Must-See: Do Millennials Stand a Chance? Giving the Next Generation a Fair Shot at a Prosperous Future:
(November 18, 2015):Wednesday, November 18, 2015 from 8:00 AM to 11:00 AM (PST) :: California Memorial Stadium :: 210 Stadium Rim Way
Must-See: Do Millennials Stand a Chance? Giving the Next Generation a Fair Shot at a Prosperous Future:
(November 18, 2015):Wednesday, November 18, 2015 from 8:00 AM to 11:00 AM (PST) :: California Memorial Stadium :: 210 Stadium Rim Way
Horace Greeley, were he alive today, would be disappointed to see so many Americans not taking his famous advice—“Go West!”—to heart.
U.S. workers are not only moving west at a declining rate, but they are becoming less likely to move east, north, and south as well. The U.S. Census Bureau recently released data on geographic mobility in the United States that shows the rate at which workers move to different states and counties is still historically low. This now-three-decade-long trend has some important implications for the U.S. economy, even if we aren’t exactly sure what’s causing it.
One of the advantages of the U.S. labor market has long been that its high levels of labor mobility let workers move to a new area if job prospects dry up. If there are fewer jobs in Indiana, you can move to California. In fact, a 1992 paper by economists Olivier Blanchard, now of the Peterson Institute for International Economics, and Lawrence Katz of Harvard University shows that mobility was the key way people responded to losing a job.
But that’s less the case now, according to new research by economists Andrew Foote of the U.S. Census Bureau, and Michel Grosz and Ann Huff Stevens of the University of California, Davis. Looking at the impact of mass layoffs, the researchers find that workers are now twice as likely to exit the labor force as they were before the Great Recession of 2007–2009. Moving is still the largest response to being laid off, but it has become increasingly less important. The three economists’ finding is very similar to the findings of a working paper by several International Monetary Fund researchers.
The declining rate of workers moving–and its changing importance in the labor market–raises the question of what’s actually causing the decline. One obvious culprit is the changing demographics of the United States: Older workers are less likely to move. But as Adam Ozimek of Moody’s Analytics points out, there are analyses of this declining migration rate that have accounted for this change and still found a significant decline in labor mobility. Ozimek points to research suggesting a role for occupational licensing in pushing down the rate in geographical moves. Although he notes that the decline isn’t well enough understood at this point to make definitive conclusions.
The research we do have, however, suggests other potential explanations—although some make more sense than others. For example, research by economists Raven Molloy and Christopher Smith of the Federal Reserve Board of Governors, and Abigail Wozniak of the University of Notre Dame shows that the decline in mobility is intimately linked with changes in the labor market. Workers are less likely to move somewhere because the gains to getting a new job in any location have declined as well. In this case, geographic mobility tracks job-to-job mobility. Of course, this just shifts the question to why job-to-job mobility has declined. It could be because workers are better sorted to their jobs so they don’t need to move, or because of a declining demand for workers—a collapsing of the job ladder.
The answer of this now-slightly-different question remained unsolved. But at least in the search for the answers, we have some guidance on the right set of questions to ask.
Must-Read: I’m with Larry Mishel here: Why do people think Uber-type companies are an important deal, again? Uber, Airbnb, Craigslist… and what else?
Uber Is Not the Future of Work: “The rise of Uber has convinced many… that freelancing via digital platforms is becoming increasingly important…
:…[But] a look at Uber’s own data about its drivers’ schedules and pay reveals them to be much less consequential than most people assume… distracts from the central features… that should be prominent in the public discussion: a disappointingly low minimum wage, lax overtime rules, weak collective-bargaining rights, and excessive unemployment, to name a few…. Curiously, the best evidence of Uber’s relatively small impact on the American labor market comes from data released and publicized by the company itself. David Plouffe, an Uber strategist… ‘Here in the U.S., there are more than 400,000 active drivers… half the drivers work less than 10 hours per week… a third of drivers said they used Uber to earn money while looking for a job.’… Driving mostly for supplementary income on a transitory basis conflicts with the notion, promoted by the company, that Uber, and gig work more generally, are a major feature of how people will earn a living in the future…
Must-Read: Let me agree with Steve Perlstein here: the economics that the very sharp Dani Rodrik praises is not the strongest current, outside of our liberal-arts non-business school ivory towers, and not always even in them.
The Value and Limits of Economic Models: “The alleged failings of economics are now widely understood…
:…except perhaps by economists themselves. You hear that economics is ideology masquerading as hard science. That it has become overly theoretical and mathematical, based on false or oversimplified assumptions about the ways real people behave. That it systematically misunderstands the past and fails to anticipate the future. That it celebrates selfishness and greed and values only efficiency, ignoring fairness, social cohesion and our sense of what it is to be human. In his latest book, ‘Economics Rules,’ Dani Rodrik tries to bridge the gap between his discipline and its skeptics….
What economists forget, Rodrik says–or even worse, what they never are taught–is that the answer to most important questions is “It depends.” What’s right for one country at one time may not be right for another country or another time. Context matters. And because context matters, he argues that too much of the focus in economics has been on developing all-encompassing models and grand theories that can be applied to every context, and too little on expanding the inventory of more narrowly focused models and developing the art of knowing which ones to use….
Rodrik no doubt set out to offer an evenhanded view of modern economics, [but] in the end he winds up delivering a fairly devastating critique. “The discipline hobbles from one set of preferred models to another, driven less by evidence than by fads and ideology,” he writes. He despairs that his profession has become one that values “smarts over judgment,” has disdain for other disciplines and is content to produce mathematically elegant research papers that few outside the guild will ever use or understand. The standard economics course offered to undergraduates, he rightly complains, winds up presenting nothing more than “a paean to markets” rather than a “richer paradigm of human behavior.” Rodrik’s plea is for economics to be practiced with a bit more humility both by those who extol free markets and those who would tame them. Economics, he argues, is less a hard science capable of producing provable truths than a set of intuitions disciplined by logic and data and grounded in experience and common sense…
With U.S. wage growth still below its pre-Great Recession levels, and more than six years since the last federal increase, calls for a higher federal minimum wage seem to grow louder each day. Many activists and policymakers across the country are vigorously pushing for an increase in the minimum wage at the federal, state, and local levels.
Of course, while many people agree that the minimum wage needs to be higher, that still leaves the question of how high it should be. Unfortunately, we don’t have an easily accessible answer to that question. By looking at the available research on the minimum wage and its strength over the years, we can weigh the relative merits of specific proposals.
A wide body of research has found that raising the minimum wage has a very small to zero effect on employment. If you accept this characterization of the research, then we can say that minimum wage increases in the range that the United States has seen in recent decades don’t decrease employment. The trouble, however, is taking that research and applying it to potential minimum wage increases that would be outside the range of previous hikes. For example, raising the current federal minimum wage from $7.25 to $15—more than doubling it—would be significantly larger than prior increases.
What metrics should we look at, then, to consider the strength and potential impact of the minimum wage? One approach is to look at the relative “bite” of the minimum wage by comparing it to the median wage. The ratio of the minimum wage to the median wage should show how far into the wage distribution the minimum wage is binding.
Equitable Growth’s Ben Zipperer and David Evans helpfully built an interactive map that shows the relative strength of the minimum wage across the 50 states from 1979 to 2013. If you play around with the map, you can see that the bite of the minimum wage has fallen considerably since the late ‘70s. At the national level, the minimum wage was 51 percent of the median in 1979, but fell to 39 percent by 2013. The highest bite in their data was in Arkansas—the state with the lowest median wage—in 1979, when the minimum wage was 67 percent of the median wage.
With this metric in mind, let’s do some back-of-the-envelope analysis comparing two popular proposals for the minimum wage: $12 and $15. Let’s also make two assumptions: First, the new minimum wage is phased in so that it isn’t in full effect until 2020. Secondly, the nominal median wage for the country and the states grows at 2.5 percent a year, the U.S. average from 2003 to 2013.
With those assumptions, a $12 minimum wage in 2020 would be 53 percent of the median wage. That’s a few percentage points above its national level in 1979 and very similar to what the bite was in 1968, when the U.S. minimum wage was at its highest point. Internationally, a $12 minimum in the US would be comparable to the current bite of Australia. Arkansas would see the bite of its median wage rise to 63 percent, below its peak back in 1979.
A $15 minimum wage would have a much stronger bite, with the ratio of the minimum wage to the median wage rising to 66 percent. That would give the U.S. economy a stronger minimum wage than France, which currently has one of the highest minimum wages among the Organisation for Economic Co-operation and Development nations.
It’s worth repeating that these numbers are from a back-of-the-envelope calculation, and are sensitive to assumptions about nominal wage growth. But it’s important to take a look at historical and comparative data when the research is uncertain.
What Have We Unlearned from Our Great Recession?
Jan 07, 2011 10:15 am, Sheraton, Governor’s Square 15 American Economic Association: What’s Wrong (and Right) with Economics? Implications of the Financial Crisis (A1) (Panel Discussion): Panel Moderator: JOHN QUIGGIN (University of Queensland, Australia)
My role here is the role of the person who starts the Alcoholics Anonymous meetings.
My name is Brad DeLong.
I am a Rubinite, a Greenspanist, a neoliberal, a neoclassical economist.
I stand here repentant.
I take my task to be a serious person and to set out all the things I believed in three or four years ago that now appear to be wrong. I find this distressing, for I had thought that I had known what my personal analytical nadir was and I thought that it was long ago behind me
I had thought my personal analytical nadir had come in the Treasury, when I wrote a few memos about how Rudi Dornbusch was wrong in thinking that the Mexican peso was overvalued. The coming of NAFTA would give Mexico guaranteed tariff free access to the largest consumer market in the world. That would produce a capital inflow boom in Mexico. And so, I argued, the peso was likely to appreciate rather than the depreciate in the aftermath of NAFTA.
What I missed back in 1994 was, of course, that while there were many US corporations that wanted to use Mexico’s access to the US market and so locate the unskilled labor parts of their value chains south, there were rather more rich people in Mexico who wanted to move their assets north. NAFTA not only gave Mexico guaranteed tariff free access to the largest consumer market in the world, it also gave US financial institutions guaranteed access to the savings of Mexicans. And it was this tidal wave of anticipatory capital flight–by people who feared the ballots might be honestly counted the next time Cuohtemac Cardenas ran for President–that overwhelmed the move south of capital seeking to build factories and pushed down the peso in the crisis of 1994-95.
I had thought that was my worst analytical moment.
I think the past three years have been even worse.
So here are five things that I thought I knew three or four years ago that turned out not to be true:
I thought that the Federal Reserve had the power and the will to stabilize the growth path of nominal GDP.
I thought, as a result, automatic stabilizers aside, fiscal policy no longer had a legitimate countercyclical role to play. The Federal Reserve and other Central Banks were mighty and powerful. They could act within Congress’s decision loop. There was no no reason to confuse things by talking about discretionary fiscal policy–it just make Congress members confused about how to balance the short run off against the long run.
I thought that no advanced country government with as frayed a safety net as America would tolerate 10% unemployment. In Germany and France with their lavish safety nets it was possible to run an economy for 10 years with 10% unemployment without political crisis. But I did not think that was possible in the United States.
And I thought that economists had an effective consensus on macroeconomic policy. I thought everybody agreed that the important role of the government was to intervene strategically in asset markets to stabilize the growth path of nominal GDP. I thought that all of the disputes within economics were over what was the best way to accomplish this goal. I did not think that there were any economists who would look at a 10% shortfall of nominal GDP relative to its trend growth path and say that the government is being too stimulative.
With respect to the first of these–that the large highly leveraged banks had control over their risks: Indeed, American commercial banks had hit the wall in the early 1980s when the Volcker disinflation interacted with the petrodollar recycling that they had all been urged by the Treasury to undertake. American savings and loans had hit the wall when the Keating Five senators gave them the opportunity to gamble for resurrection while they were underwater. But in both of these the fact that the government was providing a backstop was key to their hitting the wall.
Otherwise, it seemed the large American high commercial and investment banks had taken every shock the economy could throw at them and had come through successfully. Oh, every once in a while an investment bank would flame out and vanish. Drexel would flame out and vanish. Goldman almost flamed out and vanished in 1970 with the Penn Central. We lost Long Term Capital Management. Generally we lost one investment bank every decade or generation. But that’s not a systemic threat. That’s an exciting five days reading the Financial Times. That’s some overpaid financiers getting their comeuppance, which causes schadenfreude for the rest of us. That’s not something of decisive macro significance.
The large banks came through the crash of 1987. They came through Saddam Hussein’s invasion of Kuwait. Everyone else came through the LTCM crisis. Everyone came through the Russian state bankruptcy when the IMF announced that nuclear-armed ex-superpowers are not too big to fail. They came through assorted emerging market crisis. They came through the collapse of the Dot Com Bubble.
It seemed that they understood risk management thing and that they had risk management thing right. In the mid 2000s when the Federal Reserve ran stress tests on the banks the stress was a sharp decline in the dollar if something like China’s dumping its dollar assets started to happen. Were the banks robust to a sharp sudden decline in the dollar, or had they been selling unhedged puts on the dollar? The answer appeared to be that they were robust. Back in 2005 policymakers could look forward with some confidence at the ability of the banks to deal with large shocks like a large sudden fall on the dollar.
Subprime mortgages? Well, those couldn’t possibly be big enough to matter. Everyone understood that the right business for a leveraged bank in subprime was the originate-and-distribute business. By God were they originating. But they were also distributing.
I thought about theses issues in combination with the large and persistent equity premium that has existed in the US stock market over the past century. You cannot blame this premium on some Mad Max scenario in which the US economy collapses because the equity premium is a premium return of stocks over US Treasury bonds, and if the US economy collapses then Treasury bonds’ real values collapse as well–the only things that hold their value are are bottled water, sewing machines and ammunition, and even gold is only something that can get you shot. You have to blame this equity risk premium on a market failure: excessive risk aversion by financial investors and a failure to mobilize the risk-bearing capacity of the economy. This there was a very strong argument that we needed more, not less leverage on a financial system as a whole. Thus every action of financial engineering–that finds people willing to bear residual equity risk and that turns other assets that have previously not been traded into tradable assets largely regarded as safe–helps to mobilize some of the collective risk bearing capacity of the economy, and is a good thing.
Or so I thought.
Now this turned out to be wrong.
The highly leveraged banks did not have control over their risks. Indeed if you read the documents from the SECs case against Citigroup with respect to its 2007 earnings call, it is clear that Citigroup did not even know what their subprime exposure was in spite of substantial effort by management trying to find out. Managers appeared to have genuinely thought that their underlings were following the originate-and-distribute models to figure out that their underlings were trying to engage in regulatory arbitrage by holding assets rated Triple A as part of their capital even though they knew fracking well that the assets were not really Triple A.
Back when Lehman Brothers was a partnership, every 30-something in Lehman Brothers was a risk manager. They all knew that their chance of becoming really rich depended on Lehman Brothers not blowing as they rose their way through the ranks of the partnership.
By the time everything is a corporation and the high-fliers’ bonuses are based on the mark-to-model performance of their positions over the past 12 months, you’ve lost that every-trader-a-risk manager culture. i thought the big banks knew this and had compensated for it.
I was wrong,
With respect to the second of these–that the Federal Reserve had the power and the will to stabilize nominal GDP: Three years ago I thought it could and would. I thought that he was not called “Helicopter Be”n for no reason. I thought he would stabilize nominal GDP. I thought that the cost to Federal Reserve political standing and self-perception would make the Federal Reserve stabilize nominal GDP. I thought that if nominal GDP began to undershoot its trend by any substantial amount, that then the Federal Reserve would do everything thinkable and some things that had not previously been thought of to get nominal GDP back on to its trend growth track.
This has also turned out not to be true.
That nominal GDP is 10% below its pre-2008 trend is not of extraordinarily great concern to those who speak in the FOMC meetings. And staffing-up the Federal Reserve has not been an extraordinarily great concern on the part of the White House: lots of empty seats on the Board of Governors for a long time.
With respect to the third of these–that discretionary fiscal policy had no legitimate role: Three years ago I thought that the Federal Reserve could do the job, and that discretionary countercyclical fiscal policy simply confused congress members, Remember Orwell’s Animal Farm? Every animal on the Animal Farm understands the basic principle of animalism: “four legs good, two legs bad” (with a footnote that, as Squealer the pig says, a wing is an organ of locomotion rather than manipulation and is properly thought of as leg rather than an arm–certainly not a hand).
“Four legs good, two legs bad,” was simple enough for all the animals to understand. “Short-term countercyclical budget deficit in recession good, long-run budget deficit that crowds out investment bad,” was too complicated for Congressmen and Congresswomen to understand. Given that, discretionary fiscal policy should be shunted off to the side as confusing. The Federal Reserve should do the countercycical stabiization job.
This also turned out not to be true, or not to be as true as we would like. When the Federal funds rate hits the zero lower bound making monetary policy effective becomes complicated. You can do it, or we think you can do it if you are bold enough, but it is no longer straightforward buying Treasury Bonds for cash. That is just a swap of one zero yield nominal Treasury liability for another. You have got to be doing something else to the economy at the same time to make monetary policy expansion effective at the zero nominal bound,
One thing you can do is boost government purchases. Government purchases are a form of spending that does not have to be backed up by money balances and so raise velocity. And additional government debt issue does have a role to play in keeping open market operations from offsetting themselves whenever money and debt are such close substitutes that people holding Treasury bonds as saving vehicles are just as happy to hold cash as savings vehicles. When standard open market operations have no effect on anything, standard open market operations plus Treasury bond issue will still move the economy.
With respect to the fourth of these–that no American government would tolerate 10% unemployment: I thought that American governments understood that high unemployment was social waste: that it was not in fact an efficient way of reallocating labor across sectors and response to structural change. When unemployment is high and demand is low, the problem of reallocation is complicated by the fact that no one is certain what demand is going to be when you return to full employment. Thus it is very hard to figure which industries you want to be moving resources into: you cannot look at profits but rather you have to look at what profits will be when the economy is back at full employment–and that is hard to do.
For example, it may well be the case that right now America is actually short of housing. There is a good chance that the only reason there is excess supply of housing right now is because people’s incomes and access to credit are so low that lots of families are doubling up in their five-bedroom suburban houses. Construction has been depressed below the trend of family formation for so long that it is hard to see how there could be any fundamental investment overhang any more.
It is always much better to have the reallocation process proceed by having rising industries pulling workers into employment because demand is high. It is bad to have the reallocation process proceed by having mass unemployment in the belief that the unemployed will sooner or later figure out something productive to do. I thought that American governments understood that.
I thought that American governments understood that high unemployment was very hazardous to incumbents. I thought that even the most cynical and self-interested Congressmen and Congresswomen and Presidents would strain every nerve to make sure that the period of high unemployment would be very short.
It turned out that that wasn’t true.
I really don’t know why. I have five theories:
I have no idea which is true.
I do know that when I wander around Capitol Hill and the Central Security Zone in Washington, the general view I hear is: “we did a good job: we kept unemployment from reaching 15%–which Mark Zandi and Alan Blinder say it might well have reached if we had done nothing.” That declaration of semi-victory puzzles me.
Three years ago, I thought that whatever theories economists worked on they all agreed the most important thing to stabilize was nominal GDP. Stabilizing the money stock was a good thing to do only because money was a good advance indicator of nominal GDP. Worrying about the savings-investment balance was a good thing to worry about because if you got it right you stabilized nominal GDP. Job 1 was keeping nominal GDP on a stable growth path, so that price rigidity and other macroeconomic failures did not cause high unemployment. That, I thought, was something all economists agreed on. Yet I find today, instead, the economics profession is badly split on whether the 10% percent shortfall of nominal GDP from its pre-2008 trend is even a major problem.
So what are the takeaway lessons? I don’t know.
Last night I was sitting at my hotel room desk trying to come up with the “lessons” slide.
The best I could come up with is to suggest that perhaps our problem is that we have been teaching people macroeconomics.
Perhaps macroeconomics should be banned.
Perhaps it should only be taught through economic history and the history of economic thought courses–courses that start in 1800 back when all issues of what the business cycle was or what it might become were open, and that then trace the developing debates: Say versus Mathis, Say versus Mill, Bagehot versus Fisher, Fisher versus Wicksell, Hayek versus Keynes versus Friedman, and so forth on up to James Tobin. I really don’t know who we should teach after James Tobin: I haven’t been impressed with any analyses of our current situation that have not been firmly rooted in Tobin, Minsky, and those even further in the past.
Then economists would at least be aware of the range of options, and of what smart people have said and thought it the past. It would keep us from having Nobel Prize-caliber economists blathering that the NIPA identity guarantees that expansionary fiscal policy must immediately and obviously and always crowd-out private spending dollar-for-dollar because the government has to obtain the cash it spends from somebody else. Think about that a moment: there is nothing special about the government. If the argument is true for the government, it is true for all groups–no decision to increase spending by anyone can ever have any effect on nominal GDP because whoever spends has to get the cash from somewhere, and that applies to Apple Computer just as much as to the government.
And that has to be wrong.
So let me stop there and turn it over to Scott Sumner…
Must-Read: I do not understand what John Fernald is getting at here: Who cares if it is not “market” but “home” production? We focus on GDP as a proxy for utility, and we focus on nonfarm business as a proxy for properly-measured GDP, no?
The Pre-Great-Recession Slowdown in U.S. Productivity Growth: “Counting “free” digital goods wouldn’t raise market productivity much…
:…Facebook, Google, Tripadvisor, etc. are free… (but advertising supported) digital goods like free radio and TV and advertising-supported print media. Nakamura and Sokoveichik estimate this adds….2 basis points/year to growth! Benefits to consumers (based on value of time, e.g., Brynjolfsson and Oh 2012) are larger. Conceptually, this is home, not market, production (Becker, 1965). Enormous benefits… but not a shift in the market production function…
Must-Read: After being wrong for eight straight years, critics of expansionary macro policies in a high-slack low-inflation economy–those who say that fiscal stimulus is sugar, and monetary expansion is opium–have not only not rethought their positions, but have taken over economic policy, in rhetoric at least, everywhere in the Republican Party. Can somebody please tell me what is going on?
Where Fed’s Critics Got It Wrong in GOP Debate: “The Federal Reserve was instrumental in easing the impact of the Great Recession…
:…So it has been disappointing to hear Republican presidential candidates bash the Fed in their debates and on the campaign trail… blamed… income inequality…. [But] ould inequality be lower, on average, if the unemployment rate were 8 percent instead of 5 percent and if millions more were unemployed?… The Fed is also accused of playing politics by keeping interest rates low…. Republicans criticize the Fed because its low interest rate policy supposedly hurts the economy, yet somehow the central bank is keeping interest rates [artificially] low to help the economy [and thus the Democrats in office]? I am not impressed…. The Fed is keeping interest rates low because that’s what economic conditions demand…. And don’t get me started on the proposals to return to a gold standard….
It’s a bit irksome to hear Republicans, many of whom are in Congress, spouting on about the Fed’s poor policy when they are the ones who endorsed a policy mistake in pursuit of political and ideological objectives. The Fed did what it needed to do. Republican lawmakers didn’t…. The next time you hear Republicans call for more control and oversight of the Fed by Congress, think about how poorly Congress did with fiscal policy, and how creative and aggressive the Fed became in trying to compensate for that failure. Then ask yourself whether that is a good idea.