It’s difficult to know where to begin with this post from Casey Mulligan (the comments are definitely worth reading). He starts off by implying that those who might want to characterize the recession as involving “a lack of hiring” are simply misled by the nature of aggregate data on hiring and separations. He goes on to say this is due to the fact that turnover rates (and therefore hiring and separations) for younger people are higher throughout the business cycle than for older workers. He links to this 2010 Brookings paper by Michael Elsby, Bart Hobijn and Aysegul Sahin. Unfortunately for Mulligan’s point, the authors have this to say:

Measures of unemployment flows for different labor force groups yield an important message on the sources of the disparate trends in unemployment across those groups: higher levels and greater cyclical sensitivity of joblessness among young, low-skilled, and minority workers, both in this and in previous downturns, are driven predominantly by differences in rates of entry into unemployment between these groups and others. In sharp contrast, a striking feature of unemployment exit rates is a remarkable uniformity in their cyclical behavior across labor force groups—the declines in outflow rates during this and prior recessions are truly an aggregate phenomenon.[p.3]

While Mulligan states, correctly, that “[e]stimated job separations among employees ages 25-54 were 33 percent greater in 2009 than they were in 2007,” he stumbles into trouble by asserting that “the low employment rates for young people since 2007 are almost entirely explained by low hiring rates.” While the latter statement is true, it is also true, and conspicuously absent from Mulligan’s piece, that hiring rates fell as much for older workers as for younger workers. Figure 8 of the Elsby, Hobijn and Sahin paper clearly shows this dynamic: hiring has dropped precipitously for all age groups since 2007, while separations increased by much more for older workers and remains higher than the 2007 level.

Given the plunge in hiring detailed in the paper Mulligan refers to, what is one to make of this argument:

Before the recession began, quits were by far the most common type of separation; now the number of quits about equals the number of layoffs.

Perhaps the decline in quits is a signal of what’s ailing the economy, although I view it largely as a consequence of the unemployment insurance system. A person who quits his or her job is not eligible for unemployment insurance. As a result, calling a job separation a “quit” rather than a “layoff” results in the loss of unemployment benefits.

For some strange reason, Mulligan chooses to focus on separations, rather than unemployment inflows, and then blames unemployment insurance for this trend (Casey-watchers will have seen this coming a mile away). Of course, separations includes people who leave one job to go to another job. Separation trends from quits and layoffs are reported in Figure 11 in the Elsby, Hobijn and Sahin paper (see below), which I guess is where Mulligan got that trend. Interestingly, that same figure also shows inflows into unemployment from layoffs and quits, which paint a somewhat different picture than the one Mulligan wants us to see: continue reading…

In Friday’s post, I pointed out that unemployment and employment numbers announced by the BLS had apparently been changed greatly by the process of adjusting for typical seasonal changes. These adjustments are meant to account, for example, for the fact that retail business is generally stronger than usual during the holiday season at the end of each year. Friday’s widely reported unemployment drop to 9.0 percent in January from 9.4 percent the previous month was a figure that had been seasonally adjusted by the BLS to remove such normal seasonal effects. Also reported by the BLS Friday in the same set of documents were non-seasonally adjusted numbers that showed an increase in unemployment from 9.1 percent in December 2010 to 9.8 percent in January 2011. Few internet news outlets seem to have reported these latter percentages or the underlying raw numbers used to calculate them. On the other hand, many blogs and other news sources mentioned that adjustments had been made to the official numbers to reflect improved estimates of population growth from recent surveys, resulting in a problem with comparing January’s numbers with December’s. Friday morning’s blog post contained a qualifying statement to the effect that these population-related statistical adjustments had probably affected the un-seasonally adjusted numbers that I reported in the same post. Here is what I have been able to figure out about the importance of these two factors in creating such a large difference between the seasonally adjusted and non-seasonally adjusted one-month changes in the unemployment rates reported by the BLS.

The seasonally adjusted drop in number of unemployed people was -622,000, according to the BLS figures reported Friday. Table C in the accompanying news release estimated that annual changes in population estimates made by the BLS each January had this year magnified the reduction in unemployment from December to January by +32,000 individuals, leaving a true drop of perhaps −590,000, once one removed the effect of the population adjustments. On the other hand, non-seasonally adjusted figures from the same economic news release (Table A-1) showed an increase in the number of unemployed people of +40,000. Hence, one can deduce that, at least to a rough approximation, seasonal adjustment resulted in a much larger swing than population-related adjustments in figures reported in the headlines yesterday. Namely, about 630,000 more people were unemployed last month, once one puts back in the effects of typical seasonal changes in unemployment, as estimated by the BLS, resulting in a swing in the estimated figures of approximately +.4 percent of the labor force. In other words, the reported reduction in the unemployment rate from 9.4 percent to 9.0 percent in January derived from household survey data can be accounted for almost entirely by seasonal adjustments applied by the BLS.

Minor corrections for readability made to the post above approximately 2:00 pm, February 6 by G. Hannsgen

The Free Exchange blog calls President Obama’s proposed $50 billion infrastructure stimulus “A New Hope.” Our research begs to differ. We find that spending $50 billion on infrastructure would create little more than half a million new jobs. That’s not an inconsiderable number, but it’s a drop in the bucket compared to the 14.9 million who were unemployed in August (according to the last employment situation report).

There are strong arguments to made in favor of infrastructure spending. But if the administration were to spend the same amount on social care (child care, home health care, etc.), the employment gain would be more than twice as great, reaching nearly 1.2 million.Those would be lower paying jobs, but they would go to individuals further down the economic ladder–the people, in other words, most in need of help and most likely to provide further stimulus by promptly spending their earnings.

Perhaps the president’s latest proposal is merely a political trap Obama is setting for the Republicans, giving them yet another opportunity to ostentatiously oppose something popular. If so, good luck. But after the weaker-than-needed stimulus package last year, which is now running out of gas in terms of boosting employment, this proposal won’t provide much additional job growth. Half measures, as the saying goes, avail us naught. And this proposal is much less than half of what is needed.

In a Wall Street Journal Op-Ed (why do I read these!?), Harvard economist Robert Barro claims that “according to [his] calculations” without extended unemployment benefits the unemploymnet rate would now be 6.8%. What are these calculations? Glad you asked!

To get a rough quantitative estimate of the implications for the unemployment rate, suppose that the expansion of unemployment-insurance coverage to 99 weeks had not occurred and—I assume—the share of long-term unemployment had equaled the peak value of 24.5% observed in July 1983. Then, if the number of unemployed 26 weeks or less in June 2010 had still equaled the observed value of 7.9 million, the total number of unemployed would have been 10.4 million rather than 14.6 million. If the labor force still equaled the observed value (153.7 million), the unemployment rate would have been 6.8% rather than 9.5%.

See? If you assume that long-term unemployment is caused by extended unemployment insurance benefits, then removing unemployment insurance extensions solves the problem of long-term unemployment (and you get a pony!). This must be why he makes the big bucks. Magical thinking.

Suppose we make a different assumption. Let’s assume that changes in consumer demand have an effect on the level of employment. If so, then the decision to not extend unemployment benefits would reduce demand for goods and services. Where will the jobs come from? Businesses are not going to expand their capacity or their workforce in the face of falling demand for their products. The only way that extending unemployment benefits could actually increase the unemployment rate above what it would otherwise be (other than just assuming it will, as Barro does) is to assume that the people receiving those benefits, rather than spending them on food and rent, use the checks to set fires to businesses that are currently employing people. This assumption has the advantage of actually leading to the conclusion that Barro reaches, without magic.

Scholars at the Levy Institute have supported the creation of an employer-of-last-resort (ELR) program in the United States for many years. Such a program would provide a government job to any American who needed one and met a few basic requirements. (This readable policy note, along with many other Levy publications, explains the case for ELR programs.) So far, the government has created many jobs since the passage of the stimulus package, but the unemployment rate remains at 9.5 percent. Many forecasters are now predicting that the overall unemployment rates for 2010 and 2011 will both exceed 9 percent

Children are among the groups deeply affected by recessions. For example, a government report issued last November found that over one million children sometimes went hungry in 2008, which represented a large increase over the previous year.  Also, in a recent article, Katherine Newman and David Pedulla discuss how this recession has had an uneven impact, hitting groups like young people just entering the labor force especially hard.

Programs that helped the poor in times like these were weakened greatly in 1996, when President Bill Clinton somewhat reluctantly signed a welfare reform bill that was not what he had hoped for, saying that it was the country’s “last best chance” for reform. The Personal Responsibility and Work Opportunity Reconciliation Act set time limits for receiving welfare benefits, and converted the program from one that provided grants to all qualified families to one that came in the form of a grant of a fixed amount to each state. In passing the bill, leaders intended to expand work requirements for welfare benefits, but in practice many were not able to get work, appropriate training, and/or child care. The bill followed many years of reforms at the state and federal levels, some of which had enabled welfare recipients to obtain job training or to raise their incomes substantially by putting in more hours of work.

When the 1996 welfare reform effort took effect, many observers expected an eventual rise in homelessness and poverty, particularly among single-parent families. These effects seemed to have been avoided at first, and indeed poverty rates seemed to be falling as states implemented the new law. Many observers noted, however, that the job market was relatively tight during the late 1990s. The graph below (click on it for a larger view) shows two data series: unemployment for women over 19 years old and poverty rates for families with a female adult, children under age 18, and “no husband.”

The idea is to show how poverty for this group is related to the strength of the job market. Note that as welfare reform went into effect in the late 1990s, the unemployment rate for women was falling, mostly because of a booming economy. This trend helps to explain the fall in the poverty rate shown on the left side of the figure. Then, after the stock-market crash of 2000 and the recession that followed, the unemployment rate shown in the figure rose. It dropped a bit during the subsequent recovery, but then climbed again, reaching 4.9 percent in 2008. This reduction in demand for workers partially explains the steady rise in poverty that occurred during the same period, to more than 37 percent in 2008. Fortunately, improvements in the earned income tax credit (EITC) program probably helped to contain increases in poverty rates during this period. Of course many other factors affect poverty rates, some related to the business cycle and some not.

Unfortunately, as the graph shows, the unemployment rate for women more than 19 years of age rose again in 2009, by 2.6 percentage points—a big increase. The Census Bureau has not released poverty rates for that year, but this analysis shows that there is very good reason to believe that the new data will show that the rise in most poverty rates continued in 2009. Moreover, monthly data for this year show that the unemployment rate for women over 19 continued to rise in 2010 and stood at 7.9 percent as of June. Last month’s employment data will be released later this week. This information suggests that job creation efforts and other initiatives to help the unemployed and underemployed should be on the increase and not on the wane.

On The Daily Beast, Levy senior scholar James K. Galbraith urges action to get people working again, and smites deficit hawks who might oppose it. In the debate over stimulus versus austerity, he warns of two traps:

The first is the idea that we need another “stimulus package.” How I hate that phrase! The message it conveys—of something fast, temporary, quickly withdrawn—is wrong. We’re not in an ordinary postwar recession. We’ve suffered a major collapse of the financial system. Repairing this, and working off household debt loads and the housing glut, will take years. Yes, the economy can recover without strong private credit, but the recovery will be slow and unemployment will not be cured.

The second trap is the idea that we should undo it all later on. Even worse, many argue that we must make cuts today, effective at a later time, to offset the “stimulus.” Since the major programs which are authorized today for later effect are Social Security and Medicare, this translates to “cutting entitlements” in order to bring “long-term budget deficits under control.”

In a New York Times column, Yale’s Robert Shiller calls for a federal effort to battle unemployment by creating precisely the kind of socially beneficial jobs that some Levy Institute scholars have been recommending:

Why not use government policy to directly create jobs — labor-intensive service jobs in fields like education, public health and safety, urban infrastructure maintenance, youth programs, elder care, conservation, arts and letters, and scientific research?

For deficit hawks, Shiller notes that the cost would be modest:

Big new programs to create jobs need not be expensive. Suppose the cost of hiring a single employee were as high as $30,000 a year, several times typical AmeriCorps living allowances. Hiring a million people would cost $30 billion a year. That’s only 4 percent of the entire federal stimulus program, and 0.2 percent of the national debt.

You can read more on this blog about the ideas of Levy scholars along these lines, or you can cut to the chase and read a Levy Policy Brief on this very subject for yourself. Another related Levy publication, this one a Policy Note on job creation and the lessons of the New Deal, is available here.

In the Wall Street Journal, Stanford’s Robert Hall tells Jon Hilsenrath that last year’s stimulus just about made up for the cuts in state and local government spending forced by the recession (most states have balanced budget requirements, so when tax revenues dip, as they do in a recession, spending must follow).

So, there was no net stimulus from government spending last year! Still, it could have been worse. What David Leonhardt doesn’t say (in his take on the subject for the New York Times) is that the initial stimulus was too small. Certainly state fiscal support was too small. States have still had to cut their budgets, laying off teachers and police officers. These layoffs have not been helpful to recovery, to say the least.

continue reading…

Writing for the New York Times Economix blog, Nancy Folbre of the University of Massachusetts cites the work of Levy Institute economists in suggesting that Uncle Sam fund more home-care jobs:

Four economists at the Levy Economics Institute of Bard College – Rania Antonopoulos, Kijong Kim, Thomas Masterson and Ajit Zacharias – have published a policy brief, “Why President Obama Should Care About ‘Care’: An Effective and Equitable Investment Strategy for Job Creation.”

There are many reasons this is a great way to battle unemployment. Check out the policy brief for the full story.

A number of prominent economists have signed a letter calling for more economic stimulus from the United States government in order to put people back to work. Levy senior scholar James K. Galbraith and two other well-known Keynesians chose not to participate, and issued this comment explaining why.

A statement from Paul Davidson, James Galbraith and Lord Skidelsky

We three were each asked to sign the letter organized by Sir Harold Evans and now co-signed by many of our friends, including Joseph Stiglitz, Robert Reich, Laura Tyson, Derek Shearer, Alan Blinder and Richard Parker. We support the central objective of the letter — a full employment policy now, based on sharply expanded public effort. Yet we each, separately, declined to sign it.

Our reservations centered on one sentence, namely, “We recognize the necessity of a program to cut the mid-and long-term federal deficit… ” Since we do not agree with this statement, we could not sign the letter.

Why do we disagree with this statement?  The answer is that apart from the effects of unemployment itself the United States does not in fact face a serious deficit problem over the next generation, and for this reason there is no “necessity [for] a program to cut the mid-and long-term deficit.”

On the contrary: If  unemployment can be cured, the deficits we presently face will necessarily shrink.  This is the universal experience of rapid economic growth: tax revenues rise, public welfare spending falls, and the budget moves toward balance. There is indeed no other experience in modern peacetime American history, most recently in the late 1990s when the budget went into surplus as full employment was reached.

We agree that health care costs are an important issue. But health care is a burden faced by both the public and private sectors, and cost control is a job for health policy, not budget policy.  Cutting the public element in health care – Medicare, especially – in response to the health care cost problem is just a way of invidiously targeting the elderly who are covered by that program.  We oppose this.

The long-term deficit scare story plays into the hands of those who will argue, very soon, for cuts in Social Security as though these were necessary for economic reasons.  In fact, Social Security is a highly successful program which (along with Medicare)  maintains our entire elderly population out of poverty and helps to stabilize the macroeconomy. It is a transfer program and indefinitely sustainable as it is.

We call on fellow economists to reconsider their casual willingness to concede to an unfounded hysteria over supposed long-term deficits, and to concentrate instead on solving the vast problems we presently face.  It would be tragic if the Evans letter and similar efforts – whose basic purpose we strongly support – led to acquiescence in Social Security and Medicare cuts that impoverish America’s elderly just a few years from now.

Paul Davidson is editor of the Journal of Post Keynesian Economics and author of The Keynes Solution.

James K. Galbraith is a professor at the University of Texas at Austin and author of The Predator State.

Lord Robert Skidelsky is the author, most recently, of Keynes: The Return of the Master.