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Today’s Job Openings and Labor Turnover Survey was another sign that it is highly unlikely the US labor market suffered a sudden deceleration last month: Michael Darda:
[JOLTS] showed new cycle highs in both job openings and quits. These are encouraging signs that underlying labor market momentum is picking up as confidence in the outlook takes hold. Again, the December NFP figures appear to be an outlier with leading labor market indicators holding firm.
Expect a big upgrade to that anemic December payroll number.
View related content: Pethokoukis
What should Republicans do about Obamacare in 2014? Jim Capretta and Yuval Levin offer several suggestions: (a) kill or delay the individual mandate, (b) help individuals and small business keep their insurance polices, and (c) stop any insurer bailouts by eliminating the risk corridor program or at least make it budget neutral so payments to insurers losing money would be no greater than payments to insurers making a profit. They then explain what the prospect of an insurer bailout means to the future of the Affordable Care Act:
It is important to understand how crucial the prospect of a taxpayer bailout of insurers is to the future of Obamacare. Insurers facing the prospect of participating in the exchanges in 2015 without the backstop of a taxpayer bailout would be forced either to price their products properly (and therefore likely well above their 2014 premiums) or withdraw from the exchanges altogether. Either way, the law will become even less attractive to middle-income and moderate-wage households who get little or nothing in subsidies. Insisting on budget neutrality or repealing these provisions would, like the elimination of the individual mandate, not only make good political sense but also help to speed the unwinding of Obamacare, which is essential to the ultimate repeal of the law and its replacement with a real reform of American health care.
For that very reason, the insurers and the Democrats are certain to mightily resist a repeal of the bailout provisions. But the more intense their resistance, the more it will reinforce the case against the law. A program that cannot survive without a massive taxpayer bailout of private insurers is not a program that is working. It is a program that is failing, and needs to be replaced.
Worth noting: This bit about the risk corridors is one Avik Roy disagrees with, arguing that the insurers are suffering from government interference, not their own incompetence.
In a new essay, Joel Kotkin paints the 2014 congressional elections as a battle of the pro-Democrat ascendant oligarchy (Silicon Valley, Wall Street) versus the pro-Republican descendant oligarchy (oil, real estate, agribusiness, manufacturing), with both fighting over the middle-class. But which middle class, homeowners who have private-sector jobs or the “clerisy” with jobs in academia and the public sector? Well, we know how that second group will vote. But what about the first group, the “yeomanry”? Kotkin:
Oligarchs favoring Republicans will focus on how redistribution takes from the yeomanry to give to the poor and associated crony capitalists. … In opposition, the new oligarchs, and their allies in the clerisy, will seek to convince enough of the yeoman class that they need the government to enjoy anything like a middle-class life. The Obama cartoon The Life of Julia, with its emphasis on the helping hand of government , is not directed at the poor but what used to be an upwardly mobile class. Julia implicitly rejects traditional American middle-class values such as property ownership, marriage and family and embraces a new vision tied to growing dependency to both the Democratic Party and the state.
Kotkin finds both appeals limiting in their ability to address the issues of weak economic growth and a decline in upward mobility (at least from the bottom 20%). Neither a focus on heroic job creators nor an ever-expanding Julia State is adequate. Rather, he concludes, “What we need is something that combines largely free-market, libertarian economics with something like the traditional goal of social democracy.” What Kotkin does here, essentially, is restate the “radical centrism” approach of Ashwin Parameswaran:
The principle of radical centrism aims to build a firewall that protects the common man from the worst impact of economic disturbances while simultaneously increasing the threat of failure at firm level. … A robust safety net is as important to maintaining an innovative free enterprise economy as the dismantling of entry barriers and free enterprise are to reducing inequality.
I gave my take on this approach in a blog post the other day. (I also recommend Reihan Salam on this.) But a shorthand version would Uber + universal healthcare. Broadening entrepreneurship and creating a fair playing field for disruptive innovations, while making sure the safety net more effectively targets lower-income Americans and ensures income security while also providing incentives to work.
Update: I wrote that headline before Avik Roy wrote this today:
The bottom line is that Singapore and Switzerland spend far less on health care than we do and yet achieve all of the things that Americans value about their own system: choice, technology and physician access. Conservatives have long considered universal coverage as an wacky left-wing goal. But these two countries prove that it’s possible to cover everyone in a way that would substantially shrink our government’s health spending and place individuals back in charge of their own health care dollars.
President Obama is likely to talk about income inequality is his upcoming State of the Union address. I mean, of course he is. And when he does, there’s a good chance he’ll give the impression that living standards for the 99% have stagnated for decades.
But a fair look at the data suggest a far more complex picture of income and living standards. In recent congressional testimony, AEI economist Aparna Mathur provided a great overview of the numbers — from which I draw — and she concluded “the standard narrative that rising income inequality has somehow hurt the middle- and lower-income classes is not supported by data.”
Well, what do the data show?
1.) Well-known research from economists Thomas Piketty and Emmanuel Saez find the share of “market income” going to the top 1% of the population has more than doubled since the 1970s. But market income is pre-tax, pre-transfer income data from the tax records of filers that includes realized capital gains.
2.) On the other hand, using post-tax, post-transfer income that includes accrued capital gains — as do researchers Philip Armour, Richard Burkhauser and Jeff Larrimore in a 2013 paper – “dramatically reduces the observed growth in income inequality across the distribution, but most especially the rise in top-end income since 1989.”
3.) A recent CBO study which factors in market income (including realized capital gains), taxes, and transfers found incomes for the broad middle class 40% higher in 2010 vs. 201% for the top 1%.
By looking at broader income measures, you get a better sense of the total economic resources people have their command for consumption. And you get a very different picture of inequality when you look at consumption, from dishwashers to computers to homes. Mathur:
In general, we find that people at all income levels now have access to many more material possessions than they did in the 1980s. Moreover, there has been a narrowing of the gap between high and low income classes in terms of ownership of these items.
[The above chart reflects those findings.] Now granted, income redistribution through government transfers is partly responsible. But it would be odd to talk about living standards while also excluding transfers, as well as the impact of taxes. Mathur also mention how living standards have been supported by “significant price declines in technology items like computers and printers, driven by market competition and research and development efforts.” Good point.
While efforts to eliminate inequality due to rent seeking are worthwhile, better to focus more on increasing both mobility and living standards via work for the middle class and poor, which would suggest policies other than raising taxes on the rich and hiking the minimum wage.
By postwar standards, the ongoing US economic expansion is a mature one. The average is 63 months, or 5.25 years. The current one, through January, is 56 months old, or 4.7 years. So going by history, the end is much closer than the beginning. And that’s disturbing given the huge output and employment gaps from prerecession trajectories. Also, little progress has been made in the share of Americans with any kind of job, what I like to call the employment rate.
So not only do we need this expansion to go deep into extra innings, we need acceleration. Goldman Sachs offers reasons for optimism:
… we see very little risk that we are in the late stages of the business cycle. In our view, economic cycles do not die of old age. Instead, recessions happen due to monetary tightening as the economy overheats, built-up imbalances unwind (such as the collapse of the housing bubble), or unfavorable external shocks occur (such as the oil crises in the 1970s).
Instead, we see the US economy as exhibiting early- or mid-cycle characteristics at the present time. Specifically: (1) output and employment are growing at a moderate pace, but there is still a great deal of economic slack, (2) the rate of improvement in economic activity has not peaked, in our opinion and (3) inflation is running below its pre-recession rate and has yet to pick up.
As part of its modeling, Goldman examined 10 economic indicators and looked how they sync with the US economy at various stages of the business cycle. For instance, the bank explains, the yield curve tends to invert late in the business cycle. Of those ten indicators, three suggest the economy is early-cycle, five mid-cycle, one late-cycle, and one recession (output gap). Indeed, Goldman is predicting trend-or-above growth this year. Also worth nothing: expansions have tended to run much longer since the 1970s with an average of length of 8 years.
When even Great Britain and the United States find that their home-grown talent isn’t good enough that tells you that the demand for talent is immense. My favorite example of this from the business world is Sergio Marchionne. Marchionne is the CEO of Italy’s Fiat and the Chairman and CEO of Chrysler, among several other positions. He commutes between Italy and the United States, lives in Switzerland, and has dual Italian and Canadian (!) citizenship. Appointments and potential appointments like those of Carney and Fischer illustrate that the demand for talent and the winner-take-all phenomena of a globalized world are not limited to the business world.
Small differences in quality at the top have a greater impact the larger the firm, the market, or the economy. How many truly great decisions did Bill Gates make at Microsoft (compared to another plausible CEO)? I would guess that fewer than 10 decisions made billions of dollars of difference. And if Yellen-Fischer make just a few better calls than their next best counterparts, well that could easily be worth hundreds of billions.
It’s also notable that the Federal Reserve is trying to create the highest-quality team. O-ring production tells us that you maximize the value of production by matching high-quality workers with other high quality workers. In the private sector, O-ring production magnifies inequalities of talent into even larger inequalities of income. In the public-sector, O-ring production magnifies inequality of talent into even larger inequalities of power.
The bottom line is this, a common set of factors is driving inequality: equality of opportunity, assortative mating, O-ring production, increases in the demand for talent driven by the leveraging of talent through technology. The forces are similar and so are the results, the money elite, the monetary elite, the power elite.
Some of these observations are also reflected in the work of economist Steven Kaplan who finds that technology and globalization have enabled highly talented and educated individuals to manage or perform on a larger scale, “applying their talent to greater pools of resources and reaching larger numbers of people, thus becoming more productive and higher paid.” But the broader analysis presented here by Tabarrok suggests a policy focus on diminishing high-end inequality, as opposed to raising mobility and living standards, will likely prove to be a frustrating endeavor for the egalitarians of the left. Certainly the Buffett rule, a higher minimum wage, and universal pre-K would seem insufficient as policy responses, as opposed to political wedge and framing issues.
View related content: Pethokoukis
It seems to be true. In the aftermath of the Great Recession, lots of twentysomething college graduates have little choice but to settle for low-skill, low-wage work. In 2012, according to the New York Fed, 44% of college grads between 22 and 27 were working in jobs that don’t generally require a bachelor’s degree. But it is hardly a new phenomenon (see above chart):
… both unemployment and underemployment have followed a clear upward trend for recent college graduates over the past two decades, and particularly since the 2001 recession.
In addition, it has become more common for underemployed college graduates to find themselves in low-wage jobs or to be working part-time. It is not clear whether these trends represent a structural change in the labor market, or if they are a consequence of the two recessions and jobless recoveries in the first decade of the 2000s.
Either way, young college graduates entering the labor market since the 2001 recession face more challenges in finding a good job.
Oh, and if a college student wants to avoid this fate, they should probably think hard about what they study:
In particular, those who choose majors that provide technical training, such as engineering or math and computers, or majors that are geared toward growing parts of the economy, such as education and health, have tended to do relatively well.
At the other end of the spectrum, those with majors that provide less technical and more general training, such as leisure and hospitality, communications, the liberal arts, and even the social sciences and business, have not tended to fare particularly well in recent years.
An important caveat about this interpretation is that the links we show between college major, unemployment, and underemployment are not necessarily causal. That is, the data may in part reflect the fact that people can sort into majors based on their skill level, such that those with higher innate skills and abilities select majors that tend to have better labor market outcomes. Nonetheless, with this caveat in mind, it appears that college major plays a role in determining whether a college graduate will find a good job.
Many parents will likely be sharing this chart with their kids (sorry liberal arts majors):
“Obama to Announce Program to Create Jobs.” That New York Times headline refers to President Obama’s speech today in North Carolina where he will announce the establishment of a manufacturing hub. The NYT:
A consortium, led by North Carolina State University and comprising 18 companies and six universities, will use advanced semiconductor technology to develop a new generation of energy-efficient devices for automobiles, consumer electronics and industrial motors. It is the first of three such institutes the president plans to announce and will be financed by a five-year, $70 million grant from the Energy Department.
The action begins to fulfill a promise Obama made in his 2013 State of the Union address. He pledged to ask Congress to finance 15 of these hubs to “turn regions left behind by globalization into global centers of high-tech jobs … and guarantee that the next revolution in manufacturing is made right here in America.”
So the plan is meant to (a) boost advanced manufacturing, (b) create high-paying, (c) revitalize downtrodden communities. Color me skeptical.
1.) The decline of US manufacturing is a myth. America’s ability to “make stuff” never went away. Output rose more or less steadily throughout the 1980s, 1990s and even 2000s until the Great Recession hit. What has gone away is the jobs, due to higher productivity from technological automation. And while that has not been a good thing for factory workers who lost jobs, it’s been great for industry. JP Morgan Chase economist James Glassman: “These developments were very disruptive for workers. Nonetheless, they transformed the US manufacturing sector, making it even more robust and profitable than it was before.” I would not expect manufacturing to be a big job creator in the future.
2.) And what exactly is the record of government successfully creating innovation and manufacturing hubs? Here is economist Enrico Moretti, author of The Geography of Jobs, in an EconTalk podcast in 2012: “If you look at the history of America’s great innovation hubs, they haven’t found one that was directly, explicitly engineered by an explicit policy on the part of the government. It’s really hard. This is not how innovation hubs and clusters get developed. They often get developed because of idiosyncratic factors like a local firm succeeds and it starts attracting more firms like that. And this creates a cluster that then becomes stronger and stronger, and that feeds on itself.”
3.) And really, what do you think would have a greater impact on jobs and GDP: government organized manufacturing hubs or, say, eliminating the corporate income tax? A new study by Boston University economist Laurence Kotlikoff finds “eliminating the United States’ corporate income tax produces rapid and dramatic increases in American investment, output and real wages, making the tax cut self-financing to a significant extent.”
4.) And then there is Obama’s strange economic nostalgia for manufacturing jobs — though not for those in the oil and gas industry, apparently — as opposed to those in the service sector.
5.) Finally, why focus on these megaprojects as opposed to helping smaller, artisanal efforts by entrepreneurs? Ashwin Parameswaran: “An inventor today has a multitude of options to prototype and produce small quantities of his product. The logistics of selling and delivering the product to customers are also easily outsourced. As Luke Johnson identifies, the dynamics of capitalism “appear to be coming full circle and reverting to a structure that prevailed at the start of industrial capitalism” in the early part of the nineteenth century.”
Top econblogger Timothy Taylor writes up a Larry Summers speech that contains the above chart. Taylor:
The table is worth mulling over. The average price increase for “All Items” from the 1982-84 period was from 100 to 231 by 2012–that is, an increase of 131% A number of categories increased by about that much: Services, Energy, Food, Housing, Transportation. But at the top, college education and health care increased in price by dramatically more. At the bottom, clothing, durable goods (like home appliances), toys, and televisions saw much smaller increases or an outright decline. (The “hedonic” adjustment that Summers refers to means that the government statisticians make an adjustment for the quality of the good–which is obviously necessary if one is to compare a 1982 television set to a modern one.) At some level, the differential movement in prices explains why so many Americans spend so much of their time looking at screens, while worrying about the cost of health care and education.
There is is your “cost of living” agenda in a nutshell: college and healthcare. Republicans needs to address those issues from a COL, consumer perspective, and not just from a budgetary one.
At this point, if I were an investor in uncompetitive France, I would prefer President Hollande not to do this …
Mr Hollande, due to outline moves to ease labour costs and red tape on Tuesday, has promised a “simplification shock” for business to help boost a sluggish economic recovery and generate jobs. But the government remains prone to imposing new restraints in the face of resistance by vested interests.
Late last month, in a bid to placate the traditional taxi industry, the government issued a decree that obliged operators of private chauffeured cars, mostly operating via smartphone booking applications, to wait 15 minutes between receiving an order and picking up the customer.
In another move that could restrict business, this week the National Assembly is scheduled to give its assent to a new housing bill that includes measures to limit the ability of owners of secondary properties to rent them on short-term lets to tourists, such as those that do so via sites including Airbnb. It is intended to help ameliorate a shortage of long-term rental properties, especially in Paris, but the move has also been demanded by the hotel industry upset by growing competition from private owners.
… than do this …
François Hollande launched a bid to revitalise Europe’s second-largest economy and rescue his faltering presidency by promising a landmark €30bn pay roll tax cut for French companies.
Mr Hollande’s promise of a €30bn cut in social charges, which would shave some 5.4 per cent off average total wage bills for employers, comes on top of a €20bn tax break for companies already implemented by the government in a bid to restore competitiveness.
He called his proposals a “responsibility pact” that he said would require business to commit to increase employment in return for the cuts in labour costs, tax and red tape. He said a body would be established to monitor job creation under the pact.