The reality is that changes in productivity swamp the impact of demographic change.

from Dean Baker

Tyler Cowen is worried that rich countries won’t have enough people to do the work. This concern seems more than a bit off the mark given that almost every rich country continues to have large numbers of unemployed and underemployed workers, but I suppose pondering this question can at least create some jobs for economists. Anyhow, two of the countries Cowen highlights are Japan, which he tells us has seen a declining working age population since 1997 and China, where he warns about the difficulties that working couples will face supporting four parents as well as their own children.

Taking these in turn, a key part of the story that Cowen leaves out is hours worked. These vary hugely across countries and across time within countries. For example, the OECD reports the average work year in Germany at 1388 hours in 2013. By comparison South Korea, which has a comparable per capita income, had an average work year of 2163 hours in 2012.

This means that in terms of hours worked, each worker in Korea puts in 55 percent more hours than a worker in Germany. If Germany felt it was short of workers, obviously they could try to encourage their workforce to put in more hours. If they just made up half the difference with Korea it would be equivalent to a 28 percent increase in their workforce. That is equivalent to an awful lot of additional kids.

This is directly relevant to the Japan story, since the OECD reports that the average work year in Japan has declined by 7.0 percent since 1997, the year its working age population began to decline. This doesn’t suggest that a shortage of workers has been a major problem for Japan.

Job polarization in the 2000s? (two graphs)

from John Schmitt

In a recent post at Wonkblog, Dylan Matthews takes a fairly dim view of a new paper that Larry Mishel, Heidi Shierholz, and I have written on the role of technology in wage inequality. Matthews raises several issues, but I want to focus right now on a key point that he missed: proponents of the “job polarization” view of technological change provide no evidence that the framework actually works in the 2000s.

In his piece, Matthews focused on our criticisms of the ability of the job polarization approach to explain wage developments in the 1990s. I’ll leave the discussion of the 1990s for another day, but the more important issue for contemporary policy discussions is whether the framework is helpful at all for the last decade.

Since the occupation-based “tasks framework” that lies behind the academic research on job polarization is widely considered in the economics profession to be the best available technology-based explanation for wage inequality, Larry, Heidi, and I take the lack of evidence for this framework in the 2000s as support for our view that other policy-related factors are what is really driving inequality. We also think that if this purportedly unified framework doesn’t work well for the 2000s, that it is likely not helpful for earlier periods either.

But, even if you still think technology is the main or even an important culprit, we would argue that you need a new theory of technology that actually fits the facts of the 2000s.

This is a fairly long post and starts with some necessary background –necessary because there is a sizeable gap between the way economists talk formally about “job polarization” and the way most of the public talks about the same issue.  

Where the jobs are

from David Ruccio

Technology or Power?

from John Schmitt

Within the economics profession, the standard explanation for rising inequality over the last three decades is that we have been experiencing a long-term shortage of college-educated workers. Technological progress, the story goes, has increased demand for the kind of highly skilled workers that colleges produce, but, young people have not been going to college in sufficient numbers to meet that demand. The result, these economists argue, is that the earnings of the third or so of the workforce with a college degree have pulled ahead of the rest, creating a widening gap between the top and bottom of the income scale. 

A closer look at good jobs by education level in the United States (4 graphs)

from John Schmitt

Over the last few days, several blogs (Kevin Drum, Brad Plumer at WonkBlog, Andrew Sullivan, and ThinkProgress) have commented on the chart below, which Janelle Jones and I prepared for a recent CEPR report (pdf) we wrote on “Good Jobs.”

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)
 
 

 

Bad jobs report distracts from the real bad economic news

from Dean Baker

The May jobs numbers were pretty bad news regardless of how you look at them. Job growth over the last three months has averaged slightly less 100,000 a month, roughly the pace needed to keep up with labor force growth. The unemployment rate ticked up to 8.2 percent and the employment to population ratio is still just 0.4 percentage points above its trough for the downturn. And real wages almost certainly declined in May.

However bad this story is, the usual gang of pundits cited in the media had their usual burst of over-reaction. There were many talking of a worldwide slowdown and a possible recession. This is a serious misreading of the jobs report and other recent economic data.

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. 

Low-wage lessons

from John Schmitt

As I write in a new CEPR briefing paper (pdf), the United States leads the wealthy world in the share of its workforce in low-wage jobs. According to the commonly used international definition of low-wage work –earning less than two-thirds of the median hourly wage– about one-fourth of US workers are low-wage.

Captain America?

from Peter Radford

The Economist’s astonishingly tone deaf editorial on Mitt Romney – “America’s next CEO?” – is partisan, wong-headed, and naive. The very title gives away the fundamental error: America does not need a CEO. The popular notion that business experience somehow makes for a more productive president is horribly misguided and displays a misunderstanding of politics that, frankly, the Economist ought to know how to avoid.

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.

US unemployment falls to 8.5 percent, but job growth remains weak

from Dean Baker

The unemployment rate fell to 8.5 percent in December, the lowest level since the 8.3 percent rate reported for February of 2009, the month that Congress approved the stimulus package. The drop was driven primarily by a 0.3 percentage point decline in the unemployment rate for men to 8.0 percent. The unemployment rate for women edged up slightly to 7.9 percent. Over the last year, the gap in unemployment rates between the sexes has virtually disappeared as the unemployment rate for men fell by 1.4 percentage points, while the rate for women only dropped by 0.2 percentage points. The employment-to-population ratio (EPOP) for women has actually fallen by 0.4 percentage points over this period, while it has risen by 0.8 percentage points for men. Overall, the EPOP stands at 58.5 percent, 0.2 percentage points above its year-ago level and 0.4 percentage points above the lows hit in the summer.

The bogus case against the minimum wage hike

from Dean Baker

Eight states and one city (San Francisco) raised their minimum wage this week, providing a pay raise to just over 1 million workers. In the face of this good news, the opponents of the minimum wage are warning of serious job loss. They are likely to be proved wrong, yet again.

A simple Econ 101 story argues that a higher minimum wage will lead to fewer jobs for teenagers and other workers at the bottom rungs of the labor market. However, at this point a large body of research shows that increases in the minimum wage at the national, state and even local levels have not cost jobs. That may sound counterintuitive; after all, economists always say that when the price rises, demand falls. This should mean that with a higher minimum wage, employers will want fewer workers.

The real story, however, is somewhat more complex. Employers not only care about the wages they pay, they also care about workers’ productivity, and the rise in the pay by itself may cause workers to be more productive. 

David Brooks is projecting his self indulgence again

from Dean Baker

Undoubtedly projecting from the fact that he can draw a nice 6-figure income for little obvious work, David Brooks complained in his column:

” Today, the country is middle-aged but self-indulgent. Bad habits have accumulated.”

For the most part the column is a confused diatribe against the Obama administration’s economic policies with a lecture on moral rectitude thrown in for good measure. He starts by condemning the efforts to stimulate the economy by telling readers:

Some tips for real-world economists in the academic labour market in 2012

Once upon a time, academic job vacancies for economists focused on filling holes in teaching plans and a promotion was assured if one was prolific, had established a good external reputation and had done one’s bit in collegial terms. Nowadays, things work very differently and real-world economists need to know how to play the game (often against those trained extensively in game theory) in order to get a foot on the career ladder and step up it. In this post I reflect on how things have changed and how real-world economists can try to improve their competitive edge

This time, Krugman is right. Lowering nominal wages is really, really hard (charts).

from Merijn Knibbe

According to Paul Krugman, in a recent blogpost,

It is really, really hard to cut nominal wages, which is why reliance on “internal devaluation” is a recipe for stagnation and disaster.The crisis really has settled some major issues in economics. Unfortunately, too many people — including many economists — won’t accept the answers

The title of Krugman’s post is ‘Lessons from Europe’. That’s wrong.

There is no Eurozone…. (charts)

from Merijn Knibbe

Two graphs on the Euro-conundrum:

1. It’s not about deficits. Germany did, until 2011, not have smaller deficits than Italy. And the Eurozone has a much smaller consolidated deficit than the UK (or the USA, for that matter). But nobody talks about the end of the pound (or the dollar) and the UK. And everybody talks about the end of the Euro and Italy-as-we-know-it (while Italy does have a primary surplus, by the way). Technical note: the graph shows a four quarter moving average of government deficits.

The great Spanish job machine… (charts)

from Merijn Knibbe

Is Mario Draghi, banker in Frankfurt, right when he, implicitly, describes for instance the Spanish labor market as sclerotic and not able to create jobs:

“National economic policies are equally responsible for restoring and maintaining financial stability. Solid public finances and structural reforms – which lay the basis for competitiveness, sustainable growth and job creation – are two of the essential elements”?

Not really.  In fact, for some decades the Spanish job market has been the most dynamic of the entire EZ.

What skills shortage?

from John Schmitt

I remember well the gas shortages of the 1970s. Long lines at the pumps and gas prices through the roof. Higher prices are, of course, the textbook free-market response to a shortage.

Some economic analysts argue that an important reason we have high unemployment today  is because we have a shortage of skilled workers. Employers have good jobs to fill, but they can’t find qualified workers to fill them.

If there really is a shortage of skilled workers, though, we’d expect to see skilled workers’ wages rising.

Which country has the smallest small-business sector in the world’s rich economies?

from John Schmitt

Back in the summer of 2009, Nathan Lane and I wrote a CEPR report (pdf) documenting something that is surprising to many Americans. The United States has just about the smallest small-business sector in the world’s rich economies.

Our report used OECD data to look at the share of workers in small businesses in each of a variety of industries (manufacturing, computer-related services, research and development, “restaurants, bars, and canteens”, real-estate activities, “renting of machinery and equipment”). These were all of the industry categories for which the OECD had produced comparable data on the employment share by enterprise size. Unfortunately, at that time, the OECD had no numbers for the distribution of employment by enterprise size for the economy as a whole.

But, the OECD’s Entrepreneurship at a Glance 2011 now reports internationally comparable data on total small-business employment for a collection of rich and selected middle-income countries. The first figure below shows