Category Archive for: Unemployment [Return to Main]

Thursday, March 22, 2012

Weekly Initial Unemployment Claims Decline

Good news via CR:

Weekly Initial Unemployment Claims decline to 348,000. by Calculated Risk: The DOL reports:

In the week ending March 17, the advance figure for seasonally adjusted initial claims was 348,000, a decrease of 5,000 from the previous week's revised figure of 353,000. The 4-week moving average was 355,000, a decrease of 1,250 from the previous week's revised average of 356,250.
The previous week was revised up to 353,000 from 351,000. ...

The ongoing decline in initial weekly claims is good news. Even in "good times" weekly claims are usually just above 300 thousand, and claims are getting there.

Wednesday, March 21, 2012

"The Changing Face of Foreclosures"

Another reason to attack the unemployment problem aggressively -- unemployment causes foreclosues:

The Changing Face of Foreclosures, by Joshua Abel and Joseph Tracy, Liberty Street: The foreclosure crisis in America continues to grow, with more than 3 million homes foreclosed since 2008 and another 2 million in the process of foreclosure. President Obama, in his speech of February 2, 2012, argued for expanded refinancing opportunities for homeowners and programs to expedite the transition of foreclosed homes into rental housing. In this post, we document the changing face of foreclosures since 2006 and the transformation of the crisis from a subprime mortgage problem to a prime mortgage problem owing to the housing bust and persistent high unemployment. Recognizing this change is critical because the design of housing policies should reflect the types of homeowners who are at risk of foreclosure today rather than those who were at risk at the onset of the financial crisis.
It is well known that problems with nonprime lending helped to spark the housing crisis, which was a catalyst for the financial crisis and ensuing recession. Also well known is the progressive erosion of underwriting standards in nonprime lending toward the end of the housing boom. As a result, many nonprime loans were made to borrowers who did not have the ability to pay for them, especially if house prices did not continue to increase. Not surprisingly, then, as house prices began to flatten and decline in 2006, foreclosure starts were dominated by nonprime borrowers. As shown in our first chart, nonprime borrowers accounted for about 65 percent of foreclosure starts in 2006. However, as the financial crisis led to the Great Recession (indicated in grey), the composition of borrowers entering foreclosure shifted quite dramatically. By 2009, prime borrowers had eclipsed nonprime borrowers as the dominant source of new foreclosures. In fact, from 2009 until the present, prime borrowers have accounted for the majority of all new foreclosure starts. A fairly steady 10 percent of foreclosure starts were associated with mortgages guaranteed by the Federal Housing Administration or the Department of Veterans Affairs.

Share of Foreclosure

What accounts for the dramatic change in the composition of foreclosure starts since 2006? Our next chart shows two important economic factors that have affected homeowners over this period—house prices and unemployment. For each mortgage that enters foreclosure, we calculate the percentage change in metropolitan area house prices from the time that the mortgage was originated to the time it entered foreclosure. We report average changes across all new foreclosures by year and quarter. From 2006 through 2008, as the share of new foreclosures was shifting from nonprime to prime borrowers, we see that initially foreclosures involved properties that were on average still increasing in value
(as measured by the positive cumulative change in the metro area house price index defined above), but then shifted to properties with declining house prices (in 2008), and eventually to properties where on average house prices had declined by 20 percent (in 2009). In fact, since 2009, properties entering foreclosure have continued to face a 20 percent decline in value on average.
We also calculate the change in the local (defined as the metropolitan area) unemployment rate. Just as foreclosure starts were initially associated with properties whose value was still rising, so foreclosures in 2006 and 2007 were linked to local labor markets where the unemployment rate was still declining. In 2008, however, foreclosures shifted to markets where unemployment was beginning to rise and, in 2009, to markets where unemployment had increased on average by more than 2 percentage points. In 2010, foreclosure starts occurred in markets where the increase in the local unemployment rate exceeded 5 percentage points on average since the mortgages were originated. The shift in the composition of new foreclosures from borrowers with nonprime mortgages to those with prime mortgages reflects the fact that falling house prices and rising unemployment tend to impact all borrowers in a local housing market, not just nonprime borrowers. As a result, traditionally safe borrowers began falling behind on their payments as they felt the severe effects of the housing bust and high unemployment.

Economic Conditions

In the design of housing policy, an important consideration is the extent to which foreclosures result from situations where borrowers cannot afford their mortgage from the outset. In these circumstances, foreclosures can be viewed as the market process for removing borrowers who should not have been approved for a mortgage in the first place or who cannot sustain their mortgage going forward. When affordability is the key determinant of foreclosures, policies aimed at reducing the flow into foreclosure run the risk of slowing an adjustment process necessary for an eventual housing market recovery. A useful metric for the ability of a borrower to afford a mortgage is the “debt-to-income” (DTI) ratio. This measures the cost of the mortgage (monthly payments, property taxes, and homeowner’s insurance) relative to the borrower’s income. Unfortunately, because the data that we use from Lender Processing Services do not consistently report the DTI ratio, we cannot assess this affordability measure across time for foreclosure starts.
However, we provide an alternative indirect measure of affordability. The basic idea is that in cases where a borrower cannot afford a mortgage from the outset, payment problems are likely to materialize sooner rather than later. In the chart below, we look at the time between the origination of a mortgage and the beginning of the string of missed payments that ultimately led to foreclosure. We show the 25th percentile (25 percent of the times were shorter, P25), the median (50 percent of the times were shorter, P50), and the 75th percentile (75 percent of the times were shorter, P75). Initially, when most foreclosure starts were associated with nonprime mortgages, 25 percent of the borrowers had been in the house fewer than eight months before falling behind on their payments, and 50 percent fewer than eighteen months. However, more recently, as the composition of foreclosures shifted to prime borrowers, 75 percent had been in the house more than three years, and 50 percent more than four years. This suggests that as the recession hit, foreclosures shifted from borrowers who often could not afford their houses to borrowers who had demonstrated that they could (by virtue of making payment for several years) but began to fall behind on their payments when they were hit by the dual crises of house price declines and high unemployment.

Percentiles of Duration

This change in the face of foreclosures is mirrored in many other dimensions. Our last chart shows the evolution in the distribution of origination credit (FICO) scores over time for new foreclosures. In 2006, 25 percent of foreclosure starts were associated with borrowers who had a credit score of 580 or below at the time they took out the mortgage, and 50 percent had credit scores of 620 or below. However, by 2009, as the recession set in and shifted the mix of foreclosures to prime borrowers, 50 percent of new foreclosures had origination credit scores of nearly 680, and 25 percent had credit scores of 720 or higher.

Percentiles of FICO

Nonprime lending during the housing boom was concentrated in what were called “exotic” mortgages with little down payment, initial “teaser” rates and, in some cases, negative amortization. However, since 2010, 65 percent of foreclosure starts have been associated with borrowers who took out thirty-year fixed-rate amortizing mortgages (viewed by consumer advocates as the “safest” mortgage product)—up from 40 percent early in the crisis. Similarly, the prime borrowers who have entered foreclosure in the past several years have on average made a meaningful down payment of 20 percent.
A large foreclosure pipeline hangs over U.S. housing markets, creating headwinds for housing market recovery. What began as a nonprime mortgage problem has evolved into a prime mortgage problem with the onset of the recession. The inability to afford a home has been replaced by declining house prices and high unemployment as the primary driver of new foreclosures. Clearly, these changes have implications for the design of housing policy: By recognizing the shifting face of foreclosures, policymakers can make more informed choices about the most effective forms of intervention and the groups of borrowers that could best be served by them.

Sunday, March 18, 2012

Public Sector Payroll Jobs: Bush and Obama

[Travel day -- I am going to visit the St. Louis Fed for a week -- will post as I can. (The post earlier today is related to the visit. I am going to talk about potential output and the controversy that erupted on economics blogs in a talk during the visit and I wanted to clarify my thinking on a few points. I also met the president of the Philadelphia Fed Charles Plosser on Friday, and he was well aware of my view on this from the blog. He was the one who motivated me to think about how demand side shocks can produce temporary supply-side effects, and the degree to which the supply side effects pose a constraint for policy. On that point, I see I have an ally in the view that much of the current change in the natural rate of output is temporary.)]

Calculated Risk notes a difference between public sector employment during the Bush and Obama administrations. After the stock market crash, public sector employment continued to rise during the Bush administration, but after the housing market crash public sector employment declined. This made the recession worse, and it's working against the recovery:

Public and Private Sector Payroll Jobs: Bush and Obama, by Calculated Risk: This is a follow up to the previous post showing the year-over-year change in private and public sector payroll jobs. ...

The employment recovery during Mr. Bush's first term was very sluggish, and private employment was down 913,000 jobs at the end of his first term. The recovery has been sluggish under Mr. Obama's presidency too, and there are still 247,000 fewer payroll jobs than when Mr. Obama's term started (although it appears this will turn positive in a couple of months).

Public Sector Payrolls

A big difference between Mr. Bush's first term and Mr. Obama's presidency has been public sector employment. The public sector grew during Mr. Bush's term (up 900,000 jobs), but the public sector has declined since Obama took office (down 590,000 jobs). These job losses are at the state and local level, but they are still a significant drag on overall employment.

It appears the public sector jobs losses are slowing, and it looks likely that the decline in public payrolls will probably end mid-year 2012.

That's a big difference in public sector employment -- just short of 1.5 million more public sector jobs were created or saved under Bush.

Tuesday, March 13, 2012

Fed Watch: Thoughts on Okun's Law

Tim Duy:

Thoughts on Okun's Law, by Tim Duy: I have been thinking about Jon Hilsenrath's article describing the breakdown of Okun's Law. First off, consider the chart:

Okunslaw

Note that while Hilsenrath describes Okun's Law as the relationship between changes in the unemployment rates and the difference between actual and potential GDP growth, the chart that accompanies his article relates changes in unemployment rates and output growth. My chart illustrates the relationship between the year-over-year change in the unemployment rate (DIFFU) and the output growth gap (GAP), defined as the difference between the year-over-year changes in real GDP and and CBO potential GDP. The slope of the line above can be obtained from the regression equation:

DIFFUt = beta*GAPt

For the 1970:1 to 2011:4 sample, the slope (beta) is -0.41, suggesting that growth 1 percentage point in excess of potential growth yields a 0.4 percentage point decline in the unemployment rate. So far, so good. That said, even a cursory look at the chart will tell you that it would be a mistake to place too much weight on this relationship when considering near term forecasts. Observations are dispersed widely around the trend line; the R-squared is 0.71, leaving plenty of the change in unemployment unexplained by the output growth gap alone. Moreover, there are some curious points in the lower left-hand and upper right-hand quadrants which seem to be at odds with Okun's Law. Indeed, the last two quarters of 2011 were such points, with unemployment falling despite output growth just below potential growth (year-over-year basis).
This suggests to me that Okun's "Law" might break down on a fairly regular basis, which would not be a surprise given short run variations in productivity and labor force growth. To get at this question, collect the estimates of beta from three-year rolling windows beginning with the 1960:1-1963:1 sample and ending with the 2008:4-2011:4 sample:

Okunroll1

And that is what we call job security for reporters and economists alike. The sensitivity of unemployment to the output growth gap ranges from almost 0 to almost -0.6, with recent estimates at the low end. Indeed, in the past few years, changes in unemployment have become more sensitive to the output growth gap. That said, how much should weight should we place on this deviation? After all, at something closer to business cycle frequencies, we can discuss the "breakdown" of Okun's Law every few years as productivity fluctuates with the business cycle.
What about a longer estimation period that smooths the cyclical variation? Consider a ten-year rolling window:

Okunroll2

As one might expect, the range of estimates is much more narrow. But still, the ten-year estimates following the three-year estimates down in recent years. Maybe something more persistent is happening, with the sensitivity of unemployment to the output growth gap changing from -0.3 to -0.5 over the last decade, a record low at this horizon. And notice that estimates of beta at the three-year horizon were decreasing prior to the recession; maybe what happened during the recession was in part just the continuation of an existing trend? Perhaps this is additional evidence of a trend productivity slowdown underway (I hope to tackle this issue more later).
Will the old Okun's Law soon reassert itself? I don't know, but looking at the ten-year trend suggests that we could continue to see fairly solid job growth even in a environment of relatively tepid GDP growth.

Monday, March 12, 2012

Stiglitz: The US Labor Market is Still a Shambles

Joe Stiglitz:

The US labour market is still a shambles, by Joseph Stiglitz, Commentary, Financial Times: It is understandable, given the number of times green shoots have been seen since the downturn began in December 2007, that there might be some skepticism about claims the recovery is finally under way. To me the question is what does it imply for policy? Does it mean we can be more relaxed about the demands for budget cuts emanating from fiscal conservatives? Or that the US Federal Reserve should start paying more attention to inflation, and begin contemplating raising interest rates? Even if this is not one of the many green shoots that soon turn brown, the economy will almost certainly need more stimulus if it is to return to full employment any time soon.
This is the inevitable conclusion from looking at the state of the labour market today. It is a shambles. ...
Today the American economy faces three big risks. First, a steeper European downturn, as a result of the excessive austerity and the euro crisis. Second, complacency that the economy will recover quickly without government support. Though every downturn comes to an end, that should not be of much comfort. Third, that we accept that an unemployment rate above 7 per cent is inevitable.
If my Cassandra forecast turns out to be wrong, stimulus can be cut. But if it turns out to be right, and we do too little, we will live to regret it.

I hope you know by now that I agree.

Friday, March 09, 2012

Fed Watch: Another Positive Employment Report

I missed this post from Tim Duy earlier today:

Another Positive Employment Report. by Tim Duy: It is increasingly difficult if not impossible to deny the real improvements in labor markets in recent months. First, the ongoing declines in initial jobless claims clearly suggested the recovery was gaining depth and sustainability:

Weeklyfeb

Then comes the February employment report along with upward revisions to the December and January numbers:

Nfpfeb

Nonfarm payroll gains are averaging a solid 245K per month over the last three months. Does this mean the Federal Reserve can pull back on the throttle? No, although I am sure you will hear the more hawkish policymakers using this report as evidence that policy reversal will happen sooner than markets anticipate. To be sure, that may still turn out to be true, but this data still reveals the depth of the hole left behind by the recession. But he majority of the FOMC will notice the stagnant unemployment rate (8.3%), a consequence of a small gain in labor force participation. If labor force participation rates begin to rebound, the improvement in the unemployment rate will stall, and the Fed could find itself willing to ease again later this year as suggested in this week's well documented Wall Street Journal article.
Moreover, note that wage gains remain anemic, both for all workers:

Privatewageallfe

and for non supervisory and production workers:

Privatewagesnonfeb
The lack of substantial wage gains, combined with relatively low labor force participation rates suggests that we still have a long way to go before labor markets normalize:

Lfpfeb

Of course, if labor force participation rates stagnate while job growth continues unabated, the Fed will find themselves facing a more rapid drop in unemployment. That would certainly take QE3 off the table, and turn attention back to the timing of the next tightening cycle. This is not my expectation, but it certainly bears watching.
Bottom Line: Another good report, although still suggestive of the beginning of recovery. In my mind, true recovery will come when the cyclical declines in labor force participation are further reversed. At this point, there is no reason for the Fed to pull their foot off the gas. On net though, the employment report does push back the timing of any additional easing. The Fed will move to the sidelines while policymakers assess the level of slack in labor markets. If the cyclical downturn resulted in sustained structural damage, there may be little slack. But if an influx of returning workers puts a floor under the unemployment rate, the Fed will have more work still to do.

The Labor Market Continues to Improve

Here are my comments on the employment report:

The labor market continues to improve, CBS News

Job growth is better, but still too slow -- at this rate it will take years to get back to full employment -- so the question is whether job growth will continue to accelerate, level off, or (shudder) perhaps even slow down. I'm hoping for acceleration, but there's no certainty it will come.

[Editing is slow today, no link yet, so here's the post:]

The employment report brings good news. According to the the Bureau of Labor Statistics, nonfarm payroll employment rose by 227,000 in February, and the unemployment rate was unchanged at 8.3 percent.

How can an unchanged unemployment rate be good news? The unemployment rate falls when more people get jobs, and it increases when more people enter the labor force and begin looking for jobs. In the current report these two factors offset each other leaving the unemployment rate unchanged. There were more jobs, but also more people looking. As the BLS reports, "The civilian labor force participation rate, at 63.9 percent, and the employment-population ratio, at 58.6 percent, edged up over the month." The fact that more people are looking for jobs can be viewed in a positive light since it reflects increased optimism about their chances of finding employment.

The job creation number is also good news even though the 227,000 jobs that were created falls short of the amount we need to recover in an acceptable amount of time. At this rate, it will be several years before we reach full employment. That's too long, and I have been hoping to see signs that job growth is accelerating. In past recessions recoveries there have been several months with 300,000 or 400,000 created and we need job creation of this magnitude to keep up with population growth and provide jobs for the millions of people still looking for work.

This report does show signs that job creation is accelerating. The increase in employment is broad-based, each month the job creation figures look a bit better, and if the acceleration in job growth continues that will be a very welcome development. Will it continue? It would be a mistake not to expect rough spots on the road to recovery, there will inevitably be setbacks and in any case we cannot be certain that the needed acceleration will occur. Trouble in Iran could cause oil prices to spike and that would be very bad news. Europe looks better, but surprises are always possible, and there are other risks as well.

Thus, although the labor market is improving it's still too soon for policymakers to forget about the job market and turn their attention elsewhere, though they have mostly done that anyway. And it's certainly too soon to begin reversing course through interest increases or deficit reduction. The economy is looking more hopeful, but until the hopes are realized we need to keep doing all we can to help the labor market recover.

Wednesday, March 07, 2012

"Cuts to State and Local Government Workforces are Particularly Damaging for Women"

Cuts to state and local workforces have not been qually distributed between men and women. It's not even close (ideally, state and local employment would have been protected during the recession so that we wouldn't have to worry about this at all, but policy has been far from ideal):

...cuts to state and local government workforces, while a significant drag on the economy as a whole, are particularly damaging for women. In 2011, women made up 46.6 percent of the overall labor force, but among state and local workers, about 60 percent are women. Because women are so disproportionately represented in state and local jobs, they also have taken the brunt of the job losses in state and local governments. Of the net change in total state and local employment between 2007 and 2011—a decline of roughly 765,000 jobs—70 percent of the drop is from female employees. Today, there are about 540,000 fewer women in state and local jobs than in 2007, compared with about 225,000 fewer men. ...

Tuesday, February 28, 2012

"How to Bring Jobs to People Who Need Them Most"

We must do a better job of protecting workers and their families from the short-run and long-run consequences of globalization and technological change:

How to Bring Jobs to People Who Need Them Most, by Mark Thoma: Is manufacturing special? Should the US do more to preserve its manufacturing base? President Obama brought these questions to the forefront with his recent proposal to use tax breaks and other encouragements to revive the manufacturing sector. Some people such as former Clinton economic advisor Laura Tyson argue that “manufacturing matters.” But others such as her UC Berkeley colleague and former Obama advisor Christina Romer argue against such special treatment.
Who is right? In the past, I have given a lukewarm endorsement to the president’s proposal. I believe manufacturing is one of the more promising avenues for the future economic growth, but I’m wary of picking winners. I’d prefer that we create the conditions for winners to emerge instead of putting too much emphasis on any one area.
But perhaps a more targeted approach is justified after all. Recent research by David Autor, David Dorn, and Gordon Hanson highlights the large detrimental effects that the loss of manufacturing jobs has had on some communities. ...[continue reading]...

(Apologies that it is split into two pages, it's not my choice -- single page, bare bones, no comments, print version here.)

Friday, February 24, 2012

Autor, Dorn, and Hanson: When (and Where) Work Disappears

The loss of manufacturing jobs to overseas producers has large negative impacts on workers and their communities. I'm with David Autor, one of the authors of the study described below, when he says "policymakers need new responses to the loss of manufacturing jobs: 'I’m not anti-trade, but it is important to realize that there are reasons why people worry about this issue.' ... Trade may raise GDP, but it does make some people worse off. Almost all of us share in the gains. We could readily assist the minority of citizens who bear a disproportionate share of the costs and still be better off in the aggregate":

When (and where) work disappears, MIT News: ...A new study co-authored by MIT economist David Autor shows that the rapid rise in low-wage manufacturing industries overseas has ... had a significant impact on the United States. The disappearance of U.S. manufacturing jobs frequently leaves former manufacturing workers unemployed for years, if not permanently, while creating a drag on local economies and raising the amount of taxpayer-borne social insurance necessary to keep workers and their families afloat.
Geographically, the research shows, foreign competition has hurt many U.S. metropolitan areas — not necessarily the ones built around heavy manufacturing in the industrial Midwest, but many areas in the South, the West and the Northeast, which once had abundant manual-labor manufacturing jobs, often involving the production of clothing, footwear, luggage, furniture and other household consumer items. Many of these jobs were held by workers without college degrees, who have since found it hard to gain new employment.
“The effects are very concentrated and very visible locally,” says Autor... “People drop out of the labor force, and the data strongly suggest that it takes some people a long time to get back on their feet, if they do at all.” Moreover, Autor notes, when a large manufacturer closes its doors, “it does not simply affect an industry, but affects a whole locality.” ...
The findings highlight the complex effects of globalization on the United States. “Trade tends to create diffuse beneficiaries and a concentration of losers,” Autor says. “All of us get slightly cheaper goods, and we’re each a couple hundred dollars a year richer for that.” But those losing jobs, he notes, are “a lot worse off.” For this reason, Autor adds, policymakers need new responses to the loss of manufacturing jobs: “I’m not anti-trade, but it is important to realize that there are reasons why people worry about this issue.” ...
Double trouble: businesses, consumers both spend less when industry leaves
In the paper, Autor, Dorn (of the Center for Monetary and Fiscal Studies in Madrid, Spain) and Hanson (of the University of California at San Diego) specifically study the effects of rising manufacturing competition from China, looking at the years 1990 to 2007. ...
The types of manufacturing for export that grew most rapidly in China during that time included the production of textiles, clothes, shoes, leather goods, rubber products — and one notable high-tech area, computer assembly. Most of these production activities involve soft materials and hands-on finishing work. “These are labor-intensive, low-value-added [forms of] production,” Autor says. “Certainly the Chinese are moving up the value chain, but basically China has been most active in low-end goods.”
In conducting the study, the researchers found more pronounced economic problems in cities most vulnerable to the rise of low-wage Chinese manufacturing; these include San Jose, Calif.; Providence, R.I.; Manchester, N.H.; and a raft of urban areas below the Mason-Dixon line — the leading example being Raleigh, N.C. “The areas that are most exposed to China trade are not the Rust Belt industries,” Autor says. “They are places like the South, where manufacturing was rising, not falling, through the 1980s.” ...
And as the study shows, when businesses shut down, it hurts the local economy because of two related but distinct “spillover effects,” as economists say: The shuttered businesses no longer need goods and services from local non-manufacturing firms, and their former workers have less money to spend locally as well. ... “People like to think that workers flow freely across sectors, but in reality, they don’t,” Autor says. ...
New policies for a new era?
In Autor’s view, the findings mean the United States needs to improve its policy response to the problem of disappearing jobs. “We do not have a good set of policies at present for helping workers adjust to trade or, for that matter, to any kind of technological change,” he says.
For one thing, Autor says, “We could have much better adjustment assistance — programs that are less fragmented, and less stingy.” The federal government’s Trade Adjustment Assistance (TAA) program provides temporary benefits to Americans who have lost jobs as a result of foreign trade. But as Autor, Dorn and Hanson estimate in the paper, in areas affected by new Chinese manufacturing, the increase in disability payments is a whopping 30 times as great as the increase in TAA benefits.
Therefore, Autor thinks, well-designed job-training programs would help the government’s assistance efforts become “directed toward helping people reintegrate into the labor market and acquire skills, rather than helping them exit the labor market.”
Still, it will likely take more research to get a better idea of what the post-employment experience is like for most people. ...
“Trade may raise GDP,” Autor says, “but it does make some people worse off. Almost all of us share in the gains. We could readily assist the minority of citizens who bear a disproportionate share of the costs and still be better off in the aggregate.”

Thursday, February 23, 2012

What's Wrong With This Picture?

State local
[via]

Sunday, February 19, 2012

NBER Research Summary: Offshoring, International Trade, and American Workers

Here's a description of recent academic work on offshoring and US workers:

Offshoring, International Trade, and American Workers, by Ann Harrison and Margaret McMillan, NBER Reporter 2011 Number 4: Research Summary: In 1982, only one out of four employees of U.S. multinationals was located offshore, and over 90 percent of those employees were in industrial countries. By 2007, the share of offshore employment had reached 44 percent, and the majority of those jobs were in low-income countries. These trends in offshoring are mirrored in the statistics on international trade: over the past two decades imports from low-wage countries have more than doubled.1
Over this same time period, U.S. employment in the manufacturing sector fell sharply and income inequality increased. ... Our research is motivated by these parallel developments and seeks to understand the implications for American workers.
Are U.S. Based Multinationals Exporting Jobs?
This question has always been of interest to policymakers and is arguably more important now than ever before. Accordingly, there is no shortage of academic research on this topic.2 The problem is that the answer to the question seems to change depending on the study. ... Our research examines this seemingly contradictory evidence in an attempt to bring closure to this debate. ...
Interpreting the Results on Multinational Employment Abroad
Our results indicate that whether the offshoring of jobs by U.S. multinationals leads to a decline in U.S. based employment depends on both the location of the investment abroad and the motive for the investment. In general, the expansion of employment in low-income countries has been associated with a contraction in employment in the United States... However, when American workers and workers in low-income countries perform different tasks, the expansion of multinational employment abroad can lead to increases in domestic employment. Taken together, these results go a long way toward explaining why previous researchers have found seemingly contradictory results. ...
Economy-wide Trends in Employment, Wages and Inequality
Using data from the CPS, we show that between 1982 and 2002, total manufacturing employment fell from 22 to 17 million, with rapid declines at the beginning of the 1980s and in recent years. However, the effects were uneven across different types of workers. For workers without a college degree, there were significant declines in manufacturing employment over the entire period. The opposite was true for workers with a college degree. Within manufacturing, the labor force has become increasingly well educated, as college graduates replace workers with high school degrees.
Wage trends mirror the shifts in employment. While wages fell for the least educated workers, they increased for workers with at least some years of college. The biggest wage gains were for manufacturing workers with an advanced degree. The decline in wages for high school dropouts and the steep wage increases at the upper end of the income distribution indicate a sharp increase in wage inequality.
Are Trade and Offshoring Responsible for Growing Wage Inequality?
... We focus on ... the movement of workers across sectors and occupations. To the extent that trade leads workers to switch industries (for example from manufacturing to services) or occupations (for example from machine tool operator to burger flipper), studies that focus on the impact of trade liberalization on within-sector inequality miss an important part of the story.
... We begin by showing that trade and offshoring are associated with a contraction in the manufacturing workforce. Then,... we demonstrate that workers who switch industries within manufacturing experience almost no decline in wages. However, when workers relocate to the service sector, they experience a significant wage loss. The negative wage impact is particularly large among displaced workers who also switch occupations. ... These effects are most pronounced for workers who perform routine tasks. This downward pressure on wages because of import competition and offshoring has been overlooked since it operates between and not within sectors. ...
Implications for American Workers
The trends in offshoring and international trade that we have described are likely to accelerate. China currently employs around 120 million people in the manufacturing sector and, although some reports indicate that wages are rising in China, those wages are still only a tiny fraction of wages in the United States. Moreover, China is expanding its manufacturing base to low-wage countries across the globe through a series of overseas economic zones11 . The implication for American workers is that in order to regain ground, they will need to find jobs outside of manufacturing where wages are comparable to those in manufacturing.
This is a tall order. ... This state of affairs has led some economists, including one of us, to reconsider the role of industrial policy. ...

Thursday, February 16, 2012

"Unemployment, Well-Being, and Capitalism"

Some people apparently interpreted this post as a shot at Chris Dillow's support of labor (more specifically, that I essentially accused him of being a "bourgeois apologist"). It wasn't intended that way, and as his latest post hopefully makes clear it wouldn't have been applicable in any case (in fact, in many ways his views go quite a bit beyond my own):

Unemployment, well-being and capitalism, by Chris Dillow: The call for “joined up government” is an old one. It should apply - but doesn’t - to the coalition’s attitude to the unemployed.
Cameron has said: “I do believe government has the power to improve wellbeing.” If this is so, then you’d expect a big part of public policy to focus upon how to improve the well-being of the unemployed. This is because these are, on average, significantly unhappier than other people - even the divorced - and it is probably easier to make the unhappy averagely content than it is to make the happy ecstatic.
But the coalition is not obviously solicitous towards the well-being of the unemployed. It prioritizes placating ratings agencies over creating jobs; its lackeys insult those who have suffered unemployment; it harasses the unemployed into workfare even though such schemes are of questionable efficacy; and it does little to combat a mindset that sees the poor, rather than poverty, as disgusting.
This inconsistency between a concern for well-being and a lack of concern for the unemployed is not, however, simply an intellectual failing. It reflects the fact that capitalism* requires that there be not just unemployment but that the unemployed be unhappy. I say so for three reasons:
1. Capitalism requires an excess supply of labour in order to bid down wage growth and industrial militancy. When Norman Lamont said unemployment was a “price well worth paying” to get wage inflation down, he was just blurting out the truth seen by Kalecki 50 years earlier - that “unemployment is an integral part of the 'normal' capitalist system.”
2. Capitalism needs the unemployed to look for work - to be an effective supply of labour. This requires that they be “incentivized” to seek jobs by meagre unemployment benefits and by being stigmatized. In other words, the unemployed must be made unhappy.
3. Blaming the unemployed for their plight serves a two-fold function in legitimating capitalism. It distracts attention from the fact that unemployment is caused by structural failings in capitalism, sometimes magnified by policy error. And in promoting the cognitive bias which says that individuals are the makers of their own fate, it invites the inference that, just as the poor deserve their poverty, so the rich deserve their wealth.
In short, in terms of attitudes and policies towards the unemployed, there is an ineliminable tension between capitalism and the promotion of well-being.
 * Note to right-libertarians. By “capitalism” I do NOT mean “free market economy” but rather a system in which large companies are run for profit by hierarchical structures for the benefit of a minority of people (which only sometimes includes shareholders). 

Wednesday, February 15, 2012

Austerity's Silver Lining?

Paul Krugman highlights the failure of austerity policy in Europe:

Clearly, It’s Time for More Austerity, by Paul Krugman:

Chris Dillow tries to find a "silver lining" in the UK's austerity policy, a policy that has increased the UK's unemployment rate:

...there might be a silver lining here. It could that one pleasant legacy of the 1930s depression was a favorable unemployment-inflation trade-off in the 1950s and early 60s. This was because workers who remembered the depression were scared of unemployment and so did not press for large wage gains even though they were in a strong labor market. The upshot was that inflation stayed low. However, as workers who remembered the 30s retired and were replaced by workers who had known only full employment, risk aversion and the fear of unemployment receded and so wage militancy rose.
It might be, therefore, that in 20 or so years time, we’ll enjoy low inflation if we get an economic boom because today’s joblessness might permanently reduce wage militancy (or an inclination to get into debt).
This, I suspect, is the best that can be said in favor of present economic policy.

Yes -- if we can just crush the working class and its demand for a fair share of the gains from growth, prosperity will be just around the corner.

What If Emergency Unemployment Benefits Expire?

What will happen if Congress allows the extension of unemployment insurance to expire at the end of this month?:

What Happens if Congress Doesn’t Continue Emergency Unemployment Benefits?, by Chad Stone, CBPP: The emergency federal unemployment insurance (UI) program is set to expire at the end of the month. If Congress fails to extend it:

  • The number of weeks of available benefits for unemployed workers will shrink dramatically, to fewer than 26 weeks in some states (see the maps [1,2] below).
  • Nearly 4.5 million jobless workers will lose UI benefits before the end of the year (see the table below).
  • The economic recovery will slow.

Besides the obvious benefit of supporting unemployed workers and their families at a time when there is still only one job opening for every four unemployed workers, UI is one of the most cost-effective ways to support the economic recovery. ...

The failure of people to find jobs that don't exist is surely a moral issue.

Tuesday, February 14, 2012

"The American Social Fabric"

I was struck by this statement by David Brooks:

"The American social fabric is now so depleted that even if manufacturing jobs miraculously came back we still would not be producing enough stable, skilled workers to fill them."

I'll leave the response to Dean Baker:

Five years ago we had two million more people employed in manufacturing than we do today. Has the social fabric become so depleted in this period that these people or others could now not fill these jobs if they came back? If Brooks really thinks that the ill effects of unemployment are that extreme he should be screaming for more stimulus in every column.

I think Brooks is wrong about the cause. It's not moral decay of the middle class, it's the desperation that comes with lack of opportunity, and the lock-in that comes with some of the solutions to that problem. But I will note that I have been emphasizing the social value of keeping people connected to the labor force through temporary jobs programs since the onset of the recession.

[For more on Brooks, see here (Krugman) and here (Mishel).]

Sunday, February 12, 2012

"Why Manufacturing Still Matters"

Christina Romer says there's nothing particularly special about manufacturing. I was a bit more wishy-washy overall, but said essentially the same thing (Basically: though I think that manufacturing is one of our best hopes right now, it is not the only hope we have and we shouldn't overemphasize any one area). Here's Laura Tyson filling in the other side of the debate with an argument about why manufacturing does, in fact, matter (the actual post has quite a bit more detail to support the arguments outlined below):

Why Manufacturing Still Matters, by Laura D’Andrea Tyson, Commentary, NY Times: As one of a rare group of economists who believe that “manufacturing matters” for the health of the American economy, I was heartened to hear President Obama emphasize manufacturing in his State of the Union address. During the last two years, the manufacturing sector has led the economic recovery, expanding by about 10 percent and adding more than 300,000 jobs.
Admittedly, this is a small number compared with overall private-sector job gains of 3.7 million during the same period, but it reverses the trend of declining manufacturing employment since the late 1990s.
And promising signs are emerging that American companies are shifting some manufacturing production and employment back to the United States. Policies to strengthen the competitiveness of the United States as a location for manufacturing can strengthen these nascent developments.
Though there are economists who do not share my heretical view, I believe that a strong manufacturing sector matters ... for several reasons. First, economists agree that the United States must rebalance growth away from consumption and imports financed by foreign borrowing toward exports. ...
Second, on average manufacturing jobs are high-productivity, high value-added jobs with good pay and benefits. ...
Third, manufacturing matters because of its substantial and disproportionate role in innovation. ...
In his State of the Union speech, President Obama proposed several additional changes in business taxes to discourage the outsourcing of manufacturing jobs and to encourage their creation in the United States.
A significant reduction in the corporate tax rate in the United States, which is the second highest among the developed countries, would be a much more powerful incentive to encourage American manufacturing production than these changes. Nor is it likely that they would have much effect on American manufacturing employment, because outsourcing has not been the major cause of manufacturing job losses. ...
The remarkable divergence between manufacturing output and employment reflects strong labor productivity growth, driven by labor-saving technological progress. This trend is likely to persist independent of changes in corporate taxation.
The other policies President Obama is promoting to support manufacturing — measures to increase high-school graduation rates; work-force training programs at community colleges; more support for basic research, infrastructure investment, and scientific, engineering and technical education; and immigration reform — would benefit not just manufacturing but the entire economy.
There is widespread support for such policies among economists, whatever their view of the role of manufacturing.

Tuesday, February 07, 2012

Unequal Recovery

Lower skilled workers haven't benefited much from the recovery:

Unemployment drop still leaves low skill workers behind, by Michael A. Fletcher, Washington Post: The nation’s jobless rate has declined to its lowest level in three years, a fact that has left Jamie Bean, an unemployed air-conditioner repairman, feeling more left out than ever.
Bean, 36, lost his job in December. ... Bean’s predicament is not unlike that of many workers who have a high school education or less. Not only were they hit especially hard by the recession, they also have continued losing ground in the recovery that has followed.
By disproportionate numbers, these Americans have given up looking for work, making the nation’s recovery appear better than it is. ... 
The number of Americans facing this predicament isn’t small. Nearly a third of the nation’s labor market has only a high school diploma. ... The news is worse for high school dropouts. ...
The recovery, economists say, has highlighted the consequences of not earning a college degree. ... The improvements that have occurred since the start of the recovery have accrued mostly to better-educated workers, analysts say. The economic challenge that lies ahead is finding a new place for workers such as Bean, who lack advanced academic credentials. Many of them rely on community colleges for their training, but those budgets have been cut in recent years. ...

It's easy to imagine Congress forgetting about this group (even more than it already has).

Sunday, February 05, 2012

Romer: Do Manufacturers Need Special Treatment?

Christina Romer says the case for promoting manufacturing is less than fully convincing:

Do Manufacturers Need Special Treatment?, by Christina Romer, Commentary, NY Times: Everyone seems to be talking about a crisis in manufacturing. Workers, business leaders and politicians lament the decline of this traditionally central part of the American economy. President Obama, in his State of the Union address, singled out manufacturing for special tax breaks and support. Many go further, by urging trade restrictions or direct government investment in promising industries.
A successful argument for a government manufacturing policy has to go beyond the feeling that it’s better to produce “real things” than services. American consumers value health care and haircuts as much as washing machines and hair dryers. And our earnings from exporting architectural plans for a building in Shanghai are as real as those from exporting cars to Canada.
The economic rationales for a policy aimed specifically at shoring up manufacturing largely fall into three categories. None are completely convincing: Market Failures ..., Jobs ..., Income Distribution ...
As an economic historian, I appreciate what manufacturing has contributed to the United States. It was the engine of growth that allowed us to win two world wars and provided millions of families with a ticket to the middle class. But public policy needs to go beyond sentiment and history. It should be based on hard evidence of market failures, and reliable data on the proposals’ impact on jobs and income inequality. So far, a persuasive case for a manufacturing policy remains to be made...

[I probably should have noted that I said something similar in my last column, i.e. "Manufacturing ... is not the only path to a better future. We need a strategy that creates the conditions for new, innovative firms of all sorts rather than focusing too much on any one area."]

Friday, February 03, 2012

Fed Watch: Good News on Employment

Tim Duy:

Good News on Employment, by Tim Duy: With only a minimal drag from the government sector, the February employment report shined on the back of a solid gain in private sector hiring:

Privatenfp

The last couple of months look more like the optimistic numbers seen early in 2011 before the mid-year slowdown raised the specter of another recession. As has been widely noted, there is little to complain about in this report. To be sure, in many respects we are still deep in the hole. Long-term unemployment remains a challenge:

Longunemp

Wage growth is meager:

Wages

And the employment to population ratio remains sits a levels not seen since the early 1980s:

Civemp

Still, as noted earlier, these issues should be alleviated if job growth is sustained. And as a precursor to such improvements, the unemployment rate is falling, and at a reasonably quick pace:

Unemp

What will this mean for the Fed? As I discussed earlier, the unemployment rate looked to be the weak link in the Fed's most recent forecast of 8.2-8.5% by year end. We are at 8.3% in January, and unless either waves of workers re-enter the job market or the economy shifts gears dramatically soon, we will be easily below 8% in just a couple of months. Under such a trajectory, I have to imagine that another round of QE, as well as the Fed's interest rate projection, are not sure bets at all.
To be sure, one can argue the Fed should seize this opportunity to entrench the recovery with more easing. After all, the employment to population ratio suggests plenty of slack in the labor market, as does minimal wage growth. And unit labor labor costs are moving sideways as well:

Ulc

We know that at least one policymaker, Chicago Federal Reserve President Charles Evans, would already be easing much more aggressively, but we also know that others, such as Philadelphia Federal Reserve President Charles Plosser thinks the current rate outlook is not consistent with an improving economic environment. A couple of reports like this will find others in his camp as well.
I think it still premature to expect the Fed to dramatically shift forward their own expectations of a rate hike. That said, since the recession ended, Federal Reserve officials have tended to shift expectations away from more easing and toward tightening every time the data shows a little life, only to have to backtrack six months later when hopes are dashed. Assuming the Fed follows the same pattern, watch for a shift in tone from Fed officials.

I'm starting to wonder how the Fed will wiggle out of its interest rate commitment should the economy turn out to be stronger than the Fed's forecast. I still think the Fed needs to insure against potential problems -- it's far too soon to conclude our troubles are over, we're still in a deep, deep hole and a slower than tolerable recovery is certainly still possible, perhaps even likely -- but it does look as though there's a chance the Fed will have to reconsider its recent interest rate commitment ("exceptionally low levels for the federal funds rate at least through late 2014"). The FOMC does give itself an out by saying conditions are "likely to warrant" this policy, but it seems to me it has been interpreted as a pretty firm commitment. (Note: To be clear, I am not advocating interest rate increases any time soon -- I think the Fed is likely to pull the interest rate trigger too early rather than too late -- but given the Fed's inclination to raise rates sooner rather than later, how will it explain itself if that time to raise rates comes earlier than projected?)

Dean Baker: Strong Job Growth

With all the cheering about the jobs report this morning showing 243,000 jobs created last month and a fall in the unemployment rate to 8.3 percent, I thought it might be useful to present a contrary voice (especially since I'm at a conference and don't have time to do much myself). This is the most negative report I could find, and even then Dean Baker says that "The January report is undoubtedly one of the best reports that we have seen since the recession began." However, "While this is markedly better than what we had been seeing, at this rate we would not get back to full employment until 2020":

Strong Job Growth Leads to Drop in Black/Hispanic Unemployment, by Dean Baker: The Labor Department reported that the unemployment rate fell to 8.3 percent in January, bringing its drop over the last year to 0.8 percentage points. African Americans in particular saw an especially sharp decline in unemployment, with their overall rate falling by 2.2 percentage points to 13.6 percent, the lowest level since March of 2009. The unemployment rate for African American men over age 20 fell by 3.0 percentage points to 12.7 percent, the lowest level since November of 2008. The drop for women over age 20 was 1.3 percentage points to 12.6 percent. The unemployment rate for Hispanics dropped by 0.5 percentage points to 10.5 percent, the lowest since January of 2009. These numbers are erratic and may be partially reversed in future months.
The gains for whites were more modest, with the overall unemployment rate edging down by 0.1 percentage points to 7.4 percent. The unemployment rate for white men over age 20 fell by 0.2 percentage points to 6.9 percent, while it was unchanged for women over age 20 at 6.8 percent. The unemployment rate for all men and women over age 20 is now the same at 7.7 percent, the first time they have been equal since the recession began in December, 2007.
Other data in the household survey were more mixed. ...[continue reading]...

jobs-2012-02

Monday, January 30, 2012

FRBSF: Why Is Unemployment Duration So Long?

What's responsible for the slow recovery of employment in recent recessions? :

The analyses discussed here suggest that weak labor demand is the primary explanation for prolonged unemployment duration observed in the recent recession and recovery. The weak recovery of employment is similar to the jobless recoveries that followed the 1990–91 and 2001 recessions. This suggests that the labor market has changed in ways that prevent the cyclical bounceback in the labor market that followed past recessions. The shift towards jobless recoveries probably reflects a reduction in temporary layoffs during cyclical downturns. Stricter market incentives to control costs in the face of stiff domestic and international competition may also be factors. In addition, anecdotal evidence suggests that recent employer reluctance to hire reflects an unusual degree of uncertainty about future growth in product demand and labor costs. These special factors are not readily addressed through conventional monetary or fiscal policies. But such policies may be able to offset the central obstacle of weak aggregate demand.

More here.

Thursday, January 19, 2012

"Weekly Initial Unemployment Claims decline to 352,000"

Via Calculated Risk, some decent news on the jobs front:

Weekly Initial Unemployment Claims decline to 352,000, by Calculated Risk: The DOL reports:

In the week ending January 14, the advance figure for seasonally adjusted initial claims was 352,000, a decrease of 50,000 from the previous week's revised figure of 402,000. The 4-week moving average was 379,000, a decrease of 3,500 from the previous week's revised average of 382,500.

The previous week was revised up to 402,000 from 399,000.

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


Click on graph for larger image.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased this week to 379,000.

The 4-week moving average is well below 400,000. ... This is the lowest level for weekly claims since April 2008.

Things are looking better, but I am not ready to conclude we are in the clear just yet -- there are still risks ahead and, in any case, we need an acceleration of activity in order to recover in a decent period of time. Unfortunately, it's not clear where that acceleration will come from. I hope the good news continues, and that it gets even better, but policymakers need to remain wary and, importantly, they should not conclude that the economy is healthy enough to begin raising interest rates or pursuing aggressive deficit reduction -- it's still far too early in the recovery process for that.

Wednesday, January 11, 2012

Fed Watch: Output Gaps and Inflation

Tim Duy:

Output Gaps and Inflation, by Tim Duy: Regarding, again, the size of the output gap, this remark is found in the most recent Fed minutes:

However, a couple of participants noted that the rate of inflation over the past year had not fallen as much as would be expected if the gap in resource utilization were large, suggesting that the level of potential output was lower than some current estimates.

I think this has less to do with the size of the output gap and more to do with downward nominal wage rigidities. Note that wages are still rising, although the pace of wage growth for production and nonsupervisory workers is still falling:

1210wagesall

Perhaps a better example is the relatively new series, wages for all workers:

1210wagesprod

Overall private wage growth bottomed out in 2009 and held around 1.75%, perhaps just beginning to rise in recent months.
Despite very high unemployment and underemployment, wage growth is still positive. It tends to be very difficult to induce workers to take wages cuts (think also how the newly unemployed will resist taking new jobs with a substantially lower pay), which in-turn helps put a downside to inflation. In other words, one would expect the relationship between the output gap (or, similarly, high unemployment) and inflation to flatten as inflation rates fall toward zero.
This is also covered by Paul Krugman here and here.
Also note that rising wages doesn't necessarily imply higher inflation. Between the two is productivity growth. To account for the latter, we can look at unit labor costs:

1210ulc
Not exactly a lot of inflationary pressures stemming from unit labor cost growth. Presumably, high real wages could come by redistributing productivity gains to workers in the context of low inflation. For that to happen, however, I think we will need a lot more upward pressure on the labor market than we are seeing right now.

Monday, January 09, 2012

Will Obama's Military Cuts Hurt the Economy?

I was asked to comment on the economic impact of cuts to defense spending:

Will Obama's military cuts hurt the economy?

Saturday, January 07, 2012

"An Appalling Idea"

If Republicans get their way, collecting unemployment insurance will be much harder for many workers:

An Appalling Idea, Even by Washington Standards, CBPP: For legislation to extend the payroll tax cut through the end of 2012, House Republicans are expected to push for a provision on unemployment insurance (UI) that is appalling even by current Washington standards. Neither President Obama nor Congress should accept any payroll-tax legislation that includes it. Here’s why:
The provision, part of a full-year payroll-tax bill that the House passed in December, would deny UI benefits to any worker who lacks a high school diploma or GED and is not enrolled in classes to get one or the other — regardless of how long the person worked or whether he or she has access to adult education, which itself has been subject to significant budget cuts in the past few years and is heavily oversubscribed.
The proposal would deny UI benefits to hundreds of thousands of workers — many of them middle-aged — who have worked hard, played by the rules, and effectively paid UI taxes for years and who then were laid off due to no fault of their own. ...
Older workers would be hit the hardest. Nearly half (47 percent) of UI recipients with less than a high school education or the equivalent are over age 45... In 2010, half a million workers age 50 or over who received UI lacked a high school diploma. By contrast, less than one-fifth of UI recipients without a high school diploma or the equivalent are under age 30.
For most of these individuals, who may have worked for 30 years or more, returning to high school makes little sense. And adult education, even when it might be useful because the workers are younger, very often isn’t available due in part to federal and state budget cuts.
Virtually every state had waiting lists in local adult education programs in 2009-2010, according to the most recent survey, and the number of people on waiting lists doubled just between 2008 and 2009-2010. Furthermore, the shortage of adult education slots has almost certainly grown significantly since 2009-2010 because of substantial budget cuts in adult education since then. ...
The proposal ... would allow people without a high school diploma or GED to receive benefits only if they enroll in classes for which there often would be no slots available — in part because of budget cuts approved by some of the same policymakers who now embrace this new requirement.
President Obama and lawmakers of both parties face a crucial test. They claim to care about average Americans who are trying to find work in an economy that still struggles to create jobs. If they give in to House Republicans and agree to this provision as part of a final package on the payroll tax cut, their claims will ring thin — and they will deserve the strong criticism that will come their way.

If all that is required is to enroll and benefits end before enough credits are accumulated to graduate, how much effort do you think these students will put into their classes (and if there is a GPA requirement, e.g. you cannot get an F, many will do just enough to meet the requirement, and no more)? Students who have no interest in being in adult education classes, no interest in learning, will crowd out students who want to be there (and being in school doesn't help much with job search). How is that better? If there was excess capacity in the system, they could enroll without displacing someone else. But that's not the situation right now, and if Republicans have their way with budgets, that's unlikely to change (and even if it was the situation, I'd still object to making obtaining a degree a condition for receiving unemployment insurance). I suppose we could get a bunch of private schools offering an easy way to satisfy the requirement in exchange for some of the money the unemployed receive through unemployment insurance (guaranteed to pass or your money back!), but degree mills popping up to collect money from the unemployed -- money they very much need -- is not a very desirable outcome (and if the government pays for the classes, the incentives are even worse).

Friday, January 06, 2012

The Employment Report

I have a few comment on today's employment report:

Unemployment declines, but don't sound the all clear just yet

Paul Krugman: Bain, Barack and Jobs

Romney's claims about job creation are nonsense:

Bain, Barack and Jobs, by Paul Krugman, Commentary, NY Times: ...Mr. Romney claims that Mr. Obama has been a job destroyer, while he was a job-creating businessman. For example, he told Fox News: “This is a president who lost ... two million jobs...” He went on to declare, of his time at the private equity firm Bain Capital, “I’m very happy in my former life; we helped create over 100,000 new jobs.”
But his claims about the Obama record border on dishonesty, and his claims about his own record are well across that border. Start with the Obama record. It’s true that 1.9 million fewer Americans have jobs now than when Mr. Obama took office. But the president inherited an economy in free fall... So how much of that Obama job loss took place in, say, the first half of 2009?
The answer is: more than all of it. The economy lost 3.1 million jobs between January 2009 and June 2009 and has since gained 1.2 million jobs. ... So Mr. Romney’s claims about the Obama job record ... are deeply misleading. Still, the real fun comes when we look at what Mr. Romney says about himself. Where does that claim of creating 100,000 jobs come from?
Well, Glenn Kessler of The Washington Post got an answer from the Romney campaign. It’s the sum of job gains at three companies that Mr. Romney “helped to start or grow”: Staples, The Sports Authority and Domino’s.
Mr. Kessler immediately pointed out two problems with this tally. It’s “based on current employment figures, not the period when Romney worked at Bain,” and it “does not include job losses from other companies with which Bain Capital was involved.” ... Hey, if pluses count but minuses don’t, everyone who spends a day playing the slot machines comes out way ahead! ...
Mr. Romney’s claims about being a job creator would be nonsense even if he were being honest about the numbers, which he isn’t.
At this point, some readers may ask whether it isn’t equally wrong to say that Mr. Romney destroyed jobs. Yes... The real complaint about Mr. Romney and his colleagues isn’t that they destroyed jobs, but that they destroyed good jobs.
When the dust settled after the companies that Bain restructured were downsized — or, as happened all too often, went bankrupt — total U.S. employment was probably about the same... But the jobs that were lost paid more and had better benefits than the jobs that replaced them. Mr. Romney and those like him didn’t destroy jobs, but they did enrich themselves while helping to destroy the American middle class.
And that reality is, of course, what all the blather and misdirection about job-creating businessmen and job-destroying Democrats is meant to obscure.

Monday, January 02, 2012

Paul Krugman: Nobody Understands Debt

We should be doing more to help the unemployed:

Nobody Understands Debt, by Paul Krugman, Commentary, NYTimes: In 2011, as in 2010, America ... continued to suffer from disastrously high unemployment. And ... almost all the conversation in Washington was about something else: the allegedly urgent issue of reducing the budget deficit.
This misplaced focus said a lot about ... how disconnected Congress is from the suffering of ordinary Americans. But it also revealed something else: when people in D.C. talk about deficits and debt, by and large they have no idea what they’re talking about...
Perhaps most obviously, the economic “experts” on whom much of Congress relies..., the likes of the Heritage Foundation have been waiting ever since President Obama took office for budget deficits to send interest rates soaring. Any day now! And while they’ve been waiting, those rates have dropped to historical lows. ...
But Washington isn’t just confused about the short run; it’s also confused about the long run... Deficit-worriers ... see America as being like a family that took out too large a mortgage, and will have a hard time making the monthly payments. This is, however, a really bad analogy in at least two ways.
First, families have to pay back their debt. Governments don’t — all they need to do is ensure that debt grows more slowly than their tax base. ...
Second — ...the point almost nobody seems to get — an over-borrowed family owes money to someone else; U.S. debt is, to a large extent, money we owe to ourselves. ... If your image is of a nation that’s already deep in hock to the Chinese, you’ve been misinformed. ...
Now.., you don’t have to be a right-wing ideologue to concede that taxes impose some cost on the economy... But these costs are a lot less dramatic than the analogy with an overindebted family might suggest.
And that’s why nations with stable, responsible governments — that is, governments that are willing to impose modestly higher taxes when the situation warrants it — have historically been able to live with much higher levels of debt than today’s conventional wisdom would lead you to believe. Britain, in particular, has had debt exceeding 100 percent of GDP for 81 of the last 170 years. When Keynes was writing about the need to spend your way out of a depression, Britain was deeper in debt than any advanced nation today, with the exception of Japan. ...
So yes, debt matters. But right now, other things matter more. We need more, not less, government spending to get us out of our unemployment trap. And the wrongheaded, ill-informed obsession with debt is standing in the way.

Sunday, January 01, 2012

Jobs, Not the Deficit, Should be Our Most Immediate Concern

The NY Times editorial staff:

As Good as It Gets?: ...The way to revive sustainable growth is with more government aid to help create jobs, support demand and prevent foreclosures. As things stand now, however, Washington will provide less help, not more, in 2012. Republican lawmakers refuse to acknowledge that government cutbacks at a time of economic weakness will only make the economy weaker. And too many Democrats, who should know better, have for too long been reluctant to challenge them.
The drag from premature cuts is significant. ... It does not have to be this way. After nearly a year of trying to accommodate Republicans in their calls for excessive budget cuts, President Obama finally pushed a strong jobs bill including spending for public works, aid to state and local governments and an infrastructure bank, as well as renewal of a payroll tax break and jobless aid. Congressional Republicans blocked the bill, and with it, the chance to create some 1.9 million jobs. But late last month, the Republican leadership in the Senate and House retreated — even if extremists in the party did not — and managed to temporarily extend the payroll tax cut and jobless benefits.
The extension is only for two months, setting up another fight. But the good news is that in the showdown, Mr. Obama and the Democratic leadership did not back down. ...
The economy, and struggling Americans, need a lot more help. Mr. Obama needs to translate his newfound focus on the middle class into an agenda for broad prosperity, making the case that what the nation needs now is a large short-run effort to create jobs coupled with a plan to cut the deficit as the economy recovers.

Christina Romer agrees (me too):

Two Big Problems, Two Ready Solutions: The United States faces two daunting economic problems: an unsustainable long-run budget deficit and persistent high unemployment. Both demand aggressive action in the form of fiscal policy. ...
On the deficit, the big worry isn’t the current shortfall, which is projected to decline sharply as the economy recovers. Rather, it’s the long-run outlook. ...
But we can’t focus on the deficit alone. Persistent unemployment is destroying the lives and wasting the talents of more than 13 million Americans. Worse, the longer that people remain out of work, the more likely they are to suffer a permanent loss of skills and withdraw from the labor force.
Despite heated rhetoric to the contrary, the evidence that fiscal stimulus raises employment and lowers joblessness is stronger than ever. And pairing additional strong stimulus with a plan to reduce the deficit would likely pack a particularly powerful punch for confidence and spending. ...
 Because many people worry about increasing the role of the federal government, why not give substantial federal funds to state and local governments for public investment? Tell them that the money has to be used for either physical infrastructure like roads, bridges and airports, or for human infrastructure like education, job training and scientific research. Then let the states, cities and towns figure out what would work best for their citizens. ...

It would be helpful if the press would react as negatively to a failure to produce a jobs bill as it does to failures to come to an agreement about reducing the deficit. But it doesn't. The lack of effort from Congress on jobs is hardly noted in the press while the deficit -- and calls to do something about it -- is noted almost daily.

We need to do more to help the unemployed.

Saturday, December 31, 2011

Will the Payroll Tax Cut be Extended Through the End of 2012?

Steve Benen doesn't think there's a very good chance that the payroll tax cut will be extended through the end of 2012:

Enjoy the payroll tax break while it lasts, by Steve Benen: Last week, after a needlessly-contentious process, Congress approved a two-month extension of the payroll tax break. As part of the agreement, a conference committee will try to come up with an agreement to extend the cut through the end of 2012.

I’ve been rather pessimistic about the likelihood of success, and yesterday, the odds got worse.

The Senate Republican leader announced Friday that he had chosen three of his colleagues to try to thrash out a bipartisan deal on payroll taxes, unemployment benefits and Medicare.

The three Republican senators will join four Democratic senators and 13 House members on a conference committee... The newly named Republican conferees are Senators Jon Kyl of Arizona, Michael D. Crapo of Idaho and John Barrasso of Wyoming.

These ... are three senators you’d appoint to a conference committee if you want to be destructive.

Kyl, for example, was instrumental in sabotaging the super-committee process... Crapo and Barrasso, meanwhile, are two far-right senators who’ve never demonstrated any willingness to accept concessions on anything.

What’s more, note that the House GOP leadership has already announced its conferees, most of whom have already said they don’t want a payroll-cut extension no matter what concessions Democrats are willing to make...

What about the risk of being blamed? Remember,... the process itself offers cover. Instead of last week, when House Republicans became the clear villains,... the party will find it easier to spread the blame around.

“It’s not our fault,” GOP leaders will say. “We tried to work with Democrats on a deal, but one didn’t come together. Oh well.”... and the media would feel obligated to say “both sides” failed to reach an agreement.

And even if the payroll tax cut is extended, it's likely that Republicans will demand -- and get -- large concessions in return, e.g. permanent reductions in spending on social insurance programs.

Thursday, December 29, 2011

It's the Season for Optimism

This is the time of year when we get to read all the stories about how the economy is poised to do better in the coming year. There have been a couple of these today, and I expect more will follow.

Better than what? Yes, signs are pointing in the right direction, but we are still in a deep, deep hole and the signs also point to a long, long road to recovery. The economy still needs help, job creation in particular, but, unfortunately, these stories create an elevated sense of optimism about the coming year. This lets policymakers off the hook and helps them avoid the difficulties they would face if they proposed more aggressive policy actions.

Doing better is not the same as doing well enough, and policymakers have no reason to relax yet. I hope the people writing these stories will make that clear.

Maybe we'll be surprised by the strength of job creation in the coming year, I certainly hope so, but we shouldn't count on it.

Tuesday, December 27, 2011

Un-Unpivoting

While I try to find something to post, a quick thought.

A few weeks ago Paul Krugman said:

what strikes me is just how wrong-headed the Obama administration’s “pivot” away from jobs and toward the deficit back in 2010 really was. It was bad economics; but it was also really bad politics, shifting the debate to exactly the ground where the right tends to have an (undeserved) advantage.

The good news for Democrats is that Obama is now in the process of unpivoting.

But the political establishment and the Very Serious Pundits are doing their best to turn the discussion back to deficit reduction.They already are.

Don't let them.

Saturday, December 24, 2011

Hoping Employment Takes Off...

Landing...but can't help worrying that this will happen.

Things do look better, but assuming recent trends don't end up like the skier in the link the question is how strong growth will be. Will it be just enough to absorb population growth, but no more? Or will there be an acceleration of growth that allows us to provide jobs for new entrants to the labor force and also begin to reemploy the milllions of people who lost jobs during the recession and have had no luck finding new ones?

I wish I was confident that will happen, and happen fairly soon. In the past, such bursts of activity during the recovery phase were normal and expected. But as I noted recently, it's hard to see where the needed jump in demand will come from:

...no matter which sector you point to, government, business, households, or foreigners, there is little reason to expect the large increase in demand needed to drive an economic recovery. Things are looking better, and the green shoots might just be real this time around, but we are still a long, long way from returning to whatever our new normal might be.

It doesn't have to be this way. Although recessions that are caused by financial collapses are among the most difficult to recover from and lost decades are not at all unusual, as Christina Romer recently highlighted effective government policy (monetary and fiscal) can shorten the recovery time considerably.

As policymakers head home for the holidays, I hope they will give some thought to the families that could be having a much merrier Christmas if they had pursued more aggressive policy. And if they (and the powerful interests pulling their strings) do have such a "Christmas Carol" revelation, I hope they will also realize that it's not too late to do more.

I know this is a wish that's unlikely to come true -- we'll be lucky to avoid job-killing austerity measures in the coming year (lumps of coal for all!). But it's Christmas Eve, and maybe Santa will bring a surprise.

Sunday, December 18, 2011

Payroll Tax Cut in "Serious Doubt"

I wonder if the puppeteers in the Republican Party regret what they have created now that they have lost control of the strings controling the actions of the groups they needed to win elections:

For Senate Tax Cut Stopgap, Odds in House Are Uncertain, NY Times: ...the Senate voted overwhelmingly on Saturday to extend a payroll tax cut for only two months, with the chamber’s leaders and the White House proclaiming victory, even as they punted into the new year the issue of how to further extend the tax cut and unemployment benefits.
In an unusual Saturday vote, the Senate approved by an 89-to-10 vote a $33 billion package that would extend a payroll-tax holiday for millions of American workers, extend unemployment benefits and avoid cuts in payments to doctors who accept Medicare. ...
But House passage next week was thrown into serious doubt on Saturday afternoon, when a number of rank-and-file Republicans objected in a conference call with Speaker John A. Boehner, who tried to persuade them that it was good for their party, particularly the provision that would speed the decision process for construction of an oil pipeline from Canada to the Gulf Coast known as Keystone XL. ...
Republican leaders — but not necessarily their rank and file — had wanted a full-year payroll tax cut deal to try to inoculate themselves against accusations by Democrats, as they head into an election year, that they are against tax cuts for low- and middle-income workers. It will be up to Mr. Boehner to convince his members that extending the cut —  and at least appearing to work with Democrats even as they labor to unseat Mr. Obama and the Democrats who still control the Senate — will ultimately work in their political favor. ...

Obama and House Republicans seem to be in some kind of contest to see who can give the biggest political gift to the other side.

Saturday, December 17, 2011

The Hard (Wish We Were) Working Poor

The rebuttal to Casey Mulligan and others like him is very simple:

A work ethic doesn’t help much when there is no work to be had.

Policymakers need to get off their fat, lazy, pampered butts and do something to help to create the needed jobs. If Congress worked as hard on the unemployment problem as the poor do in their jobs, maybe we'd make some progress.

Thursday, December 15, 2011

New Claims for Unemployment Insurance Fall

With today's decent number for unemployment claims -- claims fell to 366,000 and are finally below the breakeven point for job creation -- it's worth thinking about how long it might take for employment to recover. Calculated Risk calculates how long it will take to reach 8% by November 2012 under various scenarios:

I think the participation rate will be in the 64.0% to 64.5% range next November. That would mean the economy would need to add somewhere between 167,000 and 260,000 jobs per month. The bottom end of that range seems possible with sluggish growth, but the top end is less likely.
This is very sensitive to the participation rate. If the economy adds 167,000 jobs per month next year, and the participation rate increases to 64.5%, the unemployment rate would be at 8.7%. So 8% is possible, but it seems unlikely unless growth picks up.

And even at the optimistic rate of job creation, we'd only be at 8% a year from now.

Note also that the claims number is clouded by uncertainty over seasonal adjustment procedures, so it's not certain that we are getting an accurate read on progress on employment. But even if it is accurate, even if we are finally headed back up the hill, as these graphs show there's still a long, long climb ahead of us:

Gap
Emp-pop

Wednesday, December 14, 2011

High Unemployment Is *Not* Primarily the Result of "Generous" Unemployment Insurance Benefits

Brad DeLong takes on the claim that our unemployment problem is due to "generous" unemployment insurance benefits.

Thursday, December 08, 2011

Not Good Enough

Quick note on a travel day:

Weekly Initial Unemployment Claims decline to 381,000

The labor market seems to be improving, but the pace of change is far, far too slow. I've been hoping for an acceleration in job creation at some point, but it's hard to see that happen any time soon with so much uncertainty hanging over Europe.

The US is Almost Last in Relative Labor Market Policy Spending

Labor

More here.

Friday, December 02, 2011

Unemployment Falls, But Is It Good News?

I just posted this at CBS News:

The Department of Labor released the employment report on Friday, and it shows 120,000 jobs created in the month of November, and the unemployment rate falling from 9.0 percent to 8.6 percent.

At first glance the fall in the unemployment rate seems like good news, but a closer look at the numbers reveals some weakness in the report.

First, note that depending upon which estimates you look at, it takes from 90,000-125,000 jobs just to keep up with the growth in the population. Thus, the 120,000 jobs that were created in November is enough to keep the unemployment rate from going up, but it is not enough by itself to absorb all the new workers entering the labor force and at the same time reduce the fraction of people that are currently unemployed. So the fall in the unemployment rate cannot be attributed to robust job growth.

Second, the report shows a decline in the labor force of 315,000 for November, and about half of the decline is attributed to discouraged workers giving up the search for a job. This exit of workers rather than job creation is the main source of the fall in the unemployment rate, and since so much of it is from discouraged workers this is not an encouraging development. Note, however, that there is a lot of month to month variability in the labor force participation numbers, and some of this may simply be month to month noise in the measurement.

Third, many of the unemployment duration numbers continue to increase. Average search duration reached a new peak for this downturn of 40.9 weeks, and hence long-term unemployment is getting worse, not better.

Fourth, many of the jobs that were created are in the retail sector. Thus, while some workers are finding new jobs, the new employment does not, in general, pay as well as previous employment. In addition, if the seasonal factors are different this year, e.g. if some of this is hiring for the holidays that seasonal adjustment procedures miss, then the picture is even weaker than the numbers suggest.

There are positive trends in this report as well. For example the number of people working part-time involuntarily fell by 374,000, employment in construction increased, and employment in manufacturing held its own, but there is a reason to point out the weak points in the report. Congress is considering two initiatives, maintaining or even increasing the payroll tax cut enacted to fight the recession, and an extension of unemployment benefits. If this report is interpreted as unambiguous good news and a sign that things are getting better at a relatively rapid pace -- at .4 percent decline per month the unemployment rate would fall at a fairly rapid pace over a year -- then Congress may not feel as much pressure to extend the tax cuts and unemployment benefits. It's something they'd rather not do, and they are looking for excuses that avoid the need to make tough decisions. But the problems for the labor market are far from over and we could use some insurance against the risks from Europe, so now is not the time to conclude that our troubles are over and we can turn our attention to other things. It's been nearly three years since Ben Bernanke first talked about green shoots, and that was used as a reason to pursue less aggressive monetary and fiscal policy than we needed, and we should avoid making the same mistake again. Maybe the green shoots are real this time -- I certainly hope that they are -- but it's too early to be certain, and it would be a mistake for policymakers to conclude that the labor market is on its way to a healthy recovery and no longer needs their help.

Sunday, November 27, 2011

Social Insurance and Unemployment: Do People Deserve Poverty?

Casey Mulligan claims that social insurance is a big reason that unemployment is so high:

Were it not for government assistance,... the recession would have pushed 4.2 percent of the population into poverty, rather than 0.6 percent.

One interpretation of these results is that the safety net did a great job... Perhaps if the 2009 stimulus law had been a little bigger or a little more oriented to safety-net programs, all seven would have been caught.
Another interpretation is that the safety net has taken away incentives... Of course, most people work hard despite a generous safety net, and 140 million people are still working today. But in a labor force as big as ours, it takes only a small fraction of people who react to a generous safety net by working less to create millions of unemployed. I suspect that employment cannot return to pre-recession levels until safety-net generosity does, too.

A comment from this post responding to Casey Mulligan takes on this claim:

I'm sure my daughter connived to get herself laid off at Peet's Coffee just as her health insurance would have kicked in and live on $98 a week, far less than she would have brought in in wages, and not even enough to pay her $500 a month rent. And she was so thrilled with this condition that she kept it up for a full two months, and then found herself another job, this one with no health benefits.

The idea that the unemployment problem is due to lack of effort on behalf of the unemployed rather than a lack of demand is convenient for the moralists, but inconsistent with the facts. The problem is lack of demand, not the means through which we smooth the negative consequences of recessions.

But what really irks me is the implicit moralizing, the idea that people deserve to be thrown into poverty. Someone who gets up every day and goes to a job day after day, often a job they don't like very much, to support their families can suddenly become unemployed in a recession through no fault of their own. They did nothing wrong -- it's not their fault the economy went into a recession and they certainly couldn't be expected to foresee a recession that experts such as Casey Mulligan missed entirely. They had no reason to believe they had chosen the wrong place to go to work, but unemployment hit them anyway. And since one of the biggest causes of foreclosure is an event like unemployment, it's entirely possible that this household would lose its home, be forced to declare bankruptcy, etc., and end up in severe poverty if there were no social services to rely upon.

What moral lesson is being taught here? Why does this household deserve to be punished for their bad decisions? It did nothing wrong. I understand that people should suffer the consequences of their own bad choices, but that's not what happens in recessions. People who have done nothing to deserve it are nevertheless hit by severe negative shocks. That's what social insurance is for, to smooth the path for such unfortunate households, to avoid sending people into poverty who have done nothing to deserve it (see "The Need for Social Insurance"). It is not an attempt to reward bad behavior and most programs do their best to avoid giving benefits to people who have made bad choices (for example, the system is far from perfect but in most states unemployment insurance can only be obtained if you lose your job through no fault of your, e.g. if you quit or get yourself fired it is not available). The extent to which we should distinguish between deserving and undeserving households for social insurance programs is debatable and depends upon the type of program, but the idea that all households are undeserving is, in my view, simply wrong. I would apply the social safety net widely myself -- I think the benefit of the doubt should go to compassion, not harshness and moralizing -- but in any case I'd dispute the idea that "safety-net generosity" is too high. If anything, we are not generous enough.

Update: Karl Smith comments on this topic.

The Demand for Jobs

Businesses won't hire workers because there is not enough demand to support them, and the public can't supply the needed demand because too many people don't have jobs.

That's what's so frustrating. If the unemployed had jobs, the demand would be there to support them. But the demand has to come first, and workers won't be hired until the demand is there.

I wonder who could provide the missing demand needed to overcome this problem?

Monday, November 21, 2011

Where’s the Super Committee for Job Creation?

I have a new column:

Where’s the Super Committee for Job Creation?

I am not happy with the Democrats.

"A Hollowing Out of the Middle"

I expected the numbers to be even worse:

Job Polarization in the United States: A Widening Gap and Shrinking Middle, by Jaison R. Abel and Richard Deitz, Liberty Street Economics: ... A Hollowing Out of the Middle Not surprisingly, these patterns have shifted the distribution of jobs among these groups. The chart below indicates the share of workers in each of the wage groups in 1980 and in 2009. In 1980, three-quarters of all workers were employed in mid-skill occupations. Among the occupations included in this group, Machine Operators accounted for 10 percent of the U.S. workforce, and Administrative Support accounted for 18 percent. By 2009, the share of jobs in the mid-skill category had shrunk to two-thirds, with Machine Operators accounting for just 4 percent of all jobs and Administrative Support for 14 percent. Over this same period, there was an increase in the share of jobs in the high and low skill groups. High skill jobs increased their share from 12 percent to 15 percent, while low skill jobs grew from 13 percent to 17 percent. As a result, the share of jobs at the upper end and lower end of the distribution increased between 1980 and 2009, while the share of jobs in the middle group fell.

Shares-of-employment

Clearly, the U.S. workforce has undergone a significant occupational restructuring since the 1980s. Along with an increase in the share of high skill jobs and low skill jobs, there has been a growing wage gap between workers in jobs that pay the most and those that pay the least. With a rising share of jobs at the upper and lower ends of the wage distribution and a wider gap in wages among occupations, jobs have become more polarized in the United States over the past three decades.

This looks like a supercritical pitchfork bifurcation (a potential path to chaos).

Saturday, November 12, 2011

"Would Cracking Down on Illegal Immigration Really Cut Unemployment?"

Daniel Indiviglio says that eliminating illegal immigration won't do much to create jobs:

Would Cracking Down on Illegal Immigration Really Cut Unemployment?, by Daniel Indiviglio: Americans don't want many of these jobs anyway and aren't desperate enough to settle

"And here is something else that we have to do that will help the economy. We have to build the fence on America's southern border and get a grip on dealing with our immigration problem." This was one of the responses from Rep. Michelle Bachmann during Wednesday night's Republican Presidential Debate when asked how she would create jobs as quickly as possible. This is a sentiment shared by many Americans...

Elizabeth Dwoskin at Bloomberg wrote a very thought-provoking article on this topic... She found that Americans don't want many of those jobs that illegal immigrants have. She shows this through a sort of case study of Alabama. The state recently passed a law that allows the police to question people they suspect are in the U.S. illegally. As you might guess, illegal immigrants are fleeing the state.

But the expected boost for unemployed Americans isn't materializing: they aren't rushing to take the jobs those illegal immigrants are leaving behind. Dwoskin writes:

In their wake are thousands of vacant positions and hundreds of angry business owners staring at unpicked tomatoes, uncleaned fish, and unmade beds. "Somebody has to figure this out. The immigrants aren't coming back to Alabama--they're gone," Rhodes says. "I have 158 jobs, and I need to give them to somebody."

There's no shortage of people he could give those jobs to. In Alabama, some 211,000 people are out of work. In rural Perry County, where Harvest Select is located, the unemployment rate is 18.2 percent, twice the national average. One of the big selling points of the immigration law was that it would free up jobs that Republican Governor Robert Bentley said immigrants had stolen from recession-battered Americans. Yet native Alabamians have not come running to fill these newly liberated positions. Many employers think the law is ludicrous and fought to stop it. Immigrants aren't stealing anything from anyone, they say. Businesses turned to foreign labor only because they couldn't find enough Americans to take the work they were offering.

At a moment when the country is relentless focused on unemployment, there are still jobs that often go unfilled. These are difficult, dirty, exhausting jobs that, for previous generations, were the first rickety step on the ladder to prosperity. They still are--just not for Americans.

This point may seem intuitively obvious, but it's nice to see a reporter provide a clear, cohesive example of why illegal immigrants aren't a significant causal force of the high rate of unemployment. The problem isn't merely that there aren't enough jobs -- there aren't enough of the right sort of jobs.

Perhaps if the U.S. didn't have unemployment insurance programs in place, things would be different. If jobless Americans couldn't collect checks for 99 weeks, then they might feel a greater sense of urgency to settle for any job that they could get -- they would then be more willing to pick tomatoes, gut fish, and make beds. But if they can continue to look for something better while just scraping by on the money they get from the government, then that's a better option.

Is the answer, then, to both deport illegal immigrants and end unemployment insurance? ... But would its decline really imply that the nation was much better off? Remember, most of the job openings that would result would be among the least desirable out there. They would pay poorly and result in a pay cut for many of those Americans. ...

So would cracking down on illegal immigration make the U.S. labor market much better off? Reading Dwoskin's article, it's hard to see how. For the U.S. economy to flourish again, the private sector needs to add millions of good-paying jobs that help to build a skill set, which will rebuild the U.S. middle class. You don't get many of those jobs by merely cracking down on illegal immigration.

There is a wage at which US citizens will take these jobs. If the business owner interviewed above were to offer me a million dollars a day to do one of the unfilled jobs, I'd be on the next plane to the job site. So the idea that Americans won't do this type of work is wrong, but you do have to offer a wage that is high to compensate people for the nature of the work they will be asked to do.

Ah, you say, but this is a sign that our social insurance programs are too good. If people were as poor as they are in Mexico, and faced a similar life outlook, surely they'd be willing to take these jobs too. Yes, probably true. It's also true that if we lived in a dictatorship, someone could force me to do this job at whatever pay they wanted to give. The motivation would be to prevent physical pain -- to, say, stop myself from getting beaten for refusing to take the job rather than starvation -- but the effect would be the same.

But I don't want to live in a society so poor that people take jobs out of desperation to survive -- poverty can take away choices -- and I'd rather not have choices made for me by a dictatorial form of government. So what this indicates to me is that there are people in the world, some of whom live close by, so in need of work just to survive that they will take work at exploitive wages. The conditions where they live are so bad, and the available social services so poor, that they have no choice but to do things like leave their families for months or years, head north, and do whatever they can just to get by (even private sector institutions such as soup kitchens are much more scarce than in the US). And much of what they are asked to do is very, very unpleasant work.

The business owners will complain, of course, that if they pay the wages needed to attract Americans to these jobs -- basically to keep them out of soup kitchens -- then they won't be able to make a profit. That may or may not be true, but assume it is. What does it really mean? It means that the product they are selling is not viable unless people are forced by their circumstances to work at wages below what would be acceptable if even the barest of social services were available.

The fact that Americans "continue to look for something better while just scraping by on the money they get from the government" is a sign that we still have some hope left, that people think there is a chance they won't have to resort to working at exploitative wages that unjustly benefit business owners (and those who think that our social service programs are too kind should try living on them for a year or two). I am glad that we don't put people in the position of having to accept these kinds of jobs at very, very low wages just to prevent starvation.

If these jobs remain open, one of two things will happen. Either wages will rise to a level that will attract workers, or if the wage required is too high to make a profit the firm will go out of business. That's just the free market at work, and cries from business owners that the inability to hire illegal workers is forcing them out of business is no more compelling than a cry that the inability to do something illegal such as pollute is forcing them to close their doors. The question is whether they are profitable when forced to internalize all costs, and pay the above-board market price for the resources they use.

But I am also very favorably inclined toward immigration, and believe our doors ought to be much more open than they are. I grew up in an area where illegal immigration was very high, and I have no doubt at all that these workers are exploited by those who hire them. We would never tolerate this type of treatment for our own citizens, but somehow we look away when it is illegal workers from Mexico. In times when work is plentiful, I would have no problem at all with programs that bring workers to the U.S. legally to do this type of work. We could then do a much better job of monitoring how these workers are treated, and so on, and ensure that business owners aren't getting rich through the exploitation of illegal immigrants. Again, this would mean that some business owners wouldn't survive -- those that depend upon paying very low wages to workers who can't complain -- but that's no different than what happens to businesses across the US every day. Not every business is viable, and when costs are too high firms go out of business -- these firms are no different. In times like the present when work is scarce, I would cut back on these programs (though not fully eliminate them) and hope that the improved conditions and higher wages that would result from bringing the formerly illegal workers out into the open would mean some of these jobs would be more likely to be filled by US citizens.

The cry that "Americans don't want many of these jobs" is really an admission that the wages being offered are too low. There are Americans who will do these jobs, and do them very well, but not for wages that barely keep them out of soup kitchens. If business owners want workers, there are plenty available. All they have to do is offer a decent wage.

Friday, November 11, 2011

"Employment is Improving, But Too Slowly"

Late posting this -- I have some comments about yesterday's report on new claims for unemployment insurance at CBS News:

Employment is Improving, But Too Slowly

New claims are headed in the right direction, but the rate of change is very, very slow.

Tuesday, November 08, 2011

Turning Our Backs on the Unemployed

Senators, Republicans and two Democrats in particular, have not received anywhere near enough criticism for this:

Last week’s Senate decision to kill a modest $60bn bill to upgrade America’s infrastructure before it came to debate may have exceeded even that august chamber’s recent record. The package, which included $10bn in seed money for a public infrastructure bank, was blocked by every Republican and two Democrats. They objected because it would have been funded by a 0.7 per cent surtax on earnings over $1m.
And that was that. At a time when US businesses prefer to hoard rather than invest their cash, and when long-term interest rates are so low the money is virtually free, the political system is unable to accomplish what ought to be a no-brainer. Until now, America has never faced an ideological divide on infrastructure: both parties accepted the need to upgrade roads, dams, bridges, energy and water systems.
Forget Abraham Lincoln and Dwight Eisenhower, the presidents most often cited as having unleashed growth-boosting infrastructure – transcontinental railroads and federal highways respectively. Forget even Bill Clinton’s cheerleading for the “information superhighway”, which helped pave the way for the spread of the internet...
We need go back only to 2005 when a Republican-controlled Capitol Hill pushed through the infamous $280bn Highways Act, which was the largest transport bill in US history. ...
The US spends just 2 per cent of its gross domestic product on infrastructure. The European Union spends twice that, and China more than four times. It is showing. ...

It's not just the crumbling infrastructure, though that that alone is enough to justify the spending -- especially at a time when interest and other costs are so low -- it's the way in which Congress has all but turned its back on the unemployed. We have an opportunity to provide employment and at the same time invest in projects that have clear net benefits. Yet politics stands in the way and millions of unemployed face a less hopeful future because of it. People who have done nothing wrong except get caught up in a recession -- people who, when they have jobs, show up every day and work hard in support of their families -- are stamped with permanent scars from long-term unemployment. They wonder when, if ever, they will find a job again (and if they do find one what type of job it will be). Yet we do nothing to help them even though meeting our great infrastructure needs could help with the unemployment crisis. Grrr.

Lots of Talk About Deficit Reduction Lately, Not So Much About Job Creation

Un

Friday, November 04, 2011

Economy Creates 80,000 Jobs in October

We need to create 100,000 to 125,000 jobs per month just to keep up with the growth in population. In order to reabsorb the millions of workers who have lost jobs during the recession back into the labor force, we need to create several hundred thousand jobs per month, and even at that rate it would take years for employment to fully recover.

Unfortunately, according to the latest employment report from the BLS, the economy only created 80,000 jobs in October:

Nonfarm payroll employment continued to trend up in October (+80,000), and the unemployment rate was little changed at 9.0 percent... Employment in the private sector rose, with modest job growth continuing in professional and businesses services, leisure and hospitality, health care, and mining. Government employment continued to trend down.

The average over the last three months was 114,000. That's enough to keep up with population growth, but no more. Unemployment did fall slightly, from 9.1 percent to 9.0 percent, and the the employment to population ratio also increased by 0.1 pp to 58.4 percent. Those numbers are moving in the right direction, but the rate of change is much slower than needed. Again, at this rate it will be years before we get back to full employment. And the fall in government employment, something under our control, at a time when we need to be creating jobs doesn't help at all.

The big picture from this report is that we are not experiencing the kind of growth typical in recoveries -- it is much slower than the recovery from previous recessions.  We are moving sideways -- we aren't losing ground but we aren't gaining ground either, at least not at a satisfactory rate -- and looking forward it's hard to see anything that will change the painfully slow recovery the economy is currently experiencing.

[Also posted at CBS News.]