Category Archives: labor market

Provocative Sentences

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From Steven Kates.

You could tell the true economists from the ones who knew little of value about how an economy worked by whether they understood and accepted that demand for commodities is not demand for labor. In classical times, just about every macroeconomist today would have been described as a fraud.

He quotes John Stuart Mill’s fourth principle of capital:

What supports and employs productive labour, is the capital expended in setting it to work, and not the demand of purchasers for the produce of the labour when completed. Demand for commodities is not demand for labour.

Here, you can find more discussion by Kates.

Payroll Taxes in Europe

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In France, the rate is 42 percent; in Germany, it is 39 percent; in Italy, 40 percent; and in Spain, 37 percent.

That is from Diana Furchtgott-Roth and Jared Meyer Disinherited: How Washington Is Betraying America’s Young. I see it as saying “left-wing economics is bad for children and other living things,” but they are trying to position it differently. In any case, they are suggesting that we could be headed for much higher payroll taxes ourselves.

I had not realized that these tax rates are so high. I find it hard to reconcile Germany’s relatively low unemployment rate with this high payroll tax rate.

Occupational Licensing

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Morris Kleiner writes,

Our empirical analysis finds that after controlling for observable heterogeneity, including occupational status, those with a license earn higher pay, are more likely to be employed, and have a higher probability of receiving retirement and pension plan offers. According to our estimates, where governmental licensing is required for the job it raises hourly wages by about 8.4 percent.

Bob Hall on Labor Force Participation Trends

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With Nicolas Petrosky-Nadaeu, he writes (scroll down at the link for the paper),

In the bottom 10 percent of households by household income, 33 percent of individuals participated in the labor market in 1998-1999. By 2011-2013 this proportion was 44 percent. At the other end of the household income distribution, the rate of labor market participation fell from 81 to 76 percent. The largest decline was for individuals living in households in the third quartile of the household income distribution, where the participation rate fell from 74 percent to 68 percent.

Pointer from Tyler Cowen.

Usually, I would have possible explanations handy. In this case, I am so stumped that I am willing to offer the possibility that their statistics are not accurate.

UPDATE: Possibly relevant:

According to a recent Pew report, the percentage of mothers who stay at home with their children (a statistic that includes non-working single mothers) fell from 49% in the late 1960s to a low of 23% in 1999, but then rose to 29% by 2012.

December’s Medium-High Employment Growth

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My comments on the latest employment report:

1. Pay no attention to the household survey. That is true in any month. The household survey on a monthly basis contains much noise. The establishment survey is nearly all signal. The establishment survey shows gains of 250,000 jobs per month for the past several months.

2. Employment has a lot of momentum. A few years ago, I wrote,

I have 603 observations of three-month averages followed by one-month values.

327 have medium job growth in the three-month period followed by medium job growth in the next month.
112 have low job growth followed by low job growth
63 have medium followed by low
45 have medium followed by high
33 have low followed by medium
14 have high followed by medium
8 have high followed by high
1 has low followed by high (December 1970, looks fluky)
0 have high followed by low

3. My definition of “high” job growth is 350,000 per month. Medium is 50,000 to 350,000. So what we are experiencing is growth on the high end of medium.

4. What to make of the low increase in earnings–1.7 percent year over year? From the perspective of mid-1970s macro, you say that slow wage growth increased labor demand, raising employment. From the perspective of pre-1970s macro, you say. . .Whaa??? Another data point that lies off the Phillips Curve. If you take a PSST perspective, you say that you did not expect to see a Phillips Curve, anyway.

Brad DeLong Starts a Labor Market Chartfight

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He writes,

If the US economy were operating at its productive potential, the share of 25 to 54-year-olds who are employed ought to be what it was at the start of 2000. Back then there were few visible pressures leading to rising inflation in the economy.

Does anybody disagree with that?

Read the whole thing. Pointer from Mark Thoma.

When Bill James was writing his annual Baseball Abstract, you could say that his main goal was to focus attention away from meaningless baseball statistics and toward better metrics. In that spirit, I think that looking at prime-age employment-population ratios, broken down by gender, is a valuable approach. That is what Brad has done with this chart. However, I want to offer a different way of looking at it (and this way could be helpful or it could e misleading).

As I read his chart, between 2000 and 2006, the employment-population rates for males and females each dropped by about 2 percentage points. Most recently, they were 5 percentage points and 4.5 percentage points below 2000 levels. So, one way to look at the chart is that if you drew a trend line from 2000 to 2006, and then extended that trend line to 2014, the line would hit pretty close to the current numbers.

I do not mean to dispute in any way DeLong’s larger point, which is that the Fed is nuts to be more worried about inflation than labor market slack at the moment. But as you know, I don’t much care what the Fed worries about or does not worry about. I am inclined to see structural forces at work in the data, and the “trend line trick” is sufficient to fit the data to my priors.

The Most Anti-Pigouvian Tax

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James Hamilton writes,

Professor Shoven noted that the current structure of Social Security in some cases amounts to a pure tax on those who work for more than 35 years in order to transfer those funds to individuals who retire early. He suggested that one change we should consider would be to recognize the status of “paid-up workers.” The idea is that if you’ve already put in 40 or more years of paying into Social Security, at that point your personal Social Security bill would be declared to be paid in full, and neither you nor your employer would be asked to make any more Social Security contributions for as long as you continue working. This would create more incentive for older citizens to keep on working and for employers to want to hire them.

Does this apply to young workers any less than it applies to workers over 65? Let’s face it, the payroll tax is a tax on market work. In my opinion, there is no reason to discourage market work. Off hand, I would say that the payroll tax is the most anti-Pigouvian tax that we have. That is, it taxes something we want to encourage, when Pigou argued that we should tax things that we want to discourage.

Less Hiring and Firing

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Stephen J. Davis and John Haltiwanger write,

we think the information revolution has played a significant role in the trend declines in worker reallocation. Information about criminal records, credit histories, unfavorable media coverage, and even ill-advised web postings has become more abundant and cheaper to access and process. The likely result is a shift to stricter selection on the hiring margin and less use of trial employment arrangements that contribute to hires and separations.

I dunno about that one. If we had really high rates of hiring and firing, you could tell a story about the information revolution accounting for that phenomenon, also.

They also cite other factors, including regulations, that might be slowing down the rate of hiring and firing.

Meanwhile, the more recent figures show improvement.

Clarify the Connection

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1. Melinda Pitts, John Robertson, and Ellyn Terry have a chart that seems to me to show that much of the decline in labor force participation in recent years can be accounted for by population aging, disability, and young people attending school.

Pointer from Mark Thoma.

2. James Pethokoukis has a chart showing that the number of people on food stamps has remained really, really high.

I would interpret (1) as saying that we are in a “nothing to see here, move along” sort of labor market. Given that the unemployment rate is normal, if labor force participation is just following natural demographic trends, then the economy is pretty much ok.

I would interpret (2) as saying that there is something to see here. With unemployment down, we should be seeing people fall off the food stamp rolls.

Are senior citizens, people on disability, and young students going on food stamps in droves? Are people who are still in the labor force and working staying on food stamps in droves?

I am not trying to make a point. I genuinely do not know how to connect these dots in the data. For those of you who follow algebra, we have

FS = food stamp recipients
POP = total population
UNEMP = employedunemployed
LF = Labor force

Then FS/POP = (LF/POP)(UNEMP/LF)(FS/UNEMP). We know that FS/POP is unexpectedly high, but LF/POP is low, and UNEMP/LF has come down. So FS/UNEMP must be quite high, right?

Casey Mulligan on the ACA and Employment

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Some highlights:

the ACA’s [Obamacare] generous assistance to part-time workers for health insurance premiums and out-of-pocket expenses offsets much of the income they forgo by working fewer hours. The lack of this insurance assistance for full-time workers amounts to a tax on full-time work.

…For 20 percent of the labor force—some 33 million workers—their family’s eligibility for exchange subsidies hinges entirely on their employment status. In any month they work part time or not at all, they can obtain subsidized coverage; in any month they work full time, they do not qualify for these subsidies. Members of this group would, on average, have to work an additional 5.5 hours per week to make up for the subsidies they forgo by working full time.

Because of the penalty on employers who do not offer health insurance, 5 percent of the workforce faces a new implicit income tax. These workers, who are left to obtain coverage from the ACA exchanges, would have to work at least four hours a week for free if they were to compensate their employer for the $2,000-per-employee penalty the ACA imposes.

An additional 21 percent who work for employers not offering coverage will find that their employers are less willing or able to pay their workers because of the ACA’s employer penalty. These workers, on average, would have to work four hours a week for free if they were to compensate their employers for the non-coverage penalty.

See also this NBER paper, although at the moment it is not coming up on the NBER site.