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Home Publications Blogs Beat the Press Robert Samuelson Is Concerned That the Unemployment Rate Could Be Too Low

Robert Samuelson Is Concerned That the Unemployment Rate Could Be Too Low

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Monday, 14 April 2014 03:33

Hey, who isn't? His column today raises the possibility that because the long-term unemployed are effectively excluded from the labor market, they don't exert downward pressure on the inflation rate. This means that we should only focus on the short-term unemployment rate, which is already near its average rate over the last two decades.

There are many reasons for not accepting this view. For example, if the number of short-term unemployed dwindled, it is likely that employers would start to look to the longer term unemployed as a source of labor. However even if we accepted the story outlined in Samuelson's piece, it is difficult to see how anyone could be concerned about the rate of unemployment falling to a level that is inconsistent with stable inflation.

According to the Congressional Budget Office the terms of a trade-off between the acceleration of inflation and unemployment have changed in recent years. In their most recent analysis, they estimated that being a full percentage point below the non-accelerating inflation rate of unemployment (NAIRU) for a full year will lead to a 0.3 percentage point increase in the inflation rate.

This means that if the NAIRU is actually 6.0 percent and the Fed were to flub things and let the unemployment rate fall to 5.0 percent for a full year, then the core consumption expenditure deflator (the Fed's main measure of inflation) would rise from 1.3 percent to 1.6 percent. Pretty scary stuff.

In short, it's pretty hard to see the downside risk in this picture. The Fed targets a 2.0 percent rate of inflation, there are arguably reasons we should be looking to an even higher rate (@ 3-4 percent). If we accept the NAIRU story in its entirety and assume that we are already getting close to it, we will still have many years before the inflation rate would rise to a pace that provides a real basis for concern.

 

Comments (7)Add Comment
Samuelson's Sop to the Long Term Unemployed - the Structural Unemployment Lie by Any Other Name
written by Last Mover, April 14, 2014 5:39

Samuelson says,
If you know someone among the long-term unemployed — a category that includes workers who have been jobless at least six months, but in many cases much longer — you understand what a frustrating and demoralizing experience it is, especially for mid-career professionals and managers in their 40s and beyond. There’s a drill. You polish your resume; you work your network; you apply for openings; you wait. All the while, you try to maintain your enthusiasm and self-esteem. In a society that worships the work ethic and treats jobs as an indicator of social status, being without one is crushing for people who view themselves as responsible and productive workers .

It must be said that, from the perspective of potential employers, not hiring these workers can make sense. The skills they have developed are often highly specialized so that the jobs for which they are a perfect fit — the demanding standard now set by many companies — are scarce. Some of these workers are expensive; they’re accustomed to upper-middle-class salaries and benefits. Companies are understandably reluctant to shoulder the costs in an economy that collapsed in 2008 and hasn’t yet regained its zest. Why take the chance?


(Repeat)In a society that worships the work ethic and treats jobs as an indicator of social status, being without one is crushing for people who view themselves as responsible and productive workers .

Wow, for a minute there it sounded like Samuelson agreed with the billionaires who still have their jobs and run America, where a society fed up with obscene inquality had turned on them like Hitler, persecuting them unfairly for their well deserved earnings as "responsible and productive workers". What a crushing blow to the self esteem of employed billionaires everywhere.

Of course that wasn't it was it. Samuelson doesn't see the long term unemployed persecuted by the Hitler effect the same way he sees employed billionaires persecuted by it does he.

Samuelson is "concerned" about long term unemployed responsible and productive workers who unlike billionaires, don't have jobs at all, wringing his hands throughout the article over it while claiming nothing can be done about it.

See, Hitler could not have possibly taken their jobs in a society that leans more towards neo-fascism every day. No sireee America, those job slots remain vacant because the long term unemployed are structurally unemployed who just can't manage to squeeze into those scarce jobs that require a perfect fit of highly specialized skills demanded by employers in a completely unnecessary slack labor market.
Just Samuelson Parroting Mankiw
written by Larry Signor, April 14, 2014 6:55
Samuelson is getting his cues from GM:

http://frominsidethetincan.blo...-full.html

Now everyone is an economist...
Long-Term Unemployment
written by Tyler , April 14, 2014 7:34
I know someone with a master's degree who is long-term unemployed, and I'll bet there are millions more in the same position.
response to last mover
written by djb, April 14, 2014 7:55
"wringing his hands throughout the article over it while claiming nothing can be done about it"

yep

keynes was dealing with the same attitude in the 30's

they care so much about the unemployed workers, its just a terrible shame about their plight


...
written by urban legend, April 14, 2014 6:33
"If we accept the NAIRU story in its entirety..."

One would think the fact that it was conceived in a time when organized labor was a zillion times more powerful than it is now would cause our economists to go back to the modeling drawing board. You know, as Brad DeLong coined it, marking their beliefs to market.
...
written by anon, April 14, 2014 8:44
Hmm....
So, in the face of almost no fear of short term inflation, instead of letting employment supply and demand work a little longer, everyone who has been out of work is supposed to just die off? Is there a National Long-term Unemployed Jump off a Bridge Day soon?

Perhaps someone will soon suggest sending the long-term unemployed to prison camps, where they can re-learn a good work ethic and some of those skills that magically disappeared after 6 months.

There's a 'skills shortage' out there, right? Is it a true skills shortage,
OR
a "shortage of potential employees that would be willing to go through multiple, irrelevant tests and interviews by recruiters that don't understand your discipline, put on a clown suit and ride a tricycle up a loop-dee-loop through a ring of fire, crawl over broken glass, and wrestle a bear.. all for $10-15 an hour with no benefits."

OR,, and feel free to call me crazy, but...

Maybe we can support demand through government stimulus, let market forces (a mending economy and a shrinking working age population) work a little longer, and maybe, just maybe employers might start reducing ridiculous/superfluous wishlist job descriptions and increasing ridiculously low hourly rates and salary offers, reducing the 7-8 interview process, and.. this is the craziest part... actually start hiring?

I am obviously not an economist, so feel free to disregard this comment.
...
written by sherparick, April 15, 2014 6:47
Samuelson's article, and Larry Kudlow's article calling for a "15% appreciation of the dollar" denouncing Janet Yellon for wanting to keep the 2% inflation target and attack unemployment make sense if you are a Capitalist or Rentier if you want to keep the real median wage declining, lower the labor share of GDP, and increase the share of GDP going to profits. I note that Samuelson makes a self-refuting argument when he states: "The skills they have developed are often highly specialized so that the jobs for which they are a perfect fit — the demanding standard now set by many companies — are scarce." Well, if labor was actually becoming scarce and expensive, would employers only hire workers who would be a "perfect fit?" Of course not. I also note that Samuelson applauds the Republicans for cutting foods stamps, not extending unemployment benefits, and wants to make it harder to get SSI disability if not abolish the program? One has to wonder what he expect will happen to these 10,000,000 workers and their families? It is no longer the 1890s, where 70% of people still lived on farms and rural areas and could grow their own subsistence in a pinch, or even the late 1920s and 30s when 40% of the population was still rural and living in extended families. But he does seem to want an economy to exist as depicted in the "Grapes of Wrath."

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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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