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Home Publications Blogs Beat the Press How Supply Affects Employment in a Downturn: Another Exchange With Casey Mulligan

How Supply Affects Employment in a Downturn: Another Exchange With Casey Mulligan

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Wednesday, 03 August 2011 09:04

Casey Mulligan seems to believe that because some groups (i.e. older workers) can increase their employment in a downturn, that the problem is one of supply and not demand. As I noted in my past exchange, a recession does not mean that some demographic groups will not be preferred to others. In the downturn there has been an increase in employment for college grads also.

There is nothing inconsistent with the idea that demand is a constraint on employment yet some individuals may be able to beat out others for the jobs that are available, either because they have more experience in the case of older workers or they have better skills in the case of college educated workers. This is very different from saying that if only all our workers had these advantages (being more experienced or college educated) that we would not have a problem of unemployment.

In fact, even among these groups unemployment has risen substantially in the downturn. If we snapped our fingers and suddenly our whole workforce had the experience of the over 55 population or the skills of a college graduate then we would see many more experienced and college educated workers unemployed. I don't see anything in Mulligan's story suggesting otherwise.

(As another example, Mulligan shows us that employment has increased in Texas. Is this a surprise? There has been a huge increase in oil and gas prices that has both increased demand in these industries and led to a substantial increase in the money flowing into the state for royalties. Also, Texas did not have as large a housing bubble as states like Nevada and California. Therefore, it suffered much less damage when the bubble burst.)

Finally, Mulligan insists that us Keynesian types have no evidence that lack of demand explains the downturn. Actually, there are a number of macroeconomic models that have been built up over the years based on evidence of firm and individual behavior. These do support the view that the downturn is attributable to a lack of demand. Also, there was a study (Feyrer and Sacerdote, 2011 and my comment) of the state by state effects of the stimulus that found multipliers that were very much consistent with the ones predicted by these macroeconomic models. So, we have the standard Keynesian theory, which is largely embedded in macroeconomic models based on years of data collection, that is now supported by a careful analysis of the impact of the stimulus.

That seems pretty good in the evidence department, what does Professor Mulligan have?

 

Comments (7)Add Comment
According to the "Economist"
written by Paul, August 03, 2011 12:17
Last year, Economix (the New York Times' newest economics blog) brought on Chicago economist Casey Mulligan as a contributor. His role there has been to play the satirist, writing absurd commentaries

Suddenly, Casey makes sense!
We Don't Need No Education
written by izzatzo, August 03, 2011 1:01
If we snapped our fingers and suddenly our whole workforce had the experience of the over 55 population or the skills of a college graduate then we would see many more experienced and college educated workers unemployed.


Exactly. In a zero sum world there's no point in getting an education since those with more of it will just be crowded out by those with less of it who also provide the same work for less.

Mulligan is correct as was Pink Floyd. Let supply side competition resolve the issue and thin out the overeducated overexperienced bloat that's dragging down the economy.

Let the cream of the crop rise to the top.

Stupid liberals.
...
written by Jay, August 03, 2011 2:26
I wonder what Mulligan's position is on signaling theory in labor economics. It appears employers are preferring the signals of current, demonstrated experience over educated people with the ability to develop experience in areas with possibly weak demand in order to maximize productivity at the expense of training.

It's akin to only preferring Kobe Bryant over players in the NBA draft. It's natural to want the best, most experienced but that doesn't mean there is a lack of capable players. Experience and skills can be mutually exclusive.
...
written by skeptonomist, August 03, 2011 2:31
Small business polls show that sales (demand) has been the number one concern since the start of the recession:

http://www.nfib.com/Portals/0/PDF/sbet/sbet201107.pdf

We don't need models for this. Businessmen's perception is that sales are down, period. To say that there is no evidence for lack of demand now is nonsense. This is not an explanation for why we got into a recession, but why we are not coming out of it. Even if actual sales were not exceptionally low, the perception that they are prevents investment and hiring. Cutting the budget or giving everyone a master's degree is not going to increase sales; giving money to people who don't have it would increase sales.
...
written by Matt R, August 03, 2011 5:19
I've said things to the tune of this before but... Casey Mulligan makes me sad.
...
written by rickstersherpa, August 04, 2011 10:39
Well, at least Casey Mulligan got your name in the NY Times. Apparently, you are persona non grata at both NY Times and WaPo as you are not with the program.
Dataset question
written by Ken Schulz, August 04, 2011 1:25
One issue I hadn't seen raised about Mulligan's original post is whether the employment-to-population data he was using was based on fulltime only, or full- and part-time. I suspect that workers over 65 are much more likely than younger workers to be working part-time, and less likely to have benefits. In a recession, part-time workers are much more likely to have hours reduced than are full-time workers, who are much more likely to be laid off than have their hours reduced (except in Germany, where a government program subsidises this). The EPOP for older workers could increase if fewer retire/quit than previously, with no 'excess' rate of hiring at all vs. younger workers, couldn't it?

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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.

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