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Article Artículo

Are We at Full Employment? Taking Issue With Paul Krugman (see addendum)

Paul Krugman had an interesting blog post this morning in which he attributed the continuing weakness of wage growth to an increase in monopsony power. I'm a skeptic on this one since the collapse in wage growth happens to coincide with the Great Recession. The big issue is whether the labor market is again back to its prerecession level of tightness when wages were rising considerably more rapidly.

To argue the case that it is, Krugman follows Jason Furman in dismissing the drop in prime-age labor force participation as just being part of a longer-term trend. This leaves me uncomfortable for a couple of reasons.

First, it would be nice to have an explanation for the trend, instead of just pointing to it and saying "trend." We have clear explanations for trends like rising incomes through time or increases in life expectancy. What is the explanation for fewer men interested in working through time? Will this decline persist forever?

That brings me to the second reason I am uncomfortable with this story. Insofar as there had been an explanation, it was usually that the skills of less-educated men were less valued in the modern economy. We no longer need strong people to move things around, machines do that for us.

There undoubtedly is some truth to this story, except the drop in employment rates (EPOPs) since 2007, and especially since 2000, has been pretty much across the board. EPOPs have fallen for both men and women and at pretty much all education levels. These drops are departures from past trends. (Women's EPOPs had been rising until the 2001 recession.) A shortage of demand is the most simple explanation for why there would be a sudden drop in EPOPs hitting pretty much every demographic group.

CEPR / May 21, 2018

Article Artículo

Government

United States

NYT Says Federal Reserve Board Is Wrong, United States Could Not Produce More Manufactured Goods

Economists usually are inclined to trust the data coming out of the Federal Reserve Board and the government statistical agencies, but the NYT told us they are wrong in an article on trade negotiations with China. The article refers to a disputed promise by the Chinese government to reduce its annual trade deficit with the United States by $200 billion.

The piece explicitly dismisses the significance of this promise. It tells readers:

"Economists say that the purchase by China of $200 billion more in American goods per year — an amount equivalent to more than half of the annual American trade deficit with China — simply is not practical. 'The short answer is these are unrealistic numbers,” said Chad Brown, a senior fellow at the Peterson Institute for International Economics.'

"Even if the Chinese stopped buying other foreign products, like Airbus airplanes from the European Union or soybeans from Brazil, and purchased solely American products, it would add up to only a small fraction of the $200 billion total they are promising to purchase.

"'It would even be a stretch to get it to $50 billion,' Mr. Bown said.

"That is because the United States economy is already running near its full productive capacity, meaning it would not be able to produce enough new goods to meet Chinese demands, especially in the short term.

"In that scenario, the United States would probably stop selling airplanes, soybeans and other exports to other countries and sell them to China instead — shrinking the United States trade deficit with China but leaving the United States trade deficit with the entire world unchanged."

The claim advanced by Mr. Brown, which the piece implies is shared by all economists, implicitly assumes both that the US economy is at full employment and that the manufacturing sector cannot expand its output. Government data would indicate that neither claim is true.

CEPR / May 18, 2018

Article Artículo

More Thoughts on a Job Guarantee: What Is At Issue?

Jared Bernstein and I had a piece earlier this week discussing the problems that a government job guarantee would address along with some of the problems which make us reluctant to endorse one. I thought it would be useful to summarize the four areas in which we have serious concerns about the economic response:

1) The number of people currently employed who would opt for a guaranteed job.

Proponents of a guarantee argue that most private sector employers would improve their wage and benefit package to match the terms offered by a guaranteed job. Given the large portion of the workforce who stand to gain from a job with the terms being proposed ($15 an hour wage, plus genenefits), it isrous health care and other be possible that tens of millions of workers may see a guaranteed job as better than those on offer in the private sector.

2) The ability of the government to effectively manage a jump in the size of its workforce by at least 10 million and quite possibly two or three times this size. 

The issue here is whether the people doing jobs provided through the guarantee are actually doing useful work. This is not just a moral concern that people work for their pay. It will be pretty much impossible to maintain political support for a job guarantee if people employed under the program routinely come to work late, leave early, or don't show up at all, or alternatively sit around and do nothing when they are ostensibly employed. Since by definition many of these people will have little work experience, the task will be even harder.

CEPR / May 17, 2018