Saturday, October 18, 2014
Wednesday, October 15, 2014
Josh Bivens has an adjective quibble:
Adjective Quibble: The Long-Term Unemployment Rate is NOT “Sticky” or “Stubborn”: A Wall Street Journal blog post this morning describes an Obama administration initiative to combat long-term unemployment. In the opening sentence, the author follows a too-common convention in describing the long-term unemployment rate as “sticky.” Sometimes the adjective is “stubborn.”
I know that this will sound like quibbling, but in this case adjectives really matter for understanding the problem. As a paper I co-wrote shows pretty clearly, the long-term unemployment rate (LTUR) has not been sticky or stubborn for years. In fact, the LTUR has fallen faster than one would expect given the overall pace of labor market improvement. It is true that the LTUR remains too high, but that is because it skyrocketed during the Great Recession and in the six months after its official end. But the LTUR has since then not become resistant to wider labor market improvement.
The concrete policy implication of recognizing this is that by far the most important thing that can be done to lower the still too-high LTUR is to maintain support for economic recovery more broadly. In today’s far too narrow macroeconomic policy debate, this simply means the Fed should not boost short-term interest rates until the labor market is much, much healthier (including a much lower LTUR). ...
And it's still far from too late for fiscal policy -- infrastructure spending for example -- to make a difference. But don't get your hopes up...
Tuesday, October 14, 2014
An entry in the ongoing debate over the Phillips curve:
The mythical Phillips curve?, by Simon Wren-Lewis, mainly macro: Suppose you had just an hour to teach the basics of macroeconomics, what relationship would you be sure to include? My answer would be the Phillips curve. With the Phillips curve you can go a long way to understanding what monetary policy is all about.
My faith in the Phillips curve comes from simple but highly plausible ideas. In a boom, demand is strong relative to the economy’s capacity to produce, so prices and wages tend to rise faster than in an economic downturn. However workers do not normally suffer from money illusion: in a boom they want higher real wages to go with increasing labour supply. Equally firms are interested in profit margins, so if costs rise, so will prices. As firms do not change prices every day, they will think about future as well as current costs. That means that inflation depends on expected inflation as well as some indicator of excess demand, like unemployment.
Microfoundations confirm this logic, but add a crucial point that is not immediately obvious. Inflation today will depend on expectations about inflation in the future, not expectations about current inflation. That is the major contribution of New Keynesian theory to macroeconomics. ...[turns to evidence]...
Is it this data which makes me believe in the Phillips curve? To be honest, no. Instead it is the basic theory that I discussed at the beginning of this post. It may also be because I’m old enough to remember the 1970s when there were still economists around who denied that lower unemployment would lead to higher inflation, or who thought that the influence of expectations on inflation was weak, or who thought any relationship could be negated by direct controls on wages and prices, with disastrous results. But given how ‘noisy’ macro data normally is, I find the data I have shown here pretty consistent with my beliefs.
Tuesday, October 07, 2014
It’s Not a Skills Gap That’s Holding Wages Down: It's the Weak Economy, Among Other Things: The inadequate quantity and quality of American jobs is one of the most fundamental economic challenges we face. It’s not the only challenge: Poverty, inequality, and stagnant mobility loom large, as well. But in a nation like ours, where wages and salaries are key to the living standards of working-age households, all these challenges flow from the labor market problem.
OK, but this is a supposed to be an article about technology. What’s the linkage between technology and this fundamental problem? As a D.C.-based economist who’s been working on the issue of jobs and earnings for almost 25 years, trust me when I tell you that most policy makers believe the following:
“Yes, there’s a problem of job quantity and quality, but it’s largely a skills problem. Because of recent technological advances, most notably computerization, an increasing share of the workforce lacks the skills to meet the demands of today’s workplaces.
What’s more, the pace at which technology is replacing the inadequately skilled is accelerating—think robotics and artificial intelligence. These dynamics explain growing wage stagnation, wage inequality, and the structural unemployment of those without college degrees.”
Problem is, most of that is wrong.
Technology and employers’ skill demands have played a critical role in our job market forever, but they turn out to be of limited use in explaining the depressed incomes of today, or of the past decade. ...
This is part of a post from three years ago when people were making similar arguments about the skills gap (another way of saying the problem is structural, not cyclical):
I wish I'd remembered point three when I wrote recently about the difficulty of separating cyclical and structural unemployment. I was saying, essentially, the same thing that Peter Diamnond says here (via):
...Third, I am skeptical of the value of attempting to separate cyclical from structural unemployment over a business cycle.... The tighter the labor market and the more valuable the filling of a vacancy, the more a firm is willing to hire a worker who is a less good match, who may need more training.... [A] worker who might be viewed as structurally unemployed, as facing serious mismatch in the current state of the economy, may be readily employable in a tight labor market. The common practice of thinking about the extent of unemployment as a sum of frictional, structural and cyclical parts misses the point.... [D]irect measures of frictional or structural unemployment... dependent on the tightness of the labor market... have limited relevance for the role of demand stimulation policies. The idea that the US economy is not adaptable and capable of dealing with the need for skills and jobs to adapt to each other is peculiar, given the long history of unemployment going up and down. When the labor market is tight and firms have trouble finding workers, they reach out to places they have not looked before and extend training in order to find workers who can fill their needs. ...
Here's (part of) the post of mine referred to above:
Cyclical and structural unemployment can be hard to tell apart. For example, suppose that a business owner would like to hire someone to operate a complicated piece of machinery, and needs someone with experience. The owner offers $10 per hour, but, unfortunately, no one applies. Interviewed by the local paper, the owner complains that qualified workers simply aren't available.
However, that is not true. There is an unemployed worker who has been running that kind of machine for 10 years. He's good at it, and only lost his job due to the fact that the place he had worked for the last 10 years shut its doors in the recession. At $15 per hour, or more, he would have taken the job. But $10 is just not enough to pay the bills and save the house, and he decides to hold out and hope that something better comes along.
So whose fault is it? Should be blame the worker for being unwilling to take a decent job due to the fact that it doesn't pay enough (perhaps unemployment compensation is helping the worker to wait for a job that will pay enough to support the household)? Should we blame the store owner for not paying enough to attract workers with families to support? Neither, the problem is lack of demand.
If times were better, i.e. demand were stronger, the business owner could afford to pay $15, and would -- problem solved. So, all that is needed is an increase in demand for the products the business sells (demand that would exist if the worker and others like him had jobs). But at current demand levels, which are depressed, it is not worth it to pay that much. The business owner would be losing money.
So is the problem cyclical or structural? It will look like structural unemployment in the data, the owner can't find anyone who is qualified who will take the job at the wage being offered, but the heart the problem is a lack in demand. ...
Or, as I've told the story at other times, there is a worker in another city who is unemployed, well--trained for this job, but the wage that is offered does not provide enough income to justify moving. At a higher wage, it might. Again, a problem that looks structural is actually due to lack of demand. With more demand, and the ability to pay a higher wage, the firm would find the skilled worker it seeks.
But I like the way Peter Diamond said it best.
The Labor Market Conditions Index: Use With Care, by Tim Duy: I was curious to see how the press would report on the Federal Reserve Board's new Labor Market Conditions Index. My prior was that the reporting should be confusing at best. My favorite so far is from Reuters, via the WSJ:
Fed Chairwoman Janet Yellen has cited the new index as a broader gauge of employment conditions than the unemployment rate, which has fallen faster than expected in recent months. The index’s slowdown over the summer could bolster the argument that the Fed should be patient in watching the economy improve before raising rates.But its pickup last month could strengthen the case that the labor market is tightening fast and officials should consider raising rates sooner than widely expected. Many investors anticipate the Fed will make its first move in the middle of next year, a perception some top officials have encouraged.
Translation: We don't know what it means.
Now, this is not exactly the fault of the press. The Fed appears to want you to believe the LCMI is important, but they really don't give you reason to believe it should be important. They don't even release the LCMI - the charts on Business Week and US News and World Report are titled erroneously. The Fed releases the monthly change of the LCMI, as noted by Business Insider. But wait, no that's not right either. They actually release the six-month moving average of the LCMI, which means we really don't know the monthly change.1 What the Fed releases might actually be more impacted by what left the average six months ago than the reading from the most recent month. And you should recognize the danger of the six-month moving average - the longer the smoothing process, the more likely to miss turning points in the data. Unless of course the Fed released the raw data to follow as well. Which they don't.
The LCMI becomes even more confusing because it has been impressed upon the financial markets that it must have a dovish interpretation. From Business Insider:
The index was first "made famous" by Fed Chair Janet Yellen in her speech at Jackson Hole, when she said, "This broadly based metric supports the conclusion that the labor market has improved significantly over the past year, but it also suggests that the decline in the unemployment rate over this period somewhat overstates the improvement in overall labor market conditions."Recall that at Jackson Hole, Yellen spoke about the labor market puzzle of a steadily declining unemployment rate and strong payroll gains against the backdrop of declining labor force participation and flat wages.
Consider this in light of this from the Fed:
The first part of the associated commentary:
Table 2 reports the cumulative and average monthly change in the LMCI during each of the NBER-defined contractions and expansions since 1980. Over that time period, the LMCI has fallen about an average of 20 points per month during a recession and risen about 4 points per month during an expansion. In terms of the average monthly changes, then, the labor market improvement seen in the current expansion has been roughly in line with its typical pace...
If you look closely, the average monthly change during this expansion is faster than every recovery since the 1980-81 expansion. How does this fit with the conventional wisdom that we are experiencing a slow labor market recovery? Indeed, look at the chart:
According to this measure, the pace of improvement in this recovery exceeds than much of the 1990's. Think about that.
Moreover, consider the next sentence of the commentary:
...That said, the cumulative increase in the index since July 2009 (290 index points) is still smaller in magnitude than the extraordinarily large decline during the Great Recession (over 350 points from January 2008 to June 2009).
OK - so the Fed thinks the cumulative change is important. They think it is relevant that the LCMI has not retraced all of its losses. Let's take this idea further. Rather than using the recession dating, consider the even larger move from peak to trough. Between May 2007 to June 2009, the cumulative decrease in the LCMI was 398.4. Since then, the cumulative increase is 300.7, so the LCMI has retraced 75% of its losses.
Now consider the unemployment rate. The unemployment rate increased 5.6 percentage points from a low of 4.4% to a high of 10%. SInce then it has retraced 4.1 percentage points of that gain to last month's 5.9% rate. 4.1 is 73% of 5.6. In other words, the unemployment rate has retraced 73% of it losses.
The LCMI has retraced 75% of its losses. The unemployment rate has retraced 73% of it losses. So the LCMI shows the exact same amount of improvement in labor market conditions peak to trough as implied by the retracement of the unemployment rate.
You see the problem. The LCMI (or the data made available to the public) suggests the same amount of improvement in labor market conditions as implied by the unemployment rate. The LCMI suggests a faster pace of improvement than that seen in the previous three recoveries. So how exactly does Yellen reach the conclusion that "the decline in the unemployment rate over this period somewhat overstates the improvement in overall labor market conditions"? I am not seeing it on the basis of the data provided. Indeed, where exactly is the research showing the LCMI has some policy relevance?
Then again, this could be exactly why Yellen uses the modifier "somewhat" in the above quote. Perhaps she has no conviction that the LCMI provides information not already in the unemployment rate. If that's the case, then expect the LCMI to die on the vine, eventually relegated to be computed by whoever still has the p-star model on their list of assignments.
Bottom Line: Use the Fed's new labor market index with caution. Extreme caution. They are not releasing the raw data. They don't appear to have research explaining its policy relevance. Yellen's halfhearted claim that it provides information above and beyond the unemployment rate is questionable with a simple look at the cumulative change of the index compared to that of unemployment. And her halfhearted claims are even more telling given that she was the impetus for the research. If it was policy relevant, you would think she would be a little more enthusiastic (think optimal control). Moreover, the faster pace of recovery of the index compared to previous recessions - as clearly indicated by the Fed - seems completely at odds with the story it is supposed to support. Simply put, the press and financial market participants should be pushing the Fed much harder to explain exactly why this measure is important.
1. The LCMI data provided by the Fed is described as the "average monthly change." I am not sure why they don't explicitly provide the span of the averaging, but the website describes it as "Chart 1 plots the average monthly change in the LMCI since 1977. Except for the final bar, which covers the first quarter of 2014, each of the bars represents the average over a six-month period."
Friday, October 03, 2014
Bill McBride on today's employment report:
Comments on Employment Report: Party Like it's 1999!: Earlier: September Employment Report: 248,000 Jobs, 5.9% Unemployment Rate
This was a solid report with 248,000 jobs added and combined upward revisions to July and August of 69,000. As always we shouldn't read too much into one month of data, but at the current pace (through September), the economy will add 2.72 million jobs this year (2.64 million private sector jobs). Right now 2014 is on pace to be the best year for both total and private sector job growth since 1999.
A few other positives: the unemployment rate declined to 5.9% (the lowest level since July 2008), U-6 (an alternative measure for labor underutilization) was at the lowest level since 2008, the number of part time workers for economic reasons declined slightly (lowest since October 2008), and the number of long term unemployed declined to the lowest level since January 2009.
Unfortunately wage growth is still subdued. From the BLS: "Average hourly earnings for all employees on private nonfarm payrolls, at $24.53, changed little in September (-1 cent). Over the year, average hourly earnings have risen by 2.0 percent. In September, average hourly earnings of private-sector production and nonsupervisory employees were unchanged at $20.67."
With the unemployment rate at 5.9%, there is still little upward pressure on wages. Wages should pick up as the unemployment rate falls over the next couple of years, but with the currently low inflation and little wage pressure, the Fed will likely remain patient.
A few more numbers...
[Dean Baker's comments are here.]
Wednesday, October 01, 2014
Jared Bernstein says there's more slack in the labor market than you'd think from just looking at the unemployment rate:
...So why not just look at the unemployment rate and call it a day? Because special factors in play right now make the jobless rate an inadequate measure of slack. In fact, at 6.1 percent last month, it’s within spitting distance of the rate many economists consider to be consistent with full employment, about 5.5 percent (I think that’s too high, but that’s a different argument).
There are at least two special factors that are distorting the unemployment rate’s signal. First, there are over seven million involuntary part-time workers, almost 5 percent of the labor force, who want, but can’t find, full-time jobs. That’s still up two percentage points from its pre-recession trough. Importantly, the unemployment rate doesn’t capture this dimension of slack at all...
The second special factor masking the extent of slack as measured by unemployment has to do with participation in the labor force. Once you give up looking for work, you’re no longer counted in the unemployment rate, so if a bunch of people exit the labor force because of the very slack we’re trying to measure, it artificially lowers unemployment, making a weak labor market look better.
That’s certainly happened over the recession and throughout the recovery...
There's still plenty of room, and plenty of time for fiscal policymakers to do more to help the unemployed (and with infrastructure, our future economic growth at the same time). Unfortunately, Congress has been captured by other interests. As for monetary policy, let's hope that the FOMC listens to Charles Evans' call for patience. Raising rates too late and risking a temporary outbreak of inflation is far less of a mistake than raising them too early and slowing the recovery of employment. And there's this too: Unemployment Hurts Happiness More Than Modest Inflation.
Sunday, September 28, 2014
Acemoglu, Autor, Dor, Hansen, and Price (I've noted this paper once or twice already in recent months, but thought it worthwhile to post their summary of te work):
The rise of China and the future of US manufacturing, by Daron Acemoglu, David Autor, David Dorn, Gordon H. Hanson, and Brendan Price, Vox EU: The end of the Great Recession has rekindled optimism about the future of US manufacturing. In the second quarter of 2010 the number of US workers employed in manufacturing registered positive growth – its first increase since 2006 – and subsequently recorded ten consecutive quarters of job gains, the longest expansion since the 1970s. Advocating for the potential of an industrial turnaround, some economists give a positive spin to US manufacturing’s earlier troubles: while employment may have fallen in the 2000s, value added in the sector has been growing as fast as the overall US economy. Its share of US GDP has kept stable, an achievement matched by few other high-income economies over the same period (Lawrence and Edwards 2013, Moran and Oldenski 2014). The business press has giddily coined the term ‘reshoring’ to describe the phenomenon – as yet not well documented empirically – of companies returning jobs to the United States that they had previously offshored to low-wage destinations.
Before we declare a renaissance for US manufacturing, it is worth re-examining the magnitude of the sector’s previous decline and considering the causal factors responsible for job loss. The scale of the employment decline is indeed stunning. Figure 1 shows that in 2000, 17.3 million US workers were employed in manufacturing, a level that with periodic ups and downs had changed only modestly since the early 1980s. By 2010, employment had dropped to 11.5 million workers, a 33% decrease from 2000. Strikingly, most of this decline came before the onset of the Great Recession. In the middle of 2007, on the eve of the Lehman Brothers collapse that paralysed global financial markets, US manufacturing employment had already dipped to 13.9 million workers, such that three-fifths of the job losses over the 2000 to 2010 period occurred prior to the US aggregate contraction. Figure 1 also reveals the paltriness of the recent manufacturing recovery. As of mid-2014, the number of manufacturing jobs had reached only 12.1 million, a level far below the already diminished pre-recession level.
Figure 1. US employment , 1980q1-2014q3
Source: US Bureau of Labor Statistics.
We examine the reasons behind the recent decline in US manufacturing employment (Acemoglu et al. 2014). Our point of departure is the coincidence of the 2000s swoon in US manufacturing and a significant increase in import competition from China (Bernard et al. 2006). Between 1990 and 2011 the share of global manufacturing exports originating in China surged from two to 16% (Hanson 2012). This widely heralded export boom was the outcome of deep economic reforms that China enacted in the 1980s and 1990s, which were further extended by the country’s joining the World Trade Organization in 2001 (Brandt et al. 2012, Pierce and Schott 2013). China’s share in US manufacturing imports has expanded in concert with its global presence, rising from 5% in 1991 to 11% in 2001 before leaping to 23% in 2011. Could China’s rise be behind US manufacturing’s fall?
The first step in our analysis is to estimate the direct impact of import competition from China on US manufacturing industries. Suppose that the economic opening in China allows the country to realise a comparative advantage in manufacturing that had lain dormant during the era of Maoist central planning, which entailed near prohibitive barriers to trade. As reform induces China to reallocate labour and capital from farms to factories and from inefficient state-owned enterprises to more efficient private businesses, output will expand in the sectors in which the country’s comparative advantage is strongest. China’s abundant labour supply and relatively scarce supply of arable land and natural resources make manufacturing the primary beneficiary of reform-induced industrial restructuring. The global implications of China’s reorientation toward manufacturing – strongly abetted by inflows of foreign direct investment – are immense. China accounts for three-quarters of all growth in manufacturing value added that has occurred in low and middle income economies since 1990.
For many US manufacturing firms, intensifying import competition from China means a reduction in demand for the goods they produce and a corresponding contraction in the number of workers they employ. Looking across US manufacturing industries whose outputs compete with Chinese import goods, we estimate that had import penetration from China not grown after 1999, there would have been 560,000 fewer manufacturing jobs lost through 2011. Actual US manufacturing employment declined by 5.8 million workers from 1999 to 2011, making the counterfactual job loss from the direct effect of greater Chinese import penetration amount to 10% of the realised job decline in manufacturing.
These direct effects of trade exposure do not capture the full impact of growing Chinese imports on US employment. Negative shocks to one industry are transmitted to other industries via economic linkages between sectors. One source of linkages is buyer-supplier relationships (Acemoglu et al. 2012). Rising import competition in apparel and furniture – two sectors in which China is strong – will cause these ‘downstream’ industries to reduce purchases from the ‘upstream’ sectors that supply them with fabric, lumber, and textile and woodworking machinery. Because buyers and suppliers often locate near one another, much of the impact of increased trade exposure in downstream industries is likely to transmit to suppliers in the same regional or national market. We use US input-output data to construct downstream trade shocks for both manufacturing and non-manufacturing industries. Estimates from this exercise indicate sizeable negative downstream effects. Applying the direct plus input-output measure of exposure increases our estimates of trade-induced job losses for 1999 to 2011 to 985,000 workers in manufacturing and to two million workers in the entire economy. Inter-industry linkages thus magnify the employment effects of trade shocks, almost doubling the size of the impact within manufacturing and producing an equally large employment effect outside of manufacturing.
Two additional sources of linkages between sectors operate through changes in aggregate demand and the reallocation of labour. When manufacturing contracts, workers who have lost their jobs or suffered declines in their earnings subsequently reduce their spending on goods and services. The contraction in demand is multiplied throughout the economy via standard Keynesian mechanisms, depressing aggregate consumption and investment. Helping offset these negative aggregate demand effects, workers who exit manufacturing may take up jobs in the service sector or elsewhere in the economy, replacing some of the earnings lost in trade-exposed industries. Because aggregate demand and reallocation effects work in opposing directions, we can only detect their net impact on total employment. A further complication is that these impacts operate at the level of the aggregate economy – as opposed to direct and input-output effects of trade shocks which operate at the industry level – meaning we have only as many data points to detect their presence as we have years since the China trade shock commenced. Since China’s export surge did not hit with full force until the early 1990s, the available time series for the national US economy is disconcertingly short.
To address this data challenge, we supplement our analysis of US industries with an analysis of US regional economies. We define regions to be ‘commuting zones’ which are aggregates of commercially linked counties that comprise well-defined local labour markets. Because commuting zones differ sharply in their patterns of industrial specialisation, they are differentially exposed to increased import competition from China (Autor et al. 2013). Asheville, North Carolina, is a furniture-making hub, putting it in the direct path of the China maelstrom. In contrast, Orlando, Florida (of Disney and Harry Potter World Fame), focuses on tourism, leaving it lightly affected by rising imports of manufactured goods. If the reallocation mechanism is operative, then when a local industry contracts as a result of Chinese competition, some other industry in the same commuting zone should expand. Aggregate demand effects should also operate within local labour markets, as shown by Mian and Sufi (2014) in the context of the recent US housing bust. If increased trade exposure lowers aggregate employment in a location, reduced earnings will decrease spending on non-traded local goods and services, magnifying the impact throughout the local economy.
Our estimates of the net impact of aggregate demand and reallocation effects imply that import growth from China between 1999 and 2011 led to an employment reduction of 2.4 million workers. This figure is larger than the 2.0 million job loss estimate we obtain for national industries, which only captures direct and input-output effects. But it still likely understates the full consequences of the China shock on US employment. Neither our analysis for commuting zones nor for national industries fully incorporates all of the adjustment channels encompassed by the other. The national-industry estimates exclude reallocation and aggregate demand effects, whereas the commuting-zone estimates exclude the national component of these two effects, as well as the non-local component of input-output linkage effects. Because the commuting zone estimates suggest that aggregate forces magnify rather than offset the effects of import competition, we view our industry-level estimates of employment reduction as providing a conservative lower bound.
What do our findings imply about the potential for a US manufacturing resurgence? The recent growth in manufacturing imports to the US is largely a consequence of China’s emergence on the global stage coupled with its deep comparative advantage in labour-intensive goods. The jobs in apparel, furniture, shoes, and other wage-sensitive products that the United States has lost to China are unlikely to return. Even as China’s labour costs rise, the factories that produce these goods are more likely to relocate to Bangladesh, Vietnam, or other countries rising in China’s wake than to reappear on US shores. Further, China’s impact on US manufacturing is far from complete. During the 2000s, the country rapidly expanded into the assembly of laptops and cell-phones, with production occurring increasingly under Chinese brands, such as Lenovo and Huawei. Despite this rather bleak panorama, there are sources of hope for manufacturing in the United States. Perhaps the most encouraging sign is that the response of many companies to increased trade pressure has been to increase investment in innovation (Bloom et al. 2011). The ensuing advance in technology may ultimately help create new markets for US producers. However, if the trend toward the automation of routine jobs in manufacturing continues (Autor and Dorn 2013), the application of these new technologies is likely to do much more to boost growth in value added than to expand employment on the factory floor.
Acemoglu D, V Carvalho, A Ozdaglar, and A Tahbaz-Salehi (2012), “The Network Origins of Aggregate Fluctuations.” Econometrica, 80(5): 1977-2016.
Acemoglu D, D H Autor, D Dorn, G H Hanson, and B Price (2014), “Import Competition and the Great US Employment Sag of the 2000s.” NBER Working Paper No. 20395.
Autor, D H and D Dorn (2013), “The Growth of Low Skill Service Jobs and the Polarization of the US Labor Market.” American Economic Review, 103(5), 1553-1597.
Autor D H, D Dorn, and G H Hanson (2013a) “The China Syndrome: Local Labor Market Effects of Import Competition in the United States.” American Economic Review, 103(6): 2121-2168.
Bernard A B, J B Jensen, and P K Schott (2006), “Survival of the Best Fit: Exposure to Low-Wage Countries and the (Uneven) Growth of US Manufacturing Plants.” Journal of International Economics, 68(1), 219-237.
Bloom N, M Draca, and J Van Reenen (2012), “Trade Induced Technical Change? The Impact of Chinese Imports on Innovation, IT, and Productivity.” Mimeo, Stanford University.
Brandt L, J Van Biesebroeck, and Y Zhang (2012), “Creative Accounting or Creative Destruction? Firm-Level Productivity Growth in Chinese Manufacturing.” Journal of Development Economics, 97(2): 339-351.
Hanson, G (2012), “The Rise of Middle Kingdoms: Emerging Economies in Global Trade.” Journal of Economic Perspectives, 26(2): 41-64.
Mian, A and A Sufi (2014), “What Explains the 2007-2009 Drop in Employment?” Econometrica, forthcoming.
Pierce, J R and P K Schott (2013), “The Surprisingly Swift Decline of US Manufacturing Employment.” Yale Department of Economics Working Paper, November.
Friday, September 26, 2014
The long-term unemployed need more help than they are getting:
Long-term Unemployed Struggle as Economy Improves: While the unemployment rate for people out of work for six months or less has returned to prerecession levels, the levels of unemployment for workers who remain jobless for more than six months is among the most persistent, negative effects of the Great Recession, according to a new national study at Rutgers. In fact, one in five workers laid off from a job during the last five years are still unemployed and looking for work, researchers from the John J. Heldrich Center for Workforce Development found.
Among the key findings of "Left Behind: The Long-term Unemployed Struggle in an Improving Economy":
- Approximately half of the laid-off workers who found work were paid less in their new positions; one in four say their new job was only temporary.
- Only one in five of the long-term unemployed received help from a government agency when looking for a job; only 22 percent enrolled in a training program to develop skills for a new job; and 60 percent received no government assistance beyond unemployment benefits.
- Nearly two-thirds of Americans support increasing funds for long-term education and training programs, and greater spending on roads and highways in order to assist unemployed workers.
As of last August, 3 million Americans, nearly one in three unemployed workers, have been unemployed for more than six months and more than 2 million Americans have been out of work for more than a year...
This research provides a detailed record of the enduring effects of the Great Recession on the unemployed and long-term unemployed five years after the economy started growing again in June 2009.
The survey also found that:
- More than seven in 10 long-term unemployed say they have less in savings and income than they did five years ago.
- More than eight in 10 of the long-term unemployed rate their personal financial situation negatively as only fair or poor.
- More than six in 10 unemployed and long-term unemployed say they experienced stress in family relationships and close friendships during their time without a job.
- Fifty-five percent of the long-term unemployed say they will need to retire later than planned because of the recession, while 5 percent say the weak economy forced them into early retirement.
- Nearly half of the long-term unemployed say it will take three to 10 years for their families to recover financially. Another one in five say it will take longer than that or that they will never recover.
..."These long-term unemployed workers have been left behind to fend for themselves as they struggle to pull their lives back together."
Monday, September 22, 2014
Why are conservatives are blaming the victims of the recession despite "evidence and logic" to the contrary?:
Those Lazy Jobless, by Paul Krugman, Commentary, NY Times: Last week John Boehner, the speaker of the House, explained to an audience at the American Enterprise Institute what’s holding back employment in America: laziness. People, he said, have “this idea” that “I really don’t have to work. I don’t really want to do this. I think I’d rather just sit around.” Holy 47 percent, Batman!
It’s hardly the first time a prominent conservative has said something along these lines. Ever since a financial crisis plunged us into recession it has been a nonstop refrain on the right that the unemployed aren’t trying hard enough, that they are taking it easy thanks to generous unemployment benefits, which are constantly characterized as “paying people not to work.” And the urge to blame the victims of a depressed economy has proved impervious to logic and evidence.
But it’s still amazing — and revealing — to hear this line being repeated now. For the blame-the-victim crowd has gotten everything it wanted: Benefits, especially for the long-term unemployed, have been slashed or eliminated. So now we have rants against the bums on welfare when they aren’t bums — they never were — and there’s no welfare. Why? ...
Is it race? That’s always a hypothesis worth considering in American politics. It’s true that most of the unemployed are white, and they make up an even larger share of those receiving unemployment benefits. But conservatives may not know this, treating the unemployed as part of a vaguely defined, dark-skinned crowd of “takers.”
My guess, however, is that it’s mainly about the closed information loop of the modern right. In a nation where the Republican base gets what it thinks are facts from Fox News and Rush Limbaugh, where the party’s elite gets what it imagines to be policy analysis from the American Enterprise Institute or the Heritage Foundation, the right lives in its own intellectual universe, aware of neither the reality of unemployment nor what life is like for the jobless. You might think that personal experience — almost everyone has acquaintances or relatives who can’t find work — would still break through, but apparently not.
Whatever the explanation, Mr. Boehner was clearly saying what he and everyone around him really thinks, what they say to each other when they don’t expect others to hear. Some conservatives have been trying to reinvent their image, professing sympathy for the less fortunate. But what their party really believes is that if you’re poor or unemployed, it’s your own fault.
Monday, September 15, 2014
"A key observation of the paper is that journalists and expert commentators overstate the extent of machine substitution for human labor and ignore the strong complementarities":
Polanyi's Paradox and the Shape of Employment Growth, by David Autor, NBER Working Paper No. 20485, September 2014 [open link]: In 1966, the philosopher Michael Polanyi observed, “We can know more than we can tell... The skill of a driver cannot be replaced by a thorough schooling in the theory of the motorcar; the knowledge I have of my own body differs altogether from the knowledge of its physiology.” Polanyi’s observation largely predates the computer era, but the paradox he identified—that our tacit knowledge of how the world works often exceeds our explicit understanding—foretells much of the history of computerization over the past five decades. This paper offers a conceptual and empirical overview of this evolution. I begin by sketching the historical thinking about machine displacement of human labor, and then consider the contemporary incarnation of this displacement—labor market polarization, meaning the simultaneous growth of high-education, high-wage and low-education, low-wages jobs—a manifestation of Polanyi’s paradox. I discuss both the explanatory power of the polarization phenomenon and some key puzzles that confront it. I then reflect on how recent advances in artificial intelligence and robotics should shape our thinking about the likely trajectory of occupational change and employment growth. A key observation of the paper is that journalists and expert commentators overstate the extent of machine substitution for human labor and ignore the strong complementarities. The challenges to substituting machines for workers in tasks requiring adaptability, common sense, and creativity remain immense. Contemporary computer science seeks to overcome Polanyi’s paradox by building machines that learn from human examples, thus inferring the rules that we tacitly apply but do not explicitly understand.
Sunday, September 07, 2014
What they say is not necessarily the same as what they do:
Few US ‘reshorings’ go ahead, study finds, by Robert Wrigh, FT: “Relatively few” of companies’ announced “reshorings” of manufacturing to the US have actually gone ahead and the trend’s effect on employment has been a “drop in the bucket,” research by a Massachusetts Institute of Technology academic suggests.
The work, by Jim Rice, deputy director of MIT’s Center for Transportation and Logistics, throws into doubt expectations that the US economy might enjoy significant growth in manufacturing employment through job repatriation. ...
Saturday, September 06, 2014
Peter Diamond on his new research on the Beveridge curve ("casts doubt on everything I've written on the Beveridge curve," "shifts in the Beveridge curve are not very informative"):
Abstract: Debates about higher structural unemployment occur when unemployment has stayed high. With monthly publication of the US Beveridge curve (the relationship between the unemployment and vacancy rates), the recent debate has focused on the shift in the Beveridge curve and whether the shift will be lasting long enough to move the full-employment point. The curve appears stable through the NBER identified business cycle through in June 2009 or possibly the month of the maximal unemployment rate in October 2009. This shift in the Beveridge curve, with the economy experiencing a higher level of unemployment than before for the same level of the vacancy rate, suggests a deterioration in the matching/hiring process in the economy. It is tempting to interpret this decline as a structural change in the way that the labor market works and thus assume that it is orthogonal to changes in aggregate demand. Indeed, an assumption that a shift in the curve is structural has been a staple of the academic literature since at least 1958. This interpretation has an obvious policy implication: however useful aggregate stabilization policies while unemployment is very high, they are likely to fail in lowering the unemployment rate all the way to the levels that prevailed before the recession, since the labor market is structurally less efficient than before in creating successful matches. This lecture reviews the theory underlying the Beveridge curve and US evidence on the ability to draw an inference of structural change from its shift or a shift in the hiring (matching) function.
His lecture (video) is here. (The discussion of how to interpret shifts in the Beveridge curve starts at around the 12:30 mark. Switching to low quality helps the video to stream better. His view is that there is still substantial slack in the labor market.) My interview with him, which spends quite a bit of time on the Beveridge curve, is here.
Friday, September 05, 2014
The Employment Report for August was released this morning. From the BLS:
Total nonfarm payroll employment increased by 142,000 in August, and the unemployment rate was little changed at 6.1 percent...
The change in total nonfarm payroll employment for June was revised from +298,000 to +267,000, and the change for July was revised from +209,000 to +212,000. With these revisions, employment gains in June and July combined were 28,000 less than previously reported.
Pace of Job Growth Slows Further in August: The pace of growth slowed sharply to 142,000 in August. Coupled with downward revisions to June's data, this brings the average rate of job growth over the last three months to 207,000. The economy had been adding jobs added jobs at a 267,000 monthly rate between March and June.
The falloff was widespread across industries. Manufacturing employment was flat after adding an average of 21,000 jobs a month in the prior three months. Retail employment fell by 8,400 in August after adding an average of 22,700 jobs in the prior three months. Transportation added just 1,200 jobs, down from an average 16,400 in the prior three months. Job growth in professional and technical services (16,800) and restaurants (21,100) was also somewhat weaker than its recent pace.
In percentage terms motion pictures continues to be a big job loser, shedding 6,000 jobs in August, 2.0 percent of total employment. Jobs in the sector have fallen by 18.6 percent over the last two years. On the opposite side, health care added 34,000 jobs, the third biggest rise in the last five years. This is likely an anomaly that will be offset by weaker growth in the months ahead.
There is little evidence that the strengthening labor market is leading to wage pressures. Over the last three months, the average hourly wage has risen at a 2.3 percent annual rate, virtually identical to the 2.1 percent rate over the last year. In fact, almost no sectors show evidence of substantial wage growth. Only three sectors, mining, information, and leisure and hospitality have seen hourly wage growth in excess of 2.5 percent over the last year. A 3.5 percent rate of wage growth is consistent with the Fed’s 2.0 percent inflation target (assuming 1.5 percent productivity growth), only mining at 4.1 percent and information at 3.8 percent cross this threshold.
On the household side there was little new in the August data. The unemployment rate edged down slightly to 6.1 percent, but the employment to population ratio remained stable at 59.0 percent.
By education level, college grads don't seem to be faring well at this point in the recovery. Their unemployment edged up to 3.2 percent, while their EPOP fell 0.2 pp to 72.2 percent. Over the last year their unemployment rate has fallen by just 0.3 pp, while the EPOP of college grads is actually down by 0.6 pp. By comparison, those with some college have seen a drop of 0.7 pp in their unemployment rate and a rise of 0.4 pp in their EPOP.
The unemployment duration measures all declined in August, with the share of long-term unemployed falling to 31.2 percent, the lowest level since June of 2009. By comparison, long-term unemployment accounted for more than 22 percent of unemployment from June 2003 to June 2004. The number of people involuntarily working part-time fell by 197,000 and now stands 562,000 below its year ago level. Voluntary part-time employment is up 271,000 from its year ago level, although down 152,000 from July.
Employment growth continues to be less skewed toward older workers. Workers over age 55 accounted for 108.2 percent of total employment growth in the first four years of the recovery. By contrast they accounted for just 29.4 percent of employment growth over the last year. This is consistent with a scenario in which many older but pre-Medicare age workers no longer feel as much need to work now that they can get health care insurance through the exchanges. Workers in the 25-34 age group appear to be the gainers, accounting for 37.1 percent of employment growth over the last year.
While the slower pace of job growth in this report is a surprise to many analysts, the stronger rate in the first half of this year really was not consistent with the rate of GDP growth that we have been seeing or is generally forecast for the near future. If the economy is growing in a 2.5 percent range then we should expect to see job growth of around 1.0 percent or 1.4 million a year. Unless the economy grows far more rapidly than is general expected, we should expect to see job growth well under 200,000 a month.
Thursday, September 04, 2014
My students worry about this:
Are the Job Prospects of Recent College Graduates Improving?, by Jaison R. Abel and Richard Deitz: This post is the fourth in a series of four Liberty Street Economics posts examining the value of a college degree. The promise of finding a good job upon graduation has always been an important consideration when weighing the value of a college degree. In our final post of this week’s blog series, we take a look at the job prospects of recent college graduates. While unemployment among recent graduates has continued to fall since 2011, underemployment has continued to climb—meaning that fewer graduates are finding jobs that make use of their degrees. Do these trends mean that there has been a decline in the demand for those with college degrees? Using data on online job postings, we show that after falling sharply during the Great Recession, the demand for college graduates rebounded during the early stages of the recovery, but has been flat for the past year and a half, suggesting that the demand for college graduates has leveled off. All in all, while finding a job has become easier for recent college graduates over the past few years, finding a good job has not, and doing so is likely to remain a challenge for some time to come. ...
Wednesday, September 03, 2014
I have another article at MoneyWatch:
Sagging job growth: It's not a skills gap, by Mark Thoma: Many economists believe the rise in inequality can be explained by factors that have increasingly rewarded college-educated workers over those without a college degree. This "skills premium" has caused the middle class to shrink and polarized the labor market. The solution to these problems is the often-heard call for improved education and retraining programs that will give workers the skills they need to thrive in modern economies.
Employment in manufacturing industries has been hit particularly hard over the last few decades, and economists have pointed to work by David Autor, an economics professor at MIT, and others suggesting that this has resulted more from technological change than from globalization and declining bargaining power of workers (e.g. due to the power of unions).
According to this view, outsourcing is not the main problem. ... However, new work by Autor and several prominent co-authors calls this into question...
Wednesday, August 27, 2014
This is from Edward S. Knotek II and Saeed Zaman of the Cleveland Fed:
On the Relationships between Wages, Prices, and Economic Activity: Labor costs and labor compensation have garnered considerable attention from economists in the wake of the financial crisis and recession. Across a range of measures, wage growth slowed sharply during the recession. Recently, wage growth has remained near historically low levels despite improvements in the labor market.
Subdued wage growth has been variously seen as both a cause and a consequence of the slow pace of economic growth and persistently low inflation rates. It also may have contributed to rising inequality. In some forecast narratives, a pickup in wage growth is viewed as a necessary condition for a stronger recovery and rising inflation. In others, it is a natural consequence of a tightening labor market.
This Commentary takes a closer look at the relationships between wages, prices, and economic activity. It finds that the connections among wages, prices, and economic activity are more akin to a tangled web than a straight line. In the United States, wages and prices have tended to move together, and causal relationships are difficult to identify. We do find that wages are sensitive to economic activity and the level of slack in the economy, but our forecasting results suggest that the ability of wages to help predict future inflation is limited. Thus, wages appear to be useful in assessing the current state of labor markets, but not necessarily sufficient for thinking about where the economy and inflation are going. ...
So even if wages do finally begin rising, policymakers shouldn't panic about inflation (wishful thinking).
Tuesday, August 26, 2014
[Still on the road ... three quick ones before another long day of driving.]
A New Reason to Question the Official Unemployment Rate: ...A new academic paper suggests that the unemployment rate appears to have become less accurate over the last two decades, in part because of this rise in nonresponse. In particular, there seems to have been an increase in the number of people who once would have qualified as officially unemployed and today are considered out of the labor force, neither working nor looking for work.
The trend obviously matters for its own sake: It suggests that the official unemployment rate – 6.2 percent in July – understates the extent of economic pain in the country today. ... The new paper is a reminder that the unemployment rate deserves less attention than it often receives.
Yet the research also relates to a larger phenomenon. The declining response rate to surveys of almost all kinds is among the biggest problems in the social sciences. ...
Why are people less willing to respond? The rise of caller ID and the decline of landlines play a role. But they’re not the only reasons. Americans’ trust in institutions – including government, the media, churches, banks, labor unions and schools – has fallen in recent decades. People seem more dubious of a survey’s purpose and more worried about intrusions into their privacy than in the past.
“People are skeptical – Is this a real survey? What they are asking me?” Francis Horvath, of the Labor Department, says. ...
Thursday, August 21, 2014
Tuesday, August 19, 2014
Brad DeLong tries to make sense of the labor market:
Over at Equitable Growth: In Which I Make Myself Very Confused About Cyclical Recovery: Will somebody please tell me that I have made a gross arithmetic error in what is below, and can be much more optimistic? ...
I really do not understand the triumphalism of the very sharp Steve Braun et al. from the CEA...
So the labor market is, they say, 5/6 of the way back to normal--the current unemployment rate of 6.2% is 3.8%-points down from the peak of 10.0%, and has only 0.8%-point left to go before it hits a pre-crisis NAIRU of 5.4%. When it does, we will attain a "cyclically normal" labor market with a participation rate at 63.4%, 0.5%-points higher than today's 62.9%, and an associated employment-to-population ratio of 60.0%.
By that metric, we have done 3/4 of the work of cyclical recovery: from a 5.5%-point gap between employment and participation at the trough to a 3.9%-point gap now and a 3.4%-point gap at NAIRU. We will have made 1.7%-points back from the trough on the employment-to-population ratio when cyclical recovery is complete. The permanent damage to employment from the Great Recession Lesser Depression appears to be less than 0.9%-points of participation because there are also ongoing "cohort effects unrelated to aging" that reduce participation.
Let me stress that this is not senior and not-so-senior White House officials under pressure from political operatives putting as positive a spin on things as they can without actually losing their... No: what I mean to say is this: this is what the CEA's Steven Braun, John Coglianese, Jason Furman, Betsey Stevenson, and Jim Stock actually believe is true about the world--that the labor market is recovering successfully and strongly from the disaster of 2008-9.
But I look at 25-54. The employment rate is down from 79.9% in 2007 to 76.6% in July 2014--3.3%-points less, compared to 4.0%-point a fall from 63% to 59% over the entire population. The participation rate is down from 80.8% in July 2014 compared to 83.1% for 2007--2.3%-points, compared to the 3.1%-point fall from 66.0% to 62.9% over the entire population.
A normal NAIRU spread would put the 25-54 employment-to-population ratio at 78.7%, 2.5%-points below the 81.2% cyclically-adjusted 25-54 participation ratio. When cyclical recovery is complete, we would then expect to make back 3.7%-points back from the trough on the 25-54 employment-to-population ratio. So far we have made back only 1.0%-point.
So which is it? Has hysteresis done 1.8%-points of damage to 25-54 employment or 0.9%-points to total employment? Have we done 3/4 of the work of recovery relative to the proper labor force-trend share benchmark? Or have we done only 1/3 of the work of recovery?
The 25-54 data and the economy-wide aging trend-adjusted data used by the CEA appear to be telling us very different things both about the cyclical state of the labor market and about the damage done by hysteresis. How to reconcile? Which is right?
Monday, August 18, 2014
[Long, long travel day today, so just a few quick ones before hitting the road.]
Steven Braun, John Coglianese, Jason Furman, Betsey Stevenson, and Jim Stock:
Understanding the decline in the labour force participation rate in the United States, by Steven Braun, John Coglianese, Jason Furman, Betsey Stevenson, and Jim Stock, Vox EU: The labour force participation rate in the US has fallen dramatically since 2007. This column traces this decline to three main factors: the ageing of the population, cyclical effects from the Great Recession, and an unexplained portion, which might be due to pre-existing trends unrelated to the first two. Of these three, the ageing of the population plays the largest role since it is responsible for half of the decline. Taken together, these factors suggest a roughly stable participation rate in the short-term, followed by a longer-term decline as the baby boomers continue to age. However, policy can play a meaningful role in mitigating this trend. ...
Saturday, August 16, 2014
About that skills gap -- this is from Dean Baker:
The Skills Gap is Most Evident in Retail Trade and Restaurants: Floyd Norris has an interesting column comparing the numbers of job openings, hirings, and quits from 2007 with the most recent three months in 2014. The most striking part of the story is that reporting openings are up by 2.1 percent from 2007, while hirings are still down by 7.5 percent.
While Norris doesn't make this point, some readers may see this disparity as evidence of a skills gap, where workers simply don't have the skills for the jobs that are available. If this is really a skills gap story then it seems that it is showing up most sharply in the retail and restaurant sectors. (Data are available here.) Job openings in the retail sector are up by 14.6 percent from their 2007 level, but hires are down by 0.7 percent. Job opening in the leisure and hospitality sector are up by 17.0 percent, while hiring is down by 7.4 percent.
If the disparity between patterns in job openings and hires is really evidence that workers lack the skills for available jobs then perhaps we need to train more people to be clerks at convenience stores and to wait tables.
Friday, August 15, 2014
'Persistently Below-Target Inflation Rate is a Signal That the U.S. Economy is Not Taking Advantage of all of its Available Resources'
Narayana Kocherlakota, President of the Minneapolis Fed:
..I’m a member of the Federal Open Market Committee—the FOMC—and, as a monetary policymaker, my discussion will be framed by the goals of monetary policy. Congress has charged the FOMC with making monetary policy so as to promote price stability and maximum employment. I’ll discuss the state of the macroeconomy in terms of these goals.
Let me start with price stability. The FOMC has translated the price stability objective into an inflation rate goal of 2 percent per year. This inflation rate target refers to the personal consumption expenditures, or PCE, price index. ... That rate currently stands at 1.6 percent, which is below the FOMC’s target of 2 percent. In fact, the inflation rate has averaged 1.6 percent since the start of the recession six and a half years ago, and inflation is expected to remain low for some time. For example, the minutes from the June FOMC meeting reveal that the Federal Reserve Board staff outlook is for inflation to remain below 2 percent over the next few years.
In a similar vein, earlier this year, the Congressional Budget Office (CBO) predicted that inflation will not reach 2 percent until 2018—more than 10 years after the beginning of the Great Recession. I agree with this forecast. This means that the FOMC is still a long way from meeting its targeted goal of price stability.
The second FOMC goal is to promote maximum employment. What, then, is the state of U.S. labor markets? The latest unemployment rate was 6.2 percent for July. This number is representative of the significant improvement in labor market conditions that we’ve seen since October 2009, when the unemployment rate was 10 percent. And I expect this number to fall further through the course of this year, to around 5.7 percent. However, this progress in the decline of the unemployment rate masks continued weakness in labor markets.
There are many ways to see this continued weakness. I’ll mention two that I see as especially significant. First, the fraction of people aged 25 to 54—our prime-aged potential workers—who actually have a job is still at a disturbingly low rate. Second, a historically high percentage of workers would like a full-time job, but can only find part-time work. Bottom line: I see labor markets as remaining some way from meeting the FOMC’s goal of full employment.
So I’ve told you that inflation rates will remain low for a number of years and that labor markets are still weak. It is important, I think, to understand the connection between these two phenomena. As I have discussed in greater detail in recent speeches, a persistently below-target inflation rate is a signal that the U.S. economy is not taking advantage of all of its available resources. If demand were sufficiently high to generate 2 percent inflation, the underutilized resources would be put to work. And the most important of those resources is the American people. There are many people in this country who want to work more hours, and our society is deprived of their production. ...
Wednesday, August 13, 2014
It's okay to help people:
EPI and AEI Agree: Cutting Jobless Benefits Did Not Boost Employment, by Joshua Smith, EPI: Perhaps Hell has not frozen over, but it appears that someone down there may have leaned on the thermostat. That’s right, the Economic Policy Institute and the American Enterprise Institute are in lock-step agreement on an important fiscal policy matter.
During the Great Recession and its aftermath, the federal government acted to help victims of the severe downturn by funding programs that extended unemployment benefits—to up to 99 weeks in some cases, up from the standard 26 weeks. As the economic recovery continued, weak as it was for many in the working class, many lawmakers on the right began to believe that these extended benefits were a drag on employment—the theory being that government checks reduced the incentive for recipients to find a job, and that cutting off this lifeline would compel unemployed workers to look harder for work and perhaps take jobs they may not have accepted if the benefits had continued. Relying on this premise, Congress allowed the federally-funded Emergency Unemployment Compensation program to lapse last December.
Now, more than seven months later, data are available to test this idea. Coming from perspectives that diverge greatly along the ideological spectrum, scholars at both AEI and EPI have come to the conclusion that this “bootstraps” theory is incorrect—curtailing jobless benefits did not boost employment. ...
Do the facts have a Keynesian bias?:
Using product- and labour-market tightness to understand unemployment, by Pascal Michaillat and Emmanuel Saez, Vox EU: For the five years from December 2008 to November 2013, the US unemployment rate remained above 7%, peaking at 10% in October 2009. This period of high unemployment is not well understood. Macroeconomists have proposed a number of explanations for the extent and persistence of unemployment during the period, including:
- High mismatch caused by major shocks to the financial and housing sectors,
- Low search effort from unemployed workers triggered by long extensions of unemployment insurance benefits, and
- Low aggregate demand caused by a sudden need to repay debts or pessimism, but no consensus has been reached.
In our opinion this lack of consensus is due to a gap in macroeconomic theory: we do not have a model that is rich enough to account for the many factors driving unemployment – including aggregate demand – and simple enough to lend itself to pencil-and-paper analysis. ...
In Michaillat and Saez (2014), we develop a new model of unemployment fluctuations to inspect the mechanisms behind unemployment fluctuations. The model can be seen as an equilibrium version of the Barro-Grossman model. It retains the architecture of the Barro-Grossman model but replaces the disequilibrium framework on the product and labour markets with an equilibrium matching framework. ...
Through the lens of our simple model, the empirical evidence suggests that price and real wage are somewhat rigid, and that unemployment fluctuations are mainly driven by aggregate demand shocks.
Tuesday, August 12, 2014
Bill McBride at Calculated Risk:
There were 4.7 million job openings on the last business day of June, little changed from 4.6 million in May, the U.S. Bureau of Labor Statistics reported today. ...
Quits are generally voluntary separations initiated by the employee. Therefore, the quits rate can serve as a measure of workers’ willingness or ability to leave jobs. ... The number of quits (not seasonally adjusted) increased over the 12 months ending in June for total nonfarm and total private. The number of quits was little changed for government.
... Jobs openings increased in June to 4.671 million from 4.577 million in May. This is the highest level since February 2001. The number of job openings ... are up 18% year-over-year compared to June 2013. Quits are up 15% year-over-year. These are voluntary separations. ...
It is a good sign that job openings are over 4 million for the fifth consecutive month, and that quits are increasing.
Friday, August 08, 2014
"It just isn't so":
On Reaganolatry, by Paul Krugman: The truly vile attack on Rick Perlstein’s new book has been revealing in a number of ways. ...
And why this determination to quash Perlstein? It’s all about Reaganolatry, the right’s need to see the man as perfect. ... Everyone on the right knows that Reagan presided over job creation on a scale never seen before or since; but it just isn’t so. In fact, if you look at monthly rates of job creation for the past six administrations, it’s actually startling:
You may have known that Clinton was a better “job creator” than Reagan, but did you know that over the course of the Carter administration — January 1977 to January 1981 — the economy actually added jobs faster than it did under Reagan? Maybe you want to claim that the 1981-82 recession was Carter’s fault (although actually it was the Fed’s doing), so that you start counting from almost two years into Reagan’s term; but in that case why not give Obama the same courtesy? The general point is that the supposed awesomeness of Reagan’s economic record just doesn’t pop out of the data.
But don’t expect the Reaganlators to acknowledge that. Their whole sense of identity is bound up with their faith.
Thursday, August 07, 2014
How the incipient inflation freak-out could wreck the recovery, by Dean Baker and Jared Bernstein: As predictable as August vacations, numerous economists and Federal Reserve watchers are arguing that the nation’s central bank must raise interest rates or risk an outbreak of spiraling inflation. Their campaign has heated up a bit in recent months, as one can cherry pick an indicator or two showing slightly faster growth in prices or wages.
But an objective analysis of the recent data, along with longer-term wage trends, reveals that the stakes of premature tightening are unacceptably high. The vast majority of the population depends on their paychecks, not their stock portfolios. If the Fed were to slam on the breaks by raising interest rates as soon as workers started to see some long-awaited real wage gains, it would be acting to prevent most of the country from seeing improvements in living standards.
To understand why continued support from the Fed is unlikely to be inflationary, consider three factors: the current state of key variables, the mechanics of inflationary pressures and the sharp rise in profits as a share of national income in recent years, along with its corollary, the fall in the compensation share. ...
Friday, August 01, 2014
Job Growth Slows in July, by Dean Baker, CEPR Data Bytes: Wage growth slowed slightly in the last quarter to 1.8 percent from 2.0 percent in the last year.
The economy added 209,000 jobs in July, a sharp slowing from its 277,000 average over the prior three months. The slowdown was widely spread across sectors, although temporary help -- which added just 8,500 jobs -- and health care -- which added just 7,000 -- were notably weak. Construction -- which added 22,000 jobs -- and manufacturing -- which added 28,000 jobs -- were surprisingly strong.
The unemployment rate was essentially unchanged at 6.2 percent, as there was little change in either the size of the labor force or the number of unemployed. Involuntary part-time employment edged down slightly, reversing part of a jump in June. It is now 669,000 below its year-ago level. Voluntary part-time employment decreased modestly, but is still 502,000 above its year-ago level. This would be consistent with some workers opting to work part-time now that they no longer need to get health insurance through their job as a result of the Affordable Care Act.
There was little change in employment or unemployment rates for most demographic groups, although the employment-to-population ratio for African Americans edged up to 54.6 percent -- its highest level since January of 2009. Workers over age 55 accounted for all the reported employment growth in July, with an increase in employment of 159,000 compared to 131,000 overall. However, their 43.4 percent share of employment growth over the last year is considerably less than it had been earlier in the recovery.
The duration measures showed little change, with average duration of unemployment falling back 1.1 weeks to 32.4 weeks, while both the median duration and share of long-term unemployed increased slightly. The share of unemployment due to people voluntarily quitting their jobs was essentially unchanged from the prior two months at 8.9 percent. This is up from 8.5 percent last July, but still well below the 11-12 percent shares in the years before the downturn.
In the establishment survey, the goods-producing sector was surprisingly strong, adding 58,000 jobs. However, the pace of growth is likely to slow in the month ahead. The 22,000 job growth reported in construction is likely faster than can be supported by the modest pace of spending growth in the sector. The 28,000 rise in manufacturing employment was driven largely by a 14,600 increase in jobs in the auto industry. This, in turn, was likely due in part to the timing of shutdowns for retooling and will be partially reversed next month. The average workweek actually fell in manufacturing and the one-month diffusion index plunged from 63.0 to 53.7, so we are likely to see weaker growth going forward. Nonetheless, it is worth noting that employment in the auto sector reached its highest level since July, 2008.
In contrast to autos, jobs in the motion picture industry continue to disappear. They fell 3,500 in July and are down by 56,300 (15.7 percent) over the last year. The temp sector also showed weakness, adding just 8,500 jobs, compared to an average of 17,000 over the last year. Similarly, health care added just 7,000 jobs, down from an average of 19,000 over the last year. A high-side anomaly in the July data was a jump in employment in private social assistance of 18,400. This is certain to be reversed, at least partially, in coming months.
This report provides little evidence of any pick-up in wage growth. The average hourly wage rose at a 1.82 percent annual rate over the last three months compared with the prior three months. This compares to a 2.0 percent increase over the last year. While a tightening labor market should eventually allow workers to see some gains in real wages, the economy does not appear to be at this point yet.
Overall, this should be seen as a modestly positive report. The slower pace of job growth is not surprising given how out of line recent job growth has been with the modest GDP growth we have been seeing. (First half growth averaged 1.0 percent.) It is likely that future months will see weaker growth as manufacturing and construction will see slower job gains. We are still far from the point where the labor market is strong enough that workers will be able to get wage gains in line with economic growth.
Thursday, July 31, 2014
Tim Duy (see Dean Baker too):
On That ECI Number: The employment cost index is bearing the blame for today's market sell-off. Sam Ro at Business Insider reports:
...traders agree that today's sell-off is probably due to one stat: the 0.7% jump in the employment cost index (ECI) in the second quarter.
This number, which crossed at 8:30 a.m. ET, was a bit higher than the 0.5% expected by economists. And it represents a year-over-year growth rate of over 2%.
It's a big deal, because it's both a sign of inflation and labor market tightness, two forces that put pressure on the Federal Reserve to tighten monetary policy sooner than later.
The ECI gain was driven by the private sector (compensation for the public sector was up just 0.5%, same as the first quarter), and I would be cautious about reading too much into those numbers. The Fed will take the Q2 reading in context of the low Q1 reading:
The first two quarters averaged a just 0.46% increase, pretty much the same as recent trends of the past five years. And look at the year-over-year-trend:
Nothing to see here, folks. Move along. Benefit costs for private sector workers also accelerated, but I think the Fed will likely interpret this as an anomaly:
Again, not out-of-line with readings both before and after the recession.
Bottom Line: I understand why market participants might be a little hypersensitive to anything related to wages. Indeed, wage growth is the missing link in the tight labor market story. But I don't think the Fed will react much to these numbers; they will place them in context of recent behavior, and in that context they are not much different than current trends. Watch the upcoming employment reports for signs of diminishing underutilization of labor - that is where the Fed will be looking.
Wednesday, July 30, 2014
Unemployment and the “Skills Mismatch” Story: Overblown and Unpersuasive, by Gary Burtless, Brookings: The jobless rate has dipped to 6.1 percent, and businesses are already complaining about a skills shortage. ... To an economist, the most accessible and persuasive evidence demonstrating a skills shortage should be found in wage data. ...
Where is the evidence of soaring pay for workers whose skills are in short supply? We frequently read anecdotal reports informing us some employers find it tough to fill job openings. What is harder to find is support for the skills mismatch hypothesis in the wage data..., there is little evidence wages or compensation are increasing much faster than 2% a year [i.e. outpacing inflation]. Even though unemployment has declined, there are still 2.5 times as many active job seekers as there are job vacancies. At the same time, there are between 3 and 3½ million potential workers outside the labor force who would become job seekers if they believed it were easier to find a job. The excess of job seekers over job openings continues to limit wage gains, notwithstanding the complaints of businesses that cannot fill vacancies. ...
It is cheap for employers to claim qualified workers are in short supply. It is a bit more expensive for them to do something to boost supply. Unless managers have forgotten everything they learned in Econ 101, they should recognize that one way to fill a vacancy is to offer qualified job seekers a compelling reason to take the job. Higher pay, better benefits, and more accommodating work hours are usually good reasons for job applicants to prefer one employment offer over another. When employers are unwilling to offer better compensation to fill their skill needs, it is reasonable to ask how urgently those skills are really needed. ...
Tuesday, July 22, 2014
Running late today -- two very quick ones. First, from Scientific American:
Will Automation Take Our Jobs?: Last fall economist Carl Benedikt Frey and information engineer Michael A. Osborne, both at the University of Oxford, published a study estimating the probability that 702 occupations would soon be computerized out of existence. Their findings were startling. Advances in ... technologies could, they argued, put 47 percent of American jobs at high risk of being automated in the years ahead. Loan officers, tax preparers, cashiers, locomotive engineers, paralegals, roofers, taxi drivers and even animal breeders are all in danger of going the way of the switchboard operator.
Whether or not you buy Frey and Osborne's analysis, it is undeniable that something strange is happening in the U.S. labor market. Since the end of the Great Recession, job creation has not kept up with population growth. Corporate profits have doubled since 2000, yet median household income (adjusted for inflation) dropped from $55,986 to $51,017. ... Erik Brynjolfsson and Andrew McAfee ... call this divergence the “great decoupling.” In their view, presented in their recent book The Second Machine Age, it is a historic shift. ...
The Next Wave of Technology?, by Tim Taylor: Many discussions of "technology" and how it will affect jobs and the economy have a tendency to discuss technology as if it is one-dimensional, which is of course an extreme oversimplification. Erik Brynjolfsson, Andrew McAfee, and Michael Spence offer some informed speculation on how they see the course of technology evolving in "New World Order: Labor, Capital, and Ideas in the Power Law Economy," which appears in the July/August 2014 issue of Foreign Affairs (available free, although you may need to register).
Up until now, they argue, the main force of information and communications technology has been to tie the global economy together, so that production could be moved to where it was most cost-effective. ...
But looking ahead, they argue that the next wave of technology will not be about relocating production around the globe, but changing the nature of production--and in particular, automating more and more of it. If the previous wave of technology made workers in high-income countries like the U.S. feel that their jobs were being outsourced to China, the next wave is going to make those low-skill workers in repetitive jobs--whether in China or anywhere else--feel that their jobs are being outsources to robots. ...
If this prediction holds true, what does this mean for the future of jobs and the economy?
1) Outsourcing would become much less common. ...
2) For low-income and middle-income countries like China..., their jobs and workforce would experience a dislocating wave of change.
3) Some kinds of physical capital are going to plummet in price, like robots, 3D printing, and artificial intelligence...
4) So..., who does well in this future economy? For high-income countries like the United States, Brynjolfsson, McAfee, and Spence emphasize that the greatest rewards will go to "people who create new ideas and innovations," in what they refer to as a wave of "superstar-based technical change." ...
This final forecast seems overly grim to me. While I can easily believe that the new waves of technology will continue to create superstar earners, it seems plausible to me that the spread and prevalence of many different new kinds of technology offers opportunities to the typical worker, too. After all, new ideas and innovations, and the process of bringing them to the market, are often the result of a team process--and even being a mid-level but contributing player on such teams, or a key supplier to such teams, can be well-rewarded in the market. More broadly, the question for the workplace of the future is to think about jobs where labor can be a powerful complement to new technologies, and then for the education and training system, employers, and employees to get the skills they need for such jobs. If you would like a little more speculation, one of my early posts on this blog, back on July 25, 2011, was a discussion of "Where Will America's Future Jobs Come From?"
Sunday, July 20, 2014
This article, by David Cay Johnston, is getting a surprising number of retweets:
State’s job growth defies predictions after tax increases, by David Cay Johnston, The Bee: Dire predictions about jobs being destroyed spread across California in 2012 as voters debated whether to enact the sales and, for those near the top of the income ladder, stiff income tax increases in Proposition 30. Million-dollar-plus earners face a 3 percentage-point increase on each additional dollar.
“It hurts small business and kills jobs,” warned the Sacramento Taxpayers Association, the National Federation of Independent Business/California, and Joel Fox, president of the Small Business Action Committee.
So what happened after voters approved the tax increases, which took effect at the start of 2013?
Last year California added 410,418 jobs, an increase of 2.8 percent over 2012, significantly better than the 1.8 percent national increase in jobs. ...
Tuesday, July 15, 2014
Me, at MoneyWatch:
Can unemployment benefits raise joblessness?: Did the extension of unemployment compensation during the Great Recession cause joblessness to go up? ...
The latest research on this topic from Katharine Bradbury of the Federal Reserve Bank of Boston ... finds that unemployment does go up when unemployment benefits are extended, but the question is why. Does it discourage workers from taking jobs, or discourage them from leaving the labor force?
Bradbury pointed out that the earlier research shows it's mostly the latter, that extending unemployment benefits causes workers to stay in the labor force longer before dropping out. No notable impact was found on their willingness to take available jobs. ...
Monday, July 14, 2014
Via email, a comment on my comments about the difficulty of settling questions about the Phillips curve empirically:
Dear Professor Thoma,
I saw your recent post on the difficulty of empirically testing the Phillips Curve, and I just wanted to alert you to a survey paper on this topic that I wrote with Sophocles Mavroeidis and Jim Stock: "Empirical Evidence on Inflation Expectations in the New Keynesian Phillips Curve". It was published in the Journal of Economic Literature earlier this year (ungated working paper).
In the paper we estimate a vast number of specifications of the New Keynesian Phillips Curve (NKPC) on a common U.S. data set. The specification choices include the data series, inflation lag length, sample period, estimator, and so on. A subset of the specifications amount to traditional backward-looking (adaptive expectation) Phillips Curves. We are particularly interested in two key parameters: the extent to which price expectations are forward-looking, and the slope of the curve (how responsive inflation is to real economic activity).
Our meta-analysis finds that essentially any desired parameter estimates can be generated by some reasonable-sounding specification. That is, estimation of the NKPC is subject to enormous specification uncertainty. This is consistent with the range of estimates reported in the literature. Even if one were to somehow decide on a given specification, the uncertainty surrounding the parameter estimates is typically large. We give theoretical explanations for these empirical findings in the paper. To be clear: Our results do not reject the validity of the NKPC (or more generally, the presence of a short-run inflation/output trade-off), but traditional aggregate time series analysis is just not very informative about the nature of inflation dynamics.
PhD candidate in economics, Harvard University
New Keynesians do stuff like one-period-ahead price setting or Calvo pricing, in which prices are revised randomly. Practicing Keynesians have tended to rely on “accelerationist” Phillips curves in which unemployment determined the rate of change rather than the level of inflation.
So what has happened since 2008 is that both of these approaches have been found wanting: inflation has dropped, but stayed positive despite high unemployment. What the data actually look like is an old-fashioned non-expectations Phillips curve. And there are a couple of popular stories about why: downward wage rigidity even in the long run, anchored expectations.
What the data actually look like is an old-fashioned non-expectations Phillips curve.
OK, here is where we disagree. Certainly this is not true for the data overall. It seems like Paul is thinking that the system governing the relationship between inflation and output changes between something with essentially a vertical slope (a “Classical Phillips curve”) and a nearly flat slope (a “Keynesian Phillips Curve”). I doubt that this will fit the data particularly well and it would still seem to open the door to a large role for “supply shocks” – shocks that neither Paul nor I think play a big role in business cycles.
Simon Wren-Lewis also has something to say about this in his post from earlier today, Has the Great Recession killed the traditional Phillips Curve?:
Before the New Classical revolution there was the Friedman/Phelps Phillips Curve (FPPC), which said that current inflation depended on some measure of the output/unemployment gap and the expected value of current inflation (with a unit coefficient). Expectations of inflation were modelled as some function of past inflation (e.g. adaptive expectations) - at its simplest just one lag in inflation. Therefore in practice inflation depended on lagged inflation and the output gap.
After the New Classical revolution came the New Keynesian Phillips Curve (NKPC), which had current inflation depending on some measure of the output/unemployment gap and the expected value of inflation in the next period. If this was combined with adaptive expectations, it would amount to much the same thing as the FPPC, but instead it was normally combined with rational expectations, where agents made their best guess at what inflation would be next period using all relevant information. This would include past inflation, but it would include other things as well, like prospects for output and any official inflation target.
Which better describes the data? ...
[W]e can see why some ... studies (like this for the US) can claim that recent inflation experience is consistent with the NKPC. It seems much more difficult to square this experience with the traditional adaptive expectations Phillips curve. As I suggested at the beginning, this is really a test of whether rational expectations is a better description of reality than adaptive expectations. But I know the conclusion I draw from the data will upset some people, so I look forward to a more sophisticated empirical analysis showing why I’m wrong.
I don't have much to add, except to say that this is an empirical question that will be difficult to resolve empirically (because there are so many different ways to estimate a Phillips curve, and different specifications give different answers, e.g. which measure of prices to use, which measure of aggregate activity to use, what time period to use and how to handle structural and policy breaks during the period that is chosen, how should natural rates be extracted from the data, how to handle non-stationarities, if we measure aggregate activity with the unemployment rate, do we exclude the long-term unemployed as recent research suggests, how many lags should be included, etc., etc.?).
Thursday, July 10, 2014
In search of search theory: This is going to be a long and wonkish post, so I’ll just give the dot-point summary here, and let those interested read on below the fold, for the explanations and qualifications.
* The dominant model of unemployment, in academic macroeconomics at least, is based on the idea that unemployment can best be modelled in terms of workers searching for jobs, and remaining unemployed until they find a good match with an employer
* The efficiency of job search and matching has been massively increased by the Internet, so, if unemployment is mainly explained by search, it should have fallen steadily over the past 20 years.
* Obviously, this hasn’t happened, but economists seem to have ignored this fact or at least not worried too much about it
* The fact that search models are more popular than ever is yet more evidence that academic macroeconomics is in a bad way ...
Tuesday, July 08, 2014
The Unemployment Cost of Below-Target Inflation: Recently, inflation in the United States has been consistently below its 2% target. The situation in Sweden is similar, but has lasted much longer. The Swedish Riksbank announced a 2% CPI inflation target in 1993, to apply beginning in 1995. By 1997, the target was credible in the sense that inflation expectations were consistently in line with the target. From 1997 to 2011, however, CPI inflation only averaged 1.4%. In a forthcoming paper in the AEJ: Macroeconomics, Lars Svensson uses the Swedish case to estimate the possible unemployment cost of inflation below a credible target...
The unemployment rate would be about 0.8% lower if inflation averaged 2% (and presumable lower still if inflation averaged slightly above 2%). ...
Svensson concludes with policy implications:"I believe the main policy conclusion to be that if one wants to avoid the average unemployment cost, it is important to keep average inflation over a longer period in line with the target, a kind of average inflation targeting (Nessén and Vestin 2005). This could also be seen as an additional argument in favor of price-level targeting...On the other hand, in Australia, Canada, and the U.K., and more recently in the euro area and the U.S., the central banks have managed to keep average inflation on or close to the target (the implicit target when it is not explicit) without an explicit price-level targeting framework.Should the central bank try to exploit the downward-sloping long-run Phillips curve and secretly, by being more expansionary, try to keep average inflation somewhat above the target, so as to induce lower average unemployment than for average inflation on target?...This would be inconsistent with an open and transparent monetary policy."
[See the full post for more details.]
Thursday, July 03, 2014
June Employment Report, by Tim Duy: The BLS reported solid numbers for the labor market in June, although there may be somewhat less acceleration than meets the eye. On net, the ongoing rapid fall in the unemployment rate nudges forward my expectation of when the Fed makes history and begins to lift rates from the zero bound. Still, there does not appear to be sufficient reason yet to believe the Fed will steepen the pace of increases.
Nonfarm payrolls rose by 288k, ahead of expectations for 211k. Job growth was broad-based and earlier months were revised higher. The three-month average for job growth is at its highest since 2011 while the 12-month average is slowly crawling up and now stands above 200k:
It is worth remembering that in order to maintain constant percentage changes over time, the absolute change has to increase. Indeed, the acceleration in percentage terms over the past year looks less than impressive:
Still somewhat below that experienced at the height of the housing bubble, clearly weaker then the late 1990s, and note in particular the acceleration in the early 1990's. It was that kind of acceleration that caught the Fed's attention. We are not seeing anything like that yet.
Also note that while hours worked has recovered from the winter doldrums, it too is not growing at some blockbuster pace:
In short, in some sense the excitement over the recent improvement in absolute job growth says less about an acceleration in actual activty and more about our diminished expectations for this recovery.
The persistent decline in the unemployment rate will undoubtedly cause consternation among the more hawkish FOMC members:
Recall St. Louis Federal Reserve President James Bullard recent warning:
The Federal Open Market Committee is closer to its goals for full employment and low and stable inflation than many investors realize, Bullard said. He predicted the pace of economic growth will accelerate to 3 percent this year after an unexpectedly deep first-quarter contraction.“Inflation is picking up now. It is still below target but it has been moving up in recent months,” he said in response to a question at a forum organized by the Council on Foreign Relations. “I don’t think financial markets have internalized how close we are to our ultimate goals, and I don’t think the FOMC has internalized how close we are.”
Bullard's story in a picture:
As the Fed closes in on its traditional policy goals, the pressure from the hawks, and even the center, for a rate increase will increase. Still, the doves are not without a defence. Federal Reserve Chair Janet Yellen's measures of underemployment are still underwhelming:
In particular, wage growth has stalled, adding additional credence to the argument that substantial labor market slack remains despite the decline in the unemployment rate:
Also note that there is nothing here yet to challenge the more general consensus among policymakers that equilibrium interest rates are lower than in past cycles.
Bottom Line: The jobs report is generally good news, albeit I would argue there remains room for substantial improvement. That room for improvement continues to restrain the Fed from dramatically tighter policy. My expectations for the first rate hike center around the middle of next year. On net, this report drags my expectations forward somewhat and suggests a higher probability of a hike before June than after June. Score one for the FOMC hawks. But I also see little here yet to suggest the need for any dramatic tightening; I doubt FOMC's expectation of a long, gradual tightening cycle is much altered. That's one for the doves.
Jobs Report, First Impressions: A Strong June for the Job Market: Payrolls were up 288,000 and the unemployment rate ticked down to a near six-year low of 6.1% last month, according to today’s employment report from the BLS (a rare Thursday edition due to the holiday weekend). It’s an unquestionably strong report, with industries across the economy posting job gains. Adding to the positive news, job growth estimates for the prior two reports were revised up by 29,000, implying an underlying average growth pace of 272,000 for payrolls in the second quarter of the year.
Unlike some prior months when the jobless rate came down, June’s unemployment rate fell for the “right reasons:” not more people leaving the labor force, but more people getting jobs.
The only negative I’m seeing at first glance is the 275,000 increase in the number of involuntary part-timers (part-time workers who’d rather have full-time jobs). But this is a volatile monthly number and is down 650,000 over the past year. ...
Comments on Employment Report: [Earlier: June Employment Report: 288,000 Jobs, 6.1% Unemployment Rate] Total employment increased 288,000 from May to June, and is now 415,000 above the previous peak. Private payroll employment increased 262,000 from May to June, and private employment is now 895,000 above the previous peak (the unprecedented large number of government layoffs has held back total employment). Through the first half of 2014, the economy has added 1,385,000 payroll jobs - up from 1,221,000 added during the same period in 2013 - even with the severe weather early this year. My expectation at the beginning of the year was the economy would add between 2.4 and 2.7 million payroll jobs this year, and that still looks about right. Hopefully - now that the unemployment rate has fallen to 6.1% - wage growth will start to pick up. Overall this was another solid employment report. ...
Real Time Economics:
In an Overall Sunny Jobs Report, Here Are the Few Clouds, by Ben Leubsdorf: The June U.S. jobs report was broadly positive. Payrolls rose strongly, the unemployment rate fell and the number of Americans who have been out of work for more than six months continued to decline.
But there were a few upbeat ingredients still missing from the brew: accelerating wage growth, rising labor-force participation and more Americans finding full-time work instead of settling for a part-time job. ...
Thursday, June 26, 2014
Even after years of "recovery" it's not too late t help those struggling to find employment, and to improve our future potential for growth at the same time. Of course, that would require Congress -- particularly those on the political right -- to actually care about the unemployed, and to recognize the critical role that government (and taxes) must play in meeting our infrastructure needs:
The Enormous Wage Potential of Infrastructure Jobs, by Joseph Kane and Robert Puentes, Brookings: This month marks five years since the U.S. economic recovery began, but we clearly have a long way to go to address our nation’s jobs deficit. Even though more workers are gradually finding employment, their wages continue to stagnate and hold back widespread economic growth. ...
Cutting across multiple industries and geographies, infrastructure jobs offer needed stability. Since these jobs also typically require less formal education and pay competitive wages across a variety of occupations, they give workers from all backgrounds a chance to make a decent living in today’s unforgiving economy.
As our recent report reveals, infrastructure jobs tend to pay 30 percent more to lower income workers—wage earners at the 10th and 25th percentile—relative to all jobs nationally...
Infrastructure occupations not only employ thousands of workers with a high school diploma or less, but they also frequently offer higher wages compared to many other jobs, particularly those involved in sales, maintenance, production, and other support activities. ...
Over time, by forging stronger connections between our infrastructure investments and workforce needs, we can help boost the long-term opportunity available to American workers.
Wednesday, June 18, 2014
Dear FOMC: Please be patient:
How close are we to full employment?, by Mark Thoma: How far is the economy from a full recovery? When should Federal Reserve policymakers, who are finishing their two-day meeting today, begin raising interest rates? Should the Fed speed the pace of its tapering of quantitative easing?
All of these questions depend critically on a piece of data economists call the output gap...
Tuesday, June 17, 2014
This is a good follow-up to my column (linked in the post below this one):
The Economy May Be improving. Worker Pay Isn’t, by Neil Irwin, Washington Post: The latest economic data out Tuesday morning was generally good. Home building activity rebounded nicely in May after weak results in April. Consumer prices rose 0.4 percent in May, such that inflation over the last year is now 2.1 percent, about in line with what the Federal Reserve aims for.
But that inflation news carried with it a depressing side note. ... Average hourly earnings for private-sector American workers rose about 49 cents an hour over the last year... But that wasn’t enough to cover inflation over the year, so in “real” or inflation adjusted terms, hourly worker pay fell 0.1 percent over the last 12 months. Weekly pay shows the same story...
Pause for just a second to consider that. Five years after the economic recovery began, American workers have gone the last 12 months without any real increase in what they are paid. ...
There had been some hints here and there that worker pay was starting to rise in the last few months... But it wasn’t sustained. ...
The latest numbers should give pause to any Federal Reserve officials ... who see wage pressures as evidence that the economy is overheating..., the evidence points to more of what we’ve seen for most of the last six years: Employees have little negotiating power to demand higher pay.
I have a new column:
The Latest Inflation Worry Is, As Usual, Overblown, by Mark Thoma: Worries about inflation have been pervasive ever since the Fed began trying to lift the economy out of recession. If the Fed does not tighten policy very soon we have been told repeatedly, an outbreak of inflation is inevitable. But so far, those worries have been unfounded.
The latest round of worries is tied to the belief that labor markets are tighter than it appears from standard statistics such as the unemployment rate. ...
Tuesday, June 10, 2014
Bill McBride, aka Calculated Risk:
BLS: Jobs Openings increase sharply to 4.5 million in April: From the BLS: Job Openings and Labor Turnover Summary ...
Jobs openings increased in April to 4.455 million from 4.166 million in March.
The number of job openings ... are up 17% year-over-year compared to April 2013.
Quits are up 11% year-over-year. These are voluntary separations. ...
It is a good sign that job openings are over 4 million for the third consecutive month, and that quits are increasing.
Wednesday, June 04, 2014
How Discouraged Are the Marginally Attached?: Of the many statistical barometers of the U.S. economy that we monitor here at the Atlanta Fed, there are few that we await more eagerly than the monthly report on employment conditions. The May 2014 edition arrives this week and, like many others, we will be more interested in the underlying details than in the headline job growth or unemployment numbers.
One of those underlying details—the state of the pool of “discouraged” workers (or, maybe more precisely, potential workers)—garnered special attention lately in the wake of the relatively dramatic decline in the ranks of the official labor force, a decline depicted in the April employment survey from the U.S. Bureau of Labor Statistics. That attention included some notable commentary from Federal Reserve officials.
Federal Reserve Bank of New York President William Dudley, for example, recently suggested that a sizeable part of the decline in labor force participation since 2007 can be tied to discouraged workers exiting the workforce. This suggestion follows related comments from Federal Reserve Chair Janet Yellen in her press conference following the March meeting of the Federal Open Market Committee:
So I have talked in the past about indicators I like to watch or I think that are relevant in assessing the labor market. In addition to the standard unemployment rate, I certainly look at broader measures of unemployment… Of course, I watch discouraged and marginally attached workers… it may be that as the economy begins to strengthen, we could see labor force participation flatten out for a time as discouraged workers start moving back into the labor market. And so that's something I'm watching closely.
What may not be fully appreciated by those not steeped in the details of the employment statistics is that discouraged workers are actually a subset of “marginally attached” workers. Among the marginally attached—individuals who have actively sought employment within the most recent 12-month period but not during the most recent month—are indeed those who report that they are out of the labor force because they are discouraged. But the marginally attached also include those who have not recently sought work because of family responsibilities, school attendance, poor health, or other reasons.
In fact, most of the marginally attached are not classified (via self-reporting) as discouraged (see the chart):
At the St. Louis Fed, B. Ravikumar and Lin Shao recently published a report containing some detailed analysis of discouraged workers and their relationship to the labor force and the unemployment rate. As Ravikumar and Shao note,
Since discouraged workers are not actively searching for a job, they are considered nonparticipants in the labor market—that is, they are neither counted as unemployed nor included in the labor force.
More importantly, the authors point out that they tend to reenter the labor force at relatively high rates:
Since December 2007, on average, roughly 40 percent of discouraged workers reenter the labor force every month.
Therefore, it seems appropriate to count some fraction of the jobless population designated as discouraged (and out of the labor force) as among the officially unemployed.
We believe this logic should be extended to the entire group of marginally attached. As we've pointed out in the past, the marginally attached group as a whole also has a roughly 40 percent transition rate into the labor force. Even though more of the marginally attached are discouraged today than before the recession, the changing distribution has not affected the overall transition rate of the marginally attached into the labor force.
In fact, in terms of the propensity to flow into employment or officially measured unemployment, there is little to distinguish the discouraged from those who are marginally attached but who have other reasons for not recently seeking a job (see the chart):
What we take from these data is that, as a first pass, when we are talking about discouraged workers' attachment to the labor market, we are talking more generally about the marginally attached. And vice versa. Any differences in the demographic characteristics between discouraged and nondiscouraged marginally attached workers do not seem to materially affect their relative labor market attachment and ability to find work.
Sometimes labels matter. But in the case of discouraged marginally attached workers versus the nondiscouraged marginally attached workers—not so much.
Friday, May 23, 2014
The US labor market is not working : In a recent post Paul Krugman looks at the dismal performance of US labor markets over the last decade. To make his point, he compares the employment to population ratio for all individuals aged 25-54 for the US and France. The punch line: even the French work harder than the Americans! And this is indeed a new phenomenon, it was not like that 13 years ago [Just to be clear, there are other dimensions where the French are not working as hard: they retire earlier, they take longer vacations,... but the behavior of the 25-54 year old population is indeed a strong indicator of how a society engages its citizens in the labor market. ]
So are the French the exception? Not quite. Among OECD economies, the US stands towards the bottom of the table when it comes to employment to population ratio for this cohort (#24 out of 34 countries). ...
What is interesting is that most of the countries of the top of the list are countries with a large welfare state and very high taxes (including on labor). So the negative correlation between the welfare state and taxes and the ability to motivate people to work (and create jobs) that some bring back all the time does not seem to be present in the data. ...
[See the original post for the ordered list of countries.]
Wednesday, May 21, 2014
It's unlikely that this is limited to the NY Fed region. This is NY Fed president William Dudley:
... What Kinds of Jobs Have Been Created During the Recovery?
Let me turn to the topic of today’s press briefing: how the types of jobs in the region have changed over the last business cycle. Firms often change the way they utilize workers and the mix of skills they employ during recessions and recoveries. The weakening demand during recessions forces firms to look for new ways to be more efficient to cope with hard times. These adjustments do not affect all workers equally. Indeed, it’s what we typically think of as middle-skilled workers—for example, construction workers, machine operators and administrative support personnel—that are hardest hit during recessions. Further, a feature of the Great Recession and indeed the prior two recessions, is that the middle-skill jobs that were lost don’t all come back during the recoveries that follow. Instead, job opportunities have tended to shift toward higher- and lower-skilled workers.
As we’ll show, these same trends have played out in our region. While there’s been a good number of both higher-skill and lower-skill jobs created in the region during the recovery, opportunities for middle-skilled workers have continued to shrink.
I believe it is important for us to highlight these job trends and to understand their implications for our region. There have been significant and long-lasting changes to the nature of work. As a result, many middle-skilled workers displaced during the recession are likely to find that their old jobs will never come back. Furthermore, workers are increasingly facing higher skill requirements in order to land a good job. These dynamics in the labor market present a host of challenges for the region to address. However one thing is clear: workers will need more education, training and skills to take full advantage of the types of job opportunities being created in our region, as well as across the nation. So, it’s important that we work together to find ways to help people in our region adapt to these changes. ...
Tuesday, May 20, 2014
No, Taking Away Unemployment Benefits Doesn’t Make People Get Jobs, by Bryce Covert: When 1.3 million long-term unemployed people lost benefits because Congress let the program lapse, some claimed that taking away the checks would encourage people to go out and get a job. That isn’t panning out for the 74,000 people who are no longer getting checks in Illinois.
In January, one month after they lost benefits, 64,000 of them, or 86 percent, were still unemployed, according to an analysis of wage records by the Illinois Department of Employment Security (IDES). February was similar: 61,3000 people were still unemployed, or 82.7 percent of the original group. That means two months later, four out of five people who were cut off from benefits still weren’t bringing in wages.
“This notion that temporary unemployment benefits provide people a reason not to return to work really needs to end because it is not supported by the data,” IDES Director Jay Rowell said.
Other natural experiments have shown that, rather than spurring a flurry of hiring, cutting off benefits can have disastrous consequences. ...
Tuesday, May 13, 2014
Labor Market Seems Dented, Not Broken, by Justin Wolfers: There are two schools of thought about the longer-term prospects for the labor market. The darker view is that the Great Recession wrought permanent damage: The jobs that disappeared aren’t easily replaced, and the skills of the jobless are a poor match for the jobs that remain. ...
The sunnier view is that this is not a permanent shift, but rather the natural course of a recession... It’s a sunnier view because it suggests that a continuing recovery will largely solve our unemployment problem..., leaving no lasting mark.
The past two years have been kind to this more optimistic interpretation. ... It is surely too early to draw strong conclusions, but continued movements in this direction would suggest that the Great Recession hasn’t done lasting damage, and that it’s possible for the unemployment rate to head back toward 5 percent without the emergence of hiring bottlenecks.
It seems clear to me that there has been permanent damage, but we shall see...