Lazear on Labor

Ed Lazear has a very nice short column, Job Turnover Data Show Lots Of Churning, Little Job Creation on Investor's Business Daily.

Modern labor economists see employment and unemployment as a search and matching process with a lot of churn. The popular impression, echoed in most media discussion, is that there is a fixed number of jobs, and people just wait around for more jobs to be "created." That's what it may feel like to an individual, but that's not how the economy works. Lazear's column puts in one very short space some of the better ways to think about unemployment.

The central fact of labor markets is huge churn, not a fixed number of lifelong jobs:

Work and Jail

I have run in to some interesting recent readings on the nexus between work, or the lack thereof, jail and drugs.  In case you didn't know, the numbers are staggering.

The table below, from The Prison Boom and the Lack of Black Progress since Smith and Welch by Derek Neal and Armin Rick, gives the fraction of black male high school dropouts employed, and below that the fraction that are institutionalized -- mostly in jail.

So, bottom left, in the last census, 19.2% of 20-24 year olds were employed, and 26.4 (!) percent were in jail. Read up, and it was not always thus. Of the cohort born in the 1930s, at the same age, 68% were employed and 6.7% were in jail -- in a society and criminal justice system that was, whatever our current faults, much more overtly racist. The numbers for older men are just as shocking if you haven't see these before.

Weekend Labor Markets

This weekend produced several interesting readings on the state of labor markets.

1. Glenn Hubbard,

In the Wall Street Journal on "The Unemployment Puzzle: Where Have All the Workers Gone?" Like economists of all stripes, the fact that the unemployment rate -- the fraction of people looking for jobs -- is down masks the deeper problem, that so many people are not working and not looking.

Glenn sets out well the basic question:

Employment-Population Ratio: war of the graphs

The comments on my last post were particularly good, and pointed to some alternative graphs. And, I think, to the important conclusion, that there is no substitute really for sitting down and doing some economics.

Employment-Population ratio

Torsten Slok keeps making interesting graphs, which make a blogger's job easy.

Mulligan interview

Source: Wall Street Journal

The Saturday Wall Street Journal has a nice interview / overview of Casey Mulligan, including this cool cartoon.

Casey has done pioneering work looking really hard at how the ACA and other social programs work, figuring out exactly what their disincentives are, and calculating how much those disincentives are likely to affect people's decisions to work, go to school, and so forth.

This is hard work. Most of the punditocracy (I'm guilty too) sort of waves our hands at disincentives as a big source of economic malaise. Casey puts together the numbers. It's so much easier to just wave your hands about "demand," invent a multiplier, and conclude all our troubles would be over if the government would only spend so many trillions.  Disagree with him if you like, but only by doing the same thing and coming up with different numbers.

Larry Summers' Martin Feldstein Speech

The latest NBER Reporter has the speech Larry Summers gave at the annual NBER "summer camp" for economists. As you would expect, there are some really interesting bits, which provoked a good lunchroom discussion. To my mind it (and this blog post) gets much better toward the end.

The organizing thread is Larry's worries about long term trends in employment and income distribution, and how trends in productivity and innovation affect it. If the word did not have negative connotations, I might term the talk "neo-Luddite," the worry that this time, unlike all the others, technical change, primarily information technology, will be really bad for workers.

Ouch. "Unemployment" figures in the popular press, but it is the fraction of people actively looking for jobs. The far bigger worry among many economists is the rise in "non-employment." One in ten men, 25-50, are simply not working at all or even looking for work.

McDonalds and the minimum wage

Recently, on a long car trip returning from a glider contest, I did something unusual among our liberal elite: I actually went to a McDonalds and ate there.

The lady who took my order must have been about 19, as were all the other employees I could see, and pretty clearly new on the job.  Getting the order right took some effort.  I made the mistake of paying cash. The bill was something like $7.62. I first offered a $10, and she rang it up. Then I found 12 cents in my pocket, and offered it. This was a big mistake, as the cash register had already computed my change, and adjusting to my offer of 12 cents was beyond her abilities.

Most people might have been annoyed, but as an economist and an educator, I'm happy to see human capital building. OK, I was a little annoyed.

Which brings me, of course, to the proposals for a sharply increased minimum wage.

Job market doldrums

Three recent views on the dismal labor market pose an interesting contrast.

Alan Blinder wrote a provocative WSJ piece on 6/11, Fiscal Fixes for the Jobless Recovery. A week prviously, 6/5, Ed Lazear wrote about The Hidden Jobless Disaster. And John Taylor has a good short blog post Job Growth–Barely Keeping Pace with Population

All three authors emphasize that the unemployment rate is a poor measure of the labor market. Unemployment counts people who don't have a job but are actively looking for one. People who give up and leave the labor force don't count. Employment is a more interesting number, and the employment-population ratio a better summary statistic than the unemployment rate. After all, if unemployment falls because everyone who is looking for a job gives up, I don't think we'd see that as a good sign.

Source: Wall Street Journal

Ed Lazear made this interesting chart. As he explains,

Two cents on the minimum wage

Once upon a time, the minimum wage, like free trade, was a basic test of whether you were awake in the first week of econ 1. We put a horizontal line in a supply and demand graph. Minimum wages increase unemployment of poor people.

It's  back of course. I won't review here the debate over Card and Kruger's provocative results, diff in diff estimators, empirical work without theory (is there really no substitution to capital or high skilled labor? Is the price elasticity really zero?) and so on. This is all low-hanging fruit. (See Greg Mankiw, who asks if $9 why not $20,  David Henderson's nice post with great quotes from Paul Krugman on just how bad minimum wages were before evil Republicans didn't like them, the Becker-Posner Blog, and Ed Glaeser, noting how minimum wages are hidden taxing and spending and better ways to achieve the same goals, and this clever Steve Chapman oped asking, why not fix prices lower instead?.)

Let's presume for the sake of discussion that a rise in the minimum wage would indeed not much change the demand for labor, the costs would just be passed on in the form of somewhat higher prices, with little decline in output -- as usual in non-economics, assume that all elasticities vanish.

It still strikes me, that like much of the current policy discussion, we're asking the wrong question. The question is not "is this great" or "is this terrible" but "does this have anything to do with current problems?"  The fiddling while Rome burns is worse here than the belief in minor economic magic.

What's holding back the US economy?

This is a video I did with Steve Davis and Amir Sufi, moderated by Hal Weitzman, part of the new Chicago Booth "The Big Question" series. Youtube link here. I'm actually a lot calmer through most of it than I appear in the cover shot.

Benefits trap art

Two charts from the UK, admittedly sprayed with too much chartjunk, but illustrating the poverty trap in Britain. (A previous post  on high marginal tax rates for low income people has more charts like this.)

Most of UK benefits are not time-limited, so people get stuck for life, and then for generations.

Debate with Goolsbee

Last Tuesday, Glen Weyl asked me to debate economic policy issues in the current election with Austan Goolsbee, in the famous "rational choice" workshop. Here's my 10-minute opening statement. Austan did a great job in a tough audience.

Economic Policy and the Election: 

Growth is our number one economic challenge. Here’s how recoveries are supposed to look. We get a period of very strong growth rates, until the economy recovers to “trend,” or potential.”

Here we are. Not only have we failed to bounce back, growth is slowing down. We seem headed for a permanent loss of about 8% and sclerotic 1-2% growth.

CBO and the fiscal cliff

The CBO has released a report warning that a new recession could follow the  "fiscal cliff"

Background: Here's the CBO report and a Washington Post story  A few snippets from the CBO:

Just how bad is the economy?

The second-quarter GDP numbers came out. The newspapers and Republicans pounced on low growth and anemic job growth. The Democrats rebut growth is growth and tell us of the steady job gains. How bad is the economy?

Economists know that levels matter, and that long-run growth matters more than anything else. I made a few graphs to emphasize these points.

Start with the level (in logs) of real GDP. (This is an update of a graph I saw on John Taylor's blog.)

Looking at levels you see the current awfulness better than by looking at growth rates. GDP declined almost 5% in the recession, but then started growing at a glacial pace, averaging 2.4% since the trough.  We seem stuck in this slow growth trap.

Sand in the gears

Today's Wall Street Journal has a beautifully informative editorial, "Employment, Italian Style." Snippets:

Once you hire employee 11, you must submit an annual self-assessment to the national authorities outlining every possible health and safety hazard to which your employees might be subject. These include stress that is work-related or caused by age, gender and racial differences. You must also note all precautionary and individual measures to prevent risks, procedures to carry them out, the names of employees in charge of safety, as well as the physician whose presence is required for the assessment.

Rajan on the world's troubles

My colleague Raghu Rajan wrote a very thoughtful essay in Foreign Affairs. Though titled "The True Lessons of the Recession" it's really more a grand view of the last 50 years and prospects for growth ahead. The subtitle "The West Can’t Borrow and Spend Its Way to Recovery" is worth repeating.

Hungarian Outrage

I stumbled across this lovely little post from Hungary, titled "This is why I don't give you a job"

It's full of classic unintended-consequence reminders for economists.  For example, protecting people by not letting employers fire them means that people don't get jobs in the first place.

It has some good reminders for the US as well.