Labor market restructuring and its possible permanence

We find 3 new hires for every 10 layoffs caused by the shock and estimate that 42 percent of recent layoffs will result in permanent job loss.

That is from a new paper by Jose Maria Barrero, Nick Bloom, and Steven J. Davis, top experts on this and related topics.  As for policy:

Unemployment benefit levels that exceed worker earnings, policies that subsidize employee retention, occupational licensing restrictions, and regulatory barriers to business formation will impede reallocation responses to the COVID-19 shock.


Who knew that the American economy had so many ZMP employees that were just not recognized as such before a virus made it clear?

I earned that rank early in my career.

Ranks are ineffable paraphernalia of hierarchical insubstantiveness, if people are people, transference of similarities is all but inevitable.

What I didn't realize is how many businesses are outraged by their customers spending too much money, while at the same time complaining government is not driving up GDP fast enough, which based on businesses demanding lower consumer spending means government spending must grow much faster.

Ding ding!

Our economy currently demands necessary purchases such as housing keep getting more expensive until it soaks up all possible money people have left to give, yet at the same time, those same naive economists (and I mean stereotypical naive economists who caused 2008 because "housing can only go up") wonder why Americans don't have any excess income to form savings or emergency funds.

Hyperbole but semi serious: The way our economy runs, we push everyone to the redline on survivability. The instability will grow until one rainy day causes massive layoffs because our economy can't take a single day of productivity loss.

Remember: Sound economic thinking said all Americans were supposed to have 6 months of savings, so many economists still think nobody is in real danger, because they were supposed to have savings. Anyone who doesn't have savings - the bottom 90% of the population - are lazy bums who deserve to get fired. There's even one or two of those types in the comments already.

But the Fed is supposed to keep NGDP growing. If some sectors face supply constraints, prices in sectors that do not should rise.

Thank Heaven we have a central committee of Ph.D. economists to decide when and where prices should rise.

You’ve got data to prove that people buying expensive housing are the same people that are getting laid off?

Are you sure those two populations overlap?

And who is “we keep pushing”. I’m pretty sure boomers and gen xers buy houses with or without the “push.”

And as for millennials, they don’t even buy houses.

Lmao I live for the macro-micro economics of Mulp.

Nihilistic business creating so much artificial scarcity, one wonders if there are any profit maximizers in such a world.

I mean this reasoning taken to its logical extent would mean that google and Apple Pay their median employees the minimum wage....

I can believe it. The economy is a train wreck. What will the unemployed do after their UI check run out ? reinvent themselves as Peloton instructors ? .
If everything is online , we might as well live in a simulation.

But the US stock market is trending back to all time highs. DJ-30 futures point to another big up day today. "Buy on the dips" has been permanently etched on the minds of investors it seems.

It probably has to do with the endless amounts of money being printed.

Not "endless" enough to get the TIPS break-even rate for inflation expectations up to the equivalent of the Fed's supposed target of PCE 2% pa.

@Ray - Are your orders for Dow at 10K still active or did you cut your losses?

The VIX index is still 120% higher than in February. There's a lot of risk and uncertainty.The market could easily turn south again
The S&P 500 may not do too bad as it's dominated by FANG + MSFT which are somewhat benefiting right now.
The stock market often whistles past the graveyard. It was still climbing until Feb.20, not exactly prescient.

There is a finite possibility the genetic engineers may solve this problem soon. It is the only bet in town.

What's the difference between a finite possibility and an infinite one?

"Finite" in this context means non-zero. I think it is usually used to mean even more than that: not of measure zero.

But doesn’t the word “possibility” already mean there’s a non-zero chance of something happening? I know I tell my kid that some crazy scenario they come up with is possible though I think there’s almost no chance it would happen, but besides that, the word means something has some chance of happening already

Coronavirus wallops Seattle-area home market, knocking down sales and prices

Housing crunch comes second, after the initial stop. Likely those who claim we suffer a fundamental housing crash in 2009? I do not think so.

Isn't lower living costs the top priority of economists, second only to lower GDP?

Economies are zero sum.

Pay consumers less to work, or fire consumers from their jobs, and that means workers must live on less, ie, lower living costs, meaning buying less from businesses.

GDP is the sum total of worker production sold to workers and government. What props up GDP and even grows it is increasing government borrow and spend.

What drives up real estate prices is borrow and spend, fueled by the Fed and high profit businesses pouring cash into banks which llend to workers on increasing multiples of worker incomes, secured by the huge amounts of borrowed money bidding up real estate prices to 1.1x, then 1.2x, ... 1.9x, ... the labor cost to build it.

Of course, talk is constant about charter cities or getting rid of regulations, but never any talk, or money, about paying workers to build the things that define cities: roads, water and sewer, good schools, transport for the workers paid wages too low to afford more than walking or maybe a bicycle, or in places like China or the US in the 18th and 19th century, forms for workers, on in the US South, slave quarters.

mulp is Austrian school. Prices are supposed to fall in response to an economic shock: capital gets disciplined by reality, the pain is borne equally by producers and consumers and investment flows to productive ends.

This can only help the Presidential election of the old, white guy boomer that harasses women.

Bigly - and you are dead to me.

Joe Biden is actually a Silent Generation. He was born in 1942. Ergo you must be talking about Trump.

I'm pretty sure Joe Biden will win the election based on the polling that has come out so far.

Just like the polling in 2016?

The polling wasn't wrong in 2016. People overestimated the chances of Hilary winning based on the polling.

I assume that regardless of the result on election day in November, Trump will remain president.

"policies that subsidize employee retention"
Yes, in a perfect world you don't do this. But in the real world, if you don't and you let unemployment hit 40-50% you have a big political problem not just an economic one.

He's referring to food stamps, housing vouchers, medicaid, low price inferior public transit (only the working poor and blind use) which subsidize retail and food and elder care worker employers.

No, he is talking about having an unemployment insurance system (funded nationally by something other than a wage tax) that replaces a high percentage of the unemployed person's lost income plus switching them to ACA coverage.

This paper makes a lot of very good points... but... the finding that 42% of the job losses are permanent is based on recalls from a sample of UI recipients in Missouri and Pennsylvania between 1979 to 1981.

Is a sample of UI recalls in PA and MO generalizable to the entire US? Even if so, a period of two years doesn’t seem applicable to permanent?

Furthermore, how come we haven’t observed these kinds of permanent behavioral changes in the pandemics of the 20th century... even worse ones like the Spanish flu?

Curious to see how the peer review goes for this...

From page 18:

“To get a sense for the fraction of layoffs that will lead to actual recalls, we turn to evidence from Katz and Meyer (1990), who analyze a sample of UI recipients in Missouri and Pennsylvania from 1979 to 1981. They find that 72 percent of UI recipients who initially expected to be recalled were actually recalled. In addition, 13 percent of ex ante “permanent” layoffs were, in fact, recalled. Applying these figures to statistics in the rightmost column of Table 3 implies actual recalls equal to (0.72)[11.4⁄14.9] + 0.13[(1.6 + 2.1)⁄14.9] =
58 percent of gross staffing reductions. This calculation adjusts for “permanent” layoffs that result in recalls and treats cuts in contractors and leased workers like permanent layoffs. According to this calculation, 42 percent of the gross staffing reductions reflected in Table 3 will result in permanent job losses. Applying the 42 percent figure to the 27.9 million new claims for unemployment benefits in the six weeks ending on April 25 yields 11.6 million permanently lost jobs. This number does not include future job losses caused by the COVID-19 shock.”

I consulted with clients in March about furloughs in anticipation of the lock-down; now I am consulting with those same clients about ramping back up. And it's not easy. Even employers who treated their employees generously (such as partial payments of compensation, continuation of health insurance coverage, and lump sum advances of future PTO) are having a difficult time. The reasons are many, but generous unemployment insurance benefits have very little to do with it. Fear of returning to work is a big problem, a very big problem. Re-evaluation of life is another: the realization of just how economically vulnerable one is, even those considered middle class, came as a shock to many. I've spent several days all but begging furloughed employees to return to work. Many of my clients are physicians, and after over a month of lock-down, there is a pent up demand for their services, but the pent up demand can't be met if there aren't the providers and support staff that are necessary. Sure, that extra $600 of unemployment benefits may adversely modify the behavior of those at the low end of the economic ladder, but not the behavior of the bulk of furloughed employees. Sometimes the stereotype of the layabout working class is tiresome: it's the simple story Cowen warns us about.

It's like the bogus claims high income taxes promotes layabout laziness....

In 2001, I got a $30,000 a year tax cut.

It came at the cost of comprehensive single payer health care (by my large employer that "self insured") and $70,000 cash after taxes, plus other benefits.

I would much rather have paid over $500,000 more in taxes since 2001. And be faced with the choice of working full time to keep from paying taxes on tax deferred retirement or increasing my retirement income to a larger multiple of my earned income.

The work I love requires millions in capital assets minimum. If I were younger, I'd sweep floors in a multibillion factory to be part of something great because I know I'd move up from that job. But sweeping floors in a Tesla or SpaceX factory would require I pay living costs 3-4 times what my living costs are in NH, a not low living cost State, but I own my house free and clear. Which was a big part of the American Dream I grew up with.

What shocked me was realizing younger people had an Ametican Dream their house price would inflate enough each year they could refi and get $25,000 in cash each year. The conservative GOP free lunch of "home ownership".

Was there ever any doubt? This is the perfect opportunity for an employer to shed his least effective workers and raid other companies for their best. Workers that have been dogging it for years may not get back. Unfortunately, the bureaucratic paradigm operates against this trend, particularly in the public sector. Staggering drops in municipal revenue will mean some untouchables might have to go. The alternative is begging the feds for money, raising property and sales taxes, or, for sure, a huge increase in traffic enforcement and fines. Going 17 mph in a school zone will cost $500.

You seem to be missing the fact that businesses are closing their doors which means 100% of their employees, good bad or indifferent, are getting the axe.

So, the twenties: Schumpeterian rebirth or complacent funemployment?

Policy is lacking in the "we don't want to get infected by the pandemic virus" department. The most important one.

"policies that subsidize employee retention, occupational licensing restrictions... will impede reallocation responses"

I get this in theory, but this reads too close to Libertopia thinking rather than sound fiscal policy.

Worker retention as the enemy of fast deployment: Ah yes and then the economists will wonder why people are living paycheck to paycheck instead of keeping a fund for emergencies. This doesn't seem fully thought out.

Licensing restrictions. While some restrictions are totally stupid - librarians should not require Master's Degrees - I also do not want an unqualified person driving a forklift in a warehouse. The only way to make this point work is to strictly define "bad" licensing until it becomes a truism.

Much better factors are things like schools being closed to the end of the year, so a very large number of parents are totally paralyzed without the ability to pay for child care. We are about to see the largest boom in babysitting since the last Great War. Regulations be damned. Even Free Market Libertopia can't solve this one.

3 McDonald's employees were shot for enforcing social distancing rules. If the labor market needs to be restructured it needs to account for this awful violence against them for following protocol. Last week, a security guard in Michigan was murdered for asking someone to wear a mask.

How "permanent" the job losses are depends on whether the Fed does it's job of quickly returning NGDP to a 4-5% trend. [So far, not so quickly: the 5-year break-even TIPS spread for inflation expectations was under 1% per year; how likely is that real GDP is rising at 3-45/ ]

Yes, paying a few workers more (at lest if you don't count health insurance) is a mistake, but so too is not already having in place an unemployment insurance system (funded nationally with something other than a tax on wages) that that replaces a high percentage of income lost plus the cost of switching over to ACA. And having such a system in place would have avoided the rationale for the crazy PPP, the airline bailouts, etc.

Simple solution if you're concerned about people being stuck on unemployment and firms being unable to fire workers, implement a universal basic income.

From both a public choice perspective and a more basic economic one, it would allow for a great deal more flexibility in the economy and the workforce going forward.

Of course, it would also free workers from the discipline of capital, which would probably upset a lot of people around here, but you're the problem.

Permanent job loss? At 42%? Put me down as extremely skeptical. "Permament" is a long time after and for situations that do not involve jails, funeral homes or applications for Medicare we should avoid its use.

In the five weekly reports on new applications for Unemployment Insurance from Mar 21 (when the uproar began) to April 18, a total of 25 million (nearest million) claims were filed. In the same weekly reports, 9 million people left UI. April 25 and later are not included because the figures for people leaving UI are not compiled yet. It seems there is more going on in the US labor market than we read about in the big newspapers. Even the WSJ reports only new UI claims, not net UI claims. Yes, the new UI claims are staggering, we never before saw a week with 6.2 million (April 4) new claims. We also have never before seen a week with 2.8 million UI claims (April 18) terminated. Some (maybe a lot) of these folks may be people who applied, had the application denied, and applied again. If so, they would be double-counted in new UI claims, and the right number to focus on is the net, 16 million, not the "new", 25 million.

"Unemployment benefit levels that exceed worker earnings... will impede reallocation responses to the COVID-19 shock."

Australia doubled the unemployment benefit and got rid of the one week waiting period so people could afford to sit at home without a job to reduce the plague from spreading. This is a deliberate and temporary public health measure.

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