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Are Employers Hiring More College Grads? Print
Monday, 04 April 2011 04:51

USA Today told readers that employers are disproportionately hiring college-educated workers. The data presented in the article actually do not make much of a case. While it is true that the employment to population ratio (EPOP) for college grads has risen, the increase has been very modest. The EPOP for college grads averaged 73.4 percent in the first three months of this year compared to 73.3 percent in the first three months of 2010.

As evidence that demand for college-educated workers is rising, the article reported that the professional and business services sector added 78,000 jobs in March. The article implies that these are jobs that require college degrees. In fact, more than a third of these jobs (28,800) were in the temporary help sector. Most of these jobs almost certainly did not require college degrees. Other sectors reporting good growth in March, such as restaurants and manufacturing, don't typically require that workers have college degrees. On the other hand, the government sector, which disproportionately employs workers with college degrees, shed jobs in March and the four prior months.

In short, it is not at all clear that the jobs being created by the economy at this point disproportionately require college degrees.

The New York Times Thinks That Congress is Full of Philosophers Print
Sunday, 03 April 2011 07:30
The New York Times apparently missed the elections last fall. This is the only possible explanation for its assertion that the budget debate in Congress:

"is likely to spur an ideological showdown over the size of government and the role of entitlement programs like Medicaid and Medicare."

The people serving in Congress got their jobs because they are effective politicians. This means that they have the ability to appeal to powerful interest groups; there is no requirement that they have any background in, or adherence to, any political philosophy. 

The debates over competing plans for Social Security, Medicare, and Medicaid are most obviously about the distribution of income between the wealthy and the less wealthy. Most Republican plans for Social Security would substantially reduce benefits for middle-income, and sometimes lower-income, retirees. Democratic plans tend to be more likely to increase taxes on the wealthy. This is most immediately a question of whether money should come out of the pockets of middle-income people or wealthy people.

In the case of Medicare and Medicaid, the most obvious issue is between those who would want to revamp the health care system in ways that give less money to the pharmaceutical industry, physicians, and insurers, thereby bringing per person costs in the United States more in line with costs in the rest of the world, and those who want to protect the income of these interest groups and instead save money by denying health care to people. There could also be more taxes on the wealthy to support the maintenance of quality health care for the aged and the poor. 

It is inaccurate to describe this as an ideological issue or a debate over the role of government. Both paths involve large roles for government. In the case of the Republican path, the government must play an intrusive role in protecting the patent monopolies of the pharmaceutical industry which allows them to charge prices that can be hundreds or even thousands of times the competitive market price. The same applies to the medical device industry. The government also imposes extensive barriers that keep doctors' fees far above those of comparably trained physicians in other countries. 

The debate is not over whether the government should play a large role in the health care sector. The debate is whether the government's efforts should be devoted to maintaining the incomes of health care providers or whether they should be devoted to providing health care to the public. The NYT badly misrepresents the issue in a way that strongly favors the Republican position by implying that this is an ideological argument over the size of government in the economy. It isn't. 

The Big March Job Report Celebration Print
Saturday, 02 April 2011 07:54

Okay, this celebration around the jobs report is really getting out of hand. Both the Post and Times had front page pieces touting the good news. The Post gets the award for being the more breathless of the two:

"The jobs numbers come amid other promising signs that the recovery is building momentum. The stock market wrapped up the first quarter this week with a 6.4 percent gain in the Dow Jones industrial average and continued to tack upward Friday, adding another 0.5 percent. Investors were pleased that the job growth was continuing — but not so fast that the Federal Reserve might want to apply the brakes by raising interest rates anytime soon.

"Also contributing to the buoyant markets were reports from automakers Friday showing that auto sales rose in March. Sales of new vehicles were up 11 percent over a year before at General Motors, 16 percent at Ford and 23 percent at Honda.

"A separate report Friday also showed continued strong growth in the manufacturing sector, with the Institute for Supply Management’s index of activity at the nation’s factories edging down to 61.2 from 61.4. Numbers above 50 indicate expansion."

First off, no one should include the stock market as indicator of the economy's well-being. Rich people are happy -- that's nice -- it has little to do with the economy. The car buying is positive, but with so many of the cars now imported or largely comprised of imported parts the impact of this surge in sales is much less than would have been the case 30 years ago. The drop in the Institute for Supply Management's index suggests that manufacturing is likely to make a marginally smaller contribution to growth in the months ahead, not good news. (The Bureau of Labor Statistics employment diffusion index for manufacturing, a measure of the percent of sectors that expect to add workers, fell from 66.0 in February to 63.0 in March, it had been 73.5 in January.)

As noted above, 216,000 jobs is not especially impressive, especially given the depth of the hole that our economic policymakers put us in. In only 15 of the 52 months from February 1996 to May of 2000 did the economy create fewer than 216,000 jobs. In most cases the weakness was caused by bad weather. And this was at a time when the working-age population was more than 10 percent less than today.

It is also striking that neither paper seems to have mentioned the Commerce Department's report on construction in February, which showed a 1.4 percent decline in February, following even larger declines in December and January. (The big news in this report was the 2.6 percent downward revision to the data originally reported for January.) Much of the story here is in non-residential construction as the building boom that resulted from the bubble in that sector is leading to a bust. The largest declines are in manufacturing construction where bio-fuel subsidies had led to a boom in ethanol plants in 2009-2010.

Anyhow, construction is certain to be a big drag on growth in the first quarter. It should knock at least a percentage point off GDP growth for the quarter. I am forecasting many surprised economists and reporters.

I have one more point skunk to toss over at the celebrators. Here is the path of the employment to population ratio (EPOP) over the downturn. Note that we have only risen slightly from the low hit in December of 2009 and the EPOP is actually a hair lower today that it was a year ago. The drop in the unemployment rate over this period was entirely due to people leaving the labor force. Now is that good news or what?


Employment to Population Ratio in the Dowturn




Source: Bureau of Labor Statistics.

That Big March Jobs Number Print
Friday, 01 April 2011 23:04

It seems that the current contingent of economics reporters are too young to remember a healthy economy. This is the only way to explain the extraordinary celebration of the gain of 216,000 jobs reported for March. While this news is certainly in the "could have been worse" category, this is hardly an impressive rate of job growth, especially for an economy recovering from a severe recession. Remember, job growth averaged 250,000 a month for the 4 years from 1996 to 2000, and that was starting from an unemployment rate that was already under 6 percent.

For those folks too young to remember how an economy is supposed to grow, I constructed a simple chart showing monthly job growth in the two years following the 74-75 recession, the 81-82 recession, and the 91-92 recession and compared them to the 216,000 job growth reported for March. (In making comparisons it is worth noting that the period following the 90-91 recession was known as the "jobless recovery.") The numbers shown are labor force adjusted which means that I multiplied the number of jobs created each month by the ratio of the March 2011 labor force to the labor force in the month given.



Source: Bureau of Labor Statistics and author's calculations.

Reducing Oil Imports to Lower Prices: Is President Obama a Neanderthal Protectionist? Print
Thursday, 31 March 2011 05:14

The description of his strategy in a Washington Post article suggests that he is. According to the article, President Obama wants the United States to reduce its dependence on foreign oil because the price is high.

This strategy makes no sense in the current context because there is a world market for oil. Increased production of oil in the Gulf of Mexico or Alaska has no more impact on the price that people in the United States pay for their gas than increased production in Venezuela or Saudi Arabia. The only way that focusing more on domestic production would substantially reduce the price of oil relative to the rest of the world would be if President Obama plans to put export restrictions on U.S. oil.

Of course since the U.S. doesn't have enough oil to ever be close to self-sufficient, this would be impossible in any case. The Post should have pointed out to its readers that President Obama's strategy for reducing the cost of oil does not make sense.

Is It Plausible That Michelle Rhee Really Never Considered the Possibility that Teachers and/or School Administrators Cheat? Print
Thursday, 31 March 2011 04:51

Washington Post reporter Jay Mathews had a column on former DC school chancellor Michelle Rhee's initial response to a USA Today article that finds evidence of widespread cheating on the exam scores reported by one of the District's star schools. Ms. Rhee denounced the article and described the reporters who researched it as flat earthers who opposed school reform.

The next day Rhee apologized for her previous comments and acknowledged that there were important questions about the integrity of the test scores that need to be examined. Mathews praised Rhee's reversal and commented that:

"I sensed from my talk with Rhee that one reason she misspoke on Monday was that she had not had time to read either the USA Today story or the investigators’ reports, or to probe the weaknesses of test security protocols in Washington and other districts."

If true, this would be astounding. There have been major testing scandals in many cities around the country dating back to the mid-90s. In the wake of these scandals it is difficult to believe that a school administrator who substantially increased the importance of standardized tests in the assessment of teachers and schools had not given careful consideration to test security protocols.

Distressed Sales are Simply Part of the Process of a Deflating Bubble Print
Thursday, 31 March 2011 04:45

USA Today had a piece that reported that distressed house sales are likely to depress house prices for years to come. The piece never refers to the housing bubble. This is remarkable since it is impossible to understand the housing market without reference to the bubble.

At its peak, the bubble pushed house prices more than 70 percent above their long-term trend values. The fall in prices to date has brought prices closer to their long-term trend, but the market still has to fall another 15-20 percent to return to its trend level. Distress sales are part of this process, but the main point is that house prices are still well above the level that would be supported by the fundamentals of the market in large parts of the country.

Leonhardt Gets it Right on the Fed Print
Wednesday, 30 March 2011 05:05
David Leonhardt has a nice column making the point that the Fed faces a lot of pressure to keep inflation under control, but it does not have the same lobby pushing it on unemployment.
Is There Anyone in the World Who Is Demonstrably Less Competent Than Alan Greenspan to Pass Judgment on Financial Reform? Print
Wednesday, 30 March 2011 04:54
The Financial Times featured a column from former Federal Reserve Board Chairman Alan Greenspan arguing that the reforms in the Dodd-Frank bill will make financial markets less stable. Just in case you have forgotten, we have 25 million people who are unemployed, under-employed or have given up looking for work altogether because Alan Greenspan did not understand financial markets and the economy. Perhaps the FT will have a column offering advice on disaster management from Michael Brown.
Can Someone Get Dana Milibank a Teddy Bear? Print
Wednesday, 30 March 2011 04:48
We have almost 25 million people unemployed, under-employed or who have given up looking for work altogether and he is worried about the "$14 trillion debt crisis." Yeah, this is the crisis that has pushed the interest rate on 10-year Treasury bonds all the way up to 3.4 percent. Pretty scary.
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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.