The employment to population ratio, revisited

Many of us think this diagram shows there has been some kind of structural break in the labor market, and/or that recovery is proceeding slowly.  Paul Krugman, very recently, suggests that structural factors play little role because the measured unemployment rate is now below five percent.

But in fact labor market indicators are quite mixed, and furthermore the best and latest research out of MIT indicates the structural story does indeed carry real weight.  See also Alan Krueger’s work, or recent research from the AER.  And there are plenty of markers of a more persistent shift in economic activity, as reflected in CBO markdowns of expected productivity growth, based partly on trends which preceded the recession.  That all might be wrong, but the mere citation of the current 4.9 unemployment rate doesn’t persuade me otherwise.

Let’s not forget what Krugman wrote in 2012:

My current favorite gauge of the jobs picture is the employment-population ratio for prime-age adults (25-54). EP ratio instead of unemployment rate, because U may be distorted by workers dropping out…Everything else is just noise.

At least as of yesterday, the preferred labor market indicator was once again the unemployment rate, no mention of 2012.  That was then, this is now, I suppose.

The rest of Krugman’s history on recovery is curious.  Very early on he predicted a rapid recovery (if not right away), then he predicted for several years a long-standing secular stagnation, now he seems to be citing “a recovery of demand.”  I don’t see anything wrong with such a change in emphasis, as the facts change, and Krugman himself makes this meta-point fairly frequently.  Still it is odd for him to be criticizing the predictive record of others on these issues.  He’s been through what appears to be three distinct positions on recovery, and two distinct positions on which labor market indicators really matter, and we are still not sure exactly which views are correct.

Bryan Caplan is pleased that he has won his bet with me, about whether unemployment will fall under five percent.  I readily admit a mistake in stressing unemployment figures at the expense of other labor market indicators; in essence I didn’t listen enough to the Krugman of 2012.  This shows there were features of the problem I did not understand and indeed still do not understand.  I am surprised that we have such an unusual mix of recovery in some labor market variables but not others.  The Benthamite side of me will pay Bryan gladly, as I don’t think I’ve ever had a ten dollar expenditure of mine produce such a boost in the utility of another person.

That said, I think this episode is a good example of what is wrong with betting on ideas.  Betting tends to lock people into positions, gets them rooting for one outcome over another, it makes the denouement of the bet about the relative status of the people in question, and it produces a celebratory mindset in the victor.  That lowers the quality of dialogue and also introspection, just as political campaigns lower the quality of various ideas — too much emphasis on the candidates and the competition.  Bryan, in his post, reaffirms his core intuition that labor markets usually return to normal pretty quickly, at least in the United States.  But if you scrutinize the above diagram, as well as the lackluster wage data, that is exactly the premise he should be questioning.

As I’m the only one in this exchange fessing up to what I got wrong, and what I still don’t understand, and what the complexities are, in a funny way…I feel I’m the one who won the bet.

Addendum: Here is the graph of the ratio for prime age workers only, it too shows partial but by no means complete recovery.  And note this: the more optimistic you are about interpreting the labor market side, the more pessimistic you ought to be about the productivity picture, a conclusion which is anathema to Caplan at least.  Given recent configurations of data, it really is hard to avoid carving out room for structural factors as a significant part of the story.


A long post for what should be a simple "Congrats Bryan" post. "I should have made the bet more granular', etc, etc. It was a simple bet and you knew it at the time. I love you to death Tyler, but I'm seeing weasel posts like these weekly now.

There is absolutely nothing weaselly about this post and quite frankly the delightful jab about creating utility with a ten dollar bet is probally too subtle for Caplan to pick up on. Cowen is perfectly on point- Caplan runs around brow-beating people into betting with him on terms Caplan sets and then crows like a rooster when he gets one right.

If anything I just goes to show how important sports can be in the formation of character-Cowen a sports fan gets the importance of sportsmanship-Caplan the ubernerd doesn't. One only has to recall the sputtering excuses Caplan offered in the wake of his complete humiliation during the Intelligence Squared debate on open borders to know Caplan is equally as ungracious loser as he is a winner.

Cowen has to put up with Caplan's spergy crap because they are colleagues which is a shame because Cowen is the far more intelligent, more cultured and more poised man.

Tyler's point about getting locked into position, and the resulting lowered "quality of dialog and also introspection" is both interesting and useful I think.

It echoes a point that Michael Burry makes in the book version of "The Big Short" (I finally saw the movie several days ago; it instantly replaces "It's a Wonderful Life" and "Trading Places" on my list as the movie with the best depiction of financial markets). Burry was making multi-million dollar investments that he had to justify to his hedge fund's clients, and he didn't like being locked in like that. Michael Lewis phrases Burry's thoughts like this: "Once you became an idea’s defender, you had a harder time changing your mind about it." (I don't know what page of the book this is on; my copy of the book is lost at home somewhere but Vanity Fair's website has the relevant excerpt: .)

A few days ago I attended a lecture by a distinguished biologist, Mark Ptashne, who said that one advantage of being a scientist is that you spend most of your day (and week, year, etc.) being wrong and wrong again. And thus have to constantly keep an open mind, looking for weaknesses in your position and looking for alternative better ideas.

I think his idea is best thought of as a prescription for how science ought to be done instead of a description of how it actually is done; if so it's a point similar to Burry's and to Tyler's. Or perhaps it is best modified to incorporate Imre Lakatos's notion of a research program with a "hard core" (analogous to Kuhn's paradigms) with "auxiliary hypotheses", wherein researchers cheerfully and energetically debate and discard the auxiliary hypotheses but are loathe to question the hard core.

You don't have to lock yourself into a position on an issue just because earlier you placed a bet on it, and it is a virtue to be able to resist doing this to yourself. If you do not now have this virtue, you should cultivate it. Then *bet away*!

I think it is fair for Tyler to say that the overall situation on unemployment is not entirely satisfactory while at the same time congratulating Bryan (which he does). I think even Bryan would admit that the low employment ratio and slow income growth is not entirely consistent with his rebound hypothesis. The interesting thing is that the UK economy is also in a similar position in terms of wage growth and low official unemployment rate, but the employment ratio there is at new highs not lows like the US one. This kind of makes me think that the employment ratio in the US is related to the low wage growth - people are simply doing other things rather than work for low wages (because they can, like retirement or college or benefits). The UK is not suffering from this same issue because they have a lot of prime-age high skill immigration in recent times. If these people wanted to unemployed they would stay in their home country. In other words the UK is like the Texas of Europe, high growth in employment because that's where people who want work go.

What's the answer to all this? - More global NGDP growth of course. This would push up wages and provide incentives for people to come back into the workforce in both the US and Europe.

"More global NGDP growth..." Otherwise, "cyclical will become structural":

I, for one, am glad Dr. Cowen took the time to explain everything in its evolving context. By pointing me in the direction of a few different arguments and data sources, he educated a person without enough time to keep up with BLS numbers or bets between professors (but does have time to read and reply to your comment).

World-class physicists have been making token bets for some time. The stakes are not usually money, but some quirky tangible good that strikes the betters as apropos.–Hawking–Preskill_bet


Have they given up playing bridge?

If you were going to mention the employment-population ratio for prime-age adults (25-54) as Krugmans preferred measure it would have been nice to include that graph rather than the one he explicitly criticized as being skewed by the aging population. The measure he prefers, rather than the one you chose to show, is recovering slowly and steadily over the last few years after a major shock.

I'm sure the recovery could have been faster but a story about Older workers having a skills mismatch rather than prime age workers is something different than discussed in many of your links.

Good point. As of March 2015 (the most recent data in that graph), the prime-age employment-population ratio had recovered 44% of the way from its trough to its previous peak. The overall employment-population ratio (which I guess is what Tyler has in his post) had only recovered 20% of the way as of March 2015; it is now up to 26%.

Came here to say this. It looks like Tyler used the BLS employment-to-pop, so here's the 24-54 version. It tells a somewhat (but not completely) different story than Tyler's graph:

Using SeanB's link, prime-age employment-to-population ratio has recovered 53% of the way from its trough to its previous peak. For comparison, unemployment rate has recovered 92% of the way from its peak to its previous trough, and employment-to-population ratio has recovered 26% of the way from its trough to its previous peak.

So roughly 40% of our unemployment rate "improvement" reflects people leaving the labor force for one reason or another.

I'm not sure I understand your math. Labor force participation fell to really low levels, but it has recovered some from that. The unemployment rate improvement is made harder by more people returning to the workforce, not easier.

It's still a deplorable situation, but I don't think it's quite as bad as you make it out to be. But maybe I misunderstand what comparison you're trying to make. Looking at the unemployment rate alone, and not thinking about the millions who could work but aren't looking right now is obviously misleading.

Unemployment under 5% surely signals to (some marginal) people that had gotten out that it's time to get back in, doesn't it?

Maybe so. But it doesn't feel like 1998 out there.

It's possible it's harder to return to the workforce after a time away, so the labor force participation rate is more sticky than the unemployment rate.

Well, anyone interested in a years long discussion and analysis is probably already quite familiar with

And then there is Dean Baker at

'That was then, this is now, I suppose.'

The lack of self-awareness here remains a reliable source of amusement in an ever shifting world (or bemusement, depending on how seriously one takes this web site).

This goes so far beyond the pot calling the kettle black.

prior_test were you prior_approval? If so--I must have missed it-- why did you change your screen name?

I have to say that I frequently enjoy your posts. Not because I believe them, but because--like many excellent commenters here--they provide an insight I might not have thought of. I chuckle and feel a sense of respect for the variety of variety of insights that different people bring to the discussion.

But it really is just tiring now. As someone pointed out 1 or 2 days ago, your posts now have the opposite effect: the more you post, the more likable Professor Cowen becomes.

I am beginning to think that you are Professor Cowen.

The interesting contrarians get banned. And we're left with the useless prior_.

Tedious contrarians that spam links to their blog get banned. Prior is tedious in a way that doesn't spam links.

It's likely that a huge number of Mexicans, many of them illegal aliens, went home to Mexico in 2008-2010.

How do the various graphs handle that?

Let's see.....US population around 300 million, 5% drop, that's 15 million people.

It may be a factor, but there's 14 million people not working still missing

I don't know where you get those numbers. The U.S. population increased 20.6 million between 2008 and 2015. The U.S. population increases by 250,000 a month and climbing. Next time you see unemployment numbers remember that there needs to be 250,000 jobs just to keep up with population growth.

Nobody ever retires? and 100% of new people are in the labor force?

I was gonna say, get those newborn babies to work!

"Nobody ever retires? and 100% of new people are in the labor force?"

I think you misread the number. The 250,000 number is the net increase in population. So, retirees should be countered by new adults. However, the workforce participation number does factor in.

So, if you want to get the workforce participation back to 80%, then you need to be hiring greater than 200,000 per month.

I don't buy it for a second. 200,000 per month is way more than the net new job seekers in a month. In fact, there was only been one 15-year period in the history of this country when the economy added 200,000 jobs per month, between August 1983 and August 1998, and I'm pretty sure the employment picture improved dramatically during those 15 years.

If we look at the total population, only about 45% of Americans work. Back in 1947, it was 30%.

So, a much larger slice of the population is working in the formal economy than used to.

Still, in this period, over the past 68 years, the US population has increased by 178 million and the number of jobs has increased by only 99 million. Only 55% of New Americans in this time have jobs!

Also, of course, demographics matter. Recall that prior to the baby boom, there was a Depression & war baby bust. Many cohorts (those born in the 1930s and early 1940s) were unusually small, so an unusually small fraction of the population was retiring each year. Now it's the opposite.

I'm don't disagree with any of your statements, but I don't see how they contradict my statement:

"if you want to get the workforce participation back to 80%, then you need to be hiring greater than 200,000 per month."

Brian, let me modify my premise. I realize that we can potentially reach 80% workforce participation, with less than 200K hires per month. Another 5 years on the current trend line would get us there. However, I just expect, practically speaking, that we'll likely have a recessionary period in that time period. All of the Work Force Participation growth periods have been less than a 10 year period since at least 1980.

Ergo, to actually reach the number, you have to have a number that's above the technical minimum.

@JWatts, I'm less interested in the 80% participation threshold. My main point is the idea that we need 250,000 (or even 200,000) new jobs a month just to tread water is nonsense.

The job growth over the past six years has significantly cut into the 8 million jobs lost in 2009- maybe 4 million or more of these guys have found jobs now.

I think these are the jobs that Tyler prophesied "were not coming back." Every month that job growth is above 150K (my guesstimate), more of these jobs come back.

The new employment to population ratio will include 3 month olds.

Brad DeLong and Noah Smith bet a pizza at 1:100 odds on the inflation rate.
Brad bet on low inflation, Noah also believed in low inflation but he thought 100:1 odds was attractive. Impossible to know who gauged the odds better but Brad got the pizza.

If you are going to bet on inflation pizzas are better than dollars.

There is also the issue of demographic change. The baby boomers are retiring, and being replaced by other prime-working age employees. Since the prime-working age (PWA) population not growing as fast, this artificially pushes PWA employment ratio upwards, obscuring a slow recovery.
Tyler's note about the wage stagnation is also important - the new jobs might be too weak to support the growth of the generations comprising the PWA.
Taking these together, I would like to see the charts showing:
** 1 ** count of PWA workers for 2006-2016.
** 2 ** total wages of PWA workers for 2006-2016.
I think both are important indicators which might reveal rather than obscure the true slowness of the recovery.

The Boomers have already mostly aged out of the Prime Working Age category. 54 years ago was 1962-- that's the tail end of the Boomer generation. The point of considering PWA instead of the entire working population is to avoid issues numbers being skewed by retirements or young people being in school.

Exactly, this is the tail end of Boomer generation retirement, which means the recovery which has been going on for 8 years is exactly aligned with this retirement - enhancing the argument.

The reason for considering PWA is because they are those who demand/need wages and have less of a safety net (parents, pension, welfare) to rely on. There is also the issue of adjusting total working in PWA for total population, to try to tease productivity growth or decline. Of course, these are delicate measurements and easier to get to support any argument, but it's worth doing right since a consistent bias over a decade or two will make for a changed society.

A fairly large fraction of the PWA population have spouses working whose income and benefits they rely on when not working. Not entirely pertinent to the discussion, but relevant to larger considerations.

Let's step back. How much worry is justified by a chart that ranges over 58-63%? (Especially given that breakout, to a wider range, seems unlikely.)

That's not a trivial shift by any means. If this really is structural unemployment (which it obviously is) it means we can expect this pattern to continue in future recessions, with employment ratio steadily ratcheting downward with each recession. Look at the manufacturing sector. There are always massive job losses whenever a recession hits, but practically no employment growth even when manufacturing output is rising. That's what is starting to happen to the service economy. Imagine a future in which less than half the population works--we're maybe 2 recessions away. This is the death spiral of late capitalism.

Lee's link below shows the longer history below. The real question is whether the employment/population ratios we first "achieved" in the mid 80's need to be there again? Or higher? A 90% ratio sounds THX134, and not a free and wealthy society.

"There are always massive job losses whenever a recession hits, but practically no employment growth even when manufacturing output is rising."

That's probably largely from automation.

"That’s what is starting to happen to the service economy. "

Are service jobs being automated at the same rate as manufacturing job? Certainly there's some automation, but I haven't seen any numbers that really give me a good feel for it.

"This is the death spiral of late capitalism."

Automation is the "death spiral" of late capitalism? Ok, what's going to replace it then.

Personally, I suspect the first world will transition to "late capitalism". It will be a condition of minimum basic income that covers basic food, housing and medical care, with a resulting reduced work force. But the remaining work force be highly paid and using the income to buy a lot of positional luxury goods.

Will be? JWatts, we're already there.

Well, I think we're in the transition period, but that's just a pedantic distinction. So yes I agree.

When BLS announced last week that unemployment fell below 5% the web was buzzing with allegations of massive fraud at BLS. This morning's column by David Brooks is a welcome departure from the petulance one sees in politics as well as in sports. Brooks: "Obama radiates an ethos of integrity, humanity, good manners and elegance that I’m beginning to miss, and that I suspect we will all miss a bit, regardless of who replaces him." During the Obama administration his critics have never been happier than when news was the worst, never unhappier than when news was the best. Brooks says that the naysayers "wallow in the pornography of pessimism". You know it when you see it.

Just a quick reminder that you're citing David Brooks.

". . . wallow in the pornography of pessimism . . . " an attempt at alliteration. I prefer, "wallow in petulant pessimism." Although, I may be giving Mr. Brooks too much credit for literacy.

The "pessimism" may be based on the "naysayers'" belief that other economic policy options may be more appropriate.

Nattering nabobs of negativism was already taken...

Thomas Friedman?

I have heard "fraud at the BLS" for literally every President since Reagan. (If Carter was doing it he was really bad at it.)

"Obama radiates an ethos of integrity, humanity, good manners and elegance"

I'd be happy if he could at least fake one of these.

You may not believe it now, but when Hillary is in there you are going to miss Obama. Heck people are even nostalgic about W.

I'm not sure I agree. Hillary is pretty clearly to the right of Obama.

Obama is pretty clearly more charming. Maybe that's what you mean.

I did mean the charm, yes. She's grating, he's charming. Politically I don't see why Obama is characterized as so far left. He and Clinton seem pretty close to me. She's more belligerent wrt use of force, the rest seems pretty close.

“Obama radiates an ethos of integrity, humanity, good manners and elegance.."

You could make the similar comments about Ronald Reagan or George H W Bush with the players reversed. I suspect if the US were to go into recession this year, Obama's historical legacy will be closer to Bush Senior, otherwise it will be closer to Reagan. Of course, we'll need 20 years of perspective to know.

There are no doubt interesting factors to tease out of the asymmetric change from 2008-present, but a less than 5% change is probably not a major structural shift in society. More likely it is a cyclical story, with structural subolot.

If we want signs of change, I vote for Japan's 10 year note going into negative interest territory. Astounding. Amazing that employment shifts are so slow (sticky?) in the face of it.

We have had a lot of warning that automation, outsourcing, and a savings glut are changing the world.

Despite this, US employment IS moving in the right direction.

"We have had a lot of warning that automation, outsourcing, and a savings glut are changing the world."

When you reference the entire world, only one of those (automation) is really a structural change. The others two (outsourcing and savings glut) are merely moving the pieces on the board around.

The pieces on the board moving around are changing the world, lifting up the 'emerging' world and certainly affecting the already developed world.

So labor force participation has recovered all the way from 58.5% in the depths of the Great Recession, to 59.5% today. I agree that Tyler Cowen was right on the spirit of the bet--seems impossible to argue. How could anyone look at this data and think the prospects for American workers is anything but incredibly bleak? More evidence of the working classes being devastated by the .001%.

Professor Cowen, I heartily encourage you to refine your theory and propose a modified version of your bet with Caplan using superior measures that better capture the phenomenon you believe is occurring. If you think you were right in general but wrong in the specifics, then bet on it!

Common: Use the correct graph at least:

It is the civilian employment to population ratio ages 25-54: Tyler was using the entire Employment to Population Ratio. You may have to manually force it to use the correct dates:

So after 7 years of "recovery" prime working age people still have gained back only half the lost jobs from the Great recession. That's extremely bad. And underemployment is a huge problem, too. Grim stuff.

Why don't economists ever bring forward the 16-19 pop-employ ratio? Because it's too frightening for the future of the country?

As for the 25-54 pop-employ ratio, why don't we always look at the longer graph?

The same ratchet downward that appears in the real GDP. Possibilities: Accelerated boomer retirement, in the face of bleak prospects? Real technological unemployment, unmasked by disappearance of 35 years of financial froth? Jobs loss in financial sector? Two-earner households realizing that one earner can make a life for both? All of these?

"Why don’t economists ever bring forward the 16-19 pop-employ ratio?"

Because it's not some indication that those young people are permanently unemployable or dropping out of life, it's because minimum wage laws have banned them from selling their labor. They'll get jobs when their labour is worth $16/hour.

Hypothetically, would it be illegal for me to pay an employer $5/hour so he will hire my teenage son? I value him having work experience.

I grew up in a much higher unemployment environment than most Americans experience.

It was really hard to get teenagers jobs. Those that got them, generally got them through favor-trading. I employ your kid, you employ my kid. Or nepotism. Or I hire your firm to, say build my building, you put my kid on the crew. I never heard of direct cash payment.

When did you grow up? I was a teenager in the early-mid 80s and you could apply at any locally-owned (non-corporate) service industry establishment as long as it was not going down the tubes and chances were you'd be hired for some sort of part-time, minimum wage work, provided you did not look like a total bum, or act like a jerk.

I'm an immigrant. I didn't grow up in the US.

We've had minimum wage laws for a long time, yet it was more common for older teenagers to work for much of that period. The more pertinent issue involve child labor laws which strictly limit a teenager's times and total hours of employment. These used to be much honored in the breach-- I recall working until 2am on weekends when I was 17, and working well over the maximum hours allowed. These days those laws are better enforced, and as chain restaurants and corporate retail replaces mom-and-pop establishments the larger corporations are much more attentive to those details (often they have lawyers on staff). Plus, those sorts of restrictions do not play well with the fad of in-time scheduling. All in all, many of the places that used to hire teenagers prefer not to these days, and on the supply side parents and others now emphasize school and extracurricular activities over jobs.

Where I live kids are focused on getting into college. Colleges appear to prefer kids spending their time on the debate and lacrosse teams rather than at the cash register. Kind of sad those kids will never get the chance to ask "do you want fries with that?". I am not sure if the time I spent in low wage jobs provided more value than just the pay.

Colleges appear to prefer kids spending their time on the debate and lacrosse teams rather than at the cash register

Is that really true, or just what parents think? Maybe the admissions office would see someone who spent a summer doing physical labor as part of a well-rounded class.

That probably only matters for the elite colleges, too.

I hope it is true. Do you think there is more value in doing a low wage job that involves physical labor or playing high school sports? For example I think playing high school football is a much more valuable life experience than doing landscaping.

Um I don't know how to break this to you, but if you were playing in the summer it wasn't for your high school team. Were there other people on this team or just you and "coach."

I think working is better. Maybe more people will do their goddam job when they get into the labor force.

PS: Sam, football camp started in July, at least for me.

I just don't think my time being a dishwasher is making me work harder as a programmer. Low paying jobs in general just teach you how to do monotonous tasks continuously without complaining. That type of mentality is the opposite of what you want in most high paying positions.

I'm not sure if your dishwasher skills help you as programmer. I do know telling young people they are too good for "drudgery" creates entitled young people who refuse to do drudgery.
I can say that in my profession, I NEED people who don't mind some drudgery. Some of this "drudgery" is menial tasks, like manually entering 10,000 lines of data. Sorry, needs to be done sometimes, and I do not trust anyone in India to do it.
Some of this "drudgery" isn't menial work, but deep diving into data, away from all faint hearts do shy. A good example is figuring out why the hell an important query will not run. That's "smart people" work, but a lot of smart people will refuse to do anything harder than run a Pivot Table.

I can say that I did not work at all when I was young, and most of my coworkers did, but most of my coworkers are lazy idiots. But I can also say that I was a somewhat entitled steroptypical Millenial when I entered the labor force.

I can also say I would rather mow my damn lawn than work with these idiots.

Does the focus on Krugman make any sense? Isn't he, intellectually, a defunct economist?

But as a fake Nobel winner, he continues to be a touchstone for those hoping to achieve similar honors.

I feel the expansion of students in higher education should be included in this discussion. Because of updated expectations about future job markets and incomes, increases in enrollment are a major channel of structural change within this particular statistic that should theoretically have a similarly persistent effect as the one observed here.

TC, I agree with you final points about betting. I elaborate from a social psychology perspective here:

One challenge, I think, in understanding today's economy is that the downturn eclipses so much. There have been other major changes in the past 10 years, one of the largest being the introduction of smartphones. So we keep expecting a recovery from one event, but so much else has changed.

"Here is the graph of the ratio for prime age workers only, it too shows partial but by no means complete recovery."

If you take that chart back to 1948 we can see that we are well above trend still. Given how highly work is taxed, maybe it makes sense for people to drop out of the official labor force, whether to work under the table, run an illegal enterprise or take care of the house, 30% of that can't be taken away from you.

Just an example, if you have 3+ kids most work (really!) will not pay you enough to cover child care expenses alone.


The major advantage of having your wife drop out of the workforce is that you get her productivity untaxed. For many people that represents an effective doubling of income on the SAHM.

And yet the tax burden for the lower half of the income spectrum has fallen-- and fallen the most at the lowest levels. (see: the oft repeated fact that 47% of the population pay no federal income tax). And the decline has been most prominent among the less-well paid.

Why don't you focus on how little work earns in pay these days thanks to economists who argue everything should have a low price, lower price, zero price, negative price,...?

In the late 60s I dropped out of college because I did not want to focus on what course instructors required me to think about, having suddenly had my mind expanded at a liberal arts college with people from all over the world. At the same time, the college got an IBM 1130 computer that while huge in volume had less computing power and storage than an iWatch, using an NSF grant my advisor pushed for. I had taken a 10 hour non-credit FORTRAN course from him and gone on a tour of a business to see an IBM 1620 run our program cards.

They needed a "computer operator" and no one seems to have applied, so my advisor suggested I apply, tho to be fair he had suggested I take the time to use the computer before school started while he was in using it for the week before, and I had. I spent my time looking over his shoulder, asking questions and offering suggestions as he tried to get his program running.

I got the operator job at $100 per week in September 1968. According to, that is $35,000 today for unskilled labor, as I learned everything specific to the job on the job. Competing jobs might have been making school buses or driving school buses to school districts from Wayne Works, a major employer in Richmond Indiana. Let me point out, that was $100 per week in Indiana.

I learned a lot on the job and was credited with the "data mining" software that "found" at least half a million of the $1.2 million fund raising in 1969 working with two others interested in pushing computers in new realms beyond engineering and accounting. Thanks to the "productivity", my pay was increased to $200 per week by July 1972, which due to the inflation at the time was only about $65,000 today for skilled production work. A few years I other a job at DEC in engineering without knowing how to do that job, and learned on the job, taking many jobs I did not know how to do over the next two decades working for DEC.

That was the story for most of my high school classmates in the mid-60s, many going into manufacturing in the local auto industry value chain in Indiana before graduating high school. I had high school classmates who earned more that I did in computers working summers and part-time before graduating from high school or later college.

So, are you arguing that the reason employers don't hire people and train them on the jobs is that workers will not take jobs paying twice minimum wage and get trained on the job because they do not want to pay taxes, so they prefer to be unemployed with no income?

Around the same time, Milton Friedman was complaining corporate and businesses tax rates were too high and led to employers hiring too many workers and paying them too much because the tax collector paid 50% 60% 70% of the wages of unskilled workers, relatives, union workers, because wages and benefits were tax deductible. He argued for the drastic cuts in corporate and business taxes and elimination of tax deductions for benefits given to workers like meals, housing, company cars while on training junkets, business trips, corporate jets and helicopters, generous relocation cost reimbursements,...

I got the benefits of all those tax loop holes and tax dodges that were the result of the high tax rates associated with work back in the 60s and 70s. Those things faded away after the "tax reform" of the 80s which cut rates and closed tax dodges. By the 90s, hiring someone without skills to train on the job happened less and less often. And for those who were "unqualified" hired in my group, they were the best workers because we hired them based on their ability to learn on the job in the past.

And everyone of those workers hired, they did not complain a few years later about the much higher taxes they were required to pay because their income was much higher. Not one of them expressed regret at leaving their old lower wage job where they paid lower taxes.

"So, are you arguing that the reason employers don’t hire people and train them on the jobs is that workers will not take jobs paying twice minimum wage and get trained on the job because they do not want to pay taxes, so they prefer to be unemployed with no income?"

Not at all, in fact I'm making no comment on that whatsoever. Maybe if people of your generation didn't want to screw people of my generation so bad you wouldn't have opened up the world to free trade and imported millions of third world peasants to undercut our wages. Maybe then we'd get paid to get trained like you, instead of having to enter indentured servitude to money lenders and the government. Sorry, that probably wasn't your fault, I'm sure you voted against that.....

I was commenting on the recent change in the prime age working population. Maybe we're getting back to where you were? If you look at the chart Tyler was discussing but expand the range to the beginning of the series you'll see that the participation rate was much lower in your golden years. I did have a quibble about the tax rate because if my wife works, she makes about as much or a little more than a babysitter but 30% of that is taken in taxes. If she takes care of the kids directly we get to keep that 30% to ourselves (as labor not money) and our kids get raised better and our expenses go down. I'm sure I'm not the only one making that calculation which is what I think accounts for a good deal of the participation rate of the prime working age population going down.

The biggest change, is probably the cost of child care. Average child care is vastly more expensive in the US today than it was 30 years ago. You can still manage to find a baby sitter who'll work "cheap", but in those cases it's virtually certain that the baby sitter isn't following the rules, regulations and probably isn't reporting the income.

In partial defense of Paul Krugman:

People make mistakes. Especially when they are a lot of pressure, as Paul is, violently rejected by his old faithful reader for his absurd position in the Sanders-Clinton divide.
In the larger context of Paul's thousand of posts since five or more years, yesterday's post
is an aberration. The Krugman 2012, who thinks that unemployment rate is a very poor indicator by itself, is the only real one. The larger point made by Krugman, that this is/was a demand-driven recession, is the main point he wants to make and has made repeatedly, and one weak argument in its favor doesn't destroy it.

It is a little bit petty to trumpet about such a tiny contradiction. Now Tyler has a similar excuse : he just lost a bet on this very subject. Nothing serious in it. Let us all have a beer together (at the white house, with Obama, or soon, with Sanders).

This reads like a No-True Krugman fallacy. /lol

That's an interesting reversal of the koranic theory of abrogation.

Wait, you gave him 10:1 odds on that bet, plus inflation?

"The Benthamite side of me will pay Bryan gladly, as I don’t think I’ve ever had a ten dollar expenditure of mine produce such a boost in the utility of another person."

Kinda sour grapes-like

And everything he writes after that seems to be a continuation of his wounded ego meme. Academics are such fragile creatures.

I think it is important to remember the bet that Tyler actually made.

"U.S. unemployment will never fall below 5% during the next twenty years. If the rate falls below 5% before September 1, 2033, he immediately owes me $10. Otherwise, I owe him $1 on September 1, 2033."

This was a ridiculous bet on Tyler's part and shows a absurd level of conifidence in his own theory.

First we are talking about a 20 year time frame. His theory could have been largely correct and still normal fluctuations would push unemployment below 5%. Obviously Tyler thought his theory was going to be so strong that it would swamp variance from business cycles. And that makes his weasling about other metrics looks silly.

Then not only did he bet on a long time frame where lots could happen he gave Bryan 10-1 odds! Are you kidding me! At the time if you put that bet out on something like Intrade i bet it was Bryan's side that would have had to have given favorable odds.

This was not a bet about whether secular stagnation was happening or not, it was a bet about Tyler's extremely high confidence that it was happening and that it was a really strong phenomenon.

Frankly when I saw Tyler took this bet I had to downgrade my opinion of his humility about his own ideas. Had he been right I would have had to have given him major kudos, because he bet on a very extreme position.

I still love Tyler, but he needs to put less faith in his own theories.

I think Tyler did win from this bet though he doesn't seem to have learned enough to make it worthwhile even from his point of view.

"Then not only did he bet on a long time frame where lots could happen he gave Bryan 10-1 odds! "

The bet was technically 10-1 odds, but in reality it was a $10 bet. Tyler bet him the cost of lunch. So, the bet was far too low to force either party to seriously consider the odds.

I thought the whole point of these types of bets was to seriously consider the odds.

The whole point of these bets is that Bryan Caplan is a glorified blogger with a boring writing style and poorly forumulated ideas so he had to come up with his own uproxx like click bait strategy.

"That said, I think this episode is a good example of what is wrong with betting on ideas. Betting tends to lock people into positions, gets them rooting for one outcome over another, it makes the denouement of the bet about the relative status of the people in question, and it produces a celebratory mindset in the victor. That lowers the quality of dialogue and also introspection."

This is true as far as it goes, but the point is you don't bet on ideas, you bet on objective outcomes. One point of a bet is to induce rooting on the outcome, watching a sporting contest is more fun if you have a few bucks on the winner. In well-adjusted people the outcome has nothing to do with status, relative or absolute. It does produce celebratory mindset, which is the other point of betting.

Enlarging a debate about ideas with a bet on objective outcomes is a great idea. For one thing, it forces people to strip away ambiguities and qualifications. You say technological changes and environmental concerns mean most of the known hydrocarbon reserves will be left in the ground, I say we're going to leave no stone unfracked to pry every molecule of organic carbon out of the Earth's crust. We can go round and round on that without generating much insight, but making a bet about oil production in ten years forces us to make real decisions with our own money, rather than jockeying for position in an intellectual status competition. Also it forces us to think through exactly what we are saying.

For example, I would love to know the resulting entries if $10 million were to be awarded to every climate scientist whose guess for the 2025 global average temperature was correct to two decimal places. I'm willing to bet that the median entry would be less than the IPCC 5% lower bound. If I'm right, that doesn't mean IPCC climate science is wrong, just that practitioners are overstating its certainty, and a large enough bet would prove that point in a way that no amount of debate could. If I'm wrong, it doesn't mean IPCC climate science is right, but it is strong evidence that its practitioners are sincere.

The other point of betting is it quickly removes incompetents and posturers from the debate. If you consistently lose money betting on objective propositions implied by your ideas, your ideas probably aren't strong. If you refuse to take actions consistent with your claimed ideas, you probably don't have much faith in them. This process does not settle the debate, in most fields of great interest there are multiple reasonable positions that cannot be easily refuted by objective evidence. If Keynesians won 52% of bets with monetarists, it wouldn't settle that debate. The simple objective things that make good bets are not nuanced enough to distinguish the two approaches, and with all the complexities, noise and confounding factors, it could take more time than the modern economy is likely to survive to get statistical confidence. But the process would eliminate lots of silly positions from the discussion, it would highlight some obscure beliefs that actually have empirical support, and it would force everyone to be more humble about their creeds. It would also reveal some passionate disagreements to be merely semantic issues, that cannot be settled by any objective bet.

It is true that simple binary bets give no incentive to modify beliefs upon new evidence, and could induce "talking your book" among weak-minded participants. The solution is continuous markets so you can increase, decrease or reverse your position as the price shifts and information comes in. I don't claim these markets lead to truth, there are well-documented issues with treating prediction market prices as probabilities, and in any case, a lot of the truth we care about cannot be captured in simple objective bets. Certainly financial prices don't always seem wise, and they don't tell us everything we want to know about the economy anyway. But an economic idea strongly contradicted by long-term market price movements is very likely wrong, and the information from market price movements is very useful in understanding the economy.

On climate it is one thing to predict temperature given a co2 slope, it is another to predict the co2 slope itself. The second is required for a real, 2025 temperature. The winner would not only have to understand climate, but also predict future economics, wars, regulation, and innovation. A hard job.

Yep. You'd think they would do less of it.

There are different groups of "theys" who do it both ways, for different purposes. Merely extending the co2 growth produces an answer, but not one anyone wants to wait and test. It becomes a worst case scenario. And so the more social modelers model change.

To win, they'd mostly have to be lucky. The standard deviation of annual change of global mean temperature is about 0.1 degree C, so even if you predicted the trend perfectly you'd only have about a 4% chance of getting it right to two decimal places. But if your trend is off by 0.1 degree C, your chance drops to 2.5% and if it's off by 0.2 degree C, your chance drops to 0.5%.

If you just draw a line over the data from 1970 to 2015, and project to 2025, you'll predict 2025 will be about the same as 2015 (the trend from 1970 to 2015 would indicate a 0.15 degree C increase, but 2015 is way above the line due to the strong El Nino). The 2014 IPCC business-as-usual low estimate is an increase of 0.30 degree C (0.50 is the median). Since report was before the El Nino was known, a climate scientist who believed the models might guess around about 0.1 or 0.15 degrees below those numbers.

My prediction is the median guess would be less than an increase of 0.15 degrees C, which is inconsistent with faith in the models. But if the median came at 0.35 or above, it would demonstrate faith. I think it would be interesting to know.

I don't think regulation, innovation or other human variables will have much on the expected temperature over that time period. Volcanos, solar activity and El Nino are much more important.'

well, yes, but no one is crying foul if they do like Hansen and make one plot for "if we emit this much carbon" and another for "if we emit less carbon" and another for "if we emit more carbon" so it's moot. Just plug in a couple of different numbers in your model for varying emissions. Nothing wrong with that, they're not supposed to be required to predict economics.

+1 , great post

Yes. Aaron's comment wins the thread.

There are real upsides to betting. It is not always useful but does seem to make people more concrete and less hyperbolic in their predictions. Betting should be used when people are making hyperbolic predictions. Maybe most of the benefit comes before the bet in the laying out of the parameters.

Trump, for example, runs around saying he will make the country great again. To lay out a bet he would have to say in what way the USA no longer great, and then tell us in concrete measurable terms how things will be greater after he is president of some amount of years.

the graph of the ratio for prime age workers only,

Better yet would males prime age only.

Also the graph should go back further so we can see if there was a long term downward trend.

I have some similar misgivings on my bet with Sumner as to whether Chinese GDP PPP per capita will exceed Mexico's by 2038. It now looks like this might happen on an official basis, but Chinese living standards could actually still be significantly lower (see e.g. the horrific air pollution indices). This is especially true if PPP is distorted by hard capital controls supporting a peg, rather than being compared across floating currencies and Chinese RGDP continues to be reported in a way that few believe reflects reality. And that's before we talk about China's continued dead-bottom rankings in political freedom.

I do think liberalization, a broken peg and devalulation are more likely on that time scale right now, but it's not hard to imagine things working out differently.

You also need to have confidence that Chinese reported figures are at least as honest as Mexico's.

Maybe we should include a long time span in these graphs to put the phenomenon in full historical perspective?

The high cost of complying with central planner dictates under threat of execution to drastically cut China's air pollution will boost China's gdp growth past Mexico's.

Unless hundreds of millions of managers are executed for failing to pay workers to build green capital assets to cut air pollution and then force consumers to pay the higher prices required to pay returns on invested capital, or alternatives use government wealth redistribution to pay the workers: taxes, inflation, bankruptcy confiscation of consumer savings invested in bank debt.

I think Tyler has some good points. This also I think points to the frustration many non economist have with some of the big name economists ( especially Krugman). They make bold predictions and when they turn out wrong many won't take responsibility and simply change prediction. Hard to trust someone who can take responsibility when they screw up.

Yeah sorta. I think most commenters here like Tyler a lot - I know I do - and happily contrast his style with the "full steam ahead, take no prisoners" approach of a Krugman.

In this case, though, it would appear that Tyler was pretty confident the economy would be a lot more in the dumper for a longer time than how things have transpired.

A bit of reflection on this might be an edifying exercise for our estimable host.

Tyler was right that he should have added more variables. When half the decline in the unemployment rate is people leaving the employment pool, the unemployment rate isn't a helpful indicator anymore.

Maybe, but this was a 20 year bet at which Tyler gave 10-1 odds. Will he do that bet again with his prefered measure? Say prime age worker employment/population ratio.

We can talk about numerators and denominators, but in the past six years, the economy has added 14 million new jobs, all in the private sector. I don't think Tyler envisioned this.

He offered 10:1 odds and lost with 17 years remaining on the bet.

"When half the decline in the unemployment rate is people leaving the employment pool, the unemployment rate isn’t a helpful indicator anymore."

Is that right? I don't think so. Tyler made this bet in 2013 the labor force participation rate has increased since then. So the unemployment rate did not drop because people left the market. It dropped in spite of people entering the market at a slow pace.

Whoops I read the chart wrong, it is for employment to population not labor force participation. I take back that last comment.

Would agree with that somewhat, though I at least appreciate that he is explaining himself some and pointing out what his original opinion means better. I think it's one of those situations where Caplan was right the economy would improve faster than Tyler expected but that Tyler is right there could be some big issues and that ignoring the participation rate is a really bad idea when judging the recovery and our economy.

Cowen's confidence in his prediction about the unemployment rate reminds me of the confidence with which a well-known tax lawyer once gave his opinion whether the IRS would tax currently the receipt of a profits interest in return for services (as opposed to "property"). "Little or no chance" was the lawyer's opinion. His colleagues took great delight needling the lawyer when the IRS ruled it taxable. The taxpayer in that case was a lowly (relatively speaking) real estate developer, and once presented with the same question by a banker, the IRS quickly reversed course and adopted what's now called the carried interest rule. Or as I would say, it depends on the context (and the net worth of the taxpayer). I suppose that to Cowen there was "little or no chance" (LONC for short) that the unemployment rate would fall below 5%, but his opinion depended on the context.

You appear to be referring to Campbell v. Commissioner, 59 TCM 236 (1990). "Little or no chance" is not really a lawyerly opinion, but that is apparently what Burlington told his client (verbally?). If it were in writing, it would almost certainly have been a "will" or "should" opinion.

But, that same case was overturned on appeal to the 8th Circuit. See, 943 F.2d 815 (1991) and had nothing to do with bankers. On appeal the IRS conceded that receipt of a profits share in return for future services is not immediately taxable.

And, I guess, more to the point of this post: Lawyers make "bets" like this every day and face the consequences of being right or wrong on those bets in a manner that economists rarely have to face up to. And, those bets are quite a bit bigger than $10.

Yes, the IRS did. Why? Everyone knew by the time of the appeal that the stakes were much higher than the small time real estate promoter (the broker who finds and manages good real estate investments for his physician brother in law). Since you know the case, you know the technical problems created by making the receipt of a profits interest a taxable event (section 721 doesn't apply to the partnership either). But my skepticism, my cynicism, goes much deeper. I was taught by a leading expert in international tax and could have gone that route, but I thought I was smart enough at the time (almost 40 years ago) to know that subpart F was a black hole for tax advisers and their corrupt clients. Little did I know how naive I was.

Subpart F is my favorite subpart.

Oh my! My naivete wasn't limited to subpart F or my time studying tax law. When I was in law school none of the top students considered a career in personal injury (torts) because recovery was all but impossible, with the defenses of contributory negligence and the like. But while I was in law school our state supreme court adopted contributory negligence and strict liability for defective products. My defense is that I wasn't the only student dumb enough not to realize the consequences. My defense for not choosing a career in international tax is that I didn't know the country would go total tax revolt and that one day Congress would welcome tax cheats as heroes.

@rayward, "I didn't know the country would go total tax revolt..."

Um, this year, various levels of US government will collect $6.2 trillion in taxes, more than $19,000 per citizen (ok, they spent $500 billion more than this, but they're planning on some serious belt-tightening any time now.)

I'm trying to imagine what your utopia where the country didn't go total tax revolt looks like.

And, how to we get from "everyone knew by the time.." to "and once presented with the same question by a banker, the IRS quickly reversed course"?

This is how rumors get started, I guess.

I preferred Cam Newton's sulking!

Can we get the FRED title bar on that graph? Would make it much easier to follow the back and forth with Noahpinion. I assume the version you posted covers ages 15-65?

"As I’m the only one in this exchange fessing up to what I got wrong, and what I still don’t understand, and what the complexities are, in a funny way…I feel I’m the one who won the bet."

What you got wrong you don't yet seem to see, much less understand.

You like virtually all conservative economists argue that wages need to be lower. Trumy is reflecting the views of the loudest economists when he said "I think wages are too high."

The reason you wanted lower wages was to reduce the supply of workers.

The supply of workers has been reduced as you and conservatives economists have called for, lowering the unemployment rate, and now resulting in very slightly higher wages being offered to very slightly increase the supply of workers.

This is intro microecon, something economists seem to erase from memory on entering grad school.

Who is arguing that wages need to be lower?

As I’m the only one in this exchange fessing up to what I got wrong, and what I still don’t understand, and what the complexities are, in a funny way…I feel I’m the one who won the bet.

Caplan said, in his article "The Bettor's Oath":

When I lose a bet, I will admit defeat, pay promptly, and hold my tongue - never protesting that I was "really right."

Maybe you should have said "I lost the bet but I think I learned something by analyzing why I lost"? Contrary to what you said, this seems to be a good example of why betting is a good idea, especially among academics (who usually don't face any negative consequences when they confidently say something they don't really understand).

Caplan definitely claimed he was really right after getting humiliated in the Intelligence Squared debate so let's just say I'll believe that when I see it.

Was there any instance where Caplan said he was "really right" when he lost a bet (that involves money about some future event with concrete numbers that both parties agree on)?

I wouldn't have criticized Cowen if he didn't say "I feel I’m the one who won the bet". I actually think it's good that Cowen is giving analysis as to why he thinks he lost the bet. Same goes for people who try to explain why they lost a debate or soccer match. There's nothing wrong with that.

But saying you were the one who actually "won the bet" after losing a bet sounded very pathetic (to me). You are clearly a Cowen fan (or Caplan's enemy, or both) so sorry if it hurt your feelings.

I was about to post the same thing when I read Mark's comment. There seems to be some deep analysis and learning going on precisely because of the bet. Tyler is thinking about what he should do differently the next time he makes a bet - for which time read "next time he makes a prediction". That seems to be a good and productive thing.

There are two senses of "Betting on Ideas", and I don't think Robin Hanson's Prediction Markets suffers as much from the weakness you identify in 1-on-1 bets. Since participants can sell their current positions, either to lock in gains or to reduce losses, they always have an incentive to be re-evaluating the actual probabilities of the outcomes. If you know your probability estimate for some outcome, and update it when there's new evidence, it can make sense to switch sides as the public odds fluctuate, sometimes betting in favor of the outcome, and other times against.

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