Tag Archives: jobs

Gov. Rick Snyder Invokes the Magic Job Genie

Posted by

1

The mantra of Republican governors (and in Congress) has been that taxes must be cut in order to create jobs.  In previous posts I’ve dealt with the confusion about how federal level changes income taxes  might or might not affect the strength of the economy. Most of the federal tax discussion focuses on individual income taxes.  But at the statehouse level, Republican governors have been pounding a theme that claims business tax cuts will drive economic growth in general and job creation in particular.

In Michigan, Republican Governor Rick Snyder has just pushed through a massive restructuring of Michigan taxes.  The old Michigan Business Tax (a complicated scheme applying to all businesses) was repealed.  In it’s place is a new corporations-0nly 6% profits tax. The new tax collects only a small fraction of the revenue the old tax did, so individual tax burdens have been increased, particularly on seniors and low-income folks.  In summary, it is a giant tax shift: lower taxes for businesses and higher taxes for individuals, especially the poor and seniors.

Why?  Jobs, we’re told. The Governor, a self-proclaimed very smart person (“nerd”), keeps telling people that Michigan needs new jobs and the way to create them is to cut business taxes.  Even before the new tax cuts were officially passed, the evidence is starting to come in that the idea doesn’t work, as shown here.  But the governor continues to claim jobs will result if we only cut business taxes.  I’m skeptical, but willing to listen.  After all, he’s a really smart person (his campaign ads keep telling us that, so it must be true, right?)  So I was very excited this morning as I’m driving to work  and listening to Michigan Public Radio  (recording of program as MP3 available here) to hear the Governor would be on the show live.  Maybe he could enlighten me about how this “tax cuts create jobs” stuff works.

The very first question was fantastic.  An alert listener asked (I’m paraphrasing from memory): “Precisely what empirical evidence exists that your business tax cuts will create additional jobs and just how many jobs should we expect?”  Snyder couldn’t give a straight answer.  He immediately responded with “It’s just a matter of basic economics. When a business have more money or resources it can create more jobs” (again paraphrase).

Unfortunately for the people of Michigan, Snyder has it all wrong.  That’s not basic economics.  He’s thinking basic accounting.  Basic economics says businesses will hire more workers when they perceive there’s demand (spending) for their product at profitable prices.  Taxes don’t really enter into it.  That’s not just basic economics theory, it’s also confirmed by repeated surveys of business managers.  Tax rates, particularly state tax rates, are waaaaay down the list of factors important in deciding on hiring and staffing levels.  Snyder should know better.  He himself, when he was CEO of Gateway Computers, moved the company from South Dakota, a low tax state, to California, a very high tax state?  Why would he have done that if taxes were so important?

The moderator, Rick Pluta, to his credit, didn’t bail out Snyder but moving quickly to the next question.  Instead we were treated to the Governor claiming that “it’s not possible to pinpoint exactly how many or which jobs might be created by the tax cuts, but we believe it will happen”.  That’s my point here. There is no evidence. There is no sound theory.  Instead, what we have is a faith-based policy.  We cut taxes for businesses in total and eliminated them completely for thousands of businesses in belief  that jobs will be created.  There’s no real evidence.  There’s just a belief in the magic jobs genie*.  The jobs genie only comes out when taxes are cut.  And when taxes are cut, the genie just magically appears and inspires businesses to go crazy and say “Hey let’s hire people. Let’s create jobs!”

Snyder then proceeded to offer his only empirical evidence. “We have some surveys where many of these small and medium businesses say they would consider creating new jobs in response to this bill”.  The Governor’s a lousy social scientist and economist.  Contrary to Snyder’s claims, it is possible to study and quantify this stuff.  Applied economists have done this stuff for decades. It’s our bread-and-butter.  There are  many studies on the jobs impact of state business tax cuts.  The evidence does not support Snyder’s position.  Indeed, contrary to his claims that they don’t know how many jobs will be created, the state treasurer and budget office must necessarily make estimates of state employment under different tax schemes in order to make budget forecasts.  Snyder is hiding because the evidence doesn’t support what he wants to claim.  He prefers to conjure magic beings like the jobs genie.

Snyder did say that employment is how he should be measured as governor.  What he didn’t say is that the appropriate measure is how much Michigan’s employment grows relative to the national average.  If the U.S. as a whole simply manages to not have a major recession while he’s in office, then Michigan employment will grow.  The U.S. economy as a whole is the dominant influence on Michigan employment, not what the state government does.  But, the policies of the state government have a major influence on whether the state does better or worse than national average.  For the last approx. 15 months, Michigan has performed significantly better than the national norm, albeit Michigan started in the worst condition.  (Nevada has that title now).  The clock is ticking now.  It’s up to Snyder to prove that, contrary to historical evidence and his own prior business decisions, that state business tax cuts will create faster than national average job growth.

* The magic Jobs Genie is only one of a pantheon of magical creatures that animate the economic theories of many politicians these days.  There’s also the Banking Unicorn and the Investment Confidence Fairy and others.  I’ll talk about those in future posts.

Is Our High Unemployment Structural?

Posted by

2

So following up on my post on the types of unemployment, when unemployment is high, how do we know if it’s due to structural or cyclical causes?  The answer is important because it tells us what kind of policy actions to take.  Do we need stimulus? (addresses cyclical), or do we need job-retraining, relocation, and education? (targets structural).  There is no clear cut way to tell how much of each type exists.

For example, suppose unemployment is 9%, much as it is today.  Let’s assume that this is a seasonally adjusted number, so we can assume that none of the 9% represents seasonal.  Let’s further assume, just for the sake of arguement, that 5% points of the 9 points represent frictional unemployment.  I should note that this is a somewhat controversial point.  I do not personally think that frictional is in fact that high nor that it we cannot get below that point. Personally I don’t see why frictional should be greater than 2-3%. My views on this are heavily influenced by Bill Mitchell and the MMT people. But since mainstream economics since Milton Friedman has defined it so, let’s accept frictional unemployment as being 5% just for the sake of this argument.  That means there’s another 4% points of the 9 points that must be either structural or cyclical. How can we tell the difference?

There’s no clear-cut way to tell as in doing some direct survey.  Instead we need to look at some indirect indicators.  Two of the more indicators we could look at are: the job seekers  to job openings ratio and unemployment by industry or state.  If our high unemployment is primarily due to structural factors then we should see a low ratio of job seekers to open jobs, and we should see wide differences in unemployment by industry or geography.  If we see low ratio of job seekers to job openings, then that means there are jobs in aggregate but apparently those seekers (unemployed) are unqualified. If we see wide differences in unemployment by industry or geography, it indicates again that jobs exist but they aren’t where the workers are.  On the other hand if the seeker-openings ratio is high, then that means there just aren’t enough jobs period – workers outnumber jobs.  If unemployment is high across all industries and locations, then again there is no unsatisfied sector. There is no structural unemployment.

So with that in  mind, let’s look at the data.  First, via StateofWorkingAmerica.org, we have the job seekers-to-job openings ratio (called the JOLTS data series):

Job Seekers to Job Openings Ratio, US, 2001-2010

 

 

 

 

 

 

 

 

 

 

 

 

 

Yep, it’s pretty high – between five and six workers for every open job.  Next, let’s consider unemployment across industries.  This via Paul Krugman:

here’s the increase in unemployment 2007-2010 by industry of previous employment:

DESCRIPTION

See the structural shift? Neither do I. As others have noted, basically unemployment doubled for every industry, every occupation, every state. Where are the sectors/occupations/regions gaining jobs? Nowhere to be found. There’s nothing structural about it.

But what about geographic mismatch? Let’s go to the state-by-state unemployment numbers from Calculated Risk:

Unemployment Rates by State, Dec 2010

 

 

 

 

 

 

 

 

 

 

 

Still no mismatch. Yes, there are three states under 5% and two more under 6%, but these states are the Dakotas, Nebraska, New Hampshire and Vermont.  Relatively speaking, nobody lives there.

So overall this means it’s not structural unemployment that is keeping unemployment high.  It’s cyclical unemployment.  That means the route to lower unemployment is more stimulus, not austerity. Better yet, a jobs guarantee program could work very effectively.

Employment News, A Muddle – Part 3

Posted by

3

This is the follow-up to my first two posts on the January Employment Situation Report and the muddled picture it paints.  The first post here recounts how there’s some apparent contradiction with the headline unemployment rate declining from 9,4% to 9.0% (yeah!) but only 36,000 new jobs created (not good at all).  The second post explains some methodology behind the numbers to try to resolve the contradictions. Now I’m going to offer what I think it tells us.

Many commentators, particularly the talking heads on the financial news channels but also some leading economists and analysts have decided this was a pretty decent report.  James Hamilton as well as Nomura Securities has concluded it’s good news. Calculated Risk seems to think that underlying the report is good news but that winter distorted the report. I beg to differ. Now I have no great computer models or crystal balls like many analysts, but I’m more in the camp with Mark Thoma who emphasizes the level and scale of unemployment and concludes we simply aren’t improving fast enough.

Let’s look at this graph from Calculated Risk and compare this “recovery” to all the post WWII recessions:

Percent Job Losses During RecessionsClick on graph for larger image.

This graph shows the job losses from the start of the employment recession, in percentage terms – this time aligned at maximum job losses.  In the previous post, the graph showed the job losses aligned at the start of the recession.
In terms of lost payroll jobs, the 2007 recession is by far the worst since WWII, and the “recovery” for payroll jobs is one of the slowest.

Yes, I will agree that positive jobs growth is better than no jobs growth or jobs elimination. Yes, the red line in this graph is going up. But it’s rising at an unacceptably slow rate. My screen isn’t wide enough to project out when that line is going to show us getting back to number of jobs we had when this mess began – back before Wall Street blew up the economy. But it seems to me that too many analysts are concluding something along the lines of “well, the snow and winter distorted the numbers. Without the snow, there probably would have been another 100,000 jobs and that’s OK.”  I’m sorry, even if we grant their arguement that that snow caused us to underestimate new jobs by 125,000, it is still too little too slow. We need 150,000 jobs a month just to stay even with a growing population.  For this to be a true recovery that includes all of America, not just the lucky ones on Wall Street or in Washington, we need to see a lot faster increases in growth – increases we haven’t seen since 1984.

Just to repeat here’s our real situation:

  • 6.21 million people have been unemployed for more than 26 weeks.
  • 8.4 million workers have part-time jobs but want full-time work and cannot get it.
  • 16.1% of our workforce wants to work full-time and our economy cannot put them to work fully
  • There are still 5.5% fewer jobs in the economy than there were 3 years and 1 month ago, despite a growing population.
  • The present rate of “recovery” will have us get those jobs back after another 3+ years.

The issue I think most analysts have missed in this report is the effect that the “99′ers” are having on the report. The “99ers” are unemployed people who have exhausted the maximum 99 weeks of unemployment compensation. Let’s face it, after 99 weeks of looking and not finding a job, you are most likely to quit looking until it appears like a real recovery in your area.  When Congress decided in December 2010 to not create another tier of unemployment benefits and extend benefits for these people, the fell off the unemployment compensation rolls. That also means there’s no reason to keep “actively” searching. So they have started to drop out of the labor force. That’s why labor force participation rate has continued to decline.  This is not good. This is treating the unemployed as if they are invisible – the disappeared workers.

I’m going to add one post to this series. In the next one I’ll look at alternative data series that makes the news that can help give some us some idea of what’s happening in employment.

 

Employment News, A Muddle – Part 1

Posted by

8

It’s first Friday of the month and time for the employment report. And we’ve got quite a muddle on our hands.  The headline numbers, what the media will highlight and the politicians spin, show a big decline in unemployment rate but with a very disappointing number of new jobs.  That’s conflicted enough, but the muddle gets worse.  Read on, there’s some lessons here but not much clarity on the direction of the economy. First let’s go to Calculated Risk for the headline numbers:

From the BLS:

The unemployment rate fell by 0.4 percentage point to 9.0 percent in
January, while nonfarm payroll employment changed little (+36,000),
the U.S. Bureau of Labor Statistics reported today.

So what’s happening? What are we supposed to learn from this report? There are several lessons to take from this report, but probably the most important is that we should never place too much importance on a single month’s employment report – despite the the decimal points and precise-looking numbers. Like all macro data, these are highly flawed statistics from complex methods. But, it’s the best we have based on the best methods we’ve figured out so far and it’s a heck of a lot better than complete ignorance. Since this report offers such a muddle, I’m going to explain it in three posts.  This post will deal with the numbers and possible first-pass explanations for the difference between an improved unemployment rate but a really bad new jobs created number. The next post will explain some of the hidden methodological problems that lead to odd reports this because when you dig deeper, this report gets even more contradictory. And finally I’ll offer a post commenting on what conclusions I think we can draw for the state of the economy.

First, when unemployment rate declines but the number employed goes up, even by a little, the first suspect is a change in labor force participation. In other words, the unemployment rate only measures what portion of the labor force is unemployed. It is strongly affected by changes in the number of people in the labor force – new entrants and people who drop out of the labor force. In “normal times” (can we really expect that to exist again?) we would expect that new entrants, young people seeking a first job and returnees like housewives getting back in, would exceed the number who drop out of the labor force. In fact, in “normal times” the labor force in the U.S. will grow by 150,000-175,000 people every month, requiring that many new jobs just to keep unemployment rate constant. Of course in a “normal” month there are also people leaving the labor force. People who are retiring, dying, going back to school, or just wanting to pursue other activities like staying home with the kids. But in periods of recession and for quite some time after a recession, there’s an unusual number of people leaving the labor force because they get discouraged. That is, they really do want to work but they’ve been unemployed, often for extended periods, and have abandoned actively searching for job. Remember active search is necessary to be included in the labor force. When this happens in significant numbers, the denominator in the unemployment rate calculation declines relative to the numerator. The unemployment rate declines even though there really weren’t very many, if any new jobs added to the numerator. An easy check to see if this discouraged-worker phenomenon is happening is to look at the labor-force participation ratio, the percentage of the adult civilian non-institutionalized population, the people who conceivably might be in the labor force, who have chosen to be available for work, in other words, be in the labor force. Again back to CR:

The following graph shows the employment population ratio, the participation rate, and the unemployment rate.
Employment Pop Ratio, participation and unemployment ratesClick on graph for larger image.

The unemployment rate decreased to 9.0% (red line).

The Labor Force Participation Rate declined to 64.2% in January (blue line). This is the lowest level since the early ’80s. (This is the percentage of the working age population in the labor force. The participation rate is well below the 66% to 67% rate that was normal over the last 20 years.)

So what’s happened is that a large number of people are no longer participating in the workforce. In fact it’s been well over 27 years since the participation has been this low. Now that fact by itself is worthy of more exploration, research and discussion, which I hope to touch on in my third post in this series.  But up next is a post on the methodology used for the employment situation report – where the numbers come from, because there’s a big story this month there as well.

Jobs & Unemployment, Oct 2010

Posted by

0

The October 2010 jobs and unemployment report is out this morning.  Mark Thoma nails my thoughts pretty well:

The BLS reports that unemployment was unchanged in October at 9.6%, and Nonfarm payroll employment increased by 151,000.

I’ve seen some people calling this a strong report. It’s certainly better than lower job growth numbers, so it could have been worse, but in past recoveries we’ve had job growth of hundreds of thousands, far more that this. So let’s try to put it in perspective. Many people estimate that 7.5 million jobs have been lost since the start of the recession (and some people estimate it’s even more than this). Suppose it takes 100,000 jobs per month to keep up with population growth. I think it’s a bit more than this, but let’s take an estimate that is generous in terms of making up lost ground. With a net gain of 50,000 jobs (rounding from 51,000), how long would it take to reemploy the 7.5 million who need jobs? The answer is (7.5 million)/(50,000) = 150 months = 12.5 years. That gives an indication of the strength of the report. Some of the 7.5 million might drop out of the labor force reducing the time a bit, but having people drop out of the labor force is not good news either.

The Report is better than it could have been, but we need more job growth than this. Let’s hope it picks up in coming months.

Unfortunately, “hope” is about all we have left.  The new Congress does sound like it is going to do anything intelligent to improve employment prospects in the economy, although people with existing jobs paying  more than $500,000 ought are probably ecstatic.

Calculated Risk shows just how bad the employment picture is.  If you extrapolate this curve, you’ll figure we’re probably looking at another 4 years minimum till we recover the jobs we lost in this recession (assuming we ever get them back).

Percent Job Losses by Recession, from Calculated Risk

 

 

Back to Work For Me (but not for millions of others!) – May Unemployment Report

Posted by

0

Ok, although it looks like I’ve been slacking off since I haven’t posted for quite some weeks, I really have been working.  The college has had me slaving away in conference rooms on waaaay too many committees the past few weeks.  But it’s OK now.  A new semester is starting and I’m back to working on economics.  Unfortunately the news today is that there’s still waaaay too many other people in the U.S. that aren’t “getting back to work”.

From Calculated Risk and the Bureau of Labor Stats:

From the BLS:

Total nonfarm payroll employment grew by 431,000 in May, reflecting the hiring of 411,000 temporary employees to work on Census 2010, the U.S. Bureau of Labor Statistics reported today. … The unemployment rate edged down to 9.7 percent.Census 2010 hiring was 411,000 in May. Non-farm payroll employment increased 20,000 in May ex-Census.

Employment Measures and Recessions Click on graph for larger image.

This graph shows the unemployment rate and the year over year change in employment vs. recessions.

Nonfarm payrolls increased by 431,000 in May. The economy has lost 0.6 million jobs over the last year, and 7.4 million jobs since the recession started in December 2007. Ex-Census hiring, the economy only added 20,000 jobs in May.

The unemployment rate decreased to 9.7 percent.

Percent Job Losses During Recessions The second graph shows the job losses from the start of the employment recession, in percentage terms (as opposed to the number of jobs lost).

The dotted line is ex-Census hiring. The two lines will rejoin later this year when the Census hiring is unwound.

This report is very, very deceptive.  Some in the news will no doubt say it shows strong job growth, but in reality it doesn’t.  See, it takes approx 150,000 new jobs (net increase in employment) each month just to keep the economy clicking along keeping up with population growth.  At first,  this report’s 431,000 increase looks great.  It looks like the kind of growth we had following recessions in the early 1980′s and 1970′s.  But if we look closer, we see that in May the Census Bureau hired 411,000 temporary workers.  Virtually all of these 411,000 jobs will be gone by August-September, judging by the last few census-takings.  So we’re left with 20,000 net new jobs.  Not good.  In fact, since this is actually a slow down from April and March, it looks possible that we may be headed for another decline later this year.

Where’d my job go dude?

Posted by

0

One of the greatest untold economic stories of the last 2-3 decades (there are so many) is how the economy (both US and global) has consolidated.  In industry after industry, there’s just not the level of competition or entry or innovation that we formerly had.  This is significant for many reasons.

One, historically the Great American Job Machine came from innovation, entreneurship, and new businesses.  As a practicing corporate planner and later as corporate strategic planning consultant I witnessed the phenomenon.  In the 1980′s and even early 1990′s, the route to success in business was make a better product, innovate, find new customers, adopt new technology to control costs, improve efficiency. All the textbook stuff.  That has long ago shifted.  That approach is old-school (showing my gray hair now).  Now business and corporate success comes from playing a financial gin game: buy companies, sell companies, cut employees and hollow-it-out, don’t get involved in the core business, and most of all:  eliminate competitors.  Use patents, use special government favors & legislation, illegal threats, buy your competitors, whatever.  Just eliminate the competitors. Then raise prices. Then eliminate consumer options and choice.  Eventually consumers become the “property” of your company (much like serfs).

Second, since the reality is that most industries are no longer competitive, it also means that macro-economic policies from the Classical-New Classical-Supply Side-Monetarist-Rational Expectations-Libertarian schools won’t work.  They all assume that all markets are competitive.  But they aren’t in reality!

In the real world, true radical innovation and invention (the stuff that really advances our living standards and productivity) rarely comes from large organizations and corporations.  They have too much to lose from upsetting the status quo.  The modern, large, hierarchical organization is actually designed and intended to squash innovation, despite all the consultant hype and buzz about “networks” and “learning organizations” (puh-leeze!).  I mean, if a large hierarchical, command-and-control organization brought innovation and invention, then wouldn’t we have a stereotype of Army Generals as the most creative inventive types around instead of our mythology of the mad scientist or the wild works-in-his-garage inventor?

Anyway, for more on this topic (and much better written) try Who Broke America’s Job Machine by Lynn and Longman in Washington Monthly.  Also, for the curious, there’s wealth of surprising info on how even your favorite little local business or product has become an oligopoly at Oligopoly Watch, although this nice little blog doesn’t seem to have been updated since 2009.

History: Job Creation by President

Posted by

0

The Bush tax cuts didn’t really do much to “stimulate” the economy, contrary to the claims of many.  In fact, they really didn’t do anything other than run up the deficit.

From Angry Bear:

those who thought Bush did a good job and want to repeat his policies sure have some explaining to do. Even Carter created some five times as many jobs as Bush in only four years.