Reserve Army Of The Hungry — Brian Romanchuk

I have returned from the 3rd annual Modern Monetary Theory conference, and I am now catching up on things. One of the observations that stuck with me was some comments about the Supplemental Nutrition Assistance Program (SNAP) made by the presenter Maggie Dickinson. She noted that the welfare state did not contract completely since the 1980s, as some components have grown, with SNAP being an example of growth. While thinking about this, I realised that the rise in food assistance (such as SNAP, as well as food banks, which have grown in importance in the other "anglo" countries at least) helps explain the breakdown in employment statistics as an indicator.
Noting that the unemployment rate is "broken" as an indicator as a result of the changing structure of the labour market is not particularly novel. For example, Bill Mitchell's academic work has documented the structural changes in employment policies in the OECD since the early 1990s, and the rise of "underemployment." (Bill Mitchell is one of the founders of MMT, and I was on a panel with at the conference.) My concern is somewhat more stark: employment status as a whole has become somewhat meaningless as an indicator.
(Note: the panels are available on video at: https://www.mmtconference.org/)
I will first discuss some of the more "technocratic" implications of my thinking first, then dip into political economic ramblings....

Bond Economics
Reserve Army Of The Hungry
Brian Romanchuk

Is There Really A Trade-Off Between Inflation And Unemployment? — Brian Romanchuk

Rather than attempt to explain what the mainly neoclassical economists are going on about, I want to step back and try to translate their debate into terms that would be understood by people who do not share the same assumptions. I am pretty sure that post-Keynesian economists have a lot to say about the topic as well, but once again, they tend to be discussing wonkish points that would elude an outsider.…

I have an engineering background, and engineering is largely the science of trade-offs. I have no strong objections to qualitative discussions, but I would argue that we need to at least know the sign of the exchange ratio between two variables in order to say that there is a trade-off between them.

Very simply, if we can have a policy that lowers both the unemployment rate and the inflation rate (or at least leaves inflation unchanged), we cannot pretend there is a meaningful "trade-off" between them.

And this is hardly theoretical: in the United States, we saw a near monotonic decrease in the unemployment rate after the Financial Crisis, yet the inflation rate has done absolutely nothing interesting....

Bond Economics
Is There Really A Trade-Off Between Inflation And Unemployment?
Brian Romanchuk

America’s Finest Economists Have Been Needlessly Undermining Growth, Study Confirms — Eric Levitz

A few lonely voices disputed this consensus. In their view, these two distinct mysteries weren’t actually distinct — or all that mysterious. The reason wage growth wasn’t rising as one would expect with the economy near full employment was that the economy wasn’t near full employment. And the reason the economy wasn’t near full employment was that all those prime-age workers who’d supposedly exited the labor force for reasons totally unrelated to the strength of the economy hadn’t actually exited the labor force for reasons totally unrelated to the strength of the economy.

In this view, both of the supposed mysteries stemmed from the same mistake: Economists had too much faith in the official unemployment rate. That rate counts only those who say they’re actively seeking employment as available workers. And yet many Americans who say they aren’t looking for a job (and are, therefore, classified as nonparticipants in the labor force) also say that they would like a job if one presented itself. Meanwhile, survey data show that even those Americans who say they aren’t looking for a job – anddon’t want one – can abruptly change their minds. Such workers often go from being “outside the labor force” to being employed without ever registering as “unemployed” in the government’s data.

This reality has a major implication: The pool of surplus labor that employers have at their disposal at any given time is much larger than the unemployment rate lets on.…

New York Magazine — Intelligencer
America’s Finest Economists Have Been Needlessly Undermining Growth, Study Confirms

Eric Levitz

Bill Mitchell — US labour market – improves in June but still no growth trend is apparent

A friend just enquired abut this.

Bill Mitchell – billy blog
US labour market – improves in June but still no growth trend is apparent
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Edward Harrison — US jobs numbers come in high enough to prompt Fed rate hike

The BLS released the latest employment numbers for the US, the last piece of major economic data before the Fed meets next week to decide on whether to raise interest rates. The numbers were good enough. Payrolls were up 235,000, when 190,000 was expected. The unemployment rate came in at 4.7%. Average hourly earnings are now up 2.8% in the year to February. A rate hike is all but certain now.…

Credit Writedowns
US jobs numbers come in high enough to prompt Fed rate hike
Edward Harrison

Robert Oak — Another 640,000 Drop Out of the Labor Force Causing Unemployment Rate Decline

The June employment report brings some OMG, jaw dropping, are you kidding me numbers. Over 640,000 dropped out of the labor force. As a result, the unemployment rate drops two tenths of a percentage point to 5.3%. The labor participation rate dropped by -0.3 percentage points to 62.6%. This new low of a labor participation rate has not seen since October 1977 when women and minorities were still were not in the workforce extensively. While the United States does have baby boomers entering retirement, these figures are horrific...

The Economic Populist
Another 640,000 Drop Out of the Labor Force Causing Unemployment Rate Decline
Robert Oak

Bill McBride — Employment Report Comments and Graphs

This was a decent employment report for April (not great, but not terrible). The year-over-year employment gains are still solid.

Calculated Risk
Employment Report Comments and Graphs
Bill McBride

Matias Vernengo — How bad is unemployment?

It is worth remembering that the rate of unemployment depends on the participation rate that, as can be seen below, has been falling since the late 1990s. The question is how would the unemployment rate look like if the participation rate remained at the same level it reached at the end of the Clinton boom. 

This calculation was done before (here and here), and the new graph is below showing that unemployment would be at a much higher rate.

Some economists view all unemployment as voluntary in the sense that workers prefer leisure to reducing their market offers to reflect employer bids. But most economists treat those who are no longer actively looking for work (not participating) as voluntarily unemployed so they are not considered in the employment rate. Some would argue that this, too, is unrealistic. when there are too few job relative to job seekers, some seekers will stop looking until the job market improves.

In fact, the rate of unemployment (u*) would be double the current rate of unemployment (u) if the participation rate remained at 67% of the labor force. That might explain why real wages have not increased much in this recovery. The recovery is even weaker than it looks.

Naked Keynesianism
How bad is unemployment?
Matias Vernengo | Associate Professor of Economics, Bucknell University

Danielle Kurtzleben — Americans think the unemployment rate is 32 percent

The latest jobs report showed the unemployment rate was at its lowest level in six years, 5.8 percent. 

But Americans aren't convinced that things are nearly that good. In a recent Ipsos-MORI poll, 1,001 Americans were asked, "Out of every 100 people of working age, how many do you think are unemployed and looking for work?" Their average response was 32. That's almost 26 percentage points higher than the 6.1-percent jobless rate in August, when the poll was conducted.…

To be fair, it's possible that question wording matters here...though "out of work and looking for work" is the most broadly used definition of unemployment, people may be also considering their discouraged-worker friends who have given up the search. Still, even when you include discouraged and other marginally attached workers, even the broadest definition of unemployment in August was only 12 percent.

VOX
Americans think the unemployment rate is 32 percent
Danielle Kurtzleben

Bill McBride — Goldman Sachs [Jan Hatzius] on the Labor Force Participation Rate

From Goldman Sachs chief economist Jan Hatzius:

• Since the start of the Great Recession in late 2007, the labor force participation rate has fallen by more than three percentage points, including a sharp drop in April back to the late-2013 lows. The extent of the decline has surprised many economists, ourselves included. What accounts for it, and will it continue?

 Hatzius is upbeat.

Calculated RiskGoldman Sachs on the Labor Force Participation Rate
Bill McBride

North Carolina — Proof that cutting unemployment benefits increases employment? No way.

North Carolina has been without long-term unemployment benefits since last Summer, and so they might offer a glimpse of what happens when the unemployment insurance is not extended. 

The answer? A gigantic drop in the unemployment rate....

Of course, this only answers one question, which is what happens to the rate of unemployment.

It doesn't tell us whether people are finding jobs or just totally dropping out of the workforce. But even if this is mostly a function of people dropping out of the labor force, the actual unemployment rate does still matter for Fed policy. So if you think this has any predictive value for the national number (which could be debated) ths number still matters.

Business Insider
Look How The Unemployment Rate Is Plunging In The One State That Already Canceled Long-Term Unemployment Benefits
Joe Weisenthal

From the Charlotte Observer:

North Carolina’s unemployment rate took a sharp turn downward in December, suggesting a dramatic economic turnaround is well underway, but economists warned that the statistics are distorting a more sober reality....

Economists are not so sanguine about North Carolina’s employment statistics for December and for all of 2013....

In reality, however, North Carolina created fewer jobs in 2013 than it did in 2012. Last year’s jobs gain was 64,500, roughly two-thirds of the 89,900 jobs created in 2012.

Just as disconcerting, the state’s labor force shrunk last year, eliminating nearly 111,000 people from the pool of those who are working or looking for work. Such a shrinkage artificially reduces the jobless rate because legions of jobless people don’t show up in the data....

N.C. State University economist Mike Walden said the shrinkage of the labor force is a national problem that suggests discouraged job applicants are giving up finding work.

Wells Fargo economist Mark Vitner expects the 2013 jobs gain to be revised to at least 80,000, but he estimated that December’s unemployment rate is probably closer to 8 percent than the official 6.9 percent....

East Carolina University economist James Kleckley said the December jobless rate is the statistical equivalent of an optical illusion.

He said the state has recovered about 75 percent of the jobs it lost in the recession and estimated that North Carolina’s real jobless rate is probably at least 9 percent.

Charlotte Observer

NC jobless rate falls to 6.9%, but job creation lags

John Murawski

Matthew Boesler — Goldman's Jan Hatzius: People Are Looking At The Wrong Unemployment Rate

U3 v. U6.

Business Insider
Goldman's Jan Hatzius: People Are Looking At The Wrong Unemployment Rate
Matthew Boesler

Paul Solman — Will We Ever Get to 'Full Employment'?

When we talk about "full employment" of 4 percent (or even 6 percent) these days, do we mean the same thing we used to back when?

The answer is no. The government has changed the way it measures unemployment and as a result, some Americans who used to be counted as officially unemployed no longer are -- because they haven't looked for work recently enough. That's why I devised our monthly U-7 statistic, which includes everyone who says they want to be working full-time, but aren't. Compared to the official unemployment number of 7.6 percent, U-7 is running at 16 percent.

There's another significant difference between official unemployment today, compared to that statistic years ago. As we explained in a story back in 2003, many more Americans are now on either disability or in prison than in previous years. Were they out on the street looking for work, today's official unemployment number, as well as our "Solman Scale" U-7, would be several percentage points higher than they are.

PBS NewsHour — Business Desk
Will We Ever Get to 'Full Employment'?
Paul Solman

Bill McBride — Employment Report Comments and more Graphs

The 236 thousand payroll jobs added in February is from the establishment survey (a survey of businesses for payroll jobs), but the unemployment rate is from the household survey. To help understand the decline in the unemployment rate, here is some data from the household survey....Overall this was a fairly solid report, but with the high unemployment rate, many workers unemployed for a long time, and the large number of part time workers, there is a long way to go.

Calculated Risk
Employment Report Comments and more Graphs
Bill McBride

If the participation rate increases, then it would take more jobs to reduce the unemployment rate.  If the participation rate continues to decline (or just flat lines for a couple of years), then it takes fewer jobs to reduce the unemployment rate.

Good jobs report. And who says the gov't can't create jobs?

This was a good jobs report and it should help Obama.

Unemp rate 7.8%
Labor force participation rate went up: 63.6%
Nonfarm payrolls +114k, last month revised up HUGE to 142k
Hourly earnings up strong 0.3%
Household survey added 873,000 jobs. Largest increase since 1983!!!
Weekly hours up  

Now it appears we have made back all the private sector jobs lost since Obama took office (Chart 1.)

And if it were not for the decline in government jobs, which were cut massively under Obama, then we'd be looking at something like 6 million jobs created since the stimulus really kicked in. A bigger stimulus would have brought the unemployment rate down that much futher, but Obama was too timid to push for it. He still doesn't argue strongly enough to show people how well the stimulus worked.

By the way...look at the spike in government jobs that were due to the hiring of temporary Census workers in Chart 2. Show this to someone next time they tell you government can't create jobs!

Chart 1.



Chart 2.

Catherine Rampell — Majority of New Jobs Pay Low Wages, Study Finds

While a majority of jobs lost during the downturn were in the middle range of wages, a majority of those added during the recovery have been low paying, according to a new report from the National Employment Law Project.

The disappearance of midwage, midskill jobs is part of a longer-term trend that some refer to as a hollowing out of the work force, though it has probably been accelerated by government layoffs. 

“The overarching message here is we don’t just have a jobs deficit; we have a ‘good jobs’ deficit,” said Annette Bernhardt, the report’s author and a policy co-director at the National Employment Law Project, a liberal research and advocacy group.

The New York Time | Business Day
Majority of New Jobs Pay Low Wages, Study Finds
Catherine Rampell

Welcome to Third World America.

Marshall Auerback — Spain is the New Greece

This is a big deal socially and politically, therefore economically. The EZ is visibly beginning to disintegrate, visibly from the outside and tangibly on the inside.

Read it at New Economic Perspectives
Spain is the New Greece

by Marshall Auerback

Rebecca Wilder — Does the US Corporate Saving Rate Portend a Lower Unemployment Rate?

There’s a very strong correlation between the corporate saving rate and the unemployment rate, 80% according to a simple bivariate OLS regression. I’ve argued in the past that there is some causation to this relationship – but that’s not the point of this post. The point here is that the trend in corporate saving has fallen sufficiently to portend some material declines in the unemployment rate in coming quarters….ALL ELSE EQUAL. For example, a simple bivariate regression would forecast a 7.5% unemployment rate if the corporate saving rate falls another 30 bps to 2.6%.

The all else equal is important. The primary driver of this quarter’s decline in the corporate saving rate was the 6% increase in nominal investment spending, the largest quarterly gain since 2010 Q2. Amid relatively weak manufacturing orders and the expiration of the depreciation allowance, I expect that this momentum is unlikely to be matched in coming quarters. Will firms start drawing down nominal saving to finance new hires?

Read it at Economonitor | The Wilder View

Does the US Corporate Saving Rate Portend a Lower Unemployment Rate?
by Rebecca Wilder

The disturbing trend underneath the strong jobs report

Total employment taxes (witholding) collected by the Federal Government so far this year, are running about $8 billion above last year. On the surface this would appear to be a good sign and an indication of a stronger economy and job market, however, notice the trend, it's going down. This comes despite a stellar jobs number last Friday. It suggests that income earned on all these new jobs is not rising, but in fact falling. This seems to be corroborated by average hourly earnings, which on a year-over-year basis, hit the lowest level in 10 months in January.