The Employment Report

This isn't a very good employment report. Here are three views of the report, starting with Dean Baker, plus links to more discussion at the end:

Economy Sheds Jobs, Unemployment Stable, by Dean Baker, CEPR: "For the first time since data has been kept, manufacturing is less than 10 percent of employment." 

The establishment survey showed the economy losing 17,000 jobs in January, the first reported job decline since August of 2003. Over the last three months, the economy has added a total of 125,000 jobs, with the private sector adding just 99,000 jobs. The household survey showed little change in the unemployment rate, although it rounded down to 4.9 percent for January compared to 5.0 percent in December.

The job loss in the establishment survey was driven by losses of 28,000 jobs in manufacturing, 27,000 jobs in construction and 26,000 state government education jobs. The latter is likely due to a faulty seasonal adjustment and will probably be reversed in future months, but the declining employment in construction and manufacturing is very real.

Residential construction has lost 189,300 jobs since July, 5.8 percent of employment in the sector. Employment in the non-residential sector has also been drifting downward in the last three months, indicating that the boom in this sector is over. ...

There were few sectors showing notable job gains in January. The two exceptions were health care and restaurants. The health care sector added 27,100 jobs, while the restaurant sector added 14,800 jobs. Over the last three months, these two sectors together have added 130,100 jobs, an amount equal to 131.4 percent of the job growth in the private sector as a whole.

The data in the household survey largely reinforce the picture of a weak labor market. There was little change in unemployment rates for most demographic groups, although the January data indicate that a reported jump in December in the unemployment rate for black teens was not a fluke. The January data show a black teen unemployment rate of 35.7 percent. This is up from a 27.9 percent rate reported for October.

The number of people involuntarily working part-time rose again, hitting the highest level since October of 2004. The average and median duration of employment spells both increased, as did the percentage of the long-term unemployed. The number of discouraged workers also showed a year over year increase, continuing the recent pattern.

By age, employment growth continues to be heavily skewed toward older workers, with people over age 65 showing an employment gain of 287,000 jobs, while employment dropped by 250,000 for other age groups. ...

This employment report should be sufficient to remove any doubt that the economy is in very serious trouble and most likely has already entered a downturn. In addition to the loss of jobs, there was also a reported decline of 0.1 hours in the average workweek, leading to a decline of 0.3 in the index of aggregate weekly hours. The decline in hours worked, which showed up most clearly in non-durable manufacturing, suggest that more layoffs are on the way. In addition, wage growth has slowed to crawl, averaging just 2.3 percent over the last quarter. This is well below the rate of inflation.

It is also important to remember that the birth/death imputation is likely overstating the number of jobs created in new firms. The revision for last year lowered total employment by 376,000 or 31,000 per month. It is likely that the current data will be revised downward by a comparable amount. In short, the picture is probably even worse than the data now show.

Paul Krugman:

The insignificance of zero, by Paul Krugman: So the new labor report is out, and it says that nonfarm payrolls actually fell last month. On the other hand, employment growth for December was revised up. You shouldn’t take any of this seriously. For one thing, seasonality is a big problem. There’s normally an employment bulge in December, as stores and others bulk up for the holiday, then a slump in January as they let the extra workers go. The BLS tries to adjust for these seasonal patterns, but because the pattern is always changing, it’s an imperfect process. A better guide is probably to average the last 2 or 3 months. What you get then is that employment is still growing, but v-e-r-y s-l-o-w-l-y. In particular, employment growth is well short of what’s necessary to keep up with population growth. So even though it’s premature to say that jobs are shrinking, as a practical matter this makes no difference: the truth is that the jobs picture looks moderately dire.

The WSJ Economics Blog:

One Weird Employment Report , by Greg Ip and Kelly Evans: Today’s jobs data were a melting pot of fascinating and conflicting signals on the labor market.

Of course, the 17,000 drop in nonfarm payroll employment is the most eye-catching aspect. The weakness in the payroll survey was corroborated by a decline in the average work week, to 33.7 hours from 33.8 in December, and a slowing in hourly wage gains, to 0.2% from 0.4%.

But the separate household survey showed a whopping increase in employment of 635,000, when new updated population controls are applied to both the December and January data. ...

In December, just the opposite occurred: nonfarm payrolls rose a respectable 82,000, upwardly revised from the initial estimate of just 18,000. But that month, household employment plunged 436,000.

The household survey’s signal of strength was ratified by the unemployment rate, which dropped to 4.93% from 4.98%. The employment to population ratio jumped to 62.9% from 62.7%. These ratios are more reliable than the absolute numbers for employment and unemployment which are whipped around by the small sample size; they suggests a marginal improvement in the labor force.

It would be easier to draw conclusions if other data were pointing universally in one direction or another. But they’re not. Unemployment claims pointed to strength during January, until the last week, when they pointed to sudden weakness. The ADP payroll report pointed to remarkable strength. But regional purchasing manager surveys pointed to weakness. (We’ll get a broader look with the national ISM index due out at 10 a.m.)

Meanwhile, revisions to the payroll survey continue to make the report difficult to read. The Labor Department revised up their estimate of December job creation by 64,000 jobs to 82,000 and revised down their November estimate by almost half, to just 60,000 jobs created that month. And there were a whole slew of so-called “benchmark” revisions showing the total seasonally-adjusted level of nonfarm employment in December 2007 was 376,000 lower than first thought...

Plus, this isn’t the first time the government has reported a negative monthly number. Their initial estimate of August job creation, released in early September, saw overall employment drop by 4,000 jobs. Coming as it did on the heels of the August credit crunch, the Wall Street Journal reported that “The jobs report stoked fears of recession, sending shockwaves through financial markets.”

That number was subsequently revised to show a gain of 89,000 for the month of August.

Fast-forward to today, and it’s clear the labor market is softening. But it’s also clear the monthly jobs data should be taken with a grain of salt.

Also: Barry Ritholtz (here too), Michael Carliner, William Polley, Andrew Samwick, Calculated Risk, CBPP, Spencer, Brad DeLong, and pgl.

Comments

[pgl]

Something tells me that Lawrence Kudlow is going to use the WSJ statement about the huge increase in the household survey over the past couple of months but not admit that the employment to population ratio is still far below its 12/2006 level.

[Winslow R.]

August 2007 initially also showed a decline in jobs. Yes, growth in the U.S. is weak though I'm not convinced as weak as .6 GDP 4th quarter suggests, which will likely be revised upwards to above 2.8%?

Krugman is right, things are slow but isn't this just what Bernanke wants? Slow but not stalled?

The whole debate right now is whether the Fed can bring a sufficient slow down to lower inflation without destroying the financial system in the process.

The 'mainstream view', correct me if I'm wrong, has inflation coming from wage gains among foreign workers in developing countries as they gobble up a larger share of commodities (which use to go to U.S. workers) faster than a larger share can be brought online.

Given the monetary has dispersed risk across the global financial system, tightening U.S. credit with its attendant losses is hitting the global economy fairly broadly, perhaps even in China and Japan.

I've claimed the transmission mechanism is broken and needs to be fixed as the risks/rewards created by inverting the yield curve are too concentrated and lead to wealth consolidation during good times and government bailouts during bad times.

As long as mainstream economists find SWF's, tax rebates, and government bailouts as acceptable parts of 'their monetary mechanism', finding the political will to truly repair the monetary mechanism, will not be found.

An egalitarian monetary mechanism is within our grasp. Let people be treated equally until they show that they should be treated otherwise.

[Winslow R.]

More explicitly, forget the $1000 tax rebate.

Instead give every U.S. citizen access to Fed funds up to $1000 at the current Fed funds rate (3%) or even better $10,000 and let the game (played on a level playing field) begin.

[calmo]

At this point (somewhat idealist) Winslow and I (somewhat realistic... skeptical, cynical) share different worlds: An egalitarian monetary mechanism is within our grasp. Maybe I need to wash my hands and take out the magnifying glass to confirm that I am not part of that "our"...but a part of the "grasped"...near the throat too.
My hands are more powerful than I suspect...(here comes another one to smack me in the face.)[I can wake up to Winslow, but only after a severe beating, you know?]
Last cynical ting: I need the idealists, when all the jaded business is said and done. I shall now walk upon the water. [Be ready with towels should I manage to return.]

[anne]

Supposedly creating 82,000 jobs in December is respectable, but this is not respectable when part of a pattern. About 110,000 jobs a month were created in 2007, which is much below a minimum 150,000 jobs needed to keep up with potential labor force growth, and more below the 160,000 jobs created over the finest 52 months of George Bush's Presidency and hugely below the 225,000 jobs created each month during all of Bill Clinton's Presidency.

The recovery from the recession was slow in gathering and never did gather the strength that might have been expected. The likelihood from here is for months of little job creation, and little wage or benefit gain.

[Winslow R.]

Calmo if you noticed, I'm not asking for 'mainstream' economists to give U.S. citizens a break (too idealistic?) by allowing them access to fed funds at a lower rate than banks. I'm sure many would wig out at the thought the U.S. citizen would be treated better than the average banker in their obviously broken monetary theories.

No, I'm just asking they be treated equally.

[kthomas]

"...employment growth continues to be heavily skewed toward older workers, with people over age 65 showing an employment gain of 287,000 jobs, while employment dropped by 250,000 for other age groups. ..."

What does this mean? I found this to be the most unnerving point.

Foolish me says more folks in this upper age bracket are finding it harder to retire, which at 65, I certainly expect to do.

[Jay]

Leave it to Anne to cover for Krugman on one of the few times PK restrains himself from spreading the Post hoc ergo propter hoc drivel, simply comparing jobs numbers across decades and assuming all other things held equal.

I'm not sure what world Anne and PK live in, but in mine its not nearly that simple, lending such comparisons as virtually meaningless.

[ken melvin]

kthomas, WalMart likes to hire them as greeters because they work cheap and since they don't need health insurance.

[kthomas]

"....simply comparing jobs numbers across decades and assuming all other things held equal...lending such comparisons as virtually meaningless."

Virtually, but not completely. Jay, anne and PK are academics, and heavy-weights on top of. Try not to get too upset when presented with analysis you simply don't agree with. We all live in the same world.

[ac]

Anne, after revisions, only 95,000 were created and that is poor, clearly a economy on a downtrend ala 89 or 2000 without the boom peaks to provide comfort.

It is a matter of when, not if over the next several quarters. Anything could do it. Final consumer capitulation,major budget cuts(Bush will be out of office, I can see a deal where he ok's major spending cuts in defense, matter of fact, I have heard it is coming), business spending tanking ete ete ete. Maybe all 3 happen by 09 creating a severe recession.

[calmo]

I think that is a creepy detail of the stats too kt: retirement age foggies stealinfinding jobs that the other age groups scoff at miss. Now that the illegal aliens are heading south, dangitall if the boomers don't come out and take those lower paying jobs that only they (with their paid off mortgages) can afford to take.
Sorta.
I hear you Winslow ["did I notice?"...hope so...but did you feel the full impact of your remarks about (un)equal power distribution?...I'm here to exhibit those wounds..], and so eloquent too: No, I'm just asking they [bankers and bankees] be treated equally. And I'm Just Asking (not begging or groveling in any way...yet) if this has the same sound to it as Lord Chamberlain asking (for our forgiveness...afterall, wasn't he an exemplary gentleman who did his best?)?
I like your ideological skewer though, just wish I wasn't so beyond fencing.
I see pgl plugging the Employ/Pop ratio in preference to either the Payroll of Household tallies. I can't get warmed up to that one either: the porous border does me in. What about a cast of those newly created jobs and what they pay? Do we have a record of high end jobs created for those emerging/returning boomers or a ballooning of the lower service jobs as some of those boomers need daycare?
Is this everyone's picture of our "growing economy" economic future: geriatric care...or just the self-centered boomer view?
Krugman, the best of these views about the stats, for me, you?

[anne]

AC:

"Anne, after revisions, only 95,000 * were created and that is poor, clearly a economy on a downtrend ala 1989 or 2000 without the boom peaks to provide comfort."

Intersting comment. We need to be aware of the absence of cushion and the destruction of peculiarly middle class assets in housing.

Now that there is time, I will look to the complete revisions.

[anne]

When I compare employment gains through this Adminsitration and last, the point is not to be politically tendentious but to show the marked difference that I do not know how to properly account for. Though I wish fiscal policy had been different, I do not understand why growth has been relatively tepid through this recovery. I am only counting the recovery from August 2003 in showing the problem which appears to be a relatyive absence of domestic private investment even in the midst of always near record or record profits.

There is no political praise or criticism implied, just a puzzle.

[anne]

There has been no problem in America attracting savings from abroad, especially in attracting savings from developing countries which is most interesting. Capital flowing here has been markedly stable, but likely limited in investment channels in avoiding anticipated frictions.

Where then is domestic investment? I have been thinking for some time that we may need specific government investment subsidies, since private savings even when amply available are not being used as hoped and expected and. Even where American energy investment should be ample, Joseph Stiglitz noticed early on that such investment was less than expected. Energy company executives would justify lack of investment by telling of a lack of certainty higher prices and profits would be sustained, but this was and is nonsense.

[spencer]

"For the first time since data has been kept, manufacturing is less than 10 percent of employment."

Let me use this headline to push something that should be important to all of us, and that is our data collection systems. One of the greatest casualties of the "starve the beast" politics has been the US data collection system. Real budgets in all the data collection agencies have been falling for a quarter century. Despite the hard work of the highly qualified individuals that work in these agencies our data collection system continues to deteriorate. You often can get detailed data on some of the old industrial industries while huge parts of the modern services and technology are barely reported on.

The fundamental political problem is that there are no vested interest group creating political pressure to modernize and improve the data collection system. If economist like us that depend on the data collected by the various statistical agencies do not pressure our representatives and senators to expand the data budgets, no one else is going to do the job.

Contact your political representatives and your professional organizations to create pressure to improve the data collection system. If you don't, the system is going to continue to deteriorate.

[anne]

Rather than praise or criticism of economic policy, we need to understand why a low long-term interest rate, low personal and corporate taxes, high government military spending, deficit increasing economy has not grown faster and why employment gains have not been stronger.

Set this non-politically, and we can gripe later.

[anne]

AC, shows us properly that after revisions we find monthly job creation at 95,000 through 2007 rather than 110,000 as I had recorded and would have hoped.

The recovery problem from here becomes more complex when thinking of the past recovery weakness of investment and labor gain both in terms of job creation and wage and benefit gains. We have to seriously consider whether a policy of corporate investment subsidy is necessary, or is the issue simply need for development of infrastructure?

[calmo]

money leaving town
for emerging markets
(GM exemplary)
high tech job glut in the late nineties
transitioning to that other field
of questionably productive employment
(but of course, not remuneration):
real estate agencing.

My take: tepid (and over-rated at that) overall economic growth due to the sacking of the economy by the financials and the oil companies...now in full view a complicit government that prides itself on...none of that "over-reaching", the governing. [The R in Winslow has left its mark, I see.] Those who think they have finally clambered onto the Middle Class Train are about to find out that it is backing up or sliding back...
possibly starting the famously forecast Wreckage
usually associated with trains...
despite those rails and all that engineering...
but do I care now that Winslow's R is on my back?
Hell no...this is the fast lane, and I like it.]

[paine]

jay

crappo quid schmoe
ergo prostate quid blow me

what is it with you right wing lunks
and
all this nerdy
queensbury rules of debate and logic

spit it out in basic gut thibk

sweet and sour reason
may have ....may ..have
deeper causations
then understanding can "map "
with its often purblind
formal logic

--------

anne writes

" from August 2003 ...relative absence
of domestic private investment
even in the midst
of always near record
or record profits."

why is this a puzzle ???

so macro wise
they pass the cash
and we turn to shylocking

[paine]

spencer spencer
you are music to my ears

"The fundamental political problem is that there are no vested interest group creating political pressure to modernize and improve the data collection system"

a travesty look at this idiotic are we or aren't we

i can imagine if we had real time numbers here
that said net jobs are running negative ...
the job force is shrinking
even the repugs would be forced in a political season
to revamp the unemployment systems 3 month cliff edge
right now
not later when we're in too deep
like this summer and the public
is really starting
to feel the squeeze
and dems could point back to now
and
say
"t'were the repugs done this to ya pokes
we knew back in january ..we tried to get action but ..."

[paine]

call it
three monkey data collection

[paine]

"a policy of corporate investment subsidy "

why not just build public stuff

and make local automated production pay for itself
ie dump the dollar to the dungeon

we need to become self producing again
not to bring back
those good old union hig wage and benefit operative jobs
hell
these plants ought to be automatic..nearly

nope not for on going low skill high pay jobs
but for the cad reduction and economic security

if we want to up wages we need to go to real full employment
i mean on average 1.5 % of potential job force
as net "still lookin's "

and say
70% participation rates

[paine]

to hell with pub schoolin
beyond age 3 to 14 after that
give our people jobs
and skill aquisition loans

once a cuff hits 15...
the whole rest of the poor souls
short harsh and bitter lifetime
ougha be filled with education
not just 15-21

but it won't
it'll be filled
with adams brow sweat
and k's anxiety

[paine]

calmo thumb nails the immediate past

"money leaving town
for emerging markets
(GM exemplary)
high tech job glut in the late nineties
transitioning to that other field
of questionably productive employment
(but of course, not remuneration):
real estate agencing."

great shit man great shit

anne hey anne
like the man here sez....

[anne]

Ah, Paine, I completely agree in principle, but wonder what is politically viability. Beyond wondering, investment subsidies can easily be self-defeating as we even now need to carefuuly watch in terms of ethanol subsidy.

[2slugbaits]

So are there still folks out there who doubt that the economy needs some kind of stimulus, whether it be monetary or fiscal?

[Patricia Shannon]

There were few sectors showing notable job gains in January. The two exceptions were health care and restaurants. The health care sector added 27,100 jobs, while the restaurant sector added 14,800 jobs.
...
The number of people involuntarily working part-time rose again, hitting the highest level since October of 2004.
...
By age, employment growth continues to be heavily skewed toward older workers, with people over age 65 showing an employment gain of 287,000 jobs, while employment dropped by 250,000 for other age groups.

the last verse of my song "Waffle House Blues" is:
Copyright 2004 Patricia M. Shannon

They say we have to be flexible,
changing times are inevitable;
they don't tell us the end of our careers
will be at Waffle House in our senior years.

[calmo]

As always spencer, thanks for joining us...but I must say, given your proximity to the data (close, folks, close) and my reliance on your eyes nose to sort it allout, I am more than crestfallen to hear that note that data collection budgets have deteriorated not just during this administration (which I always believed) but for the past 25 years.
So do you recognize this in any way?...trusting the rigor of the 80s sheets?...adding huge variances to any results for the past 8 years?
Twould be good to know that there is some reality behind the numbers, yes? Tell me some story about how the numbers although not so robust now, are legion, --a contagion of them now and due to the wonders of disintermediation computational sophistication, many weak numbers can coalesce to provide real solid ice cubes melt in your mouth satisfying results.

[dissent]

Well perhaps I am an ignoramus but it seems perfectly obvious to me why labor force growth has been below par: low wages overseas.

Blue collar work goes to China, white collar to India, with spare change sprinkled over other locations. 3 large computer companies (IBM, HP, Intel, I think though I am not sure) added 150K jobs in India over the last 5 years, while their job force in the USA stagnates or declines. For VC, start ups need a business plan that includes outsourcing of engineering and other work. Over 3 million manufacturing jobs lost in the last 5 years.

There's been a lot of hand waving over the last five years about how this was all going to work out. (I seem to recall hand waving about low volatility, high liquidity, etc as well.) Now we see, in my opinion, that it is not going to work out. Big surprise all around I'm sure.

The problem is that the sectors where American wages are *not* under pressure are sectors that are not exposed to globalization, not tradeable, e.g. health care services. But we seem to have reached the end of the road in terms of an expanding trade deficit. We need tradeable goods and services. I don't see where they are going to come from, without a dollar crash.

[anne]

No; the data simply do not allow for such an answer. I do not understand the problem, but I know neither trade nor immigration is more than a marginal answer.

[anne]

We can easily be misled by what is superficial:

http://krugman.blogs.nytimes.com/2008/02/01/importing-chinese-inflation/

February 1, 2008

Importing Chinese Inflation?
By Paul Krugman

This piece * in the New York Times on how China's inflation affects U.S. consumers is interesting. But I think some perspective is called for.

Yes, there are an awful lot of Chinese products in the store, especially if the store is Wal-Mart. But much of the store price represents US costs — transportation, warehousing, store operations, etc.. So a rise of, say 10% in Chinese prices would produce a rise of much less than 10% in the prices consumers pay. And remember, the great majority of US spending, even now, is NOT on stuff made in China.

In fact, overall, the US spends a little more than 2 percent of GDP on Chinese goods. That's dramatically more than in the past. But it suggests that if Chinese prices rise 10%, the overall cost of living here would rise by less than a quarter of a percent. Every little bit hurts, but this isn't as big a deal as a casual reading of this article might lead you to think.

* http://www.nytimes.com/2008/02/01/business/worldbusiness/01inflate.html

[calmo]

Give your dear readers a chance dissent..Well perhaps I am an ignoramus We are all not masochists...so don't train us (now that we have just gotten the hang of bein sadistic, feeling the joys of denouncing any little feeble looking character string that passes our way...) [like this] for some remedial work that won't be half the fun...as deciding whether you are a cryptomaniac or modest, self effacing, polite to a fault, a masochist in need of a lashing! Yippee! demure.
Right.
And right about every last little detail down to the dollar crash, I make it.
Ok, maybe that was too agreeable: But we seem to have reached the end of the road in terms of an expanding trade deficit. So few winged economists leaning on the admin's side pointing out this "good news", yes? Could it be only a temporary glitch: the ski jump ramp up before that exhilarating descent? The cheaper dollar appears to have had this short term effect, but was it that or a drop in import materials following the bust in housing/commercial construction or?
JDH at econobrowser has this nifty bar graph:
http://www.econbrowser.com/archives/2008/01/weak_gdp_report.html#comments
Imports (counting negatively) were up and exports were down, which for this last quarter, is back to the larger trend, no?

[paine]

anne
" I do not understand the problem, but I know neither trade nor immigration is more than a marginal answer."
do you mean to say
you don't fully understand
the problem of slow job growth
or the problem of slow unskilled wage rate growth
but surely you must feel you understand
the problem----which ever it is ----
enough to know
trade ain't a big factor

hmmmm

watch it anne
i may go for jay's logic axe

[paine]

anne lets split the difference

you know i'm for high immigration
and know macro can give us full employment and a larger wage share in value added
but
come on

de industrialization
is wacking high wage unskilled jobs
that we can not replace

to try the magic trick
morph won't cut it

"now you old discarded
skill free bastards
will wake up with
employable
skills
and you too you guys in the back
that drop kicked school
to play it kool "

[paine]

anne
its not about china bashing
despite the racist buuu-cannon clique out cry

litmus test
here immigration
the buus are agin that too

but for anyone with a lady liberty complex like me
its about real inside america
good industrial job bashing
for pure trade based super profits

[dissent]

anne, forgive me if I misunderstand you, but it seems to me you are arguing that Krugman's point about Chinese inflation - that Chinese products are not predominant enough in the American economy to drive American inflation - applies to the labor market. That is, that Chinese labor doesn't displace American labor because of the small size of the Chinese impact on the American economy. But the market for goods and the market for labor are distinct. I think what Krugman says about inflation has no implications positive or negative about the labor market.

Krugman makes this point in December :
link http://www.nytimes.com/2007/12/28/opinion/28krugman.html?_r=1&oref=slogin

In fact, it’s hard to avoid the conclusion that growing U.S. trade with third world countries reduces the real wages of many and perhaps most workers in this country. And that reality makes the politics of trade very difficult.

Let’s talk for a moment about the economics.

Trade between high-wage countries tends to be a modest win for all, or almost all, concerned. When a free-trade pact made it possible to integrate the U.S. and Canadian auto industries in the 1960s, each country’s industry concentrated on producing a narrower range of products at larger scale. The result was an all-round, broadly shared rise in productivity and wages.

By contrast, trade between countries at very different levels of economic development tends to create large classes of losers as well as winners.

Although the outsourcing of some high-tech jobs to India has made headlines, on balance, highly educated workers in the United States benefit from higher wages and expanded job opportunities because of trade. For example, ThinkPad notebook computers are now made by a Chinese company, Lenovo, but a lot of Lenovo’s research and development is conducted in North Carolina.

But workers with less formal education either see their jobs shipped overseas or find their wages driven down by the ripple effect as other workers with similar qualifications crowd into their industries and look for employment to replace the jobs they lost to foreign competition. And lower prices at Wal-Mart aren’t sufficient compensation.

All this is textbook international economics: contrary to what people sometimes assert, economic theory says that free trade normally makes a country richer, but it doesn’t say that it’s normally good for everyone. Still, when the effects of third-world exports on U.S. wages first became an issue in the 1990s, a number of economists — myself included — looked at the data and concluded that any negative effects on U.S. wages were modest.

The trouble now is that these effects may no longer be as modest as they were, because imports of manufactured goods from the third world have grown dramatically — from just 2.5 percent of G.D.P. in 1990 to 6 percent in 2006.

And the biggest growth in imports has come from countries with very low wages. The original “newly industrializing economies” exporting manufactured goods — South Korea, Taiwan, Hong Kong and Singapore — paid wages that were about 25 percent of U.S. levels in 1990. Since then, however, the sources of our imports have shifted to Mexico, where wages are only 11 percent of the U.S. level, and China, where they’re only about 3 percent or 4 percent.

There are some qualifying aspects to this story. For example, many of those made-in-China goods contain components made in Japan and other high-wage economies. Still, there’s little doubt that the pressure of globalization on American wages has increased.

It seems to me it's easier to extend Krugman's point about wages - depressed by globalization - to work force growth, also (I am saying) probably depressed by globalization, then to do what you did: argue that because Chinese inflation is a small factor, our labor market must not be impacted by trade.

[EE]

"Jay, anne and PK are academics, and heavy-weights on top of."

Well, then who better to comment on the competitive economy than those who do not participate in the competition?

[2slugbaits]

dissent,

Krugman is not being entirely clear about what he actually wrote in the 1990s. What he said was that most of the problems with job growth were attributable to things other than globalization. I still think that general thesis is true. I assume that his latest comments are really just a revision to what he wrote in the 90s rather than a reversal. But even using the revised data it is hard to see how low wages explain all that much. Imports from low wage countries rise from 2.5% of GDP to 6% of GDP...or from very small to simply small. And oh by the way, those wages from low wage countries are higher today then they were in 1990, so the net effect on US workers would not be proportional. And Krugman was only talking about manufacturing, as though manufacturing were the only thing low skill US workers can do.

Is globalization a bigger factor today in depressing low skill wages than it was in 1990? Yes. Is it the primary reason why low skill wages are declinng? No. Can politicians reverse globalization? No. Can politicians do other things that would help improve job prospects for low skill workers? Yes.

[Lafayette]

Back to the drawing boards

dissent: Blue collar work goes to China, white collar to India, with spare change sprinkled over other locations. 3 large computer companies (IBM, HP, Intel, I think though I am not sure) added 150K jobs in India over the last 5 years, while their job force in the USA stagnates or declines.

You know, you're right. Those facts are correct.

Consider also these following facts. I can remember another time decades ago when the dollar was so damn cheap in Europe, some of my customers were buying our computers wholesale direct from the US. If they bought the same computer in Europe, it would have been manufactures/assembled here, thereby costing 40% more.

I don't recall that anybody complained that American jobs were being created at the cost of European employment. It was a customer's right to buy the computer from the cheaper source. We didn't complain to them either. Neither did we shut them out, which would have been stupid.

We got off our backsides and thought up a solution. We realized that the margin on Software Services was 7 times that of a computer. So, we started creating/selling Software Services to our customer base. Customers finally bought both HW and SS from us, because in complex systems it was better and cheaper to manage only one procurement process than multiple processes. And, the dollar eventually recovered.

There is nothing we can do about companies dislocating skilled work to either China or India. So, let's go back to the drawing board and think up a solution. Hey, how about educating everybody OUT of un- and semi-skilled jobs? Or, educating them OUT of jobs that no longer can be performed in the US?

Why not show young adults that being a plumber/carpenter (or number of craft professions) is perhaps a far more secure future than being a white-collar programmer. Why not make kids understand that they don't have to be Golden Boys/Girls to earn enough money to have a decent life?

[hari]

Lafayette - how true!

Germany - the law demands employers to retrain unemployed workers in order to offer them better employment...

It's the german unions, stupid, who got gov to recognize it had a responsibility to re-train redundant labour...under a collective agreemnt.

If only labour unions could reassert themselves and regain their negotiating rights for the labouring class, I'd think better times may once again rebound from top down..
in good old usa.

Optimist, of course!

[bob]

>> I'm not sure what world Anne and PK live in,

PK lives in the world of Princeton.

You might have heard of it.

One of the top schools in the world.

I don't know where you live but i doubt you have better info than Krugman and i doubt you have a better intellect to analyze that info.

[bob]

Long Term Unemployment Skyrockets

http://money.cnn.com/2008/02/01/news/economy/
longterm_unemployment/index.htm?postversion=2008020209

From the article -

The number of long-term unemployed stood at a seasonally-adjusted 1.4 million in January, up about 21% from year-earlier levels and up 3% from the previous month.

[dissent]

"We got off our backsides and thought up a solution. "

I think there is no solution when the low wage labor is this cheap.

I have read that the international economy was able to 'digest' the rise of Japan and South Korea because the wage differential was less - the 'low' wages were 20% of American wages.

Now it is more like 2-3%. Bye bye jobs. Bye bye prosperity. Bye bye globalization? democracy? We will see.

[Lafayette]

Hari: If only labour unions could reassert themselves and regain their negotiating rights for the labouring class, I'd think better times may once again rebound from top down ... in good old usa.

Yes, as I bore myself saying, for as long as unions maintain the US versus THEM mentality, they remain part of the problem (costs) and not part of the solution (profits).

They should set their sights on the latter, even if it means abandoning somewhat the former. Negotiate a sharing of the Profit Pie and settle for a decent but not competition-destroying wage. [For this to work, they must be given access to the Board, or they will never have the oversight to assure that the profits are "as stated" and not "as manipulated".]

Why not? Because unions have traditionally avoided any risk-taking whatsoever. Well, that luxury is in the past if they want to maintain an acceptable standard of living.

Still, Hari, Germany is one of the countries were the law stipulates that the Board must relegate at least a few chairs for Labour.

Why has this not worked out in Labour's favor?

[Lafayette]

Cuz it aint gonna happin

dissent: I think there is no solution when the low wage labor is this cheap. Bye bye jobs. Bye bye prosperity.

Why lament the inescapable? If the sun rises in the East, wanting it to rise in the West will get one nowhere.

We should have started years ago a Crash Program to Enhance Work-force Skills. This means assuring, truly, that No Child Was Left Behind in either primary or secondary education. Meaning putting in the Special Attention that some students require (both as Teacher Aids and psychological) uniformly and nationally -- whatever the cots.

Beyond secondary education, make sure no one was unable to take trade school training or obtain college/university education. This means close pre-job Career Advice and Programmed Training. It also entails Human Capital Investment in our youth by Government (to cover tuition and boarding costs) at State Schools - predicated upon the assumption that they are enrolled, assiduously attend classes and pass courses. Or, their schooling costs are not fully reimbursed.

Cap all that off with summer courses that people are obliged to take as paid vacations (and the government reimburses the company) once every 3 or 5 years to maintain skill levels. It would be just like going in to see a Doctor for a medical check-up, but called a Skills-level Check-up.

If this is done, then in the future our children will not be faced by this circumstance: That they have worked for 10/15 years, had their job dislocated, are unemployed, with a mortgage hanging like an albatross around their neck, and no alternative opportunity on the horizon. Because their skill-set is no longer either up-to-date or in demand.

When we saw first-hand the menace from al-Qaida the signals from the public to the government were strong enough to get the thumbs pulled out of its backside. Why are we like sheep about the menace from globalization? Because it is more subtle, with every year of chronic Current Account deficits that rise ineluctably?

Wishing the menace away is futile, cuz it aint gonna happin.

[Real Person from the Real World]

blowing off white collar jobs, and saying we should educate for blue collar jobs is not the answer. Just like US dependence on Oil from Opec dominated countries, if you give up areas of your economy you will be vulnerable. We need to start pushing strong basic education, and languages (Chinese and Hindi and Arabic), and send our techies out to the global economy. Right now, our companies take a free ride on the subsidized education systems, national medical care, and training of other companies outside the US. We need to reverse engineer that ....train interns in Tech, get them in jobs overseas, get our own house in order (universal medical care, subsidized education, less financial "innovation" and reasonable regulation).

[dissent]

Lafayette, your untested hypothesis here is that the problem of low wages overseas eliminating American jobs will be solved by educating American workers. Where is your data?

Computer science education has been hammered precisely because there is no solution, other than abandoning the field.

I am not happy that believers in the ideologies of globalization and free markets have led our economy off a cliff.

The other absurdity here is that those who advocate for training and education and whatnot do not acknowledge that they are advocating a radical shift from the American 'you are on your own' philosophy for workers that is deeply entrenched now, precisely because of the triumph of the free market ideology.

Not only have you led our society over an economic cliff, you've destroyed a large chunk of the social cohesiveness and policies that help individuals deal with setbacks. We are much, much, much less able to deal with these problems now, after decades of deregulation and soaring health and tuition costs, than we were in the 70's.

Excuse me if I don't find your platitudes about how to deal with these problems particularly soothing.

[Lafayette]

Cuz it's gettin' late ...

dissent: Lafayette, your untested hypothesis here is that the problem of low wages overseas eliminating American jobs will be solved by educating American workers. Where is your data?

What makes you think data is necessary?

It is obvious that as you go up the skills ladder, you compete with an altogether different structure of competition.

Popping out Tupperware in some sweltering Georgia plant is still going to cost more than in China? So, why fight it? Rather, let Tupperware go to China. Train people in marketing so that Tupperware can expand its market in the US and elsewhere. It's has brand recognition, so exploit it. That's an example of what I mean.

Computer science education has been hammered precisely because there is no solution, other than abandoning the field.

This is simply not true. I have enough experience in the business to know that Software Solutions have two varieties, (1) Off the shelf (for people who want to bend their organizations to boilerplate solutions) and (2) purpose-built solutions that bend themselves to business processes. The former you find being built in India, the latter you have to build intimately with the customer.

deeply entrenched now, precisely because of the triumph of the free market ideology.

Yeah, right. Like a drug habit is "deeply entrenched"?

How long is it going to take for lead-heads to understand that the "free market" does not work all the time and everywhere? How much longer will it take for that lesson to sink into thick skulls that genuflect religiously at the alter of "free markets"?

Cuz it's gettin' late ...

[cm]

Lafayette: What you are recommending (besides marketing), "custom products", is just services in a particular guise.

In fact, custom software was the norm before a switch to off-the-shelf because of better economies of scale, and as off-the-shelf has an outsourcing aspect.

Of course, off-the-shelf software makers have recognized that (at least in "mature" markets) the money does not come from competing commodity products, but from service tie-ins (maintenance contracts, customization, business process implementation, etc.)

What you are recommending is basically going towards a service model, where demand for labor is created/sustained by removing economies of scale, and thus productivity.

But at the end of the day, you have to produce something, and retain some measure of productivity.

To some extent it will become a question in what organizational form the same number of people does the "custom" work -- internal developers, hired contractors, or vendor consultants "partnering" with the client.

All three categories can be outsourced/offshored to roughly the same extent. I don't see where the job creation will come from.

[Lafayette]

From Brawn to Brains

cm: What you are recommending is basically going towards a service model, where demand for labor is created/sustained by removing economies of scale, and thus productivity.

Thank you. I could not have said it better myself.

Except that you are wrong about "removing economies of scale and productivity". Productivity is simply output-value (corrected for inflation) per hour worked -- regardless of the nature of the output. As for economies of scale, it is my experience that the more complex projects that an organization manages, the more efficient it gets at managing them. (Whether you train 100 or 1000 people in a Service Methodology, the cost is rarely 10 to 1 -- more like half that.)

But at the end of the day, you have to produce something, and retain some measure of productivity.

Spot on. And that something is not a product, but a service. In fact, in the plethora of services we called each a Service Product in a set of Service Products. And, the organization that did this work was called Services Production.

Regardless of the nomenclature employed, the consequence is that people are employed. But, in order to do so, they no longer work at manual labor, which remains at the bottom of the hierarchy of un- and semi-skilled work.

Or, as others would have it ... the transition from Brawn to Brains.

Witless Wannabes

Finally, that cannot happen for as long as kids grow up thinking, like their parents, that just get through High School and you'll find a job somewhere, dummy. Flipping hamburgers at the minimum wage is not my idea of a "gainful employment". It's more like "gain less".

Children are being born of children. This means parents do not have the intellectual wherewithal to properly orient their kids. So, the state should do the job for them. And, install the discipline to do educate correctly. (Enough of this "be all ya wannabe", that generated a nation of Witless Wannabes.)

In an economy so fragile as America, where Health Care is largely a matter of Private Enterprise At Its Worst, anybody who gets really, truly sick finds themselves soon enough in a coffin.

[The testimonies are legendary of many a doctor who could not prescribe a necessary operation, because it was deemed "too expensive" by the insurer, and which resulted in death of the patient.]

[cm]

Lafayette: You did not explain where all the new hiring is going to come from. Where is all the new demand for workers?

Today we have off-the-shelf (plus some services or "partnering") software, and a number of IT troops (and/or subject-matter consultants) customizing and administering it at/for the client. This seems to work (more or less), and there is evidence to suggest that many an IT project is actually discretionary, judging by the many failures and delays being apparently inconsequential to the business, and businesses taking their sweet time to hire the workers that are so "difficult to find".

Just saying that new markets for "high level service" workers will open is not cutting it. We have heard that before.

[Lafayette]

cm: You did not explain where all the new hiring is going to come from. Where is all the new demand for workers?

Well, for one thing, your fixating on the IT industry. If it has too much talent, I'd say some people have to leave it. But, frankly, I doubt that is the case.

I.T. is at the tail end of a Business Cycle. Many companies installed far too much IT in the 1990s. With the downturn after the dot.com bust in 2000, everybody retrenched and diminished IT expenditures. This happened as well in Europe.

Then, they discovered that India could do a pretty good job at off-the-shelf garden-variety IT building blocks. Not innovative, purpose-built stuff, but good enough to do the odd-job. And, Bangalore took large bites out of what was left of the IT available market.

But, watch, when the economy points its nose upwards reasonably well for 5 consecutive quarters, overall IT spending will sprout again.

My point (about training/education) was intended for Human Capital investments to improve overall economic performance. If there are too many people in IT, for instance, they should retrain for other sectors. We MUST be flexible.

Either that or they remain unemployed, sit at home banging away their frustrations on a blog. BFD, that.

[cm]

Lafayette: In other sectors of the economy/job market, doesn't it look roughly the same? Many employers seek only "highly qualified" candidates or multi-talents, reject sufficiently but maybe not supremely qualified individuals, and take their sweet time filling positions.

This tells me that whatever the small-scale details, those jobs or their projects are either discretionary, or there are enough workers to handle the current work load, perhaps with some overtime or off the clock effort (where the latter applies).

I don't see any evidence for substantial demand in unfilled (and to start with BUDGETED!) positions that people should "retrain" for.

[Lafayette]

The Nexus of World Trade & Commerce

cm: In other sectors of the economy/job market, doesn't it look roughly the same? Many employers seek only "highly qualified" candidates or multi-talents, reject sufficiently but maybe not supremely qualified individuals, and take their sweet time filling positions.

As a manager, I might do the very same. Present economic conditions do not warrant hiring pell-mell; so if one can, one picks the best at a slower cadence.

The Labor Market is just like any other - it is one of Supply & Demand. The advantage is, for the moment, on the Demand side. I can remember being told by recruiters that we had to meet/better the "going rate". Now, the shoe is on the other foot and companies are dictating that rate.

This is normal in a business cycle tending towards its nadir. Beyond economic policy to reduce the impact of the oncoming recession, I don't see that there is much that we can do about it in the near term. Except to make sure that, over time, the qualifications that people have are the best possibly obtainable.

Our Secondary Schools are turning out graduates with mediocre results. The OECD PISA Study tells that sad story. We can do better -- in terms of Social Capital for Education/Training -- and we should.

A third of all Americans have university degrees and this is the highest ratio in the developed world - a truly Great Achievement. Still, this is not a laurel to sit on and do nothing. Unless we want our workforce skill-set to be matched at increasingly higher levels of ability.

I don't see much of a future for anyone who is un- or even semi-skilled in this century, which was a luxury that developed nations could afford in the last one. The paradigm has changed. (Excuse that tired phrase.)

There's more competition for the generated wealth pie and the US is no longer the nexus of World Trade & Commerce.

[cm]

Lafayette: Not to dispute what you are saying, but my point was rather that (as far as I can see) employers end up hiring average material and not necessarily the (elusive?) "best and brightest" (but turn out doing well enough with it), and often in a "let's see who comes along" waiting mode and refusing to even make traditional hiring efforts under that pretension.

At the same time we are seeing public and private infrastructure crumble. But you are right, we are probably in the part of the economic/social cycle where previously installed capital (physical and human) is only "milked" but not renewed.

Do you think in the post-WW2 boom the US had vastly better qualified workers? I have my doubts. The society of those days was merely willing and able to use the available "material" better.

The (rhetorical) question I have is, will there be (chance for) a next cycle of social and infrastructure renewal, or has this here been it for the "West" (and particularly the US), for some time to come, and we are in a secular downtrend, slow-paced or crash.

[Lafayette]

cm: Do you think in the post-WW2 boom the US had vastly better qualified workers? I have my doubts.

As it were, cm, I happen to think that such was the case.

The war advanced several technologies significantly and the spin-off in others was also a highly positive benefit contributing to economic growth.

I don't believe a simple ratio explains productivity. But, for instance, the desire to calculate accurately ballistic trajectories for military purposes during WW2 led to the computer, which lead to a major change in Industrial Efficiency and products/services enhancing our life-style.

[Lafayette]

Grown its own legs

WR: Given the monetary has dispersed risk across the global financial system, tightening U.S. credit with its attendant losses is hitting the global economy fairly broadly, perhaps even in China and Japan.

This is, indeed, the Conventional Wisdom. The stock market, which LOVES conventional wisdom, is reacting accordingly.

But, I wonder. This time around, China is in a far stronger position due to a nascent Internal Demand. Yes, exports are what run the Chinese economy, but if they drop by 10 or 15% to the US, will that really, truly hurt the Chinese economy?

Somehow, I don't think so. Not any longer. The Chinese economy finally has grown its own legs.