Beat the Press is Dean Baker's commentary on economic reporting. Dean Baker is co-director of the Center for Economic and Policy Research (CEPR).
It is amazing that there is not an effort to have a mass deportation of economists. After all, almost the whole profession completely missed the housing bubble and the economic crisis that resulted from its collapse. They failed to see the weakness of the recovery and now they can't decide whether we will have too few workers or too few jobs. (This is known as the "which way is up?" problem in economics.)
Claire Cain Miller gave us a "too few jobs" story in her NYT column that asked how we can offset the impact of job killing robots. She discusses various ideas that will create jobs or generate incomes for the people displaced by robots.
It is worth noting that if we think the problem really is too few jobs, in effect, that productivity is soaring, then many other commonly discussed economic problems do not really exist. If we have too few jobs then we have no reason to worry about government budget deficits. The problem of government budget deficits (if there is one) is that excessive spending by the government is creating too much demand in an economy that is unable to supply enough goods and services.
Similarly, in the too few jobs story there is no reason to worry about the demographics of retiring baby boomers. That is a story of too few workers to care for a growing population of retirees.
There is also no reason to worry about the burden of excessive regulations stifling growth. The too few jobs story is telling us that the robots are leading to mass displacement of workers in spite of whatever burden is created by regulations. The implication is that we would have even if fewer jobs if not for the burden of regulations (assuming that regulations actually do slow growth).
And of course, if the problem is the robots taking all the jobs there is no reason for the Federal Reserve Board to raise interest rates. The point of higher interest rates is slow the rate of job creation so that the labor market doesn't get too tight and cause inflation. If we are worried that robots are getting rid of all the jobs it doesn't make any sense for the Fed to deliberately make the problem worse by slowing the rate of job creation.
It would be nice if economists could either agree than we face a world of soaring productivity so that scarcity is not a problem or (as the data show) we face a world of weak productivity growth, so that we could face some problems of scarcity. Given the high average pay in the profession, it would be reasonable to think there could be some consensus or at least some clear thinking on the implications of each position.Add a comment
In the years before the Affordable Care Act (ACA) the uninsured population peaked at just over 50 million people. It fell sharply when the main provisions of the ACA took effect, falling to less than 28 million in recent quarters. However, in its effort to make America great again, the Republicans expect to raise the number of uninsured back above 50 million. Serious analysis of their plan shows that they have a good shot at meeting this goal.
While the Republicans are in principle keeping some of the provisions of the ACA that were responsible for lowering the number of uninsured, this effect will be temporary. In most cases, the situation for most people not covered by their employers will be the same or worse than before the ACA took effect.
For example, the plan leaves in place the expansion of Medicaid through 2020. This should be long enough so that most currently serving Republican governors will not have to deal with the effect of the elimination of this provision. After 2020 people benefiting from the expansion will be allowed to remain on Medicaid, but new people will not be added. Since people tend to shift on and off Medicaid (something rarely understood by reporters who cover the ACA), after two or three years the vast majority of the people who benefited from the expansion will no longer be getting Medicaid. By 2025, the impact of the expansion on the number of the uninsured will be trivial.
The plan also allows insurers to charge people with pre-existing conditions higher rates, if they allow their insurance to lapse. While the provision allowing people to avoid being penalized for pre-existing conditions, if they maintain continuous coverage, may appear to provide protection, in reality this is not likely to be the case. Before the ACA workers were allowed to keep employer based coverage for a substantial period of time after they left their employer under COBRA. The take up rate under this law was always low, primarily because most workers could not afford to keep their coverage once they left their jobs. This is likely to be the case when the Republican plan takes effect as well.Add a comment
In an article on the main features of the Republican replacement for Obamacare, the Post told readers:
"At the same time, the shift to take income into account could create a potentially difficult ripple effect for Republicans, who regard a reduction in the federal government’s role in health care as a central reason to abandon the sprawling 2010 health care law (emphasis added)."
This comment is in reference to the decision to phase out the heath care tax credit for couples with incomes over $150,000.
While it is possible that the opposition to this phase out is due to Republicans who somehow see this as excessive federal government involvement in health care, it could also be due to the fact that Republicans just want to give more money to rich people. Fortunately, the Post's mind reading reporters can tell us the true motive.Add a comment
Robert Samuelson devoted his column this week to the issue of government regulation. He refers to an estimate from the industry-funded Competitive Enterprise Institute that "the costs of complying with federal rules and regulations totaled nearly $1.9 trillion in 2015, equal to about half the federal budget ($3.7 trillion in 2015)." It is important to understand the nature of this estimate.
Suppose that I have been in the habit of dumping my sewage on my neighbor's lawn. Now imagine the government puts in place a regulation prohibiting me from doing this so that I have to install a sewage system to dispose of my sewage in a more proper manner. The Competitive Enterprise Institute estimate would count the cost of my sewage system as a cost of regulation.
This is of course not a cost to the economy, it is just a situation where they forced me to stop imposing costs on my neighbors. This is how one can get a figure like $1.9 trillion a year as the cost of regulation.
Anyone seriously looking at regulations would want to know their net cost. Many regulations, such as bans on smoking, which have led to huge reductions in incidents of cancer, bans on leaded gas, which led to large reductions in crime in addition to the direct health benefits, and the 1990 Clean Air Act, have had enormous economic benefits. Honest people would be sure to mention this fact in discussing the impact of regulation.Add a comment
In recognition of the wrongs done by slavery, but not subsequent legal and actual discrimination, NYT columnist Ross Douthat proposes making a one time payment of $10,000 to every person who trace their ancestry to someone who was enslaved. This payment would be in exchange for ending affirmative action in education, employment, or any other area. The idea seems to be that after the descendants of slaves get their check, we're all good.
For anyone interested on how this measures up in the scheme of things, currently the median income for a white household is $71,300. The median income for an black household is $43,300. Since this is for an adjusted household of three people, Douthat's $10,000 per person payment will put the median black household slightly above the median income for white households, in the year they get it.
In subsequent years, they will get nothing to offset the discrimination they experience in schools, hiring, getting mortgages, and even selling baseball cards on eBay. Apparently, Douthat thinks that his one time payment of $10K (only to those with direct ancestors who were enslaved) would make things right. My guess is that this deal wouldn't look too good to people who are better at arithmetic than Mr. Douthat.Add a comment
Donald Trump's business empire appears to be an infinite cesspool of corruption, with his unethical practices continuing into his presidency. Given such a target rich environment for real news stories, it is difficult to see why the NYT would devote space and resources to pursuing a major non-story. The paper apparently thinks that it is some sort of scandal that Trump accepted energy efficiency tax credits for some of his buildings, since he opposes the tax credits and is committed to eliminating them.
Sorry, that makes zero sense. People take advantage all the time of provisions in the tax code they think are wrong. Why shouldn't they?
Warren Buffett has famously complained that it is ridiculous that he can pay a lower tax rate than his secretary, based on the fact that most of his income is taxed at the 20 percent capital gains rate rather than the 25 percent marginal tax rate on ordinary income that his secretary is presumably paying. In spite of making this complaint, Mr. Buffett still opts to take advantage of the lower rate on capital gains.
Like many other economists, I think the mortgage interest deduction in its current form is terrible policy. Nonetheless, we all (or the homeowners among us) use the mortgage interest deduction on our taxes.
It's difficult to see any hypocrisy in following the rules as written, even if one thinks the rules should be changed. This is just a lazy piece on the NYT's part, it should be spending its time reporting real scandals. There is no shortage in this category in the Trump administration.Add a comment
The Washington Post must think that U.S. trade policy is really awful. Why else would they continually lie to their readers and claim that the cause of the sharp job loss in manufacturing in recent years was automation?
For fans of data rather than myths, the basic story is that manufacturing has been declining as a share of total employment since 1970. However there was relatively little change in the number of jobs until the trade deficit exploded in the last decade. Here's the graph.
Source: Bureau of Labor Statistics.
And, there was no great uptick in productivity coinciding with the plunge in employment at the start of the last decade. It would be nice if the Washington Post could discuss trade honestly. This sort of reporting gives fuel to the Donald Trumps of the world.
In this context, it is probably worth once again mentioning that the Washington Post still refuses to correct its pro-NAFTA editorial in which it made the absurd claim that Mexico's GDP quadrupled from 1987 to 2007. The actual figure was 83 percent, according to the International Monetary Fund.Add a comment
Tony Blair, the former Prime Minister of the United Kingdom, who is best known for lying his country into participating in the Iraq War, lectured NYT readers on the evils of populism. Once again he gets many key points wrong.
He criticizes the left for abandoning centrist politicians:
"One element has aligned with the right in revolt against globalization, but with business taking the place of migrants as the chief evil. They agree with the right-wing populists about elites, though for the left the elites are the wealthy, while for the right they’re the liberals."
Blair then tells us:
"The center needs to develop a new policy agenda that shows people they will get support to help them through the change that’s happening around them. At the heart of this has to be an alliance between those driving the technological revolution, in Silicon Valley and elsewhere, and those responsible for public policy in government. At present, there is a chasm of understanding between the two. There will inevitably continue to be a negative impact on jobs from artificial intelligence and big data, but the opportunities to change lives for the better through technology are enormous.
"Any new agenda has to focus on these opportunities for radical change in the way that government and services like health care serve people. This must include how we educate, skill and equip our work forces for the future; how we reform tax and welfare systems to encourage more fair distribution of wealth; and how we replenish our nations’ infrastructures and invest in the communities most harmed by trade and technology."
Blair obviously is unfamilair with the basic facts about the economy. For example, even workers with college degree have seen almost no growth in real wages in this century. And with a large dispersion of earnings among male college grads, the bottom quartile of grads don't really see any premium at all.
But more importantly, Blair is wrong when he treats globalization and technology as natural forces. The decision to put our manufacturing workers in direct competition with low paid workers in the developing world, while leaving doctors, dentists and other highly paid professionals largely protected, is a policy choice. It's predicted and actual effect is to put downward pressure on the wages of most of the workforce, while benefitting the small elite in the protected occupations.Add a comment
Most of us know that politicians don't say what they really believe about the world. Unfortunately, the folks who write for the Washington Post haven't learned this basic fact. This explains why in an article on Donald Trump's plan to cut large parts of the domestic budget:
"To the president and his supporters who see a bloated bureaucracy with lots of duplication and rules that choke jobs, the budget cuts are a necessary first step to make government run more efficiently."
Of course, this is what the president and his supporters say. It may have nothing to do with what they "see." For example, it is well known that reducing enforcement at the Internal Revenue Service will amount to a net loss for the government, as the savings on salaries will be more than offset by a loss of revenue.
Given this fact, we can believe, apparently like the Post, that Trump's people are dumber than rocks, or we can believe that they want to make it easier for their friends to cheat on their taxes. Both are possible, but apparently the Post wants readers to rule out the latter possibility.
This logic applies to the cuts more generally. For example, the reason Republicans may want to cut funding for the Environmental Protection Agency is so that their friends have the option of dumping waste in their neighbors' drinking water rather than having to pay the cost of cleaning it up. They may support reductions in financial regulation so that their friends can make more profits ripping off unsuspecting customers.
It would be best if the paper did not try to tell us people's motives when they have no basis for their assessment.Add a comment
By Dean Baker and Sarah Rawlins
Many of us had very mixed feelings about the Donald Trump Carrier show, where he got the Carrier Air Conditioner company to keep 800 jobs at one of its plants in Indiana instead of shipping them to Mexico. The state of Indiana, under then Governor Mike Pence, promised millions of dollars in tax concessions as an inducement. There were also reports of threats or promises directed towards Carrier's parent company, United Technologies, which is a major military contractor.
While it was good to see these 800 workers keeping their jobs, this is not the way to protect U.S. manufacturing jobs. At the end of the day, 800 jobs is just a drop in the bucket in a labor force of 150 million or even among the 12.3 million people employed in manufacturing.
We can't expect the president of the United States to be running around from factory to factory to make sure that manufacturing jobs stay in the United States. What we need is a policy.
Fortunately, there is a policy that would discourage companies from shutting down the shop and sending jobs elsewhere: it's called "severance pay." That might not sound new and sexy, because it isn't, but it can radically alter the incentives for employers.
Suppose that workers were entitled to two weeks of severance pay for every year they work for a company. This means that workers who have been employed for over twenty years, as was the case with many of the Carrier workers, would be entitled to at least 40 weeks of severance pay.
This won't get someone in their early fifties through to retirement, but it certainly is a nice going away gift. More importantly, it changes the incentives for company. If a company knows that it will be costly to lay off a large number of long-term workers, it might think harder about ways to keep them employed. This could mean continual retraining to maintain their skills and investment in the most modern equipment to ensure high levels of productivity.
Of course, if a company really has no productive use for a worker, it will still pay to lay them off, but this will not be a decision taken lightly. In effect, we are requiring the company to internalize the cost to the worker and society, since there is a high risk that an older worker who loses their job will be unemployed for a long period of time, collecting unemployment insurance and other benefits.Add a comment
It's amazing how it is so acceptable in elite circles to tell outright lies to advance the trade agenda pursued by recent administrations. Everyone remembers when a 2007 Washington Post editorial touting NAFTA claimed that Mexico's economy had quadrupled between 1987 to 2007. According to the I.M.F., the actual figure was 83 percent. The erroneous number can still be found online, since the Post lacks the integrity to correct it.
In this vein we find David Ignatius continuing the Post's denialism, telling readers that workers in the Midwest are wrong to think that trade cost manufacturing jobs.
"Manufacturing employment has indeed declined in America over the past decade, but the major reason is automation, not trade. Robots, not foreign workers, are taking most of the disappearing American jobs. Rather than helping displaced blue-collar workers, Trump’s promises of restoring lost jobs could leave them unprepared for the much bigger wave of automation and job loss that’s ahead.
"The most persuasive numbers were gathered in 2015 by Michael J. Hicks and Srikant Devaraj at Ball State University. They showed that manufacturing has actually experienced something of a revival in the United States. Despite the Great Recession, manufacturing grew by 17.6 percent, or about 2.2 percent a year, from 2006 to 2013. That was only slightly slower than the overall economy.
"But even as manufacturing output was growing, jobs were shrinking. The decade from 2000 to 2010 saw “the largest decline in manufacturing employment in U.S. history,” the Ball State economists concluded. What killed those jobs? For the most part, it wasn’t trade, but productivity gains from automation. Over the decade, the report notes, productivity gains accounted for 87.8 percent of lost manufacturing jobs, while trade was responsible for just 13.4 percent."
The basic story is that we have had automation for a century. Productivity growth has always meant that fewer manufacturing workers could produce the same amount of output. In the decades of the fifties and sixties, when productivity growth was far more rapid than it has been recent years, it was associated with rising wages and low unemployment. Productivity growth is not new and is usually good for workers.
What was new in the years from 2000 to 2007, when we lost over 3 million manufacturing jobs, was the explosion in the trade deficit.Add a comment
That would be news for Republicans in Congress. The vast majority of the tax cuts they are pushing would go to the richest ten percent of the population, with close to half going to the richest one percent. It is very misleading to describe them as proponents of a big middle-class tax cut.Add a comment
The NYT wants us to mourn the plight of business people in Denmark. As the headline tells readers, "Danish companies seek to hire, but everyone is working." The article then gives the assessment of several business owners and managers, as well as the director of labor market policy at the Confederation of Danish Industry, that the country simply doesn't have enough workers.
They all explain that they can't find workers with the skills they need and that this is causing them to lose business, thereby curtailing growth. It even tells us why raising wages won't work, recounting the experience of Peter Enevoldsen, a manager at a company that make precision tractor parts:
"He offered a salary bump of more than 2 percent, but raising wages further would crimp his margins."
Actually, this is the way an economy is supposed to work. If Mr. Enevoldsen can't pay the market wage and still get business, then he should not get that business. Firms that can pay the market wage and still make a profit obviously can use the labor more productively.
This is why most of the U.S. workforce is not still employed in agriculture. Workers had the opportunity to get better paying jobs in manufacturing. If farmers could not pay a comparable wage, then they lost workers and might have to shut down. This is the same sort of story that some Danish firms apparently now face. This is hardly a crisis, it is capitalism.
It also is of little significance that a limited supply of labor might limit growth. There is little reason for people to be concerned about aggregate growth, what they care about is improvements in their standard of living and for most people this will happen more quickly in a tight labor market.
The piece also includes the information that the current 4.3 percent unemployment rate "is about as low as it can go without provoking inflation." It doesn't tell readers where it got this information. It is worth noting that estimates of the non-accelerating inflation rate of unemployment (NAIRU) are hugely unreliable, so there is little reason to assume the source for this number is correct.
The piece also invents some new history to back up this story.
"During an economic boom a decade ago, joblessness fell as low as 2.4 percent, igniting an unsustainable spiral of higher wages and prices that the government desperately wants to avoid today."
According to data from the International Monetary Fund, the inflation rate never got above 2.5 percent in the last decade. It seems a bit hard to describe this as an "unsustainable spiral of higher wages and prices."
I suppose this piece is at least better than some of the NYT's past coverage of Denmark. A few years ago it was warning that no one was working in Denmark because of its overly generous welfare state. An earlier piece warned that Denmark could slip into a Greece-like crisis. So, at least seems to be looking up a bit for the country.Add a comment
The Washington Post left a very important fact out of an article on Republican efforts to ban voluntary state sponsored retirement plans. The Republicans are trying to make such plans impractical by reversing a Labor Department ruling that exempted employers with workers contributing to the plans from being subject to ERISA provisions. The basis for the Labor Department ruling is that the employers are simply mailing in a check on a worker's behalf, not running a plan.
The Republicans in Congress who want to insist that ERISA rules apply to employers, making it a substantial burden on them, say that they are doing it to protect workers' savings. These are the same people who are trying to reverse the Fiduciary Rule, which requires investment advisers act in the best interest of their clients, and to gut the Consumer Financial Protection Bureau.
Anyhow, the Post neglected to mention the difference in fees between 401(k)s and the state-sponsored plans. The average fee on 401(k) is around 1.0 percent of the money in a worker's account. Many plans charge more than 1.5 percent. By contrast, state sponsored plans are likely to have fees in the range of 0.2–0.3 percent.
The difference can easily come to $30,000 over the course of a middle-income worker's career. This is money that is being transferred from workers to the financial industry. Most people would likely consider this a substantial sum of money. It should have been noted in this piece.Add a comment
Apparently the paper is confused on this issue since it headlined a front page piece on the budget, "Trump budget sets up clash over ideology within G.O.P." The article lays out this case in the fourth paragraph:
"He [Trump] also set up a battle for control of Republican Party ideology with House Speaker Paul D. Ryan, who for years has staked his policy-making reputation on the argument that taming the budget deficit without tax increases would require that Congress change, and cut, the programs that swallow the bulk of the government’s spending — Social Security, Medicare and Medicaid."
Most of us recognize Donald Trump and Paul Ryan as politicians who hold their jobs as a result of being able to gain the support of important interest groups. It really doesn't make much difference what their political philosophy is. Contrary to what the NYT might lead us to believe, this is not a battle of political philosophy, it is a battle over money.
On this score, the NYT also gets matters seriously confused. First of all, it is wrong to describe Social Security, Medicare, and Medicaid as "the programs that swallow the bulk of government spending." Under the law, Social Security can only spend money raised through its designated taxes, either currently or in the past. For this reason, it is not a drain on the rest of the budget unless Congress changes the law.
Medicaid would also not rank among the three largest programs. The government is projected to spend $592 billion this year on the military compared to $401 billion on Medicaid.
The claim that Paul Ryan is concerned that these programs would "swallow the bulk of government spending" directly contradicts everything Paul Ryan has been explicitly advocating for years. Ryan has repeatedly put forward budgets that would reduce the size of the federal government to zero outside of the military, Social Security, Medicare, and Medicaid. (See Table 2 in the Congressional Budget Office's analysis.) It is difficult to understand how a major newspaper can so completely misrepresent a strongly and repeatedly stated view of one of the country's most important political figures.Add a comment
One of the candidates for Treasurer in North Carolina is proposing to the dump the investment advisors, private equity fund managers and hedge managers who all control a portion of the state's $100 billion public pension funds. Instead he proposes to do simple indexing of the pension fund assets. The lower costs could raise returns by as much as 1.0 percentage point a year.
This is huge money for the state. It is also huge money for Wall Street. That 1.0 percent comes to $1 billion a year of pure waste that goes into the pockets of Wall Street types. Add this up across all the state and local pension funds and we are talking about somewhere on the order of $60 billion a year being drained from taxpayers' pockets to make the Wall Street crew richer.
This is the sort of thing that would concern economists if they were interested in efficiency, instead of just redistributing upward.Add a comment
It might have been helpful if the Post made this point in a piece reporting on Republican efforts to replace the Affordable Care Act (ACA). The piece noted an article by National Economic Council aide Brian Blase, written before he joined the administration, that referred to the "need to reduce government bias towards comprehensive coverage."
This bias is hardly an accidental. The vast majority of people are relatively healthy with low medical expenditure. These people would be well-served in most cases with very high deductible policies that cost little. However, this would make the policies purchased by the roughly 10 percent of the population (33 million people) with high expenses extremely expensive.
The major goal of the ACA was to make it possible for people who really need health insurance because of serious medical conditions to be able to afford it. Eliminating the requirement for comprehensive insurance for healthy people will make health insurance unaffordable for tens of millions of people.Add a comment
The NYT had a front page article reporting on Donald Trump's plan to increase military spending and to make cuts in other areas to cover the costs. The piece told readers:
"Mr. Trump will demand a budget with tens of billions of dollars in reductions to the Environmental Protection Agency and State Department, according to four senior administration officials with direct knowledge of the plan. Social safety net programs, aside from the big entitlement programs for retirees, would also be hit hard."
It's not clear what information the piece intended to convey by referring to "tens of billions of reductions" to the EPA and State Department. The annual budget of the EPA is just over $8 billion, so this figure presumably refers to its budget over the next ten years. Since "tens of billions" presumably means at least two, Trump apparently wants a cut in the size of the agency (which is supposed to do things like ensure that the kids in Flint aren't getting lead in their drinking water) by at least a quarter. (The budget of the State Department for 2017 was $51 billion.)
It would be helpful if papers like the NYT expressed numbers in a context that made them meaningful to readers, almost none of whom has any idea of what the budgets of the EPA or State Department will be over the next decade. When she was the public editor at the NYT, Margaret Sullivan made exactly this point. She got then Washington editor David Leonhardt to agree. Apparently, this has not affected the NYT's reporting on budget issues.
This piece also asserts as a matter of fact that President Obama faced "the prospect of a second Great Depression" when he took office. While many people have made this assertion, no one has explained what would have prevented Congress from passing a large stimulus at any future point if the unemployment rate did in fact soar to the double digit levels that we would associate with a depression.
This is a very strong assertion about a decade of political behavior from people who almost without exception could not even predict the winner of the 2016 election. It would be best to qualify the assertion by noting that many people claim the country faced the prospect of a second Great Depression, rather than asserting it as a matter of fact.Add a comment
Yes, that is what he told readers in his column. In a column arguing for the need for more immigrants he referred to a figure from the National Association of Home Builders, that there are 200,000 unfilled construction jobs in the United States. Brooks then tells readers:
"Employers have apparently decided raising wages won’t work.
"Adjusting for inflation, wages are roughly where they were [before the crash], at about $27 an hour on average in a place like Colorado. Instead, employers have had to cut back on output. One builder told Reuters that he could take on 10 percent more projects per year if he could find the crews."
"Raising wages won't work." That's interesting. So if builders paid construction workers the same hourly pay rate as David Brooks, it wouldn't attract more people to the job? It's good that we have David Brooks to tell us this, because otherwise most of us wouldn't know it.
I'm going to take a pass on the larger issue of immigration here (except for the usual call for more immigrant doctors and other high end professionals), but this is just garbage. If builders paid higher wages they would get more people willing to work as construction workers. Can't Brooks make a more serious argument?Add a comment
The Associated Press ran a story, picked up by the PBS Newshour, that told readers:
"...factory jobs exist, CEOs tell Trump, skills don't."
The piece presents complaints from a number of CEOs of manufacturing companies that they can't find the workers with the necessary skills. The piece does note the argument that the way to get more skilled workers is to offer higher pay, but then reports:
"...some data supports the CEOs’ concerns about the shortage of qualified applicants. Government figures show there are 324,000 open factory jobs nationwide — triple the number in 2009, during the depths of the recession."
The comparison to 2009 is not really indicative of anything, since this was a time when the economy was facing the worst downturn since the Great Depression and companies were rapidly shedding workers. A more serious comparison would be to 2007, before the recession. The job opening rate in manufacturing for the last three months has averaged 2.5 percent, roughly the same as in the first six months of 2007, which was still a period in which the sector was losing jobs.
According to the Bureau of Labor Statistics, average hourly earnings of production and non-supervisory workers in manufacturing has risen by 2.4 percent over the last year. This means that manufacturing firms are not acting in a way consistent with employers having trouble finding workers. This suggests that if there is a skills shortage it is among CEOs who don't understand that the price of an item in short supply, in this case qualified manufacturing workers, is supposed to increase.Add a comment
Neil Irwin has a good piece this morning discussing the evidence on the economy's growth potential. As he points out, the key question is how much slack remains in the economy. The key issue in this debate is the extent to which we can expect employment to rise.
Most of the debate deals with the extent to which we can expect more people to enter the labor market. The current 4.8 percent unemployment rate is reasonably low by any measure. While it can go somewhat lower, that will not allow for much further expansion of the economy. The bigger question is the extent to which we should expect people who are not in the labor force, meaning they are neither working nor actively looking for work, to come back into the labor force if the job market improved. On this point, there is considerable debate.
The basic story is straightforward, if we focus exclusively on prime-age workers (ages 25–54), the labor force participation rates are close to 2.0 percentage points below pre-recession levels and 4.0 percentage points below 2000 peaks. Those who insist that we are near full employment argue that this is pretty much the best we can do and that these drops are permanent. Those like myself, who think we can do much better, argue that we should be able to return to past rates of labor force participation rates (LFPR) among prime-age workers.
In this respect, I would like to enlist the help of the ghost of forecasters past. The figure below shows projections of prime-age LFPR for men from the Congressional Budget Office (CBO) and the Bureau of Labor Statistics (BLS).
Source: CBO and BLS.
The first bar is a projection CBO made in 2000 for 2008. It projected a LFPR for 2008 of 90.9 percent. The second projection is also from CBO. In 2007 it projected a LFPR for prime-age men in 2014 of 90.5 percent. The third bar is a 2007 projection from BLS for 2016. It projected a LFPR for prime-age men of 91.3 percent. This compares to an actual LFPR last year of 88.5 percent, almost three full percentage points lower.Add a comment