Believe those who are seeking the truth. Doubt those who find it. Andre Gide


Thursday, February 17, 2011

On job openings and job availability

Paul Krugman is a tireless writer. That's the good part. The bad part (you knew this was coming) is that...well, he can also be a tiresome writer.

Consider this: A Rising Natural Rate. Here, he is commenting on some analysis by the SF Fed trying to estimate some measure of the "natural" rate of unemployment. Fine, nothing wrong with this. But then he slips this in:

Right now, there are very few job openings relative to the number of unemployed:
 
So there’s no question that right now, the demand side is what is constraining unemployment.

Ya got that? Paulo says that thar's no question bout it. Thar's deficient demand out in them thar hills. An y'all see that l'il ol' dyergram up thar? Well...that thar jus' goes ta prove it. Lessen' yer blind, that is. Lessen' yer sum evil laysay fare type.
 
Well, I hate to break it to those who demand and consume this brand of religion, but there might just be some question about it. Shhhh...what I am about to say is super secret...economists aren't really sure what's going on. I mean, think about it. If we knew what was going on, there would be no need for economic research. You know...research...that activity that brings so much joy to you know who (The Joy of Research).

But I don't want to be too hard on Paulo. Evidently, he has an agenda to push and he pushes it from a particular philosophical perspective. I can respect that. What I don't like is the constant allusion to certainty--the lack of humility in what we know--the notion that the data "speaks for itself." These are the tactics used by politicians, not academics. This is what I find so tiresome in his otherwise fine writing.

But maybe I should cut him some slack. Evidently, it must be some sort of Nash best-reply to fluff up one's feathers this way and show no sign of weakness. There is always some right-wing nut job out there waiting to pounce, to tear apart, and to misrepresent anything that might be construed as capitulation on his part. He knows this. I know this. Now we all know this. So let's set it aside and take a closer look at that data.

The chart above appears to be drawn from the Job Openings and Labor Turnover Survey (JOLTS). This is a great data set, but it has its limitations.

The question I'd like to ask is whether it really is the case that there are more unemployed workers than available jobs. According to JOLTS, the answer is yes. But this does not mean it is so in the economy.

It could be the case that many, perhaps even most, job openings are not advertised (hence not picked up by JOLTS). There are, evidently, a lot of farm jobs available that Americans refuse to work at (see: Despite Economy, Americans Don't Want Farm Work). Many unadvertised jobs are poor-paying jobs. Everybody knows they're out there. If you need a quick (and legitimate) buck, you send your application to McDonald's. There are arguably millions of these low-skill low-pay jobs around. Jobs are not scarce. (What is scarce are good jobs that are well-matched with the characteristics of all those available to work.)

The JOLTS data itself provides some evidence that many job openings are not measured. In particular, take a look at this:


So there's no question that right now, the supply side is what is constraining unemployment.

31 comments:

  1. Mark Perry covers this issue a lot. Job openings are going up, unemployment stays about the same: http://mjperry.blogspot.com/2010/12/job-openings-rise-to-2-year-high-in.html

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  2. The President meets with Steve Jobs today. I hope he questions Jobs about this job statistic from Andy Groves: "...That means for every Apple worker in the U.S. there are 10 people in China working on iMacs, iPods, and iPhones. The same roughly 10-to-1 relationship holds for Dell, disk-drive maker Seagate Technology (STX), and other U.S. tech companies."

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  3. So, not only is Apple the best company out of the S&P500 in the past twenty years for shareholder wealth creation, they create wealth for the Chinese people? Wow - what a great company!

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  4. http://cr4re.com/charts/charts.html#category=Employment&chart=PartTimeDec2010.jpg

    http://3.bp.blogspot.com/_Zh1bveXc8rA/TScmYfFgLjI/AAAAAAAABdE/Tu3rUaQXWCU/s1600/Clipboard01%2BEMP%2BPOP%2B2.bmp

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  5. "What I don't like is the constant allusion to certainty"

    Time for Paulo to read Hayek's Nobel lecture?

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  6. rjs: Nice pictures. I'm sure you had a point to make. Not sure what it was.

    Anon: Like I said, I cannot believe that Paulo is as certain as his writings indicate. His expression of certainty is, in my interpretation, a political best-reply in the game of persuasion.

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  7. David

    Even if you dont think its as certain Mr Krugman claims, what degree of certainty is needed before you would endorse things that Mr Krugman suggests?

    We've tried all the supply side solutions for the last two plus years. Taxes are lower than ever, while there might be lots of regulations on the books I would argue that enforcement is quite lax, corporations are rolling in dough (thanks to lowered payments of wages) but no one seems to see a true recovery for years and years.

    Why is it necessary that millions of families sit on the edge of financial ruin just so we can be more "certain" that the problem isnt too few jobs but instead too picky workers.

    Even if there are farm jobs, how well would they pay, how would the people from the cities get to them? If the job you might be able and willing to do requires you to sell your house, burn up $400/mo more in gas money would you blame that person for staying put and making due the best they can?

    Its obvious to me that businesses are missing customers ( I hear it from lots of people), when someone gets laid off....... there goes another potential customer for a lot of your fellow business owners.

    This race to the bottom is killing everyones businesses.

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  8. Greg,

    Well, I pretty much disagree with most of what you said, but we've hashed out a lot of this on my blog, so I won't chew old soup.

    I was intrigued by this though: "corporations are rolling in dough (thanks to lowered payments of wages)." It has some possibilities, since layoffs are one way to reduce cash usage - although not a great way.

    Now, I don't have payroll data, but I did run some regressions to determine a relationship between employment and cash. I found that there's a negative relationship between changes in employment and cash, as you suggest. But, the effect is not economically or statistically significant. Increases in cash are actually much better explained decreases in capital expenditure.

    Let me know if you want me to check anything else.

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  9. Greg:

    I think you miss the point of my post. As I say above, I can respect his perspective. I object to the priestly way he delivers it, however. He could write with a tad more humility, without taking away from his message. For example, what if he had instead written:

    "So the data above is not inconsistent with the interpretation that demand is constraining unemployment."

    This language avoids conveying the impression to the layperson that the science is "settled." There is some uncertainty; and policy recommendations should likely be tailored to reflect this uncertainty. This message is completely lost in PK's writings.

    As for everything else you say, I'm not sure what you're talking about. We live in an era of unparalleled prosperity and opportunity. That society should care for the less fortunate is a feeling shared by most people, regardless of their political stripes. Not sure what any of this has to do with PK's simple remedies of creating inflation and increasing G.

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  10. David Andolfatto wrote:
    "So there's no question that right now, the supply side is what is constraining unemployment."

    What? An expression of absolute certainty?

    Well, evidently, views on the shape of the earth still differ.

    Anecdotal evidence concerning the shortage of cheap Mexican agricultural labor and job openings at McDonalds aside, how does the fact that hirings always exceeds openings conclusively prove that old Paulo is wrong?

    Let's consider the other nonanecdotal evidence:

    1) Employment Dispersion
    If the source of unemployment were structural we should see great dispersion between sectors in terms of employment growth. Every single sector of the economy save education, health, logging, mining and the internet has seen a decline in employment since the recession began (I never wanted to be an macroeconomist. I always wanted to be a lumberjack.... Oops! Sorry. Back to the argument.) These sectors account for over 85% of employment.

    2) Job Vacancy Rate
    Not surprisingly, given the lack of disperson in job growth (or should I say job decrease, but who's quibbling) employers are having little difficulty filling openings. The job vacancy rate was 2.3 as of December, as low or lower than at any time during 2001-2008 (all the data we have). (Correct me if I'm wrong, there wasn't a massive problem with structural unemployment prior to this recession, em, right?)

    3) Unit Labor Costs
    Given that employers were having little trouble filling vacancies it should come as no surprise that compensation (which, yes, includes benefits for you amateurs out there) was no longer rising faster than productivity as would be consistent with a positive inflation rate target. ULC rose by 1.6% annually on average in the ten years through 2008. In the 2 years following 2008Q4 ULC has fallen a total of 3.6%.

    I think this falls squarely in the department of huh?!?

    P.S. I'll be looking for a full time job in the coming year. I hope this display of raging sarcasm in no way reduces my chances of employment with the St. Louis Fed Research Division.

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  11. Mark:

    Good grief, my concluding sentence was meant to be a joke.

    Where in my post do I assert that Paulo is wrong? In fact, I go out of my way to say that I respect his perspective (can you not read?).

    This post was meant to be a rant against religion in economics.

    Now, let me clear up a few things.

    First, Paulo is pushing a particular version of the deficient demand hypothesis. I have my own version here: http://andolfatto.blogspot.com/2010/07/interpreting-recent-movements-in-money.html

    As for your points:

    [1] Intersectoral linkages account for the comovement across sectors; see Long and Plosser (JPE 1983).

    [2] You have no idea the sort of difficulties employers face filling job vacancies. I recall this from my days in construction. It's always tough. Here at the SL Fed, it's tough finding the right match.

    [3] Not sure what you're saying here.

    I wish you all the best in the job market. We like sarcasm here in SL, as long as it's all in good fun. Thanks.

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  12. David,
    You wrote:
    "Good grief, my concluding sentence was meant to be a joke."

    Well, obviously. I hope you realize I have a sense of humor.

    As for your counterpoints:

    1) Plosser is the Devil (RCB). Citing him to me only makes me suspect you are one of his demons.

    2) The issue is not how hard it is to fill a job but how hard it is to fill a job now relative to other time periods.

    3) I thought that was pretty clear. It's a supply versus demand issue (albeit on an aggregate level). The price of labor is plummeting.

    P.S. It's good to hear sarcasm is not an impediment at least in the the SL Fed job market. Otherwise I'm going to have a really hard time.

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  13. David and esp. Mark,

    See here: http://crankyprofj.blogspot.com/2011/02/unemployment-by-sector.html

    I put up a graph showing employment changes by sector. Looks to me like a lot of dispersion in them thar hills.

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  14. Prof J: Yeah, I've drawn pictures like this myself. One thing I've noticed, however, is that one observes (at first blush, at least) similar dispersion properties independent of the starting year. In particular, there is dispersion during a boom as well. Any thoughts?

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  15. David,

    Do you mean that there is dispersion in general, or do you mean that the same sectors show this behavior during a boom, but in mirror image?

    In general, I would expect dispersion to be a systematic feature of a growing economy, because why would every sector grow proportionately at the same rate?

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  16. Prof J,
    Sorry. I don't see anything that contradicts what I said previously. In other words there has been a decline in employment in sectors accounting for 85% of total employment.

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  17. Mark,

    You said: "If the source of unemployment were structural we should see great dispersion between sectors in terms of employment growth."

    My argument is that there is great dispersion. Something unclear?

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  18. Prof J,
    There's nothing unclear except the total lack of evidence. How is a reduction in employment in sectors accounting for 85% of all employment consistent with employment dispersion?

    This is at the point of absurdity.

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  19. Prof J:

    I've only checked the data since 2000 and the plot looked similar to yours, I think. But I may be wrong. I'll go back and look.

    You say you expect dispersion to increase in a growing economy. I guess this is broadly true, isn't it? E.g., secular decline in agricultural employment and expansion in services. Almost all of our models, however, limit attention to stationary equilibria with "balanced growth path" properties. For some issues, this is clearly a defect.

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  20. David,

    I updated the post to go back to 1995. I'm loathe to go back much further with the current metric because of population, work-force composition (gender and age) and educational choices.

    Are you talking about growth models? I'm not too familiar with growth models, but I like the work of this Turkish fellow, whose name just escapes me. He's been doing more with institutions and whatnot recently. Do you know who I mean?

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  21. Yes, that's the guy. Really like his textbook, but only a bit of the way through. He takes it easy on us math-handicapped folks.

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  22. Speak of the devil! http://www.econtalk.org/

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  23. David,

    A new article related to your "Gold as Money" pieces: http://www.thefreemanonline.org/featured/gold-and-money/

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  24. Prof...thanks! Looks like he reads my blog...lol.
    And thanks for the link to the Freeman. I plan to follow their blog.

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  25. In a response to one of the comments, you write: "We live in an era of unparalleled prosperity and opportunity. That society should care for the less fortunate is a feeling shared by most people, regardless of their political stripes."

    Have to say that I disagree with both statements. We HAVE lived, as Americans, in "an era of unparalleled prosperity and opportunity." But there is increasingly a feeling, felt by many people outside of Wall Street and the Beltway, that opportunity is passing the middle class by these days.

    That "society should care for the less fortunate" may be a prominent belief in Canada, but in America, that concept has taken a big hit in the years since Reagan. There are many "compassionate conservatives" who believe that poverty is the fault of the poor and unemployment is due to laziness... Those are the kinds of people who ignore the institutional problems that beset our financial sector, and fail to acknowledge the systemic risk that dragged our economy off a cliff in 2008. Since then, we've seen a sharp increase in unemployment, foreclosures, loss of health insurance and poverty.

    If you disagree with PK's authoritative voice in declaring that "the demand side is what is constraining unemployment," please share the data that shows there are more decent-paying jobs with benefits than there are unemployed. If only low paying jobs are available for a skilled labor pool, our economy has a very long road to travel before we "recover."

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  26. Main Street:

    You should "A History of the World," by J.M. Roberts (if memory serves). This will give you the proper context of how to measure relative prosperity.

    Since I have moved to the U.S., I am impressed with the generosity of Americans, their societies, their philanthropy, etc. Of course there are bad apples, but this is true anywhere. I strongly disagree with what you say.

    Funny how you ask me to show you data. I made no assertions. I am critiquing PK for his religious stance, purporting to justify it with a flimsy piece of data. You call that science?

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  27. David,

    Yes, as you say, Americans can be generous. My gloomy mood is most influenced by the dramatic changes in our political and economic landscape.

    Today, thanks to mismanagement and the economic crisis, federal, state and local governments are deeply in debt. There is talk of having 60 children in the classrooms of Detroit. Wisconsin is shaving nearly a $1 billion from its education budget.

    However, the financial sector, when gross mismanagement and debt threatened its collapse, was granted access to trillions of dollars in federal funds. Banks that were bailed out then handed out billions of dollars in bonuses to the people who worked at these failed businesses.

    Some generations can claim they defeated the Nazis. Others can say they marched with Martin Luther King. This generation today is witness to the transfer of the nation's safety net from the vulnerable to the free market advocates in the financial sector.

    Leaves me quite gloomy indeed.

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  28. Muse:

    Gosh, I don't know. I've been around for a while now and I'm not sure I see any dramatic changes in the economic/political landscape. It all looks like more of the same to me; at least, from a broader historical perspective. In fact, things don't look so bad...think, for example, of how Augustine of Hippo was feeling c. 400AD. Now that's what I call a disaster!

    By the way, I wonder what people mean precisely when they speak of "bailouts" for the financial industry. As far as I can tell, the funds lent to the financial industry have mostly been paid back and in many cases with a healthy rate of return for the taxpayer. Whether "gross mismanagement" threatened collapse or the moral hazard of government intervention is a matter of debate.

    Anyway, try not to be too gloomy. There are problems that need to be addressed, that's for sure. But even 60 children in the classroom is not a disaster. Heck, there were 0 children in the classrooms my parents attended. (There were no classrooms at all in postwar Italy for them).

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