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Beat the press por Dean Baker

Beat the Press is Dean Baker's commentary on economic reporting. He is a Senior Economist at the Center for Economic and Policy Research (CEPR). To never miss a post, subscribe to a weekly email roundup of Beat the Press. Please also consider supporting the blog on Patreon.

The current level of spending of roughly $500 billion a year comes to more than $1,500 for every person in the country.
The current level of spending of roughly $500 billion a year comes to more than $1,500 for every person in the country.
As a big fan of the original Star Trek, I have to confess that it was kind of neat to see Captain Kirk actually go into space. But there is a real issue here about the silly games of the super-rich that is worth some thought. There have been numerous stories and papers about the […]
As a big fan of the original Star Trek, I have to confess that it was kind of neat to see Captain Kirk actually go into space. But there is a real issue here about the silly games of the super-rich that is worth some thought. There have been numerous stories and papers about the […]
Yeah, I know it’s getting boring that I keep repeating this, but when there are many trillions of dollars at stake, it seems worth killing a few electrons. Any serious discussion of the burden of the debt must also talk about the trillions of dollars of patent and copyright rents that the government is committing […]
Yeah, I know it’s getting boring that I keep repeating this, but when there are many trillions of dollars at stake, it seems worth killing a few electrons. Any serious discussion of the burden of the debt must also talk about the trillions of dollars of patent and copyright rents that the government is committing […]

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That’s the question millions are asking, even if economic reporters are not. The classic story of a wage-price spiral is that workers demand higher pay, employers are then forced to pass on higher wages in higher prices, which then leads workers to demand higher pay, repeat.

We are seeing many stories telling us that this is the world we now face. A big problem with that story is the profit share of GDP has actually risen sharply in the last two quarters from already high levels.

 

The 12.4 percent profit share we saw in the second quarter is above the 12.2 percent peak share we saw in the 00s, and far above the 10.4 percent peak share in the 1990s. In other words, it hardly seems as though businesses are being forced by costs to push up prices. It instead looks like they are taking advantage of presumably temporary shortages to increase their profit margins.

This doesn’t mean that some businesses are not in fact being squeezed. We are seeing rapidly rising wages for low-paid workers. That is putting a strain on many restaurants and other businesses that pay low wages.

That is unfortunate for them, but this is the way capitalism works. The reason we don’t still have half our population working on farms is that workers had the opportunity to work at higher-paying jobs in manufacturing. If workers now have the option to work at better-paying jobs, the restaurants that can adapt to higher pay will stay in business, but some obviously will not.

That’s the question millions are asking, even if economic reporters are not. The classic story of a wage-price spiral is that workers demand higher pay, employers are then forced to pass on higher wages in higher prices, which then leads workers to demand higher pay, repeat.

We are seeing many stories telling us that this is the world we now face. A big problem with that story is the profit share of GDP has actually risen sharply in the last two quarters from already high levels.

 

The 12.4 percent profit share we saw in the second quarter is above the 12.2 percent peak share we saw in the 00s, and far above the 10.4 percent peak share in the 1990s. In other words, it hardly seems as though businesses are being forced by costs to push up prices. It instead looks like they are taking advantage of presumably temporary shortages to increase their profit margins.

This doesn’t mean that some businesses are not in fact being squeezed. We are seeing rapidly rising wages for low-paid workers. That is putting a strain on many restaurants and other businesses that pay low wages.

That is unfortunate for them, but this is the way capitalism works. The reason we don’t still have half our population working on farms is that workers had the opportunity to work at higher-paying jobs in manufacturing. If workers now have the option to work at better-paying jobs, the restaurants that can adapt to higher pay will stay in business, but some obviously will not.

I didn’t expect to write again about Powell being reappointed as Fed chair. I had expected that Biden would have made a pick by now, but here we are. Now that Larry Summers has condemned the “woke” Fed for failing to crack down on inflation, it seems worth recapping what is at issue.

What we are seeing right now is a Federal Reserve Board that is doing the right thing in the face of the hysteria of its critics. The critics want to see it move rapidly to slow the economy so that they can again get good help cheap. Specifically, they would like to see the Fed end its quantitative easing program (buying bonds and other assets) and raise the short-term interest rate it controls, in order to reduce demand in the economy.

Higher interest rates will slow the economy by making it more expensive for people to buy homes and cars since they now have to pay a higher interest rate on their mortgages and car loans. Higher interest rates will also end a boom in mortgage refinancing that has saved homeowners tens of billions of dollars in interest payments. The arithmetic on this is straightforward. If someone had a $250,000 mortgage at a 4.25 percent interest rate, and was able to refinance at 3.25 percent, they saved $2,500 on their annual interest payments by refinancing.

That’s a big deal for a middle-income family earning $80,000 a year. Some of the money saved on interest payments will go into other spending, providing another channel for boosting the economy.

Higher rates will also raise the interest burden that state and local governments would face if they want to borrow to finance items like improving infrastructure, extending broadband access, or renovating and repairing schools. And, higher interest rates can make it more difficult for companies to raise money for investment, providing another channel to slow growth and job creation.

In prior decades, the Federal Reserve Board was very quick to raise interest rates over concerns about inflation. In fact, under Greenspan, Bernanke, and Yellen, they often raised interest rates preemptively, slowing the economy and job growth even before inflation had actually begun to rise. These rate hikes were justified by appealing to the Fed’s mandate to target price stability.

However, that is only half of the Fed’s mandate in its conduct of monetary policy. It is also mandated to promote high employment. Powell has made a sharp break with his predecessors in placing an equal priority on high employment, recognizing the enormous gains to the country from maintaining low rates of unemployment.

As Powell has noted, the big winners from low rates of unemployment are those at the bottom end of the labor market – the people who face the most discrimination. When the unemployment rate gets low, as it did before the pandemic, the workers who are getting jobs are disproportionately Blacks, Hispanics, people with less education, the disabled, and people with criminal records. These are workers that employers often avoid hiring when the unemployment rate is high, but in a tight labor market they have to look to hire workers they would not otherwise consider employing.

Tight labor markets also make it possible for tens of millions of workers at the middle and bottom to achieve real wage gains. For most of the last four decades, real wages for workers at the middle and bottom stagnated, as most of the gains from productivity growth went to those at the top end of the income distribution. But when labor markets got tight, in the 1990s boom and in the years just before the pandemic recession, workers at the middle and bottom saw rising real wages.

This is also the case today, as workers in many low-paying sectors, like hotels and restaurants, are seeing substantial wage gains as employers must compete for their labor. This is the problem that Larry Summers and many others want the Fed to address. They want it to jack up interest rates, to slow the economy, and take away the bargaining power these workers now have.

Thankfully, Powell is still standing tight in his commitment to high employment. This is even as supply chain disruptions are creating shortages of some items and leading to higher inflation in many areas.

Powell is pursuing the policy that many progressives have demanded from the Fed for decades. Some of us thought that this would give him a lock on being reappointed by a president who ostensibly is committed to increasing workers’ pay and bargaining power. Incredibly, many progressives are now pushing hard to deny Powell a second term as Fed chair.

The Case Against Powell

The issues mostly raised are Powell’s stance on financial regulation and global warming. On the former front, people have pointed to several actions where Powell has supported measures to weaken bank regulation. To my view, these have been mistakes, but Powell has always deferred to the Fed governor responsible for overseeing the Fed’s regulatory powers.

Until 2017, that was Daniel Tarullo, a pro-regulation Democrat appointed by President Obama. In the last four years, the governor overseeing the Fed’s regulatory actions had been Randal Quarles, an anti-regulation Republican appointed by Trump. Quarles’ term ended Wednesday, which seems to beg the question, why hasn’t Biden nominated a pro-regulation replacement. FWIW, Powell has testified to his intention to continue to defer to the governor responsible for regulatory oversight in his future votes.

It is also worth pointing out that the Fed’s actions on regulation are far less consequential than its actions on monetary policy. While it is important to minimize waste and abuses in the financial sector, we have other regulatory bodies. Also, the consequences of a poorly regulated financial system are not nearly as dire as the consequences of a Fed that needlessly throws millions of people out of work to stem inflationary fears.

Some progressives have exaggerated the importance of regulation because they misunderstand the cause of the Great Recession. The story there is a simple one, we had a massive housing bubble that was driving the economy. Its collapse was certain to lead to a sharp downturn. This recognition did not require great regulatory scrutiny, it required that people look at the GDP reports that the Commerce Department publishes every three months.

As someone who warned about the crash long before it happened, I appreciate being lectured on the importance of regulation by people who were caught by surprise. But, I am used to the way things work in Washington.

The other big item in the case against Powell is his actions, or lack thereof, on climate change.[1] It would be great to have a central bank that was acting aggressively to try to reduce greenhouse gas emissions. While it may be possible to read this responsibility into the Fed’s mandate, it is very clear that Congress has not explicitly given the Fed this role.

The idea that the Fed could somehow have taken major steps to stop the flow of capital to fossil fuel companies, without a major reaction from Congress, is more than a bit far-fetched. It is even more far-fetched to think that a new nominee for Fed chair, with an explicit commitment to using the Fed’s power to try to rein in greenhouse gas emissions, would be approved by a 50-50 Senate.

We absolutely need to act quickly to slow global warming, but assigning imaginary powers to government agencies will not do the trick. The Fed can use its research capabilities in a productive way to call attention to the costs that many in the economy will be forced to bear if global warming is not checked, but it is not going to provide a backdoor to get around a Congress that is not prepared to act.

Reappoint Powell Now

In short, to my view the case for reappointing Powell is overwhelming. I wish that Biden would put the guessing game to an end now and reinforce Powell in his effort to hold the line against the inflation hawks. But, of course, I argued for reappointing Powell “now” several months back as well. Biden should also appoint a solid regulator to fill Quarles’ position, such as current governor Lael Brainard or former governor, and Deputy Treasury Secretary, Sarah Bloom Raskin.

President Biden will face many tough calls in his presidency. Reappointing Powell should not be one of them.

[1] I know some folks have dug up other responsibilities of the Fed as well. As far as I know, Powell has not done a good job of keeping the sidewalks on Constitution Avenue clean after a snowstorm. I would not recommend Biden consider that in his decision to reappoint Powell.

I didn’t expect to write again about Powell being reappointed as Fed chair. I had expected that Biden would have made a pick by now, but here we are. Now that Larry Summers has condemned the “woke” Fed for failing to crack down on inflation, it seems worth recapping what is at issue.

What we are seeing right now is a Federal Reserve Board that is doing the right thing in the face of the hysteria of its critics. The critics want to see it move rapidly to slow the economy so that they can again get good help cheap. Specifically, they would like to see the Fed end its quantitative easing program (buying bonds and other assets) and raise the short-term interest rate it controls, in order to reduce demand in the economy.

Higher interest rates will slow the economy by making it more expensive for people to buy homes and cars since they now have to pay a higher interest rate on their mortgages and car loans. Higher interest rates will also end a boom in mortgage refinancing that has saved homeowners tens of billions of dollars in interest payments. The arithmetic on this is straightforward. If someone had a $250,000 mortgage at a 4.25 percent interest rate, and was able to refinance at 3.25 percent, they saved $2,500 on their annual interest payments by refinancing.

That’s a big deal for a middle-income family earning $80,000 a year. Some of the money saved on interest payments will go into other spending, providing another channel for boosting the economy.

Higher rates will also raise the interest burden that state and local governments would face if they want to borrow to finance items like improving infrastructure, extending broadband access, or renovating and repairing schools. And, higher interest rates can make it more difficult for companies to raise money for investment, providing another channel to slow growth and job creation.

In prior decades, the Federal Reserve Board was very quick to raise interest rates over concerns about inflation. In fact, under Greenspan, Bernanke, and Yellen, they often raised interest rates preemptively, slowing the economy and job growth even before inflation had actually begun to rise. These rate hikes were justified by appealing to the Fed’s mandate to target price stability.

However, that is only half of the Fed’s mandate in its conduct of monetary policy. It is also mandated to promote high employment. Powell has made a sharp break with his predecessors in placing an equal priority on high employment, recognizing the enormous gains to the country from maintaining low rates of unemployment.

As Powell has noted, the big winners from low rates of unemployment are those at the bottom end of the labor market – the people who face the most discrimination. When the unemployment rate gets low, as it did before the pandemic, the workers who are getting jobs are disproportionately Blacks, Hispanics, people with less education, the disabled, and people with criminal records. These are workers that employers often avoid hiring when the unemployment rate is high, but in a tight labor market they have to look to hire workers they would not otherwise consider employing.

Tight labor markets also make it possible for tens of millions of workers at the middle and bottom to achieve real wage gains. For most of the last four decades, real wages for workers at the middle and bottom stagnated, as most of the gains from productivity growth went to those at the top end of the income distribution. But when labor markets got tight, in the 1990s boom and in the years just before the pandemic recession, workers at the middle and bottom saw rising real wages.

This is also the case today, as workers in many low-paying sectors, like hotels and restaurants, are seeing substantial wage gains as employers must compete for their labor. This is the problem that Larry Summers and many others want the Fed to address. They want it to jack up interest rates, to slow the economy, and take away the bargaining power these workers now have.

Thankfully, Powell is still standing tight in his commitment to high employment. This is even as supply chain disruptions are creating shortages of some items and leading to higher inflation in many areas.

Powell is pursuing the policy that many progressives have demanded from the Fed for decades. Some of us thought that this would give him a lock on being reappointed by a president who ostensibly is committed to increasing workers’ pay and bargaining power. Incredibly, many progressives are now pushing hard to deny Powell a second term as Fed chair.

The Case Against Powell

The issues mostly raised are Powell’s stance on financial regulation and global warming. On the former front, people have pointed to several actions where Powell has supported measures to weaken bank regulation. To my view, these have been mistakes, but Powell has always deferred to the Fed governor responsible for overseeing the Fed’s regulatory powers.

Until 2017, that was Daniel Tarullo, a pro-regulation Democrat appointed by President Obama. In the last four years, the governor overseeing the Fed’s regulatory actions had been Randal Quarles, an anti-regulation Republican appointed by Trump. Quarles’ term ended Wednesday, which seems to beg the question, why hasn’t Biden nominated a pro-regulation replacement. FWIW, Powell has testified to his intention to continue to defer to the governor responsible for regulatory oversight in his future votes.

It is also worth pointing out that the Fed’s actions on regulation are far less consequential than its actions on monetary policy. While it is important to minimize waste and abuses in the financial sector, we have other regulatory bodies. Also, the consequences of a poorly regulated financial system are not nearly as dire as the consequences of a Fed that needlessly throws millions of people out of work to stem inflationary fears.

Some progressives have exaggerated the importance of regulation because they misunderstand the cause of the Great Recession. The story there is a simple one, we had a massive housing bubble that was driving the economy. Its collapse was certain to lead to a sharp downturn. This recognition did not require great regulatory scrutiny, it required that people look at the GDP reports that the Commerce Department publishes every three months.

As someone who warned about the crash long before it happened, I appreciate being lectured on the importance of regulation by people who were caught by surprise. But, I am used to the way things work in Washington.

The other big item in the case against Powell is his actions, or lack thereof, on climate change.[1] It would be great to have a central bank that was acting aggressively to try to reduce greenhouse gas emissions. While it may be possible to read this responsibility into the Fed’s mandate, it is very clear that Congress has not explicitly given the Fed this role.

The idea that the Fed could somehow have taken major steps to stop the flow of capital to fossil fuel companies, without a major reaction from Congress, is more than a bit far-fetched. It is even more far-fetched to think that a new nominee for Fed chair, with an explicit commitment to using the Fed’s power to try to rein in greenhouse gas emissions, would be approved by a 50-50 Senate.

We absolutely need to act quickly to slow global warming, but assigning imaginary powers to government agencies will not do the trick. The Fed can use its research capabilities in a productive way to call attention to the costs that many in the economy will be forced to bear if global warming is not checked, but it is not going to provide a backdoor to get around a Congress that is not prepared to act.

Reappoint Powell Now

In short, to my view the case for reappointing Powell is overwhelming. I wish that Biden would put the guessing game to an end now and reinforce Powell in his effort to hold the line against the inflation hawks. But, of course, I argued for reappointing Powell “now” several months back as well. Biden should also appoint a solid regulator to fill Quarles’ position, such as current governor Lael Brainard or former governor, and Deputy Treasury Secretary, Sarah Bloom Raskin.

President Biden will face many tough calls in his presidency. Reappointing Powell should not be one of them.

[1] I know some folks have dug up other responsibilities of the Fed as well. As far as I know, Powell has not done a good job of keeping the sidewalks on Constitution Avenue clean after a snowstorm. I would not recommend Biden consider that in his decision to reappoint Powell.

Many in the media are very upset that workers at the bottom end of the pay scale feel secure enough to demand higher pay and better working conditions. Yesterday, I had the pleasure of watching a television anchor, who earns $6 million a year, complain that 3 percent of the workforce quit their job in August. They seemed to find the idea of workers quitting unsatisfactory jobs appalling.

For those of us who think that all workers should be able to get decent pay, have decent working conditions, and be treated with respect on the job, the idea that large numbers of workers now feel they can quit jobs they don’t like is really great news. And, the increased labor market power for those at the bottom of the ladder is showing up in higher pay.

Here’s the story for production and non-supervisory workers in six of the lowest-paying industries. Note, these numbers are adjusted for inflation, so they take account of the extent to which higher prices have reduced purchasing power since the start of the pandemic.

Source: Bureau of Labor Statistics and author’s calculations.

The biggest gains were for workers in hotels and convenience stores who have seen their inflation-adjusted hourly wage increase by 9.0 percent and 8.6 percent, respectively, since the pandemic began. Workers in restaurants have seen their hourly pay rise by 5.6 percent, while workers in nursing homes have seen their pay rise by 4.6 percent. Child care and home health care workers have seen much more limited inflation-adjusted wage gains, getting increases of 1.9 percent and 1.4 percent, respectively.

It is important to remember that these gains are over just a one-and-a-half-year period. These workers have a long way to go before they have anything resembling a livable wage, but this is impressive progress in at least some of these low-paying industries.

There has been a sharp drop in employment in both home health care and child care since the start of the pandemic. These sectors will have a hard time getting back workers unless they can offer better pay and conditions. That will be difficult for them to do without more government support, pointing again to the importance of Biden’s Build Back Better agenda.

In any case, after decades of wage stagnation for those at the middle and the bottom of the wage ladder, it’s good to see some real progress for at least some low-paid workers. The folks who have rigged the economy in their favor so they can get big bucks may not like the fact that it’s harder to get good help, but them’s the breaks.  

Many in the media are very upset that workers at the bottom end of the pay scale feel secure enough to demand higher pay and better working conditions. Yesterday, I had the pleasure of watching a television anchor, who earns $6 million a year, complain that 3 percent of the workforce quit their job in August. They seemed to find the idea of workers quitting unsatisfactory jobs appalling.

For those of us who think that all workers should be able to get decent pay, have decent working conditions, and be treated with respect on the job, the idea that large numbers of workers now feel they can quit jobs they don’t like is really great news. And, the increased labor market power for those at the bottom of the ladder is showing up in higher pay.

Here’s the story for production and non-supervisory workers in six of the lowest-paying industries. Note, these numbers are adjusted for inflation, so they take account of the extent to which higher prices have reduced purchasing power since the start of the pandemic.

Source: Bureau of Labor Statistics and author’s calculations.

The biggest gains were for workers in hotels and convenience stores who have seen their inflation-adjusted hourly wage increase by 9.0 percent and 8.6 percent, respectively, since the pandemic began. Workers in restaurants have seen their hourly pay rise by 5.6 percent, while workers in nursing homes have seen their pay rise by 4.6 percent. Child care and home health care workers have seen much more limited inflation-adjusted wage gains, getting increases of 1.9 percent and 1.4 percent, respectively.

It is important to remember that these gains are over just a one-and-a-half-year period. These workers have a long way to go before they have anything resembling a livable wage, but this is impressive progress in at least some of these low-paying industries.

There has been a sharp drop in employment in both home health care and child care since the start of the pandemic. These sectors will have a hard time getting back workers unless they can offer better pay and conditions. That will be difficult for them to do without more government support, pointing again to the importance of Biden’s Build Back Better agenda.

In any case, after decades of wage stagnation for those at the middle and the bottom of the wage ladder, it’s good to see some real progress for at least some low-paid workers. The folks who have rigged the economy in their favor so they can get big bucks may not like the fact that it’s harder to get good help, but them’s the breaks.  

By Dean Baker and Arjun Jayadev

The COVID-19 pandemic is once again at an inflection point— with cases now falling sharply in most of the world. The current pandemic may be coming under control, but after millions of preventable deaths,  this is far from a success story and it is as good a time as any to take a hard look at our failings, especially with regard to our management of knowledge.

Across the world, the number of COVID-19 infections are declining: the United States’ numbers are finally falling after the delta variant sent it soaring in the late summer; India, perhaps the hardest-hit country in the world where cases peaked at more than 400,000 per day in early May, is now reporting just over 20,000 cases daily, the equivalent of 5,000 a day in the United States. Similar declines can be seen in countries around the world.

This drop worldwide is due to a combination of both the spread of vaccines and, perhaps more importantly, natural immunity arising out of many infections.  According to a New York Times article, for example, the number of infections in India as of early May was likely close to 540 million, when the official count was just 27 million. Since the pandemic was still in full force in the country at the time, an extrapolation would imply 750 to 800 million infections, close to 60 percent of the country’s population.

While such widespread infections might help to contain the pandemic, they come with a horrible human cost.  While the official number of deaths is around 450,000, researchers have estimated likely death tolls in the range of 1.6 million to almost 6 million in urban areas along according to one study. There is a similar story throughout the developing world, where the actual number of infections and deaths hugely exceed the already devastating official statistics.

That this death toll has occurred, even when the world is (rightly) celebrating the rapid development of effective vaccines, means that we have failed badly in getting these vaccines distributed widely around the world. Crucially, this has been a failure of political will, not the lack of capacity to produce and distribute vaccines.

A key feature has been our treatment of knowledge around the development and production of vaccines and medicines more generally. Given the continuing cost of the pandemic globally, enlightened policy should aim to maximize production and dissemination of vaccines and medicines. Instead, we have seen egregious attempts to limit dissemination. 

A year ago, South Africa and India proposed a resolution at the World Trade Organization to suspend patents and other intellectual property claims for vaccines, tests, and treatments for the duration of the pandemic. Since that time, the rich countries have been engaged in a filibuster to block any action.

The pharmaceutical industry also claims that the developing world lacks the sophisticated manufacturing facilities needed to produce the Covid vaccines. This is not true, as India, Brazil, South Africa, and several other developing countries have modern facilities that can be used to produce vaccines.

Clearly, for some of the newer technologies (such as mRNA vaccines), such facilities were not immediately available, but getting such facilities up and running by now would almost certainly have been possible had action been taken quickly on the resolution last October. For some of the older technologies, which include highly effective non-mRNA vaccines, capacities exist, but patent protection and the need for licensing limits production even today.

IP protections also pose problems beyond vaccines. As new technologies are developed that combat COVID-19 (Merck’s Molnupiravir antiviral is an example), our current system of patent protection will continue to limit access more than is necessary, even with potential licensing agreements. In such cases patents are the only thing standing in the way — the ability to make these life-saving drugs already exists in many parts of the world and doing away with restrictions will make them available across the globe much more cheaply.

Patents though are only one part of the problem.  Access to technology remains just as critical. The TRIPS provisions of the WTO were designed to limit the spread of technology to the developing world. The India-South Africa resolution was intended to get around these restrictions, but as was widely noted, much of the necessary technology was protected by industrial secrets, not patents. That would mean that suspending patents by itself, would be of little benefit in spreading production.

Trade secrets have an amorphous protection under the law, and maximizing production and distribution requires taking this head on. South Korea back in July announced that they have the capacity to manufacture a billion mRNA vaccines almost immediately, but had not found a firm willing to share their manufacturing know-how. As three researchers pointed out in August, however, the US could invoke its Defense Production Act (which it has already done in the pandemic) and compel the transfer of technology and know-how. In addition, it could do so unilaterally.

An additional remedy would be to prevent non-disclosure agreements (NDA) at least in technologies largely funded by the public sector. NDAs protect industrial secrets by threatening any employee who discloses information with serious lawsuits. If NDAs are banned as an anti-competitive practice, the threats from companies against former employees to protect their secrets would be meaningless.

In general, and in a global health emergency in particular, we should be looking to share technology as widely as possible, not locking it up behind patent monopolies and other protections. A worldwide pandemic should have been an occasion for the world’s scientists, including those from China and Russia, to work collectively to confront a common problem.

The cost has not just been borne by the developing world. By allowing the pandemic to spread largely unchecked in the developing world, we gave it the opportunity to mutate into more vaccine-resistant forms that will continue to reverberate in the months and years to come. The delta variant developed in India last December.

We may never know if a more rapid rollout of vaccines and widespread testing could have contained COVID-19 before it spread around the world, but the human and economic costs of this spread have been enormous. Also, the US and other wealthy countries continue to feel the economic impact of the spread in the developing world. Factory shutdowns in places like Vietnam and Malaysia have been a major factor in supply chain difficulties that are now macroeconomic concerns. Making knowledge available, much more easily deployable, and widely shared is not simply a moral imperative, but is in the overall self-interest of everyone, everywhere.

 

Dean Baker is a senior economist at the Center for Economic and Policy Research and a visiting professor at the University of Utah.

Arjun Jayadev is a Professor of Economics Azim Premji University and Senior Economist, Institute for New Economic Thinking

By Dean Baker and Arjun Jayadev

The COVID-19 pandemic is once again at an inflection point— with cases now falling sharply in most of the world. The current pandemic may be coming under control, but after millions of preventable deaths,  this is far from a success story and it is as good a time as any to take a hard look at our failings, especially with regard to our management of knowledge.

Across the world, the number of COVID-19 infections are declining: the United States’ numbers are finally falling after the delta variant sent it soaring in the late summer; India, perhaps the hardest-hit country in the world where cases peaked at more than 400,000 per day in early May, is now reporting just over 20,000 cases daily, the equivalent of 5,000 a day in the United States. Similar declines can be seen in countries around the world.

This drop worldwide is due to a combination of both the spread of vaccines and, perhaps more importantly, natural immunity arising out of many infections.  According to a New York Times article, for example, the number of infections in India as of early May was likely close to 540 million, when the official count was just 27 million. Since the pandemic was still in full force in the country at the time, an extrapolation would imply 750 to 800 million infections, close to 60 percent of the country’s population.

While such widespread infections might help to contain the pandemic, they come with a horrible human cost.  While the official number of deaths is around 450,000, researchers have estimated likely death tolls in the range of 1.6 million to almost 6 million in urban areas along according to one study. There is a similar story throughout the developing world, where the actual number of infections and deaths hugely exceed the already devastating official statistics.

That this death toll has occurred, even when the world is (rightly) celebrating the rapid development of effective vaccines, means that we have failed badly in getting these vaccines distributed widely around the world. Crucially, this has been a failure of political will, not the lack of capacity to produce and distribute vaccines.

A key feature has been our treatment of knowledge around the development and production of vaccines and medicines more generally. Given the continuing cost of the pandemic globally, enlightened policy should aim to maximize production and dissemination of vaccines and medicines. Instead, we have seen egregious attempts to limit dissemination. 

A year ago, South Africa and India proposed a resolution at the World Trade Organization to suspend patents and other intellectual property claims for vaccines, tests, and treatments for the duration of the pandemic. Since that time, the rich countries have been engaged in a filibuster to block any action.

The pharmaceutical industry also claims that the developing world lacks the sophisticated manufacturing facilities needed to produce the Covid vaccines. This is not true, as India, Brazil, South Africa, and several other developing countries have modern facilities that can be used to produce vaccines.

Clearly, for some of the newer technologies (such as mRNA vaccines), such facilities were not immediately available, but getting such facilities up and running by now would almost certainly have been possible had action been taken quickly on the resolution last October. For some of the older technologies, which include highly effective non-mRNA vaccines, capacities exist, but patent protection and the need for licensing limits production even today.

IP protections also pose problems beyond vaccines. As new technologies are developed that combat COVID-19 (Merck’s Molnupiravir antiviral is an example), our current system of patent protection will continue to limit access more than is necessary, even with potential licensing agreements. In such cases patents are the only thing standing in the way — the ability to make these life-saving drugs already exists in many parts of the world and doing away with restrictions will make them available across the globe much more cheaply.

Patents though are only one part of the problem.  Access to technology remains just as critical. The TRIPS provisions of the WTO were designed to limit the spread of technology to the developing world. The India-South Africa resolution was intended to get around these restrictions, but as was widely noted, much of the necessary technology was protected by industrial secrets, not patents. That would mean that suspending patents by itself, would be of little benefit in spreading production.

Trade secrets have an amorphous protection under the law, and maximizing production and distribution requires taking this head on. South Korea back in July announced that they have the capacity to manufacture a billion mRNA vaccines almost immediately, but had not found a firm willing to share their manufacturing know-how. As three researchers pointed out in August, however, the US could invoke its Defense Production Act (which it has already done in the pandemic) and compel the transfer of technology and know-how. In addition, it could do so unilaterally.

An additional remedy would be to prevent non-disclosure agreements (NDA) at least in technologies largely funded by the public sector. NDAs protect industrial secrets by threatening any employee who discloses information with serious lawsuits. If NDAs are banned as an anti-competitive practice, the threats from companies against former employees to protect their secrets would be meaningless.

In general, and in a global health emergency in particular, we should be looking to share technology as widely as possible, not locking it up behind patent monopolies and other protections. A worldwide pandemic should have been an occasion for the world’s scientists, including those from China and Russia, to work collectively to confront a common problem.

The cost has not just been borne by the developing world. By allowing the pandemic to spread largely unchecked in the developing world, we gave it the opportunity to mutate into more vaccine-resistant forms that will continue to reverberate in the months and years to come. The delta variant developed in India last December.

We may never know if a more rapid rollout of vaccines and widespread testing could have contained COVID-19 before it spread around the world, but the human and economic costs of this spread have been enormous. Also, the US and other wealthy countries continue to feel the economic impact of the spread in the developing world. Factory shutdowns in places like Vietnam and Malaysia have been a major factor in supply chain difficulties that are now macroeconomic concerns. Making knowledge available, much more easily deployable, and widely shared is not simply a moral imperative, but is in the overall self-interest of everyone, everywhere.

 

Dean Baker is a senior economist at the Center for Economic and Policy Research and a visiting professor at the University of Utah.

Arjun Jayadev is a Professor of Economics Azim Premji University and Senior Economist, Institute for New Economic Thinking

The job gain of 194,000 reported for September was well below what most of us had expected, but the overall picture was considerably brighter than this figure suggests. First, the main factor depressing job growth in the month was a loss of 161,000 jobs in state and local education. That one has me and others scratching our heads. Most schools are back to in-class instruction, but employment in public education is still 431,000 below the levels of September of 2019, a decline of 4.8 percent. (I’m using the last pre-pandemic September to remove problems of seasonal adjustment.) If the September job numbers are accurate, schools are serving their students with fewer teachers and support staff on payroll.

Anyhow, the private sector created a respectable 317,000 jobs last month. If, instead of losing jobs, the public sector had created something like 100,000 jobs, as many of us had expected, then we would have seen September job growth of 417,000, well in line with most expectations. (There was also a large upward revision to the August data.)  So, if there was a job growth failure, it was mostly on the public side. It’s also worth noting the 0.4 percentage point drop in the unemployment rate to 4.8 percent. This is a level we didn’t reach after the Great Recession until January of 2016. 

Okay, but let’s get to the Biden versus Trump comparison. As I always say, this comparison is silly, since so many factors affect job growth that are beyond the president’s control. But, everyone knows that if the situation were reversed, Donald  Trump and his crew would be touting the comparison in every forum they had.  So, for the Trump crew, it now stands that Biden has created 4,797,000 jobs in his first eight months in office, compared to a loss of 2,876,000  jobs in the four years of Donald  Trump’s presidency.

 

 

 

 

 

 

Source: Bureau of Labor Statistics.

The job gain of 194,000 reported for September was well below what most of us had expected, but the overall picture was considerably brighter than this figure suggests. First, the main factor depressing job growth in the month was a loss of 161,000 jobs in state and local education. That one has me and others scratching our heads. Most schools are back to in-class instruction, but employment in public education is still 431,000 below the levels of September of 2019, a decline of 4.8 percent. (I’m using the last pre-pandemic September to remove problems of seasonal adjustment.) If the September job numbers are accurate, schools are serving their students with fewer teachers and support staff on payroll.

Anyhow, the private sector created a respectable 317,000 jobs last month. If, instead of losing jobs, the public sector had created something like 100,000 jobs, as many of us had expected, then we would have seen September job growth of 417,000, well in line with most expectations. (There was also a large upward revision to the August data.)  So, if there was a job growth failure, it was mostly on the public side. It’s also worth noting the 0.4 percentage point drop in the unemployment rate to 4.8 percent. This is a level we didn’t reach after the Great Recession until January of 2016. 

Okay, but let’s get to the Biden versus Trump comparison. As I always say, this comparison is silly, since so many factors affect job growth that are beyond the president’s control. But, everyone knows that if the situation were reversed, Donald  Trump and his crew would be touting the comparison in every forum they had.  So, for the Trump crew, it now stands that Biden has created 4,797,000 jobs in his first eight months in office, compared to a loss of 2,876,000  jobs in the four years of Donald  Trump’s presidency.

 

 

 

 

 

 

Source: Bureau of Labor Statistics.

Some folks recognize various bird cries, others can identify the howling of a wolf, but any good economist can quickly recognize the “it’s hard to get good help” cry of the privileged. The Washington Post gave columnist Gary Abernathy the opportunity to make his cry at length today.

Abernathy is upset that we took steps to prevent people from getting sick and dying from the pandemic, but what he’s really upset about now is that many people no longer feel that they have to take any job that an employer is offering. The problem is that we gave them too much money, so workers are no longer desperate.

“One of the biggest incentives to work is earning enough to pay for the necessities of life and possibly something more, with the understanding that not everyone will have everything in equal measure. When the fruits of that labor are provided from the public trough in amounts far exceeding a basic social safety net, it’s only natural that fewer people will be motivated to work. Even with higher wages, it’s more difficult than ever to recruit people for unglamorous service-industry jobs.”

The little factoid that is the highlight of Abernathy’s argument is in a quote he takes from NBC:

“The last time labor force participation was this low was more than 40 years ago, in January 1977.”

That is supposed to sound very scary, but it is actually not the least bit scary to anyone who is all familiar with labor market data. Here’s a picture of labor force participation rates over the last half century.

As can be seen, the labor force participation rate (LFPR) rose sharply through the 1970s and 1980s. This was the story of women entering the paid labor force. The rate then stagnated in the 1990s, as the rise in women’s LFPR slowed, and prime-age men (ages 25 to 54) dropped out, as did teens. The LFPR has been on a downward trend for the last two decades, primarily because the population is aging, and people in their 70s, 80s and 90s mostly don’t work.

Given this history, the statement that the LFPR is the lowest since 1977 is not telling us much. In September of 2015 it was at the lowest level since October of 1977, so what?

Okay, so maybe no one takes Abernathy and his nonsense seriously, but the question is why does the Washington Post print it? I’m fine with diverse opinions, but the Post can demand that its opinion writers not play such obviously misleading games.

There is also the question of why do we have to hear so much from people complaining that working people and the poor are getting too much money. We literally never hear from anyone who complains that we give too much to billionaires by giving them government-granted patent and copyright monopolies. While the Washington Post is happy to give people a forum to complain that $300 weekly unemployment insurance supplements are too generous, it will not allow the billions handed to drug companies and other beneficiaries of these monopolies to be questioned on its pages.

Abernathy’s story is ridiculous, but it’s the Post’s fault that he has a big megaphone.

Some folks recognize various bird cries, others can identify the howling of a wolf, but any good economist can quickly recognize the “it’s hard to get good help” cry of the privileged. The Washington Post gave columnist Gary Abernathy the opportunity to make his cry at length today.

Abernathy is upset that we took steps to prevent people from getting sick and dying from the pandemic, but what he’s really upset about now is that many people no longer feel that they have to take any job that an employer is offering. The problem is that we gave them too much money, so workers are no longer desperate.

“One of the biggest incentives to work is earning enough to pay for the necessities of life and possibly something more, with the understanding that not everyone will have everything in equal measure. When the fruits of that labor are provided from the public trough in amounts far exceeding a basic social safety net, it’s only natural that fewer people will be motivated to work. Even with higher wages, it’s more difficult than ever to recruit people for unglamorous service-industry jobs.”

The little factoid that is the highlight of Abernathy’s argument is in a quote he takes from NBC:

“The last time labor force participation was this low was more than 40 years ago, in January 1977.”

That is supposed to sound very scary, but it is actually not the least bit scary to anyone who is all familiar with labor market data. Here’s a picture of labor force participation rates over the last half century.

As can be seen, the labor force participation rate (LFPR) rose sharply through the 1970s and 1980s. This was the story of women entering the paid labor force. The rate then stagnated in the 1990s, as the rise in women’s LFPR slowed, and prime-age men (ages 25 to 54) dropped out, as did teens. The LFPR has been on a downward trend for the last two decades, primarily because the population is aging, and people in their 70s, 80s and 90s mostly don’t work.

Given this history, the statement that the LFPR is the lowest since 1977 is not telling us much. In September of 2015 it was at the lowest level since October of 1977, so what?

Okay, so maybe no one takes Abernathy and his nonsense seriously, but the question is why does the Washington Post print it? I’m fine with diverse opinions, but the Post can demand that its opinion writers not play such obviously misleading games.

There is also the question of why do we have to hear so much from people complaining that working people and the poor are getting too much money. We literally never hear from anyone who complains that we give too much to billionaires by giving them government-granted patent and copyright monopolies. While the Washington Post is happy to give people a forum to complain that $300 weekly unemployment insurance supplements are too generous, it will not allow the billions handed to drug companies and other beneficiaries of these monopolies to be questioned on its pages.

Abernathy’s story is ridiculous, but it’s the Post’s fault that he has a big megaphone.

If President Biden was designing a jobs report to advance his Build Back Better agenda, he could not have done better than the September jobs report. (No, he didn’t manipulate the data.) It shows the need for improving our caring infrastructure to make it possible for more women to work. It also shows the need to improve our infrastructure to limit supply chain disruptions.

But before getting to these issues, it’s first important to dispel the idea that this was a bad jobs report. The September data showed a 0.4 percentage point drop in the unemployment rate, bringing it to 4.8 percent. Most analysts had predicted a drop of just 0.1 or 0.2 percentage points. We didn’t get the unemployment rate down to 4.8 percent following the Great Recession until January of 2016. And, this decline was due to workers getting jobs, not the unemployed dropping out of the labor market. The number of employed in the household survey increased by 526,000.

The negative view of the September report is based on the weaker than expected job growth reported in the establishment survey. The increase of 194,000 in payroll jobs was well below the 400,000 to 500,000 job gain most analysts had expected. While that seems like a bad story, a closer look shows otherwise.

The biggest contributor to the weak job growth story was the loss of 161,000 jobs in state and local government education. There is not an obvious explanation for this job loss (I’ll come to back to this issue), but suppose that we didn’t see this sort of job loss in public sector education. Suppose that we instead regained more of the education jobs lost in the pandemic.

The private sector added a healthy 317,000 jobs in September. If the public sector had added 100,000 jobs for the month, as many had expected, the Bureau of Labor Statistics would have reported job growth of 417,000 in September, well within the generally expected range.

So, the big question is why are we losing jobs in education instead of adding them? It’s hard to come up with a good story here. Some analysts have suggested the problem is with the seasonal adjustment. On an unadjusted basis, state and local education added 1,033,000 jobs in September. The argument is that the seasonal adjustment is inappropriate for this year since the pandemic has altered the normal timing of the school year and employment patterns.

But this argument really doesn’t fit. If we just look at the non-seasonally adjusted data, employment in public education is down 431,000 from the levels of September of 2019, a decline of 4.8 percent. Schools are back to in-class instruction pretty much everywhere. Unless we have seen a sharp rise in student-to-teacher ratios or a large decline in support staff, this drop in employment from before the pandemic doesn’t make sense.

Anyhow, we will need to sort out what is going on with employment in public schools, but if we set that issue aside for the moment, the jobs picture in the establishment survey looks pretty good. As noted earlier, the 317,000 private-sector jobs added in the month was very much consistent with expectations. But an element of the picture that has not gotten nearly the attention it deserves is the increase in the length of the average workweek.

The average workweek rose by 0.2 hours. This rise in average weekly hours, coupled with the rise in employment, led to a rise of 0.9 in the index of aggregate hours. This is the largest increase since March.

A story that is consistent with a rise in hours, coupled with a limited increase in payroll employment, is that employers are having trouble getting the workers they need to meet the demand they are seeing. They adjust to this situation by working their existing workforce more hours.

The continued rapid growth in wages, especially for lower-paid workers, fits with this supply-side story. The average hourly wage for production and non-supervisory workers increased at a 6.7 percent annual rate comparing the last 3 months (July, August, September) with the prior 3 months (April, May, June).  In the leisure and hospitality sector (primarily restaurants) the annual rate of wage growth over this period has been 18.1 percent.

The implication of this view is that the limitation on employment growth at this point is largely a supply story, not a lack of demand. Workers are not returning to low-paying jobs, at least not without getting considerably higher pay and/or an improvement in working conditions.

The sectors showing the largest percentage drop in employment from pre-pandemic levels are overwhelmingly low-paying. Employment in nursing homes is down 15.2 percent. Employment in child care is down by 10.4 percent from its pre-pandemic level. Employment in the temporary help sector is down 8.7 percent. Restaurant employment is down by 7.6 percent from its pre-pandemic level. By comparison, overall employment in the private sector is down by just 3.0 percent.

It is worth noting here that the $300 weekly unemployment insurance supplements, and the special pandemic unemployment insurance programs, are not likely a big factor in discouraging people from working. Most states ended the supplements and pandemic programs in June and July. The national program ended in early September. If these benefits were discouraging people from working, we should have seen most of the effect from ending them by September.

Increasing Labor Force Participation

While we are going to see some reshuffling of the workforce, which will take time to work through, we can easily identify the reason some people, specifically women, are not working or looking for work. The BLS reported that 1.6 million people, 960,000 of them women, were not working or looking for work because of the pandemic.

This is presumably because they either fear getting Covid themselves or transmitting it to a family member who may have a health condition, or maybe caring for a family member who is already ill. If these 1.6 million people were in the labor force, it would reduce by more than one-third the falloff in labor force participation since the start of the pandemic. This again shows the economic importance of Biden’s efforts to control the pandemic.

Of course, the issue of women’s labor force participation long predates the pandemic. While the United States was near the top among wealthy countries in women’s labor force participation four decades ago, it is now a laggard. It not only ranks below the Nordic countries, but it has also been passed by France, Germany, and even Japan in women’s labor force participation.

According to the OECD, in 1980 the labor force participation rate (LFPR) for prime-age women (ages 25 to 54) was 64.0 percent in the United States. That was slightly lower than the 64.7 percent rate for France, but well above the 56.7 percent rate for Japan and the 56.6 percent rate for Germany. In 2020, the LFPR for prime-age women in the United States had increased to 75.1 percent, but it had risen to 82.6 percent in France, 84.5 percent in Germany, and 80.0 percent in Japan.

The reason the U.S. is a laggard is not a secret. We lag in providing access to child care and family leave. Since women continue to disproportionately have caregiving responsibilities for children and family members in need of assistance, our failure in these areas makes it difficult for many women to work.

This is a problem that has gotten worse in the pandemic. As noted earlier, employment in child care in September was 10.4 percent below its pre-pandemic level. Since there has not likely been a boom in productivity in this sector, this drop in employment means that the number of child care slots is likely close to 10.0 percent lower than before the pandemic. That means that finding quality child care is even more difficult today than it was a year and a half ago.

Getting more child care workers means raising the pay and improving conditions for child care workers. This is one of the key provisions of the Building Back Better plan. Improved access to child care, along with paid parental leave (another provision) will give millions of women the option of working.

These provisions are also likely to lead to better outcomes for children in terms of education and employment, which is both good for them and good for the economy in the long run. But, by increasing access to child care and providing parental leave, we can see a near-term boost to the economy from more people working. If getting more people working is a goal of our economic policy, this is an important route for getting there.

 

Supply Chain Problems

The September jobs report also gave us a reminder about the country’s supply chain problems. The number of people employed in automobile manufacturing fell by 6,100. This is undoubtedly due to the widely publicized shortage of semiconductors, which is the result of a fire at a major manufacturing facility in Japan. There surely are other industries where supply disruptions limited employment, although the link may be less clear than in the auto industry.

There are several points worth making here. First, in the context of a worldwide pandemic, our supply chains have actually held up remarkably well. At least in the United States, we have not had problems with people not getting food, medicine, and other necessities. Given the size of the shock, having to wait an extra month or two for a car, or paying five percent more, hardly seems like a great tragedy. Still, we don’t want to see these delays and the resulting economic slowdown if it can be avoided.

It is important to note that the takeaway from the shortages is that we need diverse sources of supply, which does not necessarily mean domestic sources. If we rely on a manufacturer in Malaysia for a product, which then becomes unavailable for whatever reason, if we can get the product from Korea or Mexico, that is fine. There is no special virtue on this issue in getting it from the United States.

This matters because we can see shutdowns by U.S. producers as well. Marketplace radio had a piece last month about a shortage of paint across the country. According to the piece, one of the main culprits was a shutdown by resin manufacturers (an ingredient in paint) in Texas last winter due to the unusually cold weather. In this case, relying on domestic suppliers did not prevent a supply chain disruption.

Another key point is that much of the problem is not actually in producing the items, but in transporting them. The Washington Post had an excellent piece that described the backlog in our ports and on railways that is preventing items from getting to their destination. This means that even if we are getting the goods from China, Thailand, or anywhere else, they are not getting to where they need to go because of inadequate infrastructure. Modernizing our ports and railways is another key part of Biden’s Building Back Better plan.

Global Warming and Supply Chain Disruptions

The last area where the September job report is an advertisement for the Build Back Better plan is on climate change. Many of the supply chain disruptions we are seeing now and will see in the future are the result of global warming.

The cold Texas weather that led to the shutdown of the resin manufacturers, which contributed to the paint shortage, was an extraordinary weather event that likely would not have occurred if we were not experiencing climate change. More frequent hurricanes and other extreme weather events that lead to shutdowns in manufacturing or distribution facilities will be more common as global warming advances. And, we will see more crop failures and higher prices for a wide range of agricultural products due to excessive heat and droughts.

If we don’t begin to make serious efforts to reduce greenhouse gas emissions, as proposed in the Build Back Better plan, we will see many more climate-related economic disruptions in future years, as well as higher prices for a wide range of products.

 

Conclusion: The September Jobs Report Was an Advertisement for Build Back Better

There are many aspects to the jobs report that gave ambiguous signals about the near-term future for the economy. However, the problems that are most apparent in this report indicate the urgency of many of the items in Biden’s agenda. Our senators and congresspeople should give them serious thought.  

If President Biden was designing a jobs report to advance his Build Back Better agenda, he could not have done better than the September jobs report. (No, he didn’t manipulate the data.) It shows the need for improving our caring infrastructure to make it possible for more women to work. It also shows the need to improve our infrastructure to limit supply chain disruptions.

But before getting to these issues, it’s first important to dispel the idea that this was a bad jobs report. The September data showed a 0.4 percentage point drop in the unemployment rate, bringing it to 4.8 percent. Most analysts had predicted a drop of just 0.1 or 0.2 percentage points. We didn’t get the unemployment rate down to 4.8 percent following the Great Recession until January of 2016. And, this decline was due to workers getting jobs, not the unemployed dropping out of the labor market. The number of employed in the household survey increased by 526,000.

The negative view of the September report is based on the weaker than expected job growth reported in the establishment survey. The increase of 194,000 in payroll jobs was well below the 400,000 to 500,000 job gain most analysts had expected. While that seems like a bad story, a closer look shows otherwise.

The biggest contributor to the weak job growth story was the loss of 161,000 jobs in state and local government education. There is not an obvious explanation for this job loss (I’ll come to back to this issue), but suppose that we didn’t see this sort of job loss in public sector education. Suppose that we instead regained more of the education jobs lost in the pandemic.

The private sector added a healthy 317,000 jobs in September. If the public sector had added 100,000 jobs for the month, as many had expected, the Bureau of Labor Statistics would have reported job growth of 417,000 in September, well within the generally expected range.

So, the big question is why are we losing jobs in education instead of adding them? It’s hard to come up with a good story here. Some analysts have suggested the problem is with the seasonal adjustment. On an unadjusted basis, state and local education added 1,033,000 jobs in September. The argument is that the seasonal adjustment is inappropriate for this year since the pandemic has altered the normal timing of the school year and employment patterns.

But this argument really doesn’t fit. If we just look at the non-seasonally adjusted data, employment in public education is down 431,000 from the levels of September of 2019, a decline of 4.8 percent. Schools are back to in-class instruction pretty much everywhere. Unless we have seen a sharp rise in student-to-teacher ratios or a large decline in support staff, this drop in employment from before the pandemic doesn’t make sense.

Anyhow, we will need to sort out what is going on with employment in public schools, but if we set that issue aside for the moment, the jobs picture in the establishment survey looks pretty good. As noted earlier, the 317,000 private-sector jobs added in the month was very much consistent with expectations. But an element of the picture that has not gotten nearly the attention it deserves is the increase in the length of the average workweek.

The average workweek rose by 0.2 hours. This rise in average weekly hours, coupled with the rise in employment, led to a rise of 0.9 in the index of aggregate hours. This is the largest increase since March.

A story that is consistent with a rise in hours, coupled with a limited increase in payroll employment, is that employers are having trouble getting the workers they need to meet the demand they are seeing. They adjust to this situation by working their existing workforce more hours.

The continued rapid growth in wages, especially for lower-paid workers, fits with this supply-side story. The average hourly wage for production and non-supervisory workers increased at a 6.7 percent annual rate comparing the last 3 months (July, August, September) with the prior 3 months (April, May, June).  In the leisure and hospitality sector (primarily restaurants) the annual rate of wage growth over this period has been 18.1 percent.

The implication of this view is that the limitation on employment growth at this point is largely a supply story, not a lack of demand. Workers are not returning to low-paying jobs, at least not without getting considerably higher pay and/or an improvement in working conditions.

The sectors showing the largest percentage drop in employment from pre-pandemic levels are overwhelmingly low-paying. Employment in nursing homes is down 15.2 percent. Employment in child care is down by 10.4 percent from its pre-pandemic level. Employment in the temporary help sector is down 8.7 percent. Restaurant employment is down by 7.6 percent from its pre-pandemic level. By comparison, overall employment in the private sector is down by just 3.0 percent.

It is worth noting here that the $300 weekly unemployment insurance supplements, and the special pandemic unemployment insurance programs, are not likely a big factor in discouraging people from working. Most states ended the supplements and pandemic programs in June and July. The national program ended in early September. If these benefits were discouraging people from working, we should have seen most of the effect from ending them by September.

Increasing Labor Force Participation

While we are going to see some reshuffling of the workforce, which will take time to work through, we can easily identify the reason some people, specifically women, are not working or looking for work. The BLS reported that 1.6 million people, 960,000 of them women, were not working or looking for work because of the pandemic.

This is presumably because they either fear getting Covid themselves or transmitting it to a family member who may have a health condition, or maybe caring for a family member who is already ill. If these 1.6 million people were in the labor force, it would reduce by more than one-third the falloff in labor force participation since the start of the pandemic. This again shows the economic importance of Biden’s efforts to control the pandemic.

Of course, the issue of women’s labor force participation long predates the pandemic. While the United States was near the top among wealthy countries in women’s labor force participation four decades ago, it is now a laggard. It not only ranks below the Nordic countries, but it has also been passed by France, Germany, and even Japan in women’s labor force participation.

According to the OECD, in 1980 the labor force participation rate (LFPR) for prime-age women (ages 25 to 54) was 64.0 percent in the United States. That was slightly lower than the 64.7 percent rate for France, but well above the 56.7 percent rate for Japan and the 56.6 percent rate for Germany. In 2020, the LFPR for prime-age women in the United States had increased to 75.1 percent, but it had risen to 82.6 percent in France, 84.5 percent in Germany, and 80.0 percent in Japan.

The reason the U.S. is a laggard is not a secret. We lag in providing access to child care and family leave. Since women continue to disproportionately have caregiving responsibilities for children and family members in need of assistance, our failure in these areas makes it difficult for many women to work.

This is a problem that has gotten worse in the pandemic. As noted earlier, employment in child care in September was 10.4 percent below its pre-pandemic level. Since there has not likely been a boom in productivity in this sector, this drop in employment means that the number of child care slots is likely close to 10.0 percent lower than before the pandemic. That means that finding quality child care is even more difficult today than it was a year and a half ago.

Getting more child care workers means raising the pay and improving conditions for child care workers. This is one of the key provisions of the Building Back Better plan. Improved access to child care, along with paid parental leave (another provision) will give millions of women the option of working.

These provisions are also likely to lead to better outcomes for children in terms of education and employment, which is both good for them and good for the economy in the long run. But, by increasing access to child care and providing parental leave, we can see a near-term boost to the economy from more people working. If getting more people working is a goal of our economic policy, this is an important route for getting there.

 

Supply Chain Problems

The September jobs report also gave us a reminder about the country’s supply chain problems. The number of people employed in automobile manufacturing fell by 6,100. This is undoubtedly due to the widely publicized shortage of semiconductors, which is the result of a fire at a major manufacturing facility in Japan. There surely are other industries where supply disruptions limited employment, although the link may be less clear than in the auto industry.

There are several points worth making here. First, in the context of a worldwide pandemic, our supply chains have actually held up remarkably well. At least in the United States, we have not had problems with people not getting food, medicine, and other necessities. Given the size of the shock, having to wait an extra month or two for a car, or paying five percent more, hardly seems like a great tragedy. Still, we don’t want to see these delays and the resulting economic slowdown if it can be avoided.

It is important to note that the takeaway from the shortages is that we need diverse sources of supply, which does not necessarily mean domestic sources. If we rely on a manufacturer in Malaysia for a product, which then becomes unavailable for whatever reason, if we can get the product from Korea or Mexico, that is fine. There is no special virtue on this issue in getting it from the United States.

This matters because we can see shutdowns by U.S. producers as well. Marketplace radio had a piece last month about a shortage of paint across the country. According to the piece, one of the main culprits was a shutdown by resin manufacturers (an ingredient in paint) in Texas last winter due to the unusually cold weather. In this case, relying on domestic suppliers did not prevent a supply chain disruption.

Another key point is that much of the problem is not actually in producing the items, but in transporting them. The Washington Post had an excellent piece that described the backlog in our ports and on railways that is preventing items from getting to their destination. This means that even if we are getting the goods from China, Thailand, or anywhere else, they are not getting to where they need to go because of inadequate infrastructure. Modernizing our ports and railways is another key part of Biden’s Building Back Better plan.

Global Warming and Supply Chain Disruptions

The last area where the September job report is an advertisement for the Build Back Better plan is on climate change. Many of the supply chain disruptions we are seeing now and will see in the future are the result of global warming.

The cold Texas weather that led to the shutdown of the resin manufacturers, which contributed to the paint shortage, was an extraordinary weather event that likely would not have occurred if we were not experiencing climate change. More frequent hurricanes and other extreme weather events that lead to shutdowns in manufacturing or distribution facilities will be more common as global warming advances. And, we will see more crop failures and higher prices for a wide range of agricultural products due to excessive heat and droughts.

If we don’t begin to make serious efforts to reduce greenhouse gas emissions, as proposed in the Build Back Better plan, we will see many more climate-related economic disruptions in future years, as well as higher prices for a wide range of products.

 

Conclusion: The September Jobs Report Was an Advertisement for Build Back Better

There are many aspects to the jobs report that gave ambiguous signals about the near-term future for the economy. However, the problems that are most apparent in this report indicate the urgency of many of the items in Biden’s agenda. Our senators and congresspeople should give them serious thought.  

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