It’s the bias against stale labor, not the sticky nominal wages

by on September 26, 2012 at 10:37 am in Uncategorized | Permalink

At this point, at least.  Read this bit from Chris Blattman.  Apparently, most of the staleness sets in within eight months.  Note, by the way, that this explanation simultaneously can account for a) unemployment not being very nice for the unemployed, and b) inability to use lower wage demands to get a job, even with ngdp ten percent above its pre-crisis peak.

1 KLO September 26, 2012 at 11:01 am

Human capital may be valuable but it also depreciates very rapidly. Is this a new phenomenon? It has to make people very risk averse when they are looking for a job, whether or not they are unemployed.

2 prior_approval September 26, 2012 at 11:06 am

Or maybe, it is also something like this, because staleness doesn’t seem the problem (though admittedly, as American manufacturing declines, so does the need for workers able to support manufacturing – it can almost be considered a self-healing problem, especially considering how skilled industrial workers tend to be most unionized in the world, as both Germany and South Korea demonstrate) –

‘The U.S. unemployment rate remains above 8 percent, and every politician extols the importance of job creation. Yet each month thousands of manufacturing jobs are there for the taking — but companies are unable to hire sufficiently skilled workers.

“Five percent of manufacturing jobs go unfilled every day because we can’t find the skilled workforce,” fretted Jay Timmons, president of the National Association of Manufacturers.

At any given time, this skills gap represents about 600,000 open jobs. That’s a stark number given how much attention is focused on the high unemployment rate of 8.1 percent and weak monthly job numbers.

The vacant jobs involve skilled production positions such as machinists, production operators and technicians. Employers complain that they can’t find workers with the skills to calibrate machinery, do simple math and even more troubling, simply show up to work. ‘

3 Brian Donohue September 26, 2012 at 11:15 am

In sum, all Americans should go to college and, you know, study English or transgender studies. Something useful like that.

4 Cliff September 26, 2012 at 12:05 pm

Isn’t this another case of employers belly-aching about employees not wanting to take the wages they offer and not wanting to train anyone? And isn’t U.S. manufacturing output the highest in the world and near the highest of all time?

5 Alex September 26, 2012 at 12:35 pm

It’s hard to find people who can do math at minimum wage +$3.
I Guess that means there is a shortage!

6 derek September 26, 2012 at 11:09 pm

No it isn’t. There are probably half a billion or so in China and India.

7 Alex Godofsky September 26, 2012 at 11:09 am

If it’s a hysteresis effect, shouldn’t we be able to reverse the effect through a burst of rapid NGDP growth, which would ‘artificially’ reduce unemployement, allowing the currently unemployed to rebuild the lost human capital?

8 mw September 26, 2012 at 11:13 am

This effect clearly *exists* but it certainly doesn’t follow that it supplants sticky wages. If employers didn’t feel awkward and were willing to cut the wages of every employee with the same marginal product as the typical unlucky unemployed person, you would argue that they wouldn’t therefore invest in more workers?

9 Ranjit Suresh September 26, 2012 at 11:16 am

If employers were able to conduct extensive written tests for applicants, disparate impact be damned, economists wouldn’t spill as much ink writing about the loss of human capital. Nor would companies let talented young people fall by the wayside because they’re 8 months out of a job. They might even discover that the most critical human capital – cognitive ability – only depreciates over the course of decades, not months.

10 roystgnr September 26, 2012 at 12:00 pm

Indeed. Signaling problems have an obvious solution whenever “just gather the signaled information more directly” isn’t impractical, just illegal.

At the very least we ought to try legalizing freedom of hiring in a few states, just to see how it works out. Note that the basis for comparison shouldn’t be “the utopia our planners imagine, where everybody is perfectly equal” but rather “the world our planners helped create, where some groups’ unemployment rates are 75% less equal than others”.

11 Cyrus September 26, 2012 at 7:42 pm

Some employers do conduct such tests: settling the occasional employment lawsuit can be less expensive than having a mediocre workforce.

12 Tracy W September 27, 2012 at 5:02 am

I doubt this. Written tests are common in NZ, but unemployment still has hysteresis effects.

13 jeff September 26, 2012 at 11:16 am

Correction: it’s Chris Blattman who linked to the paper, not Chris Bittman.

14 Daniel Francis September 26, 2012 at 11:22 am

I was a the NABE speech Bernanke gave where he worried about this exact effect. Print green pieces of paper does not appear to be helping.

15 John B. Chilton September 26, 2012 at 11:22 am

Tyler – “Bias?”

How about this sentence from the abstract: “We explore how this effect varies with local labor market conditions, and find that duration dependence is stronger when the labor market is tighter.”

It goes to say this could be explained by an information story. The longer the duration the more likely you’ve been screened out –> a sign that your are less productive.

Here’s another story: The longer you’ve been out the more likely it is that you responded to the adverse incentives of the redistribution system based on your preferences, and that’s a bad sign to employers.

16 kebko September 26, 2012 at 11:23 am

This might help explain the shape of unemployment duration, but would it explain the total level of employment? This says something about who gets hired, but not how many.

17 John Thacker September 26, 2012 at 11:46 am

This seems to suffer from the same sort of objections as a causal explanation as the sticky wages / NGDP situation. Sure, employers may prefer to call back the person who has had a job more recently, given lots of candidates. But surely the economy is capable of creating jobs despite that, and if enough jobs were created then the backlog would be worked through. When unemployment was very low in the ’90s, certainly “stale labor” that had chronically been unable to find a job was suddenly able to find one.

The unemployment level for PhDs and other advanced degrees is lower than that for people with college or high school only, and employers prefer the more educated candidates. That doesn’t imply that everyone getting more education would automatically lower the unemployment rate in the short term or long term, even if it could raise wages and GDP.

18 zbicyclist September 27, 2012 at 8:04 am

” employers prefer the more educated candidates”

Depends. Being overeducated doesn’t help. You are likely to be seen as likely to leave, or as not that good because you haven’t been able to get a job. If you need someone to do relatively straightforward analysis, for example, hiring a PhD in statistics is a mistake even at the same price; better a bachelors or maybe a masters.

19 Chuck Ross September 26, 2012 at 11:51 am

I have a service industry job (waiter) and a master’s at a state school. I’ve been out of my particular industry since 2010. I receive no callbacks on any job apps, ever.

Here’s my dilemma at the moment: I would like to build my skills to fit whatever is most in demand in the market i.e. Oracle training, financial modeling, etc., things that were either not taught to me at school or not taught very well. I’d pay a couple of grand to build skills that are valued by employers. But how do I know that I’m making a wise investment? This fear is completely immobilizing.

But there are few if any resources which help job-seekers put that particular foot to the pavement. When you fall out of the job market segment that you’d ideally like to participate in, you quickly lose sight of what skills the market is looking for.

Colleges really suck at matching skills in this manner. I’d be interested in an online resource.

20 IVV September 26, 2012 at 12:19 pm

You’re a waiter? Great, so you have a job.

What are you looking to do? If you’re interested in Oracle training and financial modeling, then train yourself on that. Then, use those skills somehow at the restaurant. If you can say that you were able to, say, reduce food costs by 5% from budget through modeling price movements, then bam, it’s on the resume, you’ve had a success on the job, it’s recent, and it’s relevant. That will help you to make the next step.

The trick, though, is finding a way to do what you want to do, and show quantifiable success in using that skill.

21 Chris September 26, 2012 at 2:22 pm

Anyone interested in software or anything similar should be able to contribute to an open source project and include that.

22 ShardPhoenix September 27, 2012 at 6:09 am

“Then, use those skills somehow at the restaurant. If you can say that you were able to, say, reduce food costs by 5% from budget through modeling price movements, then bam, it’s on the resume, you’ve had a success on the job, it’s recent, and it’s relevant.”

Are you serious?

23 IVV September 27, 2012 at 8:45 am

I did similar stuff to kick off my career change. It worked.

24 ShardPhoenix September 27, 2012 at 6:10 am

Free college-level education is increasing available through sites like Coursera and Udacity. Look them up.

25 John Thacker September 26, 2012 at 11:51 am

In any case, it is the sticky nominal wages, for nominal wages have been surprisingly sticky. Perhaps this is the reason why they have been sticky, but it’s definitely the case that the ratio of nominal wages (for people with jobs) to NGDP is higher than it was pre-crisis, though not as high as it was at the worst of the crisis (and unemployment has declined.)

26 Brian Donohue September 26, 2012 at 12:31 pm

Help me understand why the blue line keeps going up. Are sticky wages indexed? Have wages not gone up, but this reflects some kind of survivor bias? This seems problematic for the sticky wage crowd.

27 Ryan V September 26, 2012 at 12:36 pm

Suppose this is wrong, and the cause of high unemployment is 100% norminal. Then unemployment is below its natural rate, and expansionary monetary/fiscal policy will get us back to equilibrium.

Now suppose this is correct, and the cause of high unemployment is stale labour. Then unemployment is at its natural rate. But there are multiple equilibria, and we’re in one of the bad ones. Expansionary monetary/fiscal policy will push unemployment below the natural rate, which will reduce the staleness of labour, which will reduce the natural rate of unemployment.

In both cases, expansionary policy will result in a lower long-run unemployment rate. What are the meaningful differences between the two models?

28 Jared September 26, 2012 at 12:53 pm

Exactly. If Tyler is looking for “causal force,” “the unemployed are staying unemployed because they’ve been unemployed” is pretty weak in that regard.

29 Jared September 26, 2012 at 12:54 pm

This was in response to Ryan V

30 Floccina September 26, 2012 at 1:25 pm

One can usually fudge the period he was out of work by using schooling/training or charity work or under the table work.

31 Floccina September 26, 2012 at 1:28 pm

I forgot the most important one that is self employment.

32 Alex Goldman September 26, 2012 at 2:34 pm

Price Chart so beautiful that it will make you

want to lick the screen:

dr.Alex Goldman, founder.

33 awp September 26, 2012 at 6:11 pm

last line of the abstract.

“employers use the unemployment spell length as a signal of unobserved productivity and recognize that this signal is less informative in weak labor markets.”

The signal is weaker during a recession and thus the unemployment spell length explains less total continued unemployment than it does during a tight market.

So it is not
bias against stale labor v sticky nominal wages

34 tt31 September 26, 2012 at 7:50 pm

It might be interesting to compare recent trends in “staleness” between mothers temporarily leaving the labor force after having a child, which presumably presents a different signal, with others.

35 Charlie September 26, 2012 at 8:48 pm

Markets should still clear. Wages should fall enough for the labor market to clear, even for stale labor. You are just saying maybe wages need to fall even farther than we thought.

36 jeff September 27, 2012 at 4:49 am

Stale at age 27…

37 zi xiu tang diet pills September 28, 2012 at 4:55 pm

we’ve got got 6 containers at this site, 3 in my situation, And the details with regard to a family boyfriend,published primary want to reduce 15 lbs,fat. my body system family has to lose 25 lbs,fat. and as a result our group arranged get hold of this method together with. on the subject of i’m able to lose more fat, right this moment to this point for just about any month finally, i lost primary 5 lbs,fat. and yet a family boyfriend erased 15 lbs,fat. no matter which, the issue is good, thaks. unwell prescribe this method to mate craig, the person {needs|requirements|wants|requires|desires|demands|necessities|must have|preferences|really needs|wishes|expectations|specifications|should have|would ne

38 next day fyoricet October 23, 2012 at 11:07 am

It’s really good material to read. I like it.

Comments on this entry are closed.

Previous post:

Next post: