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Temporary Help and Structural Unemployment: The Unskilled Can Always Become Economists Print
Sunday, 19 December 2010 21:27

The NYT showed that there were still good paying jobs for unskilled workers in the economics profession by citing two economists who touted the growth in temporary employment as evidence for the growth of structural unemployment in the economy. Structural unemployment results when there is a mismatch between skills and the available jobs.

Economists with skills would have noted that temporary employment plummeted in the downturn and is only now beginning to recover lost ground. After the recent gains in hiring in temporary employment the number of jobs in the sector is still down by almost 20 percent from its pre-recession level. In the real world, this is not evidence of structural unemployment.

 

 
The Post Gets One Right on Structural Unemployment Print
Saturday, 18 December 2010 09:29
The Post has a nice piece examining the situation of a group of construction workers in the Las Vegas area one year after a major project on which they had worked was completed. The piece does a good job of examining the difficulty that these workers are facing finding new jobs without leaping to the unsupported claim that the bulk of the unemployment that the economy is now experiencing is structural (as opposed to cyclical) in nature.
 
China and Inflation: A Higher Currency Stems Inflation Print
Saturday, 18 December 2010 09:20

The NYT reported that inflation in China is higher than its leadership's targets. It might have been worth noting that a higher valued currency helps to lower inflation.

This is for two reasons. First, insofar as inflation is driven by excess demand, a higher valued currency will reduce exports (it makes them more expensive for foreigners) and thereby bring demand more in line with potential output.

A higher valued currency will also make imported items, like food and oil, less expensive. This will directly reduce inflation.

For some reason China is apparently not considered this obvious path for addressing its problems with inflation.

 
Reuters Invents "Structural" Unemployment in the Absence of Any Evidence Print
Friday, 17 December 2010 17:31

Reuters decided to abandon evidence-based reporting in a news story that told readers that the United States is suffering from "structural" unemployment. The use of the term "structural" is important because it implies that the main reason that people are unemployed is that there is a mismatch between skills and the available jobs. The alternative explanation, is that we just need more demand in the economy to drastically increase employment levels.

There are certain pieces of evidence that economists would look to as evidence of structural unemployment. For example, there should be high rates of job openings, which would suggest that there are sectors of the economy or regions of the country in which employers are having difficulty finding workers. In fact, data from the Bureau of Labor Statistics show the job opening rate at 2.5 percent. This is above the 1.9 percent low hit last year, but only slightly higher than the 2.3 percent low from the last recession. It is well below the 3.4 percent pre-recession rate.

If the economy's main problem is structural unemployment then there also should be sectors where wages are rising rapidly as firms are forced to compete for an inadequate supply of skilled workers. There is no major sector of the economy where wages are rising substantially more than the rate of inflation.

If the main problem is structural unemployment then we should also expect to see sectors where workers are putting in large numbers of hours. The reason is that employers cannot find enough workers so they pay over-time wages and other premiums to get the available workers to put in more time. Again, there is no major sector of the economy where average weekly hours has even risen to its pre-recession level.

In short, this article presents no evidence whatsoever that the U.S. economy is suffering from structural unemployment. The focus of the article is the decline in the manufacturing industry, and especially the auto industry, in the Midwest. However, there are always declining sectors of the economy. The question is whether these sectors are large enough and the workers in these sectors sufficiently ill-prepared for other lines of work to lead to structural unemployment in an otherwise growing economy. This lengthy piece provides no evidence to suggest that this is the case.

Remarkably, in a piece that includes many references to international competition, there is no discussion whatsoever of the value of the dollar. In a system of floating exchange rates, like what we currently have, a large trade deficit is supposed to adjust through a decline in the value of a country's currency. Such adjustment has not happened in the case of the United States due to a deliberate policy of both the United States (in the Clinton administration) and some of our trading partners in keeping the value of the dollar up.

The piece also includes the bizarre assertion that manufacturing workers in the United States are uniquely unable to compete internationally. In fact, our more highly educated workers, like doctors, lawyers, and accountants are even less competitive with their counterparts in the developing world. However, professionals have the political power to sustain and even increase the barriers to foreign competition. By contrast, U.S. trade policy has been quite explicitly focused on subjecting U.S. manufacturing workers to such competition.

The article also seriously misrepresents the experience of Germany, its model of a successful wealthy country. While it did have substantial reforms of its labor market, it did not have a long period of double-digit unemployment as this piece implies. Germany also did not have sharp declines in wages. Compensation for manufacturing workers continued to rise over the last decade and is currently almost 50 percent higher than in the United States.

 
 
NYT Scare Story on SF Retiree Health Care Print
Thursday, 16 December 2010 22:41

The NYT printed a scare story about San Francisco's retiree health care costs in lieu of a printing news. The paper told readers that the projected cost of providing health care for retired city workers has been estimated at $4.4 billion and the city has put aside just $9.7 million to cover this cost.

That sounds really really scary. However those who read through the article would discover that the city is currently spending more than $138 million a year for retiree health care. This fact implies that the city has been in the habit of paying for these expenditures out of its current budget. Furthermore the projection that is the highlight of this article implies that there will be no substantial increase in this figure in the years ahead. (If the $4.4 billion is spend over the next 30 years it would imply an average annual cost of $147 million.)

It is possible that the San Francisco's health care burden is more onerous than this calculation suggests, but readers of this article would have no way of knowing since the point of the article seems to have been to scare readers rather than provide information.

 
Post Finds Economic Momentum in Strange Places Print
Thursday, 16 December 2010 05:47

The headline of a Washington Post article told readers:

"Economic recovery gains momentum."

The report that provided the basis for this assertion was the Fed's release of data on industrial production for October. This report showed a rise in production of 0.4 percent in November, after a revised decline of 0.2 percent (previously reported as 0.0 percent) in October. However, this swing was entirely the result of a reversal in the output of utilities, which plunged in October and then jumped in November.

Fluctuation in utility output are overwhelmingly determined by weather conditions, not the state of the economy. Economists usually focus on manufacturing output which is more stable. This increased by 0.3 percent in November, the same as the rate now reported for October (revised down from 0.5 percent). This is a somewhat slower pace of growth than the 5.3 percent rate over the last year.

 
The Post's News Section Told Readers that Congress Must Pass the Tax Deal Print
Thursday, 16 December 2010 05:27

The Post showed once again why it is known as "Fox on 15th Street" when it used a front page news story to tell readers that members of Congress:

"acknowledged the need to avoid expiration of the Bush tax cuts and the likely shock to the economy that would result."

It may be the view of the Post's editors that there is a "need" to avoid expiration of the Bush tax cuts, but this is not an objective fact about the economy. While the expiration of the tax cut without any other action by Congress would be a hit to the economy, the impact is not larger than other negative shocks that the Post has largely ignored in the past, such as the collapses of the housing and stock bubbles or the run-up in the value of the dollar in the Clinton years.

It is also important to note that the failure to approve legislation now does not preclude Congress from acting next year as the Post's article implies. If the economy remains weak, as is likely, there will be substantial pressure on Congress to approve additional stimulus. It is highly unlikely that Congress would do nothing if the economy stagnated and unemployment continued to rise. There is no precedent for such behavior.

 
Does the Commerce Secretary Really Not Understand How a Trade Deficit Works? Print
Thursday, 16 December 2010 05:15

It seems that he doesn't from the quote buried at the end of a NYT piece on U.S. trade with China. In reference to the trade deficit, Gary Locke, the Commerce Secretary said:

"The reality is that if we are to close the trade deficit, Americans need to export more and the Chinese need to purchase more."

Actually exports are only half of the story in trade. A trade deficit means that the United States imports more than it exports. Adjusting to more balanced trade almost always means both reducing imports and increasing exports. It is virtually impossible to envision a scenario in which the country moves to anything close to balanced trade without adjustments on both sides.

It is also worth noting that this piece very casually refers to "piracy" in reference to China's lack of respect for U.S. intellectual property claims. In many cases, the unauthorized copies of U.S. products may not violate current Chinese law. In such cases there is no piracy involved. 

It also would have been wort mentioning that enforcement of U.S. intellectual property claims will impose substantial costs on Chinese consumers and is likely to sharply slow growth by reducing their purchasing power.

 
Spain and Ireland had Budget Surpluses Print
Thursday, 16 December 2010 05:06

It would have been worth mentioning this fact in a piece that discussed Germany's effort to insist on fiscal responsibility in the euro zone's member states in the context of support for bailouts. Most of the currently troubled countries, with the major exception of Greece, would have met almost any standard of fiscal responsibility prior to the crisis.

The current problems of these countries stem from the collapse of housing bubbles that for some reason the top officials of the European Central Bank either did not see or did not take seriously. It would have been worth pointing out that Germany's fiscal responsibility agenda would not have helped in the current situation. 

 
If People Don't Spend Money on Cars, They Will Spend it On Something Else Print
Wednesday, 15 December 2010 16:21

The auto industry put out a study that apparently assumes that if people don't spend money on cars, they will not spend it on anything. This was in the context of evaluating the employment impact of proposals to substantially increase mileage standards.

The NYT uncritically reported the projections from this study, which found that a large increase in mileage standards could reduce the number of jobs nationwide by 1.3 million. The article did not include the views of any economists who would have pointed out the unrealistic nature of this assumption.

 
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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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