Category Archive for: Unemployment [Return to Main]

Friday, February 03, 2012

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.]

Thursday, November 03, 2011

"The Case for Rebuilding our Transportation Infrastructure"

Infrastructure needs are high, costs are unusually low, and people need jobs. In addition infrastructure spending, which enhances future economic growth, can be viewed as a supply-side policy.

If our financial infrastructure was crumbling we'd do something about it, so why not do the same for our physical infrastructure, especially since the benefit to cost ratio is unusually high? I suppose we all know the answer, but it's still worth making members of Congress show their votes:

Creating Jobs and Boosting the Economy: The Case for Rebuilding our Transportation Infrastructure, by Aaron Klein, Treasury Notes: Today, the Senate begins its consideration of the Rebuild America Jobs Act, which would put hundreds of thousands of construction workers back on the job and modernize America’s crumbling infrastructure. The President proposed this measure to Congress as part of the American Jobs Act as a way to create jobs and improve the Nation’s long-term economic competitiveness by allowing goods and services to more efficiently reach domestic and global markets. The White House also released a report today that provides examples of recent infrastructure projects which have produced significant economic benefits.
Our economy is as interconnected as our infrastructure, and well-targeted infrastructure investments create immediate and long-term economic benefits to both local communities and those further away. ... As Secretary Geithner said when he visited the UPS Worldport Facility in Louisville, Kentucky recently, “If you do a better job of repairing roads and bridges, highways, airports, railways, it makes companies more competitive. It lowers their costs. It’s like a tax cut.”  Simply put, wise investments in infrastructure save companies and consumers both time and money.
In addition to laying the foundation for stronger economic growth, we must also work to address a crucial problem facing our economy today - unemployment. Investments in infrastructure today will put Americans back to work. And with over 1 million construction workers currently unemployed, now is the right time to invest in infrastructure. Eighty percent of jobs created by investing in infrastructure will likely be created in three occupations - construction, manufacturing, and retail trade - which are among the hardest hit from the recession. Treasury Department analysis shows that these sectors pay middle-class wages, so employment in these sectors bolsters middle-class jobs. ...

I am a bit worried about the privatization of infrastructure in some of these proposals, but that's about how the programs are structured, not about whether they are needed.

Thursday, October 27, 2011

"Hayek on Monetary Policy and Unemployment"

David Glasner:

... Sixty years ago Hayek was arguing against an extreme version of Keynesian doctrine that viewed increasing aggregate demand as a panacea for all economic ills. Hayek did not win the battle himself, but his position did eventually win out, if not completely at least in large measure. Today, however, an equally extreme version of Hayek’s position seems to have become ascendant. It denies that increasing aggregate demand can, under any circumstances, increase employment. I don’t know what Hayek would think about all this if he were alive today, but I suspect that he would be appalled.

Monday, October 24, 2011

Unemployment Insurance and Job Search in the Great Recession

New research from Jesse Rothstein shows that, contrary to what you may have heard from those who are trying to blame our economic problems on government programs rather than malfeasance on Wall Street, unemployment insurance is not the cause of the slow recovery of employment:

Unemployment Insurance and Job Search in the Great Recession, by Jesse Rothstein, NBER Working Paper No. 17534 [open link]: Nearly two years after the official end of the "Great Recession," the labor market remains historically weak. One candidate explanation is supply-side effects driven by dramatic expansions of Unemployment Insurance (UI) benefit durations, to as many as 99 weeks. This paper investigates the effect of these UI extensions on job search and reemployment. I use the longitudinal structure of the Current Population Survey to construct unemployment exit hazards that vary across states, over time, and between individuals with differing unemployment durations. I then use these hazards to explore a variety of comparisons intended to distinguish the effects of UI extensions from other determinants of employment outcomes.
The various specifications yield quite similar results. UI extensions had significant but small negative effects on the probability that the eligible unemployed would exit unemployment, concentrated among the long-term unemployed. The estimates imply that UI benefit extensions raised the unemployment rate in early 2011 by only about 0.1-0.5 percentage points, much less than is implied by previous analyses, with at least half of this effect attributable to reduced labor force exit among the unemployed rather than to the changes in reemployment rates that are of greater policy concern.

"More Jobs Predicted for Machines, Not People"

The "key to winning the race" is to make machines complements, not substitutes:

More Jobs Predicted for Machines, Not People, by Steve Lohr, NY Times: A faltering economy explains much of the job shortage in America, but advancing technology has sharply magnified the effect, more so than is generally understood...
The automation of more and more work once done by humans is the central theme of “Race Against the Machine,” an e-book to be published on Monday. “Many workers, in short, are losing the race against the machine,” the authors write.
Erik Brynjolfsson, an economist and director of the M.I.T. Center for Digital Business, and Andrew P. McAfee, associate director and principal research scientist at the center, are two of the nation’s leading experts on technology and productivity. The tone of alarm in their book is a departure for the pair, whose previous research has focused mainly on the benefits of advancing technology. ...
Faster, cheaper computers and increasingly clever software, the authors say, are giving machines capabilities that were once thought to be distinctively human, like understanding speech, translating from one language to another and recognizing patterns. ...
The skills of machines, the authors write, will only improve. ... Yet computers, the authors say, tend to be narrow and literal-minded, good at assigned tasks but at a loss when a solution requires intuition and creativity — human traits. A partnership, they assert, is the path to job creation in the future.
“In medicine, law, finance, retailing, manufacturing and even scientific discovery,” they write, “the key to winning the race is not to compete against machines but to compete with machines.”

Friday, October 21, 2011

Paul Krugman: Party of Pollution

As I said the other day, the GOP's jobs proposals amount to picking something that they (or the people who finance their campaigns) don't like — the EPA, Dodd-Frank, health care legislation, Sarbanes-Oxley, etc. — and then finding some way to argue that eliminating it will create jobs:

Party of Pollution, by Paul Krugman, Commentary, NY Times: Last month President Obama finally unveiled a serious economic stimulus plan — far short of what I’d like to see, but a step in the right direction. Republicans, predictably, have blocked it. ...
So what is the G.O.P. jobs plan? The answer, in large part, is to allow more pollution. ... Both Rick Perry and Mitt Romney have ... put weakened environmental protection at the core of their economic proposals, as have Senate Republicans. Mr. Perry has put out a specific number — 1.2 million jobs — that appears to be based on a study released by the American Petroleum Institute ... claiming favorable employment effects from removing restrictions on oil and gas extraction. The same study lies behind the claims of Senate Republicans.
But does this oil-industry-backed study actually make a serious case for weaker environmental protection as a job-creation strategy? No.
Part of the problem is that the study relies heavily on an assumed “multiplier” effect, in which every new job in energy leads indirectly to the creation of 2.5 jobs elsewhere. Republicans, you may recall, were scornful of claims that government aid that helps avoid layoffs of schoolteachers also indirectly helps save jobs in the private sector. But I guess the laws of economics change when it’s an oil company rather than a school district doing the hiring.
Moreover,... the big numbers in the report are projections for late this decade. The report predicts fewer than 200,000 jobs next year, and fewer than 700,000 even by 2015. You might want to compare these numbers with ... the 14 million Americans currently unemployed, and the one million to two million jobs that independent estimates suggest the Obama plan would create, not in the distant future, but in 2012. ...
More pollution, then, isn’t the route to full employment. But is there a longer-term economic case for less environmental protection? No. ... The important thing to understand is that ... pollution ... does real, measurable damage, especially to human health. ...
How big are these damages? A new study by researchers at Yale and Middlebury College ... estimates ... that there are a number of industries inflicting environmental damage that’s worth more than the sum of the wages they pay and the profits they earn — which means, in effect, that they destroy value rather than creating it. ...
Republicans, of course, have strong incentives to claim otherwise: the big value-destroying industries are concentrated in the energy and natural resources sector, which overwhelmingly donates to the G.O.P. But the reality is that more pollution wouldn’t solve our jobs problem. All it would do is make us poorer and sicker.

Thursday, October 20, 2011

"First Look at US Pay Data, It’s Awful"

In case you were wondering:

First look at US pay data, it’s awful, by David Cay Johnston, Reuters: Anyone who wants to understand the enduring nature of Occupy Wall Street and similar protests across the country need only look at the first official data on 2010 paychecks... The figures from payroll taxes reported to the Social Security Administration on jobs and pay are, in a word, awful.
These are important and powerful figures. ... There were fewer jobs and they paid less last year, except at the very top where, the number of people making more than $1 million increased by 20 percent over 2009.
The median paycheck -- half made more, half less -- fell again in 2010, down 1.2 percent to $26,364. That works out to $507 a week, the lowest level, after adjusting for inflation, since 1999.
The number of Americans with any work fell again last year, down by more than a half million from 2009 to less than 150.4 million.

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More significantly,...  close to 10 million workers who did not find even an hour of paid work in 2010. ...
What these figures tell us is that there was a reason voters responded in the fall of 2010 to the Republican promise that if given control of Congress they would focus on one thing: jobs.
But while Republicans were swept into the majority in the House of Representatives, that promise has been ignored. ... Instead of jobs, the focus on Capitol Hill is on tax cuts for corporations with untaxed profits held offshore, on continuing the temporary Bush administration tax cuts -- especially for those making $1 million or more - and on cutting federal spending, which mean destroying more jobs in the short run. ...
The data show why protests like Occupy Wall Street have so quickly gained momentum around the country... Will official Washington look at the numbers and change course? Or do voters need to change their elected representatives if they want to put America back on a path to widespread prosperity?

And, from the WSJ:

Real hourly wages fell 0.1% in September from August. After rising briefly at the start of this recovery, real hourly pay is back to about where it was two years ago — despite the fact that worker productivity has risen more than 5% since then.

Wednesday, October 19, 2011

A Convenient Excuse

If you don't have a job, many in the GOP think it's your own fault. Never mind that there are fewer jobs than people looking by a wide margin, somehow if the unemployed would try harder, the jobs will magically appear:

GOP debate crowd cheers idea that jobless are to blame for their plight, by Greg Sargent: ...This moment from last night’s debate, in which the audience cheered the idea that the unemployed are solely to blame for not having a job, strikes me as one of the most iconic moments we’ve seen at the debates yet...
Anderson Cooper says: “Herman Cain, I’ve got to ask you — two weeks ago, you said, `Don’t blame Wall Street, don’t blame the big banks. If you don’t have a job, and you’re not rich, blame yourself.’ That was two weeks ago. Do you still say that?” At this point applause starts, and after Cain stands by the claim, the applause crescendos and hoots of approval can be heard.
Lovely,... the crowd is applauding the idea that the unemployed are solely to blame for their plight. The basic suggestion here is that ... it’s morally correct to place all the blame for unemployment on the jobless themselves. ...

Convenient, isn't it? It gives people who don't think they have any obligation to contribute to social insurance a reason to turn their backs on the unemployed.

Tuesday, October 18, 2011

The GOP's (Lack of a) Jobs Plan

The GOP wants to take us backwards:

GOP: ‘Deregulate Wall Street!’, by Ezra Klein: In recent days, more than 900 cities have hosted protests under the Occupy Wall Street banner. But the enthusiasm ... hasn’t trickled up to the GOP presidential campaign. There, the candidates want to leave Wall Street alone. ... They want to deregulate -- actively and aggressively.

“I introduced the bill to repeal Dodd-Frank,” bragged Rep. Rep. Michele Bachmann... But Herman Cain was not to be outdone. “Repeal Dodd-Frank, and get rid of the capital gains tax,” he countered. Repealing the capital gains tax would make it vastly more profitable to earn a living through investment income rather than wage income. A hedge-fund manager, for instance, might escape income taxation entirely. It would give smart, young college students even more reason than they have now to go into the hedge fund game than, say, medicine.
“Dodd-Frank obviously is a disaster,” agreed Rep. Ron Paul. “But Sarbanes-Oxley costs a trillion dollars, too. Let’s repeal that, too!” Sarbanes-Oxley ... is the law passed in the wake on the Enron scandals. It sought to make balance sheets more transparent and financial statements more trustworthy. It is not well liked by the financial sector.
Mitt Romney, while not quite as carefree in his denunciations of the financial-regulation reforms, largely agrees with his co-candidates. His jobs plan promises that a Romney presidency would “seek to repeal Dodd-Frank and replace it with a streamlined regulatory framework,” though it doesn’t give much detail on what that streamlined framework would be. He also says that “the Sarbanes-Oxley law passed in the wake of the accounting scandals of the early 2000s should also be modified as part of any financial reform.”
So three years after the worst financial crisis since the Great Depression, the consensus in the Republican Primary is that we should deregulate Wall Street not just to where it was before the bubble burst, but to somewhere nearer to where it was before Enron crashed. ...

Romney's jobs plan is to repeal Dodd-Frank? Speaking of jobs, how about the GOP jobs plan?:

Republicans Getting a Pass on Their Jobs Plans, by Kevin Drum: Greg Sargent wants to know why the media is giving Republicans a huge pass on their various "jobs plans":

Obama and the Senate GOP have both introduced jobs plans. In reporting on the Senate plan, many news organizations described it as a “GOP jobs plan.” And that’s fine — Rand Paul said it would create five million of them. But few if any of the same news orgs that amplified the GOP offering of a jobs plan are making any serious effort to determine whether independent experts think there’s anything to it. And independent experts don’t think there’s anything to it — they think the GOP jobs plan would not create any jobs in the near term, and could even hurt the economy. By contrast, they do think the Obama plan would create jobs and lead to growth.
Why aren’t these facts in every single news story about the ongoing jobs debate? Why aren’t they being broadcast far and wide? ...

I ... suspect that reporters are simply so used to Republicans embracing nonsense that they evaluate it on a whole different plane than they do "serious" proposals. GOP campaign plans are treated more as optics than as actual policy, as ways to signal a candidate's conservative bona fides more than as blueprints for actual legislation.

But Greg is right: this should stop. There's no reason to give these guys a pass on their laughable jobs plans that virtually no one thinks will create any actual jobs. ...

Perry's jobs program -- have people drill holes in the ground and then, for the most part, fill them up again -- sounds quite Keynesian. But it's mostly a way to argue for deregulation of his bread and butter, the energy industry, rather than a serious job creation proposal (the claim that it is a favor to the energy industry rather than a serious jobs proposal is bolstered by the other leg of his jobs plan, to dismantle the Environmental Protection Agency). This is characteristic of all the GOP jobs proposals -- pick something that you don't like, the EPA, Dodd-Frank, health care legislation, Sarbanes-Oxley, etc. -- and then argue that eliminating it will create jobs. Then wait for the press to report it as a serious job creation proposal (or at least fail to point out that the claims can't withstand scrutiny).

Monday, October 17, 2011

Spence: The Global Jobs Challenge

Michael Spence:

The Global Jobs Challenge, by Michael Spence, Commentary, Project Syndicate: ...The third challenge is distributional. As the tradable part of the global economy (goods and services that can be produced in one country and consumed in another) expands, competition for economic activity and jobs broadens. That affects the price of labor and the range of employment opportunities within all globally integrated economies. Subsets of the population gain, and others lose, certainly relative to expectations – and often absolutely.
Many advanced countries – in fact, most of them – have experienced limited middle-income growth. ... In the United States, income inequality has risen as the upper end of the income and education spectrum benefits from globalization, while the rest experience declining employment opportunities in the tradable sector. ...
What does it mean – for individuals, businesses, and governments – that structural adjustment is falling further and further behind the global forces that are causing pressure for structural change?
Above all, it means that expectations are broadly inconsistent with reality, and need to adjust, in some cases downward. But distributional effects need to be taken seriously and addressed. The burden of weak or non-existent recoveries should not be borne by the unemployed, including the young. In the interest of social cohesion, market outcomes need to be modified to create a more even distribution of incomes and benefits, both now and in inter-temporal terms. ...
None of this will be easy. ... Nevertheless, the unemployed and underemployed, especially younger people, expect their leaders and institutions to try.

I don't like the call to accept that things will be worse in the future, and to get used to it. It is generally based upon the idea that much of our growth was due to the bubble - it was false growth -- and hence led to the perception that we can grow faster than is actually possible.

But if the resources hadn't have been invested in the financial industry, they wouldn't have been wasted, they would have gone elsewhere. If we had taken all the resources (and talent) that went into the financial sector and directed it elsewhere, it would have promoted growth and employment -- and likely of a far more stable and broad-based variety. In my view the challenge is to redirect these resources into productive uses, and to fix the mal-distribution of income gains. But simply accepting that expectations need to adjust downward -- that the fate of the middle and lower classes is a diminished future -- is not acceptable. We can do better than that.

Friday, October 14, 2011

Wanted: Job Creation

I wish I could find a way to adequately express the frustration I feel over the way Congress has all but turned its back on the unemployed. Even now, the only reason we're hearing anything from Democrats about job creation is because there's an election ahead. The legislation is timed for the politicians -- it needs to maximize reelection chances -- minimizing the struggles of the unemployed is a secondary consideration (if that). If the election were further away it's unlikely we'd be hearing about this much at all. And Republicans are worse, they have no plans at all except to use unemployment as an excuse to further ideological goals (balanced budget amendments, tax cuts for the wealthy, etc.). How can politicians be so indifferent to the struggles that the unemployed face daily? Are they really so disconnected from the lives of ordinary people that they don't understand how devastating this is to those who lost jobs due to the recession, people who can't find a way to get hired again no matter how hard they try?

Anyway, I can't seem to find a way to say this with the shrillness it deserves, and I apologize for that, but I just don't understand why the unemployment crisis isn't a national emergency.

Fulfilling Free Trade's Promise

Richard Green:

For free trade to fulfill its promise, the national government must redistribute income: As a card-carrying economist, I like trade--overall, it potentially enriches countries that engage in it. The problem is the meaning of enrichment.
Trade theory says that trade enlarges the pie that people share.  But among the most important contributions to trade theory is the Samuelson-Stolper Theorem, which says that relatively scarce factors of production see their returns fall when trade is introduced. In the context of an economy like the US, this means that low skilled workers see their wages fall in the presence of trade. The trajectory of wages in the US over the past 20 years or so are consistent with the predictions of Samuelson and Stolper.
NAFTA was sold to the US public as something that would make everyone better off. And it principle, it could have done so, had some of the gains to those who benefited from NAFTA been redistributed to those who lost as a result of it. Instead we got the NAFTA but not redistribution. This likely explains the widening disparity of incomes.

Thursday, October 13, 2011

"A Breathtaking Act of Economic Vandalism"

As this says, everyone expected Republicans to block President Obama’s jobs bill, but it's still disappointing to see the "you're on your ownership socety" in action:

No Jobs Bill, and No Ideas, Editorial, NY Times: It was all predicted, but the unanimous decision by Senate Republicans on Tuesday to filibuster and thus kill President Obama’s jobs bill was still a breathtaking act of economic vandalism. There are 14 million people out of work, wages are falling, poverty is rising, and a second recession may be blowing in, but not a single Republican would even allow debate on a sound plan to cut middle-class taxes and increase public-works spending.
The bill the Republicans shot down is not a panacea, but independent economists say it would have a significant and swift effect on the current stagnation. Macroeconomic Advisers ... said it could raise economic growth by 1.25 percentage points and create 1.3 million jobs in 2012. Moody’s Analytics estimated new growth at 2 percentage points and 1.9 million jobs. ...
The Republicans offer no actual economic plans, only tired slogans about cutting regulations and spending, and ending health care reform. The party seems content to run out the clock on Mr. Obama’s term while doing very little. On Tuesday, Mr. Obama’s campaign manager, Jim Messina, accused Republicans of trying to “suffocate the economy” in hopes that the pain would work to their political advantage. They are doing little to refute that charge. ...

Sunday, October 09, 2011

How Long Will It Take for the Labor Market to Recover?

To state the obvious, we need to create a lot more jobs per month than we have so far. If we continue at present rates, the unemployment rate will stay constant or increase even further. Even if we duplicate the performance of the economy prior to the recession, it will take four years to reach an unemployment rate of 7%. Thus, to get out of this in a reasonable amount of time we need job creation to accelerate considerably, and it's hard to see that happening without help from Congress. Unfortunately, Congress pretends to "feel your pain," but they don't seem to really understand how hard it is for those who are struggling with unemployment -- that this is a crisis requiring immediate, agressive action -- and it's hard to imagine that Congress will give labor markets the amount of help they need. So no need to hold on to your hats, it looks like we're headed for a very slow ride:

Two more job market charts, macroblog: ...Payroll employment growth has averaged about 110,000 jobs a month since February 2010, the jobs low point associated with the crisis and recession. This growth level compares, unfavorably, with the 158,000 jobs added per month during the last jobs recovery period from August 2003 (the low point following the 2001 recession) through November 2007 (the month before the recent recession began). One hundred and ten thousand jobs a month compares favorably, however, to the 96,000 job creation pace so far this year.
Are these sorts of differences material? ...[W]ith a few assumptions, such as the presumptions that the labor force will grow at the same rate as census population projections (for the aficionados, my calculations also assume that the ratio of household employment to establishment employment is equal to its average value since January of this year), the unemployment rates associated with job growth of 158,000, 110,000, and 96,000 per month would look something like this:
These paths are just suggestive, of course, but I think they tell the story. The same jobs recovery rate of the prerecession period would get the unemployment rate down below 7 percent in four years or so. But at the pace we have been going this year, things get worse, not better.

Friday, October 07, 2011

The Employment Report: Still Moving Sideways

A few comments on the employment report:

The Employment Report: Still Moving Sideways

Monday, October 03, 2011

Cantor Says Obama’s Job Bill Is Dead

That the jobs bill is dead is not a surprise, but given the national unemployment crisis we face the lack of will and urgency in Congress to do anything about it ought to add fuel to whatever fire recent protests have ignited. We need to do something to help the unemployed now, not tomorrow -- more should have been done already -- and the action needs to be bold and aggressive. Don't these people have any sense what it's like to look for a job for months and months and not be able to find one while every bit of hard-earned savings and then some withers away (if there's any savings to begin with given the stagnation in wages in recent decades)? Do they understand what the unemployed face in their day to day lives? Where's the compassionate conservatism we heard so much about? Do Republicans really think that trade agreements and tax cuts for government contractors -- while opposing a payroll tax cut -- is going to provide the help that is needed? And what's wrong with the centrist Democrats who are voting against Obama's plan? Whose interests are they protecting? It sure isn't the jobless. Like I said, this isn't unexpected, but (obviously) it still irks me to see it play out in this way:

Cantor: Obama’s Job Bill Is Dead in Congress, by Janet Hook and Carol E. Lee, Washington Wire: President Barack Obama’s $447 billion jobs bill was declared dead in Congress Monday, as Majority Leader Eric Cantor (R., Va.) said he did not expect the House to take it up as a package.
Mr. Cantor announced the House would consider elements of Mr. Obama’s jobs agenda in the coming month, including trade agreements ... and a tax break for government contractors. But asked if the president’s jobs bill as a whole is dead, Mr. Cantor replied, “Yes.”
“The president continues to say, ‘Pass my bill in its entirety,’” Mr. Cantor said in a press briefing. “As I’ve said from the outset, the all-or-nothing approach is just unacceptable.”...
Mr. Obama ... has been flying around the country holding up a copy of his jobs bill and insisting that the House and Senate pass it “right away.”Earlier on Monday, Mr. Obama said he wants Congress to schedule a vote this month and will “be insisting that we have a vote on this bill” in upcoming discussions with House and Senate leaders.
The Republican-led House isn’t Mr. Obama’s only obstacle. In the Senate,... top Democrats concede they would not have the votes within their own party ranks to pass the bill. Some conservative Democrats say the bill calls for spending too much. Oil state Democrats oppose proposed tax increases on oil and gas companies. ...
Although some Republicans have indicated they are willing to go along with Mr. Obama’s payroll tax extension, that was not among the elements of the bill that Mr. Cantor said would be brought to the House floor. ...
Officials said the White House’s goal over the next few months is to get elements of Mr. Obama’s jobs bill passed, and in the process work to isolate Republicans as obstructionist in the event that doesn’t happen.
Noting that Democrats have criticized elements of the president’s jobs bill, Mr. Cantor said, “The president’s got some whipping to do on his own side.” ...

The administration ought to be able to make Republicans pay for their obstructionism if they have any political skill at all, but their past history leads to doubts that they can. This is a big part of the problem.

Paul Krugman: Holding China to Account

Improving our trade balance would help with the recovery:

Holding China to Account, by Paul Krugman, Commentary, NY Times: The dire state of the world economy reflects destructive actions on the part of many players. Still, the fact that so many have behaved badly shouldn’t stop us from holding individual bad actors to account.
And that’s what Senate leaders will be doing this week, as they take up legislation that would threaten sanctions against China and other currency manipulators.
Respectable opinion is aghast. But respectable opinion has been consistently wrong lately, and the currency issue is no exception.
Ask yourself: Why is it so hard to restore full employment? ... The answer is that we used to run much smaller trade deficits. A return to economic health would look much more achievable if we weren’t spending $500 billion more each year on imported goods and services than foreigners spent on our exports.
To get our trade deficit down, however, we need to make American products more competitive, which in practice means that we need the dollar’s value to fall in terms of other currencies. Yes, some people will shriek about “debasing” the dollar. But sensible policy makers have long known that sometimes a weaker currency means a stronger economy... Switzerland, for example, has intervened massively to keep the franc from getting too strong against the euro. ...
The United States, given its special global role, can’t and shouldn’t be equally aggressive. But given our economy’s desperate need for more jobs, a weaker dollar is very much in our national interest — and we can and should take action against countries that are keeping their currencies undervalued, and thereby standing in the way of a much-needed decline in our trade deficit.
That, above all, means China. ... And the reality of the unemployment disaster is also my answer to those who warn that getting tough with China might unleash a trade war or damage world commercial diplomacy. Those are real risks, although I think they’re exaggerated. But they need to be set against the fact — not the mere possibility — that high unemployment is inflicting tremendous cumulative damage as we speak.
Ben Bernanke, the chairman of the Federal Reserve, said it clearly last week: unemployment is a “national crisis,” with so many workers now among the long-term unemployed that the economy is at risk of suffering long-run as well as short-run damage.
And we can’t afford to neglect any important means of alleviating that national crisis. Holding China accountable won’t solve our economic problems on its own, but it can contribute to a solution — and it’s an action that’s long overdue.

Saturday, October 01, 2011

Fed Watch: Too Late for the Unemployed?

Tim Duy says that while Ben Bernanke suggested that the main unemployment problem was cyclical, not structural in his speech at Jackson Hole, Federal Reserve policymakers are increasingly adopting the structural view. Unfortunately, the belief that unemployment is mostly structural is a self-fulfilling proposition:

Too Late For The Unemployed?, by Tim Duy: The debate about whether unemployment is cyclical or structural unemployment arose last year. At this point, it looks like Federal Reserve policymakers increasingly favor the structural side of the debate.

Federal Reserve Chairman Ben Bernanke, speaking at Jackson Hole, suggested that cyclical unemployment remains the primary economic challenge:

Normally, monetary or fiscal policies aimed primarily at promoting a faster pace of economic recovery in the near term would not be expected to significantly affect the longer-term performance of the economy. However, current circumstances may be an exception to that standard view--the exception to which I alluded earlier. Our economy is suffering today from an extraordinarily high level of long-term unemployment, with nearly half of the unemployed having been out of work for more than six months. Under these unusual circumstances, policies that promote a stronger recovery in the near term may serve longer-term objectives as well. In the short term, putting people back to work reduces the hardships inflicted by difficult economic times and helps ensure that our economy is producing at its full potential rather than leaving productive resources fallow.

Note that he does not conclude the long-term unemployed are by definition structurally unemployed. Still, he continues to suggest that cyclical unemployment can turn structural:

In the longer term, minimizing the duration of unemployment supports a healthy economy by avoiding some of the erosion of skills and loss of attachment to the labor force that is often associated with long-term unemployment.

But, as is well known, he throws the ball to the fiscal authorities:

Notwithstanding this observation, which adds urgency to the need to achieve a cyclical recovery in employment, most of the economic policies that support robust economic growth in the long run are outside the province of the central bank. We have heard a great deal lately about federal fiscal policy in the United States, so I will close with some thoughts on that topic, focusing on the role of fiscal policy in promoting stability and growth.

But is it already too late? Has the cyclical unemployment turned structural? This week, serial-dissenter Philadelphia Federal Reserve President Charles Plosser embraced the structural view:

These numbers are troubling, especially when more than 40 percent of the unemployed, or some 6 million people, have been out of work for 27 weeks or longer. This underscores that we should not expect any easy solution. Millions of unemployed workers may take longer to find jobs because their skills have depreciated or they may need to seek employment in other sectors. These structural issues will take time to resolve. Jobs and workers will need to be reallocated across the economy, which is a long and slow process.

Plosser takes the rise in long-term unemployment as an indication of structural unemployment. He then extends the point to fight the last war:

We have provided a great deal of monetary accommodation to the economy, and given the stubbornness of the unemployment rate in responding to these efforts, we should be cautious and vigilant that our previous accommodative policies do not translate into a steady rise in inflation over the medium term even while the unemployment rate remains elevated. Creating an environment of stagflation, reminiscent of the 1970s, will not help businesses, the unemployed, or the consumer. It is an outcome we must carefully guard against.

Likewise, the centrist Atlanta Federal Reserve President Dennis Lockhart also speaks of structural factors with respect to the long-term unemployed, even invoking a comparison with Europe:

I was concerned by not only the persistence of high unemployment but also the complicated internal dynamics of the current labor market. To me, it is not clear to what degree structural factors are impeding the filling of job vacancies. And with some 43 percent of the unemployed out of work for more than six months, it is not clear to what extent the long-term unemployed are becoming a class of permanently unemployed, creating a problem resembling the so-called structural unemployment of some European countries. Further, it is not clear why participation in the labor force continues to fall. Finally, it is not clear what level of unemployment should be considered the natural or equilibrium rate under current circumstances.

Not to be outdone, the difficult-to-categorize St. Louis Federal Reserve Chairman James Bullard also looks to Europe for guidance. From his presentation this week:

  • Unfortunately, unemployment rates have a checkered history in advanced economies over the last several decades.
  • In particular, “hysteresis” has been a common problem, in which unemployment rises and simply stays high.
  • This occurred in Europe during the last 30 years.
  • If such an outcome happened in the U.S., and monetary policy was explicitly tied to unemployment outcomes, monetary policy could be pulled off course for a generation.

Now, it seems to me premature to be looking to Europe as an example. It seems reasonably obvious the unemployment problem is the result of a severe negative shock to spending. You might say no, it is structural in that we can no longer rely on housing to support incomes. But that just boils down to a spending problem - unemployment was at the natural rate as long as households and firms had the ability and willingness to spend. Moreover, I am a bit hard pressed to see how America was transformed into Europe in just three years. That said, I am not the policymaker. It appears Federal Reserve members increasingly embrace the structural unemployment story, and that suggests they will hesitate to bring out substantial additional stimulus until the see greater evidence of deflation. Of course, the longer we drag our heels on the unemployment crisis, the more easily it will be for policymakers to wash their hands of the issue, as the cyclical unemployment eventually will become structural.

Thursday, September 29, 2011

Plosser: Recent Stimulus Will Hurt the Fed's Credibility

Federal Reserve Bank of Philadelphia President Charles Plosser voted against Operation Twist -- the recent attempt for the Fed to help the economy -- because:

“The actions taken in August and September tend to undermine the Fed’s credibility by giving the impression that we think such policies can have a major impact on the speed of the recovery. It is my assessment that they will not,” ... “We should not take certain actions simply because we can.”
“If we act as if the Fed has the ability to solve all our economic problems, the credibility of the institution is undermined,” Plosser said. “The loss of that credibility and confidence could be costly to the economy because it will make it much harder for the Fed to implement effective monetary policy in the future,” he said.

He certainly isn't acting like "the Fed has the ability to solve all our economic problems," (and two other Fed officials dissented along with him). In addition, the Fed officials who voted for this action have been careful to say this won't, in fact, solve all of our problems. They've said it can help modestly, and given the state of the economy even modest help is vary valuable, but they have not implied this will suddenly and magically fix our problems. So I really don't see how this action undermines credibility. Fed officials have been clear this is no magic bullet, but they think it could help some and things are so bad -- and the threat of inflation so low -- that they feel compelled to try.

But from Plosser's point of view, the Fed can't do much at all at this point, and the fear of inflation down the road trumps concerns about unemployment now. Plus, the Fed can't do anything about unemployment anyway:

“I am skeptical that this will do much to spur businesses to hire or consumers to spend, given the ongoing structural adjustments occurring in the economy and the uncertainties posed by the fiscal challenges both here and abroad,” Plosser said. Meanwhile, “we should be cautious and vigilant that our previous accommodative policies do not translate into a steady rise in inflation over the medium term even while the unemployment rate remains elevated.”

He is saying that unemployment is largely structural ("given the ongoing structural adjustments") even though it's clear that a large part of it is cyclical, and that uncertainty over fiscal policy is holding the economy back even though bond yields show no sign of this whatsoever. Thus, in his view the structural problems combined with uncertainty are holding back employment, and there's nothing the Fed can do about it.

Is he worried about inflation in the near term? No:

with many commodity prices now leveling off or falling, and inflation expectations relatively stable, inflation will moderate in the near-term

And why should we trust his forecasts in any case? He keeps seeing green shoots that aren't there:

“I was expecting GDP growth in 2011 to be 3% to 3.5%. Now, I expect GDP growth to be less than 2% in 2011, but to gradually accelerate to around 3% in 2012.” He added “I do not believe the current data signal that we are on the precipice of a so-called double-dip recession.”

So he keeps expecting growth that never comes, and uses those expectations along with the excuse that it's structural/uncertainty forestall policy action. What if his forecast for 3% growth in 2012 is as wrong as his previous forecast, and what if there is a double-dip? What if the unemployment problem is largely cyclical like most analysts say? What if, as many have concluded, uncertainty is not the problem? Is he really so certain about his forecasts and views about what's holding the economy back given his track record? With near term inflation falling, why not at least try to do more? Why should inflation risk trump the risk of continued sluggish growth (which in and of itself alleviates inflation concerns if it happens)? Is somewhat higher inflation down the road -- if it even happens -- really more worrisome than a period of elevated unemployment?

And why should this action produce inflation in any case? Operation Twist doesn't change the size of the Fed's balance sheet, it changes the average duration of the assets the Fed holds. If the balance sheet doesn't expand how, exactly, does that create inflation pressure to any significant degree? If there's no inflation pressure, what is the real concern? It appears to be the credibility argument and the fact that unemployment can't be helped -- it's structural/uncertainty -- but as noted above the structural/uncertainty claim is easy to rebut, and the concerns over credibility ring hollow. So he might at least consider the possibility that he has this wrong.

For me, one of the most frustrating thing about policy over the last several years is the continued insistence from some Fed officials that good times are just around the corner so any action they take will be inflationary. They have been wrong again and again, yet the optimism about future growth -- green shoots -- remains. Like Paul Krugman, I have been warning about a slow recovery since at least 2008, and warning about seeing green shoots that aren't there for almost as long, and it's disappointing to see policymakers continue to use the promise of good times just ahead -- especially policymakers who have been wrong again and again -- along with the easily refuted claim that the problem is all uncertainty and structural issues as an excuse to stand against doing more to try to help the unemployed (however modestly).

A Free Lunch for America

Brad DeLong explains how to get A Free Lunch for America.

Wednesday, September 28, 2011

"Wages and Recovery"

Laurence Kotlikoff misrepresents the views of Paul Krugman and Jamie Galbraith:

Five Prescriptions to Heal Economy’s Ills, by Laurence Kotlikoff, Bloomberg: Desperate times call for creative measures. We’re in desperate times, but we’ve had little creative thinking from the Obama administration on how to fix the economy. ... I see five things policy makers can do to get the economy going. ...
4. Get prices and wages unstuck.
Some prices and wages are set too high, thereby damping demand for output and for the workers needed to produce it. This is the standard sticky wage and price explanation for our economic malaise offered by Keynesian economists such as Paul Krugman and James Galbraith. I think there are fewer markets suffering from this problem than Krugman and Galbraith do, but there are enough such markets to make the case for government intervention. Indeed, the president should put these economists in charge of identifying the markets suffering from this problem and helping their participants set market-clearing prices and wages.
One example is the market for construction workers. A 1931 law called the Davis-Bacon Act effectively requires contractors using federal money to pay union wages. If the act were suspended or repealed, federal spending on much-needed infrastructure projects could create a lot more jobs.  

In comments, Jamie Galbraith corrects the record:

...I have never written, argued or believed that unemployment can be cured by cutting wages. Nor does that position have anything to do with Keynes, who wrote The General Theory to debunk this view. Keynes favored stable money wages, writing: "it is fortunate that the workers, though unconsciously, are instinctively more reasonable economists than the classical school, inasmuch as they resist reductions of money wages..."
It seems likely that Professor Kotlikoff has never read Keynes either.

Here's Paul Krugman's dismissal of this idea: Wages and recovery.