Results for “unemployment”
674 found

A congestion theory of unemployment fluctuations

Yusuf Mercan, Benjamin Schoefer, and Petr Sedláček, newly published in American Economic Journal: Macroeconomics.  I best liked this excerpt from p.2, noting that “DMP” refers to the Nobel-winning Diamond-Mortensen-Pissarides search model of unemployment:

This congestion mechanism improves the business cycle performance of the DMP model considerably. It raises the volatility of labor market tightness tenfold, to empirically realistic levels. It produces a realistic Beveridge curve despite countercyclical separations. On its own, it accounts for around 30–40 percent of US unemployment fluctuations and much of its persistence. In addition, the model accounts for a range of other business cycle patterns linked to unemployment: the excess procyclicality of wages of newly hired workers compared to average wages, the countercyclical labor wedge, large countercyclical earnings losses from displacement and from labor market entry, and the long-run insensitivity of unemployment to policies such as unemployment insurance.

And by their congestion mechanism the authors mean this:

…a constant returns to scale aggregate production function that exhibits diminishing returns to new hires, a feature we call congestion in hiring.

I find that assumption plausible.  It remains the case that the DMP model is grossly underrepresented in on-line writings on economics, on Twitter, and in the blogosphere.  It won three Nobel Prizes, yet it also suggests that the “simple” manipulation of spending or nominal values does not automatically restore higher levels of employment.

Here are less gated versions of the paper.

Sentences about unemployment

As in the data, the price of risk in our model sharply increases in recessions. The benefit from hiring new workers therefore greatly declines, leading to a large decrease in job vacancies and an increase in unemployment of the same magnitude as in the data.

Yes, nominal wages are sticky but this is the other and all-important side of the hiring equation.

That is from a new and important NBER working paper by Patrick J. Kehoe, Pierlauro Lopez, Virgiliu Midrigan, and Elena Pastorino.  There is much more to their general model than that single sentence would indicate.

Why was pre-Covid unemployment so low?

Here is a recent paper by Andreas Hornstein and Marianna Kudlyak, noting that when the authors write “current” they are (were) referring to pre-Covid times:

Current unemployment, as of 2019Q4, is so low not because of unusually high job finding rates out of unemployment, but because of unusually low entry rates into unemployment. The unusually low entry rates, both from employment and from out of the labor force, reflect a long-run downward trend, and have lowered the unemployment rate trend over the recent decade. In fact, the difference between the current unemployment rate and unemployment rates at the two previous cyclical peaks in 2000 and 2007 is more than fully accounted for by the decline in its trend. This suggests that the current low unemployment rate does not indicate a labor market that is tighter than in 2000 or 2007.

Of course these results have significance for the common view that we need to “run the labor market hot” to get back to a desirable state of affairs.  What we need is for the necessary adjustments to take place to restore a new and sustainable equilibrium.

High discounts and high unemployment

Unemployment is high when financial discounts are high. In recessions, the stock market falls and all types of investment fall, including employers’ investment in job creation. The discount rate implicit in the stock market rises, and discounts for other claims on business income also rise. A higher discount implies a lower present value of the benefit of a new hire to an employer. According to the leading view of unemployment—the Diamond-Mortensen-Pissarides model—when the incentive for job creation falls, the labor market slackens and unemployment rises. Thus high discount rates imply high unemployment.

That is from Robert E. Hall, published 2017.

Facts about recessions and unemployment (and matching)

Not everyone is going to like this one:

During a recovery, unemployment seems little responsive to demand disturbances.  Economic policy should focus on preventing recessions rather than trying to ameliorate their effects.

That is from the new slides/paper by Robert E. Hall and Marianna Kudlyak on the consistency of recovery from recessions, lots of evidence behind that claim, as employment recovery occurs at a remarkably consistent rate across recessions, regardless of policy response.  Furthermore explanation of the micro-data mostly follows from the supply of employment, not the demand, and no that doesn’t require any kind of weird DSGE model, nor does it involve aggregate demand denialism about the initial cause of the problem.  Links are here, including other papers by Kudlyak, many good papers in there, sadly these rooftops are nearly empty.

Should unemployment benefits be taxed?

A number of people on Twitter were mocking this earlier idea of Martin Feldstein’s, now a policy since 1986.  But of course unemployment benefits should be taxed at the federal level.  If your income that year was low, you won’t pay any tax anyway.  As of 2018, about 44 percent of American households paid no federal income tax in any case, so that is covering quite a few of the lower earners.

if you are in the taxable range, in your choices you should be comparing taxable income to taxable unemployment benefits, otherwise there is a distortion in your labor supply decision.  If need be, raise the level of unemployment benefits.  No, that isn’t a wash, because different individuals and households face different possible rates of marginal taxation.  The higher earners (at least potentially the higher earners) should face a higher tax on their unemployment benefits than the lower earners will.  So it is in fact a “progressive” policy.

Marty was right, as indeed he was about many things.  Here is a good CRS overview of the issue.  Here is Marty’s (partially gated) 1974 piece on the issue.  This is exactly the kind of issue Twitter is ill-suited to considering.

Why do some states have such low unemployment rates?

That is for June, Kentucky is at 4.3 percent but West Virginia at 10.4?  Here are the underlying BLS data.  Here is some description of Kentucky in June.  Note that Kentucky cases are now rising rapidly.  Here is the case pattern for Idaho.  The three states with the highest unemployment rates — New York, New Jersey, and Massachusetts — have been moving toward relative safety after some very tough times early on.  One interpretation of these numbers is that serious lockdowns were necessary to stem the virus, but those lockdowns caused high unemployment.  More plausible to me is the view that a high initial virus burden led to high unemployment — consumers were scared — but also superior case and death results later on.

Via Nick Clerkin.

13.3% unemployment rate

That one surprised me, as indeed it did most other economists.  What should I learn from this episode?  After all, labor market adjustment was relatively slow coming out of the 2008 crisis.

My tentative hypothesis is that “matching” is more important than I had thought (and I already thought it was quite important, relative to other macro commentators).  One feature of the current layoffs and rehirings is that the ties between workers and firms apparently were not so severed in the first place.  For most sectors (cruise ships aside, etc.), no “rematches” were required, and so rehirings were accomplished very quickly.  As demand (partially) returned, employers wanted at least some of the old workers back, and workers wanted their old employers back, and then it happened.  “Figuring out where I belong” did not slow down the process very much.

That is good news for the remainder of the recovery, provided the recovery happens soon, and it is at least one factor (not necessarily decisive, of course) militating in favor of a speedier reopening.  “Reopen before the worker-employer ties are lost!”

It also implies that during regular, non-pandemic downturns a lot of the slowness of labor market recovery has to do with matching rather than demand per se, noting that the two interact.  And that is a sign of a more general pessimism for the future, since demand problems are easier to fix through policy than matching problems are.

Another possible implication of the new numbers is that employers realized that “F*** it, I want to get back out there” is the prevalent consumer and also worker attitude, whereas Twitter-bound intellectuals were slower to see the same.

Unemployment is always about the supply side too

We document that unemployment is increasing with GDP per capita. Furthermore, we show that this fact is accounted for almost entirely by low-educated workers, whose unemployment rates are strongly increasing in GDP per capita, rather than by high-educated workers, whose unemployment rates are not correlated with income.

That is from Ying Feng, David Lagakos, and James E. Rauch.  In their core model, reallocating low-education workers to the formal sector makes them harder to reemploy at short notice, in contrast to the informal sector and self-employment.  An alternative view, not mutually exclusive, is that in poor societies low-education workers simply have to take jobs, due to extreme need.

You will on Twitter, and in blogs, see various attempts to mock supply-side theories by showing increasing employment, often accompanied by remarks such as “I didn’t know video games were getting so much worse.”  Such comments are a mistake and a misunderstanding.  Proper supply-side theories do not deny the relevance of the demand-side, and so nor should demand-side theories deny the relevance of the supply-side.  It is possible to believe both “supply-side factors made the labor market recovery slower than usual,” and “demand-side forces have at this moment overcome many of those problems.”  Just look at the disability rolls.  The ability to receive disability kept many people out of the labor force in earlier years, slowing down labor market recovery.  Yet it is also true that currently demand-side forces are creating jobs good enough that many of those same people finally are leaving the disability rolls.

The deeper lesson of course is that — outside of the short-run — demand-side forces are supply-side forces.  And right now we are out of the short run indeed, at least when it comes to macroeconomic shocks.

The immigration–unemployment nexus: do education and Protestantism matter?

That is the title of a new paper by Jakob B. Madsen and Stojanka Andric, here is the abstract:

Using annual data from 1850 to 2010 for Argentina, Australia, Brazil, Canada, New Zealand, and the USA, this paper examines the impact of immigration and the immigrants’ educational and cultural background on unemployment. Instruments for 27 emigrating countries are used to deal with the feedback effects from unemployment to immigration. The results show that educated immigrants, in particular, and immigrants from Protestant countries significantly reduce unemployment, while poorly educated and non-Protestant immigrants enhance unemployment.

For the pointer I thank the excellent Kevin Lewis.

Why did the U.S. unemployment rate fare better than gdp growth?

That is a new paper by Bob Hall (you must scroll down to get to the pdf), here is the abstract:

Answer: Between 2007 and 2014, GDP growth was held back by shortfalls of
 4.4 percent in productivity
 4.0 percent in capital input
 3.6 percent in labor-force participation
 2.2 percent in growth of the working-age population

Any further questions you might have?

There are other interesting macro papers at the link, and hat tip goes to Greg Mankiw.

Skill mismatch unemployment is real and significant

Even during demand-driven recessions.  Part of the problem is that cyclical and structural causes of unemployment interact and magnify each other.  Here is the job market paper of Pascual Restrepo, one of the stars from MIT currently on the job market.  I turn the floor over to him:

To study the effect of structural change on labor markets, I build a model in which structural change creates a mismatch between novel jobs skill requirements and workers’ current skills. When the mismatch is severe, labor markets go through a prolonged adjustment process wherein unemployment is amplified and job creation is low. Due to matching frictions, firms find less workers with the requisite skills for novel jobs and they respond by creating fewer jobs. The paucity of novel jobs creates an external amplification effect that increases unemployment for all workers—including those who already hold the requisite skills—and discourages rapid skill acquisition by workers. Structural change is not only a secular process; it also interacts with the business cycle, causing a large and long-lasting increase in unemployment that concentrates in recessions. I demonstrate that the decline in routine-cognitive jobs outside manufacturing—a pervasive structural change that has affected U.S. labor markets since 2000—caused a severe skill mismatch that contributed to the long-lasting increase in unemployment observed during the Great Recession. My evidence suggests that this external amplification effect is important. Moreover, I find that the skill mismatch amplified and propagated demand shocks at the local labor market level.

How many times during the last five years have I read or heard critiques of structural theories which neglect their more sophisticated forms?  (“What, did everyone in 2008 simply forget…?” etc.  Be very suspicious of the structure of that argument.)

Here are two other interesting papers by Restrepo, including one on how to share income with the robots, co-authored with Acemoglu.  I agree with their conclusion: “We find that inequality increases during transitions, but the self-correcting forces of the economy limit the increase in inequality over longer periods.”

Larry Summers on technological unemployment in history

This bit is from the Q&A session:

LS: So, I guess I think there is both a, you know, Keynes as usual I think was pretty smart and you know, Keynes began his essay on economic possibilities for our grandchildren by saying that there was this really pressing cyclical problem that had to do with demand which was really important but not all that profoundly fundamental. And there was this more fundamental thing which was that technology was marching on and he thought the dis-employment effects would show up as everybody working 15 hour weeks. And it doesn’t look like that’s quite what they’re showing up as. But the basic idea that technological progress comes with reduced labor input, sometimes it’s early retirement, sometimes it’s people who aren’t able to get themselves employed, sometimes, it’s lower hours, but that is basically the story of the last 150 years.

So, I would not back off of my putting a lot of weight on technology as something important here.

The talk and dialogue (pdf) are on macro more generally, interesting throughout.  In general I believe there should be more transcribed and summarized dialogues, both the NBER and Brookings have had intellectual success with that format.