Tag: Nick Bunker

Musings on Worker Stickiness, Full Employment, and Productivity Growth

Posted on by Brad DeLong
U S labor market tightness hiring and the decline in job switching Equitable Growth

In many businesses, the explicit or implicit human-resources policy is LHFF–last hired, first fired. That means that workers who jump from a job in one firm to a job in another purchase a greater beta with respect to the business cycle along with the higher wages, better working conditions, and more interesting responsibilities that would lead them to jump. This seems the most likely explanation for the fact that more than one-fifth of the hiring we would expect to get at the current aggregate level of unemployment relative to job openings is not there. After the catastrophic downturn of 2008-9 and the subsequent half a decade noncovery, workers’ assessments of the risks taken on in jumping firms and thus going to the back of the tenure-in-job queue are likely to be greatly elevated. Everybody knows people who lost their jobs in 2008-9 and then had the devil’s own time finding another one.

How big a drag is this on productivity growth, if it is indeed the case that diminished risk tolerance is thus affecting not only physical investment but human capital investment in diminishing workers’ willingness to “invest” in a new (and better) employer-employee match? Does this have implications for where full employment is? My first thoughts are:

  1. If workers are indeed stickier, it becomes more expensive for firms to expand employment by raising wages–you have to raise everyone’s wages and yet you attract fewer good workers from other firms. This makes the Phillips Curve even flatter in a boom, and makes inflation less of a threat, meaning we are further from full employment than we thought.

  2. Productivity growth is slower, which means that the NAIRU is higher in any model in which workers have labor market tightness-dependent expectations as to the warranted rate of real wage increase and the NAIRU equilibrates at a level at which that warranted rate is sustainable.

How big are these factors? I don’t even have a back-of-the-envelope guess as to whether they are important, or how important they are.

Nick?

Nick Bunker: Labor Market Tightness and the Decline in Job Switching: “There’s less hiring for each job opening…

…Peter Diamond… and Ayşegül Şahin…. Hires of those out of the labor force are in line with previous recoveries, and hires of those who were unemployed are slightly lower, but… hires of… already employed workers has been quite weak compared to the tightness of the labor market. Such “job switching” has been trending downward for all age groups since 2000…. Something is amiss with either the willingness of workers to switch jobs or employers’ interest in hiring already employed workers…

Peter A. Diamond and Ayşegül Şahin: Disaggregating the Matching Function: :Decompositions of aggregate hires show how the hiring process differs across different groups of workers and of firms…

…Decompositions include employment status in the previous month, age, gender and education. Another separates hiring between part-time and full-time jobs, which show different patterns in the current recovery. Shift-share analyses are done based on industry, firm size and occupation to show what part of the residual of the aggregate hiring function can be explained by the composition of vacancies…

Must-Read: Izabella Kaminska: Why the World Needs Investment

Posted on by Brad DeLong

Must-Read: Nick Bunker sends us to:

Izabella Kaminska: Why the World Needs Investment: “The liquidity trap, when monetary policy becomes ineffective at very low or zero interest rates…

…may be old news but the global dimension of the problem is a new and worrying phenomenon…. So engrained is the notion saving is always thrifty and good that it’s become extremely hard to articulate why this state of affairs is so disastrous for the global economy.On Monday, however, Citi’s rates team does an excellent job of summing up the problem…. In their opinion liquidity traps–symptomatic of the secular stagnation phenomenon more broadly–are exported abroad by way of four different channels:

  1. Capital markets transmit secular stagnation and can transmit recessions in a world with low interest rates.
  2. Policies that trigger current account surpluses are beggar-thy-neighbor.
  3. Reserve currencies bear a disproportionate share of the global liquidity trap, because of a shortage of safe assets. This works by leaving real rates too low in the face of a negative shock (e.g. Brexit) to give confidence in the ability to stimulate demand.
  4. Large fiscal expansions can eliminate secular stagnation (= bearish bonds).

In that regard, it’s worth paying attention to the growing euroglut phenomenon. As the analysts note, the Euro area in 2015 contributed to the glut phenomenon with a large surplus of 3.2% of GDP, adding to the more traditional surpluses from Japan (3.3%) and China (3%). This, in short, isn’t funny anymore. If countries want to carry international surpluses indefinitely the suggestion here is they need also to reinvest those ‘savings’ into capacity expanding investments abroad. If not, those savings will eventually end up constraining global growth by turning everything into a simple zero sum game. We’ve not seen it spelled out that simply before. But it’s an elegant and logical explanation.

Screen Shot 2016 07 11 at 11 20 28 png 762×436 pixels

Cf.: Ricardo J. Caballero, Emmanuel Farhi, and Pierre-Olivier Gourinchas (2015): Global Imbalances and Currency Wars at the ZLB: “The consequences of extremely low equilibrium real interest rates in a world with integrated but heterogenous capital markets and nominal rigidities…

…(i) Economies experiencing liquidity traps pull others into a similar situation by running current account surpluses; (ii) Reserve currencies have a tendency to bear a disproportionate share of the global liquidity trap|a phenomenon we dub the ‘reserve currency paradox’; (iii) While more price and wage flexibility exacerbates the risk of a deflationary global liquidity trap, it is the more rigid economies that bear the brunt of the recession; (iv) Beggar-thy-neighbor exchange rate devaluations provide stimulus to the undertaking country at the expense of other countries (zero-sum); and (v) Safe public debt issuances, helicopter drops of money, and increases in government spending in any country are expansionary for all countries (positive-sum). We use these results to shed light on the evolution of global imbalances, interest rates, and exchange rates since the beginning of the global financial crisis.

Must-Read: Nick Bunker: How the U.S. Housing Boom Hid Weaknesses in the Labor Market

Posted on by Brad DeLong

Must-Read: But I cannot help but think that the argument of this paper is fundamentally wrong:

Nick Bunker: How the U.S. Housing Boom Hid Weaknesses in the Labor Market: “The share of workers ages 25 to 54 with a job has been on an overall decline since 2000…

…This decline hit prime-age workers without a college degree particularly hard…. Kerwin Kofi Charles and Erik Hurst of the University of Chicago and Matthew Notowidigdo of Northwestern… detail the relationship between share of prime-age, non-college-educated men working in manufacturing, working in construction, and those not employed. The combined share of these three series seems to stay relatively constant at about 50 percent, with increases in construction employment offset by declines in manufacturing employment or declines in non-employment. So perhaps increased demand for construction workers during the housing bubble offset the declines in manufacturing employment. Looking at trends in employment across metropolitan areas in the United States, the three authors find evidence that the construction industry did end up hiring workers who left the manufacturing sector…. The results of this paper support the larger idea that declining employment and labor force participation among prime-age men is primarily a result of declining demand for the types of labor that many of them traditionally provided…

The first two figures in the paper show the share of non-college men with jobs holding roughly steady until 2000, and then declining:

Pubs aeaweb org doi pdfplus 10 1257 jep 30 2 179

And the number of manufacturing plus construction jobs staying roughly constant until 2000, and then declining:

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Share. Number. Share. Number. The non-college male employment share held up perfectly well through 2000 in spite of the fact that the average non-college male had a smaller and smaller chance of landing a job in manufacturing-and-construction. “Declining demand of the types of labor… traditionally provided” has no effect on employment shares–until after 2000. I believe that declining demand had a big effect on the price of labor–on real wages. But I see no sign it had any effect on the chance of a non-college male getting a job.

And look at non-college women:

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Lagging men by 12%-points in employment in 2000, but by 15%-points today.

I see no reason to think that there is a cross-gender cross-era thing in employment shares for shifts in economic structure that lead to a declining demand for labor in traditionally “male” sectors to explain. Slack demand and thus a broken labor market is a much better hypothesis to start with.

Must-Read: Nick Bunker: What’s the deal with U.S. wage growth?

Posted on by Brad DeLong

Must-Read: Suppose you put someone in cryogenic sleep a decade ago, woke them up today, showed them this graph:

Graph Employment Cost Index Total compensation All Civilian FRED St Louis Fed

and said: “The U.S. Federal Reserve still has the same 2%/year inflation target it had in the early 2000s. Do you think it should raise or lower interest rates in June?”

I cannot think of a single reason why such a person would say “raise interest rates” (unless, of course, their compensation was an increasing function of the interest rate).

Nick Bunker: What’s the deal with U.S. wage growth?: “The U.S. unemployment rate has been at or under 5 percent for more than six months…

…But… neither inflation nor wage growth has picked up considerably, despite expectations that they would…. First… the unemployment rate may be slightly overstating the health of the country’s labor market. Measured by the employed share of workers ages 25 to 54, the labor market has a long way to go before it hits a level usually associated with strong wage growth…. Adam Ozimek… points out that… low inflation has an impact on wage growth, because employers will be less willing to pass along wage hikes to prices, and employees will need less of a wage increase…. A third argument is that… low measured wage growth is due in part to low-wage workers moving into full-time employment…. Already-full-time employees are seeing rising wages, that growth is masked by the entrance of lower-earning workers…. It seems likely… that… five percent just isn’t what it used to be…

Must-read: Nick Bunker: “Why is U.S. labor market fluidity drying up?”

Posted on by Brad DeLong

Must-Read: Nick Bunker: Why is U.S. labor market fluidity drying up?: “The U.S. labor market is a far less dynamic place than it was 30 years ago…

…Workers today are less likely to get a job while unemployed, move into unemployment, switch jobs, or move across state lines. You’d think just the opposite would be true given some of the discussion about our rapidly changing digital economy, but the data show what the data show. Even still, the reason—or reasons—for the decline in fluidity aren’t known…. Molloy… Smith… Trezzi… and… Wozniak… find that overall fluidity in the U.S. labor market has fallen between 10 percent and 15 percent since the early 1980s. But for some of the individual flows, the decline has been as large as one-third…. The authors find no evidence… that the gain from switching jobs has declined…. While the authors do find some speculative evidence that declines in fluidity are related to declines in social trust, the results aren’t particularly strong…. After their analysis, it seems more likely than not that the decline in labor market fluidity is harmful…

Must-read: Nick Bunker: How concerned should we be about business investment and productivity growth?

Posted on by Brad DeLong

Must-Read: Non-residential investment is not that low given the low-pressure economy. In fact, on some measures, business equipment and structures investment is relatively high.

FRED Graph FRED St Louis Fed

It’s residential investment and productivity growth that appear to me to be disappointingly low. The first is due, in some part at least, to administrative malpractice on the part of the Obama Treasury. The second is a puzzle , for it is a lot lower than could be plausibly accounted for by lower business investment…

Nick Bunker: How concerned should we be about business investment and productivity growth? – Equitable Growth: “The changes in business behavior in recent decades…

…are factors in the recent slowdown in productivity growth. But how concerned should we be about these trends? Are they cyclical problems that will soon be corrected? Or are they deeper structural changes we should grapple with more?… Jason Furman… provide[s] a good starting point…. He points out that since 2010 the decline in labor productivity growth in the United States has been driven mostly by a… slowdown in business investment…. How do we boost business investment?… [The] ‘accelerator’ view of the slowdown makes sense…. What are firms doing with all these profits they’re earning and not investing, then? The data show that a large chunk of these profits are being distributed to shareholders in the form of increased dividends and stock buybacks…. Declining business investment and dynamism, insomuch as they are affecting productivity growth, should concern policymakers and everyday Americans. Stronger productivity is a necessary requirement for higher living standards…

Must-Read: Nick Bunker: Trying to Get a Grip on the “Gig Economy”

Posted on by Brad DeLong

Must-Read: Our smart young Equitable Growth whippersnapper Nick Bunker reads Dourado and Koopman and, correctly, sees the “gig economy” as a positive way of trying to turn our current sow’s ear of a low-pressure labor market into some reasonable facsimile of a silk purse. When put that way, what we need is not a halfway house between W-2 employees and 1099 independent contractors, but more expansionary monetary and fiscal policy:

Nick Bunker: Trying to Get a Grip on the “Gig Economy”: “The trend… starts around the year 2000…

…The sharing economy companies didn’t get started until at least eight years later… follows rather than causes the bulk of the increase in independent contracting. Dourado and Koopman point out that business dynamism… began to decline around 2000 as businesses stopped creating jobs at the rate they once did. These new gig-based or sharing economy businesses seem to be seizing the opportunity created by a structural change in the U.S. labor market rather than causing it…. If we want to understand this trend, perhaps we should change the focus of our investigations.

Mr. Phillips and His Curve: “What Should the Fed Do?” Weblogging

Posted on by Brad DeLong

Nick Bunker says:

Nick Bunker says: A Kink in the Phillips Curve: “Look at the relationship between wage growth and another measure of labor market slack, however, [and] the [Phillips-Curve] relationship might hold up. Take a look at Figure 1:

A kink in the Phillips curve Equitable Growth

This is entirely consistent with inflation-expectations anchored near 2%/year–or inflation so low that shifts in inflation expectations are not a thing–and a Phillips Curve that gradually loses its slope as wage growth approaches the zero-change sticky point:

A kink in the Phillips curve Equitable Growth

This is entirely consistent with inflation-expectations anchored near 2%/year–or inflation so low that shifts in inflation expectations are not a thing–and a Phillips Curve in which the right labor slack variable is some average of prime-age employment-to-population and the (now normalized) unemployment rate:

A kink in the Phillips curve Equitable Growth

It is really not consistent with any naive view that holds that the Phillips Curve has the unemployment rate and the unemployment rate alone on its right-hand side, and that inflation is about to pick up substantially with little increase in the employment-to-population ratio.

Thus not only does the right wing of the Federal Reserve expecting an imminent upswing of inflation because of MONEY PRINTING! have it wrong, it strongly looks as though the center of the Federal Reserve has it wrong too…