No, the unemployment rate is not “meaningless”

In March, the economy created 916,000 new jobs and the unemployment rate edged down to 6%. At the same time, total employment remains roughly 10 million below trend.

This leads some people to assume that the unemployment rate is sort of meaningless, and that the total employment figures show the true state of the labor market.

That’s not quite right.  If you want to know how far we are from a full recovery, then the total employment figures are indeed more relevant at the moment.  But if you want to understand how hard it is to find a job, then the unemployment rate is probably the better indicator.

When these two series diverge sharply, it is because there has a been a drop in the total labor force.  Million of people who were employed in early 2020 are currently not even looking for a job.  As a result, the labor market is tighter than you’d normally expect from a situation where employment is 10 million below trend, and indeed far tighter than in 2009:

A record share of U.S. small-business owners reported unfilled positions in March, and firms are starting to boost wages to attract talent, a report by the National Federation of Independent Business showed Thursday. . . .

[A]n overwhelming number of small businesses are having trouble finding qualified applicants to fill open positions. Over 90% of owners looking to hire reported few or no “qualified” applicants for the jobs they were trying to fill last month.

“Where small businesses do have open positions, labor quality remains a significant problem for owners nationwide,” said Bill Dunkelberg, chief economist at NFIB. “Small-business owners are raising compensation to attract the right employees.”

I’m not sure what explains the recent drop in the supply of labor.  Part of the decline might reflect workers that are skittish about contracting Covid-19.  Some workers may be staying home to care for children, as many schools have closed.  The expanded unemployment program pays some workers more in unemployment compensation than they earned on their previous jobs.  I expect these roadblocks to mostly be eliminated by late in the year, and hence I expect a surge in labor force participation.

But as of the moment, it’s easier to find work than would normally be the case when employment is 10 million below trend.

The punch line here, as in so many of my posts, is to avoid thinking exclusively in supply or demand terms.  When it comes to the labor market, both supply and demand matter.  Never reason from a quantity change.

(0 COMMENTS)

Read More

President Biden’s Pipeline Closure Did NOT Destroy Jobs

According to the Republican National Committee in a letter they sent to me: “On his very first day in office, Joe Biden destroyed 11,000 American jobs and $1.6 BILLION in wages when he halted construction of the Keystone XL Pipeline.” This was coupled with a plea to “Please contribute $45 IMMEDIATELY to help your Party win back the House and Senate.” I reject both messages.

Ok, ok, if you want to say that this decision of President Biden’s destroyed jobs, fine. But, then, if you want to be logical, you also have to opine that:

* The horseless carriage destroyed jobs in saddle making, horse training, blacksmithing, whip manufacture, and cleaning up manure.

* The cell phone demolished employment opportunities at Kodak in film-making, camera production.

* The computer eviscerated occupations in typewriters, carbon-paper, white-outs (for typing errors), forestry (less paper now needed)

* Automatic elevators devastated careers for manually operated elevator attendants.

* Air conditioning put paid to the fan industry.

* 78 records gave way to 45s, which were supplanted by tapes and then discs the streaming; jobs were “lost” every step of the way.

* Air travel to a great degree supplanted alternative means of transportation (well, not right now, to be sure, but, hopefully, soon again).

* Changes in taste have eliminated numerous careers in manufacturing hula hoops, pet rocks, men’s hats and women’s too

This list could go on and on. The RNC should take it as a homework assignment to add to it.

Yes, it cannot be denied, in all of these cases job slots were eliminated, including in the present administration’s decision that construction be halted in pipeline construction. But to put matters in such a way is an exercise in economic illiteracy. A more accurate description is that occupations are/were/will be shifted from one avenue to another. Unemployment did not rise when the automobile, the cell phone, the computer, automatic elevators were introduced. Rather, people were transferred from working on items no longer needed to others in greater demand. Instead, they were allocated in the direction of new goods and services more greatly desired by consumers.

In all these examples it is clear from the position of the Monday morning quarterback that these were economic improvements. Whether reducing fossil fuels and oil, which are complementary goods to pipelines, and embracing alternative energy sources will be an improvement to our economic welfare is an entirely different matter. All that can be said about this decision is that it will not destroy jobs; it will rather rearrange the labor market in the direction favored by the new administration.

The natural tendency of the market system is in the direction of full employment. When industries collapse, due to progress, new technology, changes in taste, etc., this releases workers to seek alternative employment. Such phenomena do not “destroy jobs”; rather, they move them elsewhere.

True, Mr. Biden’s pipeline decision did not stem from changing consumer tastes, new technology, etc. But in our system, he is now the representative of the people, all the people, those who voted for him and those who did not. Was this a wise move on his part on our behalf? Save that question for another day. For now, we must see through the foolishness of declaring he has “destroyed jobs.”

(0 COMMENTS)

Read More

The Effect of the Minimum Wage on Employment and Unemployment

In a comment on my blog post about the proposed $15 federal minimum wage, frequent (and careful) commenter KevinDC quotes my statement:

Here’s what they found. The vast majority of studies, 79.3 percent, found that a higher minimum wage led to less employment.

He then comments:

I like the precise wording here by using the term “less employment.” One thing I’ve tried explaining to people is that is possible for increases in the minimum wage to decrease employment without increasing unemployment, because economists are bad at naming things in a way that make intuitive sense to people outside the field. (“Public goods? Obviously that means goods provided by the public sector, right?” “Market failure? That’s whenever I personally don’t like a market outcome, isn’t it?”) So, even in the case where  particular study doesn’t find increased unemployment after a minimum wage hike, that doesn’t actually mean that the increase in the minimum wage didn’t decrease employment.

Well said, Kevin.

I want to add that the CBO study I cited makes this distinction also. Here’s a key paragraph:

Taking those factors into account, CBO projects that, on net, the Raise the Wage Act of 2021 would reduce employment by increasing amounts over the 2021–2025 period. In 2025, when the minimum wage reached $15 per hour, employment would be reduced by 1.4 million workers (or 0.9 percent), according to CBO’s average estimate. In 2021, most workers who would not have a job because of the higher minimum wage would still be looking for work and hence be categorized as unemployed; by 2025, however, half of the 1.4 million people who would be jobless because of the bill would have dropped out of the labor force, CBO estimates. Young, less educated people would account for a disproportionate share of those reductions in employment.

 

 

(0 COMMENTS)

Read More

890 Thousand Excess Deaths Due to Covid and Lockdowns

We find that shocks to unemployment are followed by statistically significant increases in mortality rates and declines in life expectancy. We use our results to assess the long-run effects of the COVID-19 economic recession on mortality and life expectancy. We estimate the size of the COVID-19-related unemployment to be between 2 and 5 times larger than the typical unemployment shock, depending on race/gender, resulting in a 3.0% increase in mortality rate and a 0.5% drop in life expectancy over the next 15 years for the overall American population. We also predict that the shock will disproportionately affect African-Americans and women, over a short horizon, while white men might suffer large consequences over longer horizons. These figures translate in [to] a staggering 0.89 million additional deaths over the next 15 years.

This is from Francesco Bianchi, Giada Bianchi, and Dongho Song, “The Long-Term Impact of the COVID-19 Unemployment Shock on Life Expectancy and Mortality Rates,” NBER Working Paper No. 28304, December 2020.

An excerpt:

For the overall population, the increase in the death rate following the COVID-19 pandemic implies a staggering 0.89 and 1.37 million excess deaths over the next 15 and 20 years, respectively. These numbers correspond to 0.24% and 0.37% of the projected US population at the 15- and 20-year horizons, respectively. For African- Americans, we estimate 180 thousand and 270 thousand excess deaths over the next 15 and 20 years, respectively. These numbers correspond to 0.34% and 0.49% of the projected African- American population at the 15- and 20-year horizons, respectively. For Whites, we estimate 0.82 and 1.21 million excess deaths over the next 15 and 20 years, respectively. These numbers correspond to 0.30% and 0.44% of the projected White population at the 15- and 20-year horizons, respectively. These numbers are roughly equally split between men and women.

Francesco Bianchi is an economist at Duke University, Giada Bianchi is an MD in the Division of Hematology, Department of Medicine, Brigham and Women’s Hospital Harvard Medical School, and Dongho Song is an economist at the Johns Hopkins University’s Carey Business School.

The authors write:

We interpret these results as a strong indication that policymakers should take into consideration the severe, long-run implications of such a large economic recession on people’s lives when deliberating on COVID-19 recovery and containment measures. Without any doubt, lockdowns save lives, but they also contribute to the decline in real activity that can have severe consequences on health.

I’m not sure why they are confident that there is zero doubt that lockdowns save lives. They admit in the last quoted sentence above that lockdowns “contribute to the decline in real activity that can have severe consequences on health.” What if lockdowns are responsible for half of the bad unemployment consequences, and voluntary actions in response to the fear of getting the virus are responsible for the other half? Then, assuming a linear relationship between unemployment and fatalities, the lockdowns would be responsible for half of 0.89 million to 1.37 million deaths, which translates to between 450,000 deaths and 685,000 deaths. Can they really be confident that lockdowns saved at least 450,000 lives?

(0 COMMENTS)

Read More

Great News on Employment and Unemployment

On the first Friday of October I laid out the somewhat good news on employment and unemployment for September. This Friday (today), the news is fantastic!

1. The number of people employed increased by 2.243 million. A typical increase in normal times is between 0.2 and 0.3 million, so this is 7 to 10 times as large.

2. The employment to population ratio increased from 56.6 percent to 57.4 percent, a large increase.

3. The number of people unemployed fell from 12.580 million to 11.061 million, a drop of 1.519 million.

4. The unemployment rate fell from 7.9 percent to 6.9 percent.

5. The unemployment rate for people in every single category: black, white, men, women, teenagers, Asian, and Hispanic or Latino, fell. For many of those groups it fell by more than 1 percentage point.

The above are all data from the Bureau of Labor Statistics household survey.

The data from the establishment survey are also good, especially in the details.

1. Private employment rose by 906,000.

2. Leisure and hospitality, one of the sectors hardest hit by both the pandemic and the lockdowns, rose by 208,000.

3. Government employment fell by 268,000.

(0 COMMENTS)

Read More

Building an Inclusive Recovery in the Middle East and Central Asia

By Jihad Azour and Joyce Wong Countries in the Middle East and Central Asia face with COVID-19 a public health emergency unlike any seen in our lifetime, along with an unprecedented economic downturn. The pandemic is exacerbating existing economic and social challenges, calling for urgent action to mitigate the threat of long-term damage to incomes […]

Read More

Chart of the WeekUnemployment in Today’s Recession Compared to the Global Financial Crisis

By Ippei Shibata There has been much discussion in recent months about how workers who transitioned to working from home—and those who were deemed “essential”—are less affected by the layoffs and job losses brought on by lockdowns than are workers in “social” jobs that require closer human interaction, like restaurant workers. However, our new IMF […]

Read More

The COVID-19 Gender Gap

By Kristalina Georgieva, Stefania Fabrizio, Cheng Hoon Lim, and Marina M. Tavares The COVID-19 pandemic threatens to roll back gains in women’s economic opportunities, widening gender gaps that persist despite 30 years of progress. Well-designed policies to foster recovery can mitigate the negative effects of the crisis on women and prevent further setbacks for gender […]

Read More

The Fantastic Unemployment Numbers!

 

Possibly because of the long weekend and possibly because the unemployment numbers don’t make Donald Trump look bad, there hasn’t been as much commentary as I had expected on the June unemployment numbers.

Here’s mine: They are fantastic!

Here’s the BLS release.

Now for some highlights.

Nonfarm payroll employment rose by 4.8 million in June. I’m not sure  but I’m pretty sure that this is a record increase. The previous, month, May, it was a whopping 2.5 million. So June’s number is almost double May’s increase.

The unemployment rate fell from 13.3 percent in May to 11.1 percent in June, a drop of 2.2 percentage points.

The number of people unemployed fell by a whopping 3.2 million. I think that’s a record drop also.

The labor force participation rate rose by 0.7 percentage point.

The employment to population ratio rose by 1.8 percentage points.

In thinking that the major recovery would not start until the added $600 per week federal unemployment ended (it ends at the end of July), I was too pessimistic.

I do think, though, that if Congress had not passed that benefit in March and had Donald Trump not signed the legislation, the unemployment rate today would be in high single digits, not low double digits.

(0 COMMENTS)

Read More

Cooking Official Statistics Is Not Easy, for Now

After the Bureau of Labor Statistics announced a drop in the unemployment rate—from 14.7% in April to “only” 13.3% in May—a friend emailed me to share his suspicion that the unexpectedly low figure was a propagandist lie. The probability of that is not zero, I explained to him, but it is extremely low.

These data are gathered (through a monthly survey of 70,000 households), assembled, analyzed, and summarized by bureaucrats from the Census Bureau and the BLS, many of whom are professional statisticians. Bureaucrats could of course be co-opted or corrupted by political leaders, as they were in Argentina and Greece not so long ago. But there are reasons why this is less likely to happen in America.

Any attempt at political interference in official statistical data (which would probably be a crime under federal law) could be resisted or blocked at many points in the process. Successful conspiracies involving a large number of people are rare because, like in the Prisoner Dilemma game, anyone has an incentive to defect before anyone else does. A political manipulation at the last stage would be visible to many who have participated in the process. (The BLS Commissioner apparently only sees the report once it is completed.) Any success at political manipulation would quite certainly be followed by some resignations. High-level bureaucrats have an incentive to preserve the value of their personal brands. A professional statistician suspected of having acquiesced to data fraud may be unable to find another job in his field. Moreover, a political manipulation would be interpreted as meaning that US statistical agencies having become of the Greek or Argentine sort. The credibility of all federal statistical agencies would suffer—and may take decades to recover. Treasury yields would probably increase as creditors would suspect that the federal deficit and debt numbers, for example, are cooked too.

Another part of the difficulty would be to reconcile false unemployment statistics with other numbers calculated by other federal statistical agencies, like the Bureau of Economic Analysis (at the Commerce Department), which will, at the end of July, provide a first estimate of second-quarter GDP. And note that cooking a number one month may require cooking it again the following month and so forth, increasing the probability of the fraud being discovered.

Think also of the Department of Labor’s Inspector General, who may investigate any suspicion of statistical manipulation. It is true that federal Inspectors General may now be scared of investigating political malversations after President Trump removed five of them in different agencies over the past few months. But who knows, the Department of Labor Inspector General may still investigate out of personal integrity or because his legal responsibilities require it.

Fortunately, then, lying is not always easy in a government limited by the rule of law and constrained by numerous centers of power. We could say that, like in Rudyard’s delicious novel The Man Who Would Be King (1888), even the king cannot do everything he wants.

The intriguing error in employment data made by the BLS over the past three months does not change my opinion. As my co-blogger David Henderson explained, an error by interviewers led to misclassify the workers furloughed due to the coronavirus as employed instead of “unemployed on temporary layoff” as they should have been. Without this error, the correct unemployment rate would have been closer to 20% in April and to 16% in May, as opposed to the published figures of 14.7 and 13.3%. This big error blunts the impact of the pandemic and especially of government measures to combat it.

The notification of this error in the BLS’s June 5 report covering May (available at https://www.bls.gov/bls/news-release/empsit.htm#2020) reads as follows:

However, there was also a large number of workers who were classified as employed but absent from work. As was the case in March and April, household survey interviewers were instructed to classify employed persons absent from work due to coronavirus related business closures as unemployed on temporary layoff. However, it is apparent that not all such workers were so classified. BLS and the Census Bureau are investigating why this misclassification error continues to occur and are taking additional steps to address the issue.

If the workers who were recorded as employed but absent from work due to “other reasons” (over and above the number absent for other reasons in a typical May) had been classified as unemployed on temporary layoff, the overall unemployment rate would have been about 3 percentage points higher than reported (on a not seasonally adjusted basis). However, according to usual practice, the data from the household survey are accepted as recorded. To maintain data integrity, no ad hoc actions are taken to reclassify survey responses.

(The constraint of maintaining data integrity exists to prevent intentional manipulation.)

A notice similar to the one above appeared in the report for April (published May 8) as well as in the report for March (published April 3); see also https://www.bls.gov/bls/news-release/empsit.htm#2020 for these reports. The same data collection error was committed three months in a row.

Let’s hope the BLS and the Census Bureau continue investigating until they find how the error happened. And let’s hope that their Inspectors General are (still) ready to do their own investigations if necessary.

(0 COMMENTS)

Read More