Category: Equitablog

Understanding changes in movement on the U.S. job ladder

Posted on by Nick Bunker

The recent increase in workers quitting their jobs sparked hope that the labor market is healing, with strong wage growth around the corner. But how exactly does the willingness, and perhaps more importantly, the ability to switch jobs result in wage growth? A new National Bureau of Economic Research working paper examines the dynamics of these individual movements in the U.S. labor force—referred to as the jobs ladder by economists—and how it varies over economic expansions and recessions amid fluctuations in business cycles.

The paper, by economists John Haltiwanger of the University of Maryland and Henry Hyatt and Erika McEntarfer, both of the U.S. Census Bureau, looks at how these transitions vary by type of employers. They find that firms react to changes in the business cycle by adding or losing workers depending on whether they generally pay their workers low wages or high wages.

During economic expansions both kinds of employers, unsurprisingly, add employees. But they come from different sources. Low-wage employers hire workers who previously had no jobs, whereas better-paying firms poach workers from lower-paying firms. This upward movement, from non-employment to low-wage employer to high-wage employer, results in all types of workers climbing the rungs of the job ladder.

But during recessions, the rungs of the jobs ladder become spots where workers grip just to stay where they are, or instead find themselves seeking to hang onto jobs on lower rungs. Low-wage employers pull back from hiring unemployed workers and high-wage employers stop poaching workers. For those that lose their jobs, they’re less likely to find new work as low-wage employers are hiring less. And workers with jobs are less likely to move to a new, higher-pay job. Looking at the Great Recession in particular, Haltiwanger, Hyatt, and McEntarfer find that the job ladder collapsed during that period. Clearly, this result has implications for the long-run earnings potential of workers in the labor force during the Great Recession

But this research also has something to say about a long-term labor market trend. Since the 1980s, the movement of workers from job to job—also known as job churn—has been on the decline—which the data in this paper shows. And, demand for workers in the U.S. labor market appears to have also been waning over the past two decades or so.

The two trends could be linked. A labor market with such structural slackness would mean fewer workers hired by low-wage employers, which means that a smaller number of workers get poached into higher-paying jobs. In other words, the effects that Haltiwanger, Hyatt, and McEntarfer highlight during recessions might be true over the long-term as well, during lackluster expansions as well as in recessions.

If so, then making sure the U.S. labor market is running at full capacity as much as possible is important for spurring employers to poach workers and induce movement up the jobs ladder. Full employment, in other words, might strengthen the job ladder.

Things to Read at Lunchtime on June 8, 2015

Posted on by Brad DeLong

Must- and Should-Reads:

Might Like to Be Aware of:

A partial defense of gross domestic product

Posted on by Bridget Ansel

Gross domestic product is simultaneously an overly hyped and overly maligned statistic. While reports of the quarterly GDP reports get play in the financial press, some researchers claim that the measure needs to be abandoned in favor of some better measure of economic prosperity. The proper course seems to be somewhere in between these two poles. To paraphrase the late economist Arthur Okun: GDP has its place, but it needs to be keep in its place.

GDP is the most widely cited measure of market output and economic growth. The statistic adds up the value of all final goods and services produced within a country during the course of one year. In short, it measures the value of annual output in an economy. The encompasses all the money spent by consumers, invested by companies and households, and expended by governments plus the value of goods and services exported to foreign purchasers minus the value of foreign goods and services imported into the country.

The U.S. Bureau of Economic Analysis and other statistical agencies do a good job of calculating GDP, though there are statistical issues from time to time and improvements can be made. As Matthew Yglesias at Vox argues, GDP measures what GDP is supposed to measure. But it doesn’t count everything that counts. The rate of growth of GDP, for example, doesn’t give us any information about the recipients of these gains. A three percent annual growth rate might be flowing proportionately to everyone or disproportionately up or down the income ladder. Furthermore GDP as currently constructed neither counts the nonmarket work done in the household nor does it factor in environmental effects. So looking at GDP is definitely important for understanding the economy even though it’s far from sufficient.

But this doesn’t mean that we should throw GDP out the window, and arguments such as one made by University of Pretoria political economist Lorenzo Fioramonti in Foreign Policy go just a bit too far. Take for example his use of Greece and similar countries where income levels would be higher if informal markets and community services were counted as income. He argues these higher income levels mean that the governments of these countries should be able to spend more. The problem, of course, is that governments can only tax market income so they can only pay for this spending or pay back creditors for the borrowed money with funds raised from market income—unless these government start taxing informal markets or some other aspect of prosperity.

Gross domestic product is far from perfect. But its imperfections don’t require scrapping the entire idea. GDP simply needs to be just one of several measures we look at when we consider the state of the economy.

Must-Read: Christopher L. Foote, Kristopher S. Gerardi, and Paul S. Willen: Why Did So Many People Make So Many Ex Post Bad Decisions? The Causes of the Foreclosure Crisis

Posted on by Brad DeLong

Must-Read: A paper that somehow seems to me to miss many of the important aspects of the situation. Where are home borrowers supposed to get their “rational expectations” of future house prices? Given that they are highly likely to be uninformed, should we really have a system in which households are betting large multiples of net worth in a market where they have no chance of being the smart money? That lots of other money wasn’t smart either does not absolve mortgage regulators from blame. Not at all:

Christopher L. Foote, Kristopher S. Gerardi, and Paul S. Willen: Why Did So Many People Make So Many Ex Post Bad Decisions? The Causes of the Foreclosure Crisis: “This paper presents 12 facts about the mortgage market…

…The authors argue that the facts refute the popular story that the crisis resulted from financial industry insiders deceiving uninformed mortgage borrowers and investors. Instead, they argue that borrowers and investors made decisions that were rational and logical given their ex post overly optimistic beliefs about house prices. The authors then show that neither institutional features of the mortgage market nor financial innovations are any more likely to explain those distorted beliefs than they are to explain the Dutch tulip bubble 400 years ago. Economists should acknowledge the limits of our understanding of asset price bubbles and design policies accordingly.

Must-Read: Jared Bernstein: Wall St, Injured Dogs, and the Election

Posted on by Brad DeLong

Must-Read: Jared Bernstein: Wall St, Injured Dogs, and the Election: “Those of us in the first Obama administration were driving along…

…and saw an injured Doberman on the side of the road. We picked it up and nursed it back to health… and once it was back to full strength, it attacked us. The analogy is more artful than accurate. The economic system must have credit flows, and given the failure of this aspect of the market, it wasn’t a question as to whether or not we should try to heal the injured dog (of course, how we went about it has been controversial, but that’s a different argument; my take is here). And there is one narrative that says the dog only attacked us after we attacked it, i.e., after President Obama started serving up some heated rhetoric to the denizens of the finance sector….

I’m not interested in demonizing anyone, or more precisely, any sector of the economy (so I probably won’t get very far). Because that’s what “Wall St.” is—it’s another sector…. It currently is an inflated sector… claiming more wealth than it should… “rents”… while too often engaging in counterproductive speculation and bubble-generation…. Financial regulatory policy goosed by bad economics—theories of “rational expectations” which conclude that traders accurately price risk and that banks will self-regulate—has devolved in such a way as to amp up the greed beyond that of Gordon Gekko’s wildest dreams. So the policy target asks: what will it take to get this sector functioning productively again[?]

Must-Read: Larry Mishel: New Research Does Not Provide Any Reason to Doubt that CEO Pay Fueled Top 1% Income Growth

Posted on by Brad DeLong

Must-Read: I must say, I gotta score this for Larry Mishel and company. There’s a lot of overclaiming in “Firming Up Inequality”

Larry Mishel: New Research Does Not Provide Any Reason to Doubt that CEO Pay Fueled Top 1% Income Growth: “‘Firming up Inequality’ by [Jae Song, David J. Price, Fatih Guvenen, and Nicholas Bloom]…

…The authors claim that their results disprove the claim made by me and others, such as Thomas Piketty and Emmanuel Saez, that the growth of top 1 percent incomes was driven by the pay of executives and those in the financial sector…. In fact, the study neither examines nor rebuts claims about executive pay. The authors also offer a “we live in the best possible world” interpretation of their findings [that] inequality is due to high productivity growth of “superfirms”… pure speculation… completely disconnected from their actual empirical work… productivity trends… contradict [it]…. They imply huge wage disparities have opened up between median workers across firms within an industry… implausible….

The Bakija et al. (2012) analysis… show[s]… executives account for roughly 40 percent of the growth of top 1.0 and top 0.1 percent household incomes. Financial sector employees account for another 23 percent of the growth…. One need only compute the amount of executive pay in the top 1 percent now and in the past to assess whether executive pay fueled top wage growth. The authors of ‘Firming up Inequality’ could have done so for all wage income…. They have data on all firms, publicly traded and privately held, and this would be a very useful contribution. Absent such an analysis, their evidence does not overturn our findings…

Things to Read on the Afternoon of June 5, 2015

Posted on by Brad DeLong

Must- and Should-Reads:

Might Like to Be Aware of:

David Glasner on Monetary Régime Change

Posted on by Brad DeLong

David Glasner enters the lists in the Omega Point discussion, making two big and important points:

  1. There is an equilibrium in which the long-run comes quickly, and an equilibrium in which it comes so slowly that other things inevitably intervene. We do not know very much about what determines which the economy settles in, but we do strongly suspect from the Great Depression that sufficiently aggressive monetary régime change can eliminate the permanent-depression equilibrium

  2. 1931 was the once-in-a-century time for a monetary régime change in the twentieth century (and, if we are allowed one every half-century, 1978 was the time for the second). And it looks to him very much like 2009 was the time for a monetary régime change in the first half of the twenty-first century. That the Federal Reserve did not realize this in late 2009–that it expected a rapid recovery from the economy’s self-equilibrating forces even without additional fiscal and monetary stimulus–is our sorrow today.

I agree with two. I am less certain about (1). I would say probably, and note that sufficiently aggressive in this case is a weasel phrase, and admit that I am surprised that Abenomics in Japan has not been more successful. But more on that anon.


David Glasner: Repeat after Me: Inflation’s the Cure not the Disease | Uneasy Money: “The question… depends not on an abstract argument about the shape of the LM curve…

…but about the evolution of inflation expectations over time. I’m not sure that I’m persuaded by DeLong’s backward induction argument–an argument that I like enough to have used myself on occasion while conceding that the logic may not hold in the real word–but there is no logical inconsistency between the backward-induction argument and Krugman’s credibility argument; they simply reflect different conjectures about the evolution of inflation expectations in a world in which there is uncertainty about what the future monetary policy of the central bank is going to be (in other words, a world like the one we inhabit)…. The problem with monetary policy since 2008 has been that the Fed has credibly adopted a 2% inflation target… [which it] prefers to undershoot rather than overshoot…. With the both Wickselian natural real and natural nominal short-term rates of interest probably below zero, it would have made sense to raise the inflation target to get the natural nominal short-term rate above zero. There were other reasons to raise the inflation target as well, e.g., providing debt relief to debtors, thereby benefitting not only debtors but also those creditors whose debtors simply defaulted….

Monetary policy is impotent at the zero lower bound, but that impotence is not inherent; it is self-imposed by the credibility of the Fed’s own inflation target…. Changing the inflation target is not a decision… the Fed [should] take lightly… [but] in a crisis, you… take a chance… hope… credibility can be restored by future responsible behavior….

1930… Hawtrey… suggested that the Bank of England reduce Bank Rate even at the risk of endangering the convertibility of sterling….

MACMILLAN…. the course you suggest would not have been consistent with what one may call orthodox Central Banking, would it?

HAWTREY. I do not know what orthodox Central Banking is.

MACMILLAN…. when gold ebbs away you must restrict credit as a general principle?

HAWTREY…. that kind of orthodoxy is like conventions at bridge; you have to break them when the circumstances call for it. I think that a gold reserve exists to be used…. Perhaps once in a century the time comes when you can use your gold reserve for the governing purpose, provided you have the courage to use practically all of it.

Of course the best evidence for the effectiveness of monetary policy at the zero lower bound was provided three years later, in April 1933, when FDR suspended the gold standard in the US…. Maybe it’s too much to expect that an unelected central bank would take upon itself to adopt as a policy goal a substantial increase in the price level…. But even so, we at least ought to be clear that if monetary policy is impotent at the zero lower bound, the impotence is not caused by any inherent weakness, but by the institutional and political constraints under which it operates…. Maybe… nominal GDP level targeting… offers a practical and civilly reverent way of allowing monetary policy to be effective at the zero lower bound.

Must-Read: David Glasner: Repeat after Me: Inflation’s the Cure not the Disease

Posted on by Brad DeLong

Must-Read: 1931 was the once-in-a-century time for a monetary régime change in the twentieth century (and, if we are allowed one every half-century, 1978 was the time for the second). And it looks to me very much like 2009 was the time for a monetary régime change in the first half of the twenty-first century:

David Glasner: Repeat after Me: Inflation’s the Cure not the Disease: “The question… depends not on an abstract argument about the shape of the LM curve…

…but about the evolution of inflation expectations over time. I’m not sure that I’m persuaded by DeLong’s backward induction argument–an argument that I like enough to have used myself on occasion while conceding that the logic may not hold in the real word–but there is no logical inconsistency… different conjectures about the evolution of inflation expectations in a world in which there is uncertainty about what the future monetary policy of the central bank is going to be (in other words, a world like the one we inhabit)…. The problem with monetary policy since 2008 has been that the Fed has credibly adopted a 2% inflation target… [which it] prefers to undershoot…. Monetary policy is impotent at the zero lower bound, but that impotence is… self-imposed by the credibility of the Fed’s own inflation target…. Changing the inflation target is not a decision… the Fed [should] take lightly… [but] in a crisis, you… take a chance… hope… credibility can be restored by future responsible behavior…. HAWTREY:

Orthodox Central Banking… is like conventions at bridge; you have to break them when the circumstances call for it…. A gold reserve exists to be used… once in a century… for the governing purpose, provided you have the courage to use practically all of it…

Employment Report Talking Points for Bloomberg TV

Posted on by Brad DeLong

U.S. Employers Add 280,000 Workers in May: “Is Jobs Data Truly Good News About U.S. Economy?

39:21 – UC Berkeley Professor of Economics Brad Delong and former republican Congressman Tom Davis examine the state of the U.S. economy following the May jobs report and discuss what the U.S. government needs to do to spark growth. They speak on ‘Bloomberg Markets.’ (Source: Bloomberg)

http://www.bloomberg.com/news/videos/2015-06-05/is-jobs-data-truly-good-news-about-u-s-economy-

  • The past three months’ job market reports do not lead us to change our minds about anything. What did you think three months ago? You should think the same thing now.

  • What should you have thought three months ago? Four things:

  • First, for the past 50 years the unemployment rate and other indicators of the health of the labor market–ease of getting a job, business willingness to build more to fill vacancies, employment the population adjusted for demographics and sociology–have all pointed in the same direction.

    • Not anymore.
    • Today the unemployment rate suggest that we have had a full recovery, while other labor market indicators suggest a very partial and very incomplete recovery.
    • The Federal Reserve is still mostly looking at the unemployment rate.
    • They are smart, and they know all the arguments, but when I look at all the evidence I cannot agree

  • Thus, second, it looks to me like we are still far short of anything that might be called a normal or neutral business-cycle level of employment.

    • So it is not time to start cooling off the economy.

  • Third, it will not be time to start cooling off the economy until either we get different signals:

    • Either from the employment share numbers.
    • Or from the wage growth numbers.

  • Fourth we never recovered to the pre-2007 trend.

    • It was not that the pre-2007 trend was unsustainable.
    • In 2007 we were buying the wrong things: too many imports and too much housing.
    • But the economy as a whole was not overheated.
    • Why haven’t we had a full recovery to the pre-2007 trend? Two reasons:
      • First, Republican economists have failed to properly brief Republican members of Congress that what is needed now are the policies that Milton Friedman’s teachers, people like Jacob Viner, recommended for the 1930s–not austerity and not shrinking the Federal Reserve balance sheet shrinkage, but rather coordinated monetary and fiscal policy expansion.
      • Second, because in late 2009 Ben Bernanke overestimated the economy’s self-generated recuperative powers, and so failed to understand the seriousness of the situation.
      • Third, to be fair, because Tim Geithner thought the same as Bernanke–that the economy was going to recover on its own–and Obama believed him.

  • Fifth, it is still not too late to turn the macroeconomic policy ship around:

    • Global investors are willing to lend the US government money at unbelievably low terms.
    • Every reasonable calculation I have seen tell us the benefits of borrowing up to $1 trillion a year more and spending it on infrastructure and education are huge.
    • It is definitely worth doing, unless and until interest rates return to normal levels.

  • Sixth, there are also important structural issues:

    • Growing inequality.
    • The rise of the robots.
    • Globalization, etc.
    • But these are roughly in the same state today that they were in 2007 or indeed 2000.
    • Changes since then or overwhelmingly due to short-run macroeconomic events and problems:
      • The housing bubble.
      • The Wall Street crash.
      • The deep depression.
      • The anemic half-recovery.

  • Seventh, Obama… Taking a broad view, under Obama the American economy has done worse than it has done under any Democratic president since the Civil War

    • Save perhaps Carter.
    • Of course, that also means the economy has done better than under any Republican president since Coolidge
      • Save Eisenhower.
      • But these days the Democrats are claiming Eisenhower as his. Certainly today’s Republicans don’t want that RINO.
      • In fact, these days Democrats are also posthumously baptizing Lincoln as a Democrat, kind of like the Mormons do, when you think about it…

  • Eighth, things could have been much better:

    • We would have had to switch out of housing and into exports and investment between 2006 and 2009.
    • We were well on the way–about halfway–through making that switch at full employment.
    • But then Wall Street mashed up and caused the crash.
    • We did not need a depression.
      • Especially not a depression this long.
    • What we needed–and could have had–was an expenditure switch. We still could have one–to education, to business investment, to infrastructure, to exports.

The conversation:

Matt Miller: Tom, let me start with you. Weren’t you impressed with this month’s job report? We added 280,000 jobs. That is much higher than the average of the past twelve months. We boosted hourly pay.

Tom Davis: Yes. It was a good report.

Matt Miller: And, Brad, do you find it to be a good report as well?

Brad DeLong: Yes. It was a good report. But combine it with the past two reports. We are about where we were three months ago. Whatever you thought about the state of the economy three months ago, you should think it now. The last quarter has not been one in which there has been a great deal of news to lead anyone to change their mind.

Matt Miller: Tom, are you more positive about this report than Brad? He’s got a lot more “buts” and “ifs” in there.

Tom Davis: Well, there are a lot of “buts” and “ifs”. I think lower gas prices have given a tax cut to everybody. I think they have created a lot of optimism. But there is still a lot of uncertainty. And there are still a number of international factors that come into this that nobody can control. I think some times we give the government too much credit for what goes well and too much blame for what goes badly.

Matt Miller: So what should we do, Tom, to make things better here? What is your prescription? Or what is the Republican prescription, I should say?

Tom Davis: Look: Our prescription has always been that higher taxes and needless regulations–and there are a lot hanging around. You need to be looking at them so that businesses can operate more efficiently. One of the biggest problems right now is that we have a political system that is not operating very efficiently on issues from the Export-Import Bank; to getting a long-term transportation bill which has been on life-support for six months–for six years; to just getting the Appropriations bills out on time. We just have a political system that is not functioning very efficiently. And that has, I think, a drag on the economy. We’re not getting out of the government what we ought to be.

Matt Miller: Brad, Democrats and even President Obama would agree with that. They would like to see lower taxes and fewer regulations, but also more spending. Right?

Brad DeLong: Well, I don’t think it is just Democrats who would like to see more spending. Back in the 1970s Milton Friedman looked back at the Great Depression. He talked about what his teachers had recommended as policies and what he would have advocated in the Great Depression. He called for, in situations like that, and, I think, in situations like this, for coordinated monetary and fiscal expansion. With interest rates at their extraordinarily low levels, now, as in the 1930s, is a once-in-a-century opportunity to pull all the infrastructure spending we will be doing over the next generation forward in time and do it over the next five years, when the government can finance it at such extraordinarily good terms.

Matt Miller: We have a national infrastructure crisis, right? Roads and bridges, ports and airports are at levels that are critical and certainly not worthy of a first-world country. Tom, don’t you agree we need to fix that up quickly?

Tom Davis: I agree with that. Look, I think that with the stimulus package that was passed in 2009 they blew an opportunity to do more for infrastructure. We should have had something to show at the end of that. With the money, maybe we got a short-term stimulus, but we should have gotten something long-term.

Brad DeLong: They had to get it through with only Democratic votes. Why weren’t there any Republicans willing to deal? We could have gotten a larger and much better-crafted program.

Matt Miller: There was a lot of money there. There was a lot of money there, Brad.

Brad: Yep.

Tom Davis: Let me interject. I know something about politics. I think the President’s inclination was to deal with Republicans, but Democrat leaders said: “No: We are in charge. You have to go through us.” And I think that hampered his ability. It wasn’t just Republicans. You offer us a bad deal, don’t expect us to take it.

Matt Miller: That doesn’t change the fact that we still have crumbling infrastructure in this country.

Tom Davis: No, I agree.

Matt Miller: It needs to be, somehow, brought up to snuff. How would you do that?

Tom Davis: You need a massive transportation bill at this point. And you need continuity. Right now this thing is on life support. So long-term projects are not moving through. States are taking some initiative in some cases. But this is the time to do it.

Matt Miller: Brad, it sounds like…

Brad DeLong: When Larry Summers was in the White House, he spent two years trying to assemble a centrist bipartisan coalition for a large-scale long-lasting infrastructure bank, and got no Republican bites at all.

Tom Davis: Well, the Democrats controlled both houses. They could have done it. That is all I am saying. We have to look ahead at this point. But I think they blew the opportunity with that bill when they controlled everything. I think bipartisan government right now has just crumbled. We have turned almost into a parliamentary system in our behavior, and unfortunately with our system of government that just does not work very well.

Matt Miller: It sounds like we are all in agreement that something needs to be done. Hopefully that can happen. Maybe the two of you can get together after this program.