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The Machines Displacing Middle Wage Jobs: Don't Let the Facts Get in the Way of a Comforting Story Print
Sunday, 25 August 2013 10:35

We are hearing endless accounts of how technology is displacing middle wage jobs (e.g. see the piece by David Autor and David Dorn in the NYT today). That would be work like manufacturing jobs, bookkeeping jobs, and other jobs that used to provide a middle class standard of living. It's a comforting story for the people who control the media, but it happens not to be true.

The story told by Autor and Dorn is that technology displaces these jobs putting downward pressure on the wages of formerly middle class workers. At the same time it creates more jobs for the people who program the machines, hence we see higher wages for high end workers.

This story is comforting to the affluent because it means that the upward redistribution of income that we have been seeing is simply an inevitable outcome of technological progress. It might be unfortunate, but what are we supposed to do, smash the machines?

This story should strike people as absurd on its face if they are interested in anything other than a rationale for inequality. After all, how many of the winners in today's economy are actually programming the robots, as the story implies. The group of big winners includes many doctors, lawyers, and dentists, most of whom have no more computer skills than your average high school senior.

They keep their position not by mastering the technology, but rather through the old-fashion way, restricting supply. They use professional barriers and trade restrictions to limit competition. That's much easier than mastering the latest in computer technology.

This sort of abuse of market power applies to a large share, if not the majority, of the winners in today's economy. In fact, if anyone really gave a damn, they could see that the Autor-Dorn story simply does not fit the pattern of job creation that we have seen in the last decade. Their occupation analysis would show that low earning occupations have been the big job gainers since 2000. The employment share of the highest earning occupations has actually fallen slightly over this period.

However that story provides less comfort to the rich and powerful. It implies that upward redistribution is something that they did, rather than something that just happened. Therefore we will not likely see these data featured prominently in news stories and opinion pieces.


Jeff Bezos' Newspaper Runs Joke Front Page Story on Deficit Print
Sunday, 25 August 2013 07:20

Those who hoped that Jeff Bezos takeover of the Washington Post would lead to a quick improvement in the quality of its budget reporting will be seriously disappointed by the paper's lead story today. The story bemoaned the fact that, "after six budget showdowns, big government is mostly unchanged" [the article's headline].

The article uses four metrics to measure the size of government, none of which would inform readers of anything. Its lead metric is spending in nominal dollars, which it tells us will be $3.455 trillion in fiscal 2013. It tells us that this is down by only a small amount from a "whopping $3.457 trillion" spent in 2010.

Incredibly, the article does not even adjust this spending amount for inflation. (The piece does briefly note later that this is a 5 percent decline adjusted for inflation.) Of course a serious analysis would have expressed spending as a share of GDP, which shows that spending dropped from 24.1 percent of GDP in 2010 to 21.5 percent of GDP in 2013. This decline in spending of 2.6 percentage points of GDP would be the equivalent of roughly $420 billion in today's economy.

Assuming a multiplier of 1.5, this reduction in spending has cost the economy more than $600 billion in annual output since there is no plausible story by which cuts in government spending lead to addition private sector demand in the current economic situation. (To be fair, there is a lot of vigorous handwaving on this topic by proponents of spending cuts.) That would translate into more than 5 million fewer jobs.

The piece goes on to tell us that Bezos' paper does not like government spending in general and in particular dislikes Social Security and Medicare. In terms of government spending the piece tells readers:



The Washington Post Still Can't Find Anyone Who Knows About the Housing Market Print
Saturday, 24 August 2013 08:35

The Washington Post's housing reporting during the bubble years became world famous for its reliance on David Lereah as its main source for information on the housing market. Lereah, in addition to being the chief economist of the National Association of Realtors, was also the author of the 2006 best seller, Why the Real Estate Boom Will Not Bust and How You Can Profit From It. Somehow it never occurred to the great minds at the Washington Post that Lereah may have any motive other than dispensing information about the housing market.

Apparently the learning process is very slow over at Fox on 15th Street. Today's article on the sharp drop in new home sales in July prominently featured the views of Lawrence Yun, Lereah's successor at the National Association of Realtors. We also got wisdom from the chief economist of the National Association of Homebuilders, as well as the views of several people employed directly by builders. There is no source from outside of the industry.

Among the tidbits of knowledge that readers could not find elsewhere is the news that builders are struggling to keep up with demand. That tidbit comes to us courtesy of Mr. Yun, who according to the Post said, "the pace of building needs to be at least 50 percent faster than it is now to meet demand."

The piece continues:

"Builders say they’re trying to keep up. Economists expect that it will take two years for construction to get back to normal levels — about 1.2 million to 1.5 million homes per year. ...

"Builders are facing three issues borne of the housing crisis: a labor shortage, a dearth of available land and tighter lending standards."

There you have it, there is a shortage of construction workers. What happened to structural unemployment? Believers in structural unemployment would say things like the problem is that we have too many people who have skills as construction workers, but not enough who are trained to do X, where X is supposed to be an unidentified sector of the economy where we have a labor shortage.

Okay, this makes no sense. The idea that builders can't put up enough houses is ridiculous. There continues to be a far higher than normal number of vacant units, indicating that the market is still experiencing excess supply, not excess demand. Excess demand shows up in rising prices, just as shortages of labor show up in rising wages, something that we have not seen in the construction industry in recent years.

There was actually a very interesting story in the July new homes sales numbers. It is the first major data release that reveals the response of the housing markets to the recent jump in mortgage interest rates. New home sales measure contracts signed, most other housing data is based on completed sales. Since there is typically a 6-8 week gap between the signing of a contract and a closing, other data on the housing market are still giving us information about contracts that were signed before the jump in interest rates.

The July data indicate that the interest rate hike had a big effect on the market. Given the extraordinary rate of price increases that we had been seeing, which were threatening to push many markets back into bubble territory, this is clearly good news. But you wouldn't find anything about this issue in Jeff Bezos' newspaper.


Quick Note on July New Homes Sales: It Is a Big Deal Print
Friday, 23 August 2013 09:24

The Census Bureau reported a 13.4 percent drop in new home sales in July. This could be a really big deal.

House prices had been rising rapidly in many parts of the country and there was a real basis for concern about bubbles in many markets. While these bubbles were not driving the national economy, as they had been in the years 2002-2007, there was a real risk that many homebuyers would again buy into seriously over-valued markets and face large losses on their homes.

It appears that the interest rate hikes in May-June curbed the enthusiasm of investors for real estate, thereby taking the air out of the bubble. The reason why the July new home sales data is important information on this point is that it is giving us data on contracts signed in July. Most other data sources are about sales which reflect contracts that were typically signed 6-8 weeks earlier. The July sales data strongly reinforce realtor accounts of a weakening market in the last two months.

The Employment Rate of Women Is Higher In Japan Than in the United States Print
Friday, 23 August 2013 07:11

Laura Tyson has a NYT Economix blog post that highlights the success of Japan's policy of running large budget deficits. While Japan has a gross debt of almost 250 percent of GDP (more than twice the ratio in the U.S.), the government has embarked on an ambitious stimulus plan to boost its economy. In the two quarters this plan has been in place Japan's economy has grown at 3.0 percent annual rate (3.1 percent per capita). By comparison, in the United States, where deficit reduction has been the guiding policy, the economy has grown at just a 1.4 percent annual rate (0.7 percent per capita).

Tyson notes that one of the main goals of the current policy is to bring more Japanese women into the labor force. It tells readers that the gap in employment rates in Japan between men and women is 25 percentage points.

Actually, this comment refers to data that does not reflect the current situation in Japan. The employment rate among women has increased substantially in recent years. According to the OECD, the employment rate for prime age women (ages 25-54) in Japan was 69.2 percent last year. This implies a gap in employment rates between women and men of 22.3 percentage points in Japan compared to just 13.3 percentage points in the United States. However, this difference is explained entirely by a lower employment rate for men in the United States, as the employment rate for prime age women in the United States is also 69.2 percent. 

In fact, since the employment rate for women aged 16-64 in Japan has risen by 1.3 percentage points in the first half of 2013 from its year-round average in 2012, the employment rate for prime age women in Japan is now almost certainly higher than in the United States. 

Is the Pay of Washington Post Reporters Expensive? Print
Friday, 23 August 2013 05:21

I just thought I'd ask since the paper apparently decided to tell readers that the government's health and retirement programs are expensive. This information is given in the context of an article on a plan by House Speaker John Boehner to offer a short-term continuing resolution that will maintain funding for the government into the new fiscal year that begins on October 1.

The article told readers:

"Obama and other Democrats are eager to turn off the sequester and have offered a plan to replace the savings with a mix of tax in­creases and reforms to expensive health and retirement programs."

The piece did not tell readers how it determined that these programs are expensive. They clearly take up a large share of the budget, but that true statement is not well-conveyed by the adjective "expensive."

Many Workers Will Not Qualify for Unemployment Benefits Print
Friday, 23 August 2013 05:09

Wonkblog had an interesting piece noting the fact that the number of people collecting unemployment benefits is falling faster than the number of new unemployment insurance claims. It attributed this fact to the growing number of unemployed workers who have exhausted their benefits. The reduction in the duration of benefits has also increased this number.

There is a third reason that the percentage of unemployed workers collecting benefits may decline. Many workers who lose their jobs now will have had little work experience in the last two years, which means that they may not qualify for benefits. In other words, if a worker had been laid off in 2008 or 2009, when the economy was losing 700,000 jobs a month, and since then has only been able to find intermittent and part-time work, they likely will not meet even the work requirements to collect benefits. Relatively few laid off workers would have been in this situation at the start of the recession, but it is likely that many workers are now.

(Note: Typos corrected.)

Obamacare Gives Children Cavities Print
Thursday, 22 August 2013 19:41

Sorry, we're trying out some catchy lines to help the Republicans in their effort to stop Obamacare. They keep pressing the one about how it is causing businesses to shift to part-time workers to avoid the employer sanctions. The basis for these sanctions was originally supposed to be the number of workers employed for an average of more than 30 hours a week in 2013, however in early July the Obama administration announced that it would put off the sanctions for a year.

Nonetheless, we still have many folks pushing the part-time line. Reporters seem to buy it, even if the data don't.

For example, Reuters told us that "three out of every four of the nearly 1 million hires this year are part-time."

That's not what our friends at the Bureau of Labor Statistics (BLS) report. If we look at the household survey (which gives us part-time employment), there were 1,119,000 more people employed in July than in January of 2012. According to the survey, the number of people involuntarily working part-time (i.e. would prefer full-time employment) increased by 327,000 over this period. The number of people voluntarily working part-time increased by 365,000 over this period. That gives us 692,000 in total. That would be 61.8 percent, which is considerably less than three quarters.

However their story gets worse if we look at the data more closely. These numbers are always erratic. There actually was a sharp fall in the number of people who reported working part-time at the end of 2012 which makes rise in 2013 look larger. If we use July 2012 as the basis of our comparison, then involuntary part-time unemployment is unchanged, while voluntary part-time is up by 282,000. By comparison, total employment is up 966,000. This means that part-time employment accounted for 29.2 percent of the jobs created over the last year.

It is also worth noting that part-time is defined by BLS as working less than 35 hours a week. Since companies would still have been forced to pay a penalty for workers putting in 30-34 hours, we should be seeing an increase in the number of workers putting in just under 30 hours a week if Obamacare is having the bad effect promised by its opponents. Helene Jorgensen and I looked at this issue a couple of months back. We found that, at least through April, the number of people working 26-29 hours a week was actually slightly lower in 2013 than in 2012. Oh well.

Thanks to Michael Ash for calling this one to my attention.

Going Off the Deep End With David Walker Print
Thursday, 22 August 2013 05:58

Yesterday the Associated Press fielded its entry in the classics in bad reporting on economic policy contest: a profile it did of David Walker, the former head of the Government Accountability Office and also former president of the Peter G. Peterson Foundation. The piece presented everything that Walker said at face value, making no effort to put his scare story in any context nor to verify his assertions.

The AP entry starts out strong with the third paragraph telling readers:

"Next month, he will present a major report for the nonprofit he founded, the Comeback America Initiative, whose purpose is to raise awareness about the federal government’s swelling debt. It’s a chasm that isn’t top of mind for most Americans, he knows. But Walker, 61, wants it to be."

Note the use of "swelling" instead of a more neutral term or maybe no adjective at all. Then we get the term "chasm" as opposed to a term like "issue."

Then we are told that Walker passes around fake trillion bills because, quoting Walker:

“Washington spends a trillion dollars like it’s nothing.”

Is that true? I recall big debates in the last few weeks over spending $40 billion on food stamps over the next decade. We've had big debates over the $250 million (1/4,000th of a trillion) [number corrected] spent each year on public broadcasting. In fact, John McCain made a big issue in his 2008 presidential campaign over spending $1 million (one millionth of a trillion) on a Woodstock museum. There seem to be lots of very big debates in Washington on spending sums that are way smaller than $1 trillion.



NPR Overly Optimistic on Housing Rebound Print
Thursday, 22 August 2013 05:28

Morning Edition had a segment on the housing recovery which substantially overstated its likely contribution to the recovery. The expert analyst the piece relied upon suggested that housing construction could add 1.0 percentage point to GDP growth over the next three years. This would imply a near doubling of its contribution over the last year.

According to data from the Bureau of Economic Analysis, housing has added an average of just less than 0.4 percentage points to growth over the last four quarters. Its peak contribution in this period was just 0.5 percentage points. Even assuming a multiplier of 1.5, the average contribution over this period would be just 0.6 percentage points, considerably less than the 1.0 percentage point suggested by NPR's expert.

It is also remarkable that the piece never referred to the vacancy rate which is still near record highs. This is a key factor holding housing starts down.

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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.