). High-ranking officers use their social influence to gain access to resources.

The bottom line is that there is probably no simple line of causation between hierarchical power and income. There are certainly no natural laws at work. Instead, it seems likely that the power ethos is an emergent property of hierarchies. Just what, exactly, causes the power ethos to occur is an exciting area of research. Join me in studying it!

Gang culture for toffs? understanding the right wing mind – part three

Published by Anonymous (not verified) on Sat, 04/01/2020 - 6:56pm in

Sanna Marin, the Finnish Prime minister, who I’ve referred to previously, also has another good quote: I have never thought about my age or gender. I think more about the motivations that brought me into politics. Here is somebody concerned not about her interest group (or ‘gang’), but fired up about why she wants to... Read more

New Elimination of Homelessness Bill sent to the Prime Minister

Published by Anonymous (not verified) on Thu, 02/01/2020 - 8:29pm in

This Bill has rather less to to do with me than the following report suggests, but I strongly believe in what it is trying to do, and so I share the following open letter from the Rev Paul Nicholson of Taxpayers Against Poverty, whose work I greatly admire:

The Right Hon Boris Johnson MP,

The Prime Minister,

10 Downing Street, London SW1A 2AA.

 

Dear Prime Minister,

Congratulations on your 12th December 2019 election victory. On the 13th December the following letter was published by the Church Times.

We are asking your new government to make an end to the humiliation of low income renters by making the elimination of both rough sleeping and family homelessness an immediate and on going task for both national and local government. That is why we are sending you and other political parties represented in Parliament the attached Elimination of Homelessness Bill and brief. 

On the 16th December we launched Social Housing, Affordable Rents and Elimination of Homelessness Bill covering England and Wales. It has been drafted by Ian Wise QC from a brief by Professor Richard Murphy of Tax Research UK, following discussions initiated by Taxpayers Against Poverty (TAP). The Bill is based on our experience of working with and for families and individuals who have been evicted into homelessness.

You are no doubt aware that there is a housing emergency in the UK.  In October 2019 the Office for National Statistics published figures showing an estimated 726 homeless people died on the streets in England and Wales in 2018, a 22 per cent rise from 2017. Your Minister told MPs; "As you will know this Government is committed to putting an end to rough sleeping by 2027 and halving it by 2022, and we have changed the law to help make this happen". Jessica Turtle of the Museum for Homelessness says that people were mainly dying (on the streets) from drug and alcohol misuse, which is directly linked to a cut in services. “A lot of these deaths are preventable,” she said. She expects an increase in 2019. 

The House of Commons Library reports that since December 2010 the number of families in temporary accommodation increased by 77% to 84,740 with 126,020 children. 56,280 of the families are in London. The Children's Commissioner for England suggest there are a further 82,000 children sofa surfing. Based on freedom of information requests, the exclusive analysis by Shelter shows that more than 33,000 homless families in temporary accommodation are holding down a job, despite having nowhere stable to live. This has increased by 73% since 2013, when it was 19,000 families. Former residents of Grenfell Tower have been in temporary accommodation for over two years. Other homeless families been there for up to and over ten years. There are currently no plans at national or local level urgently to reverse the trend of increasing homelessness. 

"The good news is that London is full of enough housing for all. There are more empty bedrooms in London than there are people who need housing - but almost all of those bedrooms are in under-occupied privately owned property". (Dorling and Tomlinson -  "RULE BRITANIA" pages 184-185)

We are also sending you all a brief by Fred Harrison, of the Land Research Trust, who predicted the financial crises of 1972, 1994 and 2008. He shows how the next financial crisis is due in 2026 unless remedial action is taken by your government. This is important to TAP because we know it is the low income renters and their children, for whom we work, whose health, well-being and life expectancy suffer most from each financial crisis.  

At the time of writing the Elimination of Homelessness Bill is supported so far by the following NGOs; Compassion in Politics, Equality Trust, Land Research Trust, London Community Land Trust,  Progressive Policy Unit, Taxpayers Against Poverty and Shelter, we expect the list to grow. 

With our best wishes for 2020, 

Rev Paul Nicolson 

Taxpayers Against Poverty

Cartoon: Unsuit Wall Street

Published by Anonymous (not verified) on Tue, 31/12/2019 - 11:50pm in

Help sustain these comics — join the Sorensen Subscription Service!

Follow me on Twitter at @JenSorensen

Assessing progress on St. John’s Plan to End Homelessness

Published by Anonymous (not verified) on Mon, 30/12/2019 - 1:25am in

I’ve written an assessment of the 2014-2019 St. John’s Community Plan to End Homelessness. The full assessment can be found here.

Points raised in the assessment include the following:

-Newfoundland and Labrador has the highest unemployment rate of any Canadian province. This pulls people into homelessness, while also making it more challenging for the provincial government to finance policy asks (such as subsidized housing with social work support).

-People interviewed as part of the assessment process expressed concern over the fact that nearly 40% of emergency shelter beds in St. John’s are run by for-profit providers (but paid for by the provincial government).

-The Trudeau government increased annual federal funding for homelessness (beginning with the 2016 federal budget) and this has been helpful at the local level in St. John’s (just as these increased federal funding levels helped other communities across Canada address homelessness).

-One promising development in Newfoundland and Labrador has been new child welfare legislation allowing youth to continue receiving care until the age of 21 (it used to be 18).

Assessing progress on St. John’s Plan to End Homelessness

Published by Anonymous (not verified) on Mon, 30/12/2019 - 1:25am in

I’ve written an assessment of the 2014-2019 St. John’s Community Plan to End Homelessness. The full assessment can be found here.

Points raised in the assessment include the following:

-Newfoundland and Labrador has the highest unemployment rate of any Canadian province. This pulls people into homelessness, while also making it more challenging for the provincial government to finance policy asks (such as subsidized housing with social work support).

-People interviewed as part of the assessment process expressed concern over the fact that nearly 40% of emergency shelter beds in St. John’s are run by for-profit providers (but paid for by the provincial government).

-The Trudeau government increased annual federal funding for homelessness (beginning with the 2016 federal budget) and this has been helpful at the local level in St. John’s (just as these increased federal funding levels helped other communities across Canada address homelessness).

-One promising development in Newfoundland and Labrador has been new child welfare legislation allowing youth to continue receiving care until the age of 21 (it used to be 18).

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