Grasping Reality with Both Hands

The Changing Nature of the American Business Cycle

Macroeconomic Advisers writes:

Please find "Q2-2009... GDP Tracking 0.2 percent", which has been updated. Exports were stronger than expected, and imports were much weaker than expected, suggesting a large upward revision to our estimate of second quarter net exports. Therefore, we raised our tracking estimate of [the annual] GDP growth [rate] in the second quarter by 1.8 percentage points to +0.2% [growth in GDP per year].

With labor input falling at a rate of 6% per year in the second quarter, that suggests a productivity growth rate in the economy as a whole of some 6.2%--which is really weird. It used to be the case that businesses hoarded labor in recessions because they did not want their skilled workers to wander off and to have to train new ones....

Now it is really beginning to look as though businesses take recessions as opportunities to greatly slim down their workforces without making the workers they retain too angry and depressed. We saw this in 2002-2003. We saw it before in 1992-1993. The fact that productivity is no longer strongly procyclical countercyclical in recessions is good news in the long run--it means that our average long-run rate of productivity growth is higher than we used to think. But it also means that there is more headroom for expansionary policy, and more need.

Thus statements like this one from the very sharp Allan Sinai:

Phil Izzo reports:: "The mother of all jobless recoveries is coming down the pike," said Allen Sinai of Decision Economics. But he doesn't favor more stimulus now, saying "lags in monetary and fiscal policy actions" should be allowed to "work through the system..."

make me pound my head against the wall. If as the policies we have now in train to support the economy work their way through the system we find that we still have "the mother of all jobless recoveries," then we should be acting now to provide additional government support. A jobless recovery is not a good thing. And we should avoid it if we can figure out how in time.

Fiscal Policy and the Possibility of a Jobless Recovery

Greg Ip writes:

AFTER ebbing steadily since the start of the year America’s monthly job losses figure abruptly jumped from 322,000 in May to 467,000 in June, deflating talk of an imminent exit from recession. Hand-wringing in Washington quickly followed. On July 5th the vice-president, Joe Biden, admitted that the White House had “misread how bad the economy was”. In January it had predicted that unemployment would peak at 9% without a fiscal stimulus and 8% with one.... At one level, the hand-wringing is overdone....

The odds are that the economy will begin to grow again in the current quarter for two reasons: the dramatic inventory liquidation, which led manufacturers to slash output and payrolls starting in late 2008, seems to be ending; and the impact of the fiscal stimulus is growing. Other countries, who bore much of the brunt of the inventory liquidation because they provide such a large share of what Americans consume, are already benefiting. Global manufacturing expanded in June for the first time since May 2008....

But... [a] self-sustaining recovery needs more than just replenishing inventory and government stimulus; it requires a virtuous circle of increasing consumer spending and incomes, and there is still no evidence of that.... Jan Hatzius of Goldman Sachs predicts wages will actually start falling next year. If later this year the recovery still looks likely to remain feeble as the maximum impact of the stimulus is felt, pressure for more stimulus will grow....

Mr Obama himself has proposed a budget-balancing rule that he would have to break to inject more stimulus—a formality, perhaps, but one that would further erode his fiscal credibility given the gargantuan deficits his policies will produce even beyond 2010. “We could afford to borrow a bit more over the next year if we had a plausible plan to get the deficit under control thereafter,” says Len Burman of the Urban Institute, a think-tank. “But nobody has articulated such a plan.”

Think: jobless recovery. Now that we have the May trade figures, the modal forecast is (i) an economy that was flat in the second quarter relative to the first quarter, (ii) an economy that starts to grow relatively slowly in the third quarter, and (iii) an unemployment rate that keeps rising for another one and a half to two years--like it did in 1992 and 2002--as the old-fashioned business-cycle productivity-employment pattern is broken once again. Bob Hall's NBER committee is likely to proclaim that recovery began sometime in the second quarter, but it won't feel like a recovery to workers (as opposed to asset owners) for quite some time to come.

A Good Seasonally-Adjusted New Unemployment Claims Number | Reuters

But how good exactly? Reuters:

Jobless claims drop steeply, skewed by autos | Reuters: WASHINGTON (Reuters) - The number of U.S. workers filing new claims for jobless benefits fell sharply last week but the data was distorted by an unusual pattern of layoffs in the automotive industry, which amplified the decline. The Labor Department said on Thursday that initial claims for state unemployment insurance fell 52,000, the largest drop since December, to a much lower-than-expected seasonally adjusted 565,000 in the week ended July 4, from 617,000 the prior week. It was the lowest reading since January. Analysts polled by Reuters had forecast claims to drop to 605,000 from a previously reported 614,000. However, in a sign of ongoing employment weakness, so-called continued claims of people still on jobless aid after an initial week of benefits rose by 159,000 to a record 6.883 million in the week ending June 27, the latest for which data is available.

A Labor Department official said that there had been far fewer automotive and other manufacturing layoffs last week than anticipated on the basis of past experience of claims over July, when many plants are commonly idled. The "seasonal factors" the department uses to adjust the data to provide a better sense of the underlying trend had expected a large increase in claims in the latest week. Actual claims in fact rose by a much smaller amount, which when seasonally adjusted, generated a large fall. A number of states said that auto sector layoffs apparently had already happened, reflecting closures in the battered U.S. automotive industry, while other states said they did not get the layoffs they had anticipated. "I would expect the underlying trend (in claims) is probably diminishing but it's hard to tell from this number how much is noise," said Keith Hembre, chief economist at First American Funds in Minneapolis.

The 4-week moving average for new claims declined by 10,000 to 606,000, the lowest reading since February. This measure is closely watched because it irons out weekly volatility, and it has now declined in four out of the last five weeks.

Looking at graphs like this:

reminds me of how very much in the high-frequency data we typically examine rests on the seasonal adjustment process--and how important it is to get that seasonal adjustment right. Of course, to the extent that the true seasonal adjustment factors are not absolutely invariant to the phase of the business cycle it very quickly becomes impossible to estimate them accurately.

What the standard seasonal adjustment factors for initial unemployment claims tell us is: "don't worry if new claims spike in January or July. But does that mean we should be greatly encouraged if they don't spike in January or July? In January 2008, July 2008, and January 2009 the seasonally-adjusted claims number improved because unadjusted claims did not spike enough. But anyone who took those declines as evidence of an improving economy--well, I have a bridge they might be interested in purchasing...

No, It Is Not a Sine Wave

Krishna Guha and Sarah O’Connor in Washington, Michael Mackenzie in New York and Ralph Atkins in Luxembourg write:

Jobs data dash recovery hopes: Published: July 2 2009 13:47 | Last updated: July 2 2009 21:49: Stock markets on both sides of the Atlantic tumbled on Thursday as investors took fright at a bigger-than-expected fall in US jobs last month that dashed hopes the recession was all but over in the world’s biggest economy. The data showed that the number of people in employment fell 467,000 in June and the unemployment rate rose from 9.4 per cent to 9.5 per cent, its highest for 26 years...

But what reason was there to hope that the recession was all but over in the first place? Just that the recent curve looked somewhat like a sine wave?

I See No Green Shoots Here...

The BLS says:

And David Rosenberg, via Barry Ritholtz:

Getting Ready for a Bad Employment Number Friday Morning...

From Macro Advisers:

Private nonfarm payroll employment declined by 473,000 from May to June on a seasonally adjusted basis, according to the ADP National Employment Report™. Assuming government payrolls expand by 12,000 (the average monthly increase over the last year), this implies an estimated 461,000 decline in total nonfarm payroll employment, roughly 100,000 more of a decline than consensus expectations...

Americans Keep Getting Fired...

From the Department of Labor:

ETA Press Release: Unemployment Insurance Weekly Claims Report: In the week ending June 20, the advance figure for seasonally adjusted initial claims was 627,000, an increase of 15,000 from the previous week's revised figure of 612,000. The 4-week moving average was 617,250, an increase of 500 from the previous week's revised average of 616,750...

Unemployment is still going up for quite a while...

Today's "Green Shoots? What Green Shoots?" Lesson...

Cartoon drawn by David Sipress

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Paul Krugman is... Jeremiah!:

Unemployment claims and employment change - Paul Krugman Blog - NYTimes.com: New claims for unemployment insurance are one of the highest-frequency economic indicators we have — that is, the data come in early and often, giving a quicker read than things like employment numbers and unemployment rates. And there’s been some celebrating over the fact that new claims seem to have peaked.

But the level of new claims is basically an indicator of the rate of change of employment. And we are nowhere near the point at which employment looks ready to expand, or for that matter to stop falling at a terrifying rate.

Here’s a plot of new claims (4-week average) (red, right scale) versus the monthly decline in payroll employment (blue, left scale). What the figure suggests is that to stabilize employment, we’d have to see new claims drop below 400,000 or so. We’re nowhere near that point. In fact, a read of the data remains very, very grim.

The cantor will now lead the congregation in that old standby: "Woe is upon us! For He is trampling the unrighteous with hooves of red-hot iron!"

Unemployment Is Going to Keep Rising for Quite a While...

Courtesy of Barry Ritholtz:

Job Openings vs Unemployed:

It's Not Clear to Me How This Is Consistent with a -1.1% Second Quarter GDP Number

Kathleen Madigan:

ADP Reports 532,000 Private-Sector Job Losses : Private sector jobs in the U.S. fell by 532,000 slots in May, according to a national employment report published Wednesday by payroll giant Automatic Data Processing Inc. and consultancy Macroeconomic Advisers. The expected loss is less than the 550,000 drop forecast by economists in a Dow Jones Newswires survey.

The ADP survey tallies only private-sector jobs while the U.S. Bureau of Labor Statistics' nonfarm payroll data, to be released Friday, include government workers. Economists surveyed by Dow Jones Newswires expect that the BLS will report May job cuts totaling 525,000, on top of a 539,000 loss in April. The May unemployment rate is projected to rise to 9.2%. "Despite some recent indications that economic activity is stabilizing, employment, which usually trails overall economic activity, is likely to decline for at least several more months, although perhaps not as rapidly as during the last six months," said Joel Prakken, chairman of Macroeconomic Advisers...

U.S. and Western European Unemployment: Now Equally Bad

The CEPR comes through:

John Schmitt, Hye Jin Rho, and Shawn Fremstad: U.S. Unemployment Now As High as Europe: From the early 1990s through the peak of the last business cycle, relatively low U.S. unemployment rates seemed to make the United States a model for the rest of the world’s economies. The Organization for Economic Cooperation and Development (OECD), the International Monetary Fund (IMF), and other international organizations all praised the U.S. unemployment performance and urged the rest of the world’s rich countries to emulate the “flexibility” of the U.S. model...

I still suspect that the U.S. unemployment recovery will be more rapid than the European--too many linguistic and bureaucratic barriers to effective mobility to the growth poles of the continent, et cetera. But swe will see:

More Congratulations to Emmanuel Saez

Peter Orszag congratulates Emmanuel Saez: "Emmanuel's energy, intelligence, and dedication are deeply impressive—as was his ability to explain, despite his French accent, a complicated research project that I worked on with him to a group of H&R Block workers administering it..." But perhaps Emmanuel's most impressive accomplishment is that he has been personally denounced on the editorial page of the Wall Street Journal.

OMB - Blog Post - Congratulations to Emmanuel Saez: SMy co-author and friend Emmanuel Saez was awarded the John Bates Clark Medal on Friday. The prize, which is awarded to the best American economist under the age of forty, is one of the highest honors the economics profession can bestow upon one of its own. Emmanuel is deeply deserving of the honor—his work on income inequality and taxation has helped to shape my own thinking on these matters, and it had no small influence on the President's Budget.

Emmanuel is perhaps best known for his detailed examination of how wages at the top end of the U.S. income distribution have evolved over the past century. He and his co-author Thomas Piketty discovered that the overall pattern for the share of income accruing to those in the top 10 percent is U-shaped (see chart 1 below). Thus, the share going to the top 10 percent was around 45 percent from the mid-1920s to 1940, but then declined to approximately 33 percent during World War II. Emmanuel attributes this fall-off to the sharp reduction in capital incomes brought about by the war and the revenue increases needed to finance the war effort. After the war, the share of income accruing to the top 10 percent remained essentially flat until the late 1970s, when it began climbing dramatically, ultimately surpassing its pre-war highs. Indeed, in 2006, the top 10 percent earned 50 percent of national income, a higher share than even in 1928, the peak year of the "roaring twenties" stock market bubble.

Chart 1: Share of Total U.S. Income Accruing to the Top 10%, 1917-2006

Perhaps even more interesting than his findings about the evolution in earnings for the top 10% is what he found when he isolated data from just the top 1 percent of earners—namely, that virtually all the historical fluctuation in the share of income going to the top 10 percent was due to fluctuations in income within the top percentile alone (see chart 2 below). Stated differently, the dramatic changes in income inequality seen in the United States over the last century are almost entirely a function of how well the very highest earners did at any given point in time.

Chart 2: Decomposing the Top 10% of U.S. Income Share into Three Groups, 1913-2006

And in the most recent past, the very highest earners did very well indeed, capturing almost three-quarters of total income growth in the economic expansion of 2002 to 2006, while the remaining 99 percent of the U.S. population split among themselves the final 25 percent of the increase. (What makes this trend all the more concerning is something that Emmanuel and his co-authors demonstrated in another paper: that this dramatic increase in incomes at the very top has not been mitigated by an increase in income mobility, which can be seen in the relatively stable probability of staying in the top 1 percent of earners from one year to the next since the early 1970s.)

Emmanuel's work on income inequality has helped to point the way for the Administration in its pledge to rebalance the tax code, with a tax cut going to 95 percent of working Americans while asking those at the very top to contribute more. The inequality that has arisen over the past three decades is not going to go away overnight, and it has been driven by many factors—including a decline in the growth rate of college-educated workers. But where the prior administration used changes in the tax code to exacerbate these trends, this Administration thinks that the tax code should be used to mitigate them because an economy in which all can enjoy success is one that is strong for us all.

Emmanuel's energy, intelligence, and dedication are deeply impressive—as was his ability to explain, despite his French accent, a complicated research project that I worked on with him to a group of H&R Block workers administering it. I look forward to reading his work for years and decades to come.

Union Strength, Unemployment, and the Great Depression

UCLA economist Lee Ohanian writes, in "What - or Who - Started the Great Depression?":

The defining characteristic of the Great Depression is a substantial and chronic excess supply of labor, with employment well below normal, and real wages in key industrial sectors well above normal.... President Hoover... offered industrial firms protection from unions in return for paying high wages. Firms deeply feared unions... [and] a sea change in economic policy, including policies advanced and supported by Hoover, that significantly fostered unionization and enhanced their bargaining power.... [T]he Depression is the consequence of government programs and policies, including those of Hoover, that increased labor’s ability to raise wages above their competitive levels. The Depression would have been much less severe in the absence of Hoover’s program.... Presidents Hoover and Roosevelt shared similar goals of fostering industrial collusion and increasing real wages and raising labor’s bargaining power. Hoover accomplished these goals... by inducing industry to maintain nominal wages, and by promoting and signing legislation that facilitated union organization and that increased wages above competitive levels, including the Davis-Bacon Act and the Norris-Lagaurdia Act. Roosevelt accomplished these goals with... the Wagner Act.... The 1930s would have been a better economic decade had government policy promoted competition in product and labor markets...

There are three problems with ascribing a big role to this.

The first is that Herbert Hoover's interventions in the labor market were absolutely tiny. If Hoover's signing of Norris-Laguardia and Davis-Bacon plus his meetings in the White House with business leades were enough to drive unemployment up from 2% to 25%, then Roosevelt's Wagner Act should have driven unemployment from 15% to 75%, and in western Europe--well, in western Europe we should see unemployment rates of 357%. The outcome is radically disproportional to the shocik that Ohanian claims drove it.

The second is that Ohanian's real wage is the inverse of a Blanchard-Kiyotaki markup, which is a consequences of low aggregate demand and high unemployment and not a cause. If you are a monopolistic competition-style New Keynesian, then you look at Ohanian and Cole and say "so"? This pattern is what you would expect to see whether or not union power or deficient aggregate demand is creating high unemployment.

The third, of course, is that Ohanian's measure of whether wages are above market levels is unconnected with the structural factors that he claims drove wages above market levels. Union power in the American economy reached its apogee in the 1950s, when union density reached 35% of non-farm employees and companies were the most frightened and prone to raise to keep unions out. The correlation between union density and unemployment that Ohanian's theory says should be very strong is simply not visible when one looks across decades: it is an hypothesis not borne out by empirical evidence.

As James Galbraith likes to say. Ohanian and Cole believe that high wages "relative to market clearing levels" caused the high unemployment of the 1930s both under FDR and under Hoover, but not not do so under Eisenhower. How do they know this? Because, they say, the labor market cleared--unemployment was low--in the 1950s but not in the 1930s, therefore the strong unions of the 1950s were weak and unable to exert market power while the weak unions of the 1930s were strong and able to choke off labor market competition. This argument seems to be not just a little bit circular.

Price Fishback on Labor Policy in the Great Depression

Price Fishback talks sense about labor policy in the Great Depression:

The Role of Labor Policy - Council on Foreign Relations: PRICE V. FISHBACK:  Sure.  So what I've been doing over the last 10 years of my life is collecting all sorts of statistics about what's going on in all sorts of different parts of the country because the experience of the Great Depression varies quite a bit from different parts of the country.  The amount that they spend varies quite a bit in various parts of the country as well.  So we've been trying to use this variation to try to get a sense of how effective these New Deal policies were.... [T]he way that they dealt with unemployment during this period with 25 percent unemployment was to come up with work relief expenditures. And so what they did was they put people back to work, first under the Federal Emergency Relief Act, and that was from 1933 to '35, done under the WTA. And the typical way they did that was that they paid you about half of the normal hourly wage... 50 cents, somewhere in that neighborhood, and they didn't have you working full time... almost like unemployment insurance.

So what's the effect of this?... [I]t doesn't look like that they had any effect on private employment at all... just... government employment increased.... [W]e found... that... you get quite different effects in different time periods during the New Deal.... [U]p to about half way through 1935... for every eight jobs you create in the public sector with the work relief, you get an additional job in private work because you're stimulating demand and things like this.... [I]n the second half of the decade... when you increase the government jobs or increase work relief by one job, you might lose as much as .3 or .5 private jobs....

Now, there were positive effects from the work relief bill as well.  It turns out that in the course of the decade, say you spend $1 on work relief... retail sales in that small town might go up about 50 cents... very positive effects on things like infant mortality... for about every $2 million you spend in modern dollars... they've saved an infant's life... reduced deaths from diarrhea... from infectious disease, and some suicides as well...

And Eugene White talks sense as well:

QUESTIONER: Eugene White, Rutgers University. And one of the ideas I heard floated was that labor market problems cause financial crises. So I thought I'd take an opportunity to throw some cold water on that idea.... For that actually to be true... [t]here can't be any bubbles. If there was a bubble in 1929, and there's... strong evidence that it's the case, then you get an independent shock coming from the decline in values both on consumption and investment spending.... [Again] for labor markets to cause financial crises, what you have to have happen is that higher wages would have to cause... defaults on industrial loans. Well, that's not the source of bank failures in the early 1930s...

Justin Fox: Now Job Losses Are a LOT Worse than 1981-1982

Justin writes:

Here, updated with this morning's non-farm payroll data from the Bureau of Labor Statistics, is the latest edition of my comparing-the-recessions chart:

And we have "several months" of employment free fall still to come.

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Posted via web from http://braddelong.posterous.com/justin-fox-now-job-losses-are-a-lot-worse-tha at Brad DeLong's Scrapbook

Calculated Risk on Underemployment

The Risk writes:

Calculated Risk: Part Time for Economic Reasons Hits 9 Million: Not only has the unemployment rate risen sharply to 8.5%, but the number of workers only able to find part time jobs (or have had their hours cut for economic reasons) is now at a record 9.0 million. Of course the U.S. population is significantly larger today (about 305 million) than in the early '80s (about 228 million) when the number of part time workers almost reached 7 million. That is the equivalent of about 9.3 million today, so population adjusted this isn't quite a record - yet - but it is getting close. And the rapid increase is stunning ...

We Need a Bigger Stimulus...

Adult employment-to-population ratio down from 60.3% to 59.9%. Unemployment rate up from 8.1% to 8.5%. U-6 up from 14.8% to 15.6%.

Expect a -750,000 Employment Number on Friday

That is all.

Michael Whitney of Service Employees International Union Makes a Catch

Interesting slip-up by the Wall Street Journal:

Wall Street Journal: Employee Free Choice Act "does not remove the secret ballot": Corporate front groups' one-line attack on the Employee Free Choice Act is the false claim that it somehow eliminates the secret ballot option.... But it seems one of their closest allies is finally willing to acknowledge the truth. In this morning's Wall Street Journal, the corporate-friendly editorial board admits:

"The bill doesn't remove the secret-ballot option from the National Labor Relations Act," wrote the WSJ.

There you have it. The Employee Free Choice Act "doesn't remove the secret ballot."... Think Progress has the dirt:

The acknowledgment by the WSJ that the legislation doesn't eliminate the option of a secret-ballot election is surprising given that it has been one of the most aggressive pushers of the false meme:

• "Democrats in the House passed the Employee Free Choice Act, a measure that rewrites the rules for union organizing by eliminating secret-ballot elections." [WSJ, 3/8/07]

• "Labor wants to trash the secret-ballot elections that have been in place since the 1930s." [WSJ, 10/17/08]

• "Mr. Pryor knew the GOP would block the bill, which gets rid of secret ballots in union elections." [WSJ, 1/2/09]

• "Big Labor's drive to eliminate secret ballots for union elections has united American business in opposition." [WSJ, 3/11/09]

It's great to see the Wall Street Journal has seen the light. Next time you hear a corporate-funded front group pushing this lie, tell them to read the Wall Street Journal to get the facts.

The Case Against Obama...

Robert Waldmann watches Clive Crook make the case against Obama, and ends a more solid Obama supporter than before:

Robert's Stochastic thoughts: Clive Crook Says Obama is... French: He alleges that American liberals, like me, should be pleased.

Where has France gone too far, in the view of an American liberal?... Presumably, liberals approve of the universal health care, the generous and extensive welfare state, the comprehensive worker protections, the stricter regulation, the vastly more-generous subsidies for higher education, the stronger unions, the higher taxes, and especially the higher taxes on the rich

Henry Farrel sums it up perfectly "arguing that American individualism is likely to wilt if exposed to nasty foreign influences smacks more of a kind of capitalist-road José Bové-ism than any serious kind of intellectual analysis." But I [had already written] a long screed before reading [Henry Farrel's] post.

Crook claims I like "the higher taxes, and especially the higher taxes on the rich" in France (and Italy where I pay them) and that this has something to do with Obama. Obama is proposing higher taxes on the rich and lower taxes on everyone else. Now my enthusiasm might not be share[d] by all US liberals, but I think we all support low taxes on the lower middle class and working poor (not low in absolute value--as we like negative taxes). Crook is doing the usual trick of the depraved class warrior (on the side that's actually fighting the class war -- the allies of the rich) of asserting the question must be taxes high or low, not taxes progressive or regressive.

Now Crook (like many liberals) might argue that if you support increased spending, then you must support higher taxes on the non-rich, so the tax cuts for all but the rich are a feint a trick. None of them present calculations supporting their claims. All divide the US into the rich and everyone else--and suggest that if you increase taxes on the rich and the upper middle class (whose material wealth is rich beyond any dream avarice had a few hundred years ago) you must increase taxes on the working poor and the lower middle class. Spreadsheets at dawn. I am prepared to be convinced that the richest 10% don't have enough income that taxing them (us? I don't know or care) will cover anything Obama has in mind with (small) tax cuts for everyone else (and I'll let Crook assume that he has lots of secret spending in mind). I am also prepared to believe that some people at about the 90th percentile will go Galt.

My honest view is that taxes on the working poor and lower lower middle class choke off employment growth and that this, and nothing else, is the cause of poor employment growth here in Italy. The change in GINI (inequality) pre-tax to post tax is similar in the USA and in other industrialized democracies. They have higher taxes, but do not have especially higher taxes on the rich (or does Crook have other numbers ?). Yes higher taxes not especially on the rich imply more social welfare spending and much more equalization due to taxes and transfers, but the claims that Obama wants higher taxes and only especially on the rich and that France has higher taxes especially on the rich are absolutely without any basis in reality and demonstrate ignorance or dishonesty.

So my mind goes back to an actually good essay "The coming end of American Triumphalism" by Brad DeLong http://www.j-bradford-delong.net/TotW/end.html.... Despite the title it was triumphalistic. DeLong claimed that the US had discovered 3 wonderful things. One was the internet (called standards and identified with the antitrust case against ATT), I forget another [editor--that there is more room for expansionary monetary policy to lower unemployment without raising inflation than anyone had believed], and the third was the Earned Income Tax Credit.

Does Clive Crook know what that is? Does he think it is a coincidence that the US has the EITC and a high employment to population ratio? Does he think the increase in the EITC the last time the US went European and imposed "higher taxes especially only on the rich" was followed by a downward shift of the Phillips curve and extraordinarily rapid growth of employment because of another strange coincidence. Does France have a policy like the EITC? Finally, can Crook reconcile his critique of Obama with the making work pay tax cut which, you know, is law?

I'd say that Crook decided that someone had to criticize Obama, since the Republicans certainly aren't up to it. He had no ammunition, so he appeals to arguments which can't be refuted by evidence (claims about culture), the assertion that someone who has cut taxes for 95% of families (and proposes to make them permanent) will increase those taxes for oh about all 95%, pretends that taxes for the rich and non rich must move up and down together, identifies the 90th percentile with the 20th under the name "middle class",and appeals to nationalism and xenophobia.

Clive Crook is very smart. If this is the best case he can make against Obama, my opinion of Obama has improved, and I didn't think that was possible.

The Liscio Report: Calculating the Unemployment Rate

via tlrii.typepad.com

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Posted via web from http://braddelong.posterous.com/the-liscio-report-calculating-the-unemploymen at Brad DeLong's Scrapbook

Justin Fox: Employment Decline Now Worse than in 1981-82

via curiouscapitalist.blogs.time.com

Justin Fox says:

I've updated my wildly popular chart of the decline in payroll employment with the nasty new numbers that the Bureau of Labor Statistics released this morning. TIME.com graphics czar Feilding Cage is out, so I made the chart myself, which explains why it's uglier than usual.... What I get from the chart—apart from the realization that I have no future in graphic design—is that job losses from this recession are now worse than in 1981-1982, which is generally considered to have been the most severe economic downturn in the U.S. since the Great Depression. Barring a more or less unimaginable turnaround in the month or two, they will be much worse. Just look at how steep that brown line is! The employment decline was even bigger (in percentage terms) in 1957-1958—and I hope William Polley will put a chart up later with all the postwar recessions so we can see. But that chart will be a lot harder to read, and I just don't think the 1957-1958 downturn, a sharp but pretty brief recession caused by a Federal Reserve crackdown on inflation, is really relevant to our current situation. That was a bunch of auto and steelworkers getting laid off temporarily. This is something else entirely...

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Posted via web from http://braddelong.posterous.com/justin-fox-employment-decline at Brad DeLong's Scrapbook

National Review Lays It on the Line!

The most deserving and valuable people in America, according to National Review, aren't our firefighters, police officers, nurses, soldiers, and teachers. Instead, they are our lawyers, bankers, executives, and top salespeople.

Nice to see it hung out on the line for once.

Lisa Schiffren:

Who Are the "Working Affluent"?... who earn the $250,000 per year or more that makes them "rich," and subject to new high rates of taxation? And why is a president who needs them to keep on producing at the prodigious rates both society and the economy require, treating them as if they -- not the slackers, the entitled, and the net tax consumers -- were the problem?... Corner readers.... The doctors, lawyers, engineers, executives, serious small-business owners, top salespeople, and other professionals and entrepreneurs who make this country run work considerably harder than pretty much anyone else (including... all politicians).... They pushed through grueling hours and unpleasant "up or out" policies in their twenties and thirties at top law firms, banks, hospitals, and businesses to earn salaries in the solid six figures (or low seven) today....

So, what happens when the heart surgeons, dentists, litigators, and people who employ 10 or 20 other people in their mid-size businesses decide that they don't want to pay for the excessive, pointless spending that the president finds so compelling? Instapundit [Glenn Reynolds] speculates on people "going John Galt." I think golf -- a time-intensive sport that the hard-working have eschewed for the past decade or two because it took too long -- will make a comeback...

Glenn Reynolds's wife, Helen Smith, takes it one step further!:

Dr. Helen: I often tip generously both because I have been a waitress and because I think it is important to reward people who work. However, [now that] Obama [is] in... tipping less or not at all would be a good way to save money as a way of "going John Galt."... If Obama is elected... in lieu of a tip I should leave a note like the following:

HOPE AND CHANGE FOR AMERICA: Spreading the Wealth Around.

In lieu of a tip, $_ has been donated to the Re-Elect Obama for President Campaign. Thank you for supporting the man and the movement that are bringing America together!

If enough people leave notes like this, I'm sure it will galvanize waitpeople everywhere in support of The One!

UPDATE II: As a commenter said, this post really seems to have hit a nerve. I am guessing that a number of lefty types are upset that their livelihood may be threatened. In Rules for Radicals Saul Alinsky asks, "Does this particular end justify this particular means?" Perhaps for those of us who are right-leaning, the answer is "yes"... it certainly worth exploring...

Assessing the Collapse of the American Labor Market: What Should Our Yardstick Be?

While the headline unemployment number is still only 8.1%, the Bureau of Labor Statistics reports inTable A-12: Alternative measures of labor underutilization that "total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers"--the underemployment rate--is 14.8%.

In the Great Depression the nationwide unemployment rate according to David Weir reached an annual peak of 22.9% in 1932. Unlike the headline unemployment rate today, Weir's unemployment rate concept makes no allowance for "marginally attached workers" who we today count as out of the labor force when we do our calculations: the Weir labor force grows at a steady 700,000 per annum between 1929 and 1932, while our labor force concept has fallen by 700,000 since last October. "Part time for economic reasons" is simply not a category in Lebergott's or Weir's unemployment series: they are imputing numbers between census benchmarks based on estimates of production and their hunches about cyclical labor productivity measures.

Clearly the Weir 22.9% should be compared to some weighted average of today's 8.1% headline number and today's 14.8% underemployment number. But what are the appropriate weights? if the proper weights are 50-50, underemployment today is fully half the peak value it reached during the Great Depression. If the proper weights are 100-0, unemployment today is only 7/20 of its peak Depression value. If the proper weights are 0-100, unemployment today is fully 13/20 of its peak Depression value.

What are the proper weights? Ah, that is what we call an "open research question." I would loooovvvveee to get an Econ 210a paper this semester taking a shot at it...

U-6 at 14.8%

While the headline unemployment number is still only 8.1%, the Bureau of Labor Statistics reports inTable A-12: Alternative measures of labor underutilization that "total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers"--the underemployment rate--is 14.8%.

Worst Downturn since the Great Depression

This Friday at 8:30 AM EST the Bureau of Labor Statistics will announce the February unemployment numbers.

It is overwhelmingly likely that the current downturn-in-progress will then surpass the united 1979-1982 downturn as the worst downturn since the Great Depression itself.

That is all.

-697,000 Expected on Friday

From Duncan Black:

Eschaton: 697K: That's the private estimate of the number of jobs the government will report were lost on Friday. There really is a growing disconnect between the world portrayed on the teevee and reality. For most people getting booted out of their homes and losing their jobs, or just being underemployed, is a far bigger deal than a crashing stock mark

Bob Wills:

Bloomberg.com: Worldwide: March 4 (Bloomberg) -- Companies cut 697,000 jobs in the U.S. in February as the recession’s grip tightened, offering no sign the pace of the decline in payrolls is easing. The drop in the ADP Employer Services gauge, a survey based on payroll data, was larger than economists forecast and followed a revised cut of 614,000 for the prior month.

Employers are cutting staff as demand plummets in the face of strained credit and battered housing and equity markets. The Labor Department may report in two days that employers cut payrolls in February for a 14th consecutive month, putting jobs losses in the current downturn at more than 4.2 million, according to a Bloomberg survey. “We doubt any of these numbers have hit bottom yet,” Ian Shepherdson, chief U.S. economist at High Frequency Economics Ltd. in Valhalla, New York, said in a note to clients. “Employment is tanking right across the economy.”

The ADP report was forecast to show a decline of 630,000, according to the median estimate of 26 economists in a Bloomberg News survey. Projections ranged from decreases of 500,000 to 770,000...

The Forest of Outstretched Arms Looking for Work Grows Thicker and Thicker...

Associate Dean Ananya Roy decided a year and a half ago that Berkeley's International Studies teaching programs would deliver much more in the way of education to the undergraduates at the same cost if we spent less money hiring graduate students as instructors and more money hiring post-Ph.D.'. as lecturers.

I was just looking through the lecturer applications. OMG. So many people who would be so good in the classroom, and who know so much, and would be such general assets to the Berkeley intellectual community. This has to be the worst year to apply for an academic job in America since... the Great Depression

And I think we are going to be offering them half-time jobs...

For the Employee Free Choice Act

Although its collapse has dominated recent media coverage, the financial sector is not the only segment of the U.S. economy running into serious trouble. The institutions that govern the labor market have also failed, producing the unusual and unhealthy situation in which hourly compensation for American workers has stagnated even as their productivity soared.

Indeed, from 2000 to 2007, the income of the median working-age household fell by $2,000- an unprecedented decline. In that time, virtually all of the nation’s economic growth went to a small number of wealthy Americans. An important reason for the shift from broadly-shared prosperity to growing inequality is the erosion of workers’ ability to form unions and bargain collectively.

A natural response of workers unable to improve their economic situation is to form unions to negotiate a fair share of the economy, and that desire is borne out by recent surveys. Millions of American workers – more than half of non-managers – have said they want a union at their work place. Yet only 7.5% of private sector workers are now represented by a union. And in all of 2007, fewer than 60,000 workers won union status through government-sanctioned elections. What explains this disconnect?

The problem is that the election process overseen by the National Labor Relations Board has become drawn out and acrimonious, with management campaigning fiercely to deter unionization, sometimes to the extent of violating the labor law. Union sympathizers are routinely threatened or even fired, and they have little effective recourse under the law. Even when workers overcome this pressure and vote for a union, they are unable to obtain contracts one-third of the time due to management resistance.

To remedy this situation, the Congress is considering the Employee Free Choice Act. This act would accomplish three things: It would give workers the choice of using majority sign-up-- a simple, established procedure in which workers sign cards to indicate their support for a union – or staging an NLRB election; it triples damages for employers who fire union supporters or break other labor laws; and it creates a process to ensure that newly unionized employees have a fair shot at obtaining a first contract by calling for arbitration after 120 days of unsuccessful bargaining.

The Employee Free Choice Act will better reflect worker desires than the current “war over representation.” The Act will also lower the level of acrimony and distrust that often accompanies union elections in our current system.

A rising tide lifts all boats only when labor and management bargain on relatively equal terms. In recent decades, most bargaining power has resided with management. The current recession will further weaken the ability of workers to bargain individually. More than ever, workers will need to act together.

The Employee Free Choice Act is not a panacea, but it would restore some balance to our labor markets.  As economists, we believe this is a critically important step in rebuilding our economy and strengthening our democracy by enhancing the voice of working people in the workplace.

Statement Endorsers

Henry J. Aaron, Brookings Institution
Katharine Abraham, University of Maryland
Philippe Aghion, Massachusetts Institute of Technology
Eileen Appelbaum, Rutgers University
Kenneth Arrow, Stanford University
Dean Baker, Center for Economic Policy and Research
Jagdish Bhagwati, Columbia University
Rebecca Blank, Brookings Institution
Joseph Blasi, Rutgers University
Alan S. Blinder, Princeton University
William A. Darity, Duke University
Brad DeLong, University of California/Berkeley
John DiNardo, University of Michigan
Henry Farber, Princeton University
Robert H. Frank, Cornell University
Richard Freeman, Harvard University
James K. Galbraith, University of Texas
Robert J. Gordon, Northwestern University
Heidi Hartmann, Institute for Women’s Policy Research
Lawrence Katz, Harvard University
Robert Lawrence, Harvard University
David Lee, Princeton University
Frank Levy, Massachusetts Institute of Technology
Lisa Lynch, Brandeis University
Ray Marshall, University of Texas
Lawrence Mishel, Economic Policy Institute
Robert Pollin, University of Massachusetts
William Rodgers, Rutgers University
Dani Rodrik, Harvard University
Jeffrey D. Sachs, Columbia University
Robert M. Solow, Massachusetts Institute of Technology
William Spriggs, Howard University
Peter Temin, Massachusetts Institute of Technology
Mark Thoma, University of Oregon
Lester C. Thurow, Massachusetts Institute of Technology
Laura Tyson, University of California/Berkeley
Paula B. Voos, Rutgers University
David Weil, Boston University
Edward Wolff, New York University

It's Not as Bad as It Looks--Yet

Via Calculated Risk.

From the Department of Labor:

In the week ending Feb. 21, the advance figure for seasonally adjusted initial claims was 667,000, an increase of 36,000 from the previous week's revised figure of 631,000. The 4-week moving average was 639,000, an increase of 19,000 from the previous week's revised average of 620,000.... The advance number for seasonally adjusted insured unemployment during the week ending Feb. 14 was 5,112,000, an increase of 114,000 from the preceding week's revised level of 4,998,000.

The labor force has grown by roughly half over the span of the graph. So it is not as bad as it looks.

Yet.

---

Posted via web from http://braddelong.posterous.com/its-not-as-bad-as-it-looks-yet at Brad DeLong's Scrapbook

How Close Are We to the Edge of Deflation?: Paul Krugman Rebuts Greg Mankiw

Paul writes:

Deflation risks, again: I worry about deflation in a couple of years, Greg [Mankiw] responds by saying that we’re not there yet [actually, haven't been there over the past year]. Huh? It’s like all the people who said that we couldn’t have a recession because profits were high....

But there’s also a technical issue. Greg uses the average hourly wage data; there’s good reason to think that right now those data are biased upwards because the lowest-wage workers are being laid off first. Below I show the Employment Cost Index, which is supposed to correct for this. If the ECI is right, we’re down to a roughly 2 percent rate of labor cost increases already, which with 2 percent productivity means zero inflation. And the trajectory is down...

Looks like the bias in the hourly wage series is about 1.5% per year.

Employment-to-Population Ratio

I know that employment in business cycles exhibits asymmetrical movements, but this is ridiculous...

Down 1.8 Million Jobs in 3 Months

BLS: >[N]onfarm payroll employment fell sharply in January (-598,000) and the unemployment rate rose from 7.2 to 7.6 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Payroll employment has declined by 3.6 million since the start of the recession in December 2007; about one-half of this decline occurred in the past 3 months. In January, job losses were large and widespread across nearly all major industry sectors. And U-6 up at 13.9%

Friday's Unemployment Number Is Likely to Be Another Grim Signal

Alan Rappaport of the FT:

US job losses mount in January: The US private sector shed 522,000 jobs in January, according to a closely watched survey of business employment published on Wednesday. The monthly ADP Employer Services survey, which tracks private non-farm payroll employment, was better than expected and followed a dire December report estimating 659,000 jobs lost after a revision.... “Sharply falling employment at medium- and small-size businesses clearly indicates that the recession continues to spread well beyond manufacturing and housing-related activities,” according to the ADP report....

Economists expect the official non-farm payrolls report due on Friday to show that 535,000 jobs were lost in January...

Team Obama

Another very good choice.

Deborah Solomom:

Real Time Economics : Obama Expected to Name Labor Economist to Advisory Council: President-elect Barack Obama is expected to round out his economic team next week with the selection of Cecilia Rouse, a Princeton University labor economist well-known for her work on the economics of educational investments, according to an Obama economic transition aide. Ms. Rouse will join Christina Romer and Austan Goolsbee as the third member of the Council of Economic Advisers, which advises the President on economic policy. All three are academic economists with distinct specialties: Ms. Romer is an economic historian schooled in the Great Depression while Mr. Goolsbee is a taxation expert.... Ms. Rouse has written on the benefits of attending community college.... She is also well-known for a paper on discrimination, in which she and a co-author found that “blind” auditions were more likely to result in female musicians being hired into an orchestra.

Defining Depression Down? Up?

Justin Lahart:

Real Time Economics: Defining Depression: Friday’s dismal November jobs report brings the old joke to mind: A recession is when your neighbor loses his job, a depression is when you lose yours. The truth is that there is no good rule of thumb for a depression, like the two quarters of consecutive GDP declines that many people use for a recession. And unlike recessions, which are semi-officially declared by the National Bureau of Economic Research’s business cycle dating committee, there’s no arbiter to say that an economy has fallen so hard it’s in a depression.

In the old days, what we now call recessions used to be called depressions. The word recession only came into common use after the Great Depression, in order to distinguish garden-variety downturns from that epic crash. Sort of like the World Meteorological Association retiring a devastating hurricane’s name. That said, with the economy in the midst of what may be its worst downturn in the postwar period, it is worth thinking about what it would take to dust off the “depression” moniker.

Richard Sylla, an economic historian at New York University, says that his rule of thumb for a depression would be double-digit unemployment rates lasting for more than a few months. The only times that occurred in the U.S. were during the Great Depression and the 1890s. The deep recession that ended in 1982 briefly saw unemployment rise above 10%. Berkeley economic historian Brad DeLong’s definition of a depression is in a similar vein: Unemployment hits 12%, or it stays above 10% for three years. Rutgers economic historian Michael Bordo says he would define a depression “as a sustained decline in output of 2 or more years of at least 10% per year. If you look at U.S. history we only really had one such event.” –Justin Lahart

U6 at 12.5%

Kelly Evans of the Wall Street Journal emails:

U6 at 12.5%...

http://blogs.wsj.com/economics/2008/12/05/broader-unemployment-rate-hits-125/

Menzie Chinn's Recent Payroll Employment Graph

Eric Rauchway vs. Alex Tabarrok on New Deal Unemployment

I score this one for Eric, 15-0. There are two questions here:

1. What did the New Deal do to relieve economic distress--i.e., was the New Deal a failure?
2. How fast did the economy-as-we-know-it recover from the Great Depression?

The fact that a huge number of people were on work relief jobs in the late 1930s is powerful evidence that the economy-as-we-know it did not recover from the Great Depression until the 1940s.

The fact that a huge number of people were on work relief jobs in the late 1930s is powerful evidence that the New Deal was not a failure--tha it did a lot to relieve economic distress.

It's fine to cite the Lebergott series for proposition (2). The problem is that Shlaes and Tabarrok appear to want to cite it for proposition (1). And that seems to me to be not right:

Eric writes:

Please read before posting. « The Edge of the American West: Alex Tabarrok reads my post on unemployment and says “nonsense.” Then he quotes Historical Statistics of the United States showing the almost-twenty-percent unemployment rate.

Rauchway knows this but wants to measure unemployment using an alternative series which shows a lower unemployment rate in 1938 (12.5%). Nothing wrong with that but there’s no reason to call people who use the official series liars.

The problem is [that] Tabarrok quotes the old, bicentennial edition of HSUS. And in that edition, you find Lebergott’s unemployment data, which was assembled before Michael Darby, Robert Margo, and David Weir’s work. As Tabarrok should know, and as readers of this site do know, in the current edition of HSUS, when you look for an unemployment time series, you find Weir’s.

Tabarrok says,

Rauchway thinks that counting people on work-relief as unemployed is a right-wing plot. If so, it is a right-wing plot that exists to this day because people who are on workfare, the modern version of work relief, are also counted as unemployed.

Here is what Weir says about that:

For 1931 to 1943, I accept Lebergott’s employment estimates as accurate, except for a major conceptual conflict regarding the classification of federal emergency relief workers. Darby challenged the standard classification followed by the census, the CPS, and Lebergott that counted such workers unemployed. Lebergott has argued eloquently that counting them as unemployed is a more accurate depiction of the failure of the private economy to generate unemployment. Margo has found that the labor supply behavior of relief workers shared some characteristics of both employed and unemployed workers, and suggests that at least some should probably be classified as employed. In the absence of a clear basis for distinguishing employed from unemployed relief workers, I agree with Darby that counting all relief workers as employed is more consistent with modern theoretical interpretations of unemployment, so I include them as government workers.

It’s true, HSUS should put Weir’s series, which is in its current edition, on the web instead of the old series.

But I believe all this means that I am right, and Tabarrok is wrong.

The Recession Gathers Speed...

I say that the NBER Business Cycle Dating Committee should decide this week whether the recession began in November or June. I don't see how waiting any longer will give us any more information useful in deciding between those two dates. And I don't see any justification for waiting--other than that perhaps one does not want to announce a recession call just before an election.

Yves Smith:

Real Economy Crunch Arrives: Layoffs Rise Sharply: When Goldman announced layoffs last week (3200 people, or 10% of its staff), it said there was no longer any place to hide. Unemployment claims are increasing at a pace that has caught some economists by surprise, indicating that the real economy downturn is picking up momentum at a rapid pace. Because many jobs, even low-level ones, entail training in company specific procedures (just think of the computer-related activities), employer has seemed reluctant to fire staff, and some had cut hours rather than axeing them. Now many businesses apparently no longer have that luxury...

Christopher Rugaber:

Unemployment Claims Rising Faster Than Expected As Recession Deepens: Goldman Sachs, Chrysler and Xerox all announced they were cutting workers by the thousands, adding to the woes of an economy beset by tighter credit and wobbly banks.... The Commerce Department will release its first estimate of third-quarter economic performance Oct. 30, and Wall Street analysts project it will show the economy contracted by 0.5 percent, according to Thomson/IFR. Many economists expect the decline to continue into the current quarter and the first three months of 2009, if not longer. The classic definition of a recession is at least two consecutive quarters of negative growth. Former Federal Reserve Chairman Alan Greenspan, testifying before a House committee, said he could not see "how we can avoid a significant rise in layoffs and unemployment"...

Louis Uchitelle:

Spending Stalls and Businesses Slash U.S. Jobs: Layoffs have arrived in force, like a wrenching second act in the unfolding crisis. In just the last two weeks, the list of companies announcing their intention to cut workers has read like a Who’s Who of corporate America: Merck, Yahoo, General Electric, Xerox, Pratt & Whitney, Goldman Sachs, Whirlpool, Bank of America, Alcoa, Coca-Cola, the Detroit automakers and nearly all the airlines. When October’s job losses are announced on Nov. 7, three days after the presidential election, many economists expect the number to exceed 200,000. The current unemployment rate of 6.1 percent is likely to rise, perhaps significantly.

“My view is that it will be near 8 or 8.5 percent by the end of next year,” said Nigel Gault, chief domestic economist at Global Insight, offering a forecast others share. That would be the highest unemployment rate since the deep recession of the early 1980s. Companies are laying off workers to cut production as consumers, struggling with their own finances, scale back spending. Employers had tried for months to cut expenses through hiring freezes and by cutting back hours. That has turned out not to be enough, and with earnings down sharply in the third quarter, corporate America has turned to layoffs.

“People have grown very nervous,” said Harry Holzer, a labor economist at Georgetown University and the Urban Institute, tracing cause and effect. “They have seen a lot of their wealth wiped out and as they cut back their spending, companies are responding with layoffs, which hurts consumption even more.” The unemployment is widespread, with Rhode Island the hardest hit. For Dwight and Rochelle Stokes of Phenix City, Ala., the layoffs are a family event. He lost his job two weeks ago as an aviation mechanic at the Pratt & Whitney jet engine facility near his home — a few days after his wife lost hers as a cosmetologist at Great Clips, a family-owned barbershop and beauty salon. “It got really slow in July and August,” Ms. Stokes said. “I would sit there for two hours, and some days we had only 10 clients, four of us for 10 clients.”

The broadening layoffs are most pronounced on Wall Street, in the auto industry, in construction, in the airlines and in retailing. The steel mills, big suppliers to many sectors of the economy, are shutting 17 of the nation’s 29 blast furnaces — a startling indicator of how quickly output is declining as corporate America struggles to adjust to the spreading crisis...

Unemployment-6

From Table A-12. Alternative measures of labor underutilization

U-3:

Employment Growth in Political Perspective

From the CAPosphere:

Which Eight Years Did McCain Prefer?: The Bureau of Labor Statistics has released its monthly employment data, and the picture is bleak: the American economy lost 84,000 jobs in August, and the employment rate jumped to 6.1%, the highest in five years. While productivity is up 4.3% since last year (people are working harder with better, more efficient technology), real wages have sagged, dropping .4%.... Take a look at the comparison in job growth from Bush’s presidency to the eight years before George W. Bush...

Yep, This Is Definitely a Recession...

Today's Employment Report:

Employment Situation Summary: The unemployment rate rose from 5.7 to 6.1 percent in August, and non-farm payroll employment continued to trend down (-84,000).... The number of unemployed persons rose by 592,000 to 9.4 million in August, and the unemployment rate increased by 0.4 percentage point to 6.1 percent. Over the past 12 months, the number of unemployed persons has increased by 2.2 million and the unemployment rate has risen by 1.4 percentage points, with most of the increase occurring over the past 4 months.... Over the last 4 months, the number of unemployed job losers has increased by 810,000.... [T]he number of long-term unemployed (those jobless for 27 weeks or more) rose by 163,000 to 1.8 million, an increase of 589,000 over the past 12 months....

Total nonfarm payroll employment continued to trend down (-84,000) in August. Thus far in 2008, payroll employment has declined by 605,000, an average loss of 76,000 per month. Employment continued to decline in manufacturing and employment services, while health care and mining added jobs...

Productivity Is No Longer Procyclical

This morning's second-quarter productivity release:

Productivity and Costs News Release: Productivity grew 4.3 percent in the nonfarm business sector in the second quarter of 2008, and unit labor costs declined 0.5 percent. In manufacturing, productivity fell 2.2 percent in the second quarter of 2008; unit labor costs rose 6.2 percent. All rates are seasonally adjusted annual rates...

From J. Bradford DeLong and Robert J. Waldmann (1997), "Interpreting Procyclical Productivity Movements: Evidence from a Cross-Nation Cross-Industry Panel," Federal Reserve Bank of San Francisco Economic Review 1997:1 (Spring), pp. 33-52:

We use an international panel data set of value-added by industry to see if labor productivity is procyclical in response to demand shocks. It is: holding fixed our proxy for supply-side factors--the value added levels of an industry in other nations--industry-level productivity rises when value added in the rest of manufacturing rises. Moreover, increases in unemployment are associated with a lowered degree of procyclicality in the U.S. and with heightened procyclicality in Europe. This suggests that procyclical productivity arises primarily from “labor hoarding” by firms in the U.S. that wish to avoid future training costs and primarily from “job hoarding” by workers in Europe who wish to avoid unemployment.

It used to be that labor productivity was procyclical: businesses would hold onto workers in downturns even when there wasn't enough for them to do--would put them to work painting the factory--because the match between businesses and their skilled, experienced workers was valuable, and businesses did not want to see their skilled, experienced workers drift away in a temporary downturn and then have to go through the expense and loss of training new ones. We know this because when the overall unemployment rate rose higher, and so there were fewer places for laid-off workers to drift off to, labor productivity became less procyclical.

That era is over. (Well, there is still a very small sign of it in manufacturing.)

These days U.S. labor productivity looks to be countercyclical: firms take advantage of downturns in demand as an opportunity for them to rationalize operations and increase labor productivity, pleading business necessity in the face of the downturn to their workers.

This is, I think, another reason to call a recession.

More Bad Labor Market News

The hawks on the Fed are quiet right now. They should get quieter:

Reuters: Jobless Claims Take Unexpected Turn Higher: The number of U.S. workers filing new claims for jobless benefits jumped by 15,000 last week, the government reported on Thursday, adding to signs of a weakening labor market. Initial claims for state unemployment insurance benefits climbed to a seasonally adjusted 444,000 in the week ended Aug. 30 from a revised 429,000 in the prior week, the Labor Department said. Analysts polled by Reuters had forecast 425,000 claims, the same as the previously reported count for the prior week.

A Labor Department official said there were no special factors influencing the latest claims data. The official said that in coming weeks there will be an impact on claims because of workers who were displaced by a hurricane that hit southeastern states last week but said it was not a factor in last week's figures. The number of continued claims—people remaining on benefit rolls after drawing an initial week of aid—rose 6,000 to 3.44 million in the week ended Aug. 23, the latest period for which the data was available. That was the highest reading since November 2003...

"Working Longer"

Jason Kottke:

Relatively rich: Relatively rich: Social scientist Dalton Conley on how rich people are now working longer hours than poor people in America. This is a stunning moment in economic history: At one time we worked hard so that someday we (or our children) wouldn't have to. Today, the more we earn, the more we work, since the opportunity cost of not working is all the greater (and since the higher we go, the more relatively deprived we feel).

In other words, when we get a raise, instead of using that hard-won money to buy "the good life," we feel even more pressure to work since the shadow costs of not working are all the greater. The increasing income inequality in the US is partially to blame, says Conley. Those in the middle and upper middle classes are working harder and longer, trying to keep up with the Joneses who are growing more wealthy at an even faster pace. Conley's got a book coming out in January on the same topic called Elsewhere, USA. (via ah)

I would caution that what one wants to think about is not hours of work but rather disutility of work--the extent to which work is not play, but rather something that alienates one from one's essence as a species being. Lots of white-collar jobs alienate (cf. Dilbert). Lots do not.

EPI's State of Working America Is Coming Out Soon...

Some samples:

Jim Hamilton of UCSD Is Very Clever

The clever Jim Hamilton presents us with the U.S. unemployment rate:

And with a "simulated" unemployment rate produced from a model obtained by fitting an AR(2) model with fat-tailed Student-T innovations to the unemployment rate series:

Jim writes:

These simulated data have the same mean, variance, and serial correlation as the real data.... Even so, one has little of the sense of a recurrent cycle in these simulated data that seemed compelling in the actual data. If one were to label some of the episodes in this simulated data set as “recessions,” where would they be?...

---

James Hamilton (2005), "What's Real About the Business Cycle?"

This paper argues that a linear statistical model with homoskedastic errors cannot capture the nineteenth-century notion of a recurring cyclical pattern in key economic aggregates. A simple nonlinear alternative is proposed and used to illustrate that the dynamic behavior of unemployment seems to change over the business cycle, with the unemployment rate rising more quickly than it falls. Furthermore, many but not all economic downturns are also accompanied by a dramatic change in the dynamic behavior of short-term interest rates. It is suggested that these nonlinearities are most naturally interpreted as resulting from short-run failures in the employment and credit markets and that understanding these short-run failures is the key to understanding the nature of the business cycle.

Federal Reserve Bank of St. Louis Review, July/August 2005, 87(4), pp. 435-52.

Income and Poverty Over the 2000-2007 Business Cycle

2000-2007: the first business cycle during which median household income in America falls from peak to peak:

http://www.census.gov/prod/2008pubs/p60-235.pdf

It's not all George W. Bush's fault, but I can think of a number of things he did to hurt and not a damned thing he did to help.

---

The poverty rate rose from 12.3 to 12.5 percent of the population between 2006 and 2007.

And private health insurance coverage continued to decline.

Morning Coffee: Why McCain's Health Reform Plans Frighten Me (August 25, 2008)

---

The biggest economic bad news is that health care costs keep rising. The total bill charged by insurers for employer and employee averages $12,100 for a family of four--twice the level of seven years ago, and comfortably more than the full-time earnings of a minimum-wage worker. On top of this come the taxes for government health care programs. The American health care bill is over $7,600 per person per year.

This matters for American businesses. Businesses pay for health insurance coverage for 165 million non-elderly Americans, for the high-wage jobs that make use of the educations, skills, and high potential productivity of American workers come with benefits. This creates a direct link between rising health care costs and slower economic growth. When health costs rise, the costs of employing workers in high-wage high-benefit jobs rise as well. Businesses find that they cannot afford to expand employment as rapidly as they would otherwise: higher health care costs make maintaining their old workforce and expanding it via new hires very expensive. They economize. They hire fewer workers. They offer lower wages. Workers resist. The result is slow employment growth and higher unemployment until workers recognize that the scarcity of good jobs and the higher risk of unemployment teaches them they have little bargaining power--a process that takes years. Meanwhile workers who ought to be in high-skill high-wage high-productivity jobs with benefits find themselves in low-skill low-wage low-productivity jobs without benefits instead. This is a waste. Workers who could hold down high-productivity jobs don't, and so don't get the wages that they deserve. Firms who could employ high-skill workers don't, and so don't get the profits that they deserve.

Successful economic growth requires a more efficient, lower cost health care sector. John McCain and Barack Obama propose diametrically-opposed plans for trying to get the health care system to where we all want it to be.

John McCain proposes a root-canal surgery approach. The problem, he and his health-care advisors believe, is that good jobs are linked to health-care benefits. Break that link--remove the expectation that good high-productivity jobs come with benefits--and the health care sector will no longer be a major drag on the American economy as it goes its own way, whatever that way might be. Hence John McCain proposes, relative to the current system, to penalize employers that offer high-value employer-sponsored coverage and subsidize individuals who get health insurance outside the employment relationship.

We see two problems with McCain's approach: the journey and the destination. The journey: The McCain plan works in the long-run by making employer-sponsored coverage more expensive in the short- and the medium-run. It thus attempts a cure by giving American business a worse case of the rapidly-rising health-cost disease from which it currently suffers. Rapidly rising health costs are a drag on high-wage high-profit high-productivity employment now, and they will be a much worse drag on high-wage high-profit high-productivity employment under the McCain plan--at least until we come out the other side and enter a world in which it is no longer expected that high-productivity jobs come with benefits.

The destination: The biggest problem in health care today is that insurers are rewarded not for keeping their customers healthy but for figuring out which customers are likely to get sick first--and then dumping them onto other insurers or onto the government. At present, this problem is restrained by the institution of employer-sponsored insurance: bid for an employer's contract and ERISA requires that you take any of their workers who want to purchase your plan. The destination of McCain's plan is a place where insurers have much more freedom to spend money, administrators' time, and computer power separating the healthy sheep from the costly and sick goats--but the profits to doing this for one insurer are not savings for the system because the sick and uncovered do show up at the emergency room eventually and are more expensive to treat when they get there. We believe that when the McCain plan does move us to a world in which the expectational link between high-productivity jobs and benefits is broken we will then have a system that works even less well than our current one.

Barack Obama, by contrast, offers a much more conservative approach to the problem of health care reform. Instead of using tax penalties and incentives to break the existing system and create a whole new set of untried health care financing institutions, Barack Obama proposes to build on those components of our current system that do work--and to make them work better.

But I've talked for More than Long Enough