Weekend Labor Markets

This weekend produced several interesting readings on the state of labor markets.

1. Glenn Hubbard,

In the Wall Street Journal on "The Unemployment Puzzle: Where Have All the Workers Gone?" Like economists of all stripes, the fact that the unemployment rate -- the fraction of people looking for jobs -- is down masks the deeper problem, that so many people are not working and not looking.

Glenn sets out well the basic question:

In one view, this decline is just a temporary, cyclical result of the Great Recession. If so, we should expect workers to come back as the economy continues to expand...But structural changes are plainly at work too, ...
This part of the drop is a function of various factors, including simple discouragement, poor work incentives created by public policies, inadequate schooling and training, and a greater propensity to seek disability insurance.
Glenn advocates a mix of serious fundamental get-out-of-the-way reforms, with some puzzlingly dirigiste tinkering.
A sustained infrastructure program, rather than a temporary one for "shovel-ready" projects, would have provided more reassurance of longer-term demand. 
Infrastructure is fine for building infrastructure. But the idea that unemployed middle-age mortgage brokers are going to get jobs running a backhoe on a road crew, or the idea that building roads creates "demand," are both a bit far fetched.
...far-reaching tax reform 
is a good idea, but not because it
could have provided both a near-term fillip from front-loaded business tax cuts and a credible prospect for future growth.
Again, Keynesian thinking at least in the former. Economists should focus on margins, which is what drives the growth.
What we need most urgently is to rethink the federal government's wider role in the labor market. 
Now we're getting somewhere, and it is a great point that
The fierce debate now going on in Washington about extending unemployment insurance and raising the minimum wage largely ignores these issues. Such policies may affect the incomes of some Americans, but they won't do much to expand opportunity and bring more people back into the labor force.
But then Glenn goes back to  tweaking the earned income tax credit, and trying to fix social security disability by providing
the employers of disabled employees with tax advantages for retraining them to remain on the job.
Really, long term growth and employment doesn't come from more clever little tax credits. That contradicts "far reaching tax reform."

Noting 80 - 100% marginal tax rates,
A broader tax reform that gives a more uniform subsidy for health insurance and health spending 
is a great idea. But then
complement traditional unemployment insurance with block grants to states to support training and workforce development through community colleges and vocational education...Advancing and updating skills are also important: Funds currently in other federal training programs could be repurposed to provide this pro-work support.
There's that regulatory passive and layers more tweaking.

Overall, I rate it a nice essay on the problem, but I'd rather see more detailed analysis of just what causes the problem and get-out-of-the-way solutions before we start passing around more tax credits here and there.

2. Tyler Cowen and driverless cars. 

Tyler Cowen chipped in with a Marginal Revolution blog post, and a New York Times Column. The Times column starts on the same track,
employment opportunities remain stubbornly low in the United States, 
But Tyler is after something other than social program disincentives. Rather
giving new prominence to the old notion that automation throws people out of work.
For example
Driverless vehicles and drone aircraft are no longer science fiction, and over time, they may eliminate millions of transportation jobs
Why is this more of a problem than, say, the steam engine?  Why has
history ... seen many waves of innovation and automation, and yet as recently as 2000, the rate of unemployment was a mere 4 percent.[?]
His worry,
Labor markets just aren’t as flexible these days for workers,...Many of the new jobs today are in health care and education, where specialized training and study are required.
...young men...with especially restless temperaments.. aren’t always well-suited to the new class of service jobs, like greeting customers or taking care of the aged, which require much discipline or sometimes even a subordination of will. 
Many expanding economic sectors are not very labor-intensive, be they tech fields like online retailing or even new mining and extraction industries. That means it’s harder for the rate of job creation to keep up with the rate of job destruction, because a given amount of economic growth isn’t bringing as many jobs
Here, I think Tyler is making a classic mistake. Over the long run -- the kind of long run where technical change like driverless cars and a shift to high education service jobs matters -- changing demand for worker characteristics changes wages, it does not cause unemployment or joblessness.  "Jobs" are not created in fixed quantity independent of wages, skills are not acquired in fixed quantity independent of wages, and wages are not sticky forever.  This is econ 101 supply and demand.

Driverless cars and trucks will, after the 20 years they take to become introduced, lower wages of people who formerly drove cabs and trucks -- a serious worry -- but that does not mean millions of people sitting idle on the street corner.  Low wages alone do not cause people to stop working unless they have an alternative. Tyler knows that, I know that he knows that, and he's writing for a popular audience. But I don't think using popular fallacies to communicate is a good idea.

Like Glenn, when he gets back to the immediate problem, he spies what I think is a central part of the story. The recession led to long term joblessness because inefficiencies, private and government induced, that are papered over in a boom, make it harder for the economy to recover.  One of many little inflexibilities.
The law is yet another source of labor market inflexibility: The number of jobs covered by occupational licensing continues to rise and is almost one-third of the work force. We don’t need such laws for, say, barbers or interior designers, 
i.e. making it harder for an unemployed taxi driver to take up such professions. "Sticky" wages, "inflexible" labor markets are not mysterious, they are born of a thousand grains of sand in the gears.

3. Temporary workers

Damian Paletta at the  Wall Street Journal Monday notices the surge in temporary employees.

Why is there even a distinction between "temporary" and "permanent" employees? Aren't we all "temporary employees?"

Well, no. We have a system, largely because of labor laws, where there is a large fixed cost to hire "permanent" employees. Obamacare has added substantially to that. So you only hire a "permanent" employee if it overcomes the fixed costs to doing so.

The worry is that we are more and more bifurcating into a market with a small number of "permanent," high benefit, high hours worked, career jobs, and a larger group of "temporary" employees, limited in hours and incidentally limited in career and human capital development.

4. Claudia Goldin and women.

High fixed costs, and the need to work employees long hours to recoup them, is particularly a problem for women. Claudia Goldin's Presidential address is out at the American Economic Review and it's a must-read.  It deserves its own blog post (and will get one). One big point from the abstract
The gender gap in pay  would be considerably reduced and might vanish altogether if firms did not have an incentive to disproportionately reward individuals who labored long hours and worked particular hours. Such change has taken off in various sectors, such as technology, science, and health, but is less apparent in the corporate, financial, and legal worlds.
As our president will apparently be championing "wage equity" this week, the speech is particularly topical.

5.  Casey Mulligan

His latest, The ACA: Some Unpleasant Welfare Arithmetic adds up some more disincentives
Under the Affordable Care Act, between six and eleven million workers would increase their disposable income by cutting their weekly work hours. About half of them would primarily do so by making themselves eligible for the ACA's federal assistance with health insurance premiums and out-of-pocket health costs, despite the fact that subsidized workers are not able to pay health premiums with pre-tax dollars. The remainder would do so primarily by relieving their employers from penalties, or the threat of penalties, pursuant to the ACA's employer mandate. Women, especially those who are not married, are more likely than men to have their short-term financial reward to full-time work eliminated by the ACA. Additional workers, beyond the six to eleven million, could increase their disposable income by using reduced hours to climb one of the "cliffs" that are part of the ACA's mapping from household income to federal assistance.
Note that some of these also push people to the part-time world.

6. Long term unemployed and Phillips curve

Tyler brings up the very interesting Kruger, Cramer and Cho paper, Are the Long-Term Unemployed on the Margins of the Labor Market? which I've been meaning to blog about.

Their basic view is that long-term unemplyed are not on the margins, which means that monetary policy -- "demand" -- really can't help them much (my conclusion, they're a bit softer).  One piece of evidence, Phillips curves (Figure 1) fit better with short-term unemployment.

Their conclusion gives interesting meat to "margins"
Although the long-term unemployed have about a one in ten chance of moving into employment in any given month, when they do return to work their new jobs are often transitory.  After 15 months, the long-term unemployed are more than twice as likely to have withdrawn  from the labor force than to have settled into steady, full-time employment. And when they exit  the labor force, the long-term unemployed tend to say that they no longer want a job, suggesting  that many labor force exits could be enduring. The subset of the long-term unemployed who do  regain employment tend to return to jobs in the same occupations and industries from which they  were displaced, suggesting that significant challenges exist for helping the long-term unemployed to transition to growing sectors of the economy. A stronger macroeconomy helps the long-term unemployed in part because it raises demand in their previous sectors. But even in  good times, the long-term unemployed are often on the margins of the labor market, with  diminished employment prospects and relatively high labor force withdrawal rates
If you otherwise read the New York Times you think all macro is preordained by political persuasion. This interesting paper is a great counterexample.

7. Discrimination against the long-term unemployed

Cowen again, in the blog post, brings up the issue. Are employers "discriminating" against long-term unemployed? We know they are less likely to hire them. I asked an employer once, who said he didn't want to hire "people on the way down," an interesting comment.  Kruger, Cramer and Cho think of the long-term unemployed as "unlucky". Tyler:
I think attributing all of this labor market misfortune to luck is unlikely...
There were two classes of workers fired in the great liquidity shortage of 2008-2010.  The first were those revealed to be not very productive or bad for firm morale.  They skew male rather than female, and young rather than old.  The second affected class were workers who simply happened to be doing the wrong thing for shrinking firms: “sorry Joe, we’re not going to be starting a new advertising campaign this year.  We’re letting you go.”
The two groups have ended up lumped together and indeed a superficial glance at their resumes may suggest — for reemployment purposes — that they are observationally equivalent.  This discriminatory outcome is unfair, and it is also inefficient, because some perfectly good workers cannot find suitable jobs.  Still, this form of discrimination gets imposed on the second class of workers only because there really are a large number of workers who fall into the first category.
In short, is it discriminatory and "unfair" to use conditional probability and Bayes' theorem, in a world where information is expensive? A deep question.

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