Assorted links


1. I suppose this means that genetics is even more important than we thought.

#2 nicely summarizes the problem: entrepreneurs are having a hard time coming up with productive uses for anyone other than health care professionals or software engineers.

If innovations today now are primarily geared towards changes that increase automation and decrease employee head counts, it doesn't seem to me that innovation is a solution to high unemployment.

Lang may well be far off the mark, but I think it brings up the possibility that the best way to bring about change from within China may not be through political or social rebellion, but through undermining, or threatening to undermine, the regime's commercial model and/or reputation.

A "Chinese Spring", if it ever occurs, could be an economic one.

This could happen if and when the economy of China takes a dive south.

#2, I think you can't consider the unusually high unemployment rate among young people in the US without considering the recent substantial increases in minimum wage.

The US raised the national minimum wage by roughly 40% between late 2007 and 2009 and then we had a severe recession. This was bound to impact hiring at the low end.

I'll bet we will hear from Ironman as he has done a lot of analysis of the relation of the minimum wage to youth unemployment (he finds a clear link).

If this were true, would not low wage jobs be disappearing? I do not see that at all. Some other blog post:

As a result, the “jobs deficit” in 2011 compared to pre-recession levels looks like this: there are 8.4 percent less mid-level wage jobs ($13.53/hr. to $20.66/hr.), 4.1 percent less high-paying jobs ($20.67/hr. to $30.52/hr.) and only 0.3 percent less low-paying jobs (from $7.51/hr. to $13.53/hr.)."

My own belief as to why young workers are struggling is that work, even low wage work, has become increasingly specialized. Seasonal summer jobs are filled by people, mostly immigrants, who specialize in seasonal summer jobs. Retail work is increasingly done adult workers who work retail throughout their careers. Gone are the days where flipping burgers or bagging groceries after school was a rite of passage for high school kids. Increasingly, these jobs are performed by adults for whom these jobs, minimally skilled though they are, are a career.

When some class of workers dedicates itself to a single occupation, it is likely that those workers will crowd out other, less committed classes of workers. Teenagers and other young people will work a job if it is reasonably convenient, fun and remunerative to do so. When adult workers begin to crowd them out, the jobs become less convenient, less fun and less remunerative.

What's the change in jobs paying less than $7.50? That seems like a necessary piece of information in this analysis.

Wish I knew what happened to total low wage jobs, including those below the current minimum wage. I don't.

On the other hand, teen employment to population ratio has fallen from 45% in 1998 to 24% today. About half of the drop occurred before the increase in the minimum wage, suggesting that other structural factors are at play.

The Federal minimum wage adjusted for CPI-U is lower today than from 1955 to 1985.

Other than 8-10 years from ~1958-68, the employment rate for 16-19 did not fall below 40% and rose regularly to 45-48% from 1948 to 2000.

However, since the 2001 tax cuts, youth employment has fallen steadily from ~40% to ~30% with no change in the rate of decline when the Democrats took Congress.

Federal tax revenue has fallen 25% since 2000, and youth employment has also fallen 25% over the same time period.

How about blaming the tax cuts for the reduced youth employment - maybe all the kids are day trading seeking to benefit from the 15% capital gains tax rate which is lower than the tax on labor income.

Well, there is plenty of work on min wage and unemployment. You can download min. wage and unemployment levels from the bls and do basic regressions yourself. The relationships are clear, and they are worse for vulnerable populations like teens and minorities.

How many mid level jobs slid into the low category? There is enough turnover in these sectors the wages may not be all that sticky.

The minimum wage is a big red herring. Probably the one part of the economy where there's been any growth in jobs has been the low-wage service sector. Too many jobs have been either automated or shipped overseas and these sort of jobs were the kind of entry level jobs recent graduates used to take, but they no longer exist. This is the major reason for youth unemployment.


Australia has a minimum wage of AUS$15.51 and an unemployment rate of 5.2%

#2 don't forget there are some close substitutes to youth workers...

That's an important part of the findings by one of my colleagues, Christopher Smith, who has a new working paper on this topic at:

For a quicker intro, here's the HuffPost article: which summarizes his findings as an "important culprit for rising youth joblessness is increasing competition from grownups taking the low-wage jobs that teenagers typically do."

Claudia, interesting findings - thank you.

Yes, and Australia is also suffering from high teen unemployment. Indeed, it looks like the teen unemployment ratio is even worse in Australia than in the US.


It looks like teen unemployment is roughly 4 times adult unemployment in Australia.

It's also much harder for illegal immigrants to get into Australia.

And, for that matter, legal immigrants. I believe their visa policies are pretty strict.


Are you saying, "Raise the minimum wage to solve youth unemployment."?

I think not.

Here is a possible the answer for Australia's.

Australia is not ruled by aspiring demagogues intent on destroying the private sector.

I think demagoguery is coming from your direction, no hard facts.

What makes you think that the claims about China are exaggerated?

Not certain about who posted it on youtube, but I'll be more credulous if I see it from a source other than The Epoch Times. For those who don't know, it's a newspaper essentially run by the Falun Gong, and takes a very hard anti-China stance.

Government involvement in an economy must necessarily end badly. I think. There may be an exception for communists and crony capitalists.

Since WW II the teen unemployment rate has averaged 3 times the overall unemployment rate and this relationship does not appear to be impacted by changes in the minimum wage. The ratio holds when it has been a long time since the minimum wage was changed and when there were recent changes.

Currently the teen unemployment rate is 24.1%, well under three times the overall unemployment rate of 9.0%, or 27%.. Minimum wage hikes only seem to impact the teen unemployment rate when there is a recession. If the minimum wage is increased during an economic expansion the teen unemployment rate continues to fall.

I am amazed at the number of supposedly good economist that relate the minimum wage to teen unemployment without taking the business cycle into consideration.


"I am amazed at the number of supposedly good economist that relate the minimum wage to teen unemployment without taking the business cycle into consideration."

People see what they want to see.

Speak for yourself.

I see what the data shows and it massively contradicts the introductory economics story on the minimum wage.

What does "sitting on cash" mean in this context, exactly? I presume they don't literally have it stuffed into mattresses, here, and even low risk/low return/high liquidity investments and bank accounts ought to be bankrolling some kind of growth somewhere down the line, unless someone, somewhere down the line actually does have it stuffed into mattresses (or vaults)...

(At any rate, I suspect that the non-bank corporations aren't really to blame for any lack of reinvestment going on.)

They have invested their cash in government deficit spending as the safest and most productive use of their cash to boost long term profits.

In other words, firms are putting market pressure on the Federal government to engage in increased Keynesian deficit spending stimulus.

Conservatives talk about letting the market decide, but get upset when the market decides the Federal government Keynesian deficit is the absolute best and safest investment available ever, deserving of a 0% rate on AA rated bonds.

Not sure that having that much cash on the books is good--it lowers return on equity for those who care. Corporations that amass cash are typically those run by founders or others in a similar position who see themselves and their fortunes as inseparable from those of the corporation. In such cases, returning cash to investors is not much of a goal because management is typically already very wealthy and is more interested in protecting the corporation from mistakes and the vicissitudes of the market than it is in generating the highest shareholder return. Where management is very good (e.g. Apple) this works out okay for investors in the medium term. Where management sucks (e.g. Microsoft), investors get taken to the cleaners.

It also raises buyout risk, because that firm becomes cheaper to buy on credit. (as you get to use the cash to pay off the loan after you buy them.)

Crony capitalism at work. Not free markets.

"Chinese local government debt (between 16 trillion and 19.5 trillion yuan, or US$2.5 trillion and US$3 trillion), and the debt owed by state-owned enterprises (another 16 trillion, he said)."

Who owns this debt though? I can't imagine there are many Western banks that own Chinese local government debt or SOE debt. I bet this is mainly held by Chinese banks. Moody's thinks it is mainly Bank of China and China Citic Bank. It sounds like little risk of contagion outside China due to its closed financial structure. Plus China has foreign reserves of $3.2 trillion to bail out their banks if needed.

Yes, but if they used their $3.2 trillion of foreign reserves to bail out their banks wouldn't that result in contagion outside of China? They would have to sale the reserves to somebody else and if they had to sell a lot quickly, it would presumably effect bond markets world wide.

Surprised you would link to the epoch times, the notorious propaganda machine of the Falun Gong. Rational people would not want to read this paper regardless of their attitudes toward the Chinese government.

All the same, given 'shadow banking' phenomena and unreliability of official statistics, there may be a degree of truth to the story.

I also had difficulty ascertaining the credibility of this source and story.

Typically CBO projections are met with skepticism in these parts.
I guess now that they say GDP would be lower in 10 years we should believe them

Kling's comment about new entrants and sticky wages makes no sense at all. It's exactly what the sticky wage model would predict.

And the stickiest wages of all.... government mandated benefits!
Hey didn't we just pass a requirement that every company buy certain benefits for their employees!?

Surprised you would link to the epoch times, the notorious propaganda machine of the Falun Gong. Rational people would not want to read this paper regardless of their attitudes toward the Chinese government.

> Secondly, that the regime’s officially published inflation rate of 6.2 percent is fabricated. The real inflation rate is 16 percent, according to Lang.

This is when it's safe to stop reading. Every claim like that in history of economics have been made by a total crackpot.

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