The Wall Street Journal ran a piece on how some companies are unable to fill positions even when more than 14 million workers are unemployed. The article indicates that the management personnel used as sources are either not competent or not being truthful.
All the people used as sources for the article complained that they were unable to find qualified workers. For example, Josh Williams, the chief executive of Gowalla, a social networking start-up, is quoted complaining that: "most people we want are employed somewhere already. We don't get a lot of applications coming in."
The way employers are supposed to deal with this situation is to offer a higher wage than their competitors in order to attract away good workers. Apparently Mr. Williams has not thought of this approach.
Later, the article comments on the experience of Toll Brothers Inc., a major builder. It cites a senior vice president of human resources, who claims that it has taken six months to find qualified applicants for some of its IT and Web developer openings. Here also, raising the offered wage likely would have reduced the search time substantially.
It will always be the case that employers will have difficulty attracting skilled workers to positions where they are offering below market wages. This seems to be the problem identified in this article, not a lack of qualified workers.Add a comment
Edward Glaeser is full of praise for the reign of Chicago Mayor Richard Daley. Among the items that he gives Daley credit for is a build-everywhere construction policy that Glaeser credits with keeping housing in Chicago affordable. He reports that the average condominium is about 30 percent cheaper in Chicago than in either New York or Boston.
Much of the reason for lower house prices in Chicago than in New York or Boston is that its housing market took a sharper plunge with the collapse of the housing bubble than in the other two cities. Prices were already lower in Chicago at the start of Daley's tenure in 1989, however they increased by an almost identical amount as in Boston through the peak of the bubble in the summer of 2006 (137 percent for Chicago versus 138 percent for Boston), although the cumulative rise was 21 percentage points less than New York's 158 percent. The biggest difference in housing costs between the three cities stems from the fact that house prices fell 27.8 percent from their peak in Chicago, compared to 21.0 percent in New York and just 14.0 percent in Boston.
It is not clear that Daley's housing policy can be blamed for the greater volatility in Chicago's house prices and it is always possible that the prices will fall more rapidly in New York and Boston going forward. However, if Glaeser had written his piece at the peak of the bubble, it would not have been possible to highlight lower housing costs in Chicago as one of the benefits of Daley's tenure.Add a comment
We have been treated to articles in the Post and elsewhere about how employers can't find qualified workers even though the unemployment rate remains near double-digit levels. The Washington Post editorial page gave us new evidence for this claim in an editorial that said there was at least some truth to claims that the Fed's quantitative easing policy was responsible for higher food prices in Egypt and elsewhere.
The editorial tells readers:
"International commodity prices are set in dollars, so QEII means more dollars chasing the same supply of goods. The Food and Agricultural Organization calls the dollar's post-September 2010 weakening a "leading factor" in commodity inflation."
Both parts of this are wrong. Yes, food commodities, like other commodities, are typically traded in dollars, but this means absolutely zero in terms of food price inflation in other countries unless their governments have made a decision to link their currency to the dollar.
This one is easy to see. Suppose that the Fed's action reduces the value of the dollar by 10 percent so that the price of wheat goes from $5.00 to $5.50 a bushel. That might sound like a 10 percent increase in the price of food. However, if the value of the dollar has fallen by 10 percent measured in wheat, it should also fall by 10 percent measured in Chinese yuan, Indian rupees, and Egyptian pounds. This means that there is no change in the price of wheat for people in these countries. (This is not true if the country has linked its currency to the dollar, but then the blame for higher food prices lies in this decision to link the currency, not the Fed's actions.)
Of course, some food is sold under long-term contracts, which will usually be written in dollar terms. In this case, the people of Egypt or other countries will get cheaper food as a result of a weakening of the dollar.
The second part of the Post's story is also wrong since there is little evidence of any decline in the dollar associated with QEII. The Fed's data show the dollar falling a bit less than 3.0 percent in the months since QEII was announced. That is about the same decline as we saw the prior four months, so there does not seem to be much case of a plunge in the dollar due to QEII.
In short, the fact that food is priced in dollars does not affect the cost of food in Egypt and the dollar did not fall because of QEII, so there is not much of a case here. In fairness, the Post recognized that QEII was not the main cause of higher food prices, but it was wrong to treat it as any part of the cause, except insofar as it boosted growth in the U.S. In that way, the Fed would be as much to blame for higher food prices as Microsoft and Facebook if they announced a huge new investment plan.Add a comment
The NYT had an article warning that the reputation of Mervyn King, the head of the Bank of England, is being damaged by the increase in inflation there. It says that the status of other central bankers are suffering for the same reason.
While the modest increase in the inflation rate in many countries may have some negative impact on the standing of central bankers, their failure to stem the housing bubbles that brought on the worst downturn since the Great Depression would be a more obvious explanation for their loss of status. According to the claims of many, including central bankers like Federal Reserve Board Chairman Ben Bernanke, their mismanagement actually brought many economies to the edge of a second Great Depression. While this claim is not true, it is widely believed. Most people would consider a second Great Depression to be a considerably more serious issue than 3.5 percent inflation.Add a comment
Robert Samuelson wants the United States to increase domestic oil production to insulate itself from political unrest in the Middle East and other oil producing regions. There is a fundamental flaw in this logic. If the United States increases its production of oil at a time when it is still readily available from elsewhere in the world, then it would not be available if the United States was subsequently cut off from foreign sources of oil.
For example, the Energy Information Agency estimated that it would take 5-10 years to bring the Arctic Wildlife refuge to peak production of 1 million barrels a day. It could sustain this rate of output for roughly 10 years and then phase down to zero over the next 10-20 years. This means that if we had begun producing oil from the area in the early 90s, as many had advocated, the flow of oil from the region would already be passed its peak and on the way down.
The same logic applies to any domestic drilling. If anyone wants to increase U.S. energy independence in the event of a sudden cutoff of oil, they should be urging less domestic production, not more.Add a comment
Jacob Lew, the head of President Obama's Office of Management and Budget, had a column in the New York Times that should really scare the American people. While the purpose of the column was ostensibly to tell the American people that there are few easy budget cuts left, the scary part is that Mr. Lew seems to have little understanding of the economy.
Lew boasts about the huge budget surplus at the end of the Clinton administration. He shows no understanding of the fact that these surpluses were largely the result of a stock bubble, which was inevitably going to burst. The story of the economy's growth at that point was that the $10 trillion stock bubble fueled a consumption boom, which led to strong economic growth.
Of course the bubble was not sustainable, when it burst, the consumption it supported also disappeared. We only recovered from the recession when the housing bubble created enough demand to replace the demand lost from the collapse of the stock bubble.
The underlying problem was the over-valued dollar. This was a conscious policy of the Treasury Secretary Robert Rubin, who actively pushed a "strong dollar" policy. This policy effectively gave a large subsidy to imports and imposed a large tax on U.S. exports. The result was a huge U.S. trade deficit.
Given a large trade deficit, the economy needs either large government deficits or very low private savings to sustain high levels of employment. This is not a partisan issue; it is an accounting identity.
Mr. Lew shows no understanding of this basic point. Either this top Obama official is ignorant of basic economics or he is not being honest with the American people. Either way, it is an incredibly scary column.Add a comment
That is what readers of an article on inflation in Argentina would likely conclude. The article tells readers that Argentina's government: "has tried to quell concerns about mounting inflation by continuing to keep the economy growing at China-like rates."
The implication is that having China-like growth rates is a silly distraction from inflation. In fact, China-like growth rates create the possibility of enormous improvements in living standards. Most countries would be delighted to have growth rates half as fast as China has been able to maintain over the last three decades or that Argentina has sustained since 2002. The problem of even relatively high rates of inflation seem small by comparison. In fact, the reason why economists view inflation as a problem is that it can lead to slower growth.
This article is also somewhat confused in trying to describe the problem that inflation is causing in Argentina. It claims that wages are not keeping up with food prices, but that is not the relevant issue. The question is whether wages have kept pace with inflation. The article does not address this issue.
The article includes a quote from Domingo Cavallo that is highly critical of the government. Cavallo is identified only as "a former economy minister." It would have been worth pointing out to readers that Mr. Cavallo was the minister who designed the policies that led to Argentina's crisis in 2001-2002. The Kirchners' government broke sharply with Mr. Cavallo's policies setting Argentina on a path of solid growth. Without this information, readers might think that Cavallo was a disinterested commentator on the economic situation.Add a comment
The NYT told readers that:
"While a jobless rate in single digits would be cause for celebration in many countries, in Germany it is the sign of a critical lack of workers."
Actually, for the vast majority of people in Germany a low unemployment rate is cause for celebration because most of them work for a living. A low unemployment rate both means that they are likely to be able to find work and that they will be in a position to get pay increases through time.
This 2-page article actually presents zero evidence for its claim that Germany is faced with a "critical lack of workers." It reports that:
"employers in many sectors of the German economy are facing labor shortages, under the dual pressures of an aging population and inflation-fighting measures that have kept wages low in comparison with its neighbors."
This is evidence of not very competent employers. If they need workers and can't get them, then the answer is to raise wages. People who run businesses should understand this logic. (It's not clear why "inflation-fighting measures" would keep a business from paying its workers the market wage.)
Some businesses will not be able to pass on higher wages in higher prices. This will squeeze profit margins and might force them out of business. This is the way a market economy works. Workers move from low productivity sectors to high productivity sectors. It is not clear why anyone would think of this as a crisis, although the employers who go out of business are probably not happy.
The article also goes on to complain about worker shortages due to low birth rates and limited immigration. If there are fewer workers this just means that the least productive jobs go unfilled. There will be fewer people working as store clerks in convenience stores, housekeepers in hotels, or as parking lot attendants. There is no obvious economic problem associated with workers moving into more productive occupations.Add a comment
Most of the news reports on the January employment report expressed confusion over the seeming contradiction between the 0.4 percentage point plunge in the unemployment rate shown by the survey of households and the weak 36,000 job growth reported by the establishment survey. The drop in unemployment in the household survey was the result of a reported increase in employment of 589,000, after adjusting for changes in population controls. This difference is actually not very confusing to people familiar with the data.
The household survey is always erratic. It effectively is measuring the level of total employment in the economy. Even if it is off by just 0.2 percent, this implies an error of almost 300,000. If it errors by this much on the high side one month and then by an equal amount on the low side the following month, it would imply a drop in employment of 600,000 in a context where there was no actual change in employment. Looking back over the last two decades it is easy to find months with large changes in employment that did not coincide with any obvious upturns or downturns in the economy.
For example, in April of 2007 the survey showed a drop in employment of 724,000 at a time when the economy was still showing healthy growth. In May of 2000, also a period of healthy growth, the survey showed a fall in employment of 640,000.
For some reason, probably associated with the difficulty of seasonal adjustments, January is especially prone to show such out of line numbers. In January of 1992, 1994, and 1997, the household survey showed gains in employment (not counting any population control effects) of 512,000, 502,000, and 438,000, respectively. The economy was growing in each of these months, but certainly not at a pace that would be consistent with the creation of 5-6 million jobs a year. In January of 2000, the employment gain (adjusted for the change in controls) was 784,000, which would imply an annual rate of job creation of more than 9 million.
This is why economists familiar with the two surveys tend to rely much more on the establishment survey. This survey is benchmarked every year to the state unemployment insurance data, which is a virtual census since it covers nearly all employers in the country. The establishment survey effectively measures changes rather than levels. There are reasons that it can be inaccurate as well (most importantly in picking up jobs in newly created firms), but the error is likely to be measured in the tens of thousands, not hundreds of thousands.
Those desiring a third source of data on labor market could have looked to the data on unemployment insurance filings. The 4-week average stands at 430,000. The economy did not start generating jobs on a consistent basis following the last recession until claims fell below 400,000. A weekly average of 430,000 new claims is certainly inconsistent with the sort of extraordinary job growth implied by the household data.
National Public Radio deserves special blame for misleading its audience on this one. It told listeners that the economy was actually generating jobs quite rapidly, except for the jobs that involve outdoor work where growth was constrained by the weather. The data don't support this picture. While construction (an outdoor occupation) did lose 32,000 jobs, finance lost 10,000 and information services loss 1,000. Even health care showed very weak growth, adding just 10,600 jobs, less than half the average increase over the last year.
NPR ironically chose to focus on the courier industry as an especially affected outdoor industry, since it reportedly lost 44,800 jobs in January. However, the reporter apparently missed the fact that the number of jobs in this industry had jumped by an anomalous 46,100 in December. This means the job loss shown in January was most likely just reversing some unusual circumstances that led to a surge the prior month and had little to do with January's weather.Add a comment
It doesn't seem that the business press is paying any attention to the data on unemployment claims put out by the Labor Department each week. These reports used to generally earn a small story or mention in a larger story on the release of other economic data.
The weekly data are erratic, but they do give a good current snapshot of the state of the labor market. The Labor Department reported 415,000 new claims last week, partly reversing a big jump to 457,000 claims the prior week. The 4-week average edged by 1,000 to 430,000. The economy did not start creating jobs regularly after the last recession, until claims had fallen below 400,000 in the fall of 2003.Add a comment
That might have been an appropriate headline for an article reporting on a press conference by Federal Reserve Board Chairman Ben Bernanke in which he reportedly said that employers are hiring temporary workers because they are uncertain about the future strength of the economy. In fact, in spite of recent hiring temporary employment is still down almost 15 percent from its pre-recession level.
The article also includes the comment that "critics" of Bernanke's policy of quantitative easing say that it "devalues the dollar." This is what supporters of the policy would say too. The United States has a large trade deficit. In an economy with floating exchange rates the way in which a deficit is reversed is through a decline in the value of the currency. That is why people to see this imbalance corrected, and see the United States borrow less from abroad, want to see the value of the dollar fall.
The implication of the view attributed to "critics" is that they want to see the United States continue to run large trade deficits and to borrow large amounts of money from abroad.Add a comment
The NYT's article on retail sales in January was headlined: "Despite Snowstorms, Many Retailers Posted Gains in January." It is important to remember that the comparison is made to January of the previous year. There are always snowstorms in the Northeast and Midwest in January. This is only a factor in the data if the snowstorms were worse than normal. That would not obviously be the case for January of this year.
Btw, it is worth noting that the retail chain store reports are of less value than they had been in prior years because Wal-Mart, which accounts for more than half of chain store sales, no longer reports its sales monthly. Sears, which is the second largest retail chain, also does not publicly report monthly sales.
It seems the Post is also surprised by snow in January.Add a comment
The Washington Post had a major front page article highlighting the argument that the reason that the country has high unemployment is that workers don't have the skills needed for the jobs that are available. While it features comments from several employers, the only data that it presents to support this case is that the number of job openings reported by the Bureau of Labor Statistics is 900,000 higher than the low in the summer of 2009. The number of openings is still down by more than 1,000,000 from pre-recession levels. Furthermore, even if every last job opening were filled (an absurd situation, since there will always be some flux in the labor market), it would still leave almost 80 percent of the unemployed without jobs.
The anecdotal evidence from employers suggests that the problem is that people who run businesses don't understand basic economics. It presents comments from one employer who complains that he can't find workers for jobs that pay $15 an hour. This is not a very good wage. It would be difficult for someone to support themselves and their children on a job paying $15 an hour ($30,000 a year). If the company president understood economics, then he would raise wages enough so that the jobs were attractive to workers who have the necessary skills.
If the economy were actually suffering from a problem of structural unemployment, then we should be seeing substantial sectors of the economy, either by region or occupation, where wages are rising rapidly. We don't see this. There is no major industry or occupational grouping where there is evidence of large pay increases. We should also see big increases in average weekly hours, as firms try to work their existing workforce harder due to the unavailability of additional workers. We don't see this either.
In other words, the data provide essentially zero support for the claim that the economy's problem is that workers don't have the right skills for the available jobs. All the evidence supports the idea that the problem is simply we have not generated enough demand (i.e. the problem is with the people who design economic policy, not with the country's workers).
Interestingly, in spite of the lack of evidence, we continue to see stories about how unemployment is structural. Rather than relying on evidence, these pieces invariably include anecdotes from employers who apparently don't understand that if you can't get the workers you need, then you must offer a higher wage.Add a comment
The NYT told readers that:
"A stronger euro blunts the effect of rising prices for oil and other commodities, which are traditionally priced in dollars." Actually, it does not matter at all that the oil and other commodities are priced in dollars, the point is that the euro has gone up in value. If the euro were to rise in value against other currencies then people in the euro zone would pay fewer euros for their oil even if oil was priced in euros.
In this story, the dollar is simply the medium of exchange. Oil is not fixed in price in dollars, the price of oil is fluctuating in dollars and all other currencies. The only question that matters is the value of the euro relative to other currencies, it doesn't matter which currency is the basis for the purchases.
The piece also includes the interesting comment that:
"German wages have not started rising to alarming levels yet, Mr. Chaney said, 'this is something that is on the radar screen.'” It is likely that most people would not be alarmed by the plausible rate of growth for German wages in the near future. The people who would find such wage growth "alarming," are likely a very small subset of NYT readers or people in Europe and the United States.Add a comment
Yeah, it's a little known market that involves every household in the country and is valued at more than $16 trillion. According to some accounts, it had something to do with the recession.
It seems the media still don't really know much about the market, otherwise we would have seen news articles on the Census Bureau's report on vacancy rates for the 4th quarter. The report showed a substantial drop in vacancy rates from both the last quarter and the fourth quarter of 2009. While vacancy rates are still at historically high levels, this is the first clear decline from the peak vacancy rates reached in 2007. Under the theory that prices are affected by the balance of supply and demand, we should not expect to see house prices finally stabilize until the vacancy rate returns to a more normal level. This report suggests that the market is finally moving toward that point, although it still has far to go.
The report also includes data on homeownership, which showed a further decline. Homeownership rates are now below their 1998 level. On an age-adjusted basis (older people are more likely to be homeowners), the bulk of the increase in ownership rates since the 1990-91 recession has now been reversed.
This information about the state of the housing market and homeownership would have been worth some mention, especially since so many politicians seem to view homeownership as being of great importance.
Addendum: It seems that the Wall Street Journal has heard of the Census Bureau.Add a comment
That is pretty much what former Obama adviser Steven Rattner had to say in the Washington Post today. In his piece, Rattner told President Obama:
"don't blame the talented economists who were advising you .... Creating jobs is a slow and frustrating process in the wake of a tough recession."
Calling the president's economic advisers "talented" is good for their self-esteem (we know how important that is), but in the real world, their talent as economists must be judged by their performance. Missing the biggest asset bubble in the history of the world (a credential shared by all of the president's economic advisers) doesn't speak well for them.
However even more important is their failure to generate jobs for the country's workers following the bubble's collapse, which has to be the top priority for economic policy. While job creation might be "hard" other countries have managed to do it. For example, Germany has managed to bring down its unemployment rate from 7.1 percent at the start of the downturn to 6.7 percent today. This was accomplished in spite of the fact that Germany actually had a steeper downturn than the United States.
Mr. Rattner's piece suggests one of the key causes of the administration's failure to generate jobs. Rattner highlights the more rapid productivity growth in the United States over the last decade than in other countries, in particular singling out Germany as country with slower growth.
While faster productivity growth is generally better than slower growth, this is not the case when an economy does not have full employment. In this context, faster productivity growth just leads to more unemployment. One of the key mechanisms that Germany has used to keep its unemployment rate down is work-sharing. This is a program where the government subsidizes firms for keeping workers on their payroll, but working fewer hours than normal.
An expected outcome of this program is lower productivity. The idea is that it is best to keep people employed, where they can still get most of their paycheck, continue to develop their skills, and maintain contacts with their fellow workers. The alternative of having them laid off would mean higher productivity in the short-term, but it could lead to millions of workers joining the long-term unemployed. It is very difficult for these workers to be subsequently re-employed, therefore leading to permanent losses to the economy. Of course a prolonged period of unemployment is also likely to be devastating to the unemployed workers and their families.
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The NYT reports on how rising prices and wages in China are dampening demand for its exports. The article presents rising prices in China as an alternative mechanism to a revaluation of the yuan (devaluation of the dollar) for reducing the U.S. trade deficit with China.While the assessment in the article is largely anecdotal, if it is correct then its suggest that those who advocated a higher yuan as a cure to the trade deficit were correct. The NYT and other media outlets had generally presented this as a debatable point. It would have been worth noting that those who argued that trade would not respond significantly to changes in relative prices appear to be wrong. Add a comment