Felix Salmon

The massive cost of underemployment

Felix Salmon
Feb 11, 2010 12:13 UTC

Those of us who have learned to always look at the formerly-obscure U6 underemployment measure on the first Friday of every month have long been shocked at the number of people who want to work full-time but who in fact are working part-time. A new study from Andrew Sum and Ishwar Khatiwada of the Center for Labor Market Studies quantifies the cost of today’s unprecedented levels of underemployment on society as a whole; I can’t find the version that was emailed to me online, but a shorter version is here.

In any case, here’s the bottom-line table from the longer version:


This $148 billion number is a good lower bound for the annual dollar cost of underemployment on society. The true figure will be higher: as the paper notes,

There are other important losses to these underemployed workers, including less training provided by employers to part-time workers, a lower return to future wages from part-time employment today, and lower future earnings.

Barbara Kiviat has noted this too: it’s possible to do serious harm to your lifetime earnings by taking a part-time or temporary job today rather than staying unemployed and looking for a full-time job. But of course many people have no choice.

Barbara also picks up on the other main finding of the report: that the costs of unemployment and underemployment are being borne disproportionately by the poor and the unschooled. And so long as these levels of underemployment continue, inequality in the US is going to continue to deteriorate — with attendant negative effects on overall economic and political health, the echoes of which can be felt for decades after the underemployment problem has gone away.

Creating jobs, then, is the single most urgent task facing the Obama administration — and the president was right to focus on it during his State of the Union address. Whether the government has the ability to do it, however, is another question entirely.


Have you considered measurement bias in these statistics? The vaunted U6 number has only been around since 1994. It’s not like there’s been many recessions to compare, and people will always overreport their job-search history if they think they might get some government benefit from searching.

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Felix Salmon
Feb 11, 2010 00:48 UTC

John Paulson has only raised $90 million for his new gold fund — WSJ

In which Reuters describes Breakingviews as a “web-based upstart” — Reuters

Canada has 23% of the world’s fresh water — Seeking Alpha

The “My Way Killings” — NYT

Media payscale datapoint of the day

Felix Salmon
Feb 11, 2010 00:44 UTC

ProPublica — a 501(c)(3) nonprofit — is advertising for a social media intern:

ProPublica offers one distributed reporting/ social media internship each spring, summer and fall. The spring and fall internships last 16 weeks. The summer internship lasts 12 weeks. The internship is full-time, based in New York, and pays $700 per week.

Let’s put this in perspective here. The average 15-24 year-old makes $9,862 per year, or $190 per week. The average 25-29 year-old — older, one would imagine, than ProPublica’s social-media intern — makes 27,436 per year, or $528 per week. Indeed, $700 per week, or $36,400 per year, is higher than the median wage for every single age group in America. Even the highest-earning of the lot, the 50-54 year-olds, only make 36,138 on average.

Now if you’re Paul Steiger, the editor of ProPublica, pulling down $570,000 per year, or $10,962 per week, then I’m sure that it’s barely conceivable that anybody could get by on a mere $700 for a week’s work. And it’s true that New York City is an expensive place to live. But it’s also true that the median per capita income in New York City in 1999, the last year for which there’s census data, was just $22,402, or $431 per week.

Of course, I have nothing against high wages, especially not in journalism. But it’s pretty clear to me what’s going on here: the high wage is a signal that this internship is for high-achieving upper-middle-class ivy-leaguers; even, dare I say, for the Young Global Leaders of tomorrow. “Applicants should have experience reporting and/or managing volunteers (or online organizing),” says the job listing, “and a track-record of innovation”.

The spring internship, which is hiring now, will pay a total of $11,200 for 16 weeks, on top of all the transferrable skills and contacts that it is designed to help build. It’s a plum gig, which will surely be snapped up by someone who doesn’t really need it, as opposed to someone without a fabulous and expensive education, without a middle-class upbringing, maybe even without a place at college — but someone who might still have a real aptitude for navigating and leveraging social media.

The fact is that ProPublica is looking to fill this position with someone who might consider $700 a week to be a fair wage for doing clever things on Facebook for a few months, but who reasonably assumes that they’ll improve upon that figure once they get a proper job. If you’re part of the majority of the population who would consider $700 a week to be an enviable wage at any point in someone’s career, you’re really not the target audience. And simply offering that much money is a signal to most such people that, sorry, this is a job for the privileged elite.

If ProPublica pays its summer interns $700 a week, and its editor $570,000 a year, then you can get a pretty reasonable idea of how much it pays its full-time staff. And you can compare that to the way that Jake Dobkin characterizes the economics of the New York blogosphere:

If you don’t want to fire more journalists, you’ll have to cut their salaries. Full time bloggers make about $40-50K. There are plenty of qualified journalists out there who will work for those salaries (many with Ivy-league J-school degrees!)

I think that the idea of non-profit journalism is an interesting one, which is worth experimenting with and exploring. And I think it’s noble that a non-profit like ProPublica has decided to set a high bar when it comes to pay. But I also fear that if ProPublica is ultimately doomed by its high cost structure, that could do unnecessary damage to the whole model of non-profit journalism. And I fear too that ProPublica is going to end up being staffed by a group of privileged and talented white guys who are convinced that their intelligence and their expensive educations are reason enough, in and of themselves, for them to be earning six-figure salaries. Meanwhile, the Sandlers, footing the bill, will be congratulating themselves on the quality of staff that they’ve managed to attract with their high wages.

In other words, there’s a downside to paying well — and that’s a degree of complacency and self-regard which is not uncommon in non-profits at the best of times. And to come back to the internship, a social-media job at ProPublica is never going to be easy in the first place, just because the whole edifice is set up so as to broadcast the work of a few excellent journalists to a large and grateful world. An organization of highly-paid elite professionals will never be collaborative or particularly accessible.

Personally, I prefer the cheaper and messier versions of ProPublica — HuffPo, say, or maybe Current TV. But interestingly, both of them are for-profit organizations, who feel no shame about paying small amounts of money for talented staff, no matter where those staffers might come from.

So while there’s undoubtedly a lot of upside to the message that ProPublica is sending with its payscale — that journalism is a high-value proposition, well worth paying serious money for — it’s worth being alive to the downside, as well — the message that journalism is an elitist profession, inaccessible to most Americans. Especially when the fact is that, even today, both of those messages are true.

Update: ProPublica’s Dick Tofel responds in the comments:

We’ve actually made it a point at ProPublica not to have unpaid internships, precisely to level the playing field between children of privilege and those who need to work for a living. Our research indicates that what we pay is the prevailing wage for such jobs (I wonder what Reuters pays interns?). And note that our interns don’t receive benefits. By the way, using 11 year old data for income seems funny for a business journalist. More recent figures indicate that median household income in New York in 2007 was almost $49,000, and New Yorkers in their 20’s were reported by the New York Times to make a median of $33,000 in 2005.


Excellent story.
Virtually no one examines Propublica or its spending.
-Why does it spend $623,394 this year on rent, for example?
-Why does the Knight Foundation give Propublica grants when a) Paul Steiger is on the Knight Foundation board and b) Alberto Ibarguen of Knight is on the Propublica Board? Does the conflict not exist if they are in the journalism business?
-Does Propublica ever do stories on Herb Sandler?

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Esquire’s investment advice

Felix Salmon
Feb 10, 2010 17:50 UTC

Courtney Comstock is absolutely right when she runs a story under the headline “You Know It’s Over When Esquire Magazine Is Telling Its Readers How To Invest In Gold Funds”. In a spectacularly silly article, Esquire’s Ken Kurson extolls the virtues of buying gold-denominated hedge funds, on the grounds that if the hedge fund doubles and gold doubles, then you’ll end up quadrupling your money! Genius.

But to appreciate the fuller expression of Kurson’s genius, it’s worth flicking through his archives. There’s the 2006 article where he says that everybody should invest in credit default swaps, specifically by buying stock in a company called GFI Group:

A few days after its January 2005 IPO, I bought a few hundred GFI shares (GFIG on Nasdaq) for just under 26, and I have since added a couple thousand, picking up more each time the stock dips below 50. (I should mention that GFI’s CEO, Mickey Gooch, has become a friend of mine.) In addition to my belief that this stock could very well become a tenbagger within ten years, there’s something very appealing about investing not just in a company but in a whole new industry.

Today, GFI Group is trading at $4.43 per share. Yes, that’s in the wake of a 4-for-1 stock split, but it’s still well below its IPO price, and Kurson, if he didn’t sell at the top of the market, is now sitting on substantial losses. Of course, that’s the problem with 99% of investment advice, not just Kurson’s: these people are very happy to tell you what to buy and when to buy it (now), but never tell you when you should exit your position.

Kurson also reckoned that the automakers were a screaming buy in 2005, saying that “GM is moving with stunning speed to address what ails its business, and that “the United States government will not allow Ford or General Motors to default on its debt”. How did that trade work out for you, Ken?

But if Kurson is not very good at telling you what to buy, maybe he’s good at telling you what to sell. Let’s see:

An investor should short as many shares of Apple as he can possibly borrow…

I’m short a bunch of AAPL at $65.

Oh well, never mind.

So when Kurson says that “$20,000 will barely buy in five years what $10,000 buys today”, it’s worth reading that in the context of his past predictions. And maybe staying away from the gold-denominated Superfund.


Hi, just wanted to say I attended this conference last year, and found it by far the best of about 8 conferences that I attended in the field. Full of professional insight based on testing by experts that knew what they were talking about. I would certainly go again and recommend it to anyone operating in this field.
electronic cigarette

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When pension funds shun OTC derivatives

Felix Salmon
Feb 10, 2010 13:50 UTC

Has Illinois’s Kevin Joyce been reading Andrew Clavell? There’s something quite elegant in its simplicity about this:

Illinois is considering a bill to avoid derivatives abuse by public pension funds, Pensions & Investments reports. The bill, which is under discussion at the Illinois House Rules Committee, will restrict the state’s public pension funds from investments that trade derivatives in non-public markets.

In reality, it’s not the pension funds which are engaging in “derivatives abuse”, but rather the investment bankers who sell the pension funds complex over-the-counter derivatives which make the broker lots of money and which rarely do any good for the end client. As Clavell says,

Let’s assume you work at a Pennsylvania school board, or a Swiss private bank, an Australian life insurance company, a German corporate treasury, a UK Pension administrator or any one of thousands of other buyside entities, supposedly with sufficient expertise that an investment bank can classify you as a non-retail customer.

The more complex the structured product, the more opportunity for agents to extract fees at your expense…

Admitting you don’t know is pure alpha; you will not claim to have any edge and this may put you off involvement in the product. If you claim you do know where the fees are, banks want you as a customer. You don’t know. Really, you don’t. Hang on, I hear you shouting that you’re actually smarter than that, so you do know. Read carefully: Listen. Buster. You. Don’t. Know.

The really elegant part of this bill is that it allows investments in traded derivatives, and therefore gives the sell-side an incentive to find tradable alternatives to their beloved OTC derivatives. If a large chunk of the buy-side adopts this kind of policy, we could achieve by market forces the move to derivatives exchanges which is proving so hard to legislate.


There’s another situation where derivatives can work well. The end user gives the specs, and places the big investment banks in competition against one another to provide it.

I’ve done that for clients. I works well, but you have to be willing to do the intellectual work, rather than sitting back and letting the investment banks trick you with their latest product.

It goes back to my saying, “Buy what you want or need, don’t buy what someone wants to sell you.”

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Felix Salmon
Feb 10, 2010 01:06 UTC

Pakistani ambassador rejected because his name is NSFW in Arabic — FP

David Warsh on Haiti — Economic Principals

Using a computer to analyze drawings to see if they might be fake — NPR

Could losing its AAA be a good thing for the US? — Bloomberg

What is a bank? — The Deal

Revamping Goldman’s board

Felix Salmon
Feb 10, 2010 00:53 UTC

In all the bellyaching about the governance of the biggest banks, and the fact that their boards were spectacularly unqualified to provide any kind of oversight of what they were doing, Goldman Sachs has gone largely unmentioned. But what’s true of Merrill Lynch and Bank of America is true of Goldman too: its executives need some kind of adult supervision, seeing as how they work for their shareholders, rather than just for themselves.

Yet this interview with one Goldman board member, Ruth Simmons, hardly instills in me the confidence that she can or will understand what Goldman is doing, stop them from acting in a reckless manner, or keep a close eye on compensation as she wears her hat as a member of the compensation committee:

Simmons said she originally joined Goldman’s board at the recommendation of Smith’s Board of Trustees around the time that she started a center for financial literacy on campus.

“We had a big push to think about how we could improve the knowledge and ability of women to manage their financial affairs,” she said. “At the same time, there was a good deal of interest in the fact that women have not done so well in the financial sector and on Wall Street.”

Simmons has moved on from Smith, and is now the president of Brown University. But of all the reasons to join the Goldman Sachs board of directors, improving the ability of women to manage their financial affairs has got to be one of the worst: that’s simply not something that Goldman board members do. Instead, they’re meant to represent Goldman’s shareholders and oversee Goldman’s management.

But rather than bring any kind of financial or economic expertise to bear on her job, it seems that Simmons was happy to simply sit back and receive the gift of wisdom in such matters from the Squid:

Simmons said her service on Goldman’s board gave her the economic savvy to take certain risks that she might not have taken otherwise, such as the introduction of need-blind admissions.

This seems to me to be both an admission that she was lacking in economic savvy when she joined the board, and an admission that being on the Goldman board made her more prone to taking financial and economic risks than she was before. Is this really the kind of person that Goldman’s shareholders want representing their interests as an overseer of management?

There’s no indication in the interview that Simmons takes her fiduciary responsibilities to Goldman’s shareholders particularly seriously; instead, there’s a great deal of talk about the effect of the directorship on her and on Brown, not to mention a fair amount of standard-issue ass-covering:

“There are lots of things in a complex institution that go on,” she said. “You’re not in charge of everything that your friends do and every policy that organizations that you’re affiliated with issue.”

It seems to me that the days when Goldman Sachs could fill its board with these standard corporate board types — the college president, the management consultant, the business-school professor, even the long-time chairman and CEO of Fannie Mae — have surely come to an end. It’s made a stab at beginning to reform its compensation practices, and I’m quite sure that’s entirely a decision of management rather than of the compensation committee. Next up, it should get to work on the board, appointing people who will look hard at managerial business decisions, and won’t allow themselves to be snowed by Lloyd. Indeed, he should welcome the extra set of eyes and a few tough questions: it’s good, in his position, to be forced to know what you’re doing and be on your toes.


To the prior commentator – I’m not sure that emerging from the crash with it’s assets intact qualifies as good financial management. Saying, “My business model allows us to generate substantial profits, so long as the government steps in to take up the duties of our counterparties and then exits their positions at a substantial taxpayer loss,” may work, but it’s not the thing which management genius is built upon.

I’ve never bought the Goldman line that they had adequately insured themselves against the crash without government involvement. A world in which the government didn’t stabilize financial institutions is not a world where AIG pays out. Goldman’s unwillingness to admit at much is naked contempt bordering on idiocy.

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When Germany bails out Greece

Felix Salmon
Feb 9, 2010 22:52 UTC

Faisal Islam does a great job explaining the problems facing Greece, and why Germany is likely to come up with some kind of bailout:

This so-called ‘ouzo crisis’ has emerged from a witches’ brew of concern about 1 Greece’s shaky political economy, including dodgy statistics and historic default record, 2 the short term nature of Greece’s debts and 3 the fact that a large proportion of its creditors are easily-spooked foreign investors…

It would be a total humiliation if this problem could not be sorted out within the single currency area. Besides, what will the IMF tell Greece to do with its currency, which is controlled by the ECB in Frankfurt? So the IMF is not going to happen.

So all along we have been waiting for the point at which the possible systemic damage, the contagion to the other countries would be so acute, that Germany and France would step in. We are here now.

Will Greece be giving up fiscal independence in return for bailout funds or German guarantees? I’m sure it’ll agree to stringent conditions, while claiming that it would have kept to such a plan in any case. The question is what happens when — inevitably — it ends up breaking its fiscal promises, or trying to play silly games to get around them. What will Germany be able to do, in that case, to snap Greece back into line? And do the Germans really want to play the role of Europe’s fiscal disciplinarian in any event?

It probably doesn’t matter: Greece is the Bear Stearns of Europe, seemingly too big to be allowed to falter or default, and therefore it must be bailed out somehow. Of course this sets an important precedent for when Spain and/or Italy find themselves in a similar situation — and it’s likely to make countries like Latvia feel a bit miffed, seeing how much fiscal pain they’ve inflicted on themselves with no bailout to show for it at all. The hazard here is that countries, seeing the Greek precedent, refuse to take tough fiscal steps unless the path is sweetened by Germany and France. This isn’t the end of the euro crisis: it’s only the beginning.


“Greece is the Bear Stearns of Europe, seemingly too big to be allowed to falter or default, and therefore it must be bailed out somehow.”

Ah, Bear Stearns wasn’t bailed out. Nice one. Haha!

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FT.com’s price hike

Felix Salmon
Feb 9, 2010 19:51 UTC

What’s happened to the FT’s online subscription rates? Leigh Caldwell was paying £6.12 per month last December, but then his debit card expired, he lost his FT.com access, and he went back to the site to renew. When he got there, he found that the renewal rate he was offered was more than double what he was paying before: £12.98 per month, for “premium” access.

Since Leigh doesn’t need premium access, he tried to see how much a regular non-premium subscription would cost — and found that it was even more, at £17.50 per month. And the rack rate for the premium online subscription is now £25.99 per month — that’s over $40 a month, or $486 a year. That’s a very large sum to spend on a website subscription.

Given that there doesn’t seem to be a cheaper option, Leigh’s going for the £12.98 deal, at least for the time being; it does at least have the advantage of being only half what other people are being charged. At $20 per month, it’s not an excessive price for a business product. But it does seem as though the FT is orchestrating things so that as many subscribers as possible end up getting the “premium” product — which nominally costs more, but doesn’t always do so in reality. That’s a great way of making people think that they’re getting something really valuable by having access to the Lex column, without depriving Lex of the readers it wants and needs.


I think you could probably maintain a separate blog about the bizarre behavior of the FT’s online policies. Last year they put on a promotion for university students that allowed me a year’s worth of premium online content in exchange for becoming a “fan” of FT on facebook. Of course, when the year’s worth of free content was up and I was faced with the prospect of shelling out around $100 per year on top of my $200 yearly print subscription, I decided to take my web-news needs elsewhere. I would be interested to see how many print subscribers actually pay the additional fee for the online subscription.

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