Robert Samuelson finds economics is way too complicated (2 graphs)

from Dean Baker

That is quite literally what he told us in his column. His second paragraph tells readers:

“Among economists, there is no consensus on policies. Is “austerity” (government spending cuts and tax increases) self-defeating or the unavoidable response to high budget deficits and debt? Can central banks such as the Federal Reserve or the European Central Bank engineer recovery by holding short-term interest rates near zero and by buying massive amounts of bonds (so-called “quantitative easing”)? Or will these policies foster financial speculation, instability and inflation? The public is confused, because economists are divided.”

See, we don’t know what to do, so we just can’t do anything. All those suckers who are unemployed or seeing stagnant wages, well we just don’t know. And the fact that those on the top are getting rich with 60-year high shares of national income, well what can we do about that? It’s just too confusing.

New Keynesians, price stickiness and involuntary unemployment (wonkish)

from Lars Syll

There are unfortunately a lot of neoclassical economists out there who still think that price and wage rigidities are the prime movers behind unemployment. What is even worse – I’m totally gobsmacked every time I come across this utterly ridiculous misapprehension -is that some of them even think that these rigidities are the reason John Maynard Keynes gave for the high unemployment of the Great Depression. This is of course pure nonsense. For although Keynes in General Theory devoted substantial attention to the subject of wage and price rigidities, he certainly did not hold this view.

Since unions/workers, contrary to classical assumptions, make wage-bargains in nominal terms, they will – according to Keynes – accept lower real wages caused by higher prices, but resist lower real wages caused by lower nominal wages. However, Keynes held it incorrect to attribute “cyclical” unemployment to this diversified agent behaviour. During the depression money wages fell significantly and – as Keynes noted – unemployment still grew. Thus, even when nominal wages are lowered, they do not generally lower unemployment.  

No evidence of “structural unemployment” in the US (2 graphs)

from David Ruccio

Rand Ghayad and William Dickens (pdf) have discovered a shift in the so-called Beveridge Curve (Figure 1) associated with the growth in long-term unemployment (Figure 2).*

Their study is significant in that

Young, educated, and jobless in America?

from John Schmitt

The New York Times has a piece by Steven Erlanger on the “Young, Educated and Jobless in France” that gets most of the facts right, but still might leave its readers with the wrong idea about the real labor-market challenges facing Europe and the United States.

The story focuses on the plight of young, college graduates in France (and several other European countries) who have been unable to find work despite their college degrees and other post-secondary training. 

Unemployment is cyclical: taking Jeffrey Sachs to school

from Dean Baker

Jeffrey Sachs has played a useful role in challenging the economic orthodoxy in many areas over the last three years. However, when he tries to tell us that the current downturn is structural not cyclical he is way over his head in the quicksand of the orthodoxy.

Let’s start with his simple bold assertion: 

Structures of unemployment in the United States

from David Ruccio

Jeffrey Sachs wants desperately to position himself outside the mainstream of the current unemployment debate, arguing that there’s no “quick fix” to the current level of joblessness. But there are no structures in Sachs’s structural analysis.

Let me explain.

Sachs is appropriately critical of the three existing “miracle cures”:   

Can you spot the recovery? (graph)

from Edward Fullbrook

United States Employment-Population Ratio
http://data.bls.gov/timeseries/LNS12300000
Data extracted on: August 2, 2012 (4:39:26 AM)
 
 

 

Housing bubbles are not funny

from Dean Baker

The United States has more than 20 million people unemployed, underemployed or out of the workforce altogether because of a burst housing bubble. We also have more than 10 million homeowners who are underwater in their mortgages. And, we have tens of millions of people approaching retirement who have seen most of their life’s savings disappear when plunging house prices eliminated most or all of the equity in their home.

This situation could have been prevented if the government had taken steps to stem the growth of the housing bubble before it reached such dangerous levels. It is incredible that the Bush administration’s economics team failed to see the dangers of the bubble. It is even more remarkable that Alan Greenspan, Ben Bernanke and the Fed ignored the growth of the housing bubble. But even more astounding is the fact that no one in a position of authority has learned any lessons from this disaster.

At the moment, there are housing bubbles in the United Kingdom, Canada, and Australia that are arguably larger, relative to the size of their economies, than the one that collapsed and wrecked the U.S. economy. The basis for saying that house prices in these countries are in a bubble is that there has been a sharp increase in the sale prices of homes that has not been matched by a remotely corresponding increase in rents.

United States of declining minimum wage

from David Ruccio

In the midst of the First Great Depression, Secretary of Labor Frances Perkins made the case for a federal minimum wage. In making her argument, she quoted the Massachusetts Commissioner of Labor and Industries:

Youth unemployment in Europe

from David Ruccio

Youth unemployment, according to Eurostat, is now over 21 percent—21.4 percent for the euro area and 22.1 percent for the European Union. 

Austerity—American style (3 graphs)

from David Ruccio

Ben Polak and Peter K. Schott are right:

It has become commonplace to contrast the American and European responses to the Great Recession, with stimulus in the former and austerity in the latter. European austerity has been at the level of member states and local governments — there is no meaningful federal government of Europe to provide either stimulus or austerity. But the United States has also seen unprecedented austerity at the level of state and local governments, and this austerity has slowed the job recovery.

Here is what government employment looks like since 2007: total, state, and local (from the Bureau of Labor Statistics).

The Human Disaster of Unemployment

from Dean Baker and Kevin Hassett

In 2007, before the Great Recession, people who were looking for work for more than six months — the definition of long-term unemployment — accounted for just 0.8 percent of the labor force. The recession has radically changed this picture. In 2010, the long-term unemployed accounted for 4.2 percent of the work force. That figure would be 50 percent higher if we added the people who gave up looking for work.

Long-term unemployment is experienced disproportionately by the young, the old, the less educated, and African-American and Latino workers.

While older workers are less likely to be laid off than younger workers, they are about half as likely to be rehired. One result is that older workers have seen the largest proportionate increase in unemployment in this downturn. The number of unemployed people between ages 50 and 65 has more than doubled.

The prospects for the re-employment of older workers deteriorate sharply the longer they are unemployed. A worker between ages 50 and 61 who has been unemployed for 17 months has only about a 9 percent chance of finding a new job in the next three months. A worker who is 62 or older and in the same situation has only about a 6 percent chance. As unemployment increases in duration, these slim chances drop steadily.

The result is nothing short of a national emergency. Millions of workers have been disconnected from the work force, and possibly even from society. If they are not reconnected, the costs to them and to society will be grim. 

USA employment and unemployment levels – 5 graphs

 

To be young, unemployed, or working for free in the USA

from David Ruccio

As the semester draws to a close, I’ve been hearing from my students about their job prospects. And it’s pretty ugly.

Some have landed decent-paying jobs, either for the summer or upon graduation. But many others have not been able to find a real job or they’re going to be underemployed or they’ve accepted unpaid internships. And they’re pretty sad.

It may not help much but they should also know they’re not alone why they join the ranks of the unemployed/underemployed/unpaid youth in this country.

According to the Bureau of Labor Statistics, the official unemployment rate among young people (ages 16 to 19 years) is 24.9 percent, up from 23 percent a year ago. And, according to the Associated Press, the weak labor market already has left half of young college graduates either jobless or underemployed in positions that don’t fully use their skills and knowledge.

Work Sharing: The Way for States to Reduce Unemployment

from Dean Baker

It is clear that we are not going to see any major action from the federal government to reduce unemployment any time soon. There is no hope that this Congress will support another round of stimulus and not much more hope from the next Congress, even if the Democrats somehow regain control.

What that means is that we are looking at a long, painfully slow recovery. Assuming that the economy continues to generate 200,000 jobs a month, roughly its average over the last three months, we will not get back to more normal levels of unemployment until somewhere near the end of the decade.

And it is certainly plausible that progress will be worse. That story assumes a recovery lasting for more than a decade, something the United States has never experienced. 

What if the next Steve Jobs is Chinese?

from Dean Baker

As Apple’s stock continues to hit record highs and its sales and profit reports exceed all expectations, Steve Jobs’ reputation as an entrepreneurial genius grows ever larger. He succeeded in developing products that people around the world very much want to buy. In this sense, Jobs stands out from the mediocrities that run most corporations and collect huge pay checks in the process.

It may be some time before another innovator comes along who can match Steve Jobs record, but we constantly see companies developing new products, even if few will have the same impact as the iPod or iPad. The United States continues to be at the forefront in innovation, but this will likely not always be the case.  It is worth asking whether we should care. This requires a clear-eyed assessment of the benefits to the country provided by innovators like Jobs.

President Obama’s budget is disappointing

from Mark Weisbrot

President Obama’s proposed budget has a few interesting proposals for reforms over the next decade.  Among the best are the proposals to rescind the Bush tax cuts for households with incomes of more than $250,000 and to tax dividends for stockholders among this group as ordinary income.  These and a few other proposals would sum up to a small but significant step in the opposite direction from where this country has been going for the past three decades:  i.e. a vast upward redistribution of income to the rich and the super-rich.

But those concerned with the immediate future are likely to be disappointed.  Most Americans have to work for a living, but there are more than 25 million, or 15 percent of the labor force that are either unemployed, have given up looking for work, or are involuntarily working part time.  The main reason for that is quite simple: There is not enough demand for goods and services in the economy in order to employ them. 

The “Falling” Unemployment Rate

Below is another take on last week’s US unemployment figures.  The full article is at http://globaleconomicanalysis.blogspot.com/2012/02/nonfarm-payroll-243000-unemployment.html

Quick Notes About the “Falling” Unemployment Rate

• In the last year, the civilian population rose by 3,565,000. Yet the labor force only rose by 1,145,000. Those not in the labor force rose by 2,420,000.
• In January, the Civilian Labor Force rose by 508,000.
• In January, those “Not in Labor Force” rose by an amazing 1,177,000. If you are not in the labor force, you are not counted as unemployed.

Long-term hardship

from John Schmitt

In a new CEPR report (pdf), Janelle Jones and I argue for rethinking our understanding of “long-term unemployment.”

From the executive summary:

First, we encourage shifting from a narrow focus on long-term unemployment toward a broader concept of “long-term hardship” in the labor market. Many workers or potential workers who do not fit the official definition of long-term unemployment – including “discouraged” and “marginally attached” workers and those involuntarily working part-time jobs – face long-term hardship in the labor market, but are not captured in the standard measure of long-term unemployment.

Meanwhile, in Europe… Unemployment hits a record, differences larger than ever (Nov 2011, graph)

from Merijn Knibbe

According to last weeks Eurostat unemployment report the EZ unemployment rate did not change in November, compared with the month before (10,3%). The number of unemployed in the European Union however increased with 55.000 to a new record. According to the press release, ‘Compared with November 2010, unemployment rose by 723 000 in the EU27 and by 587 000 in the euro area’. But averages do not serve us well when we look at either the European Union or the Eurozone, as differences between countries are still increasing (graph). When we look at a somewhat longer period we see employment rates converging up to 2008. After about january 2008, i.e. quite some time before ‘Lehmann’, rates in Ireland and Spain start to explode and differences bertween countries became larger than ever.