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Is the US job market back, finally? One interesting data point in the March employment report: the US economy added 192,000 private-sector jobs last month, pushing private payrolls to 116.09 million. That level surpasses the former high of 115.98 million reached in January 2008.
Hardly an insignificant milestone, and one that shows how far the labor market recovery has come. Although the American economy has been growing since summer 2009, a return to prerecession private-job totals is also an important marker. Perhaps, one could say, we’ve even returned to normal.
If so, it’s a dreary new normal. Consider this: private-sector jobs typically grow by about 3% a year during strong recoveries and expansions, such as the ones in the 1980s and the 1990s. From 2010 through 2013, however, they grew only by 2.1% a year. If the current recovery and expansion had been as robust as the ones during the Reagan and Clinton years, we would have around 121 million private-sector jobs right now. So we’re still a good five million private-sector jobs short of where we might be — a pretty significant “jobs gap” — by that rough calculation.
What’s more, we are nearly four million full-time jobs — both public and private — short of prerecession levels, not even assuming a stronger recovery. Just 81% active US workers have a full-time job versus 83% in November 2007. And, don’t forget, another 4 million Americans are long-term unemployed.
Another way to look at it: monthly payroll growth has averaged 178,000 this year vs. 185,000 in the 2011-2103 period. At that pace, it would take nearly six years to return to prerecession employment levels, according to the Hamilton Project’s jobs gap calculator. (See below.) Overall, then, few signs of economic acceleration, though plenty of Wall Street economists think both GDP and jobs growth will pick up in coming months. We can only hope. But for now there is no reason for Washington policymakers to consider America’s economic emergency anywhere near over, even if the Great Recession technically is.
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One problem until now with the Obamacrat/left-liberal/progressive obsession with income inequality is that it all seemed terribly off point. Research suggests weak to zero linkage between inequality and economic growth, and between inequality economic mobility.
But former Obama/Clinton economist Larry Summers is doing his best to unite these various strands with his secular stagnation thesis: without continual fiscal or monetary stimulus, the US economy will continue to suffer from a chronic shortfall of demand. But more deficit spending is the better response given (a) the risk of bubbles from loose money, (b) the need for better infrastructure, (c) the low level of interest rates.
And what is causing the demand shortfall? Annie Lowrey of The New York Times is on the case:
I asked Mr. Summers what was behind secular stagnation, and he said he was still thinking through all of its causes. But globalization, automation, income inequality and changes in corporate finance might be important factors, he said. Income is now more concentrated in the hands of the rich. Those well-off households tend to save and invest higher proportions of their earnings than middle-class or low-income families do. That might mean, on aggregate, less spending and less demand across the economy for a given level of income.
There you go. Income inequality might be a key factor, maybe the primary factor, in America’s economic troubles, both pre-and-post Great Recession. Well, that and too little “public investment.” All and all, a comforting thesis for folks already tilted toward a policy mix of higher taxes and more spending.
But that last bit aside, is Summers correct? Embedded in his thesis are assumptions about the efficacy and impact of monetary policy, the nature of the Great Recession and Not-So-Great Recovery, and the willingness of policymakers to permit higher inflation. Again, here is Goldman Sachs’ take:
We agree that the real interest rate that would have been needed to achieve full employment has been deeply negative in recent years. In our view, policymakers would have achieved more desirable results if they had steered a more expansionary—or in the case of fiscal policy, less contractionary—course. Nevertheless, our view of the recent weakness is more cyclical than secular. The slow rate of recovery in recent years is roughly in line with the performance of other economies following major financial crises, as shown by Reinhart and Rogoff, and the reasons for the weakness in aggregate demand over the last few years have now begun to diminish.
Goldman, no surprise, sees economic acceleration coming. We’ll see. But I would really stress what I view as Summers’ big mistake on monetary policy. Ryan Avent:
Back in August, another eminent economist, Robert Hall of Stanford University, contributed a paper on the zero lower bound to the Kansas City Fed’s Jackon Hole conference, in which he estimated that the market-clearing real rate of interest is -4%. Now again, just why the real, natural rate of interest is currently -4% is an interesting question, but it’s irrelevant to the challenge of closing the output gap. All that matters there is that expected inflation is between 1% and 2% instead of near 4%. That’s the problem; that’s what’s keeping tens of millions of people out of work and hundreds of millions languishing in a perpetually weak economy: a couple of percentage points of inflation.
And central banks are entirely to blame for that.
The rich world’s biggest macroeconomic problem at the moment is a nominal problem and it is within central banks’ power to fix it. Now some will argue that because of the zero lower bound central banks lack sufficient policy traction to raise inflation. I don’t believe that. … At no point has the Fed done what its own chair reckoned Japan needed to do, at a minimum, to escape its own doldrums: set an inflation target of 3% or 4%.
If you accept the secular stagnation thesis, I think you also need to contend with Avent’s point. And I do not believe Summers adequately has.
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If government wants to nudge people to pay their taxes, turns out a public norm message (“Nine out of ten people in pay their taxes on time. You are currently in the very small minority of people who have not paid us yet”) works a lot better than a public goods message (“Not paying tax means we all lose out on vital public services.”
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Trying to illustrate the tough job market, Federal Reserve boss Janet Yellen on Monday told a Chicago conference about two long-term unemployed Americans. Both, it turns, had prison records (And now both have jobs.) As the WaPo’s Ylan Mui points out, “workers with criminal histories are not an anomaly in the labor force” given that nearly one-third of Americans have been arrested by age 23 with 12 million to 14 million convicted.”
And interesting side question is how US incarceration rates affect the macro labor market. Researchers Larry Katz and Alan Krueger in the late 1990s claimed that rising rates contributed to a 0.3%-point to the decline in the official male unemployment rate. Men In jail doesn’t get counted by the Labor Department.
But now incarceration rates are falling, which, one might think, should raise the official employment rate by at least a smidge. In a new research note, JPMorgan economist Michael Feroli says the firm’s analysis of the falling incarceration rate “doesn’t significantly move the dial on most of the aggregate labor market indicators.”
And this addendum by Feroli:
It is perhaps also relevant to note how prison populations have declined. The change in prison populations is the difference between admissions and releases. Prison releases have actually been falling since 2008. The decline in prison population is due to the fact that admissions have been falling even faster. To the extent declining incarceration may be affecting labor market data it is not due to more ex-cons in the workforce not finding jobs, but rather more people not entering jail, who may have lower employment and labor force attachment rates, consistent with the microeconomic evidence cited by Katz and Krueger.
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The US Supreme Court’s new campaign-finance ruling has prompted a collective pearl clutch by progressive punditistan. Short version: the 0.01 oligarchs have won, or quite nearly. And now their diabolical push for unrestrained, predatory capitalism will go unopposed — except for, as law professor David Bernstein points out, “the legacy mainstream media, Hollywood, academia, publishing, the legal profession, the mainline churches, and the arts … Limit campaign spending, and left-leaning opinion-makers utterly dominate American political discourse.”
If you are genuinely worried about the influence of Big Money on Big Government, the free-enterprise solution is to shrink the influence of Big Government. A government able to pick winners and losers through regulation, spending, or the tax code is a government worth influencing, whether through campaign donations or lobbying activities. Numerous studies and analyses have calculated a massive “return on investment” from lobbying. For instance: a 2013 Boston Globe series found that by forking over a mere $2 million over two years to Washington lobbyists, Whirlpool secured the renewal of an energy tax credit worth a combined $120 million over two years.
What’s more, the reason for lobbying may be changing. Companies used to try to, as Ronald Reagan once put it, get government off their backs. But now, according to economist Luigi Zingales, lobbying has shifted from reactive to proactive, and toward getting government in their pockets to obtain unique privileges.”
Getting back to campaign finance, Bradley Smith sums up:
The practical results of this decision will be to make fundraising easier for party committees and candidates. That is almost certainly a good thing and should help ease concerns that “super PACS” are too influential with parties. Don’t expect a landslide in new giving, however, as the old aggregates did not affect most donors, who contribute to only a few candidates.
Ultimately, this decision is a significant victory for the First Amendment. Perhaps more important than the immediate result is the insistence that the government must have an actual, rather than conjectural, theory of corruption to be prevented. The “monsters under the bed” theory of constitutional jurisprudence seems headed for the dustbin.
As Justice Roberts wrote, “If the First Amendment protects flag burning, funeral protests, and Nazi parades — despite the profound offense such spectacles cause — it surely protects political campaign speech despite popular opposition.”
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The annual House of Representatives budget resolution – you may know it as the “Ryan plan” or perhaps as the “Path to Prosperity” — has turned into a weird Washington phenomenon, one that combines analysis fiscal, political, and psychological. Do the numbers really add up? Will it hurt or help GOP election odds? Does it signal that Roman Catholic Paul Ryan or Randian Paul Ryan is the fellow running the budget committee? And, of course: does the budget suggest Ryan will run for president 2016?
Of those questions, I’m confident only in answering the first. (Alert: CNBC and MSNBC bookers. Ignore that last sentence. I am supremely confident in answering any and all possible questions about the Ryan budget, as well as the 2016 presidential race, the Russian annexation of Crimea, the Yellowstone earthquakes, and the new Captain America film. I also know a thing or two about nanotech.)
Yes, the numbers add up, assuming a sprinkle of CBO-approved, macroeconomic magic from deficit reduction. But close enough for congressional work. Ryan again deserves big, big credit for pushing premium-support reform of Medicare, although the specific details continue to evolve. Another plus is the plan’s emphasis on strengthening work requirements in exchange for government welfare benefits. The GOP should be the party of work, and the Ryan budget nicely reflects that.
The Republican blueprint also has value in demonstrating how fiscally difficult it will be to achieve some commonly-stated GOP goals. To balance the budget and keep the federal tax burden at roughly historical levels in an aging society requires what are likely overly aggressive reductions to future projected safety-net spending. Some programs need reform that could save money, such as disability benefits. Others need reform that will cost money, such as expanding the Earned Income Tax Credit or instituting wage subsidies. (Looking forward to how Ryan fleshes out his vision when he puts forward his anti-poverty program later this year.) I think this exchange I had during a podcast chat with Oren Cass — who want states to manage the safety net with a federal funding stream — is helpful:
Pethokoukis: So this isn’t a case where you’re saying, listen, we’re going to take all this money, we’re going to block grant it back to the states, cut it by 25 percent, and let them start innovating with less money. So this isn’t necessarily a budget device. It sounds to me more like a state-laboratories-of-democracy device and see if they can innovate and use this money better to deal with poverty.
Cass: That’s exactly right. And I think that’s an important point that too often, particularly among conservatives, the anti-poverty issue is actually used as a budget issue, that when we think we’re talking about anti-poverty programs, we’re actually talking about ways to cut the budget deficit. And that’s a fine conversation to have if you’re looking across places to cut from the budget – anti-poverty programs may be one of them, given how big they are – but it’s not a solution to the poverty crisis to cut dollars. That’s not an inherently productive approach.
And so I think the more productive approach in terms of actually solving the poverty problem is to figure out how to make the dollars go as far as possible. And if you are successful, you save money anyway. So if you think about that formula for how much money goes to each state, if there are fewer people in poverty in that state, the amount of funding will naturally decline over time. But the way to save the money is to move the people out of poverty. It’s not just to essentially arbitrarily say we’re going to spend less money than we did last year.
Finally, Ryan and the Republicans are right in that we should try to get income and corporate rates as low as possible. But center-right tax reform needs to focus less obsessively on returning to a top-marginal individual rate last seen in the 1920s than creating a modern tax code that (a) reduces biases against both capital and human investment, and (b) raises a realistic level of revenue when considering 21st century American demographics. At the same time, the Ryan budget rightly recognizes that without deep, structural entitlement reform, the US faces some unpleasant fiscal choices and that simply raising taxes ever higher isn’t the solution.
During the 2012 election season, one of Joe Biden’s campaign applause lines was a version of this one he told a Labor Day crowd in downtown Detroit: “You want to know whether we’re better off? I’ve got a little bumper sticker for you: Osama bin Laden is dead and General Motors is alive.” And the crowd roared. They also loved it at the Democratic National Convention. The vice president can really deliver a line with gusto. He surely can.
But that “General Motors is alive” claim is looking like less of a major achievement these days. New GM CEO Mary Barra is testifying in Washington today about GM’s recall of 2.5 million small cars for faulty switches linked to 13 deaths. Bailing out a failing company is a lot easier than turning around a troubled company so it once again makes a quality product. Maybe President Obama knew this. I guarantee Mitt Romney knew this. As he wrote back in 2008: “With a bailout, the automakers will stay the course — the suicidal course of declining market shares, insurmountable labor and retiree burdens, technology atrophy, product inferiority and never-ending job losses. Detroit needs a turnaround, not a check.”
Washington didn’t save GM, if by “GM” you mean an innovating, value-adding, self-sustaining automaker. That’s just not something government really knows how to do. Check out this analysis from a 2014 Harvard Business School working paper:
General Motors was once regarded as one of the best managed and most successful firms in the world, but between 1980 and 2009 its share of the U.S. market fell from 62.6% to 19.8%, and in 2009 the firm went bankrupt. In this paper we argue that the conventional explanation for this decline-namely high legacy labor and health care costs-is seriously incomplete, and that GM’s share collapsed for many of the same reasons that many of the other highly successful American firms of the 50s, 60s, and 70s were forced from the market, including a failure to understand the nature of the competition they faced and an inability to respond effectively once they did.
For decades, GM was a company in denial. And once management woke up, it had trouble changing. Incumbents firms are commonly unable to respond effectively to disruptive innovation from new competitors. Here is another version of the decline of Detroit from MIT:
Disruptive innovation has been credited as the strategy that led to Japan’s dramatic economic development after World War II. Japanese companies such as Nippon Steel, Toyota, Sony and Canon began by offering inexpensive products that were initially inferior in quality to those of their Western competitors. This allowed the Japanese companies to capture the low-end segment of the market. As the performance of their products improved, they began to move upmarket, into segments that allowed them more profitability. Eventually, they captured most of these segments and pushed their Western competitors to the very top of the market or completely out of it.
Last December, the Treasury Department sold the last bit of its GM stake. Government Motors, no more. GM was back. But not really. The Guardian’s Heidi Moore in a must-read piece:
Less than four months later, it seems foolish that any of GM’s fairy tale was believable to anyone. After the recalls and the estimates of driver deaths, all of that talk – of the reborn American automaker, of bets paid and dollars won – seems like a hollow spectacle. And it has to make us wonder: how much were US taxpayers and the government complicit in sustaining a company that researchers had already suggested was unable to compete in the modern automotive industry?
“It’s no ‘new GM’ if they’re doing this,” Dartmouth Tuck School of Business professor Paul A Argenti tells me. “If this has been hidden for 10 years, there’s nothing new about the company. It’s old-school GM. It’s stuff you can’t even imagine a company could do in the 21st century.”
Failure like this doesn’t come out of nowhere. It’s buried in a company’s corporate culture.
And there is not much a $50 billion government check can do about a dysfunctional corporate culture except temporarily paper over it. Look, a dynamic economy promotes free entry of new firms and easy exit of uncompetitive incumbents. Government is there to provide a safety net for workers, not for corporate entities. Being pro-business is not the same as being pro-market, pro-consumer, or pro-worker. Bailouts and barriers to entry — crony capitalism — saps an economy of its vigor. What’s good for Big Business is sometimes really bad for America.
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Have a look!
Is American risk-taking really decreasing? | Noah Smith
“The preponderance of evidence from the literature is that “entrepreneurship lock” exists, though there are varying estimates of its extent.” | Austin Frakt
Is Obamacare Now Beyond Repeal? | Megan McArdle
“A bigger but somewhat slower growing China of the future will contribute about as much to global demand as the smaller but faster growing China of before.” | IMF blog
We have a new buzzword, (at least it’s new to me). Irving Wladawsky-Berger:
Unscaling is made possible by the number of Internet-based platforms and cloud-based services and tools now available to startups and small businesses in general. New companies can now be launched without a massive investment in personnel and IT infrastructure. They can quickly get to market, and compete effectively with far larger companies. Mobile Internet platforms, in particular, make it easier and cheaper to experiment in the marketplace. While most such experiments will likely fail, some, like Airbnb, will succeed and can then quickly scale up their capabilities as their businesses grow.
And this is why unscaling, and the entrepreneurial opportunities implied, is important for most Americans. Again, IWB:
We need to become a much more entrepreneurial society. Global competition continues to drive large companies to aggressively focus on productivity, leveraging IT-based innovations to get their work done with fewer employees. Governments will continue to shed jobs given the pressures they face to reduce costs and slim down. Large numbers of people will have to no choice but to invent their own jobs, based on new types of work organizations that leverage digital markets and platforms.
In Chicago, Fed chair Janet Yellen explains why she believes “there is still considerable slack in the labor market” and “there is room for continued help from the Fed for workers …”:
1.) One form of evidence for slack is found in other labor market data, beyond the unemployment rate or payrolls, some of which I have touched on already. For example, the seven million people who are working part time but would like a full-time job. This number is much larger than we would expect at 6.7 percent unemployment, based on past experience, and the existence of such a large pool of “partly unemployed” workers is a sign that labor conditions are worse than indicated by the unemployment rate.
Statistics on job turnover also point to considerable slack in the labor market. Although firms are now laying off fewer workers, they have been reluctant to increase the pace of hiring.
Likewise, the number of people who voluntarily quit their jobs is noticeably below levels before the recession; that is an indicator that people are reluctant to risk leaving their jobs because they worry that it will be hard to find another. It is also a sign that firms may not be recruiting very aggressively to hire workers away from their competitors.
2.) A second form of evidence for slack is that the decline in unemployment has not helped raise wages for workers as in past recoveries. Workers in a slack market have little leverage to demand raises. Labor compensation has increased an average of only a little more than 2 percent per year since the recession, which is very low by historical standards. Wage growth for most workers was modest for a couple of decades before the recession due to globalization and other factors beyond the level of economic activity, and those forces are undoubtedly still relevant. But labor market slack has also surely been a factor in holding down compensation. The low rate of wage growth is, to me, another sign that the Fed’s job is not yet done.
3.) A third form of evidence related to slack concerns the characteristics of the extraordinarily large share of the unemployed who have been out of work for six months or more. These workers find it exceptionally hard to find steady, regular work, and they appear to be at a severe competitive disadvantage when trying to find a job. The concern is that the long-term unemployed may remain on the sidelines, ultimately dropping out of the workforce. But the data suggest that the long-term unemployed look basically the same as other unemployed people in terms of their occupations, educational attainment, and other characteristics. And, although they find jobs with lower frequency than the short-term jobless do, the rate at which job seekers are finding jobs has only marginally improved for both groups. That is, we have not yet seen clear indications that the short-term unemployed are finding it increasingly easier to find work relative to the long-term unemployed. This fact gives me hope that a significant share of the long-term unemployed will ultimately benefit from a stronger labor market.
4.) A final piece of evidence of slack in the labor market has been the behavior of the participation rate–the proportion of working-age adults that hold or are seeking jobs. Participation falls in a slack job market when people who want a job give up trying to find one. When the recession began, 66 percent of the working-age population was part of the labor force. Participation dropped, as it normally does in a recession, but then kept dropping in the recovery. It now stands at 63 percent, the same level as in 1978, when a much smaller share of women were in the workforce. Lower participation could mean that the 6.7 percent unemployment rate is overstating the progress in the labor market.
One factor lowering participation is the aging of the population, which means that an increasing share of the population is retired. If demographics were the only or overwhelming reason for falling participation, then declining participation would not be a sign of labor market slack. But some “retirements” are not voluntary, and some of these workers may rejoin the labor force in a stronger economy. Participation rates have been falling broadly for workers of different ages, including many in the prime of their working lives. Based on the evidence, my own view is that a significant amount of the decline in participation during the recovery is due to slack, another sign that help from the Fed can still be effective.