Thursday, July 02, 2015
Job Growth Slows in June: There is still little evidence of any acceleration of wage growth.
The Labor Department reported that the economy added 223,000 jobs in June. While this was in line with most economists' predictions, there were downward revisions of 60,000 to the data for the prior two months. This brings the average over the last three months to 221,000, compared to a monthly average of 245,000 over the last year.
The job growth was almost entirely in the service sector...
This report gives little hope for an uptick in wage growth. The average hourly wage over the last three months has risen at a 2.2 percent annual rate compared to the average over the prior three months. This is little different from the 2.0 percent rate of wage growth over the last year. Among major industry groups, the only one that shows much evidence of an acceleration in wage growth is restaurants. This is likely to due to the effect of minimum wage hikes in many states and cities.
The household survey also showed a mixed picture. The unemployment rate fell by 0.2 percentage points to 5.3 percent, the lowest rate for the recovery. However, this was entirely due to people dropping out of the labor force as the employment-to-population ratio (EPOP) slipped back by 0.1 percentage points to 59.3 percent. The one notable positive is that employment rates for African Americans seem to have risen, with the EPOP more than a full percentage point above the year ago level for the first half of 2015.
The overall drop in EPOPs is consistent with the sharp drop in the number of long-term unemployed reported in June, from 28.6 percent to 25.8 percent of the unemployed, as many of these workers likely dropped out of the labor market. ...
This report together with the prior two suggests the rate of job growth may be slowing somewhat. While a monthly pace of 221,000 would be strong for an economy near full employment, with the EPOP for prime age workers still about 3 percentage points below pre-recession levels, it will take several years at this rate to eliminate labor market slack.
Wednesday, July 01, 2015
Ahead of the Employment Report, by Tim Duy: A rare Thursday release of the employment report is on tap for tomorrow, and all eyes will be watching to see if it falls in line with the other, more optimistic US data of late. Indeed, it increasingly looks like this year's growth scare was driven by temporary factors, not a fundamental downturn in the US economy. Consequently, anything reasonably close to expectations would bolster the case of those FOMC members looking for a first rate hike later this year, as early as September.
The ISM report for June was in-line with expectations, with fairly good internal components. Note in particular the bounce-back in the employment component:
Other employment data also indicates the underlying trends in the labor market are holding. Initial unemployment claims - a leading indicator - give no cause for worry:
And the ADP employment report came in slightly ahead of expectations at a private sector job gain of 237k for June. All of this suggests that the consensus for tomorrow's headline number of 230k is reasonable, although I am inclined to bet that the actual number will beat consensus.
The usual headline numbers, however, may not be the stars of the show. Attention will rightly be on the wage numbers. Further evidence that wage growth is accelerating would indicate that the labor market is finally closing in a full employment. Such data would point to a rate hike sooner than later as it would raise the Fed's confidence that inflation will be trending toward target. See Federal Reserve Governor Stanley Fischer today:
Regarding inflation, an important factor working to increase confidence in the inflation outlook will be continued improvement in the labor market. Theoretical and empirical evidence suggests that inflation will eventually begin to rise as resource utilization tightens. And while the link between wages and inflation can be tenuous, it is encouraging that we are seeing tentative indications of an acceleration in labor compensation.
Tantalizing evidence on wage growth comes from the Atlanta Federal Reserve Bank:
With fairly low inflation, this suggests that real wages growth is indeed accelerating, which helps account for the relatively solid consumer confidence numbers we are seeing. Demand for new cars and trucks also remains strong, although I sense that we are not likely to see higher numbers going forward.
Also from the Atlanta Fed is their GDP tracker, which continues to head back to consensus range:
This is in-line with Fischer's assessment of the economy:
The U.S. economy slowed sharply in the first quarter of this year, with the most recent estimate being that real GDP declined 0.2 percent at an annual rate. Household spending slowed, while both business investment and net exports declined. Much of this slowdown seemed to reflect transitory factors, including harsh winter weather, labor disputes at West Coast ports, and probably statistical noise. Confirming that view, the latest monthly data on real consumption provide welcome evidence that consumer demand is rebounding, and that economic activity likely expanded at an annual rate of about 2.5 percent in the second quarter.
What about Greece? St. Louis Federal Reserve President James Bullard dismissed Greece as a reason for concern. Michael Derby at the Wall Street Journal reports:
What’s happening in Europe “would not change the timing of any rate hike. I would say September is still very much in play” for raising rates, Mr. Bullard told reporters after a speech in St. Louis. More broadly, he said “every meeting is in play depending on the data,” which he said had been “stronger” recently. He also described recent inflation data as being “more lively” and set to rise further over time.
I doubt other Federal Reserve officials are quite as confident, but they have plenty of time between now and September to assess the situation. As I said Monday, they will be looking for evidence of credit market spillovers. If they don't see it, the economic data will rule the day. Bullard also argued the case of a faster pace of rate hikes:
“The Fed should hedge against the possibility of a third major macroeconomic bubble in coming years by shading interest rates somewhat higher than otherwise” would be the case based on historical norms, Mr. Bullard said. “The benefit would be a longer, more stable economic expansion.”Mr. Bullard warned “my view is that low interest rates tend to feed the bubble process.” He did not point to any major imbalances right now even as he flagged high stock market levels as something to watch, acknowledging the role of technology could be changing how the economy interacts with financial markets.
Derby correctly notes, however, that this places Bullard out of the Fed consensus:
Mr. Bullard’s suggesting that rates may need to be lifted more aggressively in the future puts him at odds with some of his central bank colleagues. Many key Fed officials are now gravitating to the view that changes in labor market demographics and other forces may mean the Fed could keep rates at a lower level relative to historic benchmarks. Most officials now expect that the long-term fed funds rate target, now at near zero levels, will likely stand at around 3.75%.
Fischer, for example, still argues for a gradual pace of normalization and is much more sanguine on the financial market excess:
Once we begin to remove policy accommodation, the Committee's assessment is that economic conditions will likely warrant raising the federal funds rate only gradually. Thus, we expect that the target federal funds rate will remain for some time below levels viewed as normal in the longer run. But that is only a forecast, and monetary policy will, in practice, be determined by the data--primarily data on inflation and unemployment.What about financial stability? We are aware of the possibility that low interest rates maintained for a prolonged period could prompt an excessive buildup in leverage or cause underwriting standards to erode as investors take on risks they cannot measure or manage appropriately in a reach for yield. At this point, the evidence does not indicate that such vulnerabilities pose a significant threat, but we are carefully monitoring developments in this area.
Fischer is closer to the FOMC consensus than Bullard on these points.
Bottom Line: Incoming data continues to support the case that the underlying pace of activity is holding, alleviating concerns that kept the Fed on the sidelines in the first half of this year. I anticipate the employment report, or, more accurately, the sum of the next three reports, to say the same. Accelerating wage growth could very well be the trigger for a September rate hike, while Greece could push any rate hike beyond 2015. I myself, however, tend to be optimistic the Greece situation will not spiral out of control.
Thursday, June 18, 2015
This note from Carola Binder was intended for the Fed meeting earlier this week, but it applies equally well to meetings yet to come:
Wage Increases Do Not Signal Impending Inflation: When the FOMC meets..., they will surely be looking for signs of impending inflation. Even though actual inflation is below target, any hint that pressure is building will be seized upon by more hawkish committee members as impetus for an earlier rate rise. The relatively strong May jobs report and uptick in nominal wage inflation are likely to draw attention in this respect.
Hopefully the FOMC members are aware of new research by two of the Fed's own economists, Ekaterina Peneva and Jeremy Rudd, on the passthrough (or lack thereof) of labor costs to price inflation. The research, which fails to find an important role for labor costs in driving inflation movements, casts doubts on wage-based explanations of inflation dynamics in recent years. They conclude that "price inflation now responds less persistently to changes in real activity or costs; at the same time, the joint dynamics of inflation and compensation no longer manifest the type of wage–price spiral that was evident in earlier decades." ...
Thursday, June 11, 2015
Joseph E. Gagnon:
Why Currency Manipulation Matters: Currency manipulation (CM) by foreign countries has become a major part of the debate over Trade Promotion Authority (TPA) in Congress. Lawmakers opposed to TPA have charged that China’s efforts to keep the value of its currency down in order to expand exports contributed to US job losses since the turn of the century. Previously, Fred Bergsten and I raised the possibility of including currency chapters in trade agreements as one of several possible strategies for countering CM. This post, however, focuses exclusively on the costs of CM to the US economy.
Some observers describe the cost of CM entirely in terms of jobs lost for US workers; others dispute the notion that CM has any effect on US employment. But the truth is more complicated than these simple nostrums.
Economic circumstances determine whether CM has any effect on total employment. In the recent past [when the economy was in a deep recession], CM held down US employment to a major extent. In the near future [when the economy has fully recovered], CM probably will have a negligible effect on employment.
However, CM imposes costs on the US economy even when we are at full employment. These costs are roughly comparable in magnitude to all of the gains that are projected from trade agreements with Asia-Pacific countries. ...
Monday, June 08, 2015
Julie L. Hotchkiss and Christopher J. Macpherson at the Atlanta Fed's Macroblog:
Falling Job Tenure: It's Not Just about Millennials: The image of a worker in the 1950s is one of a man (for the most part) who plans on spending his entire career with one employer. We hear today, however, that "...long gone is the lifelong loyalty to a corporation with steadfast servitude for years on end." One report tells us that "people entering the workforce within the past few years may have more than 10 different jobs before they retire." The reason? "Millennials don't like commitments." Well, the explanation is probably not that simple, but even simply measuring trends in job tenure is also not all that straightforward.
Despite a strong impression that entire careers spent with one employer are a thing of the past, some have declared the image of job-hopping millennials a myth. (You can read some discussions at About.com, CNBC, and Marketwatch, for example.) These reports are all based on a September 2014 news release from the U.S. Bureau of Labor Statistics (BLS) stating that among every employee age group (even the youngest), median job tenure has not declined from when it was reported 10 years earlier. (Median job tenure is basically the "middle" amount of job tenure. If all workers are lined up from lowest tenure to highest tenure, the median tenure would be the amount of time the person in the middle of that line has been with his/her employer.)
Chart 1 illustrates the biennial data on job tenure reported by the BLS and interpreted by the reports mentioned above as indication that job tenure is not falling. Each line represents an age range, from 20- to 30-year-olds at the bottom (the lowest median tenure among all age groups) to 61- to 70-year-olds on the top (the age group with the highest median tenure). It sure doesn't look as though workers at each age group are staying with their jobs for shorter periods.
However, the problem with simply comparing median tenure across time by age group is that different ages at different time periods face different labor market institutions, incentives, and expectations. There are generational, or cohort, differences in what the labor market looks like and has to offer a 25-year-old born in 1923 and a 25-year-old born in 1993. In other words, each generation is represented across the age groups at different points in time.
The different colored points across age groups in chart 1 indicate the range of years the people in that particular year, in that age group, were born (and to what named generation they belong). The labor market facing a 31-to 40-year-old baby boomer in 1996 looks quite different from the labor market facing a 31-to-40-year-old Gen Xer in 2012, and the social, economic, and behavioral differences are even more dramatic the farther apart the generations become.
For example, one of the most dramatic changes facing workers has been the transformation from defined-benefit to defined-contribution retirement plans. The number of years a worker spends with an employer is no longer an investment in the employee's retirement. (William Even and David Macpherson (1996) illustrated the important link between the presence of an employer-sponsored retirement plan and worker tenure in their paper "Employer Size and Labor Turnover: The Role of Pensions.")
Additionally, the share of those 25 and over with a college degree in the United States has increased from 5 percent in 1950 to 32 percent in 2014, according to data from the U.S. Census Bureau. A more educated workforce is one with more general, or transferable, human capital, reducing the need to stay with just one employer to reap a return on one's investment in human capital. The transition of the U.S. economy from a basis in manufacturing to one based in services, supported by technology, also means employers require more general, rather than specific, human capital.
Firms have also changed the way they invest in workers, offering less on-the-job training than they used to, weakening their ties to the worker. And on top of all of this, because of near-instantaneous access to information, movies, and music brought by the digital age, younger cohorts are purported to have shorter attention spans than older cohorts (as reported here). All these factors shape the environment in which workers and employers view the value of longevity in their relationship.
To get a more accurate picture of the lifetime pattern of median job tenure and how it has changed across generations, we use the same BLS data used to produce the chart above to group workers into cohorts, or people who have similar experiences by virtue of when they were born. In other words, we rearrange the data used in chart 1 to line people up by birth year rather than by calendar year in order to illustrate (in chart 2) that median job tenure is indeed declining through the generations.
What we see in this chart—using the 20- to 30-year-olds, for example—is that the median job tenure was four years among those born in 1953 (baby boomers) when they were between 20 and 30 years old. For 20- to 30-year-olds born in 1993 (millennials), however, median job tenure is only one year. Similar—and some even more dramatic—declines occur across cohorts within each age group.
Declining job tenure is not just all about millennials having short attention spans. In fact, there is a greater (five-year) decline in median job tenure between 41- and 50-year-old "Depression babies" (born in 1933) and 41- to 50-year-old Gen Xers (born in 1973). So, just as our colleagues here at the Atlanta Fed discovered with regard to declines in first-time home mortgages, millennials aren't to blame for everything!
So what does declining job tenure mean for the U.S. labor market? From the perspective of the worker, portable retirement savings and, now, portable health insurance mean that workers confront a world of possibilities that our parents and grandparents never dreamt of. Yes, perhaps the days of predictability in one's career is a thing of the past. But so is the "eggs-in-one-basket" loss of retirement savings when your employer goes out of business as well as potentially slower career progression within a single firm.
From the economy's perspective, the flexibility of workers seeking their highest rents and the flexibility of firms to seek better matches for their needed skills mean greater productivity—not to mention growth—all around.
Thursday, May 14, 2015
... The following graph shows the 4-week moving average of weekly claims since January 2000.
The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased to 271,750.
This was well below the consensus forecast of 276,000, and the low level of the 4-week average suggests few layoffs. This is the lowest 4-week average in 15 years (since April 2000).
Note: If the 4-week average falls to 266,000, it will be the lowest in 40 years!
Friday, May 08, 2015
Dean Baker on the employment report:
Rising Trade Deficit Slows Job Growth in Manufacturing: Employment rates for prime age workers in the U.S. are low compared to other countries.
The Labor Department reported the economy created 223,000 jobs in April. This is disappointing since the already weak March number was revised down by 41,000 to 85,000. Since the March number was held down by unusually bad weather, it was reasonable to expect more of a bounceback in April. With the downward revision, the two-month average is just 154,000, a considerable falloff from last year’s pace.
There were few sectors showing much strength in the month. Professional and business services added 62,000 jobs, 20,700 of which were in the relatively high-paying professional and technical services sector. Construction added 45,000 after a reported loss of 9,000 in March. Health care added 45,200 jobs, up considerably from its average of 33,000 over the last year. Restaurants added 26,000 jobs after losing 7,400 jobs in March. Over the last year, job growth averaged more than 32,000 a month. The government sector added 10,000 jobs in April, reversing a loss of 9,000 jobs in March.
Manufacturing employment has essentially gone flat, adding just 1,000 jobs. Employment in the sector is up by just 4,000 since January, and because the average workweek has declined, the index of aggregate weekly hours in manufacturing is down by 0.5 percent from its January level. Overtime hours are also down sharply over the last year. This is consistent with the data showing a rise in the trade deficit due to the stronger dollar.
A downward revision to last month’s wages eliminated the little evidence we had seen of accelerating wage growth. The annual rate of growth over the last three months compared with the prior three months is 2.3 percent, compared to 2.2 percent over the last year.
The news is a bit better in the household survey. The unemployment rate edged down slightly to 5.4 percent. The number of involuntary part-time workers fell by 125,000 from the March level and is now down by 880,000 from its year-ago level. Meanwhile, the number of people who choose to work part-time rose by 320,000 from March and is up by 1,140,000 (6.0 percent) from its year-ago level. This is likely due to the increased flexibility offered by the Affordable Care Act.
Interestingly, college educated workers are not doing especially well in the recovery. The employment-to-population ratio (EPOP) for college grads is down by 0.2 percentage points over the last year and is down by 4.0 percentage points from its pre-recession level. By contrast, the EPOP for workers without high school degrees has risen by 1.4 percentage points over the last year and is down by less than 2.0 percentage points from its pre-recession level.
The share of unemployment due to people voluntarily quitting their jobs fell back to 9.7 percent after being at 10.2 percent the last two months. The average duration of unemployment was near its lowest level throughout the recovery, and the share of long-term unemployed fell to near its lowest level in the recovery.
There continues to be a debate among economists over the extent to which the fall in employment rates is cyclical. In this respect, it is worth noting that much of the decline is among prime age workers (25-54), not the result of the retirement of the baby boomers. The United States is doing far worse in employing prime age workers than its competitors. Its prime age EPOP fell from just under 80.0 percent before the downturn to slightly above 77.0 percent in the most recent quarterly data. By contrast, Germany and Japan have both seen sharp rises in EPOPs to 83.4 percent and 82.6 percent, respectively. Even France, which has seen a modest decline in prime age EPOPs, still has an EPOP of 80.4 percent.
If the March and April jobs reports are taken together, they give a picture of job growth at a considerably slower pace than what we saw last year. This is more consistent with the rate of economic growth that we saw in 2014, and which may have slowed further in the first quarter (after accounting for weather). Productivity growth has been extraordinarily weak through the recovery and has actually been negative in the last two quarters. Without some additional spur to growth to offset the trade deficit, it appears that a return to trend productivity growth is likely to be associated with slower job growth.
See also: Calculated Risk.
Thursday, April 30, 2015
Let Me Strongly Dissent from Ben Bernanke's Claim That the Critical Objective of Recovery Viewed in the Proper Metrics Is Being Met: Ben Bernanke: WSJ Editorial Page Watch: The Slow-Growth Fed?: "The Wall Street Journal... argue[s] (again) for tighter monetary policy...
...It's generous of the WSJ writers to note... that 'economic forecasting isn't easy.' They should know, since the Journal has been forecasting a breakout in inflation and a collapse in the dollar at least since 2006, when the FOMC decided not to raise the federal funds rate above 5-1/4 percent.... They fail to note... unemployment, which has fallen more quickly than anticipated.... The relatively rapid decline in unemployment in recent years shows that the critical objective of putting people back to work is being met...
No, no, no, no, no, no, no, no, no. NO! NO!!!!
It is not the case that since 2000 three percent of our 25-54 year olds have decided that being at work is not what it is cracked up to be, and it is better to live in their parents' basement surfing the net.
It is the case that the low-pressure economies and resulting lousy labor markets since 2001 have degraded the social networks that Americans--especially young Americans--use to find jobs, and that an extra three percent of our 25-54 year olds are discouraged, largely rationally discouraged, from looking for jobs. And that other age groups are in the same situation.
You ... should not say that: "the critical objective of putting people back to work is being met..."? No, no, no, no, no.
You should say that it is being partially met. You should say that it is being left substantially unmet.
Monday, April 20, 2015
Let's hope the Fed is listening:
Labor Market Slack and Monetary Policy, by David G. Blanchflower and Andrew T. Levin, NBER Working Paper No. 21094: In the wake of a severe recession and a sluggish recovery, labor market slack cannot be gauged solely in terms of the conventional measure of the unemployment rate (that is, the number of individuals who are not working at all and actively searching for a job). Rather, assessments of the employment gap should reflect the incidence of underemployment (that is, people working part time who want a full-time job) and the extent of hidden unemployment (that is, people who are not actively searching but who would rejoin the workforce if the job market were stronger). In this paper, we examine the evolution of U.S. labor market slack and show that underemployment and hidden unemployment currently account for the bulk of the U.S. employment gap. Next, using state-level data, we find strong statistical evidence that each of these forms of labor market slack exerts significant downward pressure on nominal wages. Finally, we consider the monetary policy implications of the employment gap in light of prescriptions from Taylor-style benchmark rules.
Tuesday, April 07, 2015
Frank Muraca of the Richmond Fed:
How the Geography of Jobs Affects Unemployment: In postwar America, many families moved away from urban centers into the rapidly developing suburbs. Culturally, these new communities were associated with economic opportunity, signifying middle-class values and upward mobility.
The path to economic mobility is no longer a highway leading from downtown to the suburbs. For example, the number of suburban residents in poverty may now exceed the number of urban-dwellers in poverty. According to the Brookings Institution, suburban poverty rose from 10 million in 2000 to 16.5 million in 2012, compared to an increase in urban poverty from 10.4 million to 13.5 million over the same period...
This geographic picture of opportunity and wealth adds complexity to questions about whether unfortunate circumstances, such as poverty, might be determined in part by where someone lives. To be sure, where one chooses to live is about more than job opportunities, which are weighed against housing options, commuting costs, lifestyle choice, social networks, and more. In equilibrium, housing prices and wages should make households indifferent among locations. In other words, some people might choose to live far away from jobs, possibly accepting a costlier commute, because they are "compensated" by factors such as lower housing costs.
But the places where people are distributed by market forces seem to lead, in some cases, to worse labor market outcomes. An explanation of those outcomes was first identified in 1968 as an account of how black unemployment rates were elevated by discriminatory housing policies. That explanation, commonly known as the "spatial mismatch hypothesis," posits constraints on where people are able to live.
The scope of spatial mismatch research has broadened beyond discrimination. Researchers seek to understand the constraints that certain households face when deciding where to live, helping to explain phenomena like prolonged unemployment, lower wages, longer commutes, and geographically concentrated poverty. This research may shed some light on how anti-poverty programs could take geography into account to be more effective. ...
[There is quite a bit more in the article.]
Tuesday, March 31, 2015
Not so sure this is conclusive -- it seems like the survey question could have been sharpened:
Generous welfare benefits make people more likely to want to work, not less: Survey responses from 19,000 people in 18 European countries, including the UK, showed that "the notion that big welfare states are associated with widespread cultures of dependency, or other adverse consequences of poor short term incentives to work, receives little support."
Sociologists Dr Kjetil van der Wel and Dr Knut Halvorsen examined responses to the statement 'I would enjoy having a paid job even if I did not need the money' put to the interviewees for the European Social Survey in 2010.
In a paper published in the journal Work, employment and society they compare this response with the amount the country spent on welfare benefits and employment schemes, while taking into account the population differences between states.
The researchers, of Oslo and Akershus University College, Norway, found that the more a country paid to the unemployed or sick, and invested in employment schemes, the more its likely people were likely to agree with the statement, whether employed or not. ...
The researchers also found that government programmes that intervene in the labour market to help the unemployed find work made people in general more likely to agree that they wanted work even if they didn't need the money. In the more active countries around 80% agreed with the statement and in the least around 45%. ...
"This article concludes that there are few signs that groups with traditionally weaker bonds to the labour market are less motivated to work if they live in generous and activating welfare states.
"The notion that big welfare states are associated with widespread cultures of dependency, or other adverse consequences of poor short term incentives to work, receives little support.
"On the contrary, employment commitment was much higher in all the studied groups in bigger welfare states. ..."
Wednesday, March 25, 2015
Larry Ball tells the Fed to be very patient when it comes to satisfying its mandate to pursue full employment:
Fed Should Push Unemployment Well Below 5%, Paper Says: The Federal Reserve should hold short-term interest rates near zero long enough to drive unemployment well below 5%, even if it means letting inflation exceed the central bank’s 2% target. That’s according to Laurence Ball, economics professor and monetary policy expert at Johns Hopkins University...
Mr. Ball says the Fed could create more jobs by letting the unemployment rate fall lower. It should seek to push the rate “well below 5%, at least temporarily,” he writes. That could help bring some discouraged workers to reenter the labor market, as well as help the long-term unemployed find work and involuntary part-time workers find full-time jobs, he said.
“A likely side effect would be a temporary rise in inflation above the Fed’s target, but that outcome is acceptable,” writes Mr. Ball... U.S. inflation has been undershooting the Fed’s target for nearly three years.
Mr. Ball’s view is not shared by many Fed officials...
Tuesday, March 10, 2015
On the costs of unemployment:
Being 'laid off' leads to a decade of distrust, EurekAlert!: People who lose their jobs are less willing to trust others for up to a decade after being laid-off, according to new research from The University of Manchester.
Being made redundant or forced into unemployment can scar trust to such an extent that even after finding new work this distrust persists, according to the new findings of social scientist Dr James Laurence. This means that the large-scale job losses of the recent recession could lead to a worrying level of long-term distrust among the British public and risks having a detrimental effect on the fabric of society.
Dr Laurence ... finds that being made redundant from your job not only makes people less willing to trust others but that this increased distrust and cynicism lasts at least nine years after being forced out of work. It also finds that far from dissipating over time, an individual can remain distrustful of others even after they find a new job. ...
Saturday, March 07, 2015
...the current situation looks quite a lot like the mid-90s, with unemployment basically at the Fed’s estimate of “full employment” but no sign of inflation — except that back then wages were rising much more vigorously than now. Now, as then, there is a very real possibility that we have lots more room to run, if the Fed lets us.
[Travel day today, will post more if and as I can.]
Friday, March 06, 2015
Dean Baker on the employment report (subtitle: The strongest wage growth is showing up in the lowest-paying sectors):
Job Growth Remains Strong in February (CC): The labor market had another strong month in February, with employers adding 295,000 in the month. While there were small downward revisions to the January numbers, this still left the three month average at 288,000 jobs. The unemployment rate dropped to 5.5 percent, its lowest level since May of 2008, the early days of the recession. The employment-to-population ratio (EPOP) remained at 59.3 percent, more than 3.0 percentage points below its pre-recession level.
The February performance is especially impressive given that an unusually severe winter might have been expected to dampen job growth, especially in sectors like construction and restaurants. Construction added 29,000 jobs and restaurants added an extraordinary 58,700 jobs. Of course, some of the weather effect may show up in the March data, since the worst weather came towards the end of the month, after the reference week for the survey.
The gain in construction brings the average over the last four months to 38,000 jobs. This comes to a 7.5 percent annual growth rate in a context where reported construction spending has been relatively flat. This suggests that there could be some serious measurement issues in the data. Manufacturing employment growth slowed to 8,000 after averaging 28,000 the prior three months. Retail continues to show strong growth, adding 32,000 jobs, bringing its average since August to 29,900. The professional and technical services category, which tends to be higher paying, again showed strong growth, adding 31,800. This is roughly even with its 30,800 average over the last four months.
There were some anomalies in the data that are likely to be reversed. The courier sector added 12,300 jobs, while education services reportedly added 21,300 jobs. Data in both sectors are highly erratic and almost certain to be largely reversed in future months. The temp sector lost 7,800 jobs in February, its second consecutive decline. Health care job growth fell back to 23,800, compared to an average of 39,250 over the prior four months. The 58,700 jobs added in the restaurant sector was the largest monthly gain since November of 2000.
The data in the household survey was mostly positive. Involuntary part-time employment fell by another 175,000 in February and is now 570,000 below its year-ago level. There was a small rise in the number of people who have voluntarily chosen to work part-time. It is now 750,000 above its year-ago level and almost 900,000 higher than in February of 2013, before the exchanges from the Affordable Care Act came into existence.
The percentage of people unemployed because they voluntarily quit their job rose from 9.5 percent to 10.2 percent, its highest level since May of 2008. This is still close to 2.0 percentage points below the pre-recession levels.
The recovery continues to disproportionately benefit less educated workers. The unemployment rate for workers without a high school degree edged down by 0.1 percentage point to 8.4 percent, 1.4 percentage points below its year-ago level. The current unemployment rate for this least educated group of workers is roughly a percentage point above its pre-recession level, while the unemployment rate for college grads is 0.7 percentage points higher at 2.7 percent. However, the contrast in EPOP is striking. The EPOP for workers without high school degrees is down by roughly a percentage point from its pre-recession level, while the EPOP for college grads is down by close to four percentage points.
Reported wage growth for the month was weak, as expected, following a large reported gain in January. Taking the average for the last three months compared to the prior three months, the annual rate of growth was just 1.8 percent, down from 2.0 percent over the last year. The data on wage growth continue to indicate there is still a large amount of slack in the labor market. There is some evidence of more rapid wage growth in the lowest paying sectors, which is to be expected as workers can increasingly find better jobs elsewhere, but higher-paying sectors continue to show very weak wage growth.
If the economy can sustain job growth in the neighborhood of 300,000 per month, by the end of the year we may start seeing substantial wage gains.
Monday, March 02, 2015
How the pie is sliced depends upon more than economic forces:
Walmart’s Visible Hand, by Paul Krugman, Commentary, NY Times: A few days ago Walmart, America’s largest employer, announced that it will raise wages for half a million workers. For many of those workers the gains will be small, but the announcement is nonetheless a very big deal, for two reasons. First, there will be spillovers: Walmart is so big that its action will probably lead to raises for millions of workers employed by other companies. Second, and arguably far more important, is what Walmart’s move tells us — namely, that low wages are a political choice, and we can and should choose differently.
Some background: Conservatives — with the backing, I have to admit, of many economists — normally argue that the market for labor is like the market for anything else. The law of supply and demand, they say, determines the level of wages, and the invisible hand of the market will punish anyone who tries to defy this law.
Specifically,... a minimum wage, it’s claimed, will reduce employment and create a labor surplus... Pressuring employers to pay more, or encouraging workers to organize into unions, will have the same effect.
But labor economists have long questioned this view..., workers are people, wages are not, in fact, like the price of butter, and how much workers are paid depends as much on social forces and political power as it does on simple supply and demand. ...
Walmart is ready to raise wages.... And its justification for the move echoes what critics of its low-wage policy have been saying for years: Paying workers better will lead to reduced turnover, better morale and higher productivity.
What this means, in turn, is that engineering a significant pay raise for tens of millions of Americans would almost surely be much easier than conventional wisdom suggests. Raise minimum wages by a substantial amount; make it easier for workers to organize, increasing their bargaining power; direct monetary and fiscal policy toward full employment, as opposed to keeping the economy depressed out of fear that we’ll suddenly turn into Weimar Germany. It’s not a hard list to implement — and if we did these things we could make major strides back toward the kind of society most of us want to live in.
The point is that extreme inequality and the falling fortunes of America’s workers are a choice, not a destiny imposed by the gods of the market. And we can change that choice if we want to.
Wednesday, February 25, 2015
Timothy Aeppel at the WSJ:
Be Calm, Robots Aren’t About to Take Your Job, MIT Economist Says: David Autor knows a lot about robots. He doesn’t think they’re set to devour our jobs. ... His is “the non-alarmist view”...
Mr. Autor’s latest paper, presented to a packed audience at this year’s meeting of central bankers at Jackson Hole, Wyo., emphasized how difficult it is to program machines to do many tasks that humans find often easy and intuitive. In it, he played off a paradox identified in the 1960s by philosopher Michael Polanyi, who noted that humans can do many things without being able to explain how, like identify the face of a person in a series of photographs as they age. Machines can’t do that, at least not with accuracy.
This is why big breakthroughs in automation will take longer than many predict, Mr. Autor told the bankers. If a person can’t explain how they do something, a computer can’t be programmed to mimic that ability. ...
To Mr. Autor, polarization of the job market is the real downside of automation. He calculates middle-skill occupations made up 60% of all jobs in 1979. By 2012, this fell to 46%. The same pattern is visible in 16 European Union economies he studied.
The upshot is more workers clustered at the extremes. At the same time, average wages have stagnated for more than a decade. He attributes this to the loss of all those relatively good-paying middle-range jobs, as well as downward pressure on lower-skilled wages as displaced workers compete for the lesser work. ...
I've been arguing for a long time that in coming decades the major question will be about distribution, not production. I'm not very worried about stagnation, etc. -- we'll have plenty of stuff to go around. I'm worried about, to quote the title of a political science textbook I used many, many, many years ago as an undergraduate, "who gets the cookies?" not how many cookies we're able to produce So I agree with Autor on this point:
Mr. Autor ... added, “If we automate all the jobs, we’ll be rich—which means we’ll have a distribution problem, not an income problem.”
Saturday, February 21, 2015
'Faster Real GDP Growth during Recoveries Tends To Be Associated with Growth of Jobs in “Low-Paying” Industries'
This is from the St. Louis Fed:
Faster Real GDP Growth during Recoveries Tends To Be Associated with Growth of Jobs in “Low-Paying” Industries, by Kevin L. Kliesen and Lowell R. Ricketts: Typically, deep recessions are followed by rapid growth. However, since the second quarter of 2009, when the latest recession officially ended, real (inflation- adjusted) gross domestic product (GDP) has increased at only a 2.3 percent annual rate.1 Prior to the latest recession, the economy’s long-term growth rate of real potential GDP was about 3 percent per year.2 Thus, the current business expansion could not only be the weakest on record—although that conclusion will ultimately depend on its length and future growth—but it could signal a worrisome downshift in the economy’s long- term growth rate of real potential GDP.
A common refrain among many economic pundits and analysts is that the bulk of the job gains during this recovery have been in “low-wage jobs,” a term that is rarely defined. This essay will explicitly define “low-wage” jobs in order to assess the validity of this claim. (This essay will not delve into the numerous hypotheses that have been put forward to explain why the economy fell into a deep recession and why the current expansion’s growth rate has been so anemic. Interested readers should refer to those articles listed in the reference section.)
To preview our conclusion, we found that the percentage change in job losses during the latest recession was higher in “high- paying” private-sector industries—which we define as industries with above-average hourly earnings—than in low-paying sectors. Likewise, the percentage change in job gains during the recovery was also proportionately larger in high-paying industries. It should be pointed out, though, that the total number of jobs in low-paying industries exceeds the number of jobs in high-paying industries by nearly 70 percent. Thus, an equal percentage increase in jobs in both industries would generate much larger job gains in low-paying industries than in high-paying industries. We also found that the percentage change in job gains in low- paying industries was much stronger following the 1981-82 and 1990-91 recessions, which also happened to be periods of much stronger real GDP growth. ...
Wednesday, February 18, 2015
Another potential cost of unemployment:
Basic personality changes linked to unemployment: Unemployment can change peoples' core personalities, making some less conscientious, agreeable and open, which may make it difficult for them to find new jobs, according to research published by the American Psychological Association.
"The results challenge the idea that our personalities are 'fixed' and show that the effects of external factors such as unemployment can have large impacts on our basic personality," said Christopher J. Boyce, PhD, of the University of Stirling in the United Kingdom. "This indicates that unemployment has wider psychological implications than previously thought." ...
The study suggests that the effect of unemployment across society is more than just an economic concern -- the unemployed may be unfairly stigmatized as a result of unavoidable personality change, potentially creating a downward cycle of difficulty in the labor market, Boyce said.
"Public policy therefore has a key role to play in preventing adverse personality change in society through both lower unemployment rates and offering greater support for the unemployed," Boyce said. "Policies to reduce unemployment are therefore vital not only to protect the economy but also to enable positive personality growth in individuals."
Thursday, February 12, 2015
John Robertson and Ellie Terry at the Atlanta Fed's Macroblog:
Are We Becoming a Part-Time Economy?: Compared with 2007, the U.S. labor market now has about 2.5 million more people working part-time and about 2.2 million fewer people working full-time. In this sense, U.S. businesses are more reliant on part-time workers now than in the past.
But that doesn't necessarily imply we are moving toward a permanently higher share of the workforce engaged in part-time employment. As our colleague Julie Hotchkiss pointed out, almost all jobs created on net from 2010 to 2014 have been full-time. As a result, from 2009 to 2014, the part-time share of employment has declined from 21 percent to 19 percent and is about halfway back to its prerecession level.
But the decline in part-time utilization is not uniform across industries and occupations. In particular, the decline is much slower for occupations that tend to have an above-average share of people working part-time. This portion of the workforce includes general-service jobs such as food preparation, office and administrative support, janitorial services, personal care services, and sales.
Why has the demand for full-time workers in general-service occupations been more subdued than for other jobs? As the following chart shows, wage growth for these occupations has been quite weak in the past few years, suggesting that employers have not been experiencing much tightness in the supply of workers to fill vacancies for these occupations. Presumably, then, the firms generally find it acceptable to have a greater share of part-time workers than in the past.
The overall share of the workforce employed in part-time jobs is declining and is likely to continue to decline. But the decline is not uniform across industries and occupations. Working part-time has become much more likely in general-service occupations than in the past—and a greater share of those workers are not happy about it.
Friday, February 06, 2015
Dean Baker on the employment report:
Economy Adds 257,000 Jobs in January: The Labor Department reported that the economy added 257,000 new jobs in January. With upward revisions to the prior two months' data, this brings the average over the last three months to 336,000 jobs. The unemployment rate was essentially unchanged at 5.7 percent. Adjusting for changes in population controls, the household survey still showed an increase in employment of 435,000 in January.
The job growth in the establishment survey was widely spread across industries, but it is noteworthy that the goods production sector remained strong. Construction added 39,000 jobs, bringing the average over the prior three months to 37,700. Manufacturing added 22,000 jobs bringing the average over the last three months to 31,000. The oil and gas sector is showing the impact of falling prices, with employment down by 1,900 in January. Employment in coal mining also fell by 700. Over the last year, the coal industry has lost 4,800 jobs with employment now standing at 71,300.
Retail added 45,900 jobs in January, while health care added 38,300. The latter figure continues an uptick in job growth in the health care sector that began in the fall. Job growth had averaged under 14,000 a month in 2013 and 19,000 in the first half of 2014. It has averaged 39,000 a month since September. The temp sector showed a loss of 4,100 jobs in January after gaining 55,800 jobs over the prior two months. This more likely represents an erratic movement in the data than a reversal in employment trends in the sector. Restaurant employment rose by 34,600, almost exactly equal to its growth rate over the last year. The government sector lost 10,000 jobs, but most of this was due to the loss of 6,100 jobs in the Postal Service.
There was a 12 cent jump in average hourly pay, but this reflects the erratic movement of this series, not a real development in the economy. Taking the last three months together, compared with the prior three months, wages have grown at just a 2.0 percent annual rate, down from a 2.2 percent increase over the last year. In other words, there is still no real evidence of wage acceleration in the data.
The household survey showed little change in the employment situation for most groups. It is striking that less educated workers continue to be the largest beneficiaries of the recovery. In the last year, the employment rate (EPOP) for workers without high school degrees has risen by 2.1 percentage points, while their unemployment rate has dropped by 1.1 percentage points. High school grads have seen a similar drop in their unemployment rates, although their EPOP has risen by just 0.2 percentage points. By contrast, the unemployment rate for college graduates has fallen by 0.5 percentage points, while their EPOP has dropped by 0.7 percentage points. The unemployment rate for college graduates is still 0.8 percentage points above its average for 2007.
While the unemployment rate edged up, the overall EPOP also rose, hitting 59.3 percent, a new high for the recovery. However this is still 3.7 percentage points below the average for the year before the recession. Contrary to what is frequently claimed, most of this decline is due to prime age workers (ages 25-54) dropping out of the labor force. That reversed the pre-recession trend, in which the percentage of both prime age men and women in the labor force had been rising.
The number of people involuntarily working part-time was little changed from December but was 453,000 below its year-ago level. Voluntary part-time is up by 535,000 from a year ago. Another positive item was that the percentage of unemployment due to people voluntarily quitting their jobs hit a recovery high of 9.5 percent. This is still far below the rates of more than 11 percent before the downturn and more than 14 percent in the 1990s boom.
The January report provides further evidence of a strengthening labor market. However, the weak 4th quarter GDP growth, coupled with a rising trade deficit and continued weakness in investment, should raise concerns about its durability. The labor market is not yet tight enough to produce substantial wage growth, which means that future consumption growth will be limited.
Thursday, February 05, 2015
The percentage may not be as high as you think, and is currently at the lowest level since at least 1972 (click on the figure for a larger, clearer version):
A new report from Mike Cassidy of the Century Foundation:
Where Are the Jobs?: Overview If all the job openings in the United States were to be filled today, an additional 5 million Americans would be employed. That total is higher than the population of twenty-eight states, as well as every American city other than New York. It is the most job openings at any one time in the United States since 2001—enough to provide work for nearly three-in-five of the 8.7 million Americans who are now categorized as unemployed.
Of course, the notion of instantaneously and simultaneously filling all of America’s vacancies is a nice thought exercise, but not particularly realistic. A healthy economy will always have openings as it grows and changes, as businesses open and close, and as workers leave jobs and begin new ones.
But the sheer magnitude of current job availabilities raises important questions. Why are employers apparently having more difficulty filling openings than in the past? Is it because applicants lack the skills required? Or are businesses feeling uncertain about the durability of the recovery? What industries have rebounded most strongly after the Great Recession, and which have lagged behind?
This report, the third in The Century Foundation’s Working Paper Series, will explore these issues complicating the demand side of the U.S. labor market. But our guiding question will be a simple one: Where are the jobs? ...
Friday, January 30, 2015
Jeffrey Sparshott of the WSJ:
U.S. Workers Still Waiting for Wage Growth: U.S. employers aren’t yet getting squeezed by workers demanding higher wages.
The employment-cost index, a broad gauge of wage and benefit expenditures, rose a seasonally adjusted 0.6% in the fourth quarter last year, the Labor Department said Friday. That’s down from 0.7% in the two earlier quarters and jibes with other data showing only limited wage pressure across the U.S.
Wages and salaries, which account for about 70% of compensation costs, climbed 0.5%, a slowdown from the third quarter’s 0.8% pace. Benefit costs rose 0.6%, matching the prior quarter.
The data is better than recent hourly earnings figures, which showed wages declining in December despite a postrecession low for the unemployment rate. ...
Monday, January 26, 2015
Techno-neutrality: I’ve had a few posts in the past few months (here and here) about the consequences of mechanization for the future of work. In short, what will we do when the robots take our jobs?
I wouldn’t call myself a techno-optimist. I don’t think the arrival of robots necessarily makes everything better. But I do not buy the strong techno-pessimism that comes up in many places. Richard Serlin has been a frequent commenter on this blog, and he generally has a gloomy take on where we are going to end up once the robots arrive. I’m not bringing up Richard to pick on him. He writes thoughtful comments on this subject (and lots of others), and it is those comments that pushed me to try and be more clear on why I’m “techno-neutral”. ...
Friday, January 23, 2015
Most of the decline in participation occurred among teenagers and young adults. The finding that these effects tend to be larger in more prosperous families points strongly away from much of a role for rising influence of benefit programs, because these programs, especially food stamps, are only available to families with incomes well below the median.
So what is going on here? Could it be “culture”? Hall cites, suggestively, time use surveys showing that sleep and personal consumption of video are up strongly.
Wednesday, January 21, 2015
Rising Fears About Losing and Replacing Jobs: The General Social Survey is a nationally representative survey carried bout by the National Opinion Research Center at the University of Chicago and financially supported by grants from the National Science Foundation. Starting in 1977 and 1978, and intermittently over the years since then, it has included these two questions:
Thinking about the next 12 months, how likely do you think it is that you will lose your job or be laid off—very likely, fairly likely, not too likely, or not at all likely?
About how easy would it be for you to find a job with another employer with approximately the same income and fringe benefits you have now? Would you say it would be very easy, somewhat easy, or not easy at all?
Back in 1980, Charles Weaver wrote an article about the patterns of the answers in the first wave of this data. He updates the results and looks for patterns over time in "Worker’s expectations about losing and replacing their jobs: 35 years of change," in the January 2015 issue of the Monthly Labor Review, published by the US Bureau of Labor Statistics. ...
Both simple comparisons and more sophisticated analyses suggests that fear about losing and replacing jobs has been rising over time. Here's the simple comparison from Weaver: "Compared with workers in 1977 and 1978, workers in 2010 and 2012 expressed significantly less job security. They were more afraid of losing their jobs (11.2 percent versus the earlier 7.7 percent) and were less likely to think that they could find comparable work without much difficulty (48.3 percent versus the earlier 59.2 percent)."
The more detailed breakdown of the data shows which groups have seen their labor market fears increase the most. On the question how likely you are to lose your current job, the answer for the population as a whole rose 3.5 percentage points from 1977-78 to 2010-12. But for blue-collar craft workers the increase was 11.1 percentage points, and for blue collar operatives the rise was 9.7 percentage points. Also, from the early to the most recent survey, those in the age 50-59 age bracket were 8.2 percentage points more likely to think that they were likely to lose their job.
On the issue of whether workers expected to be able to find a comparable job, the answer for the population as a whole dropped 10.9 percentage points from 1977-78 to 2010-12. For those with "some college," but not a college degree, the expectation fell by 23.1 percentage points, and for white collar workers in clerical jobs it fell by 23.9 percentage points. Interestingly, for workers 60 and over the confidence in being able to fine a comparable job was actually 1.7 percentage point greater in the 2010-12 results than in the 1977-78 results.
An obvious question is whether the greater fears about losing jobs and replacing jobs are a relatively recent development--in particular, whether they happened only in the aftermath of the Great Recession--or whether this has been a steady trend over time. Stewart runs through a number of different statistical exercises to consider this point...
Stewart writes: "In 2010 and 2012, more workers feared losing their jobs, and far fewer workers said that it would be easy to find a comparable job, than in 1977 and 1978. ... Some may infer that the lower job security felt by Americans in 2010 and 2012 was an aberration, based upon the unusual conditions presented by the recent recession. But the reality is that the downward trend in feelings of job security has been going on for the last 35 years, apart from the “extra push” it has received from the “`Great Recession,' ..."
As I mentioned in yesterday's blog post, I think the most powerful fear in the current labor market is not about mass unemployment, but instead is a concern that the available alternative jobs may be of lower quality in terms of wages, benefits, work conditions, job security, and the prospect for a future career path.
Tuesday, January 13, 2015
I have a new column:
Full Employment Alone Won’t Solve Problem of Stagnating Wages: The most recent employment report brought mixed news. The unemployment rate continues its slow but steady downward path and now stands at 5.6 percent, but wages remain flat. In response, most analysts made two points. First, the lack of wage growth indicates that we are not yet close enough to full employment to generate upward pressure on wages, so policymakers should be patient in reversing attempts to stimulate the economy. Second, once we do get closer to full employment the picture for wages will change and the long awaited acceleration in labor compensation will finally materialize.
I fear this trust that market forces will eventually raise wages will lead to disappointment. ...
Friday, January 09, 2015
Wage Growth - or Lack of - Continues to Surprise, by Tim Duy: The December employment report, with its surprising combination of solid job gains and decelerating wage growth, leaves Fed policy up the air.
Headline nonfarm payrolls gained by 252k, while previous months were revised up a net 50k. Job growth continues to accelerate:
Note the acceleration in aggregate hours worked:
Such gains suggest the recent acceleration in GDP growth is real and likely to be sustained. From the household survey, we see that the unemployment rate continues to decline. Fed forecasts will once again soon be in jeopardy:
In the context of indicators previously identified by Federal Reserve Chair Janet Yellen:
Overall, the story is one of ongoing improvement in labor markets, including metrics of underemployment. Wage growth, however, nosedived during the month:
I would be wary of this read on wages - strikes me as an aberration that is likely to be violently reversed, but I also stick to what I wrote yesterday:
I believe that an acceleration of wage growth would do the trick, which is why this remains the data to watch in the employment report. If June rolls around with no inflation and no greater wage growth, the Fed will find it challenging to begin normalization. In that case, they would need to focus on the employment mandate or pivot to some financial stability story to justify a rate hike.
Bottom Line: Generally a very solid report. But the wage numbers present a dilemma for the Fed. Simply put, no wage growth means the Fed can't be particularly confident that inflation will trend toward target. Not that a rate hike was imminent in any event; Fed is still looking at June, but they need some more help from the data. Of course, June is still a long way off - we have five more employment reports before that meeting. Time enough for these numbers to turn around. Note that if the wage trend does reverse quickly, policy expectations would shift just as quickly.
In case you missed the news. This is from Calculated Risk:
Total nonfarm payroll employment rose by 252,000 in December, and the unemployment rate declined to 5.6 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in professional and business services, construction, food services and drinking places, health care, and manufacturing....Eleven consecutive months over 200 thousand. Employment is now up 2.952 million year-over-year. ... For total employment, 2014 was the best year since 1999.
The change in total nonfarm payroll employment for October was revised from +243,000 to +261,000, and the change for November was revised from +321,000 to +353,000. With these revisions, employment gains in October and November were 50,000 higher than previously reported.
For private employment, 2014 was the best year since 1997. ...
The Labor Force Participation Rate declined in December to 62.7%. ... A large portion of the recent decline in the participation rate is due to demographics.
The Employment-Population ratio was unchanged at 59.2%... The unemployment rate declined in December to 5,6%.
This was above expectations of 245,000, and with the upward revisions to prior months, this was another strong report.
I'll have much more later ...
Thursday, January 08, 2015
Laurent Belsie in the NBER Digest:
The Link between High Employment and Labor Market Fluidity: U.S. labor markets lost much of their fluidity well before the onset of the Great Recession, according to Labor Market Fluidity and Economic Performance (NBER Working Paper No. 20479). The economy's ability to move jobs quickly from shrinking firms to young, growing enterprises slowed after 1990. Job reallocation rates fell by more than a quarter. After 2000, the volume of hiring and firing - known as the worker reallocation rate - also dropped. The decline was broad-based, affecting multiple industries, states, and demographic groups. The groups that suffered the most were the less-educated and the young, particularly young men.
"The loss of labor market fluidity suggests the U.S. economy became less dynamic and responsive in recent decades," authors Steven J. Davis and John Haltiwanger conclude. "Direct evidence confirms that U.S. employers became less responsive to shocks in recent decades, not that employer-level shocks became less variable."
Many factors contributed to the decline in job and worker reallocation rates, among them a shift to older companies, an aging workforce, changing business models and supply chains, the effects of the information revolution on hiring, and government policies.
About a quarter of the decline in job reallocation can be explained by the decline in the formation of young firms in the U.S. From the early 1980s and until about 2000, retail and services accounted for most of the decline in job reallocation. This occurred even though jobs shifted away from manufacturing and toward retail, where job creation is normally more dynamic and worker turnover more pronounced. One reason for the slowdown in turnover was the growing importance of big box chains in the retail sector. The authors note that other studies find that jobs are more durable in larger retail firms, and their workers are more productive than workers at the smaller stores these retailers replaced.
Fewer layoffs and more employment stability are generally considered positive trends and natural outgrowths of an aging workforce. The flip side of this equation, however, is that slower job and worker reallocation mean slower creation of new jobs, putting the jobless, including young people, at a heightened risk of long-term unemployment. These developments also slow job advancement and career changes, which are associated with boosts in wages.
This is of particular significance since 2000, when the concentration of declines in job reallocation rates and the employment share of young firms shifted from the retail sector to high-tech industries.
"These developments raise concerns about productivity growth, which has close links to creative destruction and factor reallocation in prominent theories of innovation and growth and in many empirical studies," the authors write.
Government regulation also played a role in slowing job and worker reallocation rates. In 1950, under five percent of workers required a government license to hold their job; by 2008, the percentage had risen to 29 percent. Add in government certification and the share rises to 38 percent. Wrongful discharge laws make it harder to fire employees. Federal and state laws protect classes of workers based on race, religion, gender, and other attributes. Minimum-wage laws and the heightened importance of employer-provided health insurance also make job changes less frequent.
The authors study the effects of the decline in job and worker reallocation rates on employment rates by gender, education, and age, using state-level data. They find that states with especially large declines in labor market fluidity also experienced the largest declines in employment rates, with young and less-educated persons the most adversely affected.
"...if our assessment is correct," the authors conclude, "the United States is unlikely to return to sustained high employment rates without restoring labor market fluidity."
Tuesday, January 06, 2015
This was in the daily links not too long ago, but just in case it was missed (it is from the Growth Economics blog):
Job Quality is about Policies, not Technology, by Dietz Vollrath: Nouriel Roubini posted an article titled “Where Will All the Workers Go?”... The worry here is that technology will replace certain jobs (particularly goods-producing jobs) and that there will literally be nothing for those people to do. They will presumably exit the labor market completely and possibly need permanent income support.
Let’s quickly deal with the “lump of labor” fallacy sitting behind this. ... We’ve been creating new kinds of jobs for two hundred years. ... The economy is going to find something for these people to do. The question is what kind of jobs these will be.
Will they be “bad jobs”? McJobs at retail outlets... We can worry about the quality of jobs, but the mistake here is to confound “good jobs” with manufacturing or goods-producing jobs. Manufacturing jobs are not inherently “good jobs”. There is nothing magic about repetitively assembling parts together. You think the people at Foxconn have good jobs? There is no greater dignity to manufacturing than to providing a service. Cops produce no goods. Nurses produce no goods. Teachers produce no goods.
Manufacturing jobs were historically “good jobs” because they came with benefits that were not found in other industries. Those benefits – job security, health care, regular raises – have nothing to do with the dignity of “real work” and lots to do with manufacturing being an industry that is conducive to unionization. The same scale economies that make gigantic factories productive also make them relatively easy places to organize. ... To beat home the point, consider that what we consider “good” service jobs – teacher, cop – are also heavily unionized. Public employees, no less.
If you want people to get “good jobs” – particularly those displaced by technology – then work to reverse the loss of labor’s negotiating power relative to ownership. Raise minimum wages. Alleviate the difficulty in unionizing service workers.
You want to smooth the transition for people who are displaced, and help them move into new industries? Great. Let’s have a discussion about our optimal level of social insurance and support for training and education. ...
Any job can be a “good job” if the worker and employer can coordinate on a good equilibrium. Costco coordinates on a high-wage, high-benefit, high-effort, low-turnover equilibrium. Sam’s Club coordinates on a low-wage, low-benefit, low-effort, high-turnover equilibrium. Both companies make money, but one provides better jobs than the other. So as technology continues to displace workers, think about how to get *all* companies to coordinate on the “good” equilibrium rather than pining for lost days of manly steelworkers or making the silly presumption that we will literally run out of things to do.
An hypothesis about jobless recoveries:
Grown-up business cycles, by Benjamin Pugsley and Aysegul Sahin, FRBNY: We document two striking facts about U.S. firm dynamics and interpret their significance for aggregate employment dynamics. The first observation is the steady decline in the firm entry rate over the last thirty years, and the second is the gradual shift of employment from younger to older firms over the same period. Both observations hold across industries and geographies. We show that, despite these trends, firms’ life-cycle dynamics and business-cycle properties have remained virtually unchanged. Consequently, the reallocation of employment toward older firms results entirely from the cumulative effect of the thirty-year decline in firm entry. This “start-up deficit” has both an immediate and a delayed (by shifting the age distribution) effect on aggregate employment dynamics. Recognizing this evolving heterogeneity is crucial for understanding shifts in aggregate behavior of employment over the business cycle. With mature firms less responsive to business cycle shocks, the cyclical component of aggregate employment growth diminishes with the increasing share of mature firms. At the same time, the trend decline in firm entry masks the diminishing cyclicality during contractions and reinforces it during expansions, which generates the appearance of jobless recoveries where aggregate employment recovers slowly relative to output. [Download Full text.]
This may be part of the explanation for jobless recoveries, but I suspect there is more to it than this.
Monday, January 05, 2015
Mary Daly and Bart Hobijn of the SF Fed:
Why Is Wage Growth So Slow?, by Mary C. Daly and Bart Hobijn, FRBSF Economic Letter: Abstract: Despite considerable improvement in the labor market, growth in wages continues to be disappointing. One reason is that many firms were unable to reduce wages during the recession, and they must now work off a stockpile of pent-up wage cuts. This pattern is evident nationwide and explains the variation in wage growth across industries. Industries that were least able to cut wages during the downturn and therefore accrued the most pent-up cuts have experienced relatively slower wage growth during the recovery.
A prominent feature of the Great Recession and subsequent recovery has been the unusual behavior of wages. In standard economic models, unemployment and wage growth are tightly connected, moving at nearly the same time in opposite directions: As unemployment rises, wage growth slows, and vice versa. Since 2008 this relationship has slipped. During the recession, wage growth slowed much less than expected in response to the sharp increase in unemployment (Daly, Hobijn, and Lucking 2012). And so far in the recovery, wage growth has remained slow, despite substantial declines in the unemployment rate (Daly, Hobijn, and Ni 2013).
One explanation for this pattern is the hesitancy of employers to reduce wages and the reluctance of workers to accept wage cuts, even during recessions, a behavior known as downward nominal wage rigidity. Daly and Hobijn (2014) argue that this behavior affected the aggregate relationship between the unemployment rate and wage growth during the past three recessions and recoveries and has been especially pronounced during and after the Great Recession.
This Economic Letter examines whether the effects of wage rigidities over the recent recession and recovery can also be seen across industries. In particular, we consider whether industries with higher or lower degrees of wage flexibility have seen different evolutions of wage growth and unemployment. Our findings suggest that industries with the most downwardly rigid wage structures before the recession have seen the slowest wage growth during the recovery, conditional on changes in unemployment. In contrast, industries with fairly flexible wage structures have seen unemployment and wage growth move more closely together. These findings provide cross-industry evidence that downward nominal wage rigidities have played an important role in the modest recovery of wages in recent years.
Downward nominal wage rigidities, wage growth, and unemployment
Downward nominal wage rigidities are a well-documented feature of the U.S. labor market (see, for example, Akerlof, Dickens, and Perry 1996 and Card and Hyslop 1996). With that in mind, Daly and Hobijn (2014) introduce a model to illustrate how such rigidities can affect the relationship between unemployment and wage growth. Downward rigidities prevent businesses from reducing wages as much as they would like following a negative shock to the economy. This keeps wages from falling, but it also further reduces the demand for workers, contributing to the rise in unemployment. Accordingly, the higher wages come with more unemployment than would occur if wages were flexible and could be fully reduced.
As the economy recovers, the situation reverses and the pressure to cut wages dissipates. However, the accumulated stockpile of pent-up wage cuts remains and must be worked off to put the labor market back in balance. In response, businesses hold back wage increases and wait for inflation and productivity growth to bring wages closer to their desired level. Since it takes some time to fully exhaust the pool of wage cuts, wage growth remains low even as the economy expands and the unemployment rate declines. Daly and Hobijn (2014) show that this mechanism causes a bending of the wage Phillips curve—the curve that characterizes the relationship between unemployment and wage growth.
Wage Phillips curve for all civilian workers, 2008–14
Figure 1 shows that the bending of the Phillips curve in our model matches the data for the United States during the Great Recession and subsequent recovery. This same pattern has held in the past three recessions (Daly and Hobijn 2014). The figure shows the relationship between wage growth on the vertical axis, measured as the four-quarter moving average of the four-quarter growth rate of wages and salaries in the employment cost index, and the 12-month moving average of the unemployment rate on the horizontal axis. The figure covers the period from the first quarter of 2008 through the third quarter of 2014. The arrows show the path of the observations over time, and the size of the dots is proportional to the fraction of workers that report no wage changes over the past year.
The first part of the curve shows the behavior of wage growth and the unemployment rate during the recession, when the unemployment rate increased by about 5 percentage points and wage growth slowed by about 2 percentage points. The second part of the curve shows that during the subsequent recovery wage growth did not increase as much as it declined during the downturn. The result is that the most recent reported wage growth was 1 percentage point lower than it was at the same level of the unemployment rate when unemployment was rising. This difference is the result of the bending of the Phillips curve, which can be generated by wage rigidity as described in Daly and Hobijn (2014). The recent flattening of the Phillips curve is one reason wage growth has remained sluggish during the recent recovery despite substantial declines in unemployment.
Share of workers with frozen wages over past year
Source: FRBSF Wage Rigidity Meter.
Rigidity and wage growth across industries
If downward nominal wage rigidities are an important explanation for recent slow wage growth, we should see differential effects across industries. Although all industries have some rigidity in wages, the degree of rigidity varies greatly. Figure 2 shows the difference between two industries most affected by the Great Recession: construction and finance, insurance, and real estate (FIRE). The figure plots the 12-month moving average of the share of workers who had their wages fixed over the last year—the standard measure of wage rigidity taken from the FRBSF Wage Rigidity Meter: http://www.frbsf.org/economic-research/nominal-wage-rigidity/.
As the figure shows, both industries have some degree of frozen wages that move up and down over the business cycle, just like the national data. However, the level in the construction sector is almost always higher than in FIRE. In fact, with the exception of the late 1990s, the fraction of workers with their wages fixed from one year to the next, zero change, is substantially smaller in FIRE than in construction.
Wage Phillips curves by industry, 2008–14
Source: Bureau of Labor Statistics.
The question for our analysis is whether such sectoral differences can further illuminate the relationship between wage growth and unemployment during the Great Recession and subsequent recovery. To examine this we turn again to the wage Phillips curve. Figure 3 shows the wage Phillips curves for the construction and FIRE sectors for 2008 through 2014. As in Figure 1, wage growth in each sector from the employment cost index is on the vertical axis and the industry-specific unemployment rate is on the horizontal axis. The arrows show the path of the observations over time and the size of the markers reflects the share of workers that report no wage change over the past year.
Comparing the two shows that large wage stagnation in the construction sector changed the relationship between wage growth and labor market slack relative to the FIRE sector. More rigid wages in construction created a bend in the curve, consistent with the theory. This bend represents the fact that, while wage growth slowed when the unemployment rate rose, it has moved little as unemployment has declined. More specifically, although the 12-month moving average of the unemployment rate in the construction sector has declined from 20.9% in mid-2010 to 9.5% in the third quarter of 2014, wage growth has risen only 0.6 percentage point over the same period and currently stands at 1.4% per year.
One way to assess how much construction deviates from the normal relationship between unemployment and wage growth is to consider what wage growth was in construction at a comparable level of unemployment during the labor market downturn. This difference is shown in the figure as the red dashed line, which indicates that the most recent wage growth is 2.3 percentage points lower than at the beginning of the recession. This gap is a measure of the degree to which the wage Phillips curve is bent.
Notably, the shape of the curve in construction stands in stark contrast with that in FIRE, where wages are more flexible. FIRE wage growth fell precipitously as the unemployment rate rose. Once unemployment in the sector started to decline, wage growth accelerated. As of the third quarter of 2014, wage growth was actually 0.4 percentage point higher than it was the last time the unemployment rate was so low. Hence, FIRE does not show the curve bending associated with downward wage rigidities.
Wage rigidities and the bending of the Phillips curve
The relationship between the shape of the wage Phillips curve and the level of the pre-recession wage rigidities for construction and FIRE is indicative of a pattern that holds across the 15 major private industries for which we have wage growth data, shown in Figure 4. The figure plots the size of the wage growth gaps (vertical axis), which we used in Figure 3 to measure the degree of bending of the curve, in the third quarter of 2014 against the degree of wage rigidity in 2007 (horizontal axis). The figure confirms what the theory implies: Sectors where wages are more downwardly rigid are the ones with the largest bends in their wage price Phillips curves.
Importantly, this relationship between the level of wage rigidity and the degree of curve bending across industries is statistically significant. The dashed line plots the fitted regression line for this relationship, with each industry weighted by its size in terms of number of payroll employees. Cross-industry variation in the level of wage rigidity in 2007 accounts for 60% of the variation in the bending of the wage Phillips curve across sectors in this weighted regression. This industry-level evidence is consistent with the idea that the reluctance of employers to cut wages during the downturn has had a significant impact on the dynamics of wage growth and unemployment during the recovery.
National and cross-industry evidence shows that pent-up wage cuts reflecting downward nominal wage rigidities have been an important force during the Great Recession and subsequent recovery. The rigidity of wages in a number of sectors has shaped the dynamics of unemployment and wage growth and is likely to continue to do so until labor markets have fully returned to normal.
Mary C. Daly is a senior vice president in the Economic Research Department of the Federal Reserve Bank of San Francisco.
Bart Hobijn is a senior research advisor in the Economic Research Department of the Federal Reserve Bank of San Francisco
Akerlof, George A., William T. Dickens, and George L. Perry. 1996. “The Macroeconomics of Low Inflation.” Brookings Papers on Economic Activity 1996(1).
Card, David, and Dean Hyslop. 1996. “Does Inflation ‘Grease the Wheels of the Labor Market’?” National Bureau of Economic Research Working Paper 5538.
Congressional Budget Office. 2012. The Budget and Economic Outlook: Fiscal Years 2012 to 2022. Washington, DC: Congressional Budget Office.
Daly, Mary C., and Bart Hobijn. 2014. “Downward Nominal Wage Rigidities Bend the Phillips Curve.” FRB San Francisco Working Paper 2013-08.
Daly, Mary C., Bart Hobijn, and Brian Lucking. 2012. “Why Has Wage Growth Stayed Strong?” FRBSF Economic Letter 2012-10 (April 2).
Daly, Mary C., Bart Hobijn, and Timothy Ni. 2013. “The Path of Wage Growth and Unemployment” FRBSF Economic Letter 2013-20 (July 15).
Tuesday, December 30, 2014
Musings on 25-54 Employment-to-Population Rates and the Macroeconomy: (1) If the US economy were operating at its productive potential, the share of 25 to 54-year-olds who are employed ought to be what it was at the start of 2000. Back then there were few visible pressures leading to rising inflation in the economy.
Does anybody disagree with that?
(2) Right now, 25 to 54-year-olds–both male and female–are employed at a rate lower by 5%-age points then they were at the start of 2000. That’s 6.5%, or 1/15, more 25-54 labor at work than we have today.
Does anybody disagree with that? ...
That's just the start (too hard to excerpt effectively -- there are three more points followed by two questions, five more points, then two more questions).
Wednesday, December 17, 2014
A Big Safety Net and Strong Job Market Can Co-Exist. Just Ask Scandinavia: It is a simple idea supported by both economic theory and most people’s intuition: If welfare benefits are generous and taxes high, fewer people will work. ... Here’s the rub, though: The idea may be backward.
Some of the highest employment rates in the advanced world are in places with the highest taxes and most generous welfare systems, namely Scandinavian countries. The United States and many other nations with relatively low taxes and a smaller social safety net actually have substantially lower rates of employment. ...
In short, more people may work when countries offer public services that directly make working easier, such as subsidized care for children and the old; generous sick leave policies; and cheap and accessible transportation. ...
And this analysis may leave out some other factors... Robert Greenstein, the president of the Center on Budget and Policy Priorities, notes that wages for entry-level work are much higher in the Nordic countries than in the United States, reflecting a higher minimum wage, stronger labor unions and cultural norms that lead to higher pay. ... Perhaps more Americans would enter the labor force if even basic jobs paid that well, regardless of whether the United States provided better child care and other services. ...
Friday, December 12, 2014
Part 1 of Tankersley's series on the problems facing the middle class ("Liftoff & Letdown: The American middle class is floundering, and it has been for decades. The Post examines the mystery of what’s gone wrong, and shows what the country must focus on to get the economy working for everyone again. Monday: The devalued American worker."):
Why America’s middle class is lost, by Jim Tankersley, Washington Post: ... Yes, the stock market is soaring, the unemployment rate is finally retreating after the Great Recession and the economy added 321,000 jobs last month. But all that growth has done nothing to boost pay for the typical American worker. Average wages haven’t risen over the last year, after adjusting for inflation. Real household median income is still lower than it was when the recession ended.
Make no mistake: The American middle class is in trouble.
That trouble started decades ago, well before the 2008 financial crisis, and it is rooted in shifts far more complicated than the simple tax-and-spend debates that dominate economic policymaking in Washington. ...
In this new reality, a smaller share of Americans enjoy the fruits of an expanding economy. This isn’t a fluke of the past few years — it’s woven into the very structure of the economy. And even though Republicans and Democrats keep promising to help the middle class reclaim the prosperity it grew accustomed to after World War II, their prescriptions aren’t working. ...
The great mystery is: What happened? Why did the economy stop boosting ordinary Americans in the way it once did?
The answer is complicated, and it’s the reason why tax cuts, stimulus spending and rock-bottom interest rates haven’t jolted the middle class back to its postwar prosperity. ...
Sunday, December 07, 2014
Bill McBride at Calculated Risk:
Decline in the Labor Force Participation Rate: Mostly Demographics and Long Term Trends: For several years, I've been arguing that "most of the recent decline in the participation rate" was due to demographics and other long term structural trends (like more education). Clearly this was an important issue because if most of the decline had been due to cyclical weakness, then we'd expect a significant increase in participation as the economy improved. If the decline was due to demographics and other long term trends, then the participation rate might keep falling (or flatten out for a period before declining again) as the economy improves. ...
Most of the recent research supports my view. ...
After going through lots of evidence, including the reasons for the decline in the participation rate for prime age workers (how much is due to the recession?), he concludes:
The bottom line is that the participation rate was declining for prime working age workers before the recession, there are several reasons for this decline (not just recent "economic weakness") and many estimates of "missing workers" are probably way too high.
Saturday, December 06, 2014
In my very first piece for CBS news back in early November of 2009, almost a year and a half into the "recovery", I wrote an article saying that unemployment may not fully recover until 2013, four years later. The editors (who were different at the time than they are now) asked me a couple of times if I really wanted to be that pessimistic, and I said yes, I did. I honestly thought it would take that long, I wasn't just trolling (it was based in large part on an SF Fed forecast that output would recover in 2012 which turned out to be overly optimistic). And I kept warning from then on (as I had even before then here) that the recovery would be slow.
In the article I said:
... The reason for the slow recovery is partly due to the depth of the recession -- the deeper the hole, the longer it takes to crawl out of it -- but it's also because of the large amount of structural change that the economy must go through before it can recover. Prior to the recession we had too many resources in the housing, finance, and auto industries, and it will take time to move the people and resources who used to work in these industries into areas of the economy where they can be employed productively. And as new productive activities outside these areas arise, firms will install the best technology available. This technology will, in general, be more capital-intensive than before, and so we will need to surpass the pre-recession level of output before the demand for labor will return to its previous level. In addition, firms typically reorganize their job assignments after layoffs and discover that the same work can be performed with fewer workers and this, too, can slow the recovery period for employment relative to output.
The bottom line is that there's still a long road ahead, particularly for labor, and for that reason I am very much in favor of additional government policy targeted directly at the employment problem. In addition, given the record levels of long-term unemployment we are experiencing (those unemployed 27 weeks or more now constitute 35.6 percent of the unemployed; see here for a graphical representation of the situation), the recent vote to extend unemployment benefits was overdue and very welcome.
I also emphasized the delayed peak of unemployment relative to the trough for output in the previous recessions, and expected that to contribute to the slow recovery, but that didn't happen this time -- so I got that particular detail wrong (though not the more general idea of a jobless recovery like the previous two). And as time progressed, I began to also emphasize the problems households have in recovering from the losses they incur in a "balance sheet recession" -- that takes a long time -- but that was not part of this argument.
In the end, while I thought I was being pessimistic, four years to recover?, I was not pessimistic enough (though the pessimism was updated over time) and we are still waiting for full recovery.
On that note, Paul Krugman says today:
Comparing Postmodern Recoveries: Very early on — in fact, long before the 2007 recession was either declared officially, or admitted as reality by those still touting a Bush Boom — some of us warned that recovery would be slow, and initially jobless. Why? Because this was a postmodern business cycle, brought on not by monetary tightening but by private-sector overreach, and hence harder to turn around than, say, the 1979-82 slump. Nonetheless, as Menzie Chinn notes, a constant talking point on the right has been that slow growth showed the damage done by Obama policies. And not just at Heritage or whatever; people like Ed Lazear or John Taylor demonstrated the reality of the hack gap by asserting that the private sector wasn’t creating jobs because Obama was looking at them funny; also Obamacare.
How could you test this? Well, when I began talking about postmodern recessions, I argued that the 2007 slump was the third such example — that 1990-91 and 2001 were also postmodern recessions, followed by jobless recoveries. I’ll leave 1990-91 aside for now, because I’m lazy, and just note that we now have enough information to make a clear comparison between the recovery that began in 2001 and the one that began in 2009. ...
By any standard I can think of, the Obama-era job recovery has been stronger than the Bush-era job recovery. Now, I don’t think that reflects excellent policies; and I would argue that in some ways the depth of the preceding slump set the stage for a faster recovery. But the point is that the usual suspects have been using the alleged uniquely poor performance under Obama to claim uniquely bad policies, or bad attitude, or something. And if that’s the game they want to play, they have just scored an impressive own goal.
Friday, December 05, 2014
Dean Baker on today's jobs report. Not his concluding paragraph:
Economy Adds 321,000 Jobs, Strongest Gain in Almost Three Years: Over the last three months wages grew at a 1.8 percent annual rate.
The economy added 321,000 jobs in November, the strongest gain since it added 360,000 in January of 2012. With upward revisions to the prior two months data, the average job gain over the last three months has been 275,000. The household survey showed unemployment unchanged at 5.8 percent, with the employment-to-population ratio (EPOP) also unchanged at 59.2 percent.
The gains were widely spread across sectors. ...
Other news in the establishment survey was also positive. The average workweek increased by 0.1 hour to 34.6, the longest since May of 2008 and wages reportedly rose by 9 cents. The one-month jump was in large part an anomaly; over the last three months wages have risen at just a 1.8 percent annual rate compared with the prior three months. There is little evidence of any wage acceleration in any major sector.
While the overall employment and unemployment numbers changed little in November, there was some positive news in the household survey. The number of people involuntarily employed part time fell by 200,000. It is now almost 900,000 below the year-ago level. By contrast, the number of people voluntarily choosing to work part-time rose by 297,000. It is now more than 1 million higher than the year-ago level. This is almost certainly the result of the Affordable Care Act, which has allowed people to get insurance outside of employment so that many people no longer have to work full-time jobs to get insurance for themselves or their families.
In another positive sign, the percent of the unemployed who had voluntarily quit their job rose to 9.1 percent. This measure of confidence in the labor market is at its highest level in the recovery, albeit well below the 11-12 percent range in the pre-recession period. The median duration of unemployment spells and the share of long-term unemployed both fell to their lowest level in the recovery, although the average duration rose slightly. Black teen employment rate rose to 21.8 percent, the highest since January of 2008, while unemployment fell to 28.1 percent, the lowest since April of 2008.
Interestingly, the recovery seems to be disproportionately benefiting workers with less education. Over the last year, the unemployment rate for workers without a high school degree fell 2.1 percentage points and for workers with just a high school degree by 1.7 percentage points. By contrast, the unemployment rate for college grads has only dropped by 0.2 percentage points. The unemployment rate for college grads is still more than a percentage point above its pre-recession level.
Overall, this is a very positive report, but it still must be understood in the context of the hole created by the downturn. It would take two and half years at this growth rate to restore demographically adjusted pre-recession levels of the employment to population ratio.
Paul Krugman issues a warning:
On Not Counting Chickens: A genuinely good employment report this morning... But — you knew there would be a but — good news can turn into bad news if it encourages complacency.
There will, predictably, be calls to respond to the good news by normalizing monetary policy, raising interest rates soon. And we will want to raise rates off zero at some point. But it’s important to say that (a) we are still highly uncertain about the underlying strength of the economy (b) the risks remain very asymmetric, with much more danger from tightening too soon than from tightening too late. ...
So still: the Fed should wait until it sees the whites of inflation’s eyes — and by inflation I mean inflation clearly above 2 percent, and if I had my way higher than that.
Thursday, December 04, 2014
Via Owen Zidar:
Who Pays for the Minimum Wage?: From Attila Lindner and Péter Harasztosi:
This paper analyzes the effects of a large (~60%) and persistent increase in the minimum wage instituted in Hungary in 2001. We propose a new approach to estimating the employment effects of a minimum wage increase that exploits information on the distribution of wages before and after the policy change. We infer the number of jobs destroyed by comparing the number of pre-reform jobs below the new minimum wage to the excess number of jobs paying at (and above) the new minimum wage. Our estimates imply that the higher minimum wage had at most a small negative effect on employment, and so the main effect was pushing up wages. We then use data on a large panel of firms to evaluate the economic incidence of the minimum wage increase. Contrary to theoretical models that attribute the small employment effects of minimum wage changes to monopsonistic wage setting, we find no evidence that the rise in the minimum wage led to lower profitability among low-wage employers. Instead, we find that the costs of the minimum wage were largely passed through to consumers.
Wednesday, December 03, 2014
Return of Focus Hocus Pocus: I’ve been getting correspondence from people saying that I need to respond to Tom Edsall channeling Chuck Schumer on how health reform was a mistake, Obama should have focused on the economy.
The thing is, I responded to this argument four years ago, and everything I said then still applies. When people say that Obama should have “focused” on the economy, what, specifically, are they saying he should have done? Enacted a bigger stimulus? Maybe he could have done that at the very beginning, but that wouldn’t have conflicted with the effort to pass health reform — and anyway, I don’t hear many of the “focus” types saying that. So what do they mean? Obama should have gone around squinting and saying “I’m focused on the economy”? What would that have done?
Look, governing is not just theater. For sure the weakness of the recovery has hurt Democrats. But “focusing”, whatever that means, wouldn’t have delivered more job growth. What should Obama have done that he actually could have done in the face of scorched-earth Republican opposition? And how, if at all, did health reform stand in the way of doing whatever it is you’re saying he should have done?
I have seen no answer to these questions.
I am going to have to disagree slightly. Politics is, in large part, about identity and I don't think Obama did nearly enough to show he identifies with the working class. Fighting for their needs publicly and loudly probably wouldn't have made any difference in terms of fiscal policy, but doing more to signal that he identifies with their struggles might have helped at the ballot box. I don't see how it could have hurt. Yes, various jobs programs were proposed along the way, and nothing came of them for the most part, but there just wasn't enough fist-pounding on this issue by the administration.
Update: See also Robert Waldmann.
Wednesday, November 26, 2014
Some Good News for the Unemployed: There has been considerable discussion of the “hollowing out” of middle class jobs in recent years, a trend that started before the Great Recession. But where do those who have lost their jobs go? Do they end up with low paying service jobs, McJobs as they are sometimes called, or do they move up the ladder to higher paying jobs?
Many people believe that most people who lose middle class jobs end up worse off than before, but recent research by Ellie Terry and John Robertson of the Atlanta Fed finds some surprising results. ...
Monday, November 24, 2014
This is from "Julie Hotchkiss, a research economist and senior policy adviser at the Atlanta Fed":
And the Winner Is...Full-Time Jobs!: Each month, the U.S. Bureau of Labor Statistics (BLS) surveys about 60,000 households and asks people over the age of 16 whether they are employed and, if so, if they are working full-time or part-time. The BLS defines full-time employment as working at least 35 hours per week. This survey, referred to as both the Current Population Survey and the Household Survey, is what produces the monthly unemployment rate, labor force participation rate, and other statistics related to activities and characteristics of the U.S. population.
For many months after the official end of the Great Recession in June 2009, the Household Survey produced less-than-happy news about the labor market. The unemployment rate didn't start to decline until October 2009, and nonfarm payroll job growth didn't emerge confidently from negative territory until October 2010. Now that the unemployment rate has fallen to 5.8 percent—much faster than most would have expected even a year ago—the attention has turned to the quality, rather than quantity, of jobs. This scrutiny is driven by a stubbornly high rate of people employed part-time "for economic reasons" (PTER). These are folks who are working part-time but would like a full-time job. Several of my colleagues here at the Atlanta Fed have looked at this phenomenon from many angles (here, here, here, here, and here).
The elevated share of PTER has left some to conclude that, yes, the economy is creating a significant number of jobs (an average of more than 228,000 nonfarm payroll jobs each month in 2014), but these are low-quality, part-time jobs. Several headlines have popped up over the past year or so claiming that "...most new jobs have been part-time since Obamacare became law," "Most 2013 job growth is in part-time work," "75 Percent Of Jobs Created This Year  Were Part-Time," "Part-time jobs account for 97% of 2013 job growth," and as recently as July of this year, "...Jobs Report Is Great for Part-time Workers, Not So Much for Full-Time."
However, a more careful look at the postrecession data illustrates that since October 2010, with the exception of four months (November 2010 and May–July 2011), the growth in the number of people employed full-time has dominated growth in the number of people employed part-time. Of the additional 8.2 million people employed since October 2010, 7.8 million (95 percent) are employed full-time (see the charts). ...
During the Great Recession (until about October 2010), the growth in part-time employment clearly exceeded growth in full-time employment, which was deep in negative territory. The current high level of PTER employment is likely to reflect this extended period of time in which growth in part-time employment exceeded that of full-time employment. But in every month since August 2011, the increase in the number of full-time employed from the year before has far exceeded the increase in the number of part-time employed. This phenomenon includes all of the months of 2013, in spite of what some of the headlines above would have you believe.
So, in the post-Great Recession era, the growth in full-employment is, without a doubt, way out ahead.
Thursday, November 20, 2014
Encouraging Work: Tax Incentives or Social Support?: Consider two approaches to encouraging those with low skills to be fully engaged in the workplace. The American approach focuses on keeping tax rates low and thus providing a greater financial incentive for people to take jobs. The Scandinavian approach focuses on providing a broad range of day care, education, and other services to support working families, but then imposes high tax rates to pay for it all. In the most recent issue of the Journal of Economic Perspectives, Henrik Jacobsen Kleven contrasts these two models in "How Can Scandinavians Tax So Much?" (28:4, 77-98). Kleven is from Denmark, so perhaps his conclusion is predictable. But the analysis along the way is intriguing.
As a starting point, consider what Kleven calls the "participation tax rate." When an average worker in a country takes a job, how much will the money they earn increase their standard of living? The answer will depend on two factors: any taxes imposed on what they earn, including, income, payroll, and sales taxes; and also the loss of any government benefits for which they become less eligible or ineligible because they are working. In the Scandinavian countries of Denmark, Norway, and Sweden, this "participation tax rate" is about double what it is in the United States. ...
A standard American-style prediction would be that countries where gains from working are so low should see a lower level of participation in the workforce. That prediction does not hold true in cross-country data among high-income countries. ...
What explains this pattern? Kleven argues that just looking at the tax rate isn't enough, because it also matters what the tax revenue is spent on. For example, the Scandinavian countries spend a lot of money on universal programs for preschool, child care, and elderly care. Kleven calls these "participation subsidies," because they make it easier for people to work--especially for people who otherwise would need to find a way to cover or pay for child care or elder care. The programs are universal, which means that their value expressed as a share of income earned means much more to a low- or middle-income family than to a high-income family. ...
Any direct comparisons between the United States (population of 316 million) and the Scandinavian countries of Denmark (6 million), Norway, (5 million) and Sweden (10 million) is of course fraught with peril. Their history, politics, economies, and institutions differ in so many ways. You can't just pick up can't just pick up long-standing policies or institutions in one country, plunk them down in another country, and expect them to work the same way.
That said, Kleven basic conceptual point seems sound. Provision of good-quality preschool, child care and elder care does make it easier for all families, but especially low-income families with children, to participate in the labor market. In these three Scandinavian countries, the power of these programs to encourage labor force participation seems to overcome the work disincentives that arise in financing and operating them. This argument has nothing to do with whether preschool and child care programs might help some children to perform better in school--although if they do work in that way, it would strengthen the case for taking this approach.
So here is a hard but intriguing hypothetical question: The U.S. government spends something like $60 billion per year on the Earned Income Tax Credit, which is a refundable tax credit providing income mainly to low-income families with children, and almost as much on the refundable child tax credit. Would low-income families with children be better off, and more attached to the workforce, if a sizeable portion of the 100 billion-plus spent for these tax credits--and aimed at providing financial incentives to work--was instead directed toward universal programs of preschool, child care, and elder care?
Or we could raise taxes on the wealthy, cut defense spending, etc., etc. and then ask which if the two programs it would be better to enhance (or in what proportions), the EITC and other tax credits or the "universal programs of preschool, child care, and elder care." If the programs are complementary and insufficient, as I believe they are, then neither should be cut to enhance the other (though I would choose the Scandinavian model if I had to pick on of the two to augment).
Ellie Terry and John Robertson of the Atlanta Fed:
For Middle-Skill Occupations, Where Have All the Workers Gone?: Considerable discussion in recent years has concerned the “hollowing out of the middle class.” Part of that story revolves around the loss of the types of jobs that traditionally have been the core of the U.S. economy: so-called middle-skill jobs.
These jobs, based on the methodology of David Autor, consist of office and administrative occupations; sales jobs; operators, fabricators, and laborers; and production, craft, and repair personnel (many of whom work in the manufacturing industry). In this post, we don't examine why the decline in middle-skill jobs has occurred, just how those workers have weathered the most recent recession. But our Atlanta Fed colleague Federico Mandelman offers an explanation of why this has occurred.
So how have workers in middle-skill occupations fared during the last recession and recovery? Let's examine a few facts from the Current Population Survey from the U.S. Bureau of Labor Statistics.
Only employment in middle-skill occupations remains below prerecession levels ...
Those in middle-skilled occupations were most likely to become unemployed...
Underemployment has improved only slowly at all skill levels...
Ready for some good news?
Those who held middle-skill jobs are more likely to obtain high-skill jobs than before the recession
Currently, of those in middle-skill occupations who remain in a full-time job, about 83 percent are still working in a middle-skill job one year later (see chart 4). What types of jobs are the other 17 percent getting? Mostly high-skill jobs; and that transition rate has been rising. The percent going from a middle-skill job to a high-skill job is close to 13 percent: up about 1 percent relative to before the recession. The percent transitioning into low-skill positions is lower: about 3.4 percent, up about 0.3 percentage point compared to before the recession. This transition to a high-skill occupation tends to translate to an average wage increase of about 27 percent (compared to those who stayed in middle-skill jobs). In contrast, those who transition into lower-skill occupations earned an average of around 24 percent less. ...
In summary, the number of middle-skill jobs declined substantially during the last recession, and that decline has been persistent—especially for full-time workers. Many of the workers leaving full-time, middle-skill jobs became unemployed, and some of that decline is the result of an increase in part-time employment. But others gained full-time work in other types of occupations. In particular, they are more likely than in the past to transition to higher-skill occupations. Further, the transition rate to high-skill occupations has gradually risen and doesn't appear directly tied to the last recession.
Wednesday, November 19, 2014
Or, as I said here, we shouldn't ignore the long-term unemployed.
Monday, November 17, 2014
We shouldn't ignore the long-term unemployed:
Measuring Labor Market Slack: Are the Long-Term Unemployed Different?, by Rob Dent, Samuel Kapon, Fatih Karahan, Benjamin W. Pugsley, and Ayşegül Sahin, Liberty Street Economics: [First in a three-part series] There has been some debate in the Liberty Street Economics blog and in other outlets, such as Krueger, Cramer, and Cho (2014) and Gordon (2013), about whether the short-term unemployment rate is a better measure of slack than the overall unemployment rate. As the chart below shows, the two measures are sending different signals, with the short-term unemployment rate back to its pre-recession level while the overall rate is still elevated because of a high long-term unemployment rate. One can argue that the unemployment rate is exaggerating the extent of underutilization in the labor market, based on the premise that the long-term unemployed are, in practice, out of the labor force and likely to exert little pressure on earnings. If this is indeed the case, inflationary pressures might start building up sooner than suggested by the overall unemployment rate. In a three-part series, we study the available evidence on the long-term unemployed and argue against this premise. The long-term unemployed should not be excluded from measures of labor market slack.
In today’s post, we consider several important characteristics of long-term unemployed workers and compare them to the characteristics of three other groups of potential workers: the short-term unemployed, nonparticipants who report that they want a job, and nonparticipants who do not want a job (whom we refer to as “other nonparticipants”). ...
Finally, we consider the occupation and industry composition of short- and long-term unemployed workers, classified by their former jobs..., they are remarkably similar.
On the basis of these observable characteristics, we find that long-term unemployed workers are not less attached to the labor market than short-term unemployed workers. If anything, the long-term unemployed group has the largest share of prime-age workers, the age group likely to have the strongest labor force attachment. We also see that long-term unemployment is an economy-wide phenomenon, spread across industries and occupations. While there may be unobservable characteristics of long-term unemployed workers that make them less attached to the labor force, when looking at their observable characteristics, it’s hard to argue that they should not be considered as part of labor market slack. ...
[Disclaimer: The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.]
Saturday, November 15, 2014
Repeat After Me: The Quantity of Labor Demanded is Not Always Equal to the Quantity Supplied: I've been teaching a class on intermediate macroeconomics this quarter. Increasingly, over the past twenty years or more, intermediate macro classes at UCLA (and in many other top schools), have focused almost exclusively on economic growth. That reflected a bias in the profession, initiated by Fynn Kydland and Ed Prescott, who persuaded macroeconomists to use the Ramsey growth model as a paradigm for business cycle theory. According to this Real Business Cycle view of the world, we should think about consumption, investment and employment 'as if' they were the optimal choices of a single representative agent with super human perception of the probabilities of future events.
Although there were benefits to thinking more rigorously about inter-temporal choice, the RBC program as a whole led several generations of the brightest minds in the profession to stop thinking about the problem of economic fluctuations and to focus instead on economic growth. Kydland and Prescott assumed that labor is a commodity like any other and that any worker can quickly find a job at the market wage. In my view, the introduction of the shared belief that the labor market clears in every period, was a huge misstep for the science of macroeconomics that will take a long time to correct. ...
Ever since Robert Lucas introduced the idea of continuous labor market clearing, the idea that it may be useful to talk of something called 'involuntary unemployment' has been scoffed at by the academic chattering classes. It's time to fight back. The concept of 'involuntary unemployment' does not describe a loose notion that characterizes the sloppy work of heterodox economists from the dark side. It is a useful category that describes a group of workers who have difficulty finding jobs at existing market prices. ...
Repeat after me: the quantity of labor demanded is not always equal to the quantity supplied.
[There is quite a bit more detail and explanation in the full post.]