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Loss of Good Paying Jobs Could Just Be Due to High Unemployment Policy Print
Wednesday, 11 June 2014 04:08

Thomas Edsall had a piece noting the deterioration of job quality since 2000 that many of us have been writing about in recent years. He discusses various possibilities going forward, but ignores an obvious one.

For most of the period since the 2001 recession the economy has been below full employment by almost anyone's definition. In such situations, it should not be surprising that there would be a deterioration in job quality as workers have to slide down the skills ladder in order to find employment. This is the sort of story that Jared Bernstein and I highlight in our book, Getting Back to Full Employment (free download available).

If Jared and I are correct then the problem is simply the government's high unemployment policy. This could be reversed by either larger government deficits (i.e. increased spending and/or tax cuts to people who will spend them), a lower trade deficit from a lower valued dollar, or a reduction in the length of the average work year through policies like work sharing. This would suggest that the deterioration of job quality is a problem that we know how to solve, even if there may not be the political will to do it.

 
Correcting Vox on Cramdown Print
Tuesday, 10 June 2014 08:14

Matt Yglesias has a piece in Vox explaining the politics of cramdown in which it tells readers that there was no way the Obama administration could have gotten cramdown through Congress. While Yglesias correctly points out that the Obama administration never really tried, he misrepresented the nature of the problem.

One of the great things about cramdown was that the proposal could have been sliced and diced in almost an infinite number of ways. While Yglesias is undoubtedly correct in saying that a wholesale revision to the bankruptcy code, that would have allowed all mortgages to be rewritten in bankruptcy, never would have gotten through Congress, that doesn't mean Obama could not have gotten a more limited version passed.

For example, the dates at which mortgages were issued could have been narrowly restricted (e.g. 2004-2008). The size of the mortgages could have also been restricted. Does Yglesias know that Evan Bayh never would have agreed to cramdown for mortgages of less than $300,000 issued in a narrow time window, coupled with some huge government contract for a firm he could subsequently work for as a lobbyist in his post-Senate career? 

That is the way presidents get bills passed that they actually want passed. (Look at what Obama will do to get fast-track authority when he wants to get the Trans-Pacific Partnership approved by Congress.) Anyhow, cramdown was almost certainly passable in some form if President Obama wanted to go that route. He didn't, end of story.

 

 
Counterfeits and Unauthorized Copies Print
Tuesday, 10 June 2014 07:03

For some reason the NYT continues to have problems distinguishing between the concept of a counterfeit item and an unauthorized copy. The confusion appears in a column by Yu Hua which uses the term "counterfeit" and "pirated" interchangeably.

The distinction between the two terms is simple and important. A counterfeit item is one where the seller misrepresented its origins to the consumer. In this case the consumer has been ripped off by the seller. By contrast, an unauthorized copy may violate a company's trademark or other intellectual property claim, but it doesn't involve a rip-off of the consumer.

This matters because consumers will presumably assist in cracking down on counterfeits, they are the victims in such cases. On the other hand they benefit from getting unauthorized copies. They are able to buy products at prices that are substantially less than the ones produced by the company's whose intellectual property claims are being violated.

Since this column does not distinguish clearly between the two, it's not possible to understand its complaint. It's not clear whether its common for people in China to order goods on the Internet and not receive the product they are expecting (if this is the case, presumably they would stop buying products on the Internet) or whether goods are being sold that violate intellectual property claims of various companies.

 

Note: Correction made, thanks Andrew and Robert.

 
The NYT Is Worried That It Might Become Hard to Find Good Help in Tehran Print
Sunday, 08 June 2014 11:00

That is the impression that readers of a piece on low birth rates in Iran might be led to believe. The piece told readers that Iran's government wants to raise the country's birth rate from its current 1.3 per couple. According to the piece, the government wants a higher birth rate to increase the power of Iran in the world and the power of its Shiite population in the Islamic world.

Towards the end the piece tells readers:

"Experts say that while birthrates in Iran are very low, there is no real crisis just yet."

It's not clear what the crisis would be in the future if Iran's low fertility rates continue. For those who think it is important that Iran's power in the world grow, or that Shiites become more important in the Islamic world, the continuation of a low birth rate among Iran's Shiites would indeed be bad news. However it is difficult to see why anyone else would be troubled by this prospect.

Iran has had high unemployment for many years and is likely to face continued high unemployment long into the future. In this context, a lower birth rate is likely to be good news since fewer labor market entrants will mean less competition for jobs. This should help to push up wages and living standards for those at the middle and bottom of the income distribution. It would be bad news for those looking for cheap household labor to mow their loans, clean their toilets, and serve as nannies for their kids.

 
Frank Bruni Is Angry That the Government Pays 1000 Times as Much to Peter Peterson as It Does to the Average Kid Print
Sunday, 08 June 2014 05:16

Actually he is not angry about how much money the government pays to Peter Peterson but if he were consistent in his logic he would be. Bruni wrote an apology from older generations to millennials, and one of the central themes is that we are supposed to feel bad about all the money that we get for Social Security and Medicare:

"The Urban Institute released a report in 2012 that looked at figures from 2008 for the combined local, state and federal spending that directly benefited Americans 65 and older versus spending that went to Americans under 19; the per capita discrepancy was $26,355 versus $11,822."

The vast majority of the money going seniors in the Urban Institute's calculation refers to payments for Social Security and Medicare. These are benefits that seniors paid for during their working lifetimes with designated taxes. Ignoring the fact that people paid for these benefits would be as dishonest as ignoring that the fact that a rich person like Peter Peterson could get millions of dollars a year in interest payments on government bonds because he happened to pay to buy hundreds of millions of dollars of government bonds.

Neither Bruni nor economists at the Urban Institute would ever make the mistake of talking about the interest payments to wealthy people on government bonds without noting that these people had paid to buy the bonds. Why do they forget this connection when it comes to talking about Social Security and Medicare benefits?

And these are benefits that are largely paid for. According to an analysis from the Urban Institute, the typical retiree will get slightly less back in Social Security benefits than what they paid into the program in taxes. The cost of their Medicare benefits will substantially exceed what they paid in taxes, however this is due to the fact that health care costs more than twice as much per person in the United States as the average for other wealthy countries.

This is not due to getting better care in the United States. It is due to the fact that our doctors get paid twice as much, our drug companies and medical equipment suppliers charge close to twice as much, and administrators and top management in hospitals and other health care providers get paychecks that are many times larger than their counterparts in other countries.

We may owe an apology to millennials for handing them an enormously unequal economic system, but that is not Bruni's complaint. He wants middle class seniors to apologize for getting benefits that cost lots of money because the wealthy charge so much to provide them. As a practical matter the impact of inequality will swamp any costs that might be associated with Social Security and Medicare.

If young people get their share of the economy's productivity growth their real wages will be close to 50 percent higher in 30 years according to the Social Security trustees projections. On the other hand, if the trend in inequality we have seen over the last three decades continues, their wages will be little changed from what they are today.

Of course Bruni does have a point when it comes to global warming, but here also the class dimension should not be ignored. The media highlighted economic hardships that could come from measures to slow global warming in ways that they never did in other contexts, such as increases in military spending. This has helped bolster the case of those who did not want to take action. So the people who own and control major news outlets like NPR and the NYT should perhaps be signing Bruni's letter, but the bulk of the public who had little say in the matter have less cause.

(I would have Al Gore sign the letter also since the guy could not even be bothered to pay a couple of grad students to maintain a website on his movie/book.)

 

Note: Correction made, thanks folks.

 
The WAPO Still Has Not Heard About the Housing Bubble Print
Saturday, 07 June 2014 13:05

It is amazing that the country has not taken everyone involved with economics -- academic economists, policy economists, economics reporters, and investment advisers -- and thrown them in prison or at least exiled them to some ungodly place where we (I'll go too) could never do any harm again. Look, the housing bubble was incredibly easy to see. I took arithmetic in third grade, apparently I'm the only economist who remembers it.

The housing bubble sent construction and consumption demand soaring, hence the relatively strong growth and low unemployment in the years 2004-2007. Then the bubble burst. In addition to all the fun associated with the financial crisis (bankers too dumb to see the bubble, but well-connected enough so that it didn't matter), the collapse of the bubble meant a huge loss in demand. Instead of having a boom in construction, we went to a big time bust since there had been enormous overbuilding. And consumption plummeted since the bubble-generated equity that was driving it had disappeared.

This is the cause of the recession and the weak recovery. We lost over $1 trillion in annual demand. What was going to replace it, hot air from politicians? Demand comes from consumption, investment, residential investment, government spending, and net exports.

That's it folks -- ain't nowhere else to get demand. So where did we expect the demand to come from to replace what we lost from the collapse of the housing bubble? Were consumers supposed to spend a a larger share of their income after they lost $8 trillion in housing wealth than when they still had that wealth? What have you been smoking?

Were we going to get an investment boom when most companies have vast amounts of excess capacity? I'll come back to residential construction in a moment. We could have the government spend lots of money to boost the economy, but Very Serious People in Washington want us to worry about the budget deficit.

That leaves net exports. If the "net" has you fooled, that's because it is exports minus imports that generate demand. We don't get any jobs from exporting car engines to Mexico to be assembled into cars that are re-imported into the United States. We could look to increase net exports, but that would mean talking about our trade deficit and we aren't supposed to do that. (Don't ask me why, but I don't recall any big pieces on the large jump in the April trade deficit that the Commerce Department reported on Wednesday.)

Okay, let's get back to residential investment which was the motivation for this tirade. The Post had an article with a headline complaining:

"The economy has reached a milestone. No thanks to the housing sector."

The point is that while employment has returned to its pre-crisis level, jobs in the residential construction are still way down.

"While jobs overall are back to their pre-recession peak, residential construction jobs are 34.5 percent below their peak.

"Even if the specialty contractor jobs are stripped away, the residential construction jobs are still way off, almost 27 percent down from the peak, according to a Freddie Mac analysis."

Ummm folks, no one told you about the housing bubble? We aren't going to get back to the number of jobs during the bubble years. We were building homes at a ridiculous rate during the bubble years, why would we expect to get back to the same rate? And, we still have extraordinarily high vacancy rates, according to our friends at the Census Bureau. This will depress new construction. There is no mystery here. 

(There is a separate issue in this article that requires some serious ridicule. The piece notes a sharp rise in the number of construction workers for each home being built. It attributes this to labor hoarding. This is what big manufacturing companies do during a downturn. It is not what small fly by night construction companies do. The reason why reported employment did not fall as much as housing units is that many workers were never reported on company payrolls. Construction companies hired hundreds of thousands of undocumented workers many of whom probably never appeared on their books. Also, many workers will be misclassified as independent contractors. That way the company doesn't have to pay for unemployment insurance, workers' compensation, and other benefits. The household survey finds close to 1.5 million more people working in construction than the establishment survey, which is pretty good evidence for this story.)

 
Is the Recovery Leading to More Job Polarization? Print
Saturday, 07 June 2014 07:50

That's what the Washington Post told readers.

"Unemployment fell from 3.3 to 3.2 percent for people with a bachelor's degree or more, and from 5.7 to 5.5 percent for those with some college. But it actually rose from 6.3 to 6.5 percent for people with only a high school diploma, and from 8.9 to 9.1 percent for those without one.

"In other words, our polarized labor market isn't getting any less so. The Cleveland Fed points out that routine jobs disappeared during the Great Recession, and haven't come back during the not-so-great-recovery — which partly explains why our economic upswing, such as it is, has been much less dramatic for the least educated."

The data doesn't necessarily agree with this story. If we ignore monthly changes, since these are extremely erratic, and instead look at the changes over the last two years we see that the unemployment rate for college grads in the first five months of 2014 averaged 3.3 percent, down 0.8 percentage points from its 4.1 percent average in the first five months of 2012. By comparison, the unemployment rate for those with just a high school degree averaged 6.4 percent, down by 1.8 percentage points from two years ago. Those with less than high school degrees saw a drop in their unemployment rate of 2.5 percentage points from 12.9 percent in 2012 to 9.4 percent in the first five months of this year.

If we go back to 2010 we see a comparable pattern. The drop in the unemployment rate from the 2010 peaks was 1.5 percentage points for college grads, 4.3 percentage points for high school grads, and 5.6 percentage points for those without a high school degree. The declines in unemployment rates in percentage terms were actually larger for less-educated workers than for college grads. But hey, why let the data get in the way of a good story?

 
The Question on People Leaving the Labor Force is 41-Year-Olds, Not 61-Year-Olds Print
Friday, 06 June 2014 12:54

In his discussion of today's employment report Neil Irwin notes that the unemployment rate is considerably lower than would otherwise be the case because so many people have simply given up looking for work and are therefore not counted as being unemployed. Irwin then adds that the big question is that if the economy eventually recovers is:

"How many of the 61-year-olds who gave up looking for a job in the last few years are going to return to the labor force when they smell opportunity, and how many have retired for good?"

Actually, the story of people leaving the labor force is not primarily one of older workers who are near retirement age, it is primarily a story of prime age workers. According to data from the OECD, the employment to population ratio for workers between the ages of 25-54 is down by 3.5 percentage points from its pre-recession level. For workers between the ages of 55-64 it is only down by 0.9 percentage points.

It is difficult to envision any obvious reason why people in their prime working years would suddenly decide that they did not want to work other than the weakness of the labor market. Most of these workers will presumably come back into the labor market if they see opportunities for employment.

 
If Employers Can't Find Workers With the Right Skills Why Don't They Try Raising Wages? Print
Friday, 06 June 2014 05:13

John Ydstie concluded a mostly good piece giving a preview of the May employment report being released today by saying that one reason employment is not growing more rapidly is due to a skills mismatch. According to this story, employers would be hiring more workers if they could find workers who have the skills they need.

While employers and many economists often make this claim the evidence doesn't seem to support this position. If employers were actually having difficulty finding workers with the necessary skills we should expect to see occupations or industries in which wages are rising rapidly. That is how employers attract workers for positions they have trouble filling.

In fact, there are no major sectors of the economy in which wages are rising rapidly. This means that either there is no serious problem of skills mismatch or that employers are completely clueless about basic economics. Given the ineptitude we saw in the financial sector during the run-up of the housing bubble, the clueless explanation cannot be dismissed out of hand, but it is more likely that there really is no issue of a skills mismatch.

 
Economic Collapse Gives Russians Some Reason to be Unhappy With Boris Yeltsin Print
Friday, 06 June 2014 04:53

The NYT ran an article on the construction of a monument to former Russian President Boris Yeltsin. The piece notes that Yeltsin is not very popular, and therefore there is little interest in the monument, however it never gives much explanation for his unpopularity.

Russia's economy suffered one of the worst collapses in history during the Yeltsin years. According to the Penn World Tables, Russia's economy contracted by more than 40 percent between 1990 and 1998, the years in which Yeltsin held power. This is a far sharper drop-off than the United States saw in the Great Depression. During this period the health care system put in place under the Soviet Union largely collapsed and life expectancy plunged.

There was also enormous corruption. According to the World Bank the government received just $8.3 billion for privatizing most of the economy's assets. This is less than half of the current market capitalization of Twitter.

An article discussing Russian views of Yeltsin should have pointed out these facts.

 
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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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