How many people have lost their jobs?

According to Barack Obama, 600 thousand Americans have lost their jobs since January. Actually, he's wrong: something like 20 million Americans have lost their jobs since January. It's just that most of them found new jobs. Probably the new jobs generally weren't as good as the ones they lost. And almost certainly, more than 600 thousand of them were unable to find new jobs, because many of the new jobs created were filled by new entrants to the labor force or by people who were already unemployed when the year began.

Like almost everyone else I've ever heard, Senator Obama is making the mistake of using a net job loss figure with language that, if taken in its plain sense, clearly implies he is talking about gross job loss. And it seems to me that gross job loss is the appropriate concept: losing your job is a pretty serious bummer, even if you are able to find a new one after a few months.

There has been a lot of talk about Senator McCain and how he has been saying things that aren't true in order benefit himself politically. It turns out that Senator Obama is also (obviously unintentionally) saying things that aren't true, but in this case they benefit his opponent.

Monster Really Scares Me

Just as I finished leaving a comment (not yet accepted as of this writing) on Paul Krugman's blog arguing that UI claims for January remain on balance in the "good news" column and that the personal consumption report is not bad news given what we already knew about retail sales, I learned that the Monster Employment Index (which measures online help wanted advertising) fell by a whopping 9 points (from 169 to 160) in January, after falling an even more whopping (but less surprising given the usual seasonal pattern) 14 points in December and a not so whopping (but still significant because the index has never dropped 3 months in a row before) 5 points in November. That makes a total drop of 28 points, or about 15%, over 3 months. Before December 2007, the index had never fallen by more than 3% over any 3 month period (since it began in October 2003). And note that the 15% drop comes as newspaper help wanted advertising is scraping against an all time low (since 1951, when the Conference Board's index began, but note that in December, it rose slightly from the all-time low in November). Over the past week or two, I had been starting to think that the odds were shifting against recession. Now I'm not so sure. In any case I think we can rule out the possibility that 2008 will turn out unexpectedly to be a year of normal growth. And I'm not so worried about import prices now; I think they'll be offset by a slowing of domestic inflation.


[UPDATE3: OK, now I found the post on Paul Krugman's blog where he said that someone else edits the comments. (I missed it the first time, because it was in an update that I didn't read.) And I notice that one of my comments on an earlier post has suddenly appeared. I guess they decided I was a respectable commenter after all.]

[UPDATE2: I removed the previous update, because Paul Krugman (or whoever approves comments for his blog) did approve my comment. (See link at the top.) I had assumed it wasn't going to be approved, because there were later comments comments already approved, but I guess these things don't necessarily go in order.]

[UPDATE: [removed] ]

No Help

Today the Conference Board announced that in August, its Help Wanted Advertising Index fell for the eighth straight month, by a larger-than-expected 8% (using the integer numbers that the Board reports), to its first new all-time low since 1958. ("All-time" in this case means since 1951, when the series began.) This means that major newspapers in the US carried fewer help wanted ads than they did at the depth of the 1958 recession. This is despite the fact that the scale of the US economy, by any measure, has more than doubled since 1958. (In particular, there were about 51 million employees on nonagricultural payrolls in mid-1958, compared to 138 million today.) It's also despite the fact that many of the smaller local newspapers, which used to compete with the surveyed major newspapers for advertising, have gone out of business or been absorbed by the major newspapers during that time.

Part of the explanation is the emergence, over the past decade, of online recruiting as an alternative to newspaper-based recruiting. This is only a partial explanation, though, and it only helps explain the general downward trend in newspaper help wanted advertising over the past decade, not the specific decline this year. Online help wanted advertising, according to the Monster Employment Index, has been (uncharacteristically) roughly flat since March (over which time the Conference Board index* has fallen by 23%), though the Monster index has doubled between October 2003 and today. But in 2003, online help wanted advertising had only 19% of the market share vs. newspapers, so even the doubling doesn't begin to make up for the 36% drop in newspaper help wanted advertising over the same period.

Also this morning, ironically perhaps, we got the news that new unemployment claims fell below 300,000 in the week ended September 22, for the first time since May. There has been no pattern of rising unemployment claims this year while help wanted advertising has been steadily falling. Apparently, the US is experiencing a new kind of economic weakness -- one where the trailing edge of the labor market keeps steady but the leading edge stops advancing.


*UPDATE: Just to clarify, I'm referring to the index of newspaper help wanted advertising discussed in the previous paragraph. The Conference Board also has an index of online help wanted advertising, but I haven't started to follow it yet.

The Blinder Approach

OK, Alan Blinder, there’s something here I don’t understand. I get the point that things may get tough for a lot of American workers over the next 30 years. I get the point that this makes the case for providing better social insurance stronger than it used to be. I get the point that it makes the case for encouraging more research and development stronger than it used to be. I get the point that it makes the general case for facilitating more and better education and training stronger than it used to be. But here’s what I don’t get:

…we need to rethink our education system so that it turns out more people who are trained for the jobs that will remain in the United States. … many electronic service jobs will move offshore, whereas personal service jobs will not. Here are a few examples. Tax accounting is easily offshorable; onsite auditing is not. Computer programming is offshorable; computer repair is not. Architects could be endangered, but builders aren't. Were it not for stiff regulations, radiology would be offshorable; but pediatrics and geriatrics aren't. Lawyers who write contracts can do so at a distance and deliver them electronically; litigators who argue cases in court cannot.

So apparently we want to train people for onsite auditing, computer repair, building, pediatrics, geriatrics, litigation, and similar occupations. But why? Don’t we already have enough – or at least almost enough – auditors, computer repair people, builders, pediatricians, geriatricians, and litigators? Is there any reason to expect that offshoring will increase demand for those occupations? What model do you have in mind wherein foreign competition increases the demand for non-tradable services?

In my crass Mundell-Fleming conception, here’s what happens when offshoring occurs. Suppose a lot of people from India learn to do American tax accounting, computer programming, architecture, and so on, undercutting American service producers. A bunch of American accountants, programmers, architects, and such will lose their jobs. The Fed will notice the slack labor markets and cut interest rates. As a result, the dollar will depreciate, causing an increase in demand for some other American products. Which products, exactly, we don’t know, but they have to be products that are exportable – not auditing, computer repair, and building, and pediatrics. There will be excess demand for certain kinds of workers, but not, ultimately, for the categories of workers whose jobs can’t move offshore.

I grant you that we do not live in a small country with perfectly substitutable assets, so things won’t happen exactly the way I suggested. There will be a temporary demand for certain non-tradable services – specifically the ones that are interest-rate sensitive, like building. That, in fact, is already happening, or perhaps has just finished happening. But today I think one might be rather glad to have passed up the opportunity to train for a job in the construction industry. In the longer run, surely we cannot expect that foreigners will be willing to finance ever higher amounts of non-tradable services for Americans. Perhaps we can maintain a large trade deficit, but surely we can’t keep running ever larger trade deficits, to create ever greater demand for domestic non-tradable services.

So do we need to rethink our educational system? Perhaps, but as to how, exactly, I have no idea. I don’t understand why we would want to restructure it to turn out more people trained for non-tradable service jobs.

Help Wanted Advertising Stabilizes

US help wanted advertising, which dropped precipitously during the spring and summer of 2006, appears to have stabilized during the fall. The Conference Board Help Wanted Index was essentially flat from August through November (the latest report), at a level about 20% lower than where it was a year earlier. (Taking online advertising into account would mitigate the decline, but given the normal growth in help wanted advertising over time due to a growing economy, the 20% figure gives a pretty good indication of the amount of deterioration.)

What this means exactly I’m not sure, but in my mind it tends to reduce the chance of a recession. On the other hand, it also tends to confirm the expectation of an economy too weak to please Main Street, and perhaps a little weaker than Wall Street would prefer.

Quiescence

Lately I’ve been having trouble focusing attention on this blog long enough to do a full post, because…well, you know, there’s a lot going on, etc…. To keep the blog alive, I’m going to try more quick posts, which will hopefully still be good food for thought but not so eloquent or well-reasoned.

Here’s a thought for today: the current condition of the US labor market should not be described as “weak” or “strong” but rather “quiescent.” There aren’t many layoffs going on, and there isn’t much hiring going on. There aren’t many people looking for jobs, and there aren’t many businesses looking for employees. I think most statistics bear out this view of the labor market. I’m not sure what the implications are. I do have some thoughts, which I may address in a later post.

Do labor shortages indicate a strong labor market?

Sorry I haven’t blogged in so long. Lack of ideas, mostly. Plus I’m busy not having ideas on my day job.

Today I have an idea. A lot of anecdotal evidence seems to suggest that labor shortages are a problem in the US today. Yet statistics – note, particularly, help wanted advertising, which is near a 50-year low – show little evidence of strong labor demand. Is this inconsistent?

I don’t think so. If different kinds of labor are complements in production, then shortages of certain kinds of labor could actually make the overall labor market weaker. For example, if individuals with a lot of different skills are required to make a product, then a shortage of one of those skills will depress demand for all the other skills. If chefs are in short supply, the demand for waiters will go down. Is this the kind of thing that’s happening in the US today? It seems plausible to me that shortages of certain technical and managerial skills could be depressing overall labor demand. Just an idea.

Employment: No News is Good News

Now that Calculated Risk has pointed me out as one who follows such things, I feel obliged to comment on the labor indicators that have come out over the past 2 days. Overall, they were a bit stronger than I expected, but a bit weaker than I think the market expected.

Yesterday, we had both the July Help Wanted Index from the August Monster Employment Index. The picture is mixed. The Monster index bounced back from the distressing drop in July, and my first impulse was to put up a post under the title “Friendly Monster” to contrast with my earlier “Scary Monster” post. On closer analysis, though, the bounceback was not as impressive as it first appeared. The index rose from 165 to 173. In percentage terms, that increase is a little bit smaller than last year’s July-to-August bounce, but a little bit larger than the one in 2004. Since last year was a year of substantial job growth, I would say this year’s bounce still certainly goes in the “good news” column, but it is not large enough to make up for the unexpectedly large drop in July.

The Help Wanted Index dropped to 32 from an upwardly revised 34 in June. This leaves it a point lower than the original June report, which was already coming on the heels of a dramatic drop from February to May. The index is getting closer to its record low of 24 set in April 1958, and remember that the labor force has more than doubled in size since then. Relative to the level of payroll employment, the July figure is actually the fourth successive record low. If we combine the July Help Wanted Index with the August Monster index (using a procedure described briefly here) and normalize by payroll employment, the result is just 1.6% above the record low set in May 2003, and 15.5% below the recent peak in February.

Then there is the Employment Situation report that came out this morning. It adds up essentially to no news, which is news to me, because I expected it to be weaker than expected. Payroll growth at 128,000 is right in the middle of the range of values that are typically given as being sufficient to absorb the expected population growth. If you think the long-term trend in labor force participation is accelerating downward, then 100,000 might be enough, but if you attribute the decline since 2000 to a weak job market, then something like 155,000 are necessary. I tend to lean toward the high end of that debate, meaning I think that the August growth was a bit weak, but there is room for disagreement. Interesting that construction employment was up. Given what builder confidence indicators are saying, I expect that will change in coming months. Other than that I haven’t yet found anything interesting in this report.

Big Drop in Perceived Job Availability

In the Conference Board’s monthly Confidence Survey, they ask respondents if jobs are “plentiful,” “not so plentiful,” or “hard to get.” I keep track of the percentages of respondents (as reported in the press release), particularly for the “plentiful” category. In August, it dropped by 4.2 percentage points, the biggest one-month drop since October 2001. In the past (since 1978, when the survey began to be conducted monthly), such large one-month drops have always been associated with recessions.

I wonder if this has anything to do with the declines in help wanted advertising that I observed here and here. (Do you think?) It is a bit of a puzzle, though, why perceived job availability held up so well until July.

Scary Monster

The Monster Employment Index (which tracks online help wanted advertising) came out today, and it’s not pretty (not one of those cuddly Sesame Street monsters). The index dropped from 171 to 165 between June and July. According to the report, there was “similar seasonal retraction observed in July 2005 and July 2004,” but the similarity was clearly only in the direction and not in the size. In July 2004, the index dropped by 1 point; in July 2005, by 2 points; in July 2006, by 6 points. In fact this was, by a margin of 2 points, the biggest one month drop in the 33-month history of the index. It’s also the first year that the index was lower (by 2 points) in July than it was in May.

In and of itself, this observation wouldn’t be particularly worrisome, since the index has had a nice run up and perhaps deserves a rest, but I was hoping for some good news about online advertising, to offset the distinctly bad news we’ve had about print advertising. The Conference Board’s Help Wanted Index dropped from 39 to 33 between February and May and remained at 33 in June. (The July index won’t be released until the end of this month.) The Monster index rose from 157 to 171 over that same period, which was a hopeful sign for those who want to believe that the US is not headed into a recession.

But with Monster back at 165, the situation is looking ugly. The net 8 point increase between February and July compares with 12 point increases for the same period in each of 2004 and 2005. Government data suggest that a substantial net increase in job openings is normal between February and July, but even if we ignore seasonal factors and credit the full 8 points, this doesn’t begin to make up for the drop in print advertising. This is a 5% increase in online advertising vs. a 15% drop in print advertising, while print advertising still has about 70% market share. You do the math.

US Job Market Jumps Off a Cliff

I wouldn’t read too much into any one indicator, but this one does have me a bit worried. Between February and May, help wanted advertising followed a steady downward trend, declining by over 12% in all, according to the Conference Board. (I have combined the Conference Board’s index with the Monster Employment Index to account for online job advertising. The raw Conference Board index actually declined by more than 15%.) Historically, declines of this magnitude have always been indicative of recessions (for example, March 2001 and November 1990).




There are reasons to think it might be different this time. For one thing, the data could be revised. And measuring the 3-month rate of change is only one of many ways to cut the data. The Monster Index did improve in June. (The Conference Board has not yet reported for June.) Hiring activity may be less important than in the past, as layoff rates are down, and the working-age population is growing more slowly. And employment as reported by households still seems to be rising rapidly. Nonetheless, after the third month of inadequate job growth as reported by firms (in today’s employment release), the decline in help wanted advertising does seem to be part of an unpleasant pattern.

Immigration, Jobs, and Wages

Like most economists, I favor increased legal immigration to the US. I have to say, though, to my fellow immigration advocates: let’s get our story straight!

Immigration advocates typically make two assertions:

1) Immigrants do jobs that Americans aren’t willing to do, and
2) Immigration has little effect on wages

These statements cannot both be true. Consider what would happen if we got rid of all the immigrants. Somebody would have to do the jobs that the immigrants had been doing. Since, according to statement 1, Americans aren’t willing to do those jobs, we would have to raise the wages dramatically to get Americans to do them (which contradicts statement 2).

Theoretically, the way to get out of this contradiction is to assert that statement 1 is so thoroughly true that there are really no Americans who compete with immigrants in the labor market. If that’s the case, then, even though immigration affects the wages associated with jobs, it doesn’t necessarily affect the wages received by individuals. If we got rid of the immigrants, all the jobs with newly increased wages would be filled by people from other (presumably initially higher paying) jobs, so no individual would necessarily receive a large wage increase.

Logically, that works, but the premise is thoroughly implausible. I can believe that people who compete with immigrants are a small fraction of the population, but I cannot believe that they are an empty (or virtually empty) set.

Of course, you could say, since they’re a small fraction of the population, we don’t care about them. That, first of all, is not a very nice thing to say. But second of all, you have to recognize that, the smaller the fraction, the more dramatic is the harm done to them by immigration. If these immigrant-competers are actually a large fraction of the population, then statement 1 is false, so statement 2 can be true, and we don’t have to worry about them. On the other hand, if they’re a very tiny fraction of the population, then statement 1 is extremely true, which means that statement 2 is extremely false.

If I had to guess (given what I’ve heard about the research), I would say the truth is probably somewhere between statements 1 and 2. That is, there is a small but non-negligible fraction of the native population that is willing to do the jobs that immigrants do (or jobs that functionally substitute for those jobs), and the wages of this fraction are affected significantly but not overwhelmingly by immigration. I have always gone along with the argument that, since immigration helps the immigrants a lot more than it hurts these Americans, it’s still a good idea. Some people say I should be more concerned with my fellow citizens than with foreigners, and this leads to all sorts of contentious discussions about nationalism and the nature of democracy. Perhaps I’ll go into that stuff in another post.

About About

Apparently About.com is not a reliable source. You can check this link to see if they have corrected the error, but the following is exactly what I cut and pasted from the linked page:

“The unemployment statistics and national unemployment rate do not include workers whose unemployment compensation benefits have expired or those who have given up looking for a job.”

...and later on:

“The unemployment statistics don't including people no longer collecting unemployment benefits or those who have given up looking for work.”

Everyone who has studied labor economics or Bureau of Labor Statistics methodology knows that the part about unemployment benefits is wrong. The unemployment rate does not depend on who is getting benefits. The unemployment rate comes from the Current Population Survey, and workers whose unemployment compensation benefits have expired are still counted as long as they meet the BLS definition of “unemployed”: “Persons are classified as unemployed if they do not have a job, have actively looked for work in the prior 4 weeks, and are currently available for work.” (You can dig deeper on the Web site to find a more precise definition and description of the methodology, but this is the gist of it.)

It’s important that many people have given up looking for jobs, so they are not counted as unemployed (and also not receiving benefits). Also, many whose benefits have expired have taken part-time jobs and therefore are also not counted as unemployed. And many people are still looking for jobs but not “actively”, and those people are also not counted. And many may be looking actively but have made other commitments that prevent them from starting immediately, and those also are not counted. But it has nothing directly to do with whether you receive unemployment benefits.

Monetary Policy, Not Immigration Policy

The following quote from Paul Craig Roberts (taken from a piece quoted in a comment to this Economist’s View post) typifies a common point of view that I think has got things completely backwards:

“Job growth over the last five years is the weakest on record. The US economy came up more than 7 million jobs short of keeping up with population growth. That's one good reason for controlling immigration. An economy that cannot keep up with population growth should not be boosting population with heavy rates of legal and illegal immigration.”

First of all, many economists believe that the failure of job growth is a supply problem rather than a demand problem. Certainly part of the reason that job growth has not kept up with population growth is that the fraction of the population in their prime working years has declined. And part of the reason is that young people are choosing to delay working in order to become better educated. And part of the reason may be that people (now including men as well as women) are beginning to prefer caring for their own children to working. To the extent that it is a supply problem, the slow job growth could be taken as an argument for increasing rather than decreasing immigration.

Personally, I don’t agree that the main problem is on the supply side. But many at the Fed do think so, and that’s just where the problem is. As long as the Fed believes the labor market is approaching a capacity constraint, reducing immigration can only make things worse.

What would happen if we were to reduce immigration? Some of the businesses that now hire immigrants would have to hire Americans. In itself, that might be a good thing, but the story doesn’t end there. As businesses hire more Americans, the unemployment rate would fall, and the Fed would pursue its tightening policy farther than it currently intends. The Fed’s tightening would result in a weaker economy, which would cause other businesses to lay off Americans. The net effect on employment of Americans would be close to zero (and the direction of the net effect is unclear).

If you want to argue that immigration reduces the real wages of Americans, there is certainly an argument to be made, but I’m not going to get into that here. To argue that immigration is bad because the economy already isn’t creating enough jobs is to misunderstand macroeconomic policy.