Category Archive for: Unemployment [Return to Main]

Friday, February 05, 2016

Fed Watch: Solid Jobs Report Keeps Fed In Play

Tim Duy:

Solid Jobs Report Keeps Fed In Play, by Tim Duy: Just when you think it's safe to jump in the water, reality strikes. While I still think that the Fed passes in March, the solid jobs report is just what is takes to keep the Fed in the game. Back it up with another such report in March and a stronger inflation signal in one of the upcoming price reports and you set the stage for a divisive battle at the next FOMC meeting.
Nonfarm payrolls grew by 151k, below consensus but within a reasonable range of estimates. The twelve-month moving average reveals a very modest slowing of job growth over the year:

JOBSd020516

The jobs numbers in the context of data Federal Reserve Chair Janet Yellen pervasively identified as what to watch:

JOBSe020516

JOBSf020516

Notably, wage growth has accelerated over the past year, suggesting that the Fed's estimate of NAIRU is within range of reality:

JOBSc020516

Prior to the 2001 recession, wage growth typically accelerated at unemployment approached 6%. Now it looks like 5% is the magic number:

JOBSb020516

I suspect the the employment cost index will soon follow the wage numbers higher:

JOBSa020516

There are no signals of recession in this data. For those who will complain that it is lagging data, I suggest watching the temporary employment component:

JOBSg020516

Temporary hiring should flatten out as the cycle matures, and you can arguably see the beginning of that process. If you squint, that is. Even so, the process evolved over a two year period before the last recession struck. Even if the seeds of recession were sown this January, we wouldn't expect recession until 2017 at the earliest. Still not by base case; using history as a guide I have a recession penciled in for 2018. (Short story: economy is in later stages of a business cycle, Fed resumes tightening later this year and pushes it too far by middle of 2017. In a perfect world the Fed could moderate the pace of activity to hold unemployment near NAIRU for an extended period of time. That, however, has proven to be a challenge for the Fed in the past.)
Bottom Line: This jobs report complicates the Fed's decision making process. They are stuck with instability in the financial markets as the economy reaches full employment. They are concerned that in the absence of temporary factors, inflation will quickly jump higher if the economy continues on this trajectory. While they would like unemployment to settle somewhat below NAIRU to eliminate lingering underemployment, they don't want it to settle far below NAIRU. They don't believe they can easily tap the breaks to lift unemployment higher. Recession is almost guaranteed to follow. Hence they would like to be able to rates rates gradually to feel their way around the darkness in which the true value of NAIRU lies. They fear that if they delay additional tightening, they will pass the point of no return in which they are forced to abandon their doctrine of gradualism. The Fed's policy challenge just became a little bit harder today.

'Job Growth Slows in January, Unemployment Falls to 4.9 Percent'

Dean Baker:

Job Growth Slows in January, Unemployment Falls to 4.9 Percent, by Dean Baker: The Labor Department reported the economy added 151,000 jobs in January, in line with some economists' expectations. There were largely offsetting revisions to the prior two months data leaving the average change over the last three months at 231,000. The household survey showed a jump in employment that both lowered the unemployment rate to 4.9 percent and also raised the employment-to-population ratio (EPOP) to 59.6 percent. This is the highest EPOP of the recovery, but it is still more than 3 percentage points below the pre-recession level. ...

There was a large 12 cent jump in the average hourly wage in January, but this followed a month in which there was no reported rise at all. Over the last three months the wage has risen at a 2.5 percent annual rate compared to the prior three months, the same as its pace over the last year. There is little basis for the belief that wage growth is accelerating. The Employment Cost Index for the fourth quarter showed no uptick at all in the pace of compensation growth, with wage growth in the private sector actually slowing slightly. ...

The overall picture in this report is mixed. The sharp slowing in job growth was to be expected, given the slow growth reported in the economy. The labor market is still not tight enough to produce healthy wage growth. With many downside risks to growth, 2016 may not be a good year for workers.

Monday, February 01, 2016

'Changes in Labor Participation and Household Income'

Robert Hall and Nicolas Petrosky-Nadeau:

Changes in Labor Participation and Household Income, by Robert Hall and Nicolas Petrosky-Nadeau, FRBSF Economic Letter: For most people, active participation in the labor market is socially desirable for several reasons. One major benefit is the set of skills and abilities a person gains on the job. Long periods out of employment can mean a worker loses valuable skills. In terms of the overall labor force, this loss is compounded, lowering the accumulation of human capital and negatively affecting economic growth in the long run. As such, a decline in labor force participation, particularly among workers in their prime, is a significant concern for policymakers.

Over the past 15 years, the labor force participation (LFP) rate in the United States has fallen significantly. Various factors have contributed to this decline, including the aging of the population (Daly et al., 2013) and changes in welfare programs (Burkhauser and Daly, 2013). In this Economic Letter, we look at another potential contribution, the changing relationship between household income and the decision to participate in the labor force.

Measuring labor force participation

People are considered “in the labor force” if they are employed or have actively looked for work in the past four weeks, according to the Bureau of Labor Statistics definition of unemployment. Following this definition, we study labor market participation and how it relates to household income using data from the Survey of Income and Program Participation (SIPP). Administered by the Census Bureau since 1983, the SIPP was created to remedy shortcomings in existing survey data on household incomes and benefit-program participation, such as the March Income Supplement to the Current Population Survey. The SIPP collects detailed information on a person’s labor force activities, a wide range of demographic data, the receipt of cash and in-kind income, and participation in government programs.

Comparisons of LFP rates over time need to control for the ever-changing demographic characteristics of the U.S. population, such as age, educational attainment, and race and ethnicity. For example, aggregate participation may decline if a certain group—say, individuals over age 55, who are less likely to be working—gain greater prominence in the overall population. In this case, we would observe a decline in overall participation even if there had been no change in each individual’s propensity to be in the labor market.

We use a probability model to determine the likelihood that an individual with a specific set of demographic characteristics will participate in the labor market. Crucially, this allows us to compare the behavior of similar individuals at different points in time. The factors we include are age and sex, household structure (at least two individuals in the household over age 25), education (less than high school, high school, college, or post-graduate), and race and ethnicity (white, black, Hispanic/Latino, Asian, or other). All LFP rates we report in this Letter control for these demographic characteristics.

The LFP rate for people between the ages of 25 and 54 was 83.8% in 2004, then dropped to 81.2% by 2013. This 2.6 percentage point decline has persisted well beyond the end of the Great Recession and has caught the attention of policymakers, particularly because it concerns workers in their prime who are usually active participants in the labor market.

Measuring household income

Each individual in the SIPP is associated with a household, and the survey provides a detailed account of the household’s monthly income. Households are then ranked according to income level, and divided evenly into four quartiles across the range of the household income distribution. In 2013, households in the lowest 25% of the income distribution, or the first quartile, had an average monthly income of less than $1,770. The median total household monthly income was $3,430. At the top of the distribution, the lower bound for being in the highest 25% of households, or the fourth quartile, was a monthly income of $5,993.

Earnings from work are typically the main source of income for a household regardless of its position within the household income distribution. Other sources are property income and various support programs such as social security, veteran benefits, and public assistance. On average in 2013, the upper-level households derived about 96% of their monthly income from working. For households in the poorest quartile, earnings made up about 62% of monthly income, while another 23% came from unemployment compensation, social security, supplemental social security, and food stamps.

Labor force participation and household income

We sort prime-age individuals according to their household’s position in the income distribution. The probability of participating in the labor market for those in the poorest households in 2013 was just 61.5%, compared with 81.2% for all 25- to 54-year-olds (see Table 1). Further up the household income distribution, individuals are more likely to actively participate in the labor market—in the top quartile, the participation rate was 89.9% in 2013.

Table 1
Labor force participation among prime-age workers across household income distributions

Labor force participation among prime-age workers across household income distributions

Looking back in time, we see that the decline in the LFP rate of prime-age workers is unevenly spread across the income distribution. The poorest quartile had the smallest change since 2004, falling 0.8 percentage point. The second quartile fell 2.4 points, while the third quartile reported the largest drop with 3.2 points. Participation also fell 2.0 percentage points for households in the fourth quartile.

Figure 1 shows how much each household income quartile contributed to the 2.6 percentage point overall decline in LFP among workers ages 25 to 54 since 2004. Each quartile’s contribution is the sum of two numbers. The first is the change in the probability that an individual living in a particular household income bracket will participate in the labor market. The second is the change in household size over time, which raises or lowers the number of people in a household income grouping. For instance, the poorest quartile saw a small decline in individual participation rates. At the same time there was a modest increase in the average number of people living in these households. Taken together, the poorest quartile added 0.7 percentage point to the total participation rate between 2004 and 2013 (red line). Likewise, the second quartile (yellow line) added 0.4 percentage point.

Figure 1
Changes in labor participation among prime-age workers
Total and contribution by quartiles of household income distribution

Changes in labor participation among prime-age workers: Total and contribution by quartiles of household income distribution

Note: Numbers to right of lines show percentage point changes to total and quartile contributions, 2004–13.

By contrast, individuals in the two highest income quartiles have increasingly remained out of the labor force during this time frame. Individuals in the fourth quartile (green line) accounted for 1.6 of the 2.6 percentage point decline in total participation since 2004, while those in the third quartile (blue line) contributed the most to the decline, a full 2.1 percentage points. By this measure, virtually all of the decline in labor market participation among 25- to 54-year-olds can be attributed to the higher-income half of American households.

Participation among younger and older workers

We can also extend this analysis to the remaining age groups: young people under age 25 and older workers age 55 and over. Doing so will allow us to examine the contribution of each group to the decline in the LFP of the working-age population, that is, all individuals over age 16. Indeed, the LFP of the working-age population dropped 4.8 percentage points over this period, from 67.2% in 2004 to 62.4% in 2013.

As a first step, Figure 2 depicts the total decline in labor force participation and the contribution from each of the three age groups between 2004 and 2013.

Figure 2
Contribution by age group to changes in labor participation

Contribution by age group to changes in labor participation

Source: Authors’ calculations based on the SIPP.

The decline among young workers from 61.8% participation in 2004 to 52.2% in 2013 is striking. Although young workers represent only 16% of the overall working-age population, the 9.6 percentage point decline of the young pulled the aggregate rate down by 2.0 percentage points (light blue line). The pattern of young workers’ participation across the household income distribution, shown in panel A of Figure 3, is similar to that of prime-age workers. Young workers in the highest-income households contributed the largest drop, 3.8 percentage points, while those in the lowest-income households contributed only 0.8 percentage point to the decline for their age group.

Figure 3
Change in labor force participation by household income quartile

Change in labor force participation by household income quartile: A. Younger workers, ages 16–24
 
Change in labor force participation by household income quartile: B. Older workers, over age 55

Note: Numbers to right of lines show percentage point changes to total and quartile contributions, 2004–13.

The LFP rate of those over age 55 differs from what we have seen for the other age groups in two respects. First, their likelihood of being in the labor market has increased 3.1 percentage points; together with their increased share of the population, these conditions pushed the aggregate LFP rate up 2.3 percentage points, as shown by the dark blue line in Figure 2. Second, we do not find the same household income pattern among older workers as we found for the other age groups. Rather, panel B of Figure 3 shows that individuals in the highest-income households provided the bulk of the increase in labor force participation.

Conclusion

To get a clearer view of the factors underlying the decline in labor force participation, this Letter has examined how work trends have changed across different age groups and income levels. Our findings suggest that the decline in participation among people of prime working age has been concentrated in higher-income households. A similar pattern appears among younger workers, between the ages of 16 and 24. However, this has not been the case among older workers. Workers over the age of 55, particularly those in households at the top of the income distribution, have been increasingly participating in the labor force. Further research should help understand the underlying reasons for these diverging trends across household incomes.

References

Burkhauser, Richard, and Mary C. Daly. 2013. “The Changing Role of Disabled Children Benefits.” FRBSF Economic Letter 2013-25 (September 3). 

Daly, Mary C., Early Elias, Bart Hobijn, and Òscar Jordà. 2012. “Will the Jobless Rate Drop Take a Break?” FRBSF Economic Letter 2012-37 (December 17). 

[Opinions expressed in FRBSF Economic Letter do not necessarily reflect the views of the management of the Federal Reserve Bank of San Francisco or of the Board of Governors of the Federal Reserve System.]

Friday, January 29, 2016

'Downward Nominal Wage Rigidity in the United States During and After the Great Recession'

"...we find evidence of a significant amount of downward nominal wage rigidity in the United States":

Fallick, Bruce C., Michael Lettau, and William L. Wascher (2016). “Downward Nominal Wage Rigidity in the United States During and After the Great Recession,” Finance and Economics Discussion Series 2016-001. Washington: Board of Governors of the Federal Reserve System: Abstract Rigidity in wages has long been thought to impede the functioning of labor markets. One recent strand of the research on wage flexibility in the United States and elsewhere has focused on the possibility of downward nominal wage rigidity and what implications such rigidity might have for the macroeconomy at low levels of inflation. The Great Recession of 2008 - 09, during which the unemployment rate topped 10 percent and price deflation was at times seen as a distinct possibility, along with the subsequent slow recovery and persistently low inflation, has added to the relevance of this line of inquiry. In this paper, we use establishment - level data from a nationally representative establishment - based compensation survey collected by the Bureau of Labor Statistics to investigate the extent to which downward nominal wage rigidity is present i n U.S. labor markets. We use several distinct methods proposed in the literature to test for downward nominal wage rigidity, and to assess whether such rigidity is more severe at low rates of inflation and in the presence of negative economic shocks than in more normal economic times. Like earlier studies, we find evidence of a significant amount of downward nominal wage rigidity in the United States. We find no evidence that the high degree of labor market distress during the Great Recession reduced the amount of downward nominal wage rigidity a nd some evidence that operative rigidity may have increased during that period.

Thursday, January 21, 2016

When Robots Rule the Working World

I haven't had the courage to read the comments:

What happens if robots take all the jobs?, by Mark Thoma: The theme of this year's World Economic Forum (WEF) meeting in Davos, Switzerland, can be summarized as the impact of the fourth industrial revolution on jobs, inequality and the quality of life.
How will digital revolution change our lives? Will robots take most of the good jobs? Are we headed for a future where a few people -- those who are fortunate enough to own the robots and other technology needed to produce goods and services -- receive most of the income, and those who don't struggle to find work that pays enough to feed their families? ...

Thursday, January 07, 2016

'Less Work, More Leisure'

Couldn't resist a few quick posts. This is from Dean Baker:

Less Work, More Leisure: The next Administration should make reducing work time a major focus. In addition to mandated paid sick days and paid family leave—proposals that have received some welcome attention thus far on the presidential campaign trail—policymakers should go much further and enact measures aimed at shortening workweeks and work years. Reducing our workweek and work years will lead to a whole host of benefits, including reduced stress and higher levels of employment. ...

Comments?

Thursday, December 31, 2015

'Beating a Dead Robotic Horse'

Dietz Vollrath:

Beating a Dead Robotic Horse: One of the recurring themes on this blog has been the consequences of robots, AI, or rapid technological change on labor demand. Will humans be put out of work by robots, and will this mean paradise or destitution? I’ve generally argued that we should be optimistic about robots and AI and the like, but others have made coherent arguments for pessimism. I spent a chunk of this week reading over posts, both new and old, and thinking more about these positions.

If there is one distinct difference between the robo-pessimist and robo-optimist view, it is almost exclusively down to timing. The pessimists are worried that the rapid decline of human labor is occurring now, and in many cases has been occurring for a while already. The optimists believe that we have time in front of us to sort things out before human labor is replaced en masse.

Brynjolfsson and McAfee‘s latest is a good example of this robo-optimist view. They concede that human labor is in danger of being replaced... But at the same time they do not think this is imminent...

On the robo-pessimism side, Richard Serlin has a mega-post about the declining prospects for human labor and the possible consequences. What is interesting about Richard’s post is that he essentially makes the case that the replacement of human labor by automation has been occurring for decades; we are already living with it...

I think it is helpful to get beyond the binary viewpoints. ...

I tend to be a weak robo-optimist. I, like Brynjolfsson and McAfee, completely agree that robots/AI will create a drag on the demand for human labor, and in particular unskilled labor. My robo-optimism isn’t a belief about technology. It is a belief that we can figure out how to manage the glide path towards shorter work hours while maintaining living standards for everyone. It’s a good thing that we’ll have to work less.

And there remains a little piece of strong robo-optimism lurking inside of me. I don’t think work less is really well defined. We will likely have to spend less time working for wages to afford the basic material goods in our lives. But that doesn’t mean we won’t spend lots of our time “working” for each other doing other things. Whether that work is paid in wages or not is immaterial.

[There's quite a bit more in the post that I left out.]

Tuesday, December 22, 2015

'The Effects of Minimum Wages on Employment'

I believe the evidence, overall, suggests that moderate increases in the minimum wage have negligible effects on employment. But, to be fair, David Neumark is a credible researcher and I will let him make the case that an an increase in the minimum wage may not be benign:

The Effects of Minimum Wages on Employment, by David Neumark: It is easy to be confused about what effects minimum wages have on jobs for low-skilled workers. Researchers offer conflicting evidence on whether or not raising the minimum wage means fewer jobs for these workers. Some recent studies even suggest overall employment could be harmed. This Letter sheds light on the range of estimates and the different approaches in the research that might explain some of the conflicting results. It also presents some midrange estimates of the aggregate employment effects from recent minimum wage increases based on the research literature.
The controversy begins with the theory
The standard model of competitive labor markets predicts that a higher minimum wage will lead to job loss among low-skilled workers. The simplest scenario considers a competitive labor market for a single type of labor. A “binding” minimum wage that is set higher than the competitive equilibrium wage reduces employment for two reasons. First, employers will substitute away from the low-skilled labor that is now more expensive towards other inputs, such as equipment or other capital. Second, the higher wage and new input mix implies higher prices, in turn reducing product and labor demand.
Of course, the labor market is more complicated. Most important, workers have varying skill levels, and a higher minimum wage will lead employers to hire fewer low-skilled workers and more high-skilled workers. This “labor-labor” substitution may not show up as job losses unless researchers focus on the least-skilled workers whose wages are directly pushed up by the minimum wage. Moreover, fewer jobs for the least-skilled are most important from a policy perspective, since they are the ones the minimum wage is intended to help.
In some alternative labor market models, worker mobility is limited and individual employers therefore have some discretion in setting wages. In such “monopsony” models, the effect of increasing the minimum wage becomes ambiguous. However, such models may be less applicable to labor markets for unskilled workers most affected by the minimum wage; these markets typically have many similar employers in close proximity to each other (think of a shopping mall) and high worker turnover. Nonetheless, the ultimate test is not theoretical conjecture, but evidence.
Recent research on employment effects of minimum wages
The earliest studies of the employment effects of minimum wages used only national variation in the U.S. minimum wage. They found elasticities between −0.1 and −0.3 for teens ages 16–19, and between −0.1 and −0.2 for young adults ages 16–24. An elasticity of −0.1 for teens, for example, means that a 10% increase in the wage floor reduces teen employment by 1%. Newer research used data from an increasing number of states raising their minimum wages above the federal minimum. The across-state variation allowed comparisons of changes in youth employment between states that did and did not raise their minimum wage. This made it easier to distinguish the effects of minimum wages from those of business cycle and other influences on aggregate low-skill employment. An extensive survey by Neumark and Wascher (2007) concluded that nearly two-thirds of the more than 100 newer minimum wage studies, and 85% of the most convincing ones, found consistent evidence of job loss effects on low-skilled workers.
Research since 2007, however, has reported conflicting findings. Some studies use “meta-analysis,” averaging across a set of studies to draw conclusions. For example, Doucouliagos and Stanley (2009) report an average elasticity across studies of −0.19, consistent with earlier conclusions, but argue that the true effect is closer to zero; they suggest that the biases of authors and journal editors make it more likely that studies with negative estimates will be published. However, without strong assumptions it is impossible to rule out an alternative interpretation—that peer review and publication lead to more evidence of negative estimates because the true effect is negative. In addition, meta-analyses do not assign more weight to the most compelling evidence. Indeed, they often downweight less precise estimates, even though the lower precision may be attributable to more compelling research strategies that ask more of the data. In short, meta-analysis is no substitute for critical evaluation of alternative studies.
A second strand of recent research that conflicts with earlier conclusions argues that geography matters. In other words, the only valid conclusions come from studies that compare changes among close or contiguous states or subareas of states (for example, Dube, Lester, and Reich 2010). A number of studies using narrow geographic comparisons find employment effects that are closer to zero and not statistically significant for both teenagers and restaurant workers. The studies argue that their results differ because comparisons between distant states confound actual minimum wage effects with other associated negative shocks to low-skill labor markets.
Some follow-up studies, however, suggest that limiting comparisons to geographically proximate areas generates misleading evidence of no job loss effects from minimum wages. Pointing to evidence that minimum wages tend to be raised when labor markets are tight, this research suggests that, among nearby states that are similar in other respects, minimum wage increases are more likely to be associated with positive shocks, obscuring the actual negative effects of minimum wages. Using better methods to pick appropriate comparison states, this research finds negative elasticities in the range of −0.1 to −0.2 for teenagers, and smaller elasticities for restaurant workers (see Neumark, Salas, and Wascher 2014a,b, and Allegretto et al. 2015 for a rebuttal). Other analyses that try to choose valid geographic comparisons estimate employment responses from as low as zero to as high as −0.50 (Baskaya and Rubinstein 2012; Liu, Hyclak, and Regmi 2015; Powell 2015; Totty 2015).
Some new strategies in recent studies have also found generally stronger evidence of job loss for low-skilled workers. For example, Clemens and Wither (2014) compare job changes within states between workers who received federal minimum wage increases because of lower state minimums and others whose wages were low but not low enough to be directly affected. Meer and West (2015) found longer-term dynamic effects of minimum wages on job growth; they suggest these longer-term effects arise because new firms are more able to choose labor-saving technology after a minimum wage increase than existing firms whose capital was “baked in.”
How do we summarize this evidence? Many studies over the years find that higher minimum wages reduce employment of teens and low-skilled workers more generally. Recent exceptions that find no employment effects typically use a particular version of estimation methods with close geographic controls that may obscure job losses. Recent research using a wider variety of methods to address the problem of comparison states tends to confirm earlier findings of job loss. Coupled with critiques of the methods that generate little evidence of job loss, the overall body of recent evidence suggests that the most credible conclusion is a higher minimum wage results in some job loss for the least-skilled workers—with possibly larger adverse effects than earlier research suggested.
Recent minimum wage increases and implications
Despite the evidence of job loss, policymakers and the voting public have raised minimum wages frequently and sometimes substantially in recent years. Since the last federal increase in 2009, 23 states have raised their minimum wage. In these states, minimum wages in 2014 averaged 11.5% higher than the federal minimum (Figure 1). If these higher minimum wages have in fact lowered employment opportunities, this could have implications for changes in aggregate employment over this period.

Figure 1

El2015-37-1

Percent difference between state and federal minimum wages, June 2014

Note that more states (31) had minimums above the federal level just before the Great Recession than do now (Figure 2). The average relative to the federal minimum was nearly three times as high at 32.3%. However, this is in part because the federal minimum wage has increased 41% since the beginning of 2007. To compare the average change across states between 2007 and 2014, I account for the smaller number of states with higher minimums in 2014 and their lower levels, and weight the states by their working-age population. I find that minimum wages were roughly 20.6% higher in 2014 than in 2007, compared with a 16.5% increase in average hourly earnings over the same period. Thus, between the federal increases in 2007–09 and recent state increases, the minimum wage has grown only slightly faster than average wages in the economy—around 4.1% over the entire seven-year period.

Figure 2

El2015-37-2

Percent difference between state and federal minimum wages, June 2007

From the research findings cited earlier, one can roughly translate these minimum wage increases into the overall job count. Among the studies that find job loss effects, estimated employment elasticities of −0.1 to −0.2 are at the lower range but are more defensible than the estimates of no employment effects. Some of the larger estimates are from studies that are likely to receive more scrutiny in the future.
Using a −0.1 elasticity and applying it only to teenagers implies that higher minimum wages have reduced employment opportunities by about 18,600 jobs. An elasticity of −0.2 doubles this number to around 37,300. If we instead use the larger 16–24 age group and apply the smaller elasticity to reflect that a smaller share of this group is affected, the crude estimate of missing jobs rises to about 75,600. Moreover, if some very low-skilled older adults also are affected (as suggested by Clemens and Wither 2014), the number could easily be twice as high, although there is much less evidence on older workers.
Thus, allowing for the possibility of larger job loss effects, based on other studies, and possible job losses among older low-skilled adults, a reasonable estimate based on the evidence is that current minimum wages have directly reduced the number of jobs nationally by about 100,000 to 200,000, relative to the period just before the Great Recession. This is a small drop in aggregate employment that should be weighed against increased earnings for still-employed workers because of higher minimum wages. Moreover, weighing employment losses against wage gains raises the broader question of how the minimum wage affects income inequality and poverty. This issue will be addressed in the next Economic Letter.
David Neumark is Chancellor’s Professor of Economics and Director of the Center for Economics & Public Policy at the University of California, Irvine, and a visiting scholar at the Federal Reserve Bank of San Francisco.
References
Allegretto, Sylvia, Arindrajit Dube, Michael Reich, and Ben Zipperer. 2015. “Credible Research Designs for Minimum Wage Studies: A Response to Neumark, Salas, and Wascher.” Unpublished manuscript.
Baskaya, Yusuf Soner, and Yona Rubinstein. 2012. “Using Federal Minimum Wage Effects to Identify the Impact of Minimum Wages on Employment and Earnings across U.S. States.” Unpublished paper, Central Bank of Turkey.
Clemens, Jeffrey, and Michael Wither. 2014. “The Minimum Wage and the Great Recession: Evidence of Effects on the Employment and Income Trajectories of Low-Skilled Workers.” NBER Working Paper 20724.
Doucouliagos, Hristos, and T.D. Stanley. 2009. “Publication Selection Bias in Minimum-Wage Research? A Meta-Regression Analysis.” British Journal of Industrial Relations 47(2), pp. 406–428.
Dube, Arindrajit, T. William Lester, and Michael Reich. 2010. “Minimum Wage Effects Across State Borders: Estimates Using Contiguous Counties.” Review of Economics and Statistics 92(4), pp. 945–964.
Liu, Shanshan, Thomas J. Hyclak, and Krishna Regmi. 2015. “Impact of the Minimum Wage on Youth Labor Markets.” Labour, early publication online.
Meer, Jonathan, and Jeremy West. 2015. “Effects of the Minimum Wage on Employment Dynamics.” Journal of Human Resources, early publication online.
Neumark, David, J.M. Ian Salas, and William Wascher. 2014a. “More on Recent Evidence on the Effects of Minimum Wages in the United States.” IZA Journal of Labor Policy 3(1).
Neumark, David, J.M. Ian Salas, and William Wascher. 2014b. “Revisiting the Minimum Wage-Employment Debate: Throwing Out the Baby with the Bathwater?” Industrial and Labor Relations Review 67(Supplement), pp. 608–648.
Neumark, David, and William Wascher. 2007. “Minimum Wages and Employment.” Foundations and Trends in Microeconomics 3(1–2), pp. 1–182.
Powell, David. 2015. “Synthetic Control Estimation beyond Case Studies: Does the Minimum Wage Decrease Teen Employment?” Unpublished manuscript.
Totty, Evan. 2015. “The Effect of Minimum Wages on Employment: A Factor Model Approach.” Unpublished manuscript.

Friday, December 11, 2015

'House Prices and Job Losses'

From Bank Underground:

House Prices and Job Losses, by Emma Lyonette and Gabor Pinter: What explains the strong comovement between the housing market and the labour market in the UK? This blog summarises the findings of recent research by Pinter (2015) that emphasises the role of real estate as an important determinant of firms’ borrowing capacity. This is because real estate is widely used by corporates as collateral when trying to obtain external financing. Fluctuations in real estate prices may therefore cause fluctuations in firms’ borrowing capacity, which then affects firms’ decisions to undertake new investment, to create new jobs and to destroy existing jobs. The paper shows that this so-called collateral channel is important in understanding not only the recent Great Recession but historical UK business cycles in general. ...

Wednesday, December 09, 2015

It Doesn't Seem Hard to Get Good Help: The JOLTS Data

Dean Baker:

It Doesn't Seem Hard to Get Good Help: The JOLTS Data: Yesterday the Labor Department released October data from its monthly Job Openings and Labor Turnover Survey (JOLTS). The release got surprisingly little attention in the media.
While there were no big surprises, it does not paint a picture of a robust labor market. The number of job opening was down 150,000 from the September level and was almost 300,000 below the peak hit in July. That is not necessarily a big deal; the monthly data are erratic and a monthly change of this size could just be sampling error. Nonetheless, the number of opening has been essentially flat since April, which means that the relatively strong growth reported in the establishment survey does not seem to be making it difficult for firms to find workers.
Consistent with this story, the quit rate remained at a relatively low 1.9 percent. This is a measure of workers' confidence that they can leave a job they don't like and either quickly get a new job or survive on savings or the earnings of other family members. The 1.9 percent rate is well above the 1.3 percent rate at the bottom of the downturn, but low relative to pre-recession levels. In fact, in the weak labor market following the 2001 recession (we continued to lose jobs until September of 2003) the quit rate never fell below 1.8 percent. The current reading looks much more like a recession than a strong labor market. (The series only goes back to the end of 2000, so we don't have long experience with it.)

See also: Low wages not education to blame for skills gap.

'Are Local Minimum Wages Absorbed by Price Increases?'

New research on local minimum wages:

Are Local Minimum Wages Absorbed by Price Increases? Estimates from Internet - based Restaurant Menus, by Sylvia Allegretto and Michael Reich, Institute for Research on Labor and Employment, University of California, Berkeley: We analyze a large sample (N= 60,509) of Internet-based restaurant menu items that we collected before and after San Jose, CA implemented a 25 percent local minimum wage increase in 2013. Our estimated significant minimum-wage price elasticities are: 0.058 for food service as a whole , 0.083 for limited-service restaurants, 0.040 for full-service restaurants , 0.077 for small restaurants, 0.039 for mid-sized restaurants, 0.098 for chains and 0.062 within chain-pairs. These findings imply that a substantial proportion of overall restaurant payroll cost increases, net of turnover savings, are passed through to consumers. Equally important, price differences among restaurants 0.5 miles from either side of the policy border are not competed away. If restaurant demand is spatially inelastic, border effects are much smaller than is often conjectured . Together, these results imply that citywide minimum wage policies need not result in negative employment effects or shifts of economic activity to nearby areas.

Friday, December 04, 2015

Job Growth Strong Again in November, but Still Shows Evidence of Weakness

Dean Baker:

Job Growth Strong Again in November, but Household Survey Still Shows Evidence of Weakness: The Labor Department reported that the economy added 211,000 jobs in November. With modest upward revisions to the gains reported for the prior two months, the average growth over the last three months has been a strong 218,000.
Construction accounted for 46,000 of the new jobs, likely helped by unusually warm weather in the Northeast and Midwest. Restaurants added 31,500 jobs, retail added 30,700, and professional and technical services added 28,400. Job growth in the health care sector was relatively weak at 23,800. Other data in the establishment survey was less encouraging with a drop of 0.1 hour in the length of the average work week. This drop, combined with the weak reported growth in the hourly wage, led to a modest drop in the average weekly wage.
The unemployment rate remained at 5.0 percent. There was also no change in the labor force participation rate or the employment-to-population ratio, both of which remain far below pre-recession levels.
Other data in the household survey also are consistent with a weak labor market. The number of involuntary part-time workers jumped by 319,000 after large declines in the prior two months. There was no change in the average duration of unemployment spells, with the median duration edging downward slightly to 10.8 weeks. The percentage of unemployment due to voluntary job leavers edged up slightly to 10.0 percent. This is still a number consistent with a recession labor market, as are the duration measures and the share of involuntary part-timers workers.

Wednesday, December 02, 2015

'Finding a (Labor Market) Match'

Bradley Speigner at the B of E's Bank Underground blog (wonder if same is true for US?):

Finding a Match: Is falling unemployment masking a broader deterioration in UK labour market performance? The ease with which a typical job seeker lands a job is a crucial indicator of the health of the labour market, which cannot be fully inferred from just a casual glance at the headline unemployment rate. It is true that unemployment has declined quite rapidly recently. But this is because job openings have been unusually abundant while the labour market’s capacity to match individual workers to available jobs quickly has actually worsened. This capacity is referred to as matching efficiency, and it started falling in the UK even before the 2008 recession. ...
Concluding remarks
What the data suggest so far is that job seekers’ chances of finding a job in the UK are lower than would be expected given how tight the labour market has been. This conclusion is broadly consistent with other business intelligence gathered by the Bank’s network of Agents. How persistent the decline in matching performance turns out to be will have important implications for the evolution of unemployment.  In general, low matching efficiency tends to slow the rate at which unemployment falls during cyclical recoveries. In the latest data, although unemployment did drop further, this appears to be due to a remarkably low job destruction rate rather than a significant improvement in exits from unemployment. Weak matching efficiency might be increasing the incentives for firms to raise employment through a fall in the firing rate rather than through hiring.
Most academic research on matching efficiency suggests caution about expecting a rapid improvement. One fairly robust (and somewhat counterintuitive) finding in the applied literature is that matching efficiency tends to trend downward over time (Petrongolo and Pissarides, 2001). This contradicts the notion that easier job search brought about by information technology has resulted in faster job finding rates, as a moment of casual introspection might otherwise initially suggest.
Detecting a trend is one thing. Explaining it is another. One possibility is that a gradual move towards increasingly specialised labour markets might actually be complicating the matching process. Maybe finding a match is increasingly becoming like looking for a needle in a haystack.

Friday, November 20, 2015

'Some Big Changes in Macroeconomic Thinking from Lawrence Summers'

Adam Posen:

Some Big Changes in Macroeconomic Thinking from Lawrence Summers: ...At a truly fascinating and intense conference on the global productivity slowdown we hosted earlier this week, Lawrence Summers put forward some newly and forcefully formulated challenges to the macroeconomic status quo in his keynote speech. [pdf] ...
The first point Summers raised ... pointed out that a major global trend over the last few decades has been the substantial disemployment—or withdrawal from the workforce—of relatively unskilled workers. ... In other words, it is a real puzzle to observe simultaneously multi-year trends of rising non-employment of low-skilled workers and declining measured productivity growth. ...
Another related major challenge to standard macroeconomics Summers put forward ... came in response to a question about whether he exaggerated the displacement of workers by technology. ... Summers bravely noted that if we suppose the “simple” non-economists who thought technology could destroy jobs without creating replacements in fact were right after all, then the world in some aspects would look a lot like it actually does today...
The third challenge ... Summers raised is perhaps the most profound... In a working paper the Institute just released, Olivier Blanchard, Eugenio Cerutti, and Summers examine essentially all of the recessions in the OECD economies since the 1960s, and find strong evidence that in most cases the level of GDP is lower five to ten years afterward than any prerecession forecast or trend would have predicted. In other words, to quote Summers’ speech..., “the classic model of cyclical fluctuations, that assume that they take place around the given trend is not the right model to begin the study of the business cycle. And [therefore]…the preoccupation of macroeconomics should be on lower frequency fluctuations that have consequences over long periods of time [that is, recessions and their aftermath].”
I have a lot of sympathy for this view. ... The very language we use to speak of business cycles, of trend growth rates, of recoveries of to those perhaps non-stationary trends, and so on—which reflects the underlying mental framework of most macroeconomists—would have to be rethought.
Productivity-based growth requires disruption in economic thinking just as it does in the real world.

The  full text explains these points in more detail (I left out one point on the measurement of productivity).

Thursday, November 19, 2015

'How Workers Exit the Labor Market after Local Economic Downturns'

The main point of this research is how recessions impact labor market participation, but it also supports the claim in my most recent column that worker mobility (in terms of moving up the job ladder) has fallen due to "declining economic prospects":

How workers exit the labor market after local economic downturns: In light of the recent Great Recession, we continue to learn about how large economic downturns directly affect workers in a variety of ways. Here, we document that following an adverse demand shock, individuals exit local labor markets primarily through migration, although that has become less prominent in the Great Recession. Faced with declining economic prospects, workers are becoming more likely to stay put, without re-entering the labor market. While our research documents the increase in non-participation following adverse labor demand shocks, more needs to be done to understand what effect this phenomenon has on the broader economy. In particular, little research has been done on the effect of non-participation on wages and employment prospects for those seeking work, or on the long-term effects labor force exit has on a worker’s human capital.

Tuesday, November 17, 2015

An Essential Part of Job Creation Policy is Missing

My latest column:

An Essential Part of Job Creation Policy is Missing: The presidential candidates from both parties have focused on the struggles of the working class, and rightly so. Inequality has been rising, jobs have been hard to find, and when jobs do appear they tend to pay low wages and offer few if any benefits.  There is little security due to globalization and digital technology, and workers cannot count on adequate social insurance to insulate them from the high costs of unemployment.
Meanwhile, as wages for those who do have jobs stagnate, the costs of childcare, health care, housing, utilities, college, transportation, insurance, food, recreation (how many hours at the minimum wage are required to simply take a family of four to the movies?) and so on continue to rise making it harder and harder for families to make ends meet.
So the candidates have focused on how to create jobs that pay a decent wage. But there is an important facet of job creation that is being left out of these and other discussions...

'Where Have all the Workers Gone?'

Why have so many workers left the labor force?:

Where have all the workers gone?, by: Isabel V. Sawhill, Brookings: Employment rates among prime-age workers, especially men, have declined sharply over the last few decades. The Great Recession made matters worse. Recent declines in the unemployment rate have enticed some back into the active labor force but the long-term picture is still discouraging. When we compare the U.S. to other advanced countries, working-age adults are simply not working as much as adults in most European nations.
What's going on here? As my colleague Gary Burtless notes, three developments have probably played a role. First, real wages have fallen by 28 percent for high-school educated men since 1980, making work much less attractive, but also signaling that employers are looking for a higher level of skill. Second, the disability rolls have been growing (primarily because of musculoskeletal and mental health issues). Although getting onto disability is a long and involved process, the benefits compete favorably with what a low-skilled worker could earn and create a disincentive to re-enter the labor market. Third, now that women are almost half the labor force, the pressure for men to work has lessened.
In the shorter run, it's hard to tell how much of the recent sharp drop in employment is related to weak demand and how much to these longer-term factors. ....

Saturday, November 14, 2015

'The Silver Lining of Unemployment Benefits'

"Does making unemployment benefits more generous keep more people out of work? Ioana Marinescu shares her fascinating discovery that by making the job market more relaxed, they actually help match people with the few available job vacancies."

Friday, November 06, 2015

Employment Report

On today's' employment report:

October Jobs Growth Pushes Unemployment Rate Down to 5.0 Percent, by Dean Baker: Manufacturing wages have risen by just 2.0 percent over the last year. The Labor Department reported the economy added 271,000 jobs in October, with all but 3,000 of these jobs in the private sector. This is a sharp bounce back from the prior two months when private sector job growth averaged just 137,000. This job growth was sufficient to push the unemployment rate down slightly to 5.0 percent. While the employment-to-population ratio edged up slightly to 59.3 percent, it is still below the 59.4 percent high for the recovery. The labor force participation rate is actually down 0.4 percentage points from its year-ago level. ...

After a discussion of the details of the report, he concludes:

In short, this is a much positive report than we saw in the prior two months. However, there is much in the report that indicates there is a still a large amount of slack in the labor market.

And one more from Calculated Risk:

October Employment Report: 271,000 Jobs, 5.0% Unemployment Rate: From the BLS:

Total nonfarm payroll employment increased by 271,000 in October, and the unemployment rate was essentially unchanged at 5.0 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in professional and business services, health care, retail trade, food services and drinking places, and construction. ... The change in total nonfarm payroll employment for August was revised from +136,000 to +153,000, and the change for September was revised from +142,000 to +137,000. With these revisions, employment gains in August and September combined were 12,000 more than previously reported. ... In October, average hourly earnings for all employees on private nonfarm payrolls rose by 9 cents to $25.20, following little change in September (+1 cent). Hourly earnings have risen by 2.5 percent over the year.  ...

Again, after looking at the details within the report, he concludes:

This was well above expectations of 190,000 jobs, and revisions were up, and there was a pick up in wage growth ... a strong report.

Tuesday, November 03, 2015

'Exploring Differences in Unemployment Risk'

No surprises here, but nice to see this quantified:

Exploring Differences in Unemployment Risk, by Benjamin Pugsley, Rachel Schuh, and Ayşegül Şahin: The risk of becoming unemployed varies substantially across different groups within the labor market. Although the “headline” unemployment rate draws the most attention from the news media and policymakers, there is rich heterogeneity underlying this overall measure. We delve into the data to describe how unemployment and job loss risk vary with demographics (gender, age, and race), skill (educational attainment), and job characteristics (occupation and earnings).
Differences in unemployment across these groups are long-standing. The table below shows the average unemployment rate for various demographic, skill, and occupation groups in the labor force since 1976. Workers who are younger or less educated, workers in manual occupations, and workers who identify as Black or Hispanic experienced significantly higher average unemployment rates than college educated and older workers. ...

After presenting and discussing the evidence, they conclude:

These patterns ... have important implications for policy. Aggregate stabilization policies that aim for maximum employment would be especially helpful for demographic groups that face a higher and more cyclical risk of unemployment.

Wednesday, October 21, 2015

'Official Statistics Understate Chinese Unemployment Rate'

From the NBER Digest:

Official Statistics Understate Chinese Unemployment Rate: High and rising unemployment in China created by massive layoffs during major changes in the structure of its labor market is not reflected in government figures.

China's real unemployment rate is much higher than the official rate and, when correctly measured, is much closer to that in other nations at similar levels of development, according to "Long Run Trends in Unemployment and Labor Force Participation in China" (NBER Working Paper No. 21460). The study estimates that the actual unemployment rate in 2002-09 averaged nearly 11 percent, while the official rate averaged less than half that. Moreover, despite some reports to the contrary, by 2009 China's labor market had still not recovered from huge layoffs that occurred during the later 1990s and early 2000s as the nation transitioned from a government-controlled economy to one in which private enterprise and market forces were more at play.
"The official unemployment rate series for China is implausible and is an outlier in the distribution of unemployment rates across countries ranked by their stage of development," write researchers Shuaizhang Feng, Yingyao Hu, and Robert Moffitt. "We find that, by approximately 2002, the unemployment in China was actually higher than that of high income countries, exactly the opposite of what is implied by the official series."
The official unemployment rate in China, which is based on registered unemployment figures, has long been viewed with suspicion. Various private studies have tried to come up with better estimates. This paper uses for the first time a nationally representative sample of registered urban residents–the "hukou" population–based on urban household survey data, supplemented with weights derived from the decennial census. The study derives a much different picture of how Chinese unemployment has evolved since the mid-1990s.
The authors describe three distinct periods in China's labor market. The first–from 1988 to 1995–was characterized by an economy dominated by state-owned enterprises (SOEs). Unemployment was low: their estimate suggests an average of 3.9 percent while the official average was 2.5 percent. Then in 1995-2002, the unemployment rate rose rapidly, by one percentage point per year, as SOEs shed massive numbers of workers and rural migrants flooded the cities in search of jobs. SOEs went from employing 60 percent of China's workforce in 1995 to 30 percent in 2002. Yet the official unemployment rate reflected none of that volatility. Unemployment peaked in 2003 and began to fall in later years, by the authors' calculations. It nevertheless still averaged 10.9 percent for the 2002-09 period while the official average was only 4.2 percent.
Compared to other nations with similar gross national income per capita, China's unemployment rate in 2009 was relatively high. The authors nevertheless caution against making direct comparisons with unemployment rates in other countries, because China’s urban household survey data do not define labor-force status in exactly the same way that many developed nations do.
Some groups had worse unemployment rates than others in the transition years from 1995-2002. The study estimates that the jobless rate was 18.3 percent for non-college-educated young women and 14.5 percent for non-college-educated young men. In contrast, the estimated rates were less than 2 percent for older college-educated men and women, whose advantage was evident both before and after the transition.
"Overall, we see that people without college degrees, younger people, and females systematically face more slack labor markets than their more educated, older, and male counterparts," the authors conclude. "The most striking pattern is that younger people had very high unemployment rates, especially for more recent cohorts... Even at the age of around 30, the 1970s female cohorts had roughly a 10 percent unemployment rate, as compared to only 3 percent for females born in the 1960s."
Unsurprisingly, some regions fared worse than others during the transition. The Northeast, South Central, and Southwest regions of the country saw the largest increases in their unemployment rates during the 1995-2002 period. These were also the regions with the greatest number of SOE layoffs. In the Northeast region, for example, some 7.3 million workers were laid off during the period–42 percent of its total SOE employment in 1995.
While China's unemployment rate has soared since the mid-1990s, labor force participation has dropped. Participation averaged 83.1 percent around 1995, fell dramatically during the transition, and stabilized at around 74 percent during the 2002-09 period. Young people were hit especially hard by the layoffs during the 1995-2002 period. The labor force participation rate of young men and women, with and without college education, all fell by more than 10 percentage points.
"The results suggest that cohort differences might be in play and that the younger generation may have faced higher cost and/or lower benefit in participating [in the] labor market," the authors conclude.

Thursday, October 08, 2015

'The Slow Rate of Labor Market Improvement in 2015 is Not All That Surprising'

Federal Reserve Bank of Minneapolis president Narayana Kocherlakota:

...Why has the rate of labor market improvement slowed so much in 2015 relative to 2014? In thinking about this question, I find the timing of monetary policy changes to be highly suggestive.
In mid-2013, the FOMC announced its intention to taper its ongoing asset purchase program. We can see that this announcement represented a dramatic change in policy from the sharp upward movements in long-term bond yields that it engendered. Personally, I interpret this policy change back in 2013 as the onset of what the Committee currently intends to be a long, gradual tightening cycle. As I noted earlier, we would typically expect that such a change in monetary policy should affect the economy with a lag of about 18 to 24 months. Viewed through this lens, the slow rate of labor market improvement in 2015 is not all that surprising.
I believe the FOMC should take actions to facilitate a resumption of the 2014 improvement in the labor market by adopting a more accommodative policy stance. Remember, inflation is low, and is expected to remain low, relative to the FOMC’s target. In particular, I don’t see raising the target range for the fed funds rate above its current low level in 2015 or 2016 as being consistent with the pursuit of the kind of labor market outcomes that we are charged with delivering. Indeed, I would be open to the possibility of reducing the fed funds target funds range even further, as a way of producing better labor market outcomes.
There is, of course, a risk that inflationary pressures could build up more rapidly than I (or others) currently anticipate. But the solution to this scenario is relatively simple: Raise interest rates. Given my current outlook, I believe that it would be appropriate to wait until 2017 to initiate liftoff and then raise the fed funds rate at about 2 percentage points per year. My preferred pace of tightening mirrors the pace of tightening from 2004 to 2006—a pace of tightening that is often seen as gradual. (In fact, some would argue, with the benefit of hindsight, that it was overly gradual.) In response to unanticipated inflationary pressures, the FOMC could simply react as it did in 1994, and raise the fed funds rate more rapidly than this gradual pace.
Conclusions
... The lesson of 2014 is clear: We can do better. Given 2014, and given how low inflation is expected to be over the next few years, I see no reason why the Committee should not aim to facilitate continued improvement in labor market conditions. Indeed, I currently see no reason why we should not aim for the kind of strong labor market conditions that prevailed at the end of 2006.
But we will get there only if we make the right choices. The FOMC can achieve its congressionally mandated price and employment goals only by being extraordinarily patient in reducing the level of monetary accommodation. Indeed, to best fulfill its congressional mandates, the Committee should be considering reducing the target range for the fed funds rate, not increasing it. ...

Friday, October 02, 2015

'Job Growth Weakens in September'

Dean Baker:

Job Growth Weakens in September: The Labor Department reported the economy created just 142,000 jobs in September, well below most forecasts. Furthermore, the prior two months' numbers were revised down as well, bringing the average for the last three months to 167,000. In addition, there was a drop in the length of the average workweek of 0.1 hour causing the index of aggregate hours to decline by 0.2 percent. The household survey also showed a weak picture of the labor market. While the unemployment rate was unchanged at 5.1 percent there was a drop of 0.2 percentage points in both the labor force participation rate and the employment-to-population (EPOP) ratio. The drop in the EPOP brought the ratio back to its level of October 2014.

The weakness in job growth in the establishment survey was spread widely across sectors. ...

The average hourly wage dropped slightly in September, bringing the annual rate of growth over the last three months compared with the prior three to 2.2 percent, the same as its rate over the last year. The drop in the hourly wage, combined with the fall in hours, led to a 0.3 percent drop in the average weekly wage.

The household survey also showed a weak picture of the labor market. While the unemployment rate was unchanged there was a drop of 0.2 percentage points in both the labor force participation rate and the employment to population ratio. The low EPOP is not primarily a demographic story. The EPOP for prime-age (25–54) men is still 3.5 percentage points below its pre-recession peak and 5.0 percentage points below its 2000 high. For prime-age women the September EPOP is 2.7 percentage points below the pre-recession peak and 4.7 percentage points below the high hit in 2000. Clearly this is not a story of people leaving the labor force to retire.
Other news in the household survey was mixed. The share of unemployment due to people who voluntarily quit their jobs remained at the low 9.8 percent rate of August, a level typically seen in recessions. The duration measures all fell slightly, reversing some increases in the prior two months. The one piece of clear good news in the survey was a drop of 447,000 in the number of people working part-time for economic reasons. This number is erratic, but this is an unusually large one-month decline.

On the whole this report suggests the labor market is considerably weaker than had been generally believed. The plunge in oil prices is taking a large toll on the formerly booming mining sector. In addition, the high dollar and the resulting trade deficit is a major hit to manufacturing. The 138,000 three-month average rate of private sector job growth is the lowest since February of 2011. The strong growth in government jobs is not likely to continue with budgets still tight. With GDP growth hovering near 2.0 percent, weaker job growth is to be expected, but it will make it much more difficult for the Federal Reserve Board to raise rates this year.

Saturday, September 26, 2015

'Economics: What Went Right'

Paul Krugman returns to a familiar theme:

Economics: What Went Right: ...I’m at EconEd; here are my slides for later today. The theme of my talk is something I’ve emphasized a lot over the past few years: basic macroeconomics has actually worked remarkably well in the post-crisis world, with those of us who took our Hicks seriously calling the big stuff — the effects of monetary and fiscal policy — right, and those who went with their gut getting it all wrong. ...
One thing I do try is to concede that one piece of the conventional story hasn’t worked that well, namely the Phillips curve, where the “clockwise spirals” of previous protracted large output gaps haven’t materialized. Maybe it’s about what happens at very low inflation rates.
What’s notable about the Fed’s urge to raise rates, however, is that Fed officials, including Janet Yellen, are acting as if they have high confidence in their models of inflation dynamics –which is the one thing we really haven’t done well at recently. I really fear that we’re looking at incestuous amplification here.

Agree about the uncertainty about inflation dynamics, but fear Fed officials will interpret it as risks on the upside that must be nullified through interest rate hikes. As for the Phillips curve, here's a graph from his talk:

Image4

As Krugman says, "Maybe it’s about what happens at very low inflation rates." I would add that the combination of the zero bound, low inflation, and downward wage rigidity may be able to explain the change in the Phillips curve -- I'm not quite ready to give up yet.

More generally, estimating inflation dynamics has been far from successful. For example, in many VAR models (a widely used empirical specification for establishing relationships among macroeconomic series), a shock to the federal funds rate often causes prices to go up (theory says they should go down). This can be overcome somewhat by including commodity prices in the model. The idea is that when the Fed expects inflation to go up it raises the federal funds rate, and since the policy does not complete eliminate the inflation, the data will show a positive correlation between the federal funds rate and inflation. Commodity prices are thought to embody and be sensitive to future expected inflation, so including this variable helps to solve the "price puzzle" as it is known. Even so, the results are highly sensitive to specification, and when you work with these models regularly you come away believing that the estimated price dynamics are not very good at all.

But the Fed must forecast in order to do policy. There are lags (though I've argued they are likely shorter than common wisdom suggests), and the Fed must act before a clear picture emerges. The question is how the Fed should react to such uncertainty about its inflation forecasts, and to me -- given the corresponding uncertainties about the state of the labor market and the asymmetric nature of the costs of mistakes about inflation and unemployment (plus the distributional issues -- who gets hurt by each mistake?), it counsels patience rather than urgency on the inflation front.

Wednesday, September 23, 2015

Are We There Yet? A New Measure of Labor Market Performance

At Moneywatch, a discussion of the Atlanta Fed's new ZPOP measure of the labor market's performance:

How will the Fed know if we've hit "full employment"?: How close are we to full employment? That is a crucial question for the Federal reserve, and the answer plays a crucial role in the Federal Reserve’s decision about when to begin raising its target rate of interest.
According to the most recent data, the unemployment rate is 5.1 percent, a level that historically has been at or very near full employment. But there are well-known problems with the “headline” unemployment statistics such as the failure to account for discouraged workers, underutilized workers, and demographic effects. When these factors are accounted for, and when other statistics such as the prime-age employment to population ratio are examined, the labor market picture does not look as rosy. But there is still considerable uncertainty about the true state of the labor market, and researchers at the Atlanta Fed have developed an alternative to standard labor market measures that hopefully gives a clearer picture of where we stand. ...

[The editors always change the title/introduction, and there are usually other edits as well, but I never read the new versions to avoid becoming annoyed at the changes (I don't approve changes, they are simply made).]

Sunday, September 13, 2015

'The Jobs that AI Can't Replace'

The pickings are a bit scant so far today. You'd think it was the weekend or something. Here's something from Erik Brynjolfsson & Andrew McAfee:

The jobs that AI can't replace,BBC News: Current advances in robots and other digital technologies are stirring up anxiety among workers and in the media. There is a great deal of fear, for example, that robots will not only destroy existing jobs, but also be better at most or all of the tasks required in the future.
Our research at the Massachusetts Institute of Technology (MIT) has shown that that's at best a half-truth. While it is true that robots are getting very good at a whole bunch of jobs and tasks, there are still many categories in which humans perform better. ...

Saturday, September 12, 2015

Is the Pace at Which Labor-Saving Technology is Entering the Workforce Accelerating?

Jared Bernstein:

Back to the Future: While I’m wide open to evidence that I’m wrong, I’ve been skeptical of the claim that the robots are coming for our jobs. To be technical, the economics question is this: is the pace at which labor-saving technology is entering the workforce accelerating? ...
There are various pieces of evidence suggesting that the answer is “no.” Most importantly, if the rate at which machines are replacing workers is increasing, then productivity growth—output/hours worked—should also be increasing. But it has been slowing.
One reason for slower productivity growth is diminished investment in capital goods—like machines—a trend that also doesn’t square with the acceleration hypothesis. ...
So, what we have is largely anecdote and our own observation..., but ... when it comes to observations, humans are good at seeing first derivatives (rates of change) and less good at seeing second derivatives (changes in rates of change). We see that iPads and self-scanners are replacing waitpersons and cashiers but it’s hard for us to tell whether “labor-saving technology” ...is coming more quickly than it has in the past.
Of course, this time might really be different (some smart people say it is).
Or, as this article ... reminded me (h/t: KN), this time might not be very different at all. It’s about a new quinoa restaurant in San Francisco, called Eatsa, where you order and get your food without ever interacting with a person. ...
Now, where have I seen that before? Fifty years ago (!), I used to love to go to Manhattan automats, where ... a few coins would get you a sandwich, a veggie (not quinoa!), a slice of delicious pie, and so on. For the record, productivity growth was faster and unemployment was lower back then (though at 10, I don’t recall knowing these facts at the time).
All’s I’m saying is that tech change is always with us, and it’s really hard to tell by observation whether the pace with which it’s replacing workers is accelerating. And there are so many more moving parts to this. I’d bet a big difference between the economies in these two pictures is where the machines were manufactured. In other words, technology doesn’t historically kill labor demand. But it does move it around to different industries, occupations, and today, countries.
So before we conclude we’re all robot fodder, let’s see it in the productivity and investment data. ...

Friday, September 11, 2015

'The Job Ladder over the Business Cycle'

John Haltiwanger, Henry Hyatt, and Erika McEntarfer:

...young firms usually start small, and some of those small, young firms turn out to be highly productive and grow rapidly and poach workers away from other firms. It turns out that small, mature firms (those aged ten years or more) lose workers, on net, through poaching while young firms gain workers, on net, from poaching. Additionally, there is an important segment of large firms that offer low wages (e.g. in the retail trade sector). Those large, low-wage firms tend to hire non-employed workers, and this hiring shuts down during recessions. Moreover, workers at large, low-wage firms are often poached away by other firms. Understanding the factors that drive a wedge in the relationship between firm size, firm productivity and firm wages should be an active area for future research. Our findings suggest researchers should be cautious about using firm size as a proxy for productivity and wages in studying the dynamics of the economy.

More here.

Wednesday, September 09, 2015

'Hold the Celebration on Job Openings'

Dean Bakers says we shouldn't get overly excited about today's seemingly positive data on job openings and turnover:

Hold the Celebration on Job Openings: The Labor Department released new data this morning on job openings and turnover. The release showed a big jump in openings in July compared with June or July of 2014. In the past this has been taken as evidence of the economy's strength and also as an indication that employers are having problems get workers with the needed skills.
One problem with this story is that many of the openings are showing up in retail trade and restaurants, which are not areas where we ordinarily think the skill requirements are very high (which does not mean that the work is not difficult). The chart below shows most of the sectors responsible for the jump in openings. The biggest rise is professional and business services, which includes many highly skilled occupations, but also includes temp help and custodians. The point here is that it is not clear what is going on in these markets based on the rise in openings. If employers were really having trouble getting the workers they need then they should be offering higher pay. Thus far, they are not.

Book2 536 image001

Tuesday, September 08, 2015

The Fed Must Banish the 1970’s Inflation Devil

I have a new column:

The Fed Must Banish the 1970’s Inflation Devil: Will the Fed raise rates when it meets later this month? Inflation remains below the Fed’s two percent target, and that argues against a rate increase. But labor markets appear to be tightening and that is raising worries that higher inflation is just ahead. Should the Fed launch a preemptive strike against the possibility of wage-fueled inflationary pressure? ...

Hopefully there's at least one argument against raising rates that you have not heard before.

Friday, September 04, 2015

'Job Growth Weakens in August'

Dean Baker:

Job Growth Weakens in August: The rate of wage growth was under 2.0 percent for the last 3 months.
The Labor Department reported that the economy added 173,000 jobs in August, somewhat less than most predictions. However, the prior two months' numbers were revised upward by 44,000, bringing the average gain over the last three months to 221,000. The story on the household side was mixed. The unemployment rate dropped to 5.1 percent, as employment increased by 196,000. However the employment-to-population ratio (EPOP) was little changed at 59.4 percent, a number that is still three  percentage points below the pre-recession peak. ...
While the drop in unemployment in the August report is encouraging, the overall report is not especially positive. There is no evidence that wage growth is accelerating and there is a real risk that employment growth is slowing. The big question is whether the 140,000 private sector job growth in August is the new trend or whether it was weakened by the strong growth in prior months.

Calculated Risk:

The unemployment rate decline in August to 5.1%.

This was well below expectations of 223,000 jobs, however revisions were up, the unemployment rate declined significantly, and there was some wage growth ... overall a decent report.

Tuesday, September 01, 2015

The U.S. Economy Has Become Less Interest Rate Sensitive

This is from "Has the U.S. Economy Become Less Interest Rate Sensitive?," by Jonathan L. Willis and Guangye Cao of the KC Fed:

... IV. Conclusion Although monetary policy is an important tool for promoting price and economic stability, its efficacy can change over time. This article investigates the interest rate channel of monetary policy and, more specifically, the response of employment to changes in the federal funds rate. Analytical results suggest the interest sensitivity of employment has declined in recent decades for nearly all industries and for the overall economy. The article tests three possible explanations for the observed change in interest sensitivity. First, changes in the conduct of monetary policy do not appear to be responsible for the shift in interest sensitivity. Second, linkages between the short end and the long end of the yield curve along with linkages between financial markets and the overall economy have become protracted. Third, structural shifts have altered how employment changes at the industry level feed back to the aggregate economy. Overall, the findings suggest that the decline in the interest sensitivity of the economy is not due to changes in the conduct of monetary policy, but rather to structural changes in industries and financial markets. Future research should investigate whether and how monetary policy should adapt in response to these changes.

Thursday, August 27, 2015

'Mind the Gap: Assessing Labor Market Slack'

Joseph Tracy, Robert Rich, Samuel Kapon, and Ellen Fu say "that roughly 90 percent of the labor gap that opened up following the recession has been closed":

Mind the Gap: Assessing Labor Market Slack, Liberty Street Economics, NY Fed: Indicators of labor market slack enable economists to judge pressures on wages and prices. Direct measures of slack, however, are not available and must be constructed. Here, we build on our previous work using the employment-to-population (E/P) ratio and develop an updated measure of labor market slack based on the behavior of labor compensation. Our measure indicates that roughly 90 percent of the labor gap that opened up following the recession has been closed.
An earlier post, “A Mis-Leading Labor Market Indicator,” argued that the gap between the E/P ratio and a demographically adjusted version of the same ratio is a useful measure of labor market slack. A challenge in constructing this measure is that it requires a normalization (a level shift) to “re-center” the demographically adjusted E/P ratio. In this earlier post, we normalized by assuming that the average labor gap should be zero over a long period of time. Although this approach was easy to implement, it had the disadvantage of not being linked to wage behavior.
To better motivate an E/P-based approach, we turn to Phillips curve models that relate wage growth to labor market slack. The specification we consider relates nominal wage growth to an E/P gap variable (defined as the difference between a demographically adjusted E/P ratio and the actual E/P ratio), as well as expected inflation and trend productivity growth. Expected inflation is subtracted from nominal wage growth to derive an expected real wage growth series, which is then regressed on a constant, the E/P gap, and trend productivity growth. The E/P gap is normalized so that the estimated intercept of the Phillips curve model is set to zero. This approach implies that when the resulting normalized E/P gap is zero, expected real wage growth adjusted for the return to labor productivity is, on average, zero. That is, a labor market with no slack will have nominal wage growth, on average, equal to expected inflation plus a return to labor productivity.
We estimate Phillips curve models for three wage measures: compensation per hour, average hourly earnings, and the employment cost index. We construct four-quarter-ahead growth rates starting in the first quarter of 1982, the earliest start date for which all three measures are available, and ending in the second quarter of 2015. Expected inflation is measured using survey data on ten-year CPI inflation expectations, and trend productivity growth is a twelve-quarter moving average of (annualized) productivity growth rates. Adopting the same approach we took in another post—“U.S. Potential Economic Growth: Is it Improving with Age?”—we have extended the data sample used to estimate the demographically adjusted E/P ratio back to the early 1960s. This provides us with roughly thirteen million observations on individuals that we divide into 280 cohorts based on decade of birth, sex, race/ethnicity, and educational attainment. For each cohort, we estimate a cohort-specific profile for average employment rates by age that abstracts from cyclical effects. Aggregating these predicted employment rates across individuals produces a demographically adjusted E/P ratio, with the quarterly series derived as an average of the three monthly values.
The three Phillips curve models yield similar normalizations, so we average them instead of selecting one. The chart below shows the actual E/P ratio along with the demographically adjusted E/P ratio based on this new normalization.

E/P: Actual and Adjusted

The next chart plots the estimated E/P gap (the difference between the two series in the chart above) along with the three expected real wage growth measures adjusted for trend productivity growth. By our definition, a positive E/P gap indicates slack in the labor market. The periods in which the estimated E/P gap is zero line up well with the periods in which our adjusted real wage growth measures are also close to zero. Moreover, periods in which the adjusted wage measures have exceeded zero generally correspond to episodes of tight labor markets (negative E/P gaps), while periods in which the measures are below zero are typically associated with slack in the labor market (positive E/P gaps).

E/P Gap and Wage Measures

The current normalized E/P gap is estimated to be 32 basis points, which represents an 89 percent reduction from the 283-basis-point gap in November 2010. This finding suggests that the labor market has made considerable progress in its recovery, but is still not yet back to neutral. To gain additional perspective on this finding, we can compare the current gap with those that existed in two earlier tightening episodes. At the time the FOMC began to raise rates in February 1994, the gap was 92 basis points; at the end of that tightening cycle, it was 14 basis points. And when the Committee began to raise rates in June 2004, the gap was -38 basis points; at the end of that tightening cycle, the gap was -125 basis points. To assess labor market slack and understand the behavior of labor compensation in the quarters ahead, it will be particularly important to mind the gap.

Tuesday, August 25, 2015

'Great Recession Job Losses Severe, Enduring'

Nothing particularly surprising here -- the Great recession was unusually severe and unusually long, and hence had unusual impacts, but it's good to have numbers characterizing what happened:

Great Recession Job Losses Severe, Enduring: Of those who lost full-time jobs between 2007 and 2009, only about 50 percent were employed in January 2010 and only about 75 percent of those were re-employed in full-time jobs.
The economic downturn that began in December 2007 was associated with a rapid rise in unemployment and with an especially pronounced increase in the number of long-term unemployed. In "Job Loss in the Great Recession and its Aftermath: U.S. Evidence from the Displaced Workers Survey" (NBER Working Paper No. 21216), Henry S. Farber uses data from the Displaced Workers Survey (DWS) from 1984-2014 to study labor market dynamics. From these data he calculates both the short-term and medium-term effects of the Great Recession's sharply elevated rate of job losses. He concludes that these effects have been particularly severe.

Of the workers who lost full-time jobs between 2007 and 2009, Farber reports, only about 50 percent were employed in January 2010 and only about 75 percent of those were re-employed in full-time jobs. This means only about 35 to 40 percent of those in the DWS who reported losing a job in 2007-09 were employed full-time in January 2010. This was by far the worst post-displacement employment experience of the 1981-2014 period.
The adverse employment experience of job losers has also been persistent. While both overall employment rates and full-time employment rates began to improve in 2009, even those who lost jobs between 2011 and 2013 had very low re-employment rates and, by historical standards, very low full-time employment rates.
In addition, the data show substantial weekly earnings declines even for those who did find work, although these earnings losses were not especially large by historical standards. Farber suggests that the earnings decline measure from the DWS is appropriate for understanding how job loss affects the earnings that a full-time-employed former job-loser is able to command.
The author notes that the measures on which he focuses may understate the true economic cost of job loss, since they do not consider the value of time spent unemployed or the value of lost health insurance and pension benefits.
Farber concludes that the costs of job losses in the Great Recession were unusually severe and remain substantial years later. Most importantly, workers laid off in the Great Recession and its aftermath have been much less successful at finding new jobs, particularly full-time jobs, than those laid off in earlier periods. The findings suggest that job loss since the Great Recession has had severe adverse consequences for employment and earnings.

Friday, August 21, 2015

Evidence for Sticky Wages

John Robertson, writing at the Atlanta Fed's Macroblog, on evidence for wage stickiness:

No Wage Change?: Even when prevailing market wages are lower, businesses can find it difficult to reduce wages for their current employees. This phenomenon, often referred to as "downward nominal wage rigidity," can result in rising average wages for incumbent workers despite high unemployment levels. Some economic models predict that a period of subdued wage growth can follow, even as the labor market recovers—a kind of delayed wage-adjustment effect.
In her 2014 Jackson Hole speech, Fed Chair Janet Yellen suggested this effect may explain sluggish growth in average wages in recent years, despite significant declines in the rate of unemployment.
This macroblog post looks at evidence of wage rigidity, particularly a spike in the frequency of zero wage changes relative to wage declines. A comparison is made between hourly and weekly wages and between incumbent workers (job stayers) and those who have changed employers (job switchers).
Chart 1 shows the fractions of job stayers reporting the same or a lower hourly or weekly wage than 12 months earlier. These measures are constructed from the Current Population Survey microdata in the Atlanta Fed's Wage Growth Tracker. They include workers who are paid hourly (accounting for about 60 percent of all wage and salary earners). The measures exclude those who usually receive overtime and other supplemental pay and those with imputed or top-coded (redacted) wages. Weekly wage is defined as the hourly wage times the usual number of hours per week worked at that rate. The data are aggregated to an annual frequency (except for 2015, where the first six months of the year are covered).
Job stayers cannot be exactly identified in the data and are approximated by those who are in the same occupation and industry as they were 12 months earlier and the same job as they were in the prior month. Consistent with other studies (see, for example, the work of our colleagues at the San Francisco Fed), we find that the incidence of unchanged hourly wages among job stayers is substantial (although some of this is probably the result of rounding errors in self-reported wages). The measured share of unchanged hourly wages rose disproportionately between 2008 and 2010, and it has remained elevated since. Zero hourly wage changes (the green line in chart 1) have become almost as common as declines in hourly wages (the blue line in chart 1).

150821a

Chart 1 also suggests that weekly wages for job stayers show a pattern over time broadly similar to hourly wages. But the fraction of unchanged weekly wages (the purple line in chart 1) is lower. Each year, about 60 percent of those with no change in their hourly wage had no change in their weekly wage (or hours) either. Also, there are relatively more declines in weekly wages (the orange line in chart 1) than in hourly wages—mostly the result of reduced hours worked. On average, a reduction in weekly wages is associated with a four-hour decline in hours worked per week. About 90 percent of those with lower hourly wages also had lower weekly wages, and 20 percent of those with no change in their hourly wage had a lower weekly wage (working fewer hours).
If job stayers show a relatively high incidence of no wage change, we might expect a different story for job switchers, since they are establishing a new wage contract with a new employer. Chart 2 shows the fraction of job switchers reporting the same or a lower hourly or weekly wage than 12 months earlier. Job switchers are approximated by workers who are in a different industry than a year earlier.

150821b

Not surprisingly, a smaller share of workers experience no change in their hourly or weekly wage when switching jobs. But the pattern of zero wage change for job switchers over time is generally similar to that of job stayers. It is also true that a decline in hourly and weekly wages is more likely for job switchers than for job stayers, with a significant temporary spike in the relative frequency of wage declines for job switchers during the last recession.
Taken at face value, this analysis suggests the presence of some amount of wage rigidity. Also, rigidity increases during recessions and has remained quite elevated since the end of the last recession—especially for job stayers. The question then becomes whether this phenomenon has important macroeconomic consequences. A prediction of most models in which wage stickiness has allocative effects is that it causes firms to increase layoffs when faced with a decline in aggregate demand. Interestingly, during the last recession—when wage stickiness appears to have increased substantially—the rate of layoffs was not unusually high relative to earlier recessions. What was atypical was the size of the decline in the rate of job creation, and this decline contributed to unusually long unemployment spells. As noted by Elsby, Shin, and Solon (2014), it is not clear that an increase in wage rigidity would constrain the hiring of new workers more than it constrains the retention of existing workers.
On the other hand, persistently high wage rigidity in the wake of the Great Recession is consistent with the relatively sluggish pace of wage increases seen in most measures of aggregate wage growth via the "bending" of the short-run Phillips curve (as described by Daly and Hobijn (2014)). Interestingly, the Atlanta Fed's Wage Growth Tracker is an exception. It has indicated somewhat stronger wage growth during the last year than other measures. It will be interesting to see if that trend continues in coming months.

Monday, August 10, 2015

Job Training and Government Multipliers

Two new papers from the NBER:

What Works? A Meta Analysis of Recent Active Labor Market Program Evaluations, by David Card, Jochen Kluve, and Andrea Weber, NBER Working Paper No. 21431 Issued in July 2015: We present a meta-analysis of impact estimates from over 200 recent econometric evaluations of active labor market programs from around the world. We classify estimates by program type and participant group, and distinguish between three different post-program time horizons. Using meta-analytic models for the effect size of a given estimate (for studies that model the probability of employment) and for the sign and significance of the estimate (for all the studies in our sample) we conclude that: (1) average impacts are close to zero in the short run, but become more positive 2-3 years after completion of the program; (2) the time profile of impacts varies by type of program, with larger gains for programs that emphasize human capital accumulation; (3) there is systematic heterogeneity across participant groups, with larger impacts for females and participants who enter from long term unemployment; (4) active labor market programs are more likely to show positive impacts in a recession. [open link]

And:

Clearing Up the Fiscal Multiplier Morass: Prior and Posterior Analysis, by Eric M. Leeper, Nora Traum, and Todd B. Walker, NBER Working Paper No. 21433 Issued in July 2015: We use Bayesian prior and posterior analysis of a monetary DSGE model, extended to include fiscal details and two distinct monetary-fiscal policy regimes, to quantify government spending multipliers in U.S. data. The combination of model specification, observable data, and relatively diffuse priors for some parameters lands posterior estimates in regions of the parameter space that yield fresh perspectives on the transmission mechanisms that underlie government spending multipliers. Posterior mean estimates of short-run output multipliers are comparable across regimes—about 1.4 on impact—but much larger after 10 years under passive money/active fiscal than under active money/passive fiscal—means of 1.9 versus 0.7 in present value. [open link]

Friday, July 31, 2015

Video: NBER Feldstein Lecture by Alan Krueger on Labor Force Participation

Friday, July 17, 2015

Paul Krugman: Liberals and Wages

We can do more to encourage firms to raise wages:

Liberals and Wages, by Paul Krugman, Commentary, NY Times: Hillary Clinton gave her first big economic speech on Monday, and progressives were by and large gratified. For Mrs. Clinton’s core message was that the federal government can and should use its influence to push for higher wages. ...
Mrs. Clinton’s speech reflected major changes, deeply grounded in evidence, in our understanding of what determines wages. And a key implication of that new understanding is that public policy can do a lot to help workers without bringing down the wrath of the invisible hand.
Many economists used to think of the labor market as being pretty much like the market for anything else, with the prices of different kinds of labor — that is, wage rates — fully determined by supply and demand. So if wages for many workers have stagnated or declined, it must be because demand for their services is falling.
In particular, the conventional wisdom attributed rising inequality to technological change, which was raising the demand for highly educated workers while devaluing blue-collar work. And there was nothing much policy could do to change the trend... But the case for “skill-biased technological change” as the main driver of wage stagnation has largely fallen apart. ...
Meanwhile, our understanding of wage determination has been transformed by an intellectual revolution...
The ... market for labor isn’t like the market for, say, wheat, because workers are people. And because they’re people, there are important benefits, even to the employer, from paying them more: better morale, lower turnover, increased productivity. These benefits largely offset the direct effect of higher labor costs, so that raising the minimum wage needn’t cost jobs after all.
The direct takeaway from this intellectual revolution is, of course, that we should raise minimum wages. But there are broader implications, too: Once you take what we’ve learned from minimum-wage studies seriously, you realize that they’re not relevant just to the lowest-paid workers.
For employers always face a trade-off between low-wage and higher-wage strategies — between, say, the traditional Walmart model of paying as little as possible and accepting high turnover and low morale, and the Costco model of higher pay and benefits leading to a more stable work force. And there’s every reason to believe that public policy can, in a variety of ways — including making it easier for workers to organize — encourage more firms to choose the good-wage strategy.
So there was a lot more behind Hillary’s speech than I suspect most commentators realized. ...

Thursday, July 16, 2015

'The Fed and African-American Unemployment'

Jared Bernstein comments on Janet Yellen's assertion that the Fed is powerless to do anything about the fact that "black unemployment has averaged almost twice that of overall unemployment":

The Fed and African-American Unemployment: ...black unemployment tends to be twice that of the overall rate, and more than twice the white rate. Moreover, this level difference translates into change differences such that a one percentage point decline in overall unemployment often leads to a two point decline for blacks. See here for more details, e.g., “black unemployment has averaged almost twice that of overall unemployment since the monthly data begin in 1972 (average: 1.9, with standard deviation of 0.15, so not a ton of variation around that mean).”
In that sense, the Fed has the potential to make a huge structural difference in the economic lives of blacks and other minorities by heavily weighting the full employment part of the their mandate relative to the inflation part, especially since there’s still considerable slack in the job market, with lower-wage, minority workers facing the brunt of it, and—importantly—little evidence of inflationary pressure (if anything, the Fed has missed their inflation target on the low side for a few years running now). ...
Chair Yellen well knows this 2:1 problem, and I take her comments to mean that there’s not much the Fed can do to change it... However, economist Bill Spriggs, who knows a lot about this, argues ... that ... at full employment, employers cannot afford to discriminate against minorities the same way they can in slack markets.
And what Bill will tell you is that this phenomenon has the potential to reduce that 2:1 ratio, which would be a tremendously beneficial structural advance.

Monday, July 13, 2015

Paul Krugman: The Laziness Dogma

The economy is no longer providing "good jobs to ordinary workers". Jeb Bush thinks that means workers are lazy:

The Laziness Dogma, by Paul Krugman, Commentary, NY Times: Americans work longer hours than their counterparts in just about every other wealthy country... Not surprisingly, work-life balance is a big problem for many people.
But Jeb Bush — who is still attempting to justify his ludicrous claim that he can double our rate of economic growth — says that Americans “need to work longer hours and through their productivity gain more income for their families.”
Mr. Bush’s aides have tried to spin away his remark... It’s obvious from the context, however, that ... he was talking about ... the “nation of takers” dogma... — the insistence that a large number of Americans, white as well as black, are choosing not to work, because they can live lives of leisure thanks to government programs. ...
Where does Jeb Bush fit into this story? Well before his “longer hours” gaffe, he had professed himself a great admirer of the work of Charles Murray, a conservative social analyst most famous for his 1994 book “The Bell Curve,” which claimed that blacks are genetically inferior to whites. What Mr. Bush seems to admire most, however, is a more recent book, “Coming Apart,” which notes that over the past few decades working-class white families have been changing in much the same way that African-American families changed in the 1950s and 1960s, with declining rates of marriage and labor force participation.
Some of us look at these changes and see them as consequences of an economy that no longer offers good jobs to ordinary workers. This happened to African-Americans first, as blue-collar jobs disappeared from inner cities, but has now become a much wider phenomenon thanks to soaring income inequality. Mr. Murray, however, sees the changes as the consequence of a mysterious decline in traditional values, enabled by government programs which mean that men no longer “need to work to survive.” And Mr. Bush presumably shares that view. ...
There’s now an effective consensus among Democrats ... that workers need more help... Republicans, however, believe that American workers just aren’t trying hard enough..., and that the way to change that is to strip away the safety net while cutting taxes on wealthy “job creators.”
And while Jeb Bush may sometimes sound like a moderate, he’s very much in line with the party consensus. If he makes it to the White House, the laziness dogma will rule public policy.

Friday, July 10, 2015

'Unemployment Benefits and Job Match Quality'

From Vox EU:

Unemployment benefits and job match quality, by Arash Nekoei and Andrea Weber: The generosity of unemployment insurance is often cited as a reason for long spells of joblessness. But this view neglects other important, and potentially positive, economic aspects of such programs. Using Austrian data, this column presents evidence that unemployment insurance has a positive effect on the quality of jobs that recipients find. This can in turn have a positive effect on future tax revenues, and has implications for the debate on optimal insurance generosity. ...

Monday, July 06, 2015

'The Great Recession and its Aftermath: What Role Do Structural Changes Play?'

Jesse Rothstein at the WCEG:

The Great Recession and its aftermath: What role do structural changes play?: Overview The last seven years have been disastrous for many workers, particularly for lower-wage workers with little education or formal training, but also for some college-educated and higher-skilled workers. One explanation is that lackluster wage growth and, until recently, high unemployment reflect cyclical conditions—a combination of a lack of demand in the U.S. economy and greater sensitivity of workers on the bottom-rungs of the job ladder to changes in the business cycle. A second explanation attributes stagnant wages and employment losses to structural changes in the labor market, including long-term industrial and demographic shifts and policy changes that reduce the incentive to work. This explanation interprets recent trends as the “new normal” and suggests that the U.S. economy will never return to pre-recession labor market conditions unless policies are changed dramatically.
My research, based on a review of extensive data on labor market outcomes since the end of the Great Recession of 2007-2009, finds no basis for concluding that the recent trend of stagnant wages and low employment is the “new normal.” Rather, the data point to continued business cycle weakness as the most important determinant of workers’ outcomes over the past several years. It is only in the past few months that we have started to see data consistent with growing labor market tightness, and even this trend is too new to be confident. The continued stagnation of wages through the end of 2014 implies that, at a minimum, a fair amount of slack remained in the labor market as of that late date. In turn, policies that would promote faster recoveries and encourage aggregate demand during and after recessions remain key policy tools. ...

Thursday, July 02, 2015

Austerity: The Public-Sector Jobs Gap

Jobs-day-public-sector.png.948
[Source]

'Job Growth Slows in June'

Dean Baker:

Job Growth Slows in June: There is still little evidence of any acceleration of wage growth.
The Labor Department reported that the economy added 223,000 jobs in June. While this was in line with most economists' predictions, there were downward revisions of 60,000 to the data for the prior two months. This brings the average over the last three months to 221,000, compared to a monthly average of 245,000 over the last year.
The job growth was almost entirely in the service sector...
This report gives little hope for an uptick in wage growth. The average hourly wage over the last three months has risen at a 2.2 percent annual rate compared to the average over the prior three months. This is little different from the 2.0 percent rate of wage growth over the last year. Among major industry groups, the only one that shows much evidence of an acceleration in wage growth is restaurants. This is likely to due to the effect of minimum wage hikes in many states and cities.
The household survey also showed a mixed picture. The unemployment rate fell by 0.2 percentage points to 5.3 percent, the lowest rate for the recovery. However, this was entirely due to people dropping out of the labor force as the employment-to-population ratio (EPOP) slipped back by 0.1 percentage points to 59.3 percent. The one notable positive is that employment rates for African Americans seem to have risen, with the EPOP more than a full percentage point above the year ago level for the first half of 2015.
The overall drop in EPOPs is consistent with the sharp drop in the number of long-term unemployed reported in June, from 28.6 percent to 25.8 percent of the unemployed, as many of these workers likely dropped out of the labor market. ...
This report together with the prior two suggests the rate of job growth may be slowing somewhat. While a monthly pace of 221,000 would be strong for an economy near full employment, with the EPOP for prime age workers still about 3 percentage points below pre-recession levels, it will take several years at this rate to eliminate labor market slack.

Wednesday, July 01, 2015

Fed Watch: Ahead of the Employment Report

Tim Duy:

Ahead of the Employment Report, by Tim Duy: A rare Thursday release of the employment report is on tap for tomorrow, and all eyes will be watching to see if it falls in line with the other, more optimistic US data of late. Indeed, it increasingly looks like this year's growth scare was driven by temporary factors, not a fundamental downturn in the US economy. Consequently, anything reasonably close to expectations would bolster the case of those FOMC members looking for a first rate hike later this year, as early as September.
The ISM report for June was in-line with expectations, with fairly good internal components. Note in particular the bounce-back in the employment component:

NAPM070115

Other employment data also indicates the underlying trends in the labor market are holding. Initial unemployment claims - a leading indicator - give no cause for worry:

CLAIMS070115

And the ADP employment report came in slightly ahead of expectations at a private sector job gain of 237k for June. All of this suggests that the consensus for tomorrow's headline number of 230k is reasonable, although I am inclined to bet that the actual number will beat consensus.
The usual headline numbers, however, may not be the stars of the show. Attention will rightly be on the wage numbers. Further evidence that wage growth is accelerating would indicate that the labor market is finally closing in a full employment. Such data would point to a rate hike sooner than later as it would raise the Fed's confidence that inflation will be trending toward target. See Federal Reserve Governor Stanley Fischer today:
Regarding inflation, an important factor working to increase confidence in the inflation outlook will be continued improvement in the labor market. Theoretical and empirical evidence suggests that inflation will eventually begin to rise as resource utilization tightens. And while the link between wages and inflation can be tenuous, it is encouraging that we are seeing tentative indications of an acceleration in labor compensation.
Tantalizing evidence on wage growth comes from the Atlanta Federal Reserve Bank:

Atlanta-fed_individual-wage-growth

With fairly low inflation, this suggests that real wages growth is indeed accelerating, which helps account for the relatively solid consumer confidence numbers we are seeing. Demand for new cars and trucks also remains strong, although I sense that we are not likely to see higher numbers going forward.
Also from the Atlanta Fed is their GDP tracker, which continues to head back to consensus range:

Gdpnow-forecast-evolution

This is in-line with Fischer's assessment of the economy:
The U.S. economy slowed sharply in the first quarter of this year, with the most recent estimate being that real GDP declined 0.2 percent at an annual rate. Household spending slowed, while both business investment and net exports declined. Much of this slowdown seemed to reflect transitory factors, including harsh winter weather, labor disputes at West Coast ports, and probably statistical noise. Confirming that view, the latest monthly data on real consumption provide welcome evidence that consumer demand is rebounding, and that economic activity likely expanded at an annual rate of about 2.5 percent in the second quarter.
What about Greece? St. Louis Federal Reserve President James Bullard dismissed Greece as a reason for concern. Michael Derby at the Wall Street Journal reports:
What’s happening in Europe “would not change the timing of any rate hike. I would say September is still very much in play” for raising rates, Mr. Bullard told reporters after a speech in St. Louis. More broadly, he said “every meeting is in play depending on the data,” which he said had been “stronger” recently. He also described recent inflation data as being “more lively” and set to rise further over time.
I doubt other Federal Reserve officials are quite as confident, but they have plenty of time between now and September to assess the situation. As I said Monday, they will be looking for evidence of credit market spillovers. If they don't see it, the economic data will rule the day. Bullard also argued the case of a faster pace of rate hikes:
“The Fed should hedge against the possibility of a third major macroeconomic bubble in coming years by shading interest rates somewhat higher than otherwise” would be the case based on historical norms, Mr. Bullard said. “The benefit would be a longer, more stable economic expansion.”
Mr. Bullard warned “my view is that low interest rates tend to feed the bubble process.” He did not point to any major imbalances right now even as he flagged high stock market levels as something to watch, acknowledging the role of technology could be changing how the economy interacts with financial markets.
Derby correctly notes, however, that this places Bullard out of the Fed consensus:
Mr. Bullard’s suggesting that rates may need to be lifted more aggressively in the future puts him at odds with some of his central bank colleagues. Many key Fed officials are now gravitating to the view that changes in labor market demographics and other forces may mean the Fed could keep rates at a lower level relative to historic benchmarks. Most officials now expect that the long-term fed funds rate target, now at near zero levels, will likely stand at around 3.75%.
Fischer, for example, still argues for a gradual pace of normalization and is much more sanguine on the financial market excess:
Once we begin to remove policy accommodation, the Committee's assessment is that economic conditions will likely warrant raising the federal funds rate only gradually. Thus, we expect that the target federal funds rate will remain for some time below levels viewed as normal in the longer run. But that is only a forecast, and monetary policy will, in practice, be determined by the data--primarily data on inflation and unemployment.
What about financial stability? We are aware of the possibility that low interest rates maintained for a prolonged period could prompt an excessive buildup in leverage or cause underwriting standards to erode as investors take on risks they cannot measure or manage appropriately in a reach for yield. At this point, the evidence does not indicate that such vulnerabilities pose a significant threat, but we are carefully monitoring developments in this area.
Fischer is closer to the FOMC consensus than Bullard on these points.
Bottom Line: Incoming data continues to support the case that the underlying pace of activity is holding, alleviating concerns that kept the Fed on the sidelines in the first half of this year. I anticipate the employment report, or, more accurately, the sum of the next three reports, to say the same. Accelerating wage growth could very well be the trigger for a September rate hike, while Greece could push any rate hike beyond 2015. I myself, however, tend to be optimistic the Greece situation will not spiral out of control.

Thursday, June 18, 2015

'Wage Increases Do Not Signal Impending Inflation'

This note from Carola Binder was intended for the Fed meeting earlier this week, but it applies equally well to meetings yet to come:

Wage Increases Do Not Signal Impending Inflation: When the FOMC meets..., they will surely be looking for signs of impending inflation. Even though actual inflation is below target, any hint that pressure is building will be seized upon by more hawkish committee members as impetus for an earlier rate rise. The relatively strong May jobs report and uptick in nominal wage inflation are likely to draw attention in this respect.
Hopefully the FOMC members are aware of new research by two of the Fed's own economists, Ekaterina Peneva and Jeremy Rudd, on the passthrough (or lack thereof) of labor costs to price inflation. The research, which fails to find an important role for labor costs in driving inflation movements, casts doubts on wage-based explanations of inflation dynamics in recent years. They conclude that "price inflation now responds less persistently to changes in real activity or costs; at the same time, the joint dynamics of inflation and compensation no longer manifest the type of wage–price spiral that was evident in earlier decades." ...

Thursday, June 11, 2015

'Why Currency Manipulation Matters'

Joseph E. Gagnon:

Why Currency Manipulation Matters: Currency manipulation (CM) by foreign countries has become a major part of the debate over Trade Promotion Authority (TPA) in Congress. Lawmakers opposed to TPA have charged that China’s efforts to keep the value of its currency down in order to expand exports contributed to US job losses since the turn of the century. Previously, Fred Bergsten and I raised the possibility of including currency chapters in trade agreements as one of several possible strategies for countering CM. This post, however, focuses exclusively on the costs of CM to the US economy.
Some observers describe the cost of CM entirely in terms of jobs lost for US workers; others dispute the notion that CM has any effect on US employment. But the truth is more complicated than these simple nostrums.
Economic circumstances determine whether CM has any effect on total employment. In the recent past [when the economy was in a deep recession], CM held down US employment to a major extent. In the near future [when the economy has fully recovered], CM probably will have a negligible effect on employment.
However, CM imposes costs on the US economy even when we are at full employment. These costs are roughly comparable in magnitude to all of the gains that are projected from trade agreements with Asia-Pacific countries. ...

Monday, June 08, 2015

Falling Job Tenure: Labor as Just another Commodity

Julie L. Hotchkiss and  Christopher J. Macpherson at the Atlanta Fed's Macroblog:

Falling Job Tenure: It's Not Just about Millennials: The image of a worker in the 1950s is one of a man (for the most part) who plans on spending his entire career with one employer. We hear today, however, that "...long gone is the lifelong loyalty to a corporation with steadfast servitude for years on end." One report tells us that "people entering the workforce within the past few years may have more than 10 different jobs before they retire." The reason? "Millennials don't like commitments." Well, the explanation is probably not that simple, but even simply measuring trends in job tenure is also not all that straightforward.
Despite a strong impression that entire careers spent with one employer are a thing of the past, some have declared the image of job-hopping millennials a myth. (You can read some discussions at About.com, CNBC, and Marketwatch, for example.) These reports are all based on a September 2014 news release from the U.S. Bureau of Labor Statistics (BLS) stating that among every employee age group (even the youngest), median job tenure has not declined from when it was reported 10 years earlier. (Median job tenure is basically the "middle" amount of job tenure. If all workers are lined up from lowest tenure to highest tenure, the median tenure would be the amount of time the person in the middle of that line has been with his/her employer.)
Chart 1 illustrates the biennial data on job tenure reported by the BLS and interpreted by the reports mentioned above as indication that job tenure is not falling. Each line represents an age range, from 20- to 30-year-olds at the bottom (the lowest median tenure among all age groups) to 61- to 70-year-olds on the top (the age group with the highest median tenure). It sure doesn't look as though workers at each age group are staying with their jobs for shorter periods.
However, the problem with simply comparing median tenure across time by age group is that different ages at different time periods face different labor market institutions, incentives, and expectations. There are generational, or cohort, differences in what the labor market looks like and has to offer a 25-year-old born in 1923 and a 25-year-old born in 1993. In other words, each generation is represented across the age groups at different points in time.
The different colored points across age groups in chart 1 indicate the range of years the people in that particular year, in that age group, were born (and to what named generation they belong). The labor market facing a 31-to 40-year-old baby boomer in 1996 looks quite different from the labor market facing a 31-to-40-year-old Gen Xer in 2012, and the social, economic, and behavioral differences are even more dramatic the farther apart the generations become.
For example, one of the most dramatic changes facing workers has been the transformation from defined-benefit to defined-contribution retirement plans. The number of years a worker spends with an employer is no longer an investment in the employee's retirement. (William Even and David Macpherson (1996) illustrated the important link between the presence of an employer-sponsored retirement plan and worker tenure in their paper "Employer Size and Labor Turnover: The Role of Pensions.")
Additionally, the share of those 25 and over with a college degree in the United States has increased from 5 percent in 1950 to 32 percent in 2014, according to data from the U.S. Census Bureau. A more educated workforce is one with more general, or transferable, human capital, reducing the need to stay with just one employer to reap a return on one's investment in human capital. The transition of the U.S. economy from a basis in manufacturing to one based in services, supported by technology, also means employers require more general, rather than specific, human capital.
Firms have also changed the way they invest in workers, offering less on-the-job training than they used to, weakening their ties to the worker. And on top of all of this, because of near-instantaneous access to information, movies, and music brought by the digital age, younger cohorts are purported to have shorter attention spans than older cohorts (as reported here). All these factors shape the environment in which workers and employers view the value of longevity in their relationship.
To get a more accurate picture of the lifetime pattern of median job tenure and how it has changed across generations, we use the same BLS data used to produce the chart above to group workers into cohorts, or people who have similar experiences by virtue of when they were born. In other words, we rearrange the data used in chart 1 to line people up by birth year rather than by calendar year in order to illustrate (in chart 2) that median job tenure is indeed declining through the generations.
What we see in this chart—using the 20- to 30-year-olds, for example—is that the median job tenure was four years among those born in 1953 (baby boomers) when they were between 20 and 30 years old. For 20- to 30-year-olds born in 1993 (millennials), however, median job tenure is only one year. Similar—and some even more dramatic—declines occur across cohorts within each age group.
Declining job tenure is not just all about millennials having short attention spans. In fact, there is a greater (five-year) decline in median job tenure between 41- and 50-year-old "Depression babies" (born in 1933) and 41- to 50-year-old Gen Xers (born in 1973). So, just as our colleagues here at the Atlanta Fed discovered with regard to declines in first-time home mortgages, millennials aren't to blame for everything!
So what does declining job tenure mean for the U.S. labor market? From the perspective of the worker, portable retirement savings and, now, portable health insurance mean that workers confront a world of possibilities that our parents and grandparents never dreamt of. Yes, perhaps the days of predictability in one's career is a thing of the past. But so is the "eggs-in-one-basket" loss of retirement savings when your employer goes out of business as well as potentially slower career progression within a single firm.
From the economy's perspective, the flexibility of workers seeking their highest rents and the flexibility of firms to seek better matches for their needed skills mean greater productivity—not to mention growth—all around.

Thursday, May 14, 2015

'Weekly Initial Unemployment Claims Decreased to Lowest 4-Week Average in 15 Years'

Calculated Risk:

... The following graph shows the 4-week moving average of weekly claims since January 2000.

WeeklyClaimsMay142015

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased to 271,750.

This was well below the consensus forecast of 276,000, and the low level of the 4-week average suggests few layoffs. This is the lowest 4-week average in 15 years (since April 2000).

Note: If the 4-week average falls to 266,000, it will be the lowest in 40 years!

Friday, May 08, 2015

'Rising Trade Deficit Slows Job Growth in Manufacturing'

Dean Baker on the employment report:

Rising Trade Deficit Slows Job Growth in Manufacturing: Employment rates for prime age workers in the U.S. are low compared to other countries.
The Labor Department reported the economy created 223,000 jobs in April. This is disappointing since the already weak March number was revised down by 41,000 to 85,000. Since the March number was held down by unusually bad weather, it was reasonable to expect more of a bounceback in April. With the downward revision, the two-month average is just 154,000, a considerable falloff from last year’s pace.

There were few sectors showing much strength in the month. Professional and business services added 62,000 jobs, 20,700 of which were in the relatively high-paying professional and technical services sector. Construction added 45,000 after a reported loss of 9,000 in March. Health care added 45,200 jobs, up considerably from its average of 33,000 over the last year. Restaurants added 26,000 jobs after losing 7,400 jobs in March. Over the last year, job growth averaged more than 32,000 a month. The government sector added 10,000 jobs in April, reversing a loss of 9,000 jobs in March.

Manufacturing employment has essentially gone flat, adding just 1,000 jobs. Employment in the sector is up by just 4,000 since January, and because the average workweek has declined, the index of aggregate weekly hours in manufacturing is down by 0.5 percent from its January level. Overtime hours are also down sharply over the last year. This is consistent with the data showing a rise in the trade deficit due to the stronger dollar.

A downward revision to last month’s wages eliminated the little evidence we had seen of accelerating wage growth. The annual rate of growth over the last three months compared with the prior three months is 2.3 percent, compared to 2.2 percent over the last year.

The news is a bit better in the household survey. The unemployment rate edged down slightly to 5.4 percent. The number of involuntary part-time workers fell by 125,000 from the March level and is now down by 880,000 from its year-ago level. Meanwhile, the number of people who choose to work part-time rose by 320,000 from March and is up by 1,140,000 (6.0 percent) from its year-ago level. This is likely due to the increased flexibility offered by the Affordable Care Act.

Interestingly, college educated workers are not doing especially well in the recovery. The employment-to-population ratio (EPOP) for college grads is down by 0.2 percentage points over the last year and is down by 4.0 percentage points from its pre-recession level. By contrast, the EPOP for workers without high school degrees has risen by 1.4 percentage points over the last year and is down by less than 2.0 percentage points from its pre-recession level.

buffie-cashman-2015-03-25

The share of unemployment due to people voluntarily quitting their jobs fell back to 9.7 percent after being at 10.2 percent the last two months. The average duration of unemployment was near its lowest level throughout the recovery, and the share of long-term unemployed fell to near its lowest level in the recovery.

There continues to be a debate among economists over the extent to which the fall in employment rates is cyclical. In this respect, it is worth noting that much of the decline is among prime age workers (25-54), not the result of the retirement of the baby boomers. The United States is doing far worse in employing prime age workers than its competitors. Its prime age EPOP fell from just under 80.0 percent before the downturn to slightly above 77.0 percent in the most recent quarterly data. By contrast, Germany and Japan have both seen sharp rises in EPOPs to 83.4 percent and 82.6 percent, respectively. Even France, which has seen a modest decline in prime age EPOPs, still has an EPOP of 80.4 percent.

If the March and April jobs reports are taken together, they give a picture of job growth at a considerably slower pace than what we saw last year. This is more consistent with the rate of economic growth that we saw in 2014, and which may have slowed further in the first quarter (after accounting for weather). Productivity growth has been extraordinarily weak through the recovery and has actually been negative in the last two quarters. Without some additional spur to growth to offset the trade deficit, it appears that a return to trend productivity growth is likely to be associated with slower job growth.

See also: Calculated Risk.