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Casey Mulligan Says There Are Jobs for Those Who Really Want Them Print
Wednesday, 20 July 2011 13:27

The NYT featured another Casey Mulligan episode of There Is No Unemployment this morning. Mulligan's argument is that if we look at employment rates for the older population we see that they have actually risen in the downturn even as employment for people ages 25-55 plummeted. Mulligan interprets this as evidence that highly motivated older workers are able to find jobs, and if younger workers were equally motivated they would find jobs too.

This is an interesting story. The rise employment rates of older workers is a striking story in this downturn and one that I and others have often noted. However, there are other possible interpretations. Older workers almost by definition will have more experience than their younger counterparts. Employers tend to fire less experienced workers with less job tenure first. (Just as they tend to fire less-educated workers first.) This could lead to the pattern of lower employment rates among younger workers that we are seeing without having any direct relationship to the commitment of workers to the labor force.

There is a simple way to try to test this story. We can look at patterns in wage growth since the downturn. If Mulligan's story is right then we might expect to see the wages of older workers rise less rapidly than for younger workers. (These are nominal wages.) The idea is that the desperate older workers are willing to take big pay cuts to keep or get a job, while the young whipersnappers would rather lounge around on the couch watching TV.

The chart below shows the change in median weekly earnings between 2007 and the average of last four quarters (2010:3-2011:2) for men and women between the ages of 25-54, 55-64, and over age 65.

Book1_11026_image001

(Click for Larger Image)
Source: Bureau of Labor Statistics.

As can be seen, median weekly earnings rose slightly more rapidly for both men and women in the 55-64 age cohort than in the 25-54 group. They rose much more rapidly for over the 65 age group. There is not much evidence here of older workers who are desperately looking for jobs and willing to make whatever sacrifice is necessary. In other words, this is consistent with the demand side story where employers dump their younger workers first while holding on to older workers, so there are no jobs for the under 55 set.

It is the same story as with more highly educated workers. College educated workers saw less of a fall in employment than less-educated workers. However, this does not mean that less-educated workers could find jobs if they really want them, nor that there are even jobs for every college-educated worker who wants them.

 
Fox on 15th Imagines a Deficit Commission Report That Does Not Exist Print
Wednesday, 20 July 2011 04:52

As its drive to cut Social Security and Medicare builds steam, the Post is throwing reality to the wind. It again refers to the deficit commission report in its lead editorial. This should not be a tough one -- the report did not have the support of the necessary majority to be approved by the commission. It therefore should be referred to as the report of the co-chairs, former Senator Alan Simpson and Morgan Stanley director Erskine Bowles.

The editorial also praises the plan by the Senate's "gang of six" to change the annual cost of living adjustment for Social Security to the chained CPI. The Post calls this a more "accurate" measure of inflation. Actually, the Post does not know whether the chained CPI is a more accurate measure of the rate of inflation experienced by the elderly. An experimental elderly index constructed by the Bureau of Labor Statistics (BLS) shows a somewhat higher rate of inflation than the current measure.

If the Post is interested in accuracy, it can call for the BLS to construct a full elderly index. As it stands, we do know that the chained index will show a lower measured rate of inflation, leading to an average cut in Social Security benefits of close to 6 percent.

 
Intro Econ for WAPO: Foreign Holdings of U.S. Debt Depend on the Trade Deficit, not the Budget Deficit Print
Wednesday, 20 July 2011 04:21

Many deficit hawks are anxious to exploit nationalistic sentiments and even resort to crude xenophobia to push their agenda of cutting Social Security and Medicare. The starring role in this story goes to the foreign holdings (especially Chinese) of U.S. government debt. The Post did its part by having a chart showing the growth of foreign holdings of "our mountain of debt."

Those who are actually concerned about foreign holdings of U.S. government debt should know that it depends on the trade deficit, not the budget deficit. The trade deficit provides foreigners with the dollars that they use to buy U.S. assets, including government debt. If the United States had large budget deficits, but balanced trade, then foreigners would only be able to buy more government bonds if they sold other U.S. assets, such as the stock and bonds of private companies. Conversely, if the country had a large trade deficit, but a balanced budget, then foreigners would be able to increase their holdings of government bonds by using the dollars they acquired to buy bonds previously issued, or newly issued bonds that replace expiring issues.

This is all simple econ 101. It means that the jingoistic budget hawks are yapping about the wrong deficit. The recipe for correcting the trade deficit (more econ 101) is lowering the value of the dollar against other currencies. This makes our exports cheaper for people living in other countries, causing them to buy more. It makes imports more expensive for people living in the United States, leading them to buy less.

Of course a lower dollar also has important distributional implications. It will have the effect of increasing the relative wages of workers in industries that are subjected to international competition, most importantly manufacturing. It will reduce the relative wages who are largely protected from international competition like doctors, lawyers, and congressional staffers. These distributional implications might explain why the media rarely discusses the over-valued dollar and its impact on the trade deficit and the economy.

 
Thomas Friedman Thinks That the Greeks Have to Work Less Print
Wednesday, 20 July 2011 03:29

This is what Thomas Friedman said in his column this morning, even if he didn't know it. Friedman told readers that:

"Germans are now telling Greeks: 'We’ll loan you more money, provided that you behave like Germans in how you save, how many hours a week you work, how long a vacation you take ...'"

If we look to the OECD data, we see that the average number of hours in a work year for Germans in 2008 (the most recent data available) was 1430. This compares to 2120 hours a year for the average Greek worker. This means that if Germans want the Greeks to be more like Germans in the number of hours a week they work and the length of their vacations, then they want the Greeks to work less, not more.

 
The NYT Gets It Wrong on the Deficit Commission, Again Print
Tuesday, 19 July 2011 19:55

The prospect of cutting Social Security benefits for seniors and giving more money to the very wealthy seems to have excited reporters so much that they just can't get anything straight. The NYT again told readers that President Obama's fiscal commission produced a deficit reduction plan. This is not true. The deficit commission did not have the votes necessary to produce a plan. The plan referred to in this article was the plan of the co-directors, former Senator Alan Simpson and Morgan Stanley director Erskine Bowles.

The article also assists President Obama in misrepresenting public opinion about the cuts proposed by the Senate Gang of Six plan. It comments:

"Seeking to sum up the current state of affairs, Mr. Obama said, 'We have a Democratic president and administration that is prepared to sign a tough package that includes both spending cuts and modifications to Social Security, Medicaid and Medicare that would strengthen those systems' and provide for new tax revenues. And, he added, 'we now have a bipartisan group of senators' and a majority of the American people who agree."

President Obama was not in any obvious way "seeking to sum up the current state of affairs." He was misrepresenting the state of affairs, presumably to advance his agenda. There are no public opinion polls that show the majority of the American people support the cuts to Social Security and Medicare in the Gang of Six plan. In fact, there are no polls that show even a majority of Republicans support such cuts. Presumably President Obama is aware of polling data on these issues. 

It also would have been helpful to remind readers that President Obama means "cuts" when he refers to "modifications" to Social Security. Some readers may not have read the Gang of Six plan closely enough to realize that it proposes to cut Social Security benefits by an average of close to 6 percent.

 
Rewriting the History of the Stimulus Print
Tuesday, 19 July 2011 07:05

Ezra Klein recounted the record of President Obama's stimulus with the help of two of his top economic advisers at the time, Larry Summers and Christine Romer. Romer commented that she failed to recognize that they would only have one shot at stimulus, therefore they had to get as much as possible in their first package.

While this turned out to be true, a main reason was the way the Obama administration sold the stimulus. They used a set of economic projections that were hugely overly-optimistic. Their baseline had the unemployment rate just reaching 9.0 percent in the absence of stimulus.

The fact that the projections were overly optimistic was already quite evident at the point the stimulus was signed in late February. In addition, both Romer and Summers knew that the package they got was grossly inadequate even for the economic path they had projected.

However rather than trying to lay out a path in which more stimulus was possible, President Obama began touting the "green shoots of recovery" and talking about the need to deal with the deficit. It was President Obama's course, presumably carried through on the advice of his Keynesian advisers, that made any further stimulus impossible.

 
The Non-Existent Fiscal Commission Report Reappears in a Washington Post Column Print
Tuesday, 19 July 2011 05:20
The Post obviously finds it hard to get good help. That must be why it had to use a column by a person, Norman Ornstein, who didn't know that the Simpson-Bowles commission never issued a report. Ornstein is referring to the report of the co-chairs, Bowles and Simpson. This report never got the support from the necessary majority of the commission. This is an example of the sort of skills mis-match that economists refer to as "structural unemployment," where workers do not have the skills necessary for the jobs that are available.
 
Can Someone Explain to the NYT the Difference Between Counterfeits and Unauthorized Copies? Print
Tuesday, 19 July 2011 05:00

This is really getting painful. The NYT has an article reporting that many Chinese consumers were outraged when they discovered that the expensive DaVinci furniture they had purchased was actually produced at "a ramshackle factory in southern China."

It then tells readers:

"Maybe more significant, the scandal indicates that even in China — where consumers have long been willing to turn a blind eye to pirated DVDs and Gucci knockoffs — there are boundaries that no counterfeiter should breach. Not if the fakes are priced as high as the real thing."

There is a very simple point here that the paper is missing. When people buy unauthorized copies that sell for a fraction of the brand version, they know that they are not getting the brand version. The deal if beneficial to both the seller and the buyer. This is why it is very difficult for the government to crack down on sales of unauthorized copies of merchandise. Both parties to the deal are happy with it.

On the other hand, a counterfeit involves deceiving the buyer, as seems to be the case with the sale of DaVinci furniture. People thought that they were getting something that they did not in fact get. In this case, the consumer is an ally, since the consumer has been ripped by the counterfeiter.

The distinction between sales of unauthorized copies and counterfeiting is very clear and very fundamental. The NYT should be able to get it right.

 
Do an Increasing Number of Greeks Really Regard Workers Getting $2,000 a Month as a "Special Caste?" Print
Tuesday, 19 July 2011 04:52

That's what the NYT tells us. It has a piece this morning on the union representing the workers at Greece's public electric utility. At one point it reports that:

"an increasing number of Greeks regard the power company workers in particular as an overpaid, overprotected caste. According to Mr. Fotopoulos, Genop’s 21,000 members are paid an average net salary of $1,980 a month and its 35,000 retirees an average net pension of $2,122 a month — much higher than the Greek average."

The monthly pay for caste members would be less than an hour's pay for high earners in the financial sector. It would be quite interesting if Greek politics had gotten to the point where most people had more resentment toward workers earning $1,980 in a month than the people who earn this amount in an hour.

 
The NYT Misrepresents Public Attitudes Toward Social Security and Medicare Print
Tuesday, 19 July 2011 04:41

The NYT seriously misrepresented public attitudes toward Social Security and Medicare. It referred to Social Security and Medicare as:

"entitlement programs that represent core values to many liberal voters."

Actually polls routinely show that overwhelming majorities of voters across the political spectrum support Social Security and Medicare. It is not just liberals who care about this program. This is why politicians who want to cut these programs need cover from their political opponents. If they just said they wanted to cut Social Security and Medicare, they would quickly be voted out of office.

 
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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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