Four Out of Five Indicators Say the Job Market Really Is Weak

General Glut writes:

General Glut's Globblog: Yes, the job market really is weak: A small debate has ensued between James Hamilton of Econbrowser and Pro-Growth Liberal of Angry Bear over the interpretation of recent employment data, with the central dispute over whether current employment levels are 'good enough'.

Rather than wrestling over the distorting effects of teenage employment or the question of whether a return to the total employment levels of 2000 is either realistic or desirable, I suggest focusing in on a group of workers who over time are almost always in need of work, who do not wax and wane with educational or retirement opportunities, nor with social trends toward greater workforce participation rates: men age 25-64.

The below graph shows the quarterly employment-to-population ratio without seasonal adjustment for men age 25-64, from 1977:I to 2005:II. As you can clearly see, at the peak of the last two economic cycles the ratio topped out in the 85.5-86.0 range. Currently the level is just 83.2, right where it was three years ago and nowhere close to the levels of the late 1990s.

Perhaps more distressingly, today's EP ratio is still below the 4-quarter moving average trough of the mid-1990s and around the levels of the early-1980s trough (save the disaster of 1983:I). The chart also shows that the late 1990s was hardly an anomaly in terms of employment for "working age" men. In fact, the late 1990s saw a slightly lower peak than the late 1980s did.I think there's no doubt about it: this job "recovery" needs a recovery of its own.

It's not just employment-to-population ratios. It's real wage growth. It's the relative amount of long-term unemployment. It's payroll employment. We have four of five indicators telling us that the state of the job market is not that good and only one--the unemployment rate--reading green.

Comments

[nate]

In theory, I can see how some people may be discouraged, and may face availability bias and stigmas when they look for jobs and even when they take classes.

http://finance.yahoo.com/q/bc?t=my&s=%5EXAL&l=on&z=m&q=l&c=ualaq.ob

[bakho]

The other group to break out is black unemployment. Under Clinton it was under 10% for the first time in decades. Now it is way north of 10% again.

Bondad over at my DD offers this assessment:

According to the Bureau of Labor Statistics wages have barely grown for the last 5 years. According to the BLS, the average earnings increase from 2000-2004 was 3.86%, 3.22%, 3.12%, 1.71% and 2.39% respectively. However wages have to be compared to inflation to determine the real rate of wage growth. For the same years, annual inflation was 3.4%, 2.8%, 1.6%, 2.3% and 2.7% respectively. When inflation is subtracted from wages, overall wage growth becomes .46%, .42%, 1.52%, -.59% and-.31% respectively for 2000-2004.

Therefore, a family who started in 2000 with $36,000 now makes $36,538.37. For those of you who are interested, that is a compound annual growth rate of .29%. Color me a liberal traitor and a man who hates America, but I think that growth rate sucks.

Let's look at the labor participation rate, which measures the percentage of people working as a total of the total number of people able to work. According to the BLS, that percentage was 67.2 in January of 2001. Last month, that percentage was 66%. Wow, another brilliant achievement for dear leader. Less people are working now than in 2001.

Given that there is little meaningful gain in wages, how do people maintain their standard of living? Why they follow the Republican lead, and incur massive amounts of debt. Considering that Republicans are responsible for 5.1 trillion in debt over the last 25 years, I blame the Republicans for the following:

According to the Federal Reserve, total consumer debt is just under 10 trillion dollars. This includes credit card and mortgage debt. This is the highest level in 25 years.

According to the Federal Reserve, mortgage debt increased from 5 trillion to just under 10 trillion from 2000 - 2004. This is the highest level in 25 years.

According to the Federal Reserve, household debt as a percentage of GDP has increased from 70% to 85% from 2000 - 2004. This is the highest level in 35 years.

According to the Federal Reserve, household debt as a percentage of assets has increased from 15% - 18% from 2000 - 2004. This is the highest level in 40 years. Also remember that after inflation, wage growth was stagnant for the last few years. This means debt payments are taking a larger percentage of personal income.

So, let's sum up, shall we?

1.) Wages have growth at a .2% compound rate under deal leader.

2.) A smaller percentage of people are working of the total people who could work.

3.) Families have taken Republican advice about debt, and now use it in record amounts to maintain their standard of living.

Wow, the definition of success sure has changed.

[jml]

Unless there are some data on shifts in underlying suppy and demand curves, interpreting the employment statsmuch is a little too like reading tea leaves for my taste. But I can't help myself once a month whenever a new employment report comes out.

It is a hazardous occupation, and maybe even Prof. Hamilton slipped up a little. I looked at 20-24 year old males, which I think are a better group for evaluating the postsecondary school training vs. "work now" decision. In the late 90s it is true that this group's participation rate fell (though what seems to be a long term secular decline started in the late 1980s). But the employment population ratio increased as the unemployment rate decreased. That seems more in line with the story of some entry level people forgoing employment in a tight job market because they think that the value of training has increased and will payoff in increased lifetime earnings.

The current situation is a rapid drop in both participation rate and employment population ratio for this group, and an unemployment rate hanging in there around 10% since 2002. That doesn't fit the late 90s story so well.

On the other hand, it looks like a replay of the late 90s for 20-24 year old women, except unfolding more slowly.

But Prof. Hamilton is a much better economist than I am, and he might have a counter argument, and it might be right.

Is anyone doing an analysis of, or guesstiimating with some kind of data, the underlying shifts in demnad and supply curves moving the aggregate statistics? Any tips from blog readers?

Speculating about the meaning these rates is fun... for awhile, but I don't think it settles much. Maybe it tips the weight of evidence a little bit this way or that, if everything esle were held constant like early retirement incentives, diability retirement opportunities, affordability of postsecondary education, availability of training grants, none of which is actually not being held constant...

[jml]

"none of which is actually not being held constant"
There should be no "not" there:
"none of which is actually being held constant"

I guess I stayed up too late looking at the BLS.

[mike]

One other group to break out would be real estate agents courtesy of that bubble we have all read about. Or written about... I suspect that there are a number of would-be unemployed that are just getting while the getting is good.

Over time there are two choices: 1) let the dollar fall to keep the plates-a-spinnin' and soak em with inflation; 2) feel some real short term pain with recession, unemployment, etc. My guess, since the monied interests own the equities that benefit in the event of inflation anyway, that they will of course choose to inflate further. That is the path of least resistance, they don't pay the price, and can always blame someone else.

[jml]

On a positive note: forming an argument by combining employment rate data, and real wages, composition of unemployed by duration is more interesting. Could Prof. Delong elaborate on his story about combining all the evidence and signals and explain how that would rule in or out certain shifts in labor demand and supply curves? I'd like to see that.

[nate]

is this is a graph for "men"? does the graph include women?

what does the graph for women look like?

[nate]

http://www.usatoday.com/news/nation/2005-05-25-state-revenue_x.htm

There was variation within states? I had a hard time finding a table for free that listed all 50 states with year-over-year comparisons.

[ogmb]

Nate, you can create your own graphs at the bls.gov website. This link should work: http://data.bls.gov/PDQ/outside.jsp?survey=ln

[nate]

thanks, i was just did not want to duplicate efforts and was busy staying current by updating a blog with Harry Potter information.

http://njk42.blogspot.com/2005/07/new-harry-potter-book.html

[paul white]

www.thewhitepapers.com
www.thewhitepapers.com
www.thewhitepapers.com

[Barry]

BTW, the one indicator that's positive, the unemployment rate, is known to systematically exclude people on the downside. Long-term unemployed and discouraged people who no longer seek work are thrown out of the sample.

And I love this BS about shifts in the supply and demand curves for labor. In the end, fewer people are working, and compensation is stagnant/decreasing. It's up to the Bush propagandists to justify a worse outcome.

[kharris]

The earlier Toyota story a big deal. US education, as Mr Greenspan recently reminded us, is just dandy in its first few years, then falls off a cliff relative to the rest of the industrialized world. Those guys in the Southeast who will not be working at a Toyota plant because they cost too much to train cost too much to train because they can't read. Great jobs. Terrible reason not to get those jobs. And it isn't a mismatch between training and jobs. It's a basic failure to educate a significant number of people. Auto makers could say "no" to illiterate workers in the Southeast, if there were also lots of literate workers applying. Somehow, auto makers in the Southeast are having a hard time finding literate workers.

[anne]

That American workers competitive in manufacturing skill levels with Japanese or western European or Canadian workers are not readily found through the South is distressing but, naive though the question may be, why should it be so? What is missing in education in Alabama; not everywhere in Alabama obviously, but as obviously in many instances?

[th]

Maybe it is all part of the intelligent design.

[save_the_rustbelt]

My son is doing low level work (food, warehouse, the usual) while working on a music career.

He is earning roughly what I earned while working my way through college.......... 35 years ago.

Correct me if I'm wrong, but the CPI is about 350% of what it was in 1970.

Ohio is a special case of course, Pres. Clinton told us NAFTA would make us properous and we got butchered instead.

Be that as it may, I have been watching labor markets for about 30 years, and this market is weak, weak, weak.

Weak for young people (other than a few niches, say accounting), weak for those over 50, weak, weak, weak.

[scottynx]

[The other group to break out is black unemployment. Under Clinton it was under 10% for the first time in decades. Now it is way north of 10% again.]

Could ever increasing numbers of legal and illegal unskilled immigrants have something to do with this?

Why should we be letting in tons of unskilled immigrants if the labor market is so weak? The main result is to fatten the wallets of the rich and pound the wages of the working classes farther and farther into the ground.

[save_the_rustbelt]

"Why should we be letting in tons of unskilled immigrants if the labor market is so weak? The main result is to fatten the wallets of the rich and pound the wages of the working classes farther and farther into the ground."

The GOP wants more illegals because it depresses wages, and that makes campaign contributors happy. As a Repub I'm embarassed.

The Dems want more illegals because the Dems think many of them will eventually become Dems.

So we have the bizarre situation of both political parties representing illegals more vigorously than representing Americans.

"What, me worry?"

[nate]

anne:

http://www.gopbloggers.org/mt/archives/001576.html#comments

[bhaim]

Many baby boombers are not waiting until age 62 or 65 to stop working. Over 4 million already have left the labor force either because they are disabled or because they have retired.

CBO Report
The Early Exit of Baby Boomers from the Labor Force

http://www.cbo.gov/showdoc.cfm?index=6018&sequence=0

[nate]

The liberal and progressive WSJ has an article in today's edition that Prof DeLong may want to read (Sue Shellenbarger's Work & Family, Personal Journal section)