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The Secret of Summer Employment

Wednesday, 24 August 2011 07:29

I was going to swear off Casey Mulligan for the rest of the summer, but it can be hard to stick to a diet. He has a delicious new post and I just have to take a couple of swipes.

First, he criticizes me and Paul Krugman because we have praised studies of the impact of the stimulus that do not take account of displacement effects. Mulligan's example is the move of Yankee Stadium. He notes that the move created jobs in the new location but correctly points out that these was pretty much entirely offset by the jobs lost in the previous location.

This is a fair enough critique in the context of Yankee Stadium. In fact many claims of job creation by businesses (e.g. Boeing creating jobs in its proposed plant in South Carolina) are in fact stories of displacement. In the Boeing case, the jobs would be coming from unionized facilities in Washington State.

But how do we envision the job displacement in the stimulus story? If Illinois has more jobs in road construction due to the stimulus or more teachers in its classrooms, do we think this means fewer construction workers or teachers have jobs in Indiana or Wisconsin? It's a bit hard to see how that works. In the Yankee Stadium and Boeing example, we are taking something away and moving it to a new location. What exactly is being taken away in the stimulus story?

The other point Mulligan raises that deserves comment is his argument that more workers are employed in the summer because of the increased supply of young people looking for jobs. Mulligan sees this as evidence that the underlying problem is supply and not demand, since the additional supply of young workers seeking jobs led to more employment.

Of course there is a flip side to this picture that Mulligan has ignored. There is also increased demand in the summer. This is when families take vacations and go to beaches and resorts. That is both because the weather is better (not many lifeguards are employed on Coney Island in January) and because the kids are out of school. In other words, spending on tourism and recreation is highly seasonal.

We could use Mulligan's seasonal argument as a test of whether unemployment was driven by supply or demand factors if we could just isolate the supply side of the picture. But there is no easy way to do that and Mulligan certainly has not found one.

Comments (9)Add Comment
written by skeptonomist, August 24, 2011 8:57
I haven't followed the Yankee stadium jobs saga specificially, but obviously major rebuilding projects create jobs - in construction which is severely depressed. The number of hot dog vendors is not increased in the first order (though it may be in the second order, as some of the construction workers may now have enough to buy bleacher tickets to the games), but all types of rebuilding are beneficial in the short term, and usually in the long term provided they don't lead to excess capacity.

By the way, the new Yankee Stadium is next door to the old one - where was the relocation?
The easiest way to create jobs is to just give a bunch of people "more money" unexpectedly.
written by grooft, August 24, 2011 9:03
I bet they would spend it, buying stuff. Which in turn would pay for people making stuff. Of course, in the Casey Mulligan world, Steinbrenner would just raise the price of Yankee tickets enough to eat all the newly "found" money.

Except in my case it wouldn't work, because I am a Red Sox fan.
Baker Intimidated by Mulligan for Understanding Scarcity and a Free Lunch
written by izzatzo, August 24, 2011 10:02
Any economist knows that only scarce goods are economic goods because they have opportunity displacement costs. That's why there's no free lunch in acquiring them.

Baker ignores the Ricardian Equivalence effect of spending borrowed money through future taxes to obtain current output, instead claiming it's a legitimate free lunch.

Go ahead. Knock yourselves out with the silly examples of trade-offs or not. But don't be peddling those artificial jobs as providing legitimate economic goods and services.

They're no different than so many pebbles of sand in the desert that if missing, would never be noticed since their incremental effect is zero. Economics is nothing if not zero sum.

Stupid liberals.
Baker went easy on Mulligan
written by LSTB, August 24, 2011 10:32
Mulligan opens with:
It’s a lot easier to move spending from one area to another than it is to create spending anew. That’s why it may be too much to ask the federal government to use its ability to spend to get the recovery going.

I'm impressed Dr. Baker read anything after Mulligan's opening sentences. They indicate that Mulligan thinks increases in government spending don't increase GDP, even though GDP includes government spending. It's as though he thinks government spending is self-crowding out, which is a novel claim.
written by diesel, August 24, 2011 10:46
I would guess that increased employment in summer months could be entirely accounted for by hiring in construction jobs.

Asphalt can only be laid in warm weather. Sites can only be cleared, graded and compacted when heavy equipment doesn't get bogged down in autumn and spring rains. Framing and sheathing is much easier in clear, sunny weather than in a downpour etc. etc. Summer interns and temps are hired because demand is greater, not the other way around. And clearly, stimulus money spent on construction in one geographic location has no bearing on projects undertaken in another.
written by James, August 24, 2011 3:50

Didn't know you are actually an online blogger/user of NYT.

Casey's site needs to have a tool which you and many sites have that will collapse one's comments if it receives enough negative feedback.

Casey's 19 responses have a large majority of accurate criticisms against his anlaysis. That should have been collapsed - laughable and yet he thinks it's perfect.

No one would say the Yankees being in the Bronx was stimulus
written by winstongator, August 25, 2011 9:48
However, BUILDING the stadium WAS a stimulus. How did total employment in the area, including the area around the old & new ballparks change during construction of the stadium. Stimulus spending is DESIGNED to be short-term. Say you are building a rail system in a city. Do you expect the jobs created from the rail system to last forever? However, you would get long-term benefits from the system - decreased traffic & potentially more customers for businesses.

Starting with confusing short-term and long-term effects seems pretty weak for a UoC econ prof. Even if their ideology was skewed, I thought they had analytical rigor.
Mulligan is showing that he doesn't understand Keynesian economics
written by Brett, August 25, 2011 10:44
How can you possibly write, in good faith, that stimulus spending displaces spending from one area and moves it to another (with no net effective gain)?

The whole point of stimulus spending is to spend money beyond what would have been spent otherwise. You basically create the money out of thin air (as is possible in a fiat money system) and spend it. You aren't taking it from one area and moving it to another. You are taking money that didn't exist today and creating it and spending it tomorrow.

How is Mulligan a tenured professor? He's incomparably dense -- it's like he hasn't read any book that explains this stuff and is inventing his own fantasy conceptions of how it works.
San Diego Padres
written by San Diego Padres, August 26, 2011 9:22

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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.