Are Workers Unwilling to Work?

Inventory to Sales Ratio

I am going to go out on a limb and assume this is the result of unintended inventory accumulation rather than, say, firms building up inventories in anticipation of an economic boom that is just around the corner. If so, then this is not a good omen for labor demand.

Why is the word demand highlighted? The graph is mostly an excuse to note this from Brad Delong:

Casey Mulligan says--wait for it--that the reason that unemployment is the 7% it is right now rather than the 4.4% it was two years ago because workers today face "financial incentives that encourage them not to work":

Are Employers Unwilling to Hire, or Are Some Workers Unwilling to Work?: Employment has been falling over the past year... if total hours worked had continued the upward trend they had been on in the years before the recession, they would be 4.7 percent higher than they are now.... [Today s]ome employees face financial incentives that encourage them not to work.... [T]he decreased employment is explained more by reductions in the supply of labor (the willingness of people to work) and less by the demand for labor (the number of workers that employers need to hire)...

pgl adds:

Believe it or not this explanation made it in print:

Because productivity has been rising ... the decreased employment is explained more by reductions in the supply of labor (the willingness of people to work) and less by the demand for labor (the number of workers that employers need to hire).

As pgl notes, Casey Mulligan doesn't tell us why labor supply suddenly shifted inward, he promises that will be divulged later, but he does have a solution to the unemployment problem. He calls for--wait for it--tax cuts:

Why would some people have fewer incentives to take a job in 2008 than they did in 2006 and 2007 (and employers fewer incentives to create jobs)? I will tackle that question in my next post, but even without a specific answer we learn a lot about today’s recession from the conclusion that labor supply – not labor demand – should be blamed. First of all, it suggests that a fundamental solution to the recession would encourage labor supply (perhaps cutting personal income tax rates, so people can keep more of their wages), rather than tinker with demand.

Tax cuts could also work by increasing the demand for goods and services and hence the demand for labor, but this is a supply-side explanation where workers refuse to work at the wages being offered to them and decide to stay home instead, so that is not the mechanism he has in mind.

Dean Baker isn't buying the labor supply explanation. As he notes, a key component of this explanation is the claim by Mulligan that, "Unlike in the severe recessions of the 1930s and early 1980s, productivity has been rising." But why has productivity been rising relative to previous recessions? Dean Baker explains:

The one piece of data that drives this story is the apparent strength of productivity growth in this downturn relative to prior ones. But, there is a real simple story that can explain this pattern.

If we assume that in prior downturns firms were reluctant to lay off workers, both because of union contracts and also because they recognized the cost of turnover and hiring new workers, then we would expect sharp downturns in productivity growth as soon as there is a downturn in demand.

Now, imagine that firms are not constrained by union contracts and don't worry about long-term costs, so that they quickly layoff workers when there is a falloff in demand. Voila! productivity does not fall off in the same way in this downturn.

That would be my story. We can try to do some more careful examination of declines in productivity sector by sector, but I suspect that this is what explains the difference in productivity patterns across downturns.

Whatever the explanation - and productivity is not easy to measure so the relationships in the data can be questioned - I find it highly implausible that worker's unwillingness to accept the jobs being offered to them is the source of the current employment problem.

Comments

says...

The average productivity obviously rises whenever the lowest productivity workers are laid off, i.e. in a recession.

[Chris Wood]

I find it hard to believe that an increase in the NRU (workers unwilling to work) is the reason for the slump. Starvation, House Forclosure, and Health Care costs are not usually closely related to "incentives" for people to not take jobs.

-----------------

A horrible minimum wage for many jobs might be a much better reason for people to take other financial alternatives. It is not overly hard to make 20k a year off of Ebay, which is more than the $5/hour part time job at the diner would provide.

[Noni Mausa]

...some employees face financial incentives that encourage them not to work....

Like what? A boom in food stamp production?

I can see this phrase from Mulligan is code for something else, but I've been puzzling over this since this morning, and can't figure it out.

Noni

[PCLE]

According to Alex Field's AER article in 2003, MFP did increase significantly in the 1930s, and he partly attributes it to fiscal policy:
"By his calculation, there was a "compound annual average growth rate of private domestic economy MFP of 2.27 percent per year between 1929 and 1941. In contrast, MFP grows at 1.51 percent per year between 1941 and 1948."

In the remainder of the paper, Field outlines strategies for explaining the high rate of multifactor productivity growth in the 1930s. He attributes significant parts to the development of public infrastructure, the timing of key scientific innovations, and specific sectoral developments in, for example, chemicals, communications, electrical machinery, structural engineering, and aviation. And part he ascribes to "serendipity"—the confluence of these developments during an otherwise bleak economic decade.

[PCLE]

Noni Mausa: I believe he is talking about mortgage modifications as the incentive not to work. See his blog for more detail

[mrrunangun]

CM's theory may apply to laid-off investment bankers who have made a pile and can retire on it while the rest of us pay to clean up the mess. Not so to laid off construction laborers and tradesmen or manufacturing workers. Maybe he is from Manhattan.

[bakho]

By DEFINITION, unemployment does NOT include those people who are NOT looking for work.

Unemployment: The percentage of the total labor force that is unemployed but actively seeking employment and willing to work.

Either he does not know the definition of unemployment or he is making a bad argument.

Poor communications? Ignorance? Dishonesty? Your choice.

says...

Is he seriously arguing that workers' anticipation of mortgage writedowns is causing them to stay home en masse?

If so, wow. Just wow.

[S Brennan]

ARE ECONOMISTS TRAINED TO LIE TO JUSTIFY STILL MORE TAX CUTS?

More cow dung from University of Chicago Economics Dept.

"Because productivity has been rising — almost as much as the Douglas formula predicts — the decreased employment is explained more by reductions in the supply of labor (the willingness of people to work) and less by the demand for labor (the number of workers that employers need to hire)."

A far more likely explanation for "Workers Unwilling to Work?" would come from people with recent experience with reality.

1] Highly trained workers, of which we have far more of in 2008 as compared to 1981*, have resumes that reflect this experience and employers do not want to hire somebody who has much better options available. Economists should consider how many workers, as a percentage of population, we have today that are computer literate compared to 1981. Americans were told to retrain and large number of them did just that. Unfortunately for workers, since employers had spent nothing on this training, they thought nothing of shipping technical jobs overseas.

2] Additionally, these educated workers are far more likely and ABLE to complain to authorities when the employer of low wage workers routinely breaks employment law and so are not welcome because they are not easily subjugated as their poorly educated fellows.

These two facts, combined with transportation costs alone can make some jobs counter productive to perform, i.e. it cost more to work than it does to stay home which relates to the reality that inflation adjusted minimum wage is far lower than in 1981 and will no longer keep you housed, clothed, fed with medical in a conventional manner.

it would be a far better if right wing economist skipped employing CDO math*** and the (mystical incentive force to be described later shtick.) and just come out and admit that they advocate federal inaction that is compliant with failing 3rd world countries and more tax cuts please for purely ideological reasons.

* the last time we saw conditions this bad

**Inflation adjusted Minimum wage

http://oregonstate.edu/instruct/anth484/minwage.html

***copyright applied for

[bakho]

For reasons not spoken aloud, there are a lot of conservatives that are against public infrastructure, period. Any argument (honest or not) that they can make against public infrastructure will be tossed out to see what sticks. Public infrastructure (in the long run) represents a larger transfer of wealth from wealthy private individuals to the "public". It is the transfer of wealth that scares them the most and they will fight hard to prevent. However, wealth transfer is what ends big recessions.

[Richard H. Serlin]

It's interesting to note on your graph that inventory levels have been trending down since the early 90s. This is largely due to improvements in inventory management and technology which allow firms to keep less inventory on hand, lowering their costs. An example of this is so-called just-in-time inventory management, a big topic when I was in MBA school in the mid-90s.

[bakho]

The aggregate ISRATIO is not as telling as the sub categories.
Auto inventories/sales have a 30% increase year to year with furniture and building materials between 5 and 10%. This reflects the adverse effect of high gas prices on auto sales and the collapse of the housing boom affecting materials and furnishings.

Jake has a nice graph

http://econompicdata.blogspot.com/2008/12/inventory-to-sales-ratio-on-rise.html

BLS which Mulligan should put on his reading list has this to say:
Mass Layoffs (Monthly)

December 19, 2008
In November, employers took 2,328 mass layoff actions involving a total of 224,079 workers. The number of events increased by 188 from the prior month, while the number of associated initial claims decreased by 8,389. Manufacturing had its fourth consecutive over-the-month increase in events and initial claims.

In case Mulligan doesn't know, layoffs are NOT voluntary although sometimes companies will buy out contracts if there is a union involved.

[ken melvin]

Was this guy ever right about anything?

[Bill Jefferys]

>CDO math***

>***copyright applied for

Probably better to apply for a trademark...

Anyway, though I am an astronomer and not an economist, the quoted article seemed totally looney.

[Too Much Fed]

How about somebody cuts this idiot's (and that is being generous) salary to $8 per hour with no benefits, and maybe he will stop being an economist and drop out of the labor force!?!?!

[carping demon]

bakho @ 4:28

The truly wealthy people I have known have not seemed to be "scared" of wealth transfer, but rather disgusted by it.

[RW]

It appears it is possible for a recognized authority in Economics to misrepresent or even lie in the process of attempting to influence public opinion and policy and, as long as academic productivity in their speciality is maintained, pay no professional price for the transgression; non-academic opinion pieces from individuals such as Mulligan, Mankiw and others being a growing set of cases in point.

All social sciences (whether they confess to this or not)) are intrinsically oriented to changing society as well as describing it but, regardless, many economists seem to believe they are developing a science, a discipline oriented to what the world is rather than what specific individuals wish it to be.

As long as it possible for a recognized member of the discipline to misrepresent accepted facts or theory and remain in good standing within the discipline then a science is simply out of reach; the sine qua non of science is not rigor alone, integrity must exist also (e.g, http://tinyurl.com/5hs3tw). This is not a matter of "physics envy" in any narrow sense, it is an assertion that failure to be honest, any misrepresentation of fact or theory with reference to the discipline in any public venue (not simply the academic), must have negative professional as well as public consequences.

[annony-mouse]

I haven't run across much discussion of the effect of millions of undocumented workers/illegal aliens on labor market statistics. Many of these people have lost jobs in construction. Decreasing remittances to our southern neighbors have gotten some attention in the press -- the decreases are apparently large -- but how does this factor affect the US labor market and official labor statistics?

This factor, combined with the JIT industrial practices cited in Mr. Serlin's comment above, are enough to raise lots of questions regarding comparisons of labor statistics in this downturn v previous ones.

Also I think this crisis is really bringing our disfunctional health care system front and center. The only reason I can imagine that someone would choose not to work: they believe if their kids get sick, they would be better off no-income than low-income. Or maybe they have chronic/pre-existing health problems?

Rising productivity seems likely to be explained by the point [blank] made about lowest productivity workers being laid off first, plus squeezing more out of those who fear they could be cut loose at any moment. Once these factors flatten, declining median incomes and the rising cost of financing post-secondary education will not encourage much productivity growth.

[GAT Mac]

When a group of people offers a single policy solution (i.e. tax cuts) for every conceivable problem, you have to believe you are being sold snake oil.

[Patrick]

OMG, you couldn't make this stuff up. I don't know if I should laugh or cry.

[JSmith]

"I find it highly implausible that worker's unwillingness to accept the jobs being offered to them is the source of the current employment problem."

Wow..., spoken like an engineer as opposed to a physicist.

Maybe economists should focus more on being like engineers than physicists.

Engineering is a MUCH sloppier, messier, more ad hoc, and a more practical discipline than physics, sort of like what economics could be.

Some economic problems seem to be like turbulence. Neither the physicists nor the engineers fully understand the details of how turbulence works, however, the engineers manage to make do with what they can figure out about the phenomenon and design practical solutions to practical problems.

[Bruce Wilder]

What Krugman has artfully labelled, niggling nabobs of negativism, or the spate of often idiotic arguments against a massive fiscal stimulus or in favor of taxcuts, may serve many conceivable, useful purposes for authors and their once and future patrons.

Just as frauds like Madoff have to keep a second set of books, I suppose the welfare queens of right-wing think-tank land have to keep current, their bona fides, their willingness to humiliate themselves shamelessly in order to pollute the public discourse.

In ordinary moral understanding, as well as in the eyes of the law "intention" is often a key element in fixing responsibility and guilt. Did she "intend" to kill her husband? Did she plan the crime? Was it a case of malice or passion or reckless disregard for the foreseeable consequences?

What's the "intention" behind Professor Mulligan's speculations? Should we care? Why are we even discussing Mulligan's "ideas" if we have no idea what motivates his uncritical presentation of apparent nonsense? Do we have no more standards than he?

I find that if I insist on assigning knowing intention to some of the more obvious idiocies of the Right, I am accused of being conspiracy-minded.

What do we make of the conduct of the Right, not just recently, but over the course of eight years or 25 years? When David Stockman, Reagan's budget director, was telling lies in order to enact Reagan's budget deficits, he felt guilty. Did any of the nominal advocates of fiscal responsibility feel guilt over advocating Bush's tax cuts, Bush's budget deficits?

Andrew Samwick says "we" are responsible for our own mistakes: "The U.S. government, on behalf of U.S. citizens, decided to run budget deficits during a fiscal expansion. U.S. consumers decided to use their lower tax burden during the last eight years to spend rather than save. No one else can be held responsible for those decisions." No mention of political party, though, for our Dartmouth professor, who, in his spare time, advocates that "U.S. citizens" throw their Social Security trust fund into that same black hole.

[Bruce Wilder]

Among my favorite "niggling nabobs" is Tyler Cowen, who, dutifully made a nonsensical argument recently that "the science" isn't there to support a fiscal stimulus, or something. Brad DeLong made fun of him, if anyone cares. It was pretty easy to tell that he wasn't trying very hard, but still felt obligated to say something in favor more tax cuts and against public investment, even if it would be non-sensical.

Should we count it against him that he's always been a bit of an airhead? In June 2006, he was doing a very brief blog mention of Jacob Hacker's Great Risk Shift, when he opined, grandly: "Marginal Revolution: The Great Risk Shift: "I am also dismayed that the author cites a U.S. savings rate of zero, overstates the risk of housing investments (if all homes exogenously became very cheap even homeowners are better off), and . . . There is not enough discussion of asset values and new possibilities for consumption smoothing."

Back in November 2004, Tyler asked, "Is economic Armageddon coming?: "The most likely outcome: We will limp along with a government that refuses to accept fiscal responsibility. A ruling political party will not raise taxes and/or cut spending until the last possible moment. It will always look toward the problem falling in someone else's lap. In the meantime, the wealth of the world, and the benefits of investing in the U.S., will bail us out. (Didn't Winston Churchill once say "The Americans always do the right thing, once they have exhausted all other options", or something to that effect?)

A few decades from now the crunch will come, as growing Medicare and Social Security liabilities are matched against low levels of accumulated savings. We will have Western European levels of taxation and growth for a good twenty years or more, unless we get lucky with productivity growth in the meantime. The costs will be very real, but economic Armageddon does not appear to lie around the corner."

Notice, just like Andrew Samwick in my comment above, Tyler engages in strategic partisan dis-identification. "A ruling political party" is not the Republican Party. That the previous Democratic President had closed the deficit to surplus, and Al Gore, the Democratic Presidential candidate in 2000, had run on "lockboxes" -- that disappears behind a generic disdain for partisan politics.

[Bruce Wilder]

It is not necessary to sound like an idiot, or to be an idiot.

Just to set a standard, I'd suggest looking back at an archival month of say, Calculated Risk: February 2005. I'd suggest just surveying the whole month, to get a flavor of topic choice, as well as the seriousness of analysis.

On Feb 24, we find: "It wouldn't take a RE bust to impact the general economy. Just a slowdown in both volume (to impact employment) and in prices (to slow down borrowing) might push the general economy into recession. An actual bust, especially with all of the extensive sub-prime lending, might cause a serious problem."

[Bruce Wilder]

In February 2008, we have Alex Tabarrok: Was there a Housing Bubble?: "The conventional wisdom is that there was a housing bubble which has now popped. The data, however, tell a different story."

Compare Calculated Risk in February 2005 with Alex T in February 2008. Sober tone. Lots of graphs. What is wrong with this picture?

[Bruce Wilder]

One last oldie, but goodie: "Not (Yet) a 'Minsky Moment'"

That would be Charles W. Calomiris, the Henry Kaufman professor of financial institutions at Columbia's business school and an AEI fellow. Obviously, from the article, Charlie feels that the AEI gig is the one he wishes to squander his reputation retaining. But, then Glenn Hubbard is Dean at Columbia, so who knows?

Yves Smith provided a contemporary blow-by-blow deconstruction of the hackery, but, of course, subsequent events have done so much more than Smith could. But, Smith is worth looking at, if only to reinforce the point that it isn't just well-intended mis-prognostication. It is hackery.

[Noni Mausa]

RW, excellent point about professional, academic accountability. I.e., there should be some outside the ivied walls.

bakho said: ...there are a lot of conservatives that are against public infrastructure, period...

Which tells me they are really really stupid.

I have worked as a storyteller, specializing in the more savage of the western European tales, like The Almond Tree, Hansel and Gretel, the original Red Riding Hood (much scarier than the one we usually think of), etc. In most of these stories there will be a child, or poor person, living on the desperate edge of starvation, while their parents or ruling class dig into the larks tongues and cream cakes.

These tales, we must remember, are cautionary, not prescriptive, and should be taught in all economics classes.

Look, let's assume we have a thoroughly selfish cadre of conservatives / business people, who view Americans living on the flatlands of the L-curve as expendable, interchangeable spare parts* for the machinery of the economy -- and that machinery exists to maintain their own dwellings on the foothills, slopes and peaks of the One-percent Mountains.

It is public infrastructure that makes the flatlands productive. In the fairy tales, outside of the towns and fortified castles there's a lot of nothing. Highwaymen and bandits roam the woods, old people live in isolated cottages making lace or charcoal for sale in town, children are stolen every day by people who do not wish them well.

In this world the kingdoms are small and widely spaced -- so much so that a royal princess can be thrown out of her father's house, wander three days in the woods, and arrive at another kingdom where no-one recognizes her. How far can you wander in three days in unfamiliar woods? Probably not as much as 20 miles, I should think.

What's missing in these stories? Lots of things we consider as givens -- police, courts, public roads, water supplies, manufacturing plants, distribution networks. When old Bess the lacemaker falls on hard times, there's no doctor or social workers for her, she just dies of hunger or gets eaten by a wolf, and her tiny contribution of lace to the economy vanishes.

What is a society without public infrastructure? POOR. Poor and slow and ignorant, inefficient and unreliable, prone to epidemics and subject to invasions -- and deadly dull, to boot. (Let's go out for a night of dancing, I hear the krumhorn players have come to town again this year!)

When the economic flatlands are starved, even the peaks are low and vulnerable. Even if the very wealthy think of the proles as dispensable, like cattle out on the range, they should know that their ranch can't prosper if the cattle aren't healthy.

Go get out your Grimm's fairy tales and ignore the princes and the magic geese -- read them for the background and what it can tell you about poor societies. Go see what's missing.

Noni

* "Interchangeable spare parts" -- I had an office manager once tell me a metaphor about job loss in our workplace. He said, "Put your hand in a bucket of water. When you remove your hand, the water is still complete." He meant (I guess) when staff are laid off the workplace would be just the same only smaller. He meant this story to make me feel better.

I SHOULD have asked him why he didn't have a bucket full of hands for his little illustration. --NM

[Blissex]

Bruce Wilder has let rip a list of Serious Economists who always support right thinking Real Americans who are WINNERS and policies who reward them. And supporting WINNERS and speaking for policies that benefit them is what makes Serious Economists like those he mentions to become WINNERS themselves and to be well rewarded.

But in one respect his argument is deeply flawed

«Andrew Samwick says "we" are responsible for our own mistakes: "The U.S. government, on behalf of U.S. citizens, decided to run budget deficits during a fiscal expansion. U.S. consumers decided to use their lower tax burden during the last eight years to spend rather than save. No one else can be held responsible for those decisions." No mention of political party, though, for our Dartmouth professor,»

As to this, even if "we" don't like to be reminded of it, "we" are responsible for all that. When adult citizens vote, they are solely responsible for their vote, except for cases of outright fraud. In the case of the past 10-15 years, there has been no fraud: when voters resoundingly endorsed the re-election of GWB, they had to be aware that they were resoundingly endorsing torture, spying on citizens, foreign invasions, bubble economics, runaway deficits, tax cuts for the wealthy. And if they weren't they must have been grossly negligent.

In a competitive, adversarial party system, voters are given every opportunity to figure out things. Either that, or democracy is a sham, and that is a ridiculous conclusion.

[john wycliffe]

Blissex: but if one party consistently, repeatedly, and shamelessly lies about their intentions and motiviation, and if a lapdog press corps owned by large corporations repeats these lies as if they were true, can one truly hold the electorate responsible for their misinformed voting?

[anne]

Bruce Wilder:

Notice, just like Andrew Samwick in my comment above, Tyler engages in strategic partisan dis-identification. "A ruling political party" is not the Republican Party. That the previous Democratic President had closed the deficit to surplus, and Al Gore, the Democratic Presidential candidate in 2000, had run on "lockboxes" -- that disappears behind a generic disdain for partisan politics.

[Right.]

[bakho]

Bruce and Noni make very good points.

Some prominent economists are making arguments that are poorly supported by evidence.
Why?
We really need to ask for evidence for why anyone should believe them.

[cm]

Richard H. Serlin: Inventory management is meanwhile so efficient that empty shelves are no longer a rare sight.

[Bruce Wilder]

My point, earlier, in this thread, to my mind, wasn't so much about attacking one or another conservative point of view, it was a complaint about hackery. Hackery is a refusal to accept reason as compelling, or even necessary. Method is disregarded; facts are malleable by imagination alone. If there is consistency, it is the consistency of religious faith in constant apology for its tenets. But, the objective is never to get right with reality; it is just to do a job, however dirty, without any concern for producing something of value.

[Real Person from the Real World]

"Graphs" and "facts" can suggest many things. While DeLong may like to read the facts/graph as suggesting workers don't want to work, maybe employers are too picky and want to cherry pick employees? Plenty of HR don't want to hear that you need a job to pay bills, but expect to hear about your passion for this one and only job you are tailor made for, and will remain in, despite the inducements of better pay elsewhere. Sometimes someone who comes from better pay/better job experience is rejected for that reason. Even a libertarian understands the rational choice of leaving one job for another better paid one. The problem is partially created by HR. In IT they often have little understanding of what a manager wants. They tend to be gate keepers who often keep out some of the best people.

[Chuleton]

I recently learned a phrase in Spanish: "No la hagas de pedo." "La hagas" sounds like "lagos:-- "lakes"-- and "pedo" means "fart," so I was very confused when I heard it for the first time. What about a lake of farts? But it actually means, "Whatever you're about to say, don't fart it out." So a hearty "no la hagas de pedo" to the entire remaining right wing economics brain trust.

Too bad we didn't invest the Social Security surplus in subprime mortgages...

[Blissex]

«and if a lapdog press corps owned by large corporations repeats these lies as if they were true, can one truly hold the electorate responsible for their misinformed voting?»

But that's not outright fraud, it is just marketing. Anyhow in some cases there is plenty of clarity. In 2004 the lapdog press has made plenty clear, and proudly so, what kind of product voters for the re-election of GWB were buying: there was no deception, GWB was not running on a platform of respect of civil right, rejection of torture, sound countercyclical economics, a lower tax burden for losers, open government.

«lies about their intentions and motivation»

Try to argue that by re-electing GWB voters got deceived as to what they were voting for, after four years of plenty of clarity on that subject. Most voters did vote for torture ("it's only for some worthless brown skinned subhumans"), for spying on citizens ("they will come for someone else"), for bubble economics and endless deficits ("as long as my 401k and my house go up, f*ck everybody else"), for lower taxes for the rich ("I am gonna be rich myself"), for cutting their own social insurance ("when I am gonna be rich, scr*w all the dark skinned losers").

The bigger strategic problems are that the political marketing of the "haves and have-mores" is so much better and that anyhow it resonates with an increasingly "I got mine" class of older, richer, rentier-style boomer voters.

The progressives have been very bad at explaining to this class why policies that benefit the rich and very rich don't benefit them.

[Blissex]

«But, the objective is never to get right with reality; it is just to do a job, however dirty, without any concern for producing something of value.»

I understand the bitterness here, but these people did a *very* good job of selling their product, and generated hundreds if not thousands of billions of dollars of value for their clients.

Just making it possible that at the right time the treasury secretary be Hank Paulson with a blank check, soundly "conservative" approach to solving their clients' problems, was great value.

If you believe that 80% of the populace are parasitical exploiters who have been immorally extorting colossal amounts in tax theft from their superiors, ensuring that the latter get those hundreds or thousands of billion is a profoundly moral act of restitution, and using marketing to ensure that the evil parasites exploit a bit less the best and brightest is not just producing value, but also righteousness.

[Poor is the New Black]

I very much agree with you, Blissex. I would also add that the "We own God and the Flag" mind set helped to sway many who did see thru the fallacy that GWB had their middle and lower class needs as a priority.

[Richard H. Serlin]

I left a strong critique of his argument in the comments section of Mulligan's New York Times article, and on his blog, here and here. I think these are good responses, and I encourage you to read them later, but first I'd like to go through the basics of this issue and some of the key arguments very clearly and carefully.

Here is what I see as Mulligan's argument, based on his description of it in his New York Times article:

1) If there is a drop in supply of workers (that is, for whatever reason, workers want to work less), then the firms will be short handed, and will have to work the remaining workers harder (less downtime, less sitting around waiting for something to do), and so worker productivity will go up. There will be more goods produced per worker.

We have seen a recent rise in productivity, thus, there is strong evidence that the supply of workers is down, that is people want to work less (at least the way Mulligan wrote his New York Times article, he either intentionally or unintentionally -- and it looks like intentionally to me -- made it really sound like he thought this was strong evidence.)

2) If, on the other hand, there is a drop in demand for companies products, and thus for workers to produce those products (people don't want to work less in this case; it's just many can't find jobs), then the firms will not be short handed. On the contrary, they will have more workers than they need, and so there will be more downtime, more sitting around waiting for something to do, and so worker productivity will go down. There will be less goods produced per worker.

Because we have not seen a recent drop in productivity, instead it's risen, there is strong evidence that it's not the demand for products and workers that's down, rather it's the supply of workers that's down. That is, people want to work less.

And in two previous severe recessions, the 1930's and early 1980's, we did see a drop in productivity, but in this recession we see a rise in productivity (um, what about all of the recessions besides the two Mulligan choose to mention?).

So, that appears to be his argument. I think it's very weak because, for one, there are other very plausible ways productivity can go up in a recession without there being a decrease in workers desire to work. And for two, the other evidence and logic regarding recessions is overwhelmingly against Mulligan's hypothesis that in the current recession unemployment is due mostly to people's desire to work less (see Nobel Prize winning economist Paul Krugman's current book, The Return of Depression Economics and the Crisis of 2008, for details). This is why the vast majority of top economists don't agree that a decrease in the supply of workers, the desire to work, is the primary reason for the recent high unemployment (for example, see here and here).

In the previous comments I left on Mulligan's blog I gave several reasons why productivity could go up in a recession, but I'd like to go into one of those reasons in a little more detail:

Consider again 1) and 2) above. We have a measuring period for unemployment and productivity, say a quarter, or a year. Now, in that, say, year, suppose there is a decrease in demand for products and thus workers (so it's not that workers want to work less). There will then be two major effects: Effect 1; Immediately, the workers have less to do and so there's more sitting around and less productivity. But, Effect 2: Eventually, some of the workers are let go, and this increases productivity, partly because now there is less sitting around, with more to do per worker, partly because those let go will tend to be the least experienced and productive, and partly because there is now more capital per worker.

Now, if employers are very reluctant to lay off workers, because there is a strong culture of concern for workers and not just the bottom line – a culture like we used to have a lot more of in the 1930s and early 1980s – then for most of the year, or measuring period, we would see much more of effect 1 than effect 2. There'd be a lot more extraneous workers sitting around, and a lot less laying off. With effect 1 dominating, we'd see a productivity drop.

But now let's fast forward to the late 2000s, where there is much less of a culture of concern for workers and much more of a culture of concern for the bottom line. In this culture extraneous workers may not be allowed to sit around with little to do, producing little, for very long at all. They may be swiftly laid off, so that for only a very small portion of the measuring period the company has too many workers, and for the vast majority of the measuring period, it is running lean, with only the most experienced and productive workers remaining, and each having more capital to work with. In this case effect 1 would be small and effect 2 would be large, and productivity would go up.

By contrast, let's again go back in time to the 1930s or early 1980s, where there was much more of a culture of concern for workers and much less of a culture of concern for the bottom line, the extraneous workers may then be allowed to sit around with little to do, producing little, for a long time before managers reluctantly lay them off. They may not be swiftly laid off at all, so that for a very large portion of the measuring period, the company has too many workers. It may only start to get lean at the end of the measuring period, if at all, laying off enough workers so that effect 2 is stronger than effect 1 leaving the firm lean and with only the most experienced and productive workers remaining, each having more capital to work with. In this case – where firms are very reluctant to lay off workers -- effect 1 would be big and effect 2 would be small over the measuring period, and productivity would go down.

Thus, we see one mechanism (and there are others) which could lead to productivity going either way in the face of a decrease in the demand for goods and workers.

A decrease in the demand for goods and workers does not have to lead to a decrease in productivity as Mulligan intones.

[anne]

The argument about suddenly not wanting to work was used several times over during the Bush expansion when job growth was continually weak compared with all expansion since 1945 and especially compared with the expansion that had just taken place with Clinton. The argument was that women were finding a better calling working at home than working at, well, work. There was of course evidence that women wished to be officially working as much as ever, but such evidence is dangerous to use in times of anti-feminism.

Now the argument is men not wanting to work right along with women, so 1.9 million fewer men and women have chosen to work officially than in December 2007.

[anne]

http://www.bls.gov/webapps/legacy/cesbtab1.htm

The Bush experience in monthly job creation has been,

38,800 x 95 months = 3.7 million jobs created in all so far;

the Clinton experience was,

240,300 x 95 = 22.8 million jobs created in an equivalent time or 23.1 million jobs created in 96 months;

enough job creation to keep up with civilian work force growth would have meant,

140,600 x 95 = 13.4 million jobs created so far or 13.5 million jobs created in 96 months.

We are an astonishing 9.7 million jobs short of where we would have been had there been healthy growth through the Bush years, and the situation will worsen.

[anne]

http://www.economagic.com/em-cgi/data.exe/fedstl/isratio+1

December 28, 2008

Total Business Inventory to Sales Ratio, 1992-2007

1992 1.53
1993 1.50
1994 1.46

1995 1.48
1996 1.46
1997 1.42
1998 1.43
1999 1.40

2000 1.41
2001 1.42
2002 1.36
2003 1.34
2004 1.30

2005 1.27
2006 1.27
2007 1.27

[KThomas]

@ Ms anne "The argument about suddenly not wanting to work was used several times over during the Bush expansion when job growth was continually weak compared with all expansion..."

Are we to infer that this was being used (by the Admin) as an excuse to do nothing?

[anne]

K Thomas:

"The argument about suddenly not wanting to work was used several times over during the Bush expansion when job growth was continually weak compared with all expansions...."

Are we to infer that this was being used (by the Administration) as an excuse to do nothing?

[The argument was used within the Administration and by supporters both to justify and ignore comparatively slow job creation and to applaud women deciding to be women by staying home. Even in December 2007, as the recession had begun, with millions of fewer jobs created since January 2001 than necessary to keep up with growth of the labor force, the Administration was applauding any job creation at all. When there was concern, the concern was answered with tax cuts.]

[Noni Mausa]

The "employees suddenly don't want to work" argument seems to bear a strong resemblance to the "homeless people are just free spirits who choose to live on the streets" argument.

For efficiency's sake, these two groups are converging, so one argument may do for both groups.

I wait patiently for some &^%*&^%! studies to demonstrate the truth or falsity of these theories, which seem to be based on speculation rather than work -- sorta like our late lamented economy.

Noni
grouchy

[Ninja Zombie]

Anne: "There was of course evidence that women wished to be officially working as much as ever, but such evidence is dangerous to use in times of anti-feminism."

Evidence like women actively looking for work, and being available to start work immediately? If so, please post the unemployment numbers.

[anne]

"There was of course evidence that women wished to be officially working as much as ever, but such evidence is dangerous to use in times of anti-feminism."

Tra lae, tra la, tra la.

[anne]

http://www.bls.gov/webapps/legacy/cpsatab1.htm

December 8, 2008

Unemployment Rate, Women, 1960-2008

1993 6.6 *
1994 6.0

1995 5.6
1996 5.4
1997 5.0
1998 4.6
1999 4.3

2000 4.1 Low
2001 4.7
2002 5.6
2003 5.7
2004 5.4

2005 5.1
2006 4.6
2007 4.5

November

2008 6.0

* Employment age 16 and over

[anne]

http://www.bls.gov/webapps/legacy/cpsatab1.htm

December 8, 2008

Employment-Population Ratio, Women, 1960-2008

1993 54.1 *
1994 55.3

1995 55.6
1996 56.0
1997 56.8
1998 57.1
1999 57.4

2000 57.5 High
2001 57.0
2002 56.3
2003 56.1
2004 56.0

2005 56.2
2006 56.6
2007 56.6

November

2008 55.8

* Employment age 16 and over.

[anne]

http://www.bls.gov/webapps/legacy/cpsatab2.htm

December 8, 2008

Employment-Population Ratio, Black or African American Women, 1960-2008

1993 10.7 *
1994 9.8

1995 8.6
1996 8.7
1997 8.8
1998 7.9
1999 6.8

2000 6.2 Low
2001 7.0
2002 8.8
2003 9.2
2004 8.9
2005 8.5
2006 7.5
2007 6.7

November

2008 9.0

* Employment age 16 and over

[anne]

To correct:

http://www.bls.gov/webapps/legacy/cpsatab2.htm

December 8, 2008

[Unemployment Rate,] Black or African American Women, 1960-2008

1993 10.7 *
1994 9.8

1995 8.6
1996 8.7
1997 8.8
1998 7.9
1999 6.8

2000 6.2 Low
2001 7.0
2002 8.8
2003 9.2
2004 8.9
2005 8.5
2006 7.5
2007 6.7

November

2008 9.0

* Employment age 16 and over

[anne]

http://www.bls.gov/webapps/legacy/cpsatab2.htm

December 8, 2008

Employment-Population Ratio, Black or African American Women, 1960-2008

1993 53.8 *
1994 55.0

1995 56.1
1996 57.1
1997 58.4
1998 59.7
1999 61.5 High

2000 61.3
2001 60.7
2002 58.7
2003 58.6
2004 58.5

2005 58.9
2006 59.4
2007 59.8

November

2008 58.7

* Employment age 16 and over

[ken melvin]

Casey and Cheney were, i.e., should- get their acts together. Cheney attributed the lack of jobs to an increase in the self-employed.

[cm]

Richard H. Serlin: Although there is the human element and people generally trying to avoid or push out unpleasantries, it's not so much concern for workers as for their job specific expertise. There are quite few job categories where workers can be exchanged or backfilled at a moment's notice with the replacement being fully up to speed in all job functions, including many so-called "low/unskilled" occupations. Sometimes the job-specific knowledge (which is different from "generic" occupation-specific skill) is substantial, entailing a degradation in business quality or response time when new workers have to be brought on at scale.

Many employers probably want to avoid rehiring people they have previously let go, or who have quit on not so good terms (presumably in particular where job performance is not easily measured and enforced). "We cannot find people" usually means we cannot find people (at our price point/on our terms) who can be fully operational from day one.

[Lafayette]

From article: "... workers today face "financial incentives that encourage them not to work"

This is is the sort of nonsene we hear here in France, where social security can allow total unemployment allocations that approach the minimum wage.

I doubt that the US is any where near that level of unemployment subvention. Besides, the benefit period os about a third as much in the US as in France -- and just a bit less for other European countries. Such is the nature of the "safety net" that Europe has concocted to prevent its entire social fabric from unravelling. And, it works - it helps keep delinquency and prison populations down.

But, to imply that such is the case also in the US is probably very, very wide of the mark. Besides, even as Europe is learning, work is endemic to any sane person. It is essential to their persona, given that nonworkers are considered (for the most part) as social pariahs (both in Europe and the US).

Besides, European employment mobility is far less than that of the US. Given the tough hurdle to overcome during the next two years in the US, it is perhaps a good idea that we consider in the US enlarging the period of unemployment compensation -- in order to minimise social strife.

[ken melvin]

Heard my father once tell his greatgrandson that something wouldn't taste bad after he got the taste out of his mouth, Twain reminded us about Wagner, but I can't find a mental broom for this. This guy shouldn't be teaching at any public university. Academic freedom means the free3dom to seeek and speak to the truth. His is propagandic pap. He needs be exposed and tossed out

[kharris]

Determining whether Milligan is trying to make a legitimate argument, or to contibute to economic obfuscation in favor of a particular set of policies seems to me a very simple matter. Whenever confronted with an effort to disentangle supply and demand effects, one is justified in asking what happened to price. Anybody eager to argue that either supply or demand is behind a change in quantity ought to be willing to submit price evidence. Not just willing. Submission of price evidence should go without saying. It comes with the territory.

In the particular case that Mulligan raises, there are complications, because one can choose between a number of different wage and compensation measures. The complications don't seem all that complicated, though. Until the past three months, there has been a steady slowing in the growth of nominal hourly wages and an absolute crash in real hourly wages. Falling employment and slowing wage growth is consistent with falling demand for labor, so unless we are being told that demand for labor was falling until 3 months ago, but now supply is falling, the price data argue that demand for labor is falling. Even taking into account the impact of tax rebate checks, real per capita disposable income has been slowing for well over a year and turned negative in August and September. Nominal total worker compensation was up 2.9% y/y in Q3 of this year, a smaller gain than any quarter but one in the business cycle that is currently dying.

If one were looking for evidence of either incompetence or intellectual fraud, I would think that an easy starting place would be right here with the price of labor. Nobody making a legitimate effort to disentagle supply effects from demand effects would ignore prices. Mulligan did.

says...

Mark - where did Dean Baker post his counter to Mulligan's argument? You don't like to Dean and I can't find this even using Google.

[Real Person from the Real World]

This is probably the coda here, but no one even considers there is an outside source of workers competing with workers here. Imported techies come with experience from outside the US, and in some cases, may not even have that experience, just a pumped up resume. They come, get jobs and experience here, and displace US citizens. While the law says companies must make an effort to hire US citizens, there are many ways around this, and we all know about them. The jobs that are available to US citizens with lesser experience are often of lesser quality. A few make it thru and get the big bucks, but our IT community is becoming less and less relevant, while advertising, sales, marketing, phone callers, etc are becoming the most visible and available jobs. Not everyone is cut out for a commission based livelihood.

[cm]

Real Person: Not to blow my own horn as I'm one of those techie immigrants, but I think visa imports are only a phenomenon in the IT sector and in the "knowledge" sectors of tech (i.e. nothing that has to do with creating physical product -- OTOH tech manufacturing is usually offshored when it leaves the lab). And to a lesser extent in acdemia. It does not explain the overall lackluster market.

But there is certainly the phenomenon of aggregate population growth by immigration (legal as well as illegal), and (domestic) business volume apparently not scaling linearly.

As for low-end service jobs supposedly taken from "Americans" by illegals, what was the situation before the big immigration waves? I'd venture people mowed their own lawns (or had sonny boy do it), yard work, and house cleaning, and there was no big market of OK paying residential services for "Americans". But presumably back then there were enough better jobs for people. Maybe today there would be takers from the local population (but I'm not sure there is a fully-legal business model in those specialties).

In summary, I think the largest phenomenon is the offshoring of large parts of the goods-producing sector, and its disappearing multiplier factor -- supporting job functions like administrative, accounting, business services etc., and discretionary income available for spending in the local economy.

[mike shupp]

".... I find it highly implausible that worker's unwillingness to accept the jobs being offered to them is the source of the current employment problem..."

But you have no idea how many jobs Casey Mulligan turned down before accepting one which seemed comfortable to him!

[landless]

It is called crisis of over-production. Marx named it years ago.

[Iman]

In all due respect Professor Mark Thoma, why do you think a economy works well if the majority of workers cannot buy what they make (China)? And why do you think an economy works well if we consume more than they make? Finally would it not be more efficient and use less energy if countries bought more of their own products and only imported what they need?

[Real Person from the Real World]

CM, you are a reasonable guy. Not like the cheapskate nut I work for. There was always a certain low wage illegal immigrant population, and few complained until recent years when incomes started to stagnate. Now, the howls to get rid of them are deafening. If Great Depression II happens, who knows. It may be the Mexicans howling about the norteamericanos moving to Mexico to maintain their lifestyles. There are retirement communities there now. Actually, Mexicans have been back and forth over the border for centuries, and from their point of view at least, the US grabbed a big section of the SW US from Mexico, in the mid 1800s (manifest destiny, Zacary Taylor, San Patricios).
Manufacturing needs a new lease on life in the US. Service jobs aren't cutting it. Maybe we need those incidental admin jobs from manufacturing as well? Not everyone is cut out to be a commission based sales predator. Maybe if prices were less inflated by sales "commissions" and "incentives" we would have a more realistic reasonable economy.