Category: Economics
The stunning growth in part-time employment
John Lott points out the following: “So far this year there have been 848,000 new jobs. Of those, 813,000 are part time jobs…. To put it differently, an incredible 96% of the jobs added this year were part-time jobs.”
In addition to all of this underemployment, today’s job market report shows the labor force participation rate is down to its lowest level since 1978 (when fewer women wanted to work, of course). And population growth is outpacing job growth, as indeed it had earlier in the oughties before the financial crisis and recovery. Perhaps that is the new normal? (Here are a few graphs from the new numbers.) Here is a passage from my forthcoming Average is Over:
Those laid off workers have been absorbed, into new jobs, at a much slower than usual rate, following a recession. They can’t get their old jobs back, even though the worst of the crisis is over and corporate profits are back up. Most importantly, the new jobs being created are more likely low wage than mid wage. In essence, the American economy is learning that — for structural reasons — it can’t afford as many mid wage jobs as it used to have. Businesses will make higher profits by slotting those workers elsewhere, but not back in other high or mid wage jobs, where they had been before.
Monetary policy is fine, and I see no significant costs from having a higher rate of price inflation in the United States, but stimulus can fix these problems to only a limited degree.
Addendum: As Ben Engebreth points out, based on these BLS charts, the correct number seems to be 59% not 96%, though the higher estimate does still seem to hold in Lott’s (more cumbersome and less transparent) sources.
The American fertility rate is no longer declining
The sharp decline in the country’s fertility rate during the economic downturn has come to an end, federal data show, as an improving economy encouraged Americans to resume having babies.
The number of babies born in the United States in 2012 remained flat, the first time in five years that the number did not significantly decline, according to the National Center for Health Statistics.
The leveling off capped a 9 percent decline in the fertility rate from 2007 to 2011, a drop that demographers say began after the recession took hold and Americans started feeling less secure about their economic circumstances.
By the way, economics really does seem to be a factor in these changes:
…the only state to show a slight increase in fertility between 2008 and 2009 was North Dakota, which had one of the lowest unemployment rates in the country.
The teen birth rate is falling, which is further good news. Here is more.
*The Bet*
The author is Paul Sabin and the subtitle is Paul Ehrlich, Julian Simon, and Our Gamble over Earth’s Future. I found this book informative, charming, and highly readable. Here are a few excerpts:
Ehrlich later described his political development as a “natural progression.” “I didn’t stand up one day and say ‘My God, I’m going to get everybody to stop [fuck]ing.’ It’s sort of one thing led to another.”
But Julian had a very different temperament:
…Simon also helped support himself in college with the winnings he took away from a regular poker game, often staying up until dawn during his senior year. He did not suffer fools lightly, but his close college friends thought him a terrific companion. Simon was curious and funny. He was interested in a broad range of people…
And my favorite part is this (with apologies to Bryan Caplan):
“You can’t choose your relatives,” Simon later wrote. “But one can imagine.” His dream family consisted of a roster of famous theorists, some of them notable conservatives: “William James as my father, Hayek as my uncle, Milton Friedman as my older brother, Theodore Schultz as my thesis adviser, and David Hume as my idol.”
Recommended (who was the dream mother?). There is a good WSJ review of the book here.
Addendum: Here is a new research paper on testing the Prebisch-Singer hypothesis about resource prices over time.
The global decline of the labor share
That is the new paper by Loukas Karabarbounis and Brent Neiman, and the abstract is this:
The stability of the labor share of income is a key foundation in macroeconomic models. We document, however, that the global labor share has signi cantly declined since the early 1980s, with the decline occurring within the large majority of countries and industries. We show that the decrease in the relative price of investment goods, often attributed to advances in information technology and the computer age, induced fi rms to shift away from labor and toward capital. The lower price of investment goods explains roughly half of the observed decline in the labor share, even when we allow for other mechanisms influencing factor shares such as increasing pro fits, capital-augmenting technology growth, and the changing skill composition of the labor force. We highlight the implications of this explanation for welfare and macroeconomic dynamics.
In other words, capital-labor substitutability is very real. The full piece is here (pdf).
My TechCrunch interview about *Average is Over*
It was done with the excellent Andrew Keen, here is part of their write-up:
…Cowen isn’t a dystopian and he doesn’t believe that smart machines are taking jobs from human beings. ‘The smartest and most successful people in the future, he believes, will manage the smart machines. And as these smart machines become more central in how we manage our education and healthcare, he says, “human psychology” – the art and science of motivation – will become increasingly valuable. This is what he calls “the next big thing.” In the future, Cowen insists, power will lie with the humans who partner with rather than own the algorithm. And in this age of the smart human/machine partnership, traditional algorithm-centric companies like Google will be old businesses – “like GM”, he predicts.
“Marketing”, Cowen writes in Average Is Over, is the “seminal sector for our future economy.” But Cowen’s intriguing definition of marketing lies in figuring out how to motivate people and to get them to feel better about themselves. Everyone in the future economy – from doctors to educators to entrepreneurs – will be coaches. But who is going to own the operating platform in the age of the smart machine? That’s the trillion-dollar question which even Tyler Cowen isn’t smart enough to answer.
It’s the success stories that worry me
Also known as “the economy that is Germany,” Adam Posen offers a very good analysis:
Since 2003 a falling unemployment rate has been the consequence of the creation of a large number of low-wage and part-time or flexitime jobs, without the benefits and protections afforded earlier postwar generations. Germany now has the highest proportion of low-wage workers relative to the national median income in western Europe. Average wages increased by more than inflation and productivity growth in the past year for the first time after more than a decade of stagnation.
…Germany’s productivity growth has been low compared with its peers. Growth in gross domestic product per hour worked is 25 per cent below the OECD average, whether one goes back to mid-1990s or looks at just the past decade – and whether or not one excludes the bubble years for the US and UK. With these productivity numbers, it is no wonder German business is competing only by reducing relative wages and moving production east.
There is much more here at the FT, the piece is interesting throughout, though I am skeptical of Posen’s claim they could have done much better than they did.
The Autor, Dorn, and Hanson paper on trade and technology
Several other bloggers already have covered this important paper, but there remain underexplored details. Overall the main result is that trade has had more of a negative impact on employment than we used to think. I won’t attempt a summary, but here are a few further results of note:
1. In the Providence, Rhode Island area the trade exposure to China for 2000-2007 went up by $3,490 per worker. For New Orleans the same increase was only $490 per worker.
2. Technology gains and mechanization in a region do not predict employment declines, but they do predict polarization of wage returns. (I do think that automation will create problems for labor markets, but I think that issue is more about our future. It also was true, for a while, in our more distant past, as outlined by David Ricardo.)
3. The negative employment effects of technology on manufacturing jobs peaked in the 1980s, and since have declined. The negative employment effects of technology on service sector jobs have been rising. On net the effect on employment across all sectors has stayed roughly constant over the last few decades.
4. Women and older workers are those most likely to lose their jobs because of technology.
5. The employment effects of exposure of a region to Chinese imports are significant. A good deal of this effect works through the labor force participation rate rather than through measured unemployment per se. This by the way is one indication that the labor force participation rate does contain relevant information about the health of the labor market.
6. The authors classify jobs into the categories of abstract, routine, and manual, and suggest that routine jobs are most vulnerable to automation. Maybe, but I would not take this for granted. Better software in a car can forestall mechanical problems, and thus replace the manual labor of the automobile mechanic, even if we cannot imagine how a robot could itself do the car repair work.
Herbert Simon on stagnation and automation
In his review of a prescient work called The Shape of Automation (1966), by Herbert Simon, a manifold genius who would go on to win the Nobel Prize in Economics, Heilbroner scoffed at Simon’s notion that the average family income would reach $28,000 (in 1966 dollars) after the turn of the century: “He has no doubt that these families will have plenty of use for their entire income. . . . But why stop there? On his assumptions of a three percent annual growth rate, average family incomes will be $56,000 by the year 2025; $112,000 by 2045; and $224,000 a century from today. Is it beyond human nature to think that at this point (or a great deal sooner), a ceiling will have been imposed on demand—if not by edict, then tacitly? To my mind, it is hard not to picture such a ceiling unless the economy is to become a collective vomitorium.”
Simon responded drily that he had “great respect for the ability of human beings—given a little advance warning—to think up reasonable ways” of spending that kind of money, and to do so “without vomiting.” He was right about that, of course, even though he was wrong about the particular numbers. Nobody at the time foresaw the coming stagnation of middle-class incomes. His estimate of the average family income in 2006 translates into more than $200,000 in current dollars.
That is from an excellent piece by Daniel Akst on what we can learn from the automation crises of the 1960s.
Coase and Spectrum Auctions
The Coase theorem was first presented by Coase in his 1959 work on the FCC and allocating radio spectrum (jstor). Radio stations interfered with one another (i.e. externalities). Yet Coase argued that with well-defined property rights, spectrum could be allocated in a market just like other goods. In this talk from our MRUniversity course, Economics of the Media, I discuss spectrum allocation, Coase’s triumph at the Chicago dinner and the much longer time to acceptance and application in the real world of the FCC and spectrum auctions.
http://youtu.be/Iq7Nc712LZ0
Who Will Prosper in the New World?
That is a new and short essay from The New York Times, adapted from my almost-out (Sept. 12) book, Average is Over: Powering America Out of the Great Stagnation. Here is an excerpt from the short piece:
Your smartphone will record data on your life and, when asked, will tell you what to do, drawing on data from your home or from your spouse and friends if need be. “You’ve thrown out that bread the last three times you’ve bought it, give it a pass” will be a text message of the future. How about “Now is not the time to start another argument with your wife”? The GPS is just the beginning of computer-guided instruction.
Take your smartphone on a date, and it might vibrate in your pocket to indicate “Kiss her now.” If you hesitate for fear of being seen as pushy, it may write: “Who cares if you look bad? You are sampling optimally in the quest for a lifetime companion.” Those who won’t listen, or who rebel out of spite, will be missing out on glittering prizes. Those of us who listen, while often envied, may feel more like puppets with deflated pride.
Read the whole thing, interesting throughout.
You can order my book on Amazon here. On Barnes and Noble here. On Indiebound.org here. And from Penguin here.
Average Marginal Labor Income Tax Rates under the Affordable Care Act
That is a new paper by Casey Mulligan, here is the abstract:
The Affordable Care Act includes four significant, permanent, implicit unemployment assistance programs, plus various implicit subsidies for underemployment. Every sector of the economy, and about half of nonelderly adults, is directly affected by at least one of those provisions. This paper calculates the ACA’s impact on the average reward to working among nonelderly household heads and spouses. The law increases marginal tax rates by an average of five percentage points (of employee compensation), on top of the marginal tax rates that were already present before the it went into effect. The ACA’s addition to labor tax wedges is roughly equivalent to doubling both employer and employee payroll tax rates for half of the population.
Mulligan summarizes the paper here, with further detail. In another new paper, Mulligan compares ACA with Romneycare.
Ronald Coase has passed away
Very sad news, he was one of the true greats, notice is here. Here is one good appreciation.
How much will Indian exports go up?
The rupee is lower, but don’t expect a very elastic supply response. Here is one set of comments:
These [sectors] suffer in particular from numerous domestic obstacles, from overly-restrictive labour and land-acquisition laws to poor supporting infrastructure in areas like power and roads, which make rapid ramp-ups in exports difficult.
Other industries suffer from similar constraints. DG Shah, secretary-general of the Indian Pharmaceutical Alliance, a trade body, says new domestic regulatory impediments, including limits on clinical drug trials that make exports to western markets more difficult, could negate any boost from the plunging currency.
“I’m not entirely convinced that the conditions about the responsiveness of exporters to depreciation mentioned in economics textbooks hold true in India, given these problems,” says one senior Indian policy maker, who asked to remain anonymous. “So its not impossible exports in the round could even go down, which would be a disaster.”
Keep in mind that the Indian growth rate fell from over eight percent to 4.4 percent in not much more than a year, and without any huge noticeable, underlying shock to aggregate demand. That likely means the Indian economy is supply-constrained and that ongoing growth bumped it up against a very steep portion of a bunch of marginal cost curves. That limits future export potential.
Alternatively, you might see the Indian economy as oscillating across multiple equilibria. Further bad news for the rupee could serve as a negative sunspot and indeed we already seeing year-to-year declines in manufacturing activity as of August. On the brighter side, Indian exports are up 12 percent year-to-year as of July, but it is not obvious that a declining rupee will bring continuing gains through this channel.
There is also this problem:
A look at our major export items suggests there is a change in its composition from price-sensitive items such as leather footwear, dairy products, beverages, textiles and apparel, to less price-sensitive items such as refined petroleum products, chemicals, mineral products (especially, mineral fuels, bituminous substances, etc.), and machinery and transport equipment (engineering goods).
The share of petroleum products in India’s export basket increased dramatically from around 2 per cent in 1993 to around 20 per cent in 2012. The surge in exports in the case of petroleum items is because of India’s potential in oil refining activities.
On contrary, India’s CAD is likely to increase further as oil and precious metals still contribute to bulk of our imports. Controlling CAD is an important factor from the perspective of sovereign rating.
Fortunately, IT exports do seem to be doing well. More NRIs will be planning weddings in India. Elsewhere, the trade in processed Indian human hair with Bangladesh is hitting some bumps. It is also becoming much harder for Indian students to invest in education abroad.
Labor Day and Open Borders
In honor of labor day here are a number of resources on the most pro-labor policy in the world, open borders.
1. OpenBorders.info, the uber-resource and the spearhead of the movement.
2. The Michael Clemens classic, Economics and Emigration: Trillion-Dollar Bills on the Sidewalk? (pdf) and Clemens interview with Russ Roberts.
3. Why Should We Restrict Immigration? (pdf), excellent Bryan Caplan article.
4. My interview on CBC radio making the case for open borders (starts around 3:18).
5. My article from 2000, Economic and Moral Factors in Favor of Open Immigration.
6. The Open Letter on Immigration from over 500 economists.
Hat tip: Daniel Lin.
The charitable deduction in Singapore
There is no reason why deductions cannot be super-charged:
To encourage greater charitable giving in Singapore as the economy recovered, the Minister for Finance announced in Budget 2011 that tax deduction of 2.5 times will be extended for another 5 years to donations made from 1 January 2011 to 31 December 2015.
The full document is here. If that does not sink through, here is another discussion:
What this means is that for every dollar that you donate to charities, the government will deduct $2.50 off your tax payable. If you have been paying Income Tax, you will know that this is something extremely beneficial.
A few years ago the deduction was only 2x and that in turn was a relatively new policy. Do any of you know of research on the impact of these policies and changes?
Here is Bruce Bartlett, who is skeptical about the charitable deduction in the United States.