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Home Publications Blogs Beat the Press Glenn Hubbard Says We Have a Shortage of Workers

Glenn Hubbard Says We Have a Shortage of Workers

Saturday, 05 April 2014 06:40

Glenn Hubbard, the dean of Columbia Business School and former chief economist to President George W. Bush, argued that we have a shortage of workers in a Wall Street Journal column. Hubbard noted the sharp fall in labor force participation since the downturn. He attributed it to a lack of incentive for people to work. This is in striking contrast to the more obvious logic, that when people have been trying unsuccessfully to find jobs for 6 months or a year, they eventually give up. (This explanation seems especially plausible since we know that employers generally will not even consider hiring a person who has been unemployed for a long period of time.)

The problem with Hubbard's story is that he doesn't have a good explanation for why people suddenly decided that they didn't want to work. He points to an increase in the length of unemployment benefits, but this happens in every downturn. Furthermore, the maximum duration of benefits has been cut back sharply from its peak of 99 weeks in the first years of the recession with no corresponding surge in employment.

The Affordable Care Act will make it possible for many people to get health care insurance without working or without working full time, but that should only have begun affecting the data in the last few months as the health care exchanges came into existence. It would not explain the drop in labor force participation that was already quite evident by the summer of last year.

If the problem is really on the supply side then we should be seeing a surge in vacancies. In fact, the vacancy rate is still more than 10 percent below the pre-recession level and more than 20 percent below the 2000 level. We should also see an increase in the length of the average workweek. While this is more or less back to its pre-recession level (slightly above in manufacturing), it certainly is not unusually high. And we should be seeing rapid wage growth as firms compete for workers. Wages are now just moderately outpacing inflation.

In short, we have no reason to believe that the problem with the labor force is on the supply side. There remains an incredibly simple story that the housing bubble that was driving demand collapsed. With no source of demand to replace the housing and consumption driven by the bubble we are destined to slog through a prolonged period of slow growth and high unemployment. That one seems straightforward but it is apparently too simple for economists to understand.



Comments (14)Add Comment
written by Ben, April 05, 2014 8:16
Another possible explanation for some of the decline in labor force participation is stagnant wages for working people. The marginal gains from work are low if wages are low. It is not free to work ... Child care, clothing, transportation, etc... If you want more people in the work force, raise wages.
Do read the linked Hubbard, to fully appreciate Hubbard's assumptions and advice
written by jaaaaayceeeee, April 05, 2014 9:36

If labor participation rate is too low, it's not because policy makers have chosen to ignore our trade deficit, pretend that monetary policy is enough, and block fiscal policy and full employment.

It's because Obama's stimulus failed (although Hubbard contradicts himself saying infrastructure spending would help).

It's because disability is too easy to get, and unemployment insurance keeps people out of work longer (soup kitchens cause depressions). Hubbard recommends getting rid of unemployment insurance as an automatic stabilizer, completely, by giving out lump sums, to inspire the overly dependent to get non-existent jobs even sooner.

It's because of globalization and tech (not cyclical unemployment protracted by austerity), and sending more tax dollars to for profit edu is Hubbard's solution.

Hubbard deems conventional fiscal policy a failure, although I don't understand how blocking fiscal policy proves it doesn't work.

Hubbard solutions are to advise Republicans to oppose raising minimum wage and unemployment insurance, reduce corporate tax rates, blame and restrict disability, and embrace opportunity-oriented agendas for work like Paul Ryan's. You have to read it to believe it.
Hubbard Contradictions
written by Scot Johnson, April 05, 2014 10:23
So, here's Hubbard writing in Bloomberg View in 2011:
"A second problem with the president’s plan is that repeated efforts to use stimulus to revive the economy increase the federal debt. The ratio of federal debt held by the public to GDP, now at almost 60 percent as opposed to less than 40 percent at the beginning of the financial crisis, is likely to rise to 90 percent by 2020, according to the Congressional Budget Office’s Long-Term Budget Outlook, published last summer. Without addressing longer-term fiscal concerns, new stimulus is likely to lead to a loss of investor confidence."

Hubbard 2014 writing in the WSJ column that Dean Baker linked to: "What we don't know is whether the Obama's administration's activist policies failed to draw more Americans back to work because they were poorly executed or because they didn't do enough to raise aggregate demand. A better designed activist fiscal policy would have made more headway in encouraging growth, but deeper factors behind the downward shift in labor force participation still remain."

Kind of hard to do an "activist fiscal agenda" without spending, eh?
Some Simple Math
written by Larry Signor, April 05, 2014 11:10
Job seekers = 10.5 million, available jobs= 4.0 million, US workforce = 155 million. (10.5 - 4.0) / 155 = 0,04193, or 4.2% of the US labor force. There is your participation rate...not enough jobs of any sort.
I see the problem...
written by ifthethunderdontgetya™³²®©, April 05, 2014 11:29
...and former chief economist to President George W. Bush, argued that we have a shortage of workers in a Wall Street Journal column.

What we have here is an integrity failure.
written by djb, April 05, 2014 1:06
Glen "the whore" Hubbard
How to Call a Surplus a Shortage - Lazy Workers and Keynesian Crazies
written by Last Mover, April 05, 2014 2:09

Some economists who write like Hubbard in the WSJ, go all the way back to the 1930s (when unemployment benefits began) with the supply side explanation of a "shortage of workers", as here by Richard Vedder on Wages of Unemployment:

Most Americans recognize the need to reduce government spending to rein in the national debt. But there is another reason to cut government spending for specific programs: If more people have less incentive to stay out of the work force, they might seek jobs and help spur economic growth.


The tautology of mindless circularity that supply creates demand has no limit among these ideologues. People who could work but don't are invariably framed as both - not working because of government benefits despite how miserable they are compared to job pay in a full employment economy, while the same unemployed are framed to represent the causal effect of the trillion dollar output gap of stifled growth - rather than caused by a demand shock beyond their control.

By their own reasoning, the very "shortage" ideologues describe should raise wages far beyond any government benefits received, but it never does. Because it's not a shortage. It's a surplus of labor in which wages cannot possibly increase.

And that's the point isn't it, to keep the surplus alive and keep those wages low ... by calling it an unfulfilled shortage of lazy workers.

And never mind the Keynesian crazies who debunked the cause of demand as supply long ago, replacing it with spending.
written by urban legend, April 05, 2014 2:24
I'm sorry to get strident, but there is no other thing worth saying than that Glenn Hubbard is a lying, corrupt, dishonest SOB. There is no good faith argument whatsoever that the precipitous drop in labor participation along with the massive, sudden increase in unemployment in the months beginning in late 2007 was the result of voluntary behavior. Involuntary part-time work is almost double what it was in 2006, as is median weeks of unemployment (those are the people actively searching for jobs, Glenn) and the number of unemployed 27 weeks or longer -- again, Glenn, those are people actively looking, not people who have elected to watch soaps all day -- is almost triple what it was in 2006 and six times -- SIX TIMES -- the number in 2000.

Columbia should be deeply ashamed. So much for the validity of the U.S. News rankings.
written by LSTB, April 05, 2014 3:37
The unemployment insurance whine is self-evidently untrue. Why didn't all these people realize they could make more money on UI before 2007?

The American worker, "rational" for the conservative mind's convenience.
of course
written by joe, April 05, 2014 4:17
of course there's a shortage of workers. Just as we have a shortage of H1-B visas resulting in a shortage of engineers, as evidenced by the non-existent unemployment rate of engineers and the exploding wages in the tech field. Oh wait....

Glenn Hubbard is a clown, I'm not sure if he's worth writing a blog about
written by Marko, April 05, 2014 6:46
Glenn " Give It Your Best Shot " Hubbard , in "Inside Job" :

Viewer II
written by Viewer II, April 05, 2014 7:19
How in the heck could there be a labor shortage? Seems like Hubbard has a real distorted view of what's been going on in the last ten years.
Companies continue to hold back on hiring, while a multitude of folk are out of a job for more than six months. Seems like Hubbard is trying to say, get used to jobs staying over seas... Not a darn thing has been done to effectively change direction for the working class in this country. Same old story, bold new and extremely offensive lies.
written by kharris, April 07, 2014 7:46
Hubbard isn't good at this supply and demand thing. If there is a shortage of workers because of a lack of incentive, then the answer is to offer more incentive, isn't it? I understand that denying health care to the unemployed does constitute an incentive to find work, but to use that system has consequences - economic and moral - that we should not like. If Hubbard doesn't mind a workforce that is less mobile (due to job lock), a pool of labor some part of which is less healthy (and so less able to work) than it could be, then he isn't much of an economist. Separating health care from employment in many ways improves the labor market. You'd think he'd know that.

If ACA lowers incentives to work, well, making health care unavailable to the unemployed has always been a punitive incentive to work. "Your family will suffer sickness, right along with privation, if you don't find work." Is that the kind of society Hubbard is recommending? Not much of a human.
written by chmoore, April 07, 2014 11:35
I went and read the Hubbard column, and frankly I don't understand how he makes the jump from reduced workforce participation to a shortage of workers. Just because supply goes down, that doesn't mean that ANY reduced supply translates into a shortage of supply - it can also mean - some lesser amount of surplus.

According to BLS...
- People with jobs are employed.
- People who are jobless, looking for jobs, and available for work are unemployed.
- People who are neither employed nor unemployed are not in the labor force.

BLS also is still reporting that the ratio of job seekers to jobs is roughly close to (slightly under) the 3-1 range.

Given that, why isn't it reasonable to expect some 'unemployed' to drift into 'not in the labor force'; as opposed to repeating job search failures? Hubbard then suggests incentives and dis-incentives; but I can't find his explanation of why the bad condition of the job market is supposed to be an incentive question. It seems to me if there's a shortage to be found, it's really a shortage of money for consumers to spend.

And then, RE: "What we don't know is whether the Obama's administration's activist policies failed to draw more Americans back to work because they were poorly executed or because they didn't do enough to raise aggregate demand." ...Really?? We have no idea whether mis-spending or under-spending failed to buy a recovery? ...and it's an Obama policy that had nothing to do with Congress?

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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.